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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the transition period from to
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Commission file number 00-22690
INTERAMERICAS COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Texas 87-0464860
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1221 Brickell Avenue
Miami, Florida 33131
Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (305) 377-6790
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, 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. [X]
The issuer's revenues for its most recent fiscal year ended December
31, 1996 were $652,000.
The aggregate market value of the voting stock held by non-affiliates for the
issuer as of March 27, 1997 was $24,629,094.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes NO X
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the registrant's Common Stock, $.001 Par
Value, on March 27, 1997 was 16,154,518 shares.
Transitional Small Business Disclosure Format Yes NO X
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Documents incorporated by reference: None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
InterAmericas Communications Corporation (the "Company") is a growing
provider of a wide range of telecommunications services over state-of-the-art
fiber optic networks in Santiago, Chile and Lima, Peru. The Company focuses on
providing advanced telecommunications services in selected markets in Latin
America, where the Company believes market deregulation and high demand for
access to advanced telecommunications networks and services have created
significant opportunities for early market entry and expansion.
The Company has been operating as a competitive access provider ("CAP")
in Chile and Peru by offering high quality voice and enhanced data communication
services to business end users and other carriers on a private network basis.
The Company intends to follow the strategy successfully implemented by CAPs in
the United States to install advanced switching equipment that will enable the
Company to provide both dedicated private network services as well as full
switched services interconnected with the existing public switched network. The
Company believes that it is currently eligible to receive regulatory approval to
provide such services in Chile, and that it will be able to provide such
services in Peru's public and long distance markets upon their deregulation,
scheduled to occur in 1999. As a so-called competitive local exchange carrier
("CLEC"), the Company will be able to offer its corporate customers a
full range of telephone services such as local switched services, value-added
services such as Centrex, high capacity private voice and data lines, dial up
data lines and Internet access, as well as domestic and international long
distance services under a "one stop shop" concept. The Company is also exploring
opportunities to make selective acquisitions of customer bases and businesses,
make investments in companies that complement the Company's current operations,
expand its services and network capabilities and engage in strategic alliances.
The Company believes that these acquisitions, investments and strategic
alliances will be an important means of increasing network traffic volume and
achieving economies of scale.
The Company is currently focusing on providing reliable, high speed
private data networks that link multiple locations of its customers within a
major metropolitan area, resulting in improvements in operating efficiency,
financial controls and customer service. The Company also offers its customers
dedicated high speed, high capacity connections from their corporate sites
directly to long distance carriers' points of presence ("POPs") or to other POPs
such as those operated by Internet service providers ("ISPs"). The Company
believes that dedicated access to ISPs will represent a significant source of
new customer relationships because of the anticipated rapid increase in the
number of Internet users throughout Latin America.
Through its wholly-owned subsidiaries, the Company also holds
international long distance services concessions and licenses which, when fully
developed, will enable it to extend its private network services to provide its
customers with dedicated private voice and data lines between cities within
Latin America and between Latin American cities and the United States, Europe
and in other locations throughout the world. The Company also offers customers a
wide range of network installation and systems integration services in order to
connect customer premise equipment (i.e. PBXs, computers, modems, LANS, etc.) to
the Company's fiber optic networks. The Company connects its customers' office
networks to its fiber optic networks using a variety of wireline and wireless
(i.e. 38 Ghz) technologies "last mile" connections.
The Company's long-term strategy is to integrate its various networks
and operations in order to achieve certain operating and cost efficiencies and
to position itself as provider of choice for multinational corporations, large
Latin American companies and other telecommunications carriers that require an
integrated telecommunications service.
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The Company was incorporated in Nevada in April 1989 under the name
"Theodore Games, Inc. ("TGI"), and initially operated in an unrelated business.
The Company changed it focus to its current business in connection with a change
in control of the Company in July 1994. The Company's principal executive
offices are located at 1221 Brickell Avenue, Miami, Florida 33131, and Its
telephone number is (305) 377-6790.
INDUSTRY OVERVIEW
The continuing deregulation of the telecommunications industry and
technological change have resulted in an increasingly information-intensive
business environment. Regulatory, technological, marketing and competitive
trends have expanded substantially the Company's opportunities in the converging
voice and data communications services markets. Rapid deregulation of the
telecommunications industry in Latin America is expected to expand opportunities
in the local telecommunications services market. Technological advances,
including rapid growth of the Internet, the increased use of packet switching
technology for voice communications and the growth of multimedia applications,
are expected to result in substantial growth in the high-speed data services
market. The Company believes, along with many industry observers, that the
current deregulation in many Latin American countries, coupled with
technological innovation, will lead to market developments similar to those that
occurred upon deregulation of long distance telecommunications services in the
United States and the United Kingdom, including an increase in traffic volume
and the continued introduction of new providers of telecommunications services
of varying sizes. While significant reductions in prices and improvements in
telecommunications and customer services have occurred and are expected to
continue, the Company expects that market prices will continue to permit
services to be profitably rendered by industry participants generally.
Competitive Local Access. In most countries around the world, revenues
from the local access market substantially exceed revenues from long-distance
and value added telecommunications markets. In the United States, for example,
the local access market generates nearly $100 billion in revenues, while the
long distance market generates approximately $60 billion. In Chile, the local
market represents over $1.0 billion, while the combined national and
international long distance markets generate approximately $440 million. In
Peru, the local market represents over $560 million while the combined national
and international long-distance market generate approximately $740 million.
Once the domain of privately-owned or government-owned monopoly
carriers, the local access market in both developed and emerging countries is
increasingly open to competition. Local markets may be entered via any
combination of (i) construction of proprietary wired network infrastructure (ii)
construction of wireless local loop, PCS or cellular networks and (iii) resale
of the existing local carrier's network. Complete local market deregulation
permits CAPs to interconnect their networks with the existing carrier's network
and to provide basic "dial-tone" telephone service. "Dial-tone" service is
connection to a local network switch which can then route a call to another line
on the local network or to a long distance carrier which will connect it with
other local markets. Typically, such service is provided through the CAP's own
switch which connects one customer with another through a combination of the
CAP's own wired or wireless network and the network of the PTT. In some
countries, open market regulations require the local PTT to allow CAPs to
utilize the PTT's network at competitive cost.
In the United States and other developed countries, CAPs have been
allowed to enter markets in advance of complete deregulation through their
provision of special access services and private line services. Typically, CAPs
begin providing such services through their own fiber optic loop networks, which
are built over existing networks and often leapfrog existing providers in terms
of bandwidth, reliability and enhanced service capability. Frequently, wireless
technologies, such as 38Ghz used by the Company, are used to cost effectively
extend the network from the fiber optic network to customer locations. Special
access services provide high capacity voice, data and video circuits to connect
end
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user locations with long distance carriers. Private-line services provide high
capacity circuits to transmit voice, data and video between two or more end user
locations across town or across the globe.
Long distance carriers have traditionally been the first customers for
CAPs. Local access in some markets makes up over forty percent of the cost of a
long distance call. For this reason, long distance carriers as well as high
volume corporate customers have great demand for the lower cost local access
provided by CAPs. In addition, as any communications failures can result in
significant expenses and/or lost revenue to businesses, corporate and carrier
customers often utilize CAPs as a back-up for their primary carrier. The CAP
markets its private line and special access services by offering lower prices,
higher network reliability and higher quality transmissions and customer
service. Corporate customers utilize such private lines to connect their branch
offices and computer networks, and even to connect their internal PBX networks
with the local PTT. Telecommunications carrier networks utilize CAPs to connect
their switching centers, to connect major customers to their networks, and to
connect their cellular, microwave and satellite transmitters. With direct
connection to customers, CAPs may also market higher margin value-added services
such as Internet access, database access and Centrex. Depending on local
regulation, the CAP may be able to provide dialtone for any calls made to points
outside of the local market. In most markets, corporate customers will begin by
transferring a small portion of their telecommunications requirements to the
CAP. As these customers experience the CAP's competitive cost and superior
service, they often transfer increasing amounts of their business to the new
operator.
Most CAPs attempt to expand their services from the provision of
private line and special access services to the provision of switched or dial
tone services that are provided through a combination of the company's own
network and through interconnection with the local PTT network. This evolution
enables CAPs to achieve increased gross margins over time. Typically, private
line services are provided on a flat fee, monthly rental basis. Switched
services, on the other hand, are billed on a volume or minutes of use basis
which generally generates substantially higher revenues and margins. Through
interconnection with the local PTT, new carriers are able to offer services
immediately to any customer on the PTT's network, thereby significantly
increasing the number of customers and markets that they serve without
physically expanding their own networks. The PTT's receive a volume based
payment for the use of their network.
Satellite Services. Satellite networks provide the transmission
backbone for a substantial portion of worldwide long distance services, and they
currently provide almost all of South America's voice, video and data long
distance connectivity. Increasingly, satellite services are also used throughout
Latin America for domestic private line voice and data telecommunications
networks. With the boom in multichannel television, satellite services are also
experiencing increasing demand for the transmission of television programming to
television stations, cable television systems and households.
Traditionally, Latin America's long distance telecommunications have
been under monopoly control by the region's PTTs. National and international
long distance rates have been set at levels substantially above cost, and the
resulting high margins have been used to subsidize low local service tariffs.
Over the last few years, several Latin American countries have opened or have
announced plans to open their long distance markets to competition. Currently,
Chile's long distance market is open to competition by all entrants. Mexico's
long distance market is opening this year, and Peru and Argentina plan to open
their markets in 1999 and 2000, respectively. As seen in the deregulation
process in the United States where carriers such as MCI and Sprint have
successfully entered formerly monopolized long distance markets, the
traditionally high rates set by the PTTs provide substantial room for new
entrants to profitably compete on a price basis. As PTTs slowly adjust to the
new competitive environment and lower their tariffs, the resulting reduction in
market prices normally creates a more than compensatory increase in market
volume.
Entrance into long distance markets through satellite services can
provide emerging companies with a rapid source of revenues and cash flow. New
entrant service operators can install earth station equipment and then begin to
market long distance services through multiple sales channels to a wide range of
customers. Corporations seeking to reduce their telecommunications expense may
have interest
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in establishing private networks or volume based transmission contracts.
Individuals reached through advertising and telemarketing may be attracted by
improved customer service and more affordable pricing plans. In addition,
non-facilities based long distance resellers will seek to sign volume
commitments with the long distance operator. Such contracts provide the reseller
with a competitive product while enabling the carrier to substantially increase
its volume at minimal marketing expense.
New long distance operators commonly pay the local access provider for
carrying a call from its origin to their network, and they then contract
carriers in other countries to downlink their satellite transmissions and
terminate those transmissions at end user locations around the world. Although
long distance service carriers generally compete on a price basis, such carriers
may also add value to their service offering by bundling long distances services
together with cellular, paging or local exchange access to provide a more
complete, value added telecommunications package at a competitive price.
In addition to national and international long distance services
provided through connection with the landline local exchange network,
telecommunications operators are increasingly providing domestic and
international private line services using VSAT (very small aperture terminal)
technology. VSAT networks utilize relatively small and inexpensive satellite
dishes to provide satellite based, private line services between a central
location and one or more sites. Common applications include remote monitoring of
pipelines and mining facilities, point-of-sale information management, credit
card authorization, reservation systems, car dealer inventory management, and
electronic funds transfer. VSAT networks typically provide higher reliability
because they are not subject to cuts and higher error rates that may be
encountered with existing wireline networks. VSAT networks transmit one way and
two way voice, data and video at high speeds, typically for a fixed monthly
cost.
BUSINESS, MARKETS AND SERVICES
CHILE
General. The Company, through its wholly-owned Chilean subsidiary
Hewster-Chile, currently provides business end users and other carriers in
Santiago, Chile with high quality voice and data communications services on a
private line basis through a 120 kilometer fiber optic network. The Company
helps its customers to increase productivity and reduce costs by linking Local
Area Networks ("LANS"), accessing the Internet at very high speeds, gaining
lower cost access to long distance services and ensuring the integrity of highly
sensitive, high volume data transfers. In addition, Hewster-Chile provides its
customers with local and wide area network design, engineering, installation,
systems integration and support services. The Company provides network services
in Chile through its 120 kilometer fiber optic network which currently extends
throughout Santiago's downtown business district and outlying industrial park
and airport corridor. This network, which became operational in mid-1995,
utilizes advantageous rights-of-way through Santiago's underground subway system
(the "Metro") and over certain facilities of a Chilean electric company.
Santiago, the capital of Chile and a major international economic center, has a
population of approximately 5.4 million people.
The Chilean Market. The Company estimates that the Chilean
telecommunications market currently represents approximately $1.4 billion in
revenues, of which approximately $1.0 billion are local access and services
revenues and approximately $400 million are domestic and international long
distance revenues. These figures do not include other telecommunications sectors
such as wireless telephony and cable television revenues. See "Description of
Business -- Country Overview -- Chile."
Concessions. Hewster-Chile was granted a concession to provide
intermediate telecommunications services in 1991. The concession covers the
installation and operation of a fiber optic cable local network in the
metropolitan Santiago. The Company, through its wholly-owned subsidiary VISAT,
also holds a concession to construct and operate a network of satellite earth
stations throughout
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Chile that can provide national and international long distance
telecommunications services. In addition, the Company has received approval from
the Chilean Ministry of Transport and Telecommunications to provide 38Ghz
wireless technology services in Santiago.
Services and Marketing. The Company believes that an increasing portion
of its future revenues will be generated through Internet driven growth.
Internet customers are increasingly demanding higher speed network connections
in order to take advantage of the Internet's rapidly evolving array of high
bandwidth multimedia and video applications, and therefore require access to
ISPs through high speed circuits such as those available on the Company's fiber
optic network. The Company is rapidly acting to capitalize on the Internet's
explosive growth potential by creating alliances with Santiago's numerous ISPs.
By marketing its network services through the ISP's, the Company is able to take
advantage of the high growth marketing and sales efforts of each of its ISP
customers. Once customers have been introduced to the Company network through
Internet services, the Company believes that it will be able to market to each
customer additional services including other high speed circuits, turn-key LAN
systems, and network connections to information services such as databases
operators and video-conferencing service providers.
Through its systems integration expertise, the Company offers its
customers a complete turn-key network service including LAN design, equipment
sales, installation, and maintenance. The Company then offers its fiber optic
network services to connect its customers' LANs with other offices, customers
and information and ISPs. Through this complete solution sales approach, the
Company is able to educate its customers on rapidly developing technologies and
the ways in which its network services may be best utilized to increase
operating efficiency. This consultative selling approach has been designed to
strengthen the Company's customer relationships, provide it with multiple
revenue streams per customer, and minimize customer turnover.
Network Investment. In conjunction with its sales initiatives, the
Company is now investing in the "last mile" network links that connect
commercial buildings and customer offices with the Company's fiber optic
network. Where customers are operating in newly developed areas of Santiago, the
Company typically installs its own last mile network infrastructure to connect
those customers with its fiber optic network. In areas of Santiago where the
telecommunications infrastructure is more developed, the Company may grow most
efficiently by leasing such last mile connections from other network operators.
In addition to last mile links, the Company is investing to extend its fiber
backbone through a new subway route that will enable it to efficiently serve
additional business districts within Santiago.
Network Systems. The Company's Santiago network employs advanced node
equipment and has been designed to be fully redundant. Configured in
self-healing rings, the intelligent network is able to automatically re-route
transmissions through alternate circuits in the event of a fiber cut or
equipment failure. In most cases where a failure occurs in a portion of the
network, the traffic will be re-routed in fractions of a second, before the
customer ever notices a problem. This network capability provides the Company's
customers with the highest degree of network reliability currently available in
Chile.
The Company's network is being expanded around digital nodes which
allow remote monitoring and flexible management of the network's last mile
connections that link individual customer networks to the Company's network. The
Company believes that it has a competitive advantage through the cost saving
efficiencies of its fiber optic network's "drop and insert" technology. This
technology enables the Company to provide network capacity to users without
dedicating a single fiber strand to a single customer location. While networks
without "drop and insert technology" may have to dedicate entire fiber strands
to individual customers, the Company is able to optimize the capacity in its
network through its ability to share strands among all of the customers on the
network. In addition, customers often want their private networks to provide
different amounts of capacity to different branch offices. "Drop and insert"
technology allows the Company to meet such customer requirements. The Company's
network has the transmission capacity to carry all accepted data requirements
for both compressed and decompressed digital signalization.
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The portion of the Company's network that passes through the downtown
business and financial district has been installed in Santiago's Metro subway
tunnels. The tunnels of the Metro protect the network from such hazards as
severe weather and vandalism. Metro access points, such as ventilation shafts
and platform entrances, are available every 250 meters along the subway route.
These facilities serve as the "insert" points for last mile connections between
the network and customer buildings. In addition to its agreement with the Metro,
the Company has a utility pole right-of-way contract with one of Chile's
electric companies which allows the Company to use utility poles to route cable
to outlying areas of Santiago. The Company's total network in Santiago covers
the traditional commercial center of the city where established major businesses
are headquartered and the rapidly growing expansion areas where branch offices
and new companies have been established.
The Company has recently installed its first 38 Ghz wireless connection
between its fiber optic network and an ISP. The Company intends to utilize this
wireless technology to connect customers more rapidly and efficiently to its
fiber optic network. 38Ghz wireless technology is currently being deployed
throughout the United States and Western Europe by CAPs and by
telecommunications carriers. 38Ghz wireless technology provides circuits with
performance similar to that provided by fiber optic networks. However, unlike
fiber optic networks, 38Ghz wireless networks are deployed by installing
wireless transceivers on rooftops, towers or windows where line-of-sight can be
established between the points to be connected. 38Ghz technology will enable the
Company to develop POPs serving buildings not currently reached by its fiber
optic network without paying interconnection fees to the local telephone
company. For such "last-mile" connections, 38Ghz technology can be installed in
a matter of hours to provide customers a network connection that is similar to a
fiber optic circuit in terms of both bandwidth and service quality.
The Company plans to acquire a satellite earth station with a switch
capable of directing both incoming and out-going international long distance
traffic. The earth station is expected to be located near the Company's network
in Santiago and to be designed to allow upgrading and capacity expansion as
demand requires. The Santiago earth station is expected to serve as the hub for
an extended network of smaller satellite earth stations to be built at locations
throughout Chile. By combining a satellite network with its fiber optic network,
the Company believes that it will be able to provide its Chilean customers with
a completely integrated nationwide, domestic and international communications
solution. However, there can be no assurance that the Company will obtain the
necessary resources to acquire such satellite earth station and implement this
project.
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PERU
General. The Company acquired Red de Servicios Empresariales de
Telecomunicaciones, S.A. ("Resetel") in May 1996. Resetel provides high quality
voice and data communications services on a private line basis through a fiber
optic network in metropolitan Lima pursuant to a renewable local carrier
concession expiring in 2016. The Company leases highly reliable, high speed
access circuits to connect customers with their branch offices, Internet access
providers, vendors, suppliers and long distance carriers. The Company's network
is able to carry all types of telecommunications signals including voice, data
and video. However, the Company may not provide local dial-tone service until
the expiration of the exclusive concession of Telefonica del Peru ("Telefonica")
in 1999. The Company has negotiated aerial right-of-way agreements with two
electric utilities operating in the Company's concession area. By implementing
its private line and planned value added service offerings, the Company expects
to develop a strong customer base and network presence that will enable it to
rapidly enter the local dial tone and long distance markets when Peru's switched
local and long distance services become deregulated, which is scheduled to occur
in 1999.
The Company commenced construction of its fiber optic network in
December 1996. Currently, 30 kilometers of the fiber optic network have been
installed and are in operation. The Company plans to install another 110
kilometers of fiber optic cable by the end of 1997. When installation of this
network is completed, Resetel's fiber optic network will extend throughout the
major commercial and industrial districts of metropolitan Lima and the adjacent
port city of Callao (combined population of approximately 6.4 million people).
Resetel utilizes the same network design, construction, management and marketing
expertise as used by the Company in Chile. The Company's Peruvian fiber optic
network provides high bandwidth, private line services to businesses as a higher
quality service alternative to the dominant local telephone company. The network
will also provide the access for PCS, cellular, and paging service providers and
a route through which major long distance carriers can bypass the higher cost
local telephone company. The Company provides private line voice and data
service, and plans to provide frame relay, Internet access services and other
enhanced network services by the end of 1997.
The Peruvian Market. Based on 1995 operating results for Telefonica,
the local and long distance telecommunications markets in Peru are believed to
account for approximately $1.3 billion in total revenues, of which approximately
$560 million are local access and service revenues and $740 million are domestic
and international long distance revenues. The Company believes that Peru's
telecommunications market offers an excellent environment for rapid
telecommunications business growth. Demand for telecommunications services in
the country is highly unserved, with only 3.8 lines available for every 100
inhabitants as compared to 12.1 per 100 in Chile, 16 per 100 in Argentina and
over 50 per 100 in the United States and Western Europe.1 The Company believes
that the Peruvian economy is also a source of growing demand for
telecommunication services with rapidly growing domestic and multinational
businesses attracting significant foreign investment.
Services and Marketing. As in Chile, the Company's Peruvian network
offers Lima's business customers highly efficient, highly reliable data, voice
and video circuit connections to Internet access providers, branch offices,
vendors, customers and other telecommunications carriers. These types of
telecommunications services enable companies to dramatically improve their
productivity and responsiveness at the same time that they reduce operating
costs. As the first alternative service provider in Peru, the Company has a
waiting list of customers seeking more efficient connections to the Internet,
branch offices, vendors and customers.
To capitalize on its market opportunity, the Company is developing a
partnership with Peru's major Internet access provider to rapidly expand the
marketing and distribution of its services. The Company is also developing a
consultative, systems integration selling capability similar to that employed
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* Source: Kagan World Media, 1996; Smith Barney, "Compania de Telefonos de Chile
S.A.," March 26, 1996; Prudential Securities, "Emerging Markets
Telecommunications Fund," November 1994.
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by the Company in Chile. Customers in Peru are aggressively seeking to utilize
new communications technologies in order to more effectively compete in global
markets. By helping to educate its customers on the use of the latest
technologies, and by providing turn-key corporate networks and metropolitan area
telecommunications solutions, the Company expects to develop strong customer
relationships that will help it to both retain customers and increase average
customer revenues.
Network Investment. The Company's Lima network has been designed to
most efficiently provide a full range of switched, CLEC services upon the
market's deregulation in 1999. The Company has installed four nodes utilizing
the Synchronous Digital Hierarchy ("SDH") protocol and plans to rapidly install
14 additional SDH nodes, as well as a satellite earth station that will
initially enable it to provide Internet access and international private line
data connections. Through this network, the Company will be positioned as the
customer's gateway to the global telecommunications network upon deregulation.
Prior to deregulation, the Company will seek to provide high speed private line
circuits and value added services with a high level of customer service and
quality to foster ever stronger customer relationships. Like the Company's
Santiago network, the Lima network provides the direct, physical connection to
the corporate customer and thus a direct business relationship that will enable
it to market a wide range of enhanced services. This multiple services approach
is expected to assist the Company in retaining customers as other carriers enter
the Peruvian market with new and competing services.
Network Systems. The Company has installed and is operating a 30
kilometer fiber optic network in downtown Lima, and intends to install an
additional 110 kilometers by the end of 1997. The Company's Lima network
provides customers with a scaleable range of bandwidth from 64 Kbps to 2 Mbps.
This network employs SDH protocol equipment and "drop and insert" technology. In
the future, the Company may also deploy Asynchronous Transfer Mode ("ATM")
technology. The Company's network allows revenue generating operations prior to
the completion of the entire network. After the completion of the installation
of the network backbone, extensions to additional buildings and expansions to
other regions will be evaluated based on assessments of market potential.
However, there can be no assurance that the planned extension of the fiber optic
network can be constructed by 1997 or that, even if constructed, that such
portion will be commercially operational within the estimated time period.
By rapidly expanding its Peruvian fiber optic network during 1997, the
Company will seek to establish a strong market presence with which to capture
market share rapidly in Peru's public local and long distance markets upon their
deregulation in 1999. Upon entering the switched services market at that time,
the Company expects to be able to collect revenues based on call volume rather
than on a flat fee basis, thereby generating significantly increased revenues
and margins. However, there can be no assurance that the company will be able to
implement this strategy within the estimated time period.
CUSTOMERS
Chile. Through its wholly-owned subsidiary Hewster, the Company
services 40 customers in Santiago, Chile. Some of the Company's customers
include the XEROX Corporation, Iusatel, Iberia Airlines, Hertz Rent-a-Car, Nike
and the Aetna Life Insurance Company.
Peru. Through its wholly-owned subsidiary, Resetel, the Company
services four customers in Peru, including Sony Music. Nineteen additional
customers have committed to use the services of the Company when the Company
completes the installation of the remaining 110 kilometer fiber optic network,
such installation expected to be completed by the end of 1997.
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BUSINESS STRATEGY
In 1994, the Company adopted a business strategy to enter the
international telecommunications industry, with a focus on acquiring, developing
and operating telecommunications networks and services primarily in Latin
America. The Company has targeted Latin American telecommunications markets due
to perceived opportunities created primarily by the following complementary
factors:
- RAPID ECONOMIC GROWTH. Many countries in Latin America, and most
of the region's major metropolitan areas in particular, have
economies that are growing faster than many other areas of the
world.
- BUSINESS CENTERS. Many of the major metropolitan centers of Latin
America are among the largest cities in the world, are dominant
centers of trade and commerce for a wide region or for an entire
country, and are home to high concentrations of large domestic and
multinational corporations that require advanced telecommunication
services.
- HIGH DEMAND FOR TELECOMMUNICATIONS SERVICES. The
telecommunications infrastructure in many of these markets is very
limited or obsolete, resulting in high pent-up demand for advanced
telecommunications services including reliable high capacity data
circuits, private-line wide area networks (WANs) and domestic and
international long distance connectivity.
- DEREGULATION. Most Latin American governments are opening their
telecommunications markets to competition in order to, among other
things, attract private sector capital to finance expansion and
enhancement of the telecommunications infrastructure.
The Company's strategy for identifying and entering particular
telecommunications markets and business segments in Latin America has been
based, in part, on the experience of other companies conducting business in the
United States and Western European telecommunications markets in the wake of
deregulation during the 1980s and early 1990s. In developing its Latin America
strategy, the Company identified the following market trends in the
telecommunications industry in the United States and Western Europe which it
believed would serve as models for the emerging telecommunications industry in
Latin America:
- THE INCREASE IN DEMAND FOR TELECOMMUNICATIONS SERVICES AS MARKETS
ARE DEREGULATED AND OPENED TO COMPETITION. During the ten year
period following the divestiture of AT&T in 1984, long distance
usage increased over 150 percent in the United States. Despite
rigorous competition, numerous new market entrants ranging from
infrastructure-based carriers, such as Sprint and MCI, to
entrepreneurial switched-based and switchless resellers of long
distance services have generated substantial revenues and have
increased their market share as the overall market has grown.
Long distance services, particularly international long distance
services, remain one of the most lucrative segments of the
overall international telecommunications industry.
- A RECURRING DEVELOPMENT PATTERN FOR NEW TELECOMMUNICATION
NETWORKS. In the United States, and in Western Europe, new market
entrants seeking to develop local, regional or international
network services have followed a recurring pattern based, in
large part, on the desire of governments to phase-in deregulation
and competition in an orderly manner. Typically, new market
entrants are granted licenses to provide private circuits for a
limited number of corporate clients. In time, these new networks
are allowed to introduce switching capabilities and to
interconnect to the established public switched network. In the
United States, this was the evolutionary cycle for CAPs
installing new metropolitan fiber optic networks, many of which
now operate as full service CLECs.
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- SIGNIFICANT COMPETITIVE ADVANTAGES FROM EARLY MARKET ENTRY. The
experience of other telecommunications services providers in the
United States indicates that early market entry is particularly
important for new network service providers. Other competitive
advantages that have resulted in rapid network installation well
in advance of competitors, such as preferable rights-of-way and
lower cost installation, enable a new entrant to more easily
capture customers while competing only against the incumbent
local carrier.
- USE OF WIRELESS TECHNOLOGIES TO CONNECT REMOTE SITES AND
NETWORKS. Fiber optic and other wireline network operators in the
United States have increasingly introduced the use of
satellite-based and other wireless technologies to extend their
networks to add new customers, to include remote sites, to link
stand alone networks and to provide access for their
private-network customers to other services or networks.
Based on market factors in Latin America and on the experience of new
network and service providers in the United States, the Company's three-fold
strategy for Latin America is to: (i) develop metropolitan fiber optic networks
in multiple Latin America commercial and financial centers where it can obtain
an early entry advantage; (ii) utilize these networks as a basis for offering a
wide range of services and access to other value-added services to corporate
customers and other telecommunications carriers and providers; and (iii) develop
regional and international long distance services to link its networks and
customers to the global telecommunications network.
The Company's strategy is to follow the strategy successfully
implemented by CAPs in the United States to install advanced switching equipment
that will enable the Company to provide both dedicated private network services,
as well as full switched services interconnected with the existing public
switched network. As a CLEC, the Company will be able to offer corporate
customers a full range of telephone services such as local switched services,
value-added services (i.e. Centrex), high capacity private voice and data lines,
dial up data lines and Internet access, as well as domestic and international
long distance services. The Company's goal is to become the single source
provider of comprehensive telecommunications services to its customers. To
accomplish this goal, the Company's strategy is to secure a growing portion of
customer's telecommunications business and, over time, through the provision of
additional integrated services, increase the customer's reliance on, and sense
of partnership with, the Company. The Company's strategy is designed to build a
base of recurring revenues and to take advantage of increasing requirements of
business customers for more effective and efficient solutions to their
telecommunications needs. These customers require maximum reliability, high
quality service, broad geographic coverage (including end-to-end connectivity),
solutions-oriented customer service and timely introduction of innovative
services. These customers demand that services be delivered in a cost-effective
manner and, preferably, from a single source. The Company believes that it will
be well-positioned to satisfy such customer requirements due to (i) its
specialized sales and service approach employing engineering and sales
professionals who design and implement customized, cost-effective
telecommunications solutions, (ii) the ongoing development and integration of
new telecommunications services and (iii) the anticipated deployment of
switching equipment and continued development of digital fiber optic networks
designed for redundancy and diversity. The Company believes that it can provide
its customers with complete local and long distance communications services and
achieve its strategic objectives by implementing the following strategies:
- RAPIDLY MIGRATE TO PROVIDING FULL SWITCHED SERVICES. The Company
intends to follow the strategy successfully implemented by CAPs
in the United States to install advanced switching equipment that
will enable the Company to provide both dedicated private network
services as well as full switched services interconnected with
the existing public switched network. The Company believes that
it is currently eligible to receive regulatory authority to
provide such services in Chile, and that it will be able to
provide such services in Peru's public and long distance markets
upon their deregulation, scheduled to occur in
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1999. As a CLEC, the Company will be able to offer its
corporate customers a full range of telephone services such as
local switched services, value-added services such as Centrex,
high capacity private voice and data lines, dial up data lines
and Internet access, as well as domestic and international
long distance services.
- FOCUS ON THE LATIN AMERICAN MARKET. The Company intends to
capitalize on opportunities presented by the rapidly changing
regulatory environment and the size of the Latin American
Market.
- PURSUE ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. The
Company intends to pursue selective acquisitions of customer
bases or businesses, make investments in companies that
complement the Company's current operations or expand its
services or network capabilities and engage in strategic
alliances. The Company believes that these acquisitions,
investments and strategic alliances are an important means of
increasing network traffic volume and achieving economies of
scale.
- RAPIDLY EXPAND SALES, MARKETING AND DISTRIBUTION CAPABILITIES.
In order to enhance customer service and coverage, the Company
intends to establish a local, customer-oriented single point
of service sales structure, supported by product specialists.
The Company plans to implement this structure and exploit the
opportunities presented by the anticipated increased number
and size of its operational local networks and the
introduction of expanded service offerings by increasing its
sales force during 1997. The Company plans to hire personnel
with both voice and data sales experience to strengthen its
existing direct distribution structure, provide extensive
product and sales training and compensate personnel under a
highly incentivized program.
- INTEGRATE NETWORKS AND OPERATIONS. The Company's goal is to
integrate its various networks and operations in order to
achieve certain operating and cost efficiencies and to
position itself as provider of choice for multinational
corporations, small and medium sized business customers and
other telecommunications carriers that require an integrated
telecommunications service.
The Company's strategy is also designed to reduce risk exposure to any
particular market by building a portfolio of operating subsidiaries in multiple
markets. The Company intends to provide these entities with financial,
marketing, engineering and operational management expertise developed in highly
competitive markets and expects to facilitate access to its relationships with
telecommunications manufacturers, suppliers, vendors and international carriers.
The Company's overall business development strategy for a given subsidiary
typically includes one or more of the following elements:
- Introduction of previously unavailable technologies and services.
- Implementation of advanced information, routing and monitoring
systems.
- Leveraging of vendor relationships to take advantage of larger
scale purchasing power.
- Consolidation of corporate functions, including treasury,
information systems, purchasing and marketing.
- Leveraging of relationships with other international carriers and
service providers to gain market share and operational
efficiencies.
- Increasing efficiency of access to capital markets through the
United States parent company.
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As was the case in Chile and Peru, the Company intends to enter Latin
American markets initially by acquiring controlling interests in Latin American
companies that hold licenses, concessions or rights-of-way to install and
operate fiber optic networks or other complimentary telecommunications services
that enable the Company to develop new customer relationships. The Company may
acquire companies that (i) are already operational or in the process of
installing their networks or (ii) that have been issued licenses or concessions
but that are in their development or pre-installation phase. The Company may
also enter new markets or business segments through acquisitions of new
concessions, licenses or operating units by one of its existing Latin American
subsidiaries. While the Company intends to focus its acquisition and business
development strategy on Latin American markets, the Company may pursue
acquisitions or business opportunities in North America or in other
international markets if such an acquisition will provide the Company with (i)
new technologies or other expertise that it can apply in Latin American markets,
(ii) new vendor relationships, or (iii) high volumes of telecommunications
traffic to or from Latin America or that otherwise create operating efficiencies
and economies of scale for the Company.
The Company's long-term strategy is to integrate its various Latin
American networks and telecommunications services offerings.
COMPETITION
General. The international telecommunications industry is highly
competitive. The Company's success depends upon its ability to compete with a
variety of other telecommunications providers in each of its markets, including
global alliances among some of the world's largest telecommunications carriers.
Other existing and potential competitors include cable television companies,
wireless telephone companies, electric and other utilities with rights of way,
railways, microwave carriers and large end users which have private networks.
The intensity of such competition has recently increased and the Company
believes that such competition will continue to intensify as the number of new
market entrants increases. Many of the Company's existing and potential
competitors have substantially greater financial, marketing and other resources
than the Company. If the Company's competitors devote significant additional
resources to the provision of telecommunications services to the Company's
target customer base businesses, such action could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete successfully
against such existing and potential competitors.
Competition for customers in the telecommunications industry is
primarily based on price and, to a lesser extent, on the type and quality of
services offered. The Company has no control over the prices set by its
competitors, and some of the Company's competitors may be able to use their
financial resources to cause severe price competition in the countries in which
the Company operates. Any such price competition would have a material adverse
effect on the Company's business, financial condition and results of operations.
Additionally, intensified competition in certain of the Company's markets may
cause the Company to reduce its prices. Such price reductions may reduce the
Company's revenue and margins.
Chile. Chile's local and long distance markets were both opened to
competition in 1994, with the only constraint being a four year long distance
market share cap on Chile's former local services monopoly, CTC. Upon
deregulation, six sizable companies and several smaller companies began
competing in the long distance market. These six companies include CTC, Entel
(Chile's former long distance monopoly); TelexChile (Chile's former telex
company); VTR (a privately held cellular network and long distance operator);
Bell South Chile (a long distance and cellular services operator); and lusatel.
Immediately following deregulation, long distance prices fell dramatically, in
some cases to 30 percent of pre-competition levels. All carriers participating
in the price war incurred negative gross margins.
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However, prices have since rebounded and they are now relatively stable at about
70 percent of pre-competition levels. The Chilean telecommunications market
remains highly competitive.
CTC, Entel, TelexChile and VTR are currently providing public local
switched services in certain areas of Santiago and in other regions of Chile. In
the local market, the Company competes with these carriers, and with Teleductos,
a network construction company which also leases telecommunications circuits.
The Company has entered the market using state-of-the-art fiber optic technology
and a loop architecture that gives network efficiencies and capabilities that
the Company believes are not available on the networks of these other carriers.
In addition, the Company has the only right-of-way with Santiago's Metro that
enables it to install, access and operate its network efficiently throughout
Santiago's major business district. Other carriers operating in the downtown
Santiago region must currently dig through the streets and rent equipment space
from various landlords, in a much more time consuming and expensive network
management process.
Peru. Peru's telecommunications market is dominated by Telefonica del
Peru, a company formed by the merger in 1994 of the former local service
monopoly, Compania Peruana de Telefonos and Entel, the former long distance
monopoly. Telefonica del Peru is 35 percent owned by Telefonica de Espana.
Telefonica del Peru has announced plans to devote a large amount of its
resources over the next few years to install hundreds of thousands of telephone
lines to provide basic telephone service. The Company believes that the focus of
Telefonica del Peru on expanding basic telephone services has created an
opportunity for the Company to capture market share by providing value added,
high bandwidth services to business customers. Peru's only other
telecommunications carrier, Tele2OOO, is a private company that currently
operates cellular, public payphone and cable television services in Lima and
other Peruvian cities. Tele2OOO's business is growing rapidly. To date, however,
Tele2OOO has focused largely on providing cellular and cable television
services.
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COUNTRY OVERVIEW
PERU
ECONOMIC AND POLITICAL OVERVIEW OF PERU*
Territory and Population. Peru is the third largest country in South America.
The total estimated population is 23.9 million. Peru is located on the western
part of the continent, and its Pacific coastline extends for 3,080 kilometers.
Peru shares borders with Ecuador, Colombia, Brazil, Bolivia and Chile.
Government and Political Situation. Democracy returned to Peru in 1980 after 12
years of military dictatorship. However, terrorist groups including the "Shining
Path" (Sendero Luminoso) and the "MRTA" (Movimiento Revolucionario Tupac Amaru)
surfaced during the 80's and early 90's and caused an estimated 25,000 deaths
and $25 billion in damages to property and the economy. In 1990, the traditional
political parties were displaced by the election of Alberto Fujimori, a
political outsider, who won the five year presidential term on an independent
ticket. President Fujimori's government made substantial progress toward
suppressing the terrorist activities of both the Shining Path and MRTA. The
progress included the arrest of the leader and the second level of leadership in
each terrorist group, as well as 2,000 others. 3,000 others surrendered on their
own under government amnesty protection. However, in December 1996, the MRTA
took 600 people hostage in the residence of Japan's Ambassador to Peru.
In 1992, President Fujimori dissolved the Congress and called for a new
Congressional body that would be responsible for the drafting of a new
Constitution. The new Constitution of Peru was adopted by a public referendum in
October 1993. It became effective on December 31, 1993.
The new Constitution sets up a system in which the executive power is
vested in a president under whom are two vice presidents. The legislature
consists of a unicameral congressional body with 120 seats that are elected
nationally and are not necessarily associated with any part of Peru. The
president and the representatives are elected for five year terms. The judicial
power is vested in a Supreme Court whose members are generally appointed,
although in special circumstances, they may be elected.
In April 1995, President Fujimori was elected to a second five year
term. Since the election, President Fujimori has continued down the path of
economic and political reforms. Further amnesty measures and a liberalization of
the system of land ownership have been implemented. In addition, Peru reached an
agreement to restructure its debt. The President's ruling alliance has a
majority in Congress and has seen little serious legislative opposition. Peru's
Constitutional Tribunal has ruled that President Fujimori cannot stand for
re-election in 2000, although this ruling is being challenged. Mr. Fujimori's
popularity has fluctuated during the hostage crisis.
The Peruvian Economy. During the Garcia administration (1985-1990), the economy
in Peru hit crisis proportions. Inflation rose to 2,775%, national production
declined to levels of 15 years earlier, and employment and real income declined.
In addition, payments on foreign debt were stopped and Peru was isolated from
the international financial system.
During his tenure, President Fujimori has successfully reduced
inflation and implemented reforms that have resulted in renewed economic growth.
President Fujimori liberalized price and wage controls in the private sector,
eliminated restrictions on capital flows, instituted emergency taxes to reduce
the fiscal deficit, liberalized interest rates, instituted a wide ranging
privatization plan and re-established relations with the international financial
community. In addition, he established an agenda to end corruption and bribery
in the judicial system and stop terrorism.
- --------
* Data compiled from reports by the Economic Intelligence Unit on Peru in 1996,
The National Trade Data Bank Market Reports in 1995, the InterAmericas
Communications Corporation Fact Sheet, and Telefonica del Peru Prospectus
Statement.
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Growth
In 1993, Peru's Gross Domestic Product (GDP) grew 5.6%. In 1994, GDP
grew 12.6% and in 1995 GDP grew 6.9% to $58.4 billion. GDP growth for 1996 has
been estimated to have been 2.8%. Peru's GDP growth slowed in 1995 and slowed
further in 1996 as the government has reduced expenditures in an effort to avoid
an overheated economy and to combat a current account deficit. In addition,
there has been a significant decline in the growth of Peru's fishing industry
due to restrictions on harvests designed to conserve fish stocks. During the
first four months of 1996, the GDP declined by 1.6%. The composition of GDP in
Peru has changed significantly between 1965 and 1996. Electricity and
construction have grown, while mining and agriculture have declined. Fishing has
remained a major part of the economy. According to the EIU, growth has been
driven by large inflows of foreign investment into the telecommunications,
mining and fishing industry that fueled a boom in investment and subsequently
consumption.
Inflation
Inflation fell dramatically as a result of the President's
stabilization program from 7,649% in 1990 to 39.5% in 1993, 15.4% in 1994 and
10.2% in 1995. In 1996, inflation is expected in the range of 11% to 12%, with a
small increase driven by the current account deficit's depreciating impact on
the nuevo sol and a resulting increase in the price of imports. The EIU predicts
that inflation will remain in the 11%-12% range throughout 1997.
Interest Rates
Real interest rates have stabilized in 1996, after fluctuating
erratically over the past three years. Convertible currency borrowing rates
in mid-January 1997 averaged approximately 16.8%, with domestic currency
borrowing rates at approximately 31% in January 1997.
Currency
In the past decade, Peru has changed its currency twice. In 1985, the
currency has changed from "soles" to "intis" (1 inti= 1,000 soles).
In 1991, the currency was switched again from "intis" to "nuevo soles"
(1 nuevo sole = 1 million intis). President Fujimori established a free-floating
exchange rate, although the Central Bank can intervene by purchasing or selling
U.S. dollars to stabilize the market. In late 1995 and early 1996, the
current-account deficit and a slowdown in foreign investment brought downward
pressure on the exchange rate. Exchange rates remained constant during the
fourth quarter of 1996. The exchange rate at the end of 1996 was 2.62 nuevo
soles per one U.S. dollar. Monetary intervention has been used to defend the
currency and higher interest rates have been maintained. During 1996, the
devaluation of the nuevo sole against the U.S. dollar was approximately 3%.
Current-Account Capital Account & Trade Balance
Strong local currency and trade liberalization have resulted in an
increase in imports. The trade balance dropped from a surplus of $340 million
(1990) to a deficit of $2,116 million (1995). In 1996, the capital account stood
at a surplus of $2,608 million due mainly to direct investment, and the current
account maintained a deficit of $3,745 million due to the increase in the trade
deficiency and expenditures in financial services.
Debt
In October and November of 1990, Peru resumed payments on its current
debt to the World Bank and the IDB. In 1989, Peru began to repay its current
obligations to the IMF after the IMF threatened to expel Peru permanently from
membership.
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A support group created under the leadership of both the U.S. and
Japan, provided approximately $1 billion in financing to Peru between 1991 and
1992. The funds were provided as either donations or as concessionary loans with
low interest rates and long maturity periods. After the support group's
commitment was assured, the IMF approved the Peruvian stabilization plan and set
up a schedule for the arrears obligation. The World Bank entered into a similar
arrangement. The Peruvian government met all of the goals established by the
schedule and effectively rolled over $1.8 billion in loans and received $600
million in new loans.
In 1993, the Paris Club negotiations reduced annual debt payments for
1993-1995 in Peru from an expected $1 billion to approximately $400 million. In
addition, interest rates were re-evaluated, development aid debt and other
credits were rescheduled, and Peru received commitments and donations from other
donor countries and multilateral institutions that convened in Paris in June
1993.
In addition to rescheduling of debt, the IDB disbursed as IDB loans an
estimated $328 million total in 1994 and 1995, and the World Bank committed $100
million for social programs and $40 million credit for health care.
In October 1995, Peru reached an agreement with commercial banks to
restructure its public foreign debt. According to the debt restructuring plan,
the principal debt of $4.4 billion will be converted into long term bonds with a
maturity of 20-30 years. Creditors are offered three choices: (1) conversion
into 30 year par bonds with a low fixed rate of interest (three rising to five
percent max.), (2) 30 year discount bonds with a 45% principal reduction paying
LIBOR plus 3/16, and (3) front loaded interest reduced bonds, which initially
have a fixed interest rate and start to amortize after 8 years. Past-due
interest, which exceeds the value of the principal is to be restructured into
past-due interest bonds with a maturity of 20 years. The bond restructuring is
expected to be executed in July or August of 1996, subject to World Bank and IMF
approval of support.
Foreign Direct Investment
Foreign direct investment increased by $365 million during the fourth
quarter of 1996, to a total of $6.25 million. The communications, mining and
energy sectors represented the highest amounts of foreign investment. The IDB
has announced that over $300 million in new loans will be made [in 1997] for
infrastructure projects and new social programs.
International Agreements
Peru is a member of the Andean Trade Preference Act which gives
duty-free access to the United States and allows Peru to export to the United
States under favorable conditions. In addition, Peru has entered into a free
trade agreement with Bolivia and enjoys a zero percent tariff for certain
products under that agreement. Finally, Peru is discussing the creation of a
free trade zone in Peru for South Korean industries.
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SUMMARY OF PERUVIAN REGULATIONS ON THE
TELECOMMUNICATIONS INDUSTRY, FOREIGN INVESTMENT AND TAXATION
Peruvian Telecommunications Laws and Regulations. The principal features of
Peruvian regulation of telecommunications services include the General
Telecommunications Law (Supreme Decree No. 013-93-TCC, or "the
Telecommunications Law"), State Contracts, the General Regulation to the
Telecommunications Law (Supreme Decree No. 06-94-TCC, or "the General
Regulation"), and the Regulation for the Organization for Supervision of Private
Investments in Telecommunications (Supreme Decree No. 62-94-PCM, or "the OSIPTEL
Regulation"). These laws and their related governmental authorities constitute
the legal and regulatory framework within which the Company provides services in
Peru.
The Telecommunications Law sets out the basic framework for the
provision and regulation of telecommunications services, and has the objective
of providing a competitive market in telecommunications. The Law grants the
Peruvian government the ability to oversee telecommunications services through
the Ministry of Transportation, Communications, Housing and Construction ("the
Ministry of Transportation" or "the Ministry"). The Ministry has the authority
to grant concessions and impose sanctions for the violation of
telecommunications laws. Under the General Regulation, the Ministry delegated
this power to the Organization for Supervision of Private Investments in
Telecommunications ("OSIPTEL").
OSIPTEL was created pursuant to the Telecommunications Law to oversee
the implementation of State Contracts. OSIPTEL is an independent regulatory body
which reviews on a regular basis the expansion, penetration, service, quality
and tariff structure mandates that are set forth in the State Contracts. Its
enforcement powers include the ability to apply sanctions against violators of
the Telecommunications Law. OSIPTEL's Board of Directors is composed of six
members who are appointed by various groups including the government and the
telecommunications industry.
A private entity may only provide telecommunications services in
Peru pursuant to a concession granted by OPTEL and in accordance with a
State Contract. Such concessions, including the concession held by the
Company through Resetel, have a maximum period of twenty years, and can
be renewed for an equal term without limitation subject to the submission
of application for renewal two years prior to the expiration of the
concession. The State Contract outlines, among other obligations: (1) a
minimum expansion plan for the operator; (ii) required fees and tariffs;
(iii) technology standards for all equipment; and (iv) quality standards
of service.
State Contracts have the status of contract law, which under Peruvian
law provides the same treatment as contracts between private parties. For this
reason, such Contracts cannot be modified or terminated by any subsequent
regulation or legislation. The Ministry may, however, if it is deemed in the
public interest, modify the terms of State Contracts unilaterally if such terms
relate to the international telecommunications policy of the Ministry, or if it
is necessary to modify the contract to comply with international laws, treaties,
or conventions. These changes can only take place through an administrative
process that provides for public comment.
Local and Long Distance Services. The provision of dialtone and public, switched
local and long distance services in Peru will be provided exclusively by
Telefonica del Peru until 1999. In that year, the exclusivity provisions in
Telefonica del Peru's concession will expire, and the local and long distance
markets are scheduled to be opened to competition by new entrants. The Company
operates under a concession which permits it to provide private line, special
access and value added services within the local telecommunications markets of
Lima and Callao. Beginning in 1999, the Company will seek to obtain
authorization to begin providing dialtone as well as public local and long
distance switched services.
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Technical Requirements
The Company is required to comply with regulations and detailed
technical plans promulgated by OSIPTEL, that apply to such matters as the
transmission, routing, signaling and assignment of numbers in the Peruvian
telephone network as well as use of the radio frequency spectrum. Before
concessionaires initiate service, their facilities must have been authorized by
OSIPTEL and must be in full compliance with the applicable regulations and
technical plans. Failure to comply with the technical plans can be grounds for
terminating a concession if the holder does not comply within a period of time
prescribed by OSIPTEL.
Both Telefonica del Peru and operators of private networks must make
their networks available for interconnection with other carriers' networks in
order to promote competition within Peru's telecommunications marketplace.
Fees, Tariffs and Other Charges
In conformity with the Telecommunications Law, the General Regulation,
and the OSIPTEL Regulation, telephone operators, including the Company, must
comply with the payment of certain fees, tariffs, and other charges primarily
comprised of: (i) a concession fee; (ii) annual tariffs; (iii) payment to
OSIPTEL for supervisory services; and (iv) contribution to the Fund for Private
Investment in Telecommunications (FITEL).
Historically in Peru, local services rates charged by Telefonica del
Peru have been subsidized by both domestic and international long distance
rates. Installation fees exceed equivalent charges in other countries, but the
State Contracts now mandate gradual reduction to those fees.
The tariff levels for Telefonica del Peru under the State Contract
rebalance the telephone service charges by increasing the monthly service
charges while reducing the measured service charges, especially for long
distance. The State Contracts allow a fluctuation between 5% above and 15% below
the established telephone service maximum tariff rate set by the Contract. The
tariffs are currently computed according to two formulas, one annually and the
other quarterly. As of 1998, Telefonica del Peru's rates for local and long
distance service will be computed according to a formula that factors in
inflation and a "productivity factor," the components of which remain to be
determined, but will probably be based upon the degree of competitiveness in the
Peruvian telecommunications industry.
The Company may set its own tariff levels for its private line service,
subject to certain maximum tariff levels set by OSIPTEL.
Foreign Investment. The basic legal framework to attract foreign investment to
Peru is provided by the Foreign Investment Promotion Law. The law provides for
specific rules that guarantee a non-discriminatory right to foreign investors
and provides mechanisms to stimulate and secure foreign capital. Foreign
investors can freely remit all of their profit and capital in hard currency and
are permitted to invest in any economic activity. Investors can sign a legal
stability agreement with the National Commission of Foreign Investment and
Technology to guarantee tax stability, free availability of foreign currency,
and non-discriminatory rights.
Taxation. The tax structure of Peru is composed of several broad based taxes, a
consumption tax on certain products (e.g. gasoline), a general income tax, an
alternative minimum tax based on a business' assets, a property tax, and a
simplified import tariff. In addition, withholding taxes are imposed on interest
and salary income, and Peru has a recently expanded value added tax (VAT) that
covers certain products and services.
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CHILE
ECONOMIC AND POLITICAL OVERVIEW OF CHILE*
Territory and Population. Chile is a narrow country stretching down the western
coast of South America and sharing borders with Peru, Bolivia and Argentina.
With over 6000 kilometers of Pacific coastline, Chile has a population of
approximately 14.2 million. Since its transition from a military dictatorship to
democracy in 1990, Chile's essentially free market economy has prospered. Chile
is the world's largest producer of copper, and a major exporter of fruit, fish
and timber products.
Government and Political Situation. Between 1973-1990, Chile was controlled by
the military dictator Augusto Pinochet, who implemented conservative economic
policies and privatization of many state enterprises. In 1990, Pinochet also
implemented a peaceful transition to democracy. Chile's government today is made
up of an executive branch with a President elected to a six year term, a
legislative branch with a 46 seat Senate and a 120 seat Chamber of Deputies and
an independent judiciary. The political environment in Chile is stable and
economically progressive. In December 1993, Eduardo Frei was elected to a
six-year presidential term, in an election interpreted by analysts to reflect
the Chilean voter's desire for continuity in their government. Parties of the
right control the upper house of the legislature, while parties of the left
control the lower house. This balance of power requires a consensus building
approach to legislation. In 1995, a constitutional crisis sparked by a Supreme
Court ruling on human rights threatened to break apart the Concertacion por la
Democracia, the ruling coalition of 7 political parties. However, a
strengthening of the relationship between the government and the Partido
Socialista (PS) will most likely result in continued political stability as it
is expected that the ruling coalition will back the current government until
1999. Mr. Eduardo Aninat, the chief economist under Frei, is expected to
continue a focus on capital market reform, export stimulation, and inflation
control.
The Chilean Economy. With one of Latin America's most market oriented economic
systems, Chile has a thriving economy. Chile has few restrictions on foreign
trade and investment and its businesses enjoy almost complete freedom to set
prices. Even after the aggressive privatization programs of Pinochet, Chile's
government maintains a significant role in the economy through its ownership of
several state enterprises including Codelco-Chile, the state owned copper
company.
Since 1990, Chile has successfully combated inflation and encouraged
foreign investment. GDP growth from 1991-1994 averaged 6.5% per year and during
that period over one million Chileans moved out of poverty. Chilean exports have
risen steadily over the past three years. Chile's rules of competition and
company formation are limited and fair. Chile benefits from a robust middle
class that is the mainstay of growth and consumer power in the country. The
country's strong reserve position, diversified export structure and continuing
high levels of domestic saving and investment make Chile well positioned to
continue achieving high levels of economic growth.
Growth
Chile's GDP growth exceeded estimates of 5%-6% in 1996, with growth
through June achieving approximately 8.1% on an annualized basis. Chile's GDP
growth in 1995 reached 7.9%. Growth has been driven by strong prices for Chile's
exports of copper, cellulose and fishmeal, as well as by activity in the
construction industry where both the government and the private sector have been
aggressively improving the country's infrastructure.
- -------------------
* Data compiled from reports by The Economist Intelligence Unit on Chile
in 1996 and the American Embassy in Santiago, Chile in December 1995.
Bank of America 1996.
National Trade Data Bank Market reports in 1995.
19
<PAGE> 21
Inflation
Chile's government has successfully combated inflation over recent
years, with annual inflation falling to 11.4% in 1994 and 8.2% in 1995 and
7.4% in 1996. The EIU predicts that inflation will fall to 5.5% by the end
of 1997. Chile's Central Bank is expected to seek to limit inflation to
5.0% in 1998.
Interest Rate
Almost all interest rates for periods over 30 days are indexed to
consumer price inflation and are expressed in terms of the Unidad de Fomento
(UF) inflation index. Interest rates in Chile exceed those in the U.S. For
example, bank deposits of up to a year earned an annual rate of 7.2% above
inflation and loan rates exceeded inflation by 9.6%. Moreover, 10 year central
bank bonds paid 6.5% over inflation and home mortgage rates exceeded inflation
by 8%.
Currency
Chile's Central Bank acts to keep the Chilean Peso within 12.5% above
or below a reference exchange rate based on a basket of currencies including the
US dollar, German Mark, and Japanese Yen. The Central Bank intervenes when the
rate nears the edges of the currency's band to avoid sharp fluctuations in the
band. There are two markets for foreign exchange trading, the official market
and a separate informal market. The central bank regulates access to the
official market that operates through a private banking system. Any foreign firm
that invests in the foreign investment saw D.L 600 is guaranteed the right to
purchase dollars through commercial banks so that it can repatriate profits and
capital. The informal rate is usually within one Peso of the official market
rate (0.25%). Most business transactions, however, occur through the banking
system. At the end of 1996, the exchange rate was 424.3 pesos per U.S. dollar.
Current Account and Trade Balance
In 1995 Chile showed a trade surplus of $1.3 billion with imports of
$14.7 billion and exports of $16 billion. In 1996 Chile recorded a trade deficit
estimated at $1.2 billion, primarily as a result of lower worldwide copper
prices and higher crude oil prices.
Capital Account
At the end of 1995, Chile had a capital account surplus of nearly $1.2
billion. In 1995, total gross direct foreign investment totaled nearly $4.3
billion. In November 1995, Chile had $14.4 billion in net international
reserves, up from $13.5 billion at the end of 1994.
Debt
In 1995, Standard & Poors gave Chile a rating of A-, the highest in
Latin America and the 10th highest of any emerging market. Between 1986 and
1991, a total of $10.9 billion was redeemed through debt conversion programs.
Chile has had access to the international financial markets and received
disbursements of $11.6 billion in loans (excluding IMF borrowings between 1986
and 1992). Chile's debt service burden, as measured by conventional ratios, has
fallen substantially, and Chile is one of the least indebted countries in Latin
America. Total debt service was 24.7% and 24.9% in 1995 and 1996, respectively.
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<PAGE> 22
International Agreements
In 1994, Chile joined the Asia Pacific Economic Co-operation (APEC)
forum which opened the possibility of $200M-300M in new business. Chile was also
the first country besides the United States, Canada and Mexico to be invited to
joint NAFTA, although the devaluation of the peso in Mexico which threw
inter-American Commerce into chaos, has delayed the prospect of entry in NAFTA.
Chile is currently working on associating with other groups such as Mercosur,
with which it hopes to negotiate associate status, and the European Union. In
addition, Chile has signed free trade agreements with Mexico, Columbia,
Venezuela, and Ecuador and has tariff reducing agreements with Argentina and
Bolivia. Chile has also entered into talks with Peru to establish a free trade
zone by 2001. In November 1996, Chile and Canada signed a free-trade agreement
which includes both goods and services and certain side agreements similar to
those included in NAFTA. This agreement is expected to facilitate the
addition of Chile to NAFTA, which is expected to occur in 1988. In addition,
Chile's trade agreement with Mexico has been expanded to include services.
Finally, Chile pays very low tariffs in the US because it is eligible for
the Generalized System of Preferences. These trade agreements are expected
to further stimulate Chile's growth and international telecommunications
needs.
21
<PAGE> 23
SUMMARY OF CHILEAN REGULATIONS ON THE
TELECOMMUNICATIONS INDUSTRY, FOREIGN INVESTMENT AND TAXATION
Chilean Telecommunications Law. References herein to (i) the "Telecommunications
Law" are to the Ley General de Telecomunicaciones (General Law of
Telecommunications), Law No. 18,168 (1982) and (ii) the "Amended
Telecommunications Law" are to the Telecommunications Law as amended by Law No.
19,277 (1994) and Law No. 19,032 (1994), in each case unless the context
otherwise requires.
Regulations and Concessions. The Telecommunications Law and various decrees
issued by the Ministry of Transportation and Telecommunications and other
Chilean governmental authorities constitute the legal and regulatory framework
within which the Company provides services.
Amended Telecommunications Law and Decree 95. Law No. 19,277, effective
as of January 20, 1994, and Law No. 19,302, effective as of March 10, 1994,
modified the Telecommunications Law to promote greater competition in the
telecommunications sector and to establish a framework for a multicarrier
dialing system. The Amended Telecommunications Law embodies certain terms of a
January 4, 1994 Documento de Acuerdo (Multicarrier Agreement) among all the
telecommunications entities then existing in Chile, the Ministry of
Transportation and Telecommunications and the Secretary General of the
Presidency that (i) provided that only affiliates of local telephone carriers
rather than the local telephone carriers themselves can provide public long
distance services and (ii) established all carriers' maximum market shares in
the domestic long distance market for a four-year period and in the
international long distance market for three years, each period being measured
from the inception of the multicarrier dialing system, as set forth in the
following table. Under the new law, companies that carry traffic in excess of
these maximums will be subject to substantial financial penalties and the
Undersecretary of Telecommunications may suspend their service.
22
<PAGE> 24
MAXIMUM MARKET SHARE CAPS
(in minutes)
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4
------ ------ ------ ------
<S> <C> <C> <C> <C>
Carriers Affiliated with
Local Operators:
Domestic Long Distance 35% 45% 55% 60%
International Long Distance 20% 30% 40% -
Other Carriers:
Domestic Long Distance 80% 70% 60% 60%
International Long Distance 70% 65% 60% -
</TABLE>
The Amended Telecommunications Law also requires providers of public
telephone services to conform to a multicarrier system in which end users,
rather than local telephone carriers, will determine on a call-by-call or
contractual basis the long distance carrier they want to use. In addition, the
Amended Telecommunications Law authorizes long distance carriers to establish
direct connections to end users through their own networks. The Amended
Telecommunications Law is similar to the "equal access" regulations adopted in
the United States.
The framework established by the Amended Telecommunications Law was
implemented by Regulation No. 189 issued by the Undersecretary of
Telecommunications on June 10, 1994, and published in the Official Gazette on
August 1, 1994.
The Amended Telecommunications Law provides for substantial fines, the
suspension of service by the Undersecretary of Telecommunications or other
penalties for violations of the multicarrier dialing system. The routing of
calls by a local telephone company to a long distance carrier other than the
carrier selected by the end user or the obstruction or delay of an
interconnection between the local telephone carrier and any long distance
carrier would constitute violations and the local telephone carrier may be
required to indemnify the provider of long distance services for any such
violations.
Decree 95, published on May 4, 1994 by the Ministry of Transportation
and Telecommunications, establishes for the principal local carrier new tariffs
for local services and domestic long distance calls and new inbound and outbound
international long distance access charges, as well as several such local
carrier administrative and service charges, payable to it by long distance
carriers.
Regulations and Technical Plans. The Company is required to comply with
regulations and detailed technical plans promulgated by the Ministry of
Transportation and Telecommunications that apply to such matters as the
transmission, routing, signaling and assignment of numbers in the Chilean
telephone network as well as use of the radio frequency spectrum. Before
concessionaires initiate service, their facilities must have been authorized by
the Undersecretary of Telecommunications and must be in full compliance with the
applicable regulations and technical plans. Failure to comply with the technical
plans can be grounds for terminating a concession if the holder does not comply
within a period of time prescribed by the Undersecretary of Telecommunications.
Such termination can be appealed to the courts. In February 1992, the
Undersecretary of Telecommunications issued modifications to the Plan Tecnico
Fundamental de Encaminamiento Telefonico (the Fundamental Technical Plan for
Telephone Routing) to establish the framework for a multicarrier system for the
provision of public long distance services. Final regulations relating to the
multicarrier system are currently in the process of being implemented.
23
<PAGE> 25
Concessions. The Telecommunications Law specifies which
telecommunications services require that a provider obtain a concession or
permit from the Ministry of Transportation and Telecommunications. Such
concessions or permits are granted by the Undersecretary of Telecommunications.
Concessions, which may be granted only to entities constituted and domiciled in
Chile, are necessary to provide the following services, among others: (i) public
telecommunications services, which are provided to satisfy the
telecommunications needs of the general public and (ii) intermediate
telecommunications services, which are transmission and switching services
offered by third parties to other concession holders who provide public
telecommunications services or other services to end users. Permits, which are
granted following a simplified procedure and have a shorter duration than
concessions, are required to provide limited services, which are services
necessary to satisfy specialized needs of businesses or other institutions, but
do not entail carrying traffic across public international and certain
telecommunications networks.
Concessions and permits are granted by the Chilean government for a
fixed term. Under Law 19,277 (1994), concessions to provide public
telecommunications and intermediate telecommunications services are granted for
a term of thirty years; they can be renewed for a like period if so requested by
the concessionaire. However, as the Company's concession was granted before the
enactment of Law 19,277(1994), such concession is deemed to be indefinite in
accordance to its terms.
Concessions and permits cannot be assigned, transferred or leased
without the prior authorization of the Undersecretary of Telecommunications,
which authorization cannot be denied without reasonable cause.
Concessions to provide public telecommunications and intermediate
telecommunications services must contain information as to the type of service
and the term of the concession. Decrees that grant such concessions must contain
the following information: (i) the holder of the concession, (ii) the service
area, (iii) the technical characteristics of facilities as they may be specified
in the technical plans for such service, (iv) how long it will take to construct
facilities and begin service, (v) the location of radio stations and (vi) the
power, frequency and other technical characteristics of the radio stations. More
than one concession or permit may be granted for a particular type of service or
for a geographic area, except when there are technical limitations, such as
mobile telephones, in which case only two concessions may be granted for any one
geographic area.
Holders of concessions to provide public telecommunications services
must establish and accept interconnection with others, in accordance with
technical requirements established by the Undersecretary of Telecommunications,
to ensure that users have access to all public services. Concession holders may
establish their own systems or use facilities of other entities. Outages must be
corrected within 12 hours or users are entitled to indemnification and the
concession holder is subject to fines.
The Telecommunications Law provides that holders of concessions and
permits shall have access, on equal economic and technical basis, to satellite
systems and international cables.
The Telecommunications Law establishes the grounds upon which
concessions may be terminated by a ministerial decree of the Ministry of
Transportation and Telecommunications or a resolution of the Undersecretary of
Telecommunications. The grounds for termination include dissolution of the
concession holder, a failure to publish the grant of the concession in the
Official Gazette within thirty days of its notification to the applicant or
noncompliance with the terms and conditions specified in the Telecommunications
Law, the regulations promulgated thereunder or the concession. A holder of a
concession may appeal such termination to the Chilean courts if it believes that
the termination is illegal. The Undersecretary of Telecommunications may suspend
a concession holder's service for up to thirty days for failure to comply with
technical requirements, which action may be challenged in the courts.
The Company does not believe that its concessions will be terminated in
the foreseeable future. There can, however, be no assurance that its concession
will not be terminated for reasons beyond
24
<PAGE> 26
management's control. In the event of such a termination the Company believes
that it would have available legal recourse.
Tariff System. Currently, providers of domestic and international long distance
services are subject to maximum tariffs fixed by the Chilean government. The
Company expects that in the competitive environment of the multicarrier system,
rates will decline from present levels.
At present, the Company's services are subject to maximum tariffs
pursuant to the Telecommunications Law as modified by D.F.L. No. 1 (1987). Title
V of the Telecommunications Law, which was not substantially modified by Law No.
19,302, establishes the general principle that the prices of telecommunications
services, including the services of the Company, may be freely established by
service providers except if the Comision Resolutiva de la Fiscalia Nacional
Economica (the Resolutory Commission of the Fair Trade Enforcement Commission)
(the "Resolutory Commission"), a tribunal created by the Ley Antimonopolios (the
"Antimonopoly Law") has previously concluded that market conditions are
insufficient to guarantee that, absent tariff regulation, service providers
would set prices fairly. In May 1994, the Resolutory Commission determined that
the market conditions prevailing in the period previous to the implementation of
the multicarrier system in the domestic and international long distance
telephone markets, as well as the local telephone markets (excluding mobile
telephones) are not sufficient to permit providers to establish prices for such
services without regulation. As a result the Ministry of Transportation and
Telecommunications created a tariff which will be effective until 1999.
The Chilean government establishes the maximum tariffs of regulated
services by using a methodology that provides for the recovery of investments
and operating costs required to operate such services, as well as a profit based
on the cost of capital. Pursuant to the Telecommunications Law, the structure,
level and mechanism for indexing the affected services are fixed every five
years by a joint decree issued by the Ministry of Transportation and
Telecommunications and the Ministerio de Economia, Fomento y Reconstruccion (the
Ministry of the Economy, Development and Reconstruction) (the "Ministry of the
Economy") on the basis of the incremental costs of providing the tariffed
service in each geographical service area where the service is provided,
including capital costs taking into account the expansion plans of the regulated
companies over the five-year period. In the absence of expansion plans, the
structure and level of rates are set on the basis of marginal long-term costs.
Maximum tariffs are established on the basis of an economic model that relies on
the costs of an ideally efficient enterprise that offers only the service
subject to tariffing. The tariff for each service that is subject to tariff
regulation reflects the theoretical cost components associated with such
service.
The Telecommunications Law specifies that the tariff for domestic long
distance telephone services must include the prices of long distance
transmission and switching as well as the price of local telephone service. The
law specifies that the tariffs for international long distance services must
include such price components as the price of domestic and international
services, the cost of access to the local network, as well as the costs of
settling with foreign correspondents.
The Telecommunications Law specifies that providers are prohibited from
discriminating among similarly situated users in the price charged for tariffed
services. Each tariff is subject to its own index, which is calculated using the
prices of its principal components. A concessionholder must give two months
notice to the Subsecretaria de Telecomunicaciones (the Undersecretary of
Telecommunications) of changes to the maximum tariff resulting from changes in
the applicable index (including inflation adjustments) and that tariff, upon
readjustment, is the maximum price that users may be charged for the service.
Because the tariff-setting process takes place every five years,
providers of long distance services subject to tariff regulation have to prepare
a special study for each regulated service included in their geographic
concession areas. The purpose of the study is to calculate the total and
marginal long-term costs with respect to each such service and to determine on
the basis of such calculation the structure
25
<PAGE> 27
and level of future tariffs. New tariff proposals must be presented to the
Ministries of Transportation and Telecommunications and the Economy 180 days
prior to the end of each five-year period.
The Company (as other intermediate service providers) is subject to the
maximum tariffs established by the corresponding authorities for the principal
intermediate service provider.
Foreign Investment and Exchange Controls. Foreign investments in Chile are
regulated by Law No. 18.840 of the Ministry of Finance published in the Official
Gazette on October 10, 1989 and further regulated in Chapter XIV ("Chapter XIV")
of the Compendium of Foreign Exchange Regulations issued by the Central Bank of
Chile (the "Foreign Exchange Regulations"), and the Foreign Investment Statute.
The Foreign Exchange Regulations. Chapter XIV of the Foreign Exchange
Regulations provides that legal entities, Chilean or foreign, who transfer
foreign currency to Chile foreign currency must register with the Central Bank
of Chile in order to sell such foreign currency, subject to the corresponding
statutory limitations and to those of a general character established by the
Central Bank at the time of the conversion to pesos of such foreign currency.
For these purposes, the Central Bank authorizes the investment and issues a
certificate of registration which is nominative and non-transferable, without
the prior approval of the Central Bank. A foreign entity which has used the
foregoing provision may freely reexport, totally or partially, the amounts
invested in Chile, subject to the corresponding statutory limitations, and to
those of a general character established by the Executive Committee of the
Central Bank which were in force at the time the corresponding certificate was
delivered.
Similarly, and in accordance with the above-mentioned conditions and
within applicable legal limitations, the Central Bank authorizes remittances of
profits (generated by the investment). Therefore, pursuant to the Foreign
Exchange Regulations, a foreign investor who has registered an investment in
accordance with the Foreign Exchange Regulations provisions may remit abroad the
amount registered with the Central Bank and the profits derived therefrom,
subject to the statutory limitation in force at the time the registration of the
investment was made. Presently, there are no such statutory limitations, and the
regulations of the Central Bank now in force are summarized below.
The foreign investor wishing to make an investment in Chile must request
the prior authorization from, and register the investment with, the Central
Bank. The application requesting such authorization must be made through a
commercial bank and must identify the foreign investor and indicate the amount
and purpose of the investment. If possible, the investor is requested to
anticipate when it expects to repatriate the amount invested.
Once the Central Bank grants approval (which normally takes place within
no more than 72 hours), the foreign investor may convert the investment into
local currency through the same commercial bank which processed the request to
make the investment. Within the following five days after such conversion, the
Central Bank is required to issue a certificate which will evidence the foreign
investor's right to transfer abroad the investment and the related profits, if
any.
The foreign currency registered with the Central Bank may be repatriated
only after a period of 12 months has lapsed from the date on which such
investment was made. Thereafter, the foreign investor may re-export the
investment, in whole or in part. In case the repatriation is for the total
amount invested, the investment certificate must be returned to the Central
Bank. Otherwise, the Central Bank simply makes annotations in the investment
certificate of any partial remittance. A foreign investor may assign its
investment rights at any time, subject to the prior authorization of the Central
Bank.
All profits derived from the registered investment may be re-exported
abroad. Profits may also be reinvested in Chile with the prior authorization of
the Central Bank, which reinvestment is also registered with the Central Bank.
The Central Bank issues a new investment certificate covering the reinvested
amount.
26
<PAGE> 28
In order to re-export the investment and its profits, the foreign
investor must present to the Central Bank a sworn statement attesting that the
local currency used to purchase the foreign currency required to make the
remittance abroad originates exclusively from the sale of the investment or from
profits generated by the authorized investment. In addition, the investor must
prove that the relevant Chilean income taxes have been duly paid. Presently, the
minimum amount of foreign currency to be registered under Chapter XIV of the
Foreign Exchange law is US$10,000.
The Foreign Investment Statute. The Foreign Investment Statute (DL-600) sets
forth objective standards applicable to all investors who qualify thereunder. It
has eliminated to a considerable degree the discretionary powers exercised by
Chilean authorities in the past. The Foreign Investment Statute is summarized
below.
Pursuant to Article 1 of the Foreign Investment Statute, foreign
entities, resident or domiciled abroad, which transfer foreign capital to Chile
can enter into an investment agreement with the Republic of Chile. A foreign
investor has the right to resort to the Chilean courts in case the Chilean
government does not allow it to exercise its rights contemplated in the
investment agreement. Foreign capital may consist of: freely convertible foreign
currency; tangible assets, in any form or condition; technology in its various
forms, subject to certain conditions, provided it can be capitalized; credits
associated with an approved foreign investment; capitalization of foreign loans
and debts in freely convertible currency, provided such contracts have been duly
authorized; and capitalization of profits which enjoy repatriation rights.
Any investment made under the Foreign Investment Statute requires the
prior approval of the Executive Vice President of the Foreign Investment
Committee unless (i) the value of the investment will exceed US$5 million; (ii)
the investment is to be made in sectors or activities normally performed by the
State and those carried out by public utility services; (iii) the investment is
to be made in the communications media; or (iv) the prospective investor is a
foreign State or a foreign public entity. In such cases, the prospective
approval has to be granted by the Foreign Investment Committee itself (whose
members are high governmental officials of Cabinet level). In general, approvals
are normally granted automatically since the present policy of the Chilean
Government is to be as liberal as possible in connection with the inflow of
foreign investments.
The Foreign Investment Committee has decided that any investment under
US$25,000 must be channelled through the Foreign Exchange Regulations.
Therefore, to qualify for the benefit of the Foreign Investment Statute any
proposed investment would have to exceed such amount.
The Foreign Investment Statute provides, as its basic principle, that
foreign investors will be treated in the same manner as local investors.
Therefore, no discrimination can be made against a foreign investor or a company
in which a majority or minority interest is owned by such an investor. This
principle is formally incorporated into an investment agreement which is entered
into between the Republic of Chile and the investor. The investment agreement
also grants the foreign investor the right to repatriate its investments and the
profits derived therefrom, without any limitation. The investment may be made
not only in foreign currency, but also in goods, etc. and may be made freely to
set up a new business, buy an existing business, buy property of any nature,
etc., provided, however, that there is no specific limitation in connection with
such activities contained in Chilean legislation. Presently, very few
restrictions exist. Existing restrictions relate to investment in certain
sectors which are politically sensitive or strategic, such as the communications
media, mining, shipping and commercial aviation.
The investment agreement is of an indefinite duration. Therefore, the
right, inter alia, to repatriate or transfer abroad the amount invested plus its
profits, will not be subject to a time limitation. However, the amount
representing the foreign investment (capital) may be repatriated abroad only
after a period of 12 months has elapsed from the date on which the investment
was brought into Chile. Profits derived therefrom are not subject to any time
limit and may be freely repatriated after paying the relevant Chilean taxes.
27
<PAGE> 29
A foreign investor may effectively assign its investment rights, at any
time, subject to the prior authorization of the Foreign Investment Committee.
Special situations to consider include the following:
For a period of ten years from the date of start-up of the
project in which the investment was made, foreign investors have the
right to fix the overall income tax payable in Chile at an effective tax
rate of 42%. This fixed income tax rate would apply to the corporate
taxes payable by the company in Chile in which the investment was made,
as well as those taxes payable by the foreign investors. At any time
during the ten year period, a foreign investor may waive its rights to
fix the tax rate and become subject to the normal taxation regime
applicable to Chilean companies.
Foreign investors may freeze custom duties and value added
taxes payable on the importation of equipment, machinery and other goods
which will comprise the foreign investment.
Foreign investors or companies in which they have made their
investment may be limited in their access to local credit.
Taxation. The following discussion summarizes the principal Chilean income tax
consequences of an investment in shares of a Chilean company by a person who is
neither domiciled in nor a resident of Chile for tax purposes (a "foreign
holder"). It is not intended as tax advice to any particular investor, which can
be rendered only in light of that investor's particular tax situation.
Under Chilean law, provisions contained in statutes, such as the tax
rates applicable to foreign investors, the computation of taxable income for
Chilean purposes and the manner in which Chilean taxes are imposed and
collected, may only be amended by another statute. In addition, the Chilean tax
authorities enact rulings and regulations of either general or specific
application and interpret the provisions of Chilean tax law. Chilean tax may not
be assessed retroactively against taxpayers who act in good faith relying on
such rulings, regulations and interpretations, but Chilean tax authorities may
change said rulings, regulations and interpretations prospectively. There is no
income tax treaty in force between Chile and the United States of America.
Cash Dividends and Other Distributions. Cash dividends paid by the Chilean
Companies with respect to shares held by the Company will be subject to a 35%
Chilean withholding tax, which is withheld and paid over by the Chilean
Companies (the "Withholding Tax"). A credit against the Withholding Tax is
available based on the level of corporate income tax actually paid by the
Chilean Companies on the income to be distributed (the "First-Category Tax");
however, this credit does not reduce the Withholding Tax on a one-for-one basis
because it also increases the base on which the Withholding Tax is imposed. In
addition, if the Chilean Companies distribute less than all of their
distributable income, the credit for the FirstCategory Tax paid by the Chilean
Companies is proportionately reduced. Presently, the First-Category Tax rate is
15%.
The example below illustrates the effective Chilean Withholding Tax
burden on a cash dividend received by a foreign holder (such as the Company),
assuming a Withholding Tax rate of 35%, an effective First-Category Tax rate of
15% and a distribution of 50% of the net income of the Chilean Companies
distributable after payment of the First-Category Tax:
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<PAGE> 30
<TABLE>
<S> <C>
Chilean Subsidiary taxable income Ch $100.0
First-Category Tax (15% of Ch$100) (15.0)
Net distributable income Ch $ 85.0
Dividend distributed (50% of net distributable income) Ch $ 42.5
Withholding Tax (35% of the sum of Ch$42.5 dividend
plus Ch$7.5 First-Category Tax paid) (17.5)
----
Credit for 50% of First-Category Tax 7.5
----
Net Withholding Tax (10.0)
----
Net dividend received Ch $32.5
Effective dividend withholding rate 23.5%
</TABLE>
In general, the effective dividend Withholding Tax rate, after giving effect to
the credit for the FirstCategory Tax, can be calculated using the following
formula:
Effective dividend (Withholding Tax rate) - (First-Category Tax rate)
-------------------------------------------------
Withholding Tax rate = 1 - (First-Category Tax rate)
Under Chilean income tax law, dividends generally are assumed to have
been paid out of the Company's oldest retained profits for purposes of
determining the level of First-Category Tax that was paid by the Company.
Dividend distributions made in property would be subject to the same Chilean tax
rules as cash dividends. Stock dividends are not subject to Chilean taxation at
distribution except for the reduction of the tax basis.
Capital Gains. Capital gains are included in taxable income if they are derived
from company business. The following income are not considered revenue: capital
contributions received, excess over par value received on the issue of shares,
stock dividends, return of capital, and gains on the sale of shares in
corporations or mining rights. There are no differences with regard to the
treatment of long-term and short-term holdings. Capital gains are not treated
differently from any other type of ordinary income and are adjusted for
inflation. Capital losses are not taxable.
Gain recognized on the sale of shares will be subject to both the
First-Category Tax and the Withholding Tax (the former being creditable against
the latter) if either (i) the foreign holder has held the shares for less than
one year or (ii) the foreign holder acquired and sold the shares in the ordinary
course of business or as an habitual trader of shares. In all other cases, gain
on the sale of shares will be subject to a flat 15% First-Category Tax and no
Withholding Tax will apply.
For purposes of determining the capital gains on the disposition of the
shares of the Chilean Companies, the tax basis will be the acquisition value
adjusted by the variation of the Chilean Consumer Price Index between the last
day of the month prior to the purchase of the shares and the last day of the
month prior to the disposition of the shares. In the event of a stock dividend
distribution, the tax basis of the shares and of the new shares will be
determined by dividing the purchase value of the shares by the total number of
shares and the new shares owned by the shareholder. Additionally, if the
investment in the shares has been made through DL-600, upon total or partial
liquidation of the investment notwithstanding the foregoing general rules, no
taxes will be applied on gains up to the U.S. dollar equivalent of the foreign
investment. If the investment is made through Chapter XIV, only the general
rules on capital gains will apply.
Value-Added Tax. An 18% value-added tax (IVA) applies to all sales transactions.
The tax is predicted to fall to 17% in 1998.
29
<PAGE> 31
RECENT DEVELOPMENTS
CONVERTIBLE DEBENTURES AND WARRANTS
On February 3, 1997, the Company issued $1,500,000 aggregate principal
amount of 7% Convertible Debentures due February 3, 2000 (the "Debentures") and
Warrants to purchase an aggregate of 100,000 shares of the Company's Common
Stock at any time or from time to time on or before February 2, 2002, at an
exercise price of $5.00 per share, subject to adjustment.
The Debentures. Interest on the outstanding principal amount of the
Debentures is compounded annually and payable on a semi-annual basis commencing
six months from the issue date. In lieu of cash interest payment, the holders of
the Debentures (each a "Holder," collectively the "Holders") may require the
Company to issue shares of its Common Stock or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the Common Stock, the Company shall issue to the
Holder such number of fully paid and non-assessable shares of Common Stock as
shall have an aggregate average closing bid price (as reported by NASDAQ) for
the five (5) consecutive trading days ending on the trading day prior to the
date such interest is payable, equal in amount to the interest which the Holder
has elected to receive in kind.
The Debentures are convertible, at the option of the Holders, into
shares of Common Stock at any time prior to maturity at a conversion price of
each share of Common Stock equal to the lesser of (i) the average closing price
(as reported by NASDAQ) of the Company's Common Stock for the five (5)
consecutive trading days ending on January 31, 1997 or, (ii) eighty-three
percent (83%) of the average closing bid price (as reported by NASDAQ) of the
Company's Common Stock for the five (5) consecutive trading days ending on the
trading day immediately preceding the conversion date. Notwithstanding the
foregoing, in the event that the closing bid price (as reported by NASDAQ) of
the Company's Common Stock for ten (10) consecutive trading days is equal to, or
less than $2.25 (as adjusted for stock splits, combinations and similar
recapitalizations affecting the Common Stock), the Company may, on one and only
one occasion, suspend the Holders' ability to convert any part of the
outstanding Debentures for a period not to exceed forty-five (45) days.
The Company is entitled to prepay the entire amount of the Debentures
or any portion thereof, at any time or from time to time, upon not less than ten
(10) (nor more than twenty (20) days' prior written notice. The prepayment price
shall equal One Hundred Seventeen Percent (117%) of the principal amount to be
prepaid plus all accrued and unpaid interest. Any such prepayment shall be made
pro rata among each of the Debentures in proportion to the original principal
amount thereof.
The obligation of the Company to pay the principal of and interest in
this Debenture, and to discharge all its other obligations thereunder, are
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed money,
in each case, whether such obligations are outstanding at the date of the
Debentures or created or incurred after the date of the Debentures but prior to
the maturity of the Debentures and (z) all obligations of the Company to holders
of the Company's indebtedness issued in connection with one or more underwritten
public offerings by the Company.
The Series A Warrants. The Series A Warrants represent the right to
purchase an aggregate of one hundred thousand shares of Common Stock of the
Company at any time, or from time to time, on or before February 2, 2002 for the
exercise price of five dollars ($5.00) per share, subject to certain adjustments
in the exercise price or the number of Warrant shares.
30
<PAGE> 32
ACQUISITION OF RESETEL
On May 7,1996, the Company acquired all issued and outstanding shares
of Resetel, in exchange for 1,250,000 shares of Common Stock of the Company
issued to the shareholders of Resetel pursuant to a stock purchase agreement
dated May 7, 1996.
ACQUISITION OF HEWSTER, S.A. AND MERGER OF HEWSTER INTO HSI
On July 31,1996, the Company's wholly-owned subsidiary, HSI, acquired
99% of all issued and outstanding common stock of Hewster, S.A., a Chilean
corporation ("Hewster") controlled by Hernan Streeter Rios, the Company's former
President and Chairman of the Board. On September 2, 1996, the Company acquired
the remaining 1% of the issued and outstanding shares of Hewster from Hernan
Streeter Rios. Hewster was subsequently merged into HSI. The purpose of the
merger of Hewster into HSI was to consolidate Hewster's strong revenue base and
existing contracts to enhance the operation of HSI.
EMPLOYEES
As of March 28, 1997, the Company had 50 full-time employees, of which
approximately 23 are in administration, 20 are in operations and 7 are in
sales and marketing. The Company's employees are not represented by any labor
union. The Company believes that relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's corporate offices are located at 1221 Brickell Avenue,
Miami, Florida. These offices are occupied under a lease that expires in
December 1997. The Company's offices in Santiago, Chile are occupied under a
lease which expires in October 1997, at a rent of approximately $8,000 per
month. The Company is currently seeking alternative facilities for its operation
in Chile, and believes that such facilities can be obtained without unreasonable
effort or additional expense. The Company also occupies office space at a
separate location in Santiago under a lease which expires in March 2007. This
lease provides that the Company will purchase the property by no later than the
expiration date of the lease term. The Company intends to renegotiate the lease
to extend the lease term and eliminate its obligation to purchase the property.
The Company's offices in Lima, Peru are occupied under a three year lease
terminating on October 15, 1999 at a rent of approximately $3,500 per
month. The Company believes that its current facilities, together with other
contiguous rental space, are adequate to provide for its current needs and that
its current facilities and planned lease of replacement facilities in Chile
will be adequate for its current and anticipated needs and anticipated growth.
31
<PAGE> 33
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to
the conduct of its business. There is no pending legal proceeding to which the
Company is a party which, in the opinion of the Company's management, is likely
to have a material adverse effect on the Company's business, financial condition
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
32
<PAGE> 34
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock was traded in the over-the-counter market and quoted
on the OTC Bulletin Board between June 1994 and November 1996. In November 1996,
the Common Stock began trading in the NASDAQ Small Cap market. The Common Stock
is currently quoted under the symbol "ICCA." Prior to October 6, 1994, the
Common Stock was quoted under the symbol "TDGI". As of March 23, 1997, there
were 202 holders of record of the Common Stock. On March 28, 1997, the closing
price of the Common Stock as reported on the NASDAQ Small Cap Market was $2.25.
The following table sets forth, for the periods indicated, the high and low bid
price for the Common Stock. The quotations do not include retail markups,
markdowns or commissions.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
First Quarter 1995....................... $4.50 $2.00
Second Quarter 1995...................... 3.50 1.00
Third Quarter 1995....................... 2.25 0.50
Fourth Quarter 1995...................... 2.38 0.50
First Quarter 1996....................... 3.38 0.94
Second Quarter 1996...................... 7.12 3.00
Third Quarter 1996....................... 5.88 4.25
Fourth Quarter 1996...................... 5.13 2.13
</TABLE>
DIVIDEND POLICY
The Company has not declared or paid, and does not presently anticipate
declaring or paying in the foreseeable future, any cash dividends on the
outstanding Common Stock. The Company currently intends to retain any future
earnings to finance the Company's operations and growth. In addition, the
Company's ability to declare and pay cash dividends is affected, in part, by the
ability of the Company's present and future subsidiaries to declare and pay
dividends or otherwise transfer funds to the Company since the Company conducts
substantially all of its operations through its subsidiaries.
33
<PAGE> 35
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
[PW TO PROVIDE]
34
<PAGE> 36
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto. Throughout this section,
InterAmericas Communications Corporation ("ICCA"), Hewster-Chile, S.A.
("Hewster"), VISAT Telecomunicaciones, S.A. ("VISAT") and Red de Servicios
Empresariales de Telecomunicaciones ("RESETEL") are collectively referred to as
the "Company".
Except for the historical information contained herein, this report
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from such forward-looking
statements. Factors which could cause or contribute to such differences
include, but are not limited to, uncertainty as to sufficiency of funds,
management of the business, technological changes, global economic factors,
successful development of telecommunications network and other factors.
OVERVIEW
During 1996 the Company concentrated its efforts on continuing the
development and marketing of its telecommunications network in Chile,
initiating the construction of its network in Peru, and arranging for the
financing of its ongoing business development.
In November, 1996, the Company recruited a new Chairman and Chief
Executive Officer, Patricio Northland, in order to improve the management of
its existing operations and accelerate the Company's strategy to develop and
acquire additional telecommunications operations in markets throughout Latin
America. Born in Chile, Mr. Northland is a U.S. citizen who brings to the
Company extensive relationships with telecommunications carriers and potential
customers throughout Latin America. In 1991, Mr. Northland founded AmericaTel
Corporation, a Miami based international telecommunications carrier, and, in
1992, Mr. Northland successfully completed a joint venture agreement between
AmericaTel Corporation and Entel, Chile's major long distance carrier. Under
Mr. Northland's leadership, AmericaTel Corporation grew to provide satellite
based voice, data and fax telecommunications services to corporate customers in
eleven Latin American nations. In 1996, Mr. Northland sold his interest in
AmericaTel Corporation to Entel.
Prior to his development of AmericaTel, Mr. Northland spent seven years
as a marketing executive for IntelSat and PanAmSat, and three years as a
telecommunications network engineer for COMSAT and Northrop.
Mr. Northland is now taking steps intended to strengthen the marketing of
the Company's Chilean products and services and to accelerate the roll-out of
the Company's operations in Lima, Peru. In addition, Mr. Northland is actively
negotiating potential acquisitions in accordance with the Company's strategy to
develop an integrated network connecting markets throughout Latin America and
the United States, although no definitive agreements have been entered into to
date.
Mr. Northland plans to further strengthen the Company's management through
the recruitment of a highly experienced Chief Financial Officer and additional
corporate personnel to be based in Miami.
33
<PAGE> 37
This staff will provide both oversight of Latin American operations as well as
treasury and investor relations functions.
RESULTS OF OPERATIONS
The Consolidated Statement of Operations reflects a net loss of $4,676,000
for the year ended December 31, 1996. Losses are attributable primarily to
selling, general and administrative expenses incurred in the Company's
operations in Chile and Peru, as well as corporate expenses including legal and
accounting expenses related to the Company's business development activities.
The Company expects that it will continue to incur losses from operations
during 1997. The Consolidated Balance Sheet dated December 30, 1996 reflects
and accumulated deficit of ($10,151,000).
The Company's Chilean subsidiary, Hewster, is currently focusing on
marketing voice and data private circuit connections, including Internet
connections, to corporate customers in Santiago. These activities are
conducted through direct sales, a co-marketing agreement with a long distance
carrier and marketing relationships with internet service providers ("ISPs").
In addition, Hewster is offering its corporate customers the systems
integration services acquired in Hewster, S.A. These services include Local
Area Network ("LAN") design, equipment sales, installation and maintenance
services. In Peru, the Company's subsidiary, Resetel, is continuing to expand
its fiber-optic network throughout downtown Lima. Resetel began providing
services to its first corporate customers in February 1997. The
Company's revenue for the year ended December 31, 1996 was $652,000 as compared
to $224,000 for the year ended December 31, 1995. The growth in revenues was
attributable to the Company's acquisition of Hewster, S.A. and its
systems integration consulting business and the initial marketing of the
Company's Santiago fiber-optic network services.
The selling, general and administrative expenses of the Company for the
year ended December 31, 1996 were $4,051,000 as compared to $1,918,000 for the
year ended December 31, 1995. The increase in expenses was due to the increase
in the number of employees of Hewster, the initiation of Resetel's network
construction and marketing operations in Peru, and legal and general corporate
expenses relating to corporate financing and business development activities.
During 1997 the Company will continue to focus on expanding its Chilean
customer base, developing and marketing its Peruvian network, and executing the
acquisition of complementary telecommunications networks in additional Latin
American markets, as and if available.
LIQUIDITY AND CAPITAL RESOURCES
The business of the Company requires substantial continuing capital
investment to complete the construction and development of its
telecommunications networks and services. Although the Company has been able
to obtain debt and equity financing to date, there can be no assurance that
sufficient additional financing will continue to be available in the future,
nor that it will be available on terms acceptable to the Company. The failure
to obtain such financing would have a material adverse effect on the Company's
business and prospects.
The Company received net proceeds of approximately $1.1 million in
connection with a private placement of Common Stock during March 1996 and
$6.6 million in a private placement of Common Stock during June 1996. A
significant portion of these funds have been allocated to finance ongoing
operating, administrative and business development activities of the Company and
to pay debt which accrued from these activities. In addition, $1.5 million of
these funds have been utilized to acquire Hewster, S.A. (See "Recent
Developments - Acquisition of Hewster, S.A.) and approximately $1.45 million in
proceeds were used for capital expenditures.
34
<PAGE> 38
On February 3, 1997, the Company issued $1,500,000 aggregate principal
amount of its 7% Convertible Debentures due February 3, 2000 (the "Debentures").
The proceeds were used to finance the operating and administrative expenses of
the Company and construction of the Resetel Network. Interest on the
outstanding principal amount of the Debentures is compounded annually and
payable on a semi-annual basis commencing six months from the issue date. In
lieu of cash interest payment, the holders of the Debentures (each a "Holder",
collectively the "Holders") may require the Company to issue shares of its
Common Stock or a combination of Common Stock and cash as payment the interest
then due and payable. If the Holder elects to receive all or a portion of the
Common Stock, the Company is required to issue to the Holder such number of
fully paid and non-assessable shares of Common Stock as shall have an aggregate
average closing bid price (as reported by Nasdaq) for the five (5) consecutive
trading days ending on the trading day prior to the date such interest is
payable, equal in the amount to the interest which the Holder has elected to
receive in kind.
The Debentures are convertible, at the option of the Holders, into shares
of Common Stock at any time prior to maturity at a conversion price for each
share of Common Stock equal to the lesser of: (i) the average closing price
(as reported by the Nasdaq Small Capital Market) of the Company's Common Stock
for the five (5) consecutive trading days ending on the trading day immediately
preceding January 31, 2000, (the "Fixed Conversion Price") or, (ii)
eighty-three percent (83%) of the average closing bid price (as reported by the
Nasdaq Small Capital Market) of the Company's Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding the
conversion date. Notwithstanding the foregoing, in the event that the closing
bid price (as reported by Nasdaq) of the Company's common Stock for ten (10)
consecutive trading days is equal to, or less than $2.25 (as adjusted for stock
splits, combinations and similar recapitalizations affecting the Common Stock),
the Company may, on one and only one occasion, suspend the Holders' ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
The Company is entitled to prepay the entire amount of the Debentures or
any portion thereof, at any time or from time to time, upon not less than ten
(10) nor more than twenty (20) days' prior written notice. The prepayment
price is equal to One Hundred Seventeen Percent (117%) of the principal amount
to be prepaid plus all accrued and unpaid interest. Any such prepayment is
required to be made pro rata among each of the Debentures in proportion to the
original principal amount thereof.
The obligation of the Company to pay the principal of an interest in the
Debentures, and to discharge all its other obligations thereunder, are
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercial banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
the Debentures or created or incurred after the date of the Debentures but
prior to the maturity of the Debentures and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company.
The Company estimates that it will need approximately $23 million in
additional debt and/or equity financing to (i) fully develop its fiber-optic
network and expand its customer base in Chile, (ii) complete first phase network
construction and marketing in Lima, Peru, and (iii) provide sufficient working
capital for its operations over the next year. There can be no assurance that
the Company will be successful in obtaining all or any of this required
financing. Should the Company not be able to obtain this financing in full, or
in part, the Company's business and prospects would be materially adversely
affected and the Company would be required to delay capital expenditures on
certain projects until such financing becomes available. This, in turn, would
delay the revenue streams associated with those projects until such time, if
any, as such financing becomes available. The Company estimates that the
present cash level would allow the Company to continue operations for
approximately one month, although no assurance can be given in this regard.
35
<PAGE> 39
OPERATING ACTIVITIES
Cash used by operating activities was $3,934,000 for the year ended
December 31, 1996 as compared to $2,150,000 for the year ended December 31,
1995. The cash flow used by operating activities is utilized for operational,
administrative and business development expenses incurred prior to the
generation of significant revenues. The Company's Chilean subsidiary, Hewster,
has substantially completed its core fiber-optic network, and it is now
marketing that network's services to business customers in Santiago. The
Company's Peruvian subsidiary, Resetel, commenced network construction
operations in Lima, Peru in October 1996 and will be focused largely on
continued network construction during 1997. The Company has already begun
connecting customers to its Lima network, and it will continue to connect
additional customers as this network expands throughout major Lima business
districts.
FINANCING ACTIVITIES
Net cash provided by financing activities during 1996 was $7,570,000. In
the quarter ended March 31, 1996, this Company raised net proceeds of $1.1
million in connection with a private placement of its Common Stock and, in
June 1996, the Company raised net proceeds of $6.4 million, in connection with
a private placement of its Common Stock. The cash provided by financing in
the same period in 1995 was $3,263,000.00.
INVESTING ACTIVITIES
The net cash used in investing activities was $2,968,000 for the year ended
December 31, 1996 and $1,170,000 for the corresponding period in 1995. In 1996,
these funds were used primarily to purchase network equipment for the Hewster
and Resetel networks and to purchase Hewster, S.A. The Company's Chilean fiber
optic network now extends for 120 kilometers throughout downtown Santiago. The
Company's Peruvian fiber optic network now extends for over 30 kilometers
throughout downtown Lima.
EFFECTS OF INFLATION
The rate of inflation in Chile has been of the lowest rates in South
America for the past five years, with rates below double digit. The rate of
inflation in Peru was estimated to be between 11% - 12% in 1996, and the
Economist Intelligence Unit expects that it will remain in the same range
during 1997. The Company does not believe that inflation had any significant
impact on operations in 1996, nor does it expect that it will have any
significant impact on operations throughout 1997.
36
<PAGE> 40
ITEM 7. FINANCIAL STATEMENTS Page [PW TO PROVIDE] Number
<TABLE>
<CAPTION>
Page
Number
------
Financial Statements:
<S> <C>
Report of Independent Certified
Public Accountant F - 1
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F - 2
Consolidated Statements of Operations for the years
ended December 31, 1996, December 31, 1995 and
December 31, 1994 F - 3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, December 31, 1995 and
December 31, 1994 F - 4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995 and December 31
1994 F - 5
Notes to the Consolidated Financial Statements F - 6
</TABLE>
35
<PAGE> 41
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
<PAGE> 42
PART III
Incorporated by reference from the Company's definitive proxy statement
to be filed with the Securities and Exchange Commission.
37
<PAGE> 43
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
(i) The Company filed a report on Form 8-K on October 15, 1996. The
Report contains statements on (A) the acquisition of Resetel, (B) the
acquisition by HSI of the remaining common stock of Hewster, S.A. and
(C) pro forma condensed consolidated financial statements of the
Registrant reflecting such acquisitions.
<TABLE>
<CAPTION>
(b) EXHIBITS NO. DESCRIPTION OF EXHIBIT
------------ ----------------------
<S> <C>
3.1 Articles of Incorporation of the Registrant, previously filed
as an exhibit to the Registrant's Form 8-A Registration
Statement, filed with the SEC on November 29, 1994, and
incorporated herein by reference.
3.2 Amended and Restated Bylaw of Registrant, previously filed as
an Exhibit to the Registrant's Form 8-A Registration
Statement, filed with the SEC on November 29, 1994, and
incorporated herein by reference.
10.1 Employment Agreement between ICCA and Patricio E. Northland
dated November 4, 1996.
10.2 Subscription Agreement dated February 3, 1997 by and between
NU Investments, LLC and the Registrant
10.3 InterAmericas Communications Corporation 7% Convertible
Debentures Due February 3, 2000 issued to NU Investments, LLC
10.4 Warrant to Purchase 60,000 Shares of Common Stock of
InterAmericas Corporation dated February 3, 1997 Issued to NU
Investments LLC
10.5 Subscription Agreement dated February 3, 1997 by and Between
KA Investments, LDC and InterAmericas Corporation
10.6 InterAmericas Communications Corporation 7% Convertible
Debentures Due February 3, 2000 issued to KA Investments, LDC
10.7 Warrant to Purchase 40,000 Shares of Common Stock of
InterAmericas Communications Corporation dated February 3,
1997 issued to KA Investments, LDC
10.8 Concession granted by Chilean Department of Transportation and
Telecommunications to HSI, dated July 19, 1991, re:
telecommunication services, and incorporated herein by
reference
</TABLE>
37
<PAGE> 44
<TABLE>
<S> <C>
10.9* Modification of concession granted by Chilean Department of
Transportation and telecommunications to HSI, dated January
10, 1995 previously filed with the SEC on Form 10-KSB filed on
April 15, 1996
10.10* Modification of concession granted by Chilean Department of
Transportation and telecommunications to HSI, dated February
3, 1995, previously filed with the SEC on Form 10-KSB filed on
April 15, 1996
10.11 Stock Purchase and Sale Agreement dated May 9, 1996 between
the Company and Mayhelm, Ltd. the shareholder of Red de
Servicios de Telecomunicationes (Resetel) for the acquisition
by the Company of all issued and outstanding shares of
Resetel, previously filed as an exhibit to the Registrant's
Form 8-K filed with the SEC on October 15, 1996, and
incorporated herein by reference
10.12 Stock Purchase and Sale by and between the Registrant and
Mayhelm Ltd., previously filed as an Exhibit on Registrant's
Form 8-K, filed with the SEC on October 15, 1996, and
incorporated by reference
10.13 Stock Purchase and Sale Agreement by and between Registrant
and Hewster Servicios Intermedios, S.A. dated July 30, 1996,
previously filed as an Exhibit to the Registrant's Form 8-K,
filed with the SEC on October 15, 1996, and incorporated
herein by reference
10.14 Stock Purchase and Sale Agreement by and between Hewster
Servicios Intermedios, S.A. and Inverones Durna S.A. dated
July 30, 1996, previously filed as an Exhibit to the
Registrant's Form 8-K, filed with the SEC on October 15, 1996,
and incorporated herein by reference
10.15 Stock Purchase and Sale Agreement by and between Hewster
Servicios Intermedios, S.A. and Santiago Boza Saavedira dated
July 31, 1996, previously filed as an Exhibit to the
Registrant's Form 8-K, filed with the SEC on October 15, 1996,
and incorporated herein by reference
10.16 Stock Purchase and Sale Agreement by and between Registrant
and Devono Company LTD. dated July 4, 1996, previously filed
as an Exhibit to the Registrant's Form 8-K, filed with the SEC
on October 15, 1996, and incorporated herein by reference
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- --------
* Previously filed as an exhibit to the Registrant's Form 10-KSB for
the year ended December 31, 1994 and incorporated herein by reference.
38
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 15, 1997
INTERAMERICAS COMMUNICATIONS CORPORATION
By: /s/ Patricio E. Northland
---------------------------------
Patricio E. Northland, Chairman
In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Patricio E. Northland President, Chairman of the Board April 15, 1997
- ---------------------------- and Chief Executive Officer (Principal
Patricio E. Northland Executive Officer and Principal Accounting
Financial Officer)
/s/ Patricio Silva Echenique Director April 15, 1997
- ----------------------------
Patricio Silva Echenique
/s/ Philip Magiera Director April 15, 1997
- ----------------------------
Philip Magiera
/s/ Paul A. Moore Director April 15, 1997
- ----------------------------
Paul A. Moore
/s/ Douglas A. McClellan Director April 15, 1997
- ----------------------------
Douglas A. McClellan
/s/ George A. Cargill Director April 15, 1997
- ----------------------------
George A. Cargill
</TABLE>
39
<PAGE> 46
InterAmericas
Communications
Corporation
Consolidated Financial Statements
For the three years ended
December 31, 1996
F-1
<PAGE> 47
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
of InterAmericas Communications Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
InterAmericas Communications Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared on a
going-concern basis. As described in Note 3 to the consolidated financial
statements, the Company has suffered recurring losses and negative cash flows
from operations and has a working capital deficiency that raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments relating to the recoverability of
recorded asset amounts, including property and equipment and intangible assets,
that might be necessary should the Company be unable to continue as a
going-concern.
As described in Note 10, the Company has transactions and relationships with
related parties. Because of these relationships, it is possible that the terms
of these transactions may not be the same as those that would result from
transactions among wholly unrelated parties.
Price Waterhouse LLP
Miami, Florida
April 11, 1997
F-2
<PAGE> 48
INTERAMERICAS COMMUNICATION CORPORATION
CONSOLIDATED BALANCE SEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
December 31,
-------------------
Assets 1996 1995
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 723 $ 57
Accounts receivable 113 8
Other receivables 97 7
Prepaid expenses 330 119
Due from related parties 26 93
Other 38 4
-------- -------
Total current assets 1,327 288
Property and equipment at cost, net 3,956 2,885
Intangible assets, net 5,029 1,166
Other assets 42 8
-------- -------
Total assets $ 10,354 $ 4,347
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable:
Related parties $ 176 $ 779
Other 539 342
Accrued expenses 674 536
Notes payable, including $634 to related parties in 1995 -- 1,647
Lease obligations, current 114 11
Other current liabilities 171 --
-------- -------
Total current liabilities 1,674 3,315
Lease obligations, less current portion 248 210
Deferred income taxes 152 152
-------- -------
Total liabilities 2,074 3,677
-------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value, authorized 10,000,000
shares, none issued
Common stock, $.001 par value, authorized 50,000,000
shares, 16,152,518 and 11,951,685 issued and outstanding
in 1996 and 1995, respectively 16 12
Additional paid in capital 18,493 6,153
Accumulated deficit (10,151) (5,525)
Cumulative translation adjustments (78) 30
-------- -------
Total stockholders' equity 8,280 670
-------- -------
Total liabilities and stockholders' equity $ 10,354 $ 4,347
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
<PAGE> 49
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Year ended
December 31,
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Sales $ 652 $ 224 $ 34
Cost of sales 958 804 163
------------ ----------- -----------
Gross profit (loss) (306) (580) (129)
Selling, general and
administrative expenses 4,051 1,918 2,044
------------ ----------- -----------
Loss from operations (4,357) (2,498) (2,173)
Interest income 80 10 1
Interest expense (246) (319) (313)
Other (103) (66) (46)
------------ ----------- -----------
Net loss $ (4,626) $ (2,873) $ (2,531)
============ =========== ===========
Net loss per share $ (.31) $ (.31) $ (1.30)
============ =========== ===========
Weighted average common
shares outstanding 14,795,660 9,407,000 1,952,000
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE> 50
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Additional Cumulative
Common Stock Paid-in Accumulated Translation Accrued
Shares Amount Capital Deficit Adjustments Distributions Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 19,302 $-- $ 676 $ (121) $ (80) $-- $ 475
Recapitalization of
HSI shares and other 331,008 -- 488 -- -- -- 488
Common stock issued in
private placements 315,714 -- 1,002 -- -- -- 1,002
Conversion of debt 4,500,000 5 197 -- -- -- 202
Issuance of notes payable
for purchase of common
stock of HSI -- -- -- -- -- (6,088) (6,088)
Stock issued for consulting
services 1,150,000 1 274 -- -- -- 275
Currency translation
adjustment -- -- -- -- 66 -- 66
Net loss -- -- -- (2,531) -- -- (2,531)
========== === ======= ======== ===== ===== =======
Balances at
December 31, 1994 6,316,024 6 2,637 (2,652) (14) (6,088) (6,111)
Common stock issued in
private placements 635,761 1 1,962 -- -- -- 1,963
Conversion of debt 4,888,900 5 1,126 -- -- 6,088 7,219
Stock issued for acquisitions 111,000 -- 400 -- -- -- 400
Imputed interest on related
party notes -- -- 16 -- -- -- 16
Stock option grants -- -- 12 -- -- -- 12
Currency translation
adjustment -- -- -- -- 44 -- 44
Net loss -- -- -- (2,873) -- -- (2,873)
========== === ======= ======== ===== ===== =======
Balances at
December 31, 1995 11,951,685 12 6,153 (5,525) 30 -- 670
Common stock issued in
private placements 1,939,042 2 7,430 -- -- -- 7,432
Conversion of debt 1,011,791 1 1,985 -- -- -- 1,986
Stock issued for acquisitions 1,250,000 1 2,812 -- -- -- 2,813
Imputed interest on related
party notes -- -- 40 -- -- -- 40
Stock option grants -- -- 73 -- -- -- 73
Currency translation
adjustment -- -- -- -- (108) -- (108)
Net loss -- -- -- (4,626) -- -- (4,626)
========== === ======= ======== ===== ===== =======
Balances at
December 31, 1996 16,152,518 $16 $18,493 $(10,151) $ (78) $ -- $ 8,280
========== === ======= ======== ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
<PAGE> 51
INTERAMERICAS COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,626) $(2,873) $(2,531)
Adjustments to reconcile net loss to cash
used in operating activities
Amortization and depreciation expense 706 396 76
Services exchanged for common stock 73 12 275
Interest converted to equity 49 183 --
Changes in assets and liabilities:
(Increase) in accounts receivable (105) (70) (9)
(Increase) in accounts receivable - related parties (73) -- --
(Increase) decrease in prepaid expenses (217) 167 (221)
(Increase) decrease in other current assets 93 35 304
(Increase) decrease in other assets (53) 76 (69)
Increase in accounts payable 401 402 622
(Decrease) increase in accounts payable - related parties (491) (66) 112
Increase (decrease) in accrued expenses 138 (406) 941
Increase in other current liabilities 171 -- 11
(Decrease) in deferred taxes -- (6) --
------- ------- -------
Cash used in operating activities (3,934) (2,150) (489)
Cash flows from investing activities:
Purchase of property and equipment (1,453) (720) (1,849)
Acquisition of Visat -- (450) (200)
Acquisition of Hewster (1,515) -- --
------- ------- -------
Cash used in investing activities (2,968) (1,170) (2,049)
------- ------- -------
Cash flows from financing activities:
Issuance of common stock 7,432 1,963 1,490
(Repayments) additions to notes payable (1,063) 893 1,067
Additions to notes payable to related party 1,232 407 92
Payments under leasing obligations (31) -- --
------- ------- -------
Cash provided by financing activities 7,570 3,263 2,649
------- ------- -------
Net increase (decrease) in cash and cash equivalents 668 (57) 111
Effect of exchange rate changes on cash (2) -- --
Cash and cash equivalents at beginning of year 57 114 3
------- ------- -------
Cash and cash equivalents at end of year $ 723 $ 57 $ 114
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
<PAGE> 52
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1. Organization and Business
InterAmericas Communications Corporation ("the Company") is a provider
of telecommunications services over a fiber optic network in Santiago,
Chile, and, through its subsidiaries, holds international long distance
services and satellite communication concessions and licenses. The
Company is currently integrating the Santiago fiber-loop and satellite
station. During 1996 the Company acquired a telecommunications
concession in Peru and commenced operations in Lima. The Company
operates in Chile as Hewster Chile, S.A. ("Hewster") and VISAT S.A.
("Visat") and in Peru as Red de Servicios de Telecomunicaciones, S.A.
("Resetel"). During the three years ended December 31, 1996, the
Company has only generated revenues from Hewster.
The Company is the successor to Theodore Games, Inc. ("TGI"), a "public
shell," which acquired Hewster Servicios Intermedios, S.A. ("HSI") on
July 15, 1994 (Note 4). The acquisition of HSI was treated for
accounting purposes as a reverse acquisition as if HSI acquired TGI;
accordingly, the historical financial statements are those of HSI. TGI
was originally incorporated in the State of Nevada in 1989 for the
purpose of marketing a copyrighted board game. On June 28, 1994, the
stockholders of TGI approved a 7.025 to 1 reverse stock split, which
resulted in the reduction of outstanding shares of common stock from
1,405,000 shares, par value $.001 to 200,000 shares, par value $.001.
On July 15, 1994, Maroon Bells Capital Partners, Inc. ("MBCP") acquired
from TGI's stockholders, 150,000 shares of common stock of TGI
representing 75% of the issued and outstanding stock of TGI for
$90,000. Effective July 31, 1994, the Company sold its board game
business. In September 1994, HSI acquired Visat S.A. (Note 4).
Effective October 5, 1994, TGI changed its state of incorporation from
Nevada to Texas and its name to InterAmericas Communications
Corporation.
During the three years ended December 31, 1996 the Company concentrated
its efforts on the installation of fiber optic cable, raising capital
and acquiring rights to erect and operate satellite earth stations. The
Company has developed a long-term financial plan to address future cash
flow needs which contemplates significant debt and equity financings
(Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the
accompanying consolidated financial statements follows:
ACCOUNTING 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 and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
-25-
<PAGE> 53
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
The future recoverability of its investments is contingent upon the
Company's ability to complete its construction of fiber optic networks
and to establish an effective marketing plan that will enable it to
generate revenues in its competitive environment. Given the
uncertainties surrounding these matters, as well as the Company's
limited operations to date, it is not presently known whether the
Company's investments in Hewster, Visat and Resetel will ultimately be
recoverable. No adjustment has been recorded in the accompanying
financial statements regarding the recoverability of invested amounts.
The Company's continuously evaluate the recoverability of its long lived
assets, and provides for impairment at the time which, in management's
judgment, the asset is impaired.
CASH AND CASH EQUIVALENTS
The Company considers all certificates of deposit and highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized as service is provided in accordance with
contracts with customers.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Maintenance and repair
expenditures are expensed as incurred and expenditures for improvements
which increase the expected useful lives of the assets are capitalized.
Depreciation expense is computed using the straight line method over the
estimated useful lives of the related assets.
INTANGIBLE ASSETS
Long-lived assets are reviewed by management for impairment whenever
events or changes in circumstances indicate that the projected cash
flows of related activities may not provide for cost recovery.
Goodwill relating to the acquisition of Hewster is being amortized using
the straight line method over the estimated useful life of ten years.
Satellite transmission rights acquired in the acquisition of Visat
consist of permits and concessions granted by the Chilean governmental
authorities. The consolidated statement of operations for the three
years ended December 31, 1996 do not reflect amortization of these
rights because the Company has not yet begun the use of satellite
transmission. The amortization will be calculated using the
straight-line method over their estimated remaining useful lives.
-26-
<PAGE> 54
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
The concession acquired by Resetel, which was granted by the Peruvian
governmental authorities to operate a fiber optic network in Peru, is
being amortized using the straight line method over the life of the
concession, which is twenty years.
NET LOSS PER SHARE
All share and per share data presented in the financial statements
reflect the retroactive effects of the 7.025 to 1 reverse stock split
which occurred on June 28, 1994. The computation of net loss per share
of common stock is computed by dividing net loss for the year by the
weighted average number of shares outstanding during the year.
Antidilutive common stock equivalents are excluded from the calculation.
CONTRIBUTED SERVICES
Common stock exchanged for services and as inducements to make loans
have been recorded as consulting expense or interest expense additional
paid in capital at the estimated fair value of the common stock as
determined by the Board of Directors of the Company.
INCOME TAXES
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse.
STOCK BASED COMPENSATION
On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
SFAS 123 establishes a fair value based method of accounting for stock
based compensation, the effect of which can either be recorded or
disclosed. Upon adoption the Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25 "), and is providing proforma disclosure
of net income and earnings per share as if the fair value based method
prescribed by SFAS 123 had been applied in measuring compensation
expense for options granted in 1996 and 1995. In accordance with APB 25
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities are translated at end-of-period rates of
exchange. Income, expense and cash flows are translated at weighted
average rates of exchange for the period. The resulting currency
translation adjustments are accumulated and reported as a component of
stockholders' equity. The effect of foreign exchange rates on the
consolidated statements of operations and of cash flows is not
significant.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements were reclassified to
conform with the 1996 presentation.
-27-
<PAGE> 55
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
3. FINANCIAL CONDITION
The Company has developed a long-term financial plan to address future
cash flow needs. The plan contemplates significant debt and equity
financings to continue the development of the Chilean and Peruvian
telecommunications system and for working capital. In February 1995, the
Company completed a private placement equity offering which generated
net proceeds of approximately $3.2 million. In March and August of 1996,
the Company completed private placement equity offerings of $1.1 million
and $6.4 million, respectively. These proceeds have been used to
continue construction and development of the Chilean telecommunication
system, acquire Visat and provide working capital. Also in 1996, the
Company converted $2 million of debt to equity. The Company expects that
additional financing will be obtained in the near future; however, no
assurance can be given that the financing will be obtained and on
reasonable terms.
The Company has suffered recurring losses and negative cash flow from
operations and has a net working capital deficiency that raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
4. ACQUISITIONS
ACQUISITION OF HSI
On July 15, 1994, Theodore Games, Inc. ("TGI"), a public shell, now
InterAmericas Communications Corporation, acquired 99.9% of the
outstanding common stock of Hewster Servicios Intermedios, S.A. , a
Chilean Corporation controlled by the Company's former President and
Chairman of the Board. The acquisition was effected through the issuance
by TGI of two notes to the major stockholders of HSI in exchange for
99.9% of the issued and outstanding common stock of HSI. One of the
notes, in the amount of $3,112, was convertible into 2.3 million shares
of common stock of the Company and the second note, in the amount of
$6,088, was convertible into 4.5 million shares. This $6,088 convertible
note was recorded at December 31, 1994 as a liability and as a reduction
of stockholders' equity as "accrued distribution ". Effective September
30, 1994, the first note was converted and effective June 30, 1995 the
second note was converted. The former holders of the notes are currently
directors of the Company.
The acquistion of HSI was accounted for as a reverse acquisition,
resulting in HSI acquiring the Company, for accounting purposes, and the
recapitalization of HSI. The Company's negative net worth at the date of
acquisition was $8, represented by assets of $317 and liabilities of
$325. The historical stockholders' equity of HSI was restated for the
equivalent number of shares of TGI's stock outstanding.
-28-
<PAGE> 56
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
ACQUISITION OF VISAT
Effective September 23, 1994, the Company acquired 11 of the 20 issued
and outstanding common shares of Visat for $200. Visat holds a
government concession to provide intermediate telecommunication
services, including the installation and operation of a network of up to
12 satellite earth stations, throughout Chile. The Company and an
officer of the Company and the remaining shareholder of Visat also
entered into an agreement, effective September 1994, whereby the Company
and the officer of the Company agreed to acquire the 9 remaining
outstanding shares of common stock of Visat for $900 ($850 for the
Company and $50 for the officer), payable during 1995. During 1995, the
Company paid $450 in cash and the remaining $400 was satisfied on June
30, 1995 by the issuance of 111,000 shares of common stock. Visat had no
operations and no assets other than a government concession to provide
intermediate telecommunication services. The acquisition is being
accounted for under the purchase method of accounting. The total cost of
the acquisition of Visat totaled $1,050 and is included as part of
intangible assets in the accompanying consolidated balance sheet.
ACQUISITION OF RESETEL
Pursuan to a stock purchase agreement dated May 7, 1996, the Company
acquired 100% of the issued and outstanding stock of Resetel, a Peruvian
corporation, in exchange for 1,250,000 shares of Common Stock of the
Company. In addition, the Company paid debts to the shareholders and
others in the amount of approximately $300. The purchase price of
approximately $2,819,( including $6 of capitalized acquisition costs),
net of cash acquired of approximately $300, has been substantially
allocated to a concession and is included as part of intangibles in the
accompanying consolidated balance sheet. The acquisition has being
accounted for under the purchase method of accounting. A fair value of
$2.25 was assigned to each share issued to the shareholders of Resetel
based on the net proceeds per share in the March 1996 private placement.
The Company's second and third quarter financial statements reflected a
purchase price for Resetel of approximately $6,000. This value was based
on the share price trasacted in the June 1996 private placement. Given
the significant volatility of the Company's Stock Price, and relatively
"thin" market for its shares, current executive management believes the
purchase price documented in the Resetel Stock Purchase Agreement of
$2.8 million, which reflects the value of similar transactions, is a
better indicator of purchase price. Accordingly, the Company's second
and third quarter balance sheets have been restated to reflect this
change.
Resetel obtained a local carrier concession to operate a fiber-optic
telecommunications network serving corporate customers in metropolitan
Lima, Peru and the port city of Callao. The Company has commenced the
construction and operation of the fiber-optic network in Peru.
Effective May 7, 1996 the Company has consolidated the financial
position, results of operation and cash flows of Resetel.
ACQUISITION OF HEWSTER, S.A.
On July 31, 1996 the Company's wholly owned subsidiary, Hewster
Servicios Intermedios, S.A. acquired 99% of Hewster, S.A., a Chilean
corporation controlled by the Company's former President and Chairman of
the Board.
-29-
<PAGE> 57
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
On September 2, 1996, the Company paid $15 to the former Chairman of
the Board of Directors for the acquisition of the remaining 1% of the
outstanding stock of Hewster. The combined entity is operating under
the name of Hewster Chile, S.A.
The acquisition has being accounted for under the purchase method of
accounting. The estimated fair value of net assets acquired amounted
to approximately $183. The excess of cost over the fair value of net
assets acquired in the amount of $1,332 was recorded as goodwill and
is included as part of intangibles in the accompanying consolidated
balance sheet. Effective July 31, 1996, the Company has consolidated
the financial position, results of operation and cash flows of
Hewster.
5. Property and Equipment
Property and equipment consist of:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Fiber optic network $ 2,868 $ 2,781
Office space - capital lease 209 218
Office equipment, including $311 in 1996 566 117
($0 in 1995) under capital leases
Furniture and fixtures 62 34
Motor vehicles, including $13 in 1996
($0 in 1995) under capital leases 114 -
Equipment pending installation and
construction in progress 1,021 -
Other 56 117
4,896 3,267
Less: accumulated depreciation, including
$132 in 1996 ($9 in 1995) under capital leases (940) (382)
$ 3,956 $ 2,885
</TABLE>
<PAGE> 58
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C> <C>
Satellite transmission rights $ 1,166 $ 1,166
Concession 2,819 -
Goodwill 1,289 -
5,274 1,166
Less: Accumulated Amortization (245) -
$ 5,029 $ 1,166
============== ===========
</TABLE>
7. Accrued Expenses
<TABLE>
<CAPTION>
December 31,
1996 1995
Accrued expenses consist of:
<S> <C> <C> <C> <C>
Purchases of telecommunication equipment $ 376 $ 14
Professional fees 63 85
Interest 83 80
Salaries 14 67
Travel 17 -
Other 121 290
$ 674 $ 536
</TABLE>
<PAGE> 59
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
8. Notes Payable
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Promissory note payable to unrelated party, dated May 2,
1995, bearing interest at 8% per annum, due May 1, 1996.
This note is secured by the shares of common stock of HSI
owned by the Company, the shares of VISAT owned by HSI,
and all of the assets of HSI. As part of this note, the Company
issued the note holder warrants to purchase 200,000 shares
of common stock of the Company at $3.50 per share. This
note, plus accrued interest, was paid on March 15, 1996. $ $1,000
Convertible promissory note payable to Laura Investments,
Ltd (a company wholly-owned by the former President of the
Board), dated September 30, 1995, bearing interest at 6% per
annum. This note, plus accrued interest, was converted into
shares of common stock of the Company as described in Note 9. 115
Convertible promissory note payable to Laura Investments,
Ltd, dated December 31, 1995, bearing interest at 6% per
annum. This note, plus accrued interest, was converted into
shares of common stock of the Company as described in
Note 9. 284
Unsecured promissory note payable on demand, dated
November 8, 1994, bearing interest at 6% per annum
through June 30, 1995, and the lesser of 12% or the
highest rate allowed by applicable law, thereafter. This
note, plus accrued interest, was converted into shares of
common stock of the Company as described in Note 9. 35
Notes payable to MBCP: On June 1, 1994 MPCB
loaned the Company $300 pursuant to a convertible
secured promissory note. MBCP assigned the note as
described in Note 10. The note bears interest at 8% per
annum and is due June 30, 1996. A portion of the note
($100) was converted into 1.7 million shares of
common stock of the Company on September 23, 1994
upon the completion of the HSI acquisition. The remaining
$200, plus accrued interest, was converted into shares
of common stock as described in Note 9. 200
Other notes payable 13
$ $1,647
</TABLE>
<PAGE> 60
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
On July 8, 1994 the Company borrowed $1,000 through bridge loan
financings from Cabelex Electronique, Ltd. and Teleport Chile, Inc. The bridge
loans bear interest at 7% per annum and are due June 1, 1996. As an inducement
to make the loans, the Company also issued an aggregate of 500,000 shares of
restricted common stock valued at $.20 per share.
Cabelex Electronique, Ltd. transferred its interest in the $1,000
bridge loan described above to Teleport and the outstanding principal plus
accrued interest at July 1, 1995, of $781 was converted into 388,900 shares
of common stock and the Company issued to Teleport warrants to purchase 388,900
shares of common stock at $3.00 per share, which was no less the fair market
value of the common shares as determined by the Board of Directors. The
Company attributed no value to the warrants given the financial condition of
the Company at the time.
In 1996, several loans from related parties were converted to shares of
the Company's common stock in accordance with the respective loan agreements,
as follows:
<TABLE>
<CAPTION>
Interest Conversion Conversion Shares
Principal Interest Loan Date Rate Date Price Issued
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Laura Investments:
Convertible promissory
note payable $ 115 9/30/95 6% 3/31/96 $ 1.87 61,499
Convertible promissory
note payable 284 12/31/95 6% 3/31/96 1.96 144,770
Convertible promissory
note payable 1,233 3/31/96 6% 3/31/96 1.96 628,980
Interest on promissory note-
9/30/95 $ 3 1.87 1,865
Interest on promissory note-
9/30/95 4 1.96 2,171
MBCP:
Convertible note payable $ 200 7/1/94 8% 3/1/96 $ 2.25 88,888
Ted Swindells note payable 35 11/8/94 6% 1/1/96 1.75 20,000
Accounts payable 81 Various 0% 3/1/96 1.75 46,515
Interest on notes payable $ 30 1.75 17,103
---------
1,011,791
=========
</TABLE>
9. Stockholders' Equity
Stock Options
In anticipation of the HSI acquisition, the Board of Directors granted,
in 1994, stock options to three key executives to each purchase 100,000
shares of common stock at a purchase price of $.35 per share, which was
no less than the estimated fair value of the common shares as
determined by the Board of Directors. The options are fully vested and
expire in 2004. Subsequently, of the three, two key executives
terminated their relationship with the Company and 200,000 options were
cancelled.
<PAGE> 61
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Under the terms of employment agreements dated August 1, 1994, three
key executives were granted options to purchase 350,000, 250,000, and
135,000 shares of common stock, respectively, all at $2.50 per share,
which was no less than the estimated fair value of the common shares as
determined by the Board of Directors. Subsequently, two key executives
terminated their relationship with the Company and 600,000 of the
options were cancelled.
On August 1, 1994, the Board of Directors granted one employee options
to purchase 65,000 shares of common stock and another employee options
to purchase 15,000 shares of common stock at a purchase price of $2.50
per share, which was no less than the fair value of the common shares
as determined by the Board of Directors. Options to purchase 50,000
shares of common stock vest monthly over a three year period and expire
on July 31, 2004. The remaining options to purchase 30,000 shares of
common stock vest immediately on the date of grant.
On August 1, 1994, for serving on the Board of Directors, options were
granted to each of the four directors to purchase 50,000 shares of
common stock at a purchase price of $2.50 per share, which was no less
than the fair value of the common shares as determined by the Board of
Directors. In addition, each director who served on a committee also
received options to purchase an additional 15,000 shares at $2.50 per
share. Six directors serving on a committee received a total of
90,000 options to purchase 90,000 shares of common stock. The options
vested immediately on the date of grant.
Effective in September 1994, the Board of Directors and a majority of
the stockholders of the Company approved a Long-term Incentive Plan
(the "Plan") for key employees. The Plan authorizes grants of
incentive stock options, non-qualified stock options and stock
equivalents. On December 19, 1995, the Board of Directors approved a
stock option plan for directors for the years 1995 and 1996. Under this
plan the Board, in 1995, granted to each director options to purchase
10,000 shares and to certain directors additional options were given to
purchase from 90,000 to 150,000 shares of common stock of the Company
at a price based upon the preceding ten day moving average of the
closing price of the stock at December 19, 1995, which was $1.96 per
share. The total number of options granted in 1995 was 840,000
options.
On December 19, 1995, the Board of Directors approved the issuance to
outside consultants options to acquire 120,000 shares of common stock
of the Company at a price based upon the preceding ten day moving
average of the closing price of the stock at December 19, 1995, which
was $1.96 per share. The related estimated fair market value of these
options ($12) was expensed in 1995.
On March 14, 1996, the Board of Directors granted to five directors and
an underwriter options to purchase 925,000 and 100,000 shares of common
stock respectively at a purchase price of $2.25 per share which was not
less than the fair value of the common shares as determined by the
Board of Directors. The Board also granted options to acquire 35,000
shares of common stock to an outside consultant. The option price of
$2.35 per share was based upon the stock's trading price from the
private placement in February 1996. The related fair value of these
options of $73 is included as part of general and administrative
expenses in the accompanying consolidated statement of operations for
the year ended December 31, 1996.
<PAGE> 62
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
On November 13, 1996, the Board of Directors granted an option to the
Chief Executive Officer to acquire 1,000,000 shares of common stock at
a purchase price based on the average closing price of the first
fifteen calendar days after the date of issue. The option vests over a
two year period and expires in ten years.
Private Placements
In October 1994, the Company commenced a private offering of its common
stock. The Company issued 315,714 shares of common stock and raised
$1.1 million prior to December 31, 1994. In early 1995, the Company
closed the private placement, having issued a total of 951,476 shares
of common stock and raised a total of $3.0 million, net of expenses of
$260.
In February 1996, the Company commenced a private offering of its
common stock. The Company issued 500,000 shares of common stock and
raised $1.12 million through March 31, 1996, net of expenses of $80.
In June 1996, the Company commenced a private offering of its common
stock. The Company issued 1,439,000 shares of common stock and raised
$6.4 million through August 1996, net of expenses of $520.
10. Related Party Transactions
Pursuant to a consulting agreement with MBCP and other consultants, as
amended on June 5, 1994, the Company issued 1,150,000 shares of common
stock as consideration for contributed advisory services in connection
with the recapitalization of HSI described in Note 4. These shares
were valued at $.25 per share by the Board of Directors. The Company
has also paid MBCP $25 and issued warrants to purchase 75,000 shares of
common stock at $.25 per share in connection with services rendered in
connection with the bridge loans totalling $1,000 described in Note
4. Included in general and administrative expenses at December 31, 1994
are approximately $300 relating to this compensation.
On July 12, 1994, the Company entered into an agreement with MBCP,
amended October 13, 1994, which provides that MBCP will perform certain
financial advisory services for the Company for a fee of $10 per month
up to a maximum of $50 per month. The term of the agreement was for
twelve months. The amounts expensed relating to this agreement were
$100 and $60 in 1995 and 1994, respectively.
Pursuant to the terms of the MBCP Note (Note 8), MBCP was to receive
1,700,000 shares of common stock of the Company in connection with the
partial conversion of the Note in the amount of $100.
Pursuant to the terms of an agreement dated March 28, 1997, the Company
accrued $240 for consulting services provided by MBCP for the year
ended December 31, 1996.
In 1996, the Company purchased $493 in equipment where by MBCP acted as a
broker.
<PAGE> 63
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
The Company purchased approximately $172, $205 and $946 of certain
telecommunication equipment in 1996, 1995 and 1994, respectively, from
Telectronic, S.A. A Director of the Company is a founder and general
manager of Telectronic, S.A. Prior to its acquisition, Hewster, S.A.
provided to the Company approximately $206 in telecommunications
services and $31 in communication services during 1995. The Company's
former President and Chairman of the Board controlled Hewster, S.A.
The Company has issued notes payable to related parties which are at
rates below those that would have prevailed had the notes been between
unrelated parties. The Company imputed additional interest to these
loans in the aggregate amount of approximately $40, $16 and $0 in 1996,
1995 and 1994, respectively, based on the prevailing market interest
rates. The imputed interest on the loans was credited as additional
paid in capital.
All debt converted to common stock of the Company during the three
years ended December 31, 1996 was transacted with related parties (Note
9).
Pursuant to employment agreements, the Company paid $110,000 and
$120,000 to a shareholder in 1996 and 1995, respectively, to serve as
President and Chairman of the Board (Note 13).
Other non-interest bearing balances with related parties are as
follows:
Due from related parties:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C> <C> <C>
Inversiones Druma, S.A. $ 10 $ 45
Former Chairman of the Board and shareholder 16 48
$ 26 $ 93
</TABLE>
<TABLE>
<CAPTION>
Due to related parties: December 31,
1996 1995
<S> <C> <C>
Hewster, S.A. $ - $ 50
Inversiones Druma, S.A. - 118
Telectronic, S.A. 98 442
Directors - 38
Shareholders 16 50
MBCP - 81
General Manager 62 -
$ 176 $ 779
</TABLE>
<PAGE> 64
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
During April and May, 1996, the Company borrowed an aggregate of
$173 from Laura Investments, Ltd. (Note 8) pursuant to three
Promissory Notes (the "Notes"). The principal sum of the Notes,
together with simple interest at the rate of 6% per annum was paid on
September 30, 1996. On June 21, 1996, the Company borrowed an
additional $50 from Laura Investments, Ltd. pursuant to a
Promissory Note. The principal sum together with simple interest at the
rate of 6% was paid on July 18, 1996.
In addition, the Company has entered into the following related party
transactions:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Expense reimbursements to directors $ 57 $ - $ -
Expense reimbursements to other shareholders 166 - -
Consulting fees to directors 50 56 -
Fixed asset installation and maintenance
services provided by a company controlled
by a shareholder - 150 -
Interest paid to a company controlled by a
shareholder 86 - -
Communication services paid to a company
controlled by a shareholder - 31 -
</TABLE>
11. Income Taxes
The Company is subject to federal, state and foreign income taxes but
has not incurred a liability for such taxes due to losses incurred.
At December 31, 1996 the Company has net tax operating loss
carryforwards of approximately $3,782 for U.S. income tax purposes and
approximately $4,466 for foreign income tax purposes. These
carryforwards are available to offset future taxable income, if any,
and expire for U.S. income tax purposes in the years 2007 through 2011
and do not expire for foreign income tax purposes. As a result of a
substantial change in the Company's ownership at July 15, 1994,
approximately $475 of the U.S. net operating loss carryforward is
subject to an annual limitation on the amount that can be utilized.
- 37 -
<PAGE> 65
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
The Company's deferred tax balances consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Deferred asset:
Net operating loss carryforward $ 2,081 $ 1,036
Deferred liability:
Purchase accounting adjustments (VISAT) (152) (152)
--------------- ----------------
1,929 884
Valuation allowance 1,929 (884)
--------------- ----------------
$ - $ -
=============== ================
</TABLE>
The valuation allowance results from the uncertainty surrounding the
future realization of the net operating loss carryforwards.
The Company has not yet filed its federal and income tax returns for
the year ended December 31, 1995, for which the extended due date was
September 16, 1996. Because of its net operating loss position,
management believes that the tax consequences of not yet filing the
1995 tax return will not have a material impact on the financial
statements and related income tax disclosures.
12. Employee Stock Option Plan
As discussed in Note 9, the Company established in 1994 a Long-term
Incentive Plan (the "Plan") for key employees. The Company applies APB
25 and related interpretations in accounting for the Plan. The policy
of the Company has been to grant options under the Plan at an exercise
price equal to the estimated market value of the Company's common stock
at the date of the grant, except for certain grants made in 1995 for
which $12 was charged to expense in that year. Has compensation costs
for the Company's Plan been determined based on the fair value at the
grant dates of options granted consistent with the method of SFAS 123,
the Company's loss and loss per share would have been increased to the
proforma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss As Reported $ (4,676) $ (2,873)
Proforma (7,510) (4,375)
Net loss per share As Reported (.31) (.31)
Proforma (.51) (.47)
</TABLE>
- 38 -
<PAGE> 66
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
The Company's Plan provides for the granting of non qualified stock
options to officers and key employees. Under the terms of the Plan,
options have a maximum term of ten years from the date of the grant.
The options vesting period varies from full vesting upon issuance of
options to one thirty sixth per month to the end of the option term. A
summary of the Plan's activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,565,000 $ 2.97 605,000 $ 2.13 - $ -
Granted 2,060,000 2.52 960,000 1.96 1,405,000 2.04
Exercised - - - - - -
Cancelled - - - - (800,000) -
--------- -------- --------- ---------- --------- ---------
Outstanding at
end of year 3,625,000 $ 2.67 1,565,000 $ 2.97 605,000 $ 2.13
========= ======== ========= =========== ========= =========
Options
exercisable
at year-end 2,754,734 $ 2.54 1,250,350 $ 2.57 534,170 $ 2.10
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------------
Weighted Average
Exercise Number Remaining Number Exercise
Price Outstanding Contractual Life Exercisable Price
<S> <C> <C> <C> <C>
$ .35 100,000 8 100,000 .35
$1.96 960,000 9 860,000 1.96
$2.25 1,025,000 10 1,025,000 2.25
$2.35 35,000 8 35,000 2.35
$2.50 505,000 8 401,400 2.50
$2.81 1,000,000 10 333,334 2.81
--------- ------------- ---------
3,625,000 9 years 2,754,734
========= =========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in
- 39 -
<PAGE> 67
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1996 and 1995: volatility of 113 percent (computed based on historical
daily stock prices and considered management's best estimate),
risk-free interest rates of 6.72 percent, zero dividend yield and
expected lives ranging from 4 to 8 years. The fair value of options
granted during 1996 and 1995 includes 2,060,000 shares at a weighted
average exercise price of $2.38 in 1996 and 960,000 shares at a
weighted average exercise price of $1.77 in 1995.
13. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company entered into an operating agreement in 1993 with Metro S.A.
to install and operate the Company's optical fiber telecommunication
network in the tunnels, conduits and stations of lines 1 and 2 of the
Santiago subway system. The Company has given Metro S.A. a $50
performance bond relating to these leases. The monthly lease rental is
equivalent to 15% of the net monthly invoicing of the company for
services rendered in the metropolitan region of Chile, subject to
minimum amounts. The lease expires in the year 2003. In addition, the
Company must pay $250 over the next two years to Metro, S.A. for the
right to use their installations for the development of the optical
fiber telecommunications network and they are obligated to provide
certain telecommunications services to Metro, S.A.
Effective April 8, 1996 the Company entered into a one year lease
agreement by assignment from a consultant to the Company. The Company
maintained its corporate office at this location until December 31,
1996. The original leaseholder has occupied this office subsequent to
December 31, 1996.
Effective December 12, 1996 the Company entered into a one year lease
agreement for its corporate offices in Miami, Florida.
The following summarizes future minimum payments under non-cancelable
operating lease agreements at December 31, 1996:
<TABLE>
<S> <C>
1997 $ 769
1998 776
1999 838
2000 923
2001 1,077
2002-2003 1,941
----------
$ 6,234
==========
</TABLE>
Rental expense for the leases was $508, $255 and $88 for the years
ended December 31, 1996, 1995 and 1994, respectively.
- 40 -
<PAGE> 68
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
On March 10, 1995 the Company entered into a 144 month capital lease
agreement with Aetfin - Mixto, S.A. for the offices its occupies in
Santiago, Chile. During 1996 the Company entered into several 12-24
month capital lease agreements for office equipment and vehicles. Its
obligations under these leases, including deferred interest, are
summarized as follows:
<TABLE>
<S> <C>
1997 $144
1998 82
1999 34
2000 34
2001 34
Thereafter 176
----
504
Less-Amount Representing Deferred Interest (142)
----
Present Value of Obligations Under Capital Lease 362
Less-Current Portion (114)
----
$ 248
====
</TABLE>
EMPLOYMENT AGREEMENT
On November 13, 1996 the Board of Directors appointed a new Chairman
and Chief Executive Officer. The new Chairman and Chief Executive
Officer entered into an agreement with the Company through December 31,
1999. Terms of the employment and severance agreement include base
salary, performance awards up to 100% of base salary, non-qualified
stock option to purchase 1,000,000 shares of the Company's common stock
(Note 9), a severance payment equal to 100% of base salary and 100%
vesting of the options.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest 153 2 35
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $172, $221 and $-0- were incurred in 1996,
1995 and 1994 respectively, as a result of the Company entering into
equipment leases.
Notes payable were converted to shares of the Company's common stock in
the amounts of $1,986, $7,219 and $202 in 1996, 1995 and 1994,
respectively.
In 1996, common stock was issued in connection with the acquisition of
Resetel in the amount of $2,813.
- 44 -
<PAGE> 69
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
In 1995, common stock was issued for the purchase of Visat in the
amount of $400.
In 1994, notes payable were issued in connection with the acquisition
of Hewster in the amount of $6,088.
15. SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES AND WARRANTS
On February 3, 1997, the Company issued $1,500 aggregate principal
amount of 7% Convertible Debentures due February 3, 2000 (the
"Debentures") and Warrants to purchase an aggregate of 100,000 shares
of the Company's Common Stock.
Interest on the outstanding principal amount of the Debentures is
compounded annually and as payable on a semi-annual basis commencing six
months from the issue date. In lieu of cash interest payment, the
holders of the Debentures (each a "Holder," collectively the "Holders")
may require the Company to issue shares of its Common Stock, $.001 par
value per share ("Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder
elects to receive all or a portion of the Common Stock, the Company
shall issue to the Holder such number of fully paid and non-assessable
shares of Common Stock as shall have an aggregate average closing bid
price (as reported in the NASDAQ Small Cap Market) for the five
consecutive trading days ending on the trading day prior to the date
such interest is payable, equal in amount to the interest which the
Holder has elected to receive in kind.
The Debentures are convertible, at the option of the Holder, into
shares of Common Stock at any time prior to maturity at a conversion
price of each share of Common Stock equal to the lesser of (i) the
average closing price (as reported by the NASDAQ Small Cap Market) of
the Company's Common Stock for the five consecutive trading days ending
on the trading day immediately preceding the date of the Debentures
(the "Fixed Conversion Price") or, (ii) 83% of the average closing bid
price (as reported by The NASDAQ Small Cap Market) of the Company's
Common Stock for the five consecutive trading days ending on the
trading day immediately preceding the conversion date. Notwithstanding
the foregoing, in the event that the closing bid price (as reported by
The NASDAQ Small Cap Market) of the Company's Common Stock for ten
consecutive trading days is equal to or less than $2.25 (as adjusted
for stock splits, combinations and similar recapitalizations affecting
the Common Stock), the Company may, on one and only one occasion,
suspend the Purchaser's ability to convert any part of the outstanding
Debentures for a period not to exceed 45 days.
The Company is entitled to prepay the entire amount of the Debentures
or any portion thereof, at any time or from time to time, upon not less
than ten nor more than twenty days' prior written notice. The
prepayment price shall equal one hundred seventeen percent (117%) of
the principal amount to be prepaid plus all accrued and unpaid
interest. Any such prepayment shall be made pro rata among each of the
Debentures in proportion to the original principal amount thereof.
- 43 -
<PAGE> 70
INTERAMERICAS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
The obligation of the Company to pay the principal of and interest in
this Debenture, and to discharge all its other obligations hereunder,
are subordinate and junior in right of payment, to (a) all obligations
of the Company to commercial banks for borrowed money, (b) all
obligations of the Company to commercial banks under guarantees by the
Company of obligations of wholly-owned subsidiaries of the Company to
commercial banks for borrowed money, in each case, whether such
obligations are outstanding at the date of the Debentures or created or
incurred after the date of the Debentures but prior to the maturity of
the Debentures and (c) all obligations of the Company to holders of the
Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company.
The Warrants allow the grantee to purchase an aggregate of 100,000
shares of Common Stock of the Company at any time, or from time to
time, on or before February 2, 2002 for the exercise price of $5.00 per
share, subject to certain adjustments in the exercise price or the
number of Warrant shares.
- 44 -
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT
AND SEVERANCE AGREEMENT
THIS EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT (the "AGREEMENT") is
executed as of the 4th day of November, 1996, by and between InterAmericas
Communications Corporation, a Texas corporation (hereinafter referred to as the
"COMPANY"), and Patricio E. Northland (hereinafter referred as the
"EXECUTIVE").
WITNESSETH:
WHEREAS, the Company desires to have the benefit of the Executive's
efforts and services:
WHEREAS, the Executive is willing to commit himself to serve the Company,
on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the Executive
wish to enter into an employment agreement on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree a follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "ACCRUED BENEFITS" shall mean the amount payable not later than
ten (10) days following and applicable Termination date and which shall
be equal to the sum of the following amounts:
(i) All salary earned or accrued through the Termination
Date;
(ii) Reimbursement for any and all monies advanced in
connection with the Executive's employment for reasonable and
necessary expenses incurred by the Executive through the
Termination Date;
(iii) Any and all other cash benefits previously earned
through the Termination Date and deferred at the election of the
Executive or pursuant to any deferred at the election of the
Executive or pursuant to any deferred compensation plans then in
effect;
(iv) The full amount of any stated performance award payable
to the Executive in accordance with Section 6(b) herein with
respect to the year in which termination occurs; and
(v) All other payments and benefits to which the Executive
may be entitled under the terms of any benefit plan of the Company.
(b) "ACT" shall mean the Securities Exchange Act of 1934;
(c) "BENEFICIAL OWNER" shall have the same meaning as given to that
term in Rule 13d-3 of the General Rules and Regulations of the Act,
provided that any pledgee of Company
<PAGE> 2
voting securities shall not be deemed to be the Beneficial Owner
thereof prior to its disposition of, or acquisition of voting rights
with respect to, such securities;
(d) "BOARD" shall mean the Board of Directors of the Company;
(e) "CAUSE" shall mean any of the following:
(i) The engaging by the Executive in fraudulent conduct, as
evidenced by a determination in a binding and final judgment, order
or decree of a court or administrative agency of competent
jurisdiction, in effect after exhaustion or lapse of all rights of
appeal, in an action, suit or proceeding, whether civil, criminal,
administrative or investigative, which the Board determines, in its
sole discretion, has a significant adverse impact on the Company in
the conduct of the Company's business;
(ii) Conviction of a felony criminal offense, as evidenced by
a binding and final judgment, order or decree of a court of
competent jurisdiction in effect after exhaustion or lapse of all
rights of appeal, which the Board determines, in its sole
discretion, has a significant adverse impact on the Company in the
conduct of the Company's business;
(iii) Refusal by the Executive to perform the Executive's
duties or responsibilities (unless significantly changed without
the Executive's consent); or
(iv) Gross Negligence by the Executive in performing the
Executive's duties or responsibilities (unless significantly
changed without the Executive's consent)
Notwithstanding the foregoing, Cause shall not exist under Sections 1
(e)(iii) and (iv) herein unless the Company furnishes written notice to
the Executive of the specific offending conduct and the Executive fails
to correct such offending conduct within the fifteen (15) day period
commencing on the receipt of such notice.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time;
(g) "DISABILITY" shall mean a physical or mental condition whereby
the Executive is unable to perform on a full-time basis the customary
duties of the Executive under this Agreement;
(h) "EFFECTIVE DATE" shall mean November 1, 1996, notwithstanding
the date that this Agreement is executed by the parties hereto.
(i) "EXECUTIVE COMMITTEE" shall consist of three members, one of
whom shall be the Executive and the other two members shall be appointed
by the Board of Directors.
(j) "GOOD REASON" shall mean:
(i) The required relocation of the Executive, without the
Executive's consent, to an employment location which is more than
seventy-five (75) miles from the Executive's employment location on
the day preceding the date of this Agreement;
(ii) A significant reduction by the Company in the
compensation and/or benefits (including bonuses) provided to
the Executive as in effect on the day preceding the date of this
Agreement a the same may be increased from time to time after the
date of the Agreement (other than a one-time reduction of
twenty-five percent (25%) or less in
2
<PAGE> 3
the compensation and/or benefits which reduction is generally
effective for all executives employed by the Company (or its
successor) in the Executive's class or category);
(iii) The removal of the Executive from or any failure to
reelect the Executive to any of the positions held by the Executive
as of the date of this Agreement or any other positions to which
the Executive shall thereafter be elected or assigned except in the
event that such removal or failure to reelect related to
termination by the Company of the Executives employment for Cause
or by reason of death, Disability or voluntary retirement;
(iv) A significant adverse change, without the Executive's
written consent, in the nature or scope of the Executive's
authority, powers, functions, duties or responsibilities, or a
material reduction in the level of support services, staff,
secretarial and other assistance, office space and accouterments
available to a level below that which was provided to the Executive
on the day preceding the date of this Agreement and that which is
necessary to perform any additional duties assigned to the
Executive following the date of this Agreement, which change or
reduction is not generally effective for all executives employed by
the Company (or its successor) in the Executive's class or
category; or
(v) Breach violation of any material provision of this
Agreement by the Company.
(k) "NOTICE OF TERMINATION" shall mean the notice described in
Section 14 herein;
(l) "PERSON" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity (including a "group" as
defined in Section 13 (d)(3) of the Act), other than an employee benefit
plan of the Company or an entity organized, appointed or established
pursuant to the terms of any such benefit plan;
(m) "TERMINATION DATE" shall mean, except as otherwise provided in
Section 14 herein,
(i) The Executive's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination terminating the Executive's employment on account of
Disability pursuant to Section 9 herein, unless the Executive
returns on a full-time basis to the performance of his or her
duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the notice of
Termination if the Executive's employment is terminated by the
Executive voluntarily; and
(iv) Thirty (30) days after the delivery of the Notice of
Termination the Executive's employment is terminated by the Company
for any reason other than death or Disability;
(n) "TERMINATION PAYMENT" shall mean the payment described in
Section 13 herein;
2. EMPLOYMENT.
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to serve the Company, on the terms and conditions set forth herein.
3
<PAGE> 4
3. TERM.
The employment of the Executive by the Company pursuant to the provisions
of this Agreement shall commence on the Effective Date and end on December 31,
1999.
4. POSITIONS AND DUTIES.
(a) The Executive shall serve as Chairman, President and Chief
Executive Officer of the Company. In connection with the foregoing
positions, the Executive shall have such duties, responsibilities and authority
as may from time to time be assigned to the Executive by the Board or the
Executive Committee. The Executive shall devote substantially all the
Executive's working time and efforts to the business and affairs of the
Company.
(b) The Executive shall have the authority to do the following,
provided, however, that items exceeding $100,000 in total must be
approved by the Executive Committee or the Board of Directors:
(i) Approve budgets, cash flow plans and schedules and any
amendments thereto;
(ii) Enter into or materially amending any contract for the
sale, lease, exchange or other disposition of any portion of the
property or assets of the Company other than in the ordinary and
normal course of business, including, without limitation, any
lease, or contract for the disposition of any real property;
(iii) Approve all employment contracts, employee benefit
plans, parameters for collective bargaining and other material
labor agreements, if any, fundamental personnel policies and all
material amendments thereto;
(iv) Appoint the independent public accounts of the Company;
(v) Approve the Company's operating and expansion program,
cash flow plans and schedules and any amendments thereto;
(vi) Commence, terminate or settle any claim or lawsuit or
other legal action or arbitral or administrative proceeding, after
obtaining any required approval of the Executive Committee;
(vii) Incur indebtedness not in excess of $250,000 in
aggregate principal amount at any one time outstanding;
(viii) Provide or acquire all materials, supplies, machinery,
equipment and services required for the Company and disposing of
the same in the ordinary course of business;
(ix) Procure from outside experts and consultants all legal,
accounting, and other professional services required by the
Company;
(x) Hire, or allocate from its own personnel, all
executives, managers and employees required for the operation
of the business of the Company, including the selection, terms of
employment and termination thereof, rights of compensation and the
supervision, direction, training and assignment of duties of all
employees;
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(xi) Prepare and file all reports, returns and notices
required to be filed by the Company;
(xii) Secure and maintain adequate liability and property
insurance, in accordance with good industry practice, covering the
insurable risks of the Company;
(xiii) Open and maintain such bank accounts in the Company's
name as the Executive shall deem appropriate, with funds authorized
to be withdrawn therefrom upon signature of such Executive,
Executive Committee or Board of Directors as the Executive shall
deem appropriate; and
(xiv) Take any other action that may be authorized by the
Board of Directors.
(c) The Executive shall report to the Board of Directors and to the
Executive Committee.
5. PLACE OF PERFORMANCE.
In connection with the Executive's employment by the Company, the
Executive shall be based in Miami, Florida, except for required travel on
Company business.
6. COMPENSATION AND RELATED MATTERS.
So long as the Executive is in compliance with the provisions of this
Agreement, the Company shall pay or provide to the Executive the following
compensation and other benefits:
(a) Commencing on the date hereof, the Company shall pay to the
Executive an annualized base salary at a rate of $300,000 (Three Hundred
Thousand U.S. Dollars) per annum in equal installments as nearly as
practicable on the fifteenth and last days of each month, in arrears.
The annualized base salary shall be adjusted annually by an amount equal
to the Consumer Price Index for the most recent quarter preceding each
anniversary of this Agreement. The Executive's salary may be increased
above the foregoing amounts at the discretion of the Compensation
Committee of Board of Directors.
(b) Performance awards.
(i) Each year the Executive shall have the opportunity to
earn a Primary Performance Award which will be based upon
business criteria which enhance shareholder value during the fiscal
year being reviewed. These business criteria may include stock
appreciation, revenues, EBITDA, acquisitions, strategic
partnerships, capitalization and free cash flow;
1/ At least sixty (60) days prior to the end of each fiscal
year, the Compensation Committee shall furnish the Executive the
proposed criteria for the Primary Performance Award for the ensuing
fiscal year, which shall include, set out in reasonable detail, all
proposed business criteria, objectives, goals, expectations, as
well as such other information to be useful and necessary in
evaluating the Executive's performance for the ensuing fiscal year.
2/ The Compensation Committee shall, at all times, maintain
and keep true, correct and complete records of the Compensation
Committee's evaluations of the Executive's progress towards
attaining the Primary Performance Award criteria. Such records and
evaluations shall be open at all reasonable items for inspection by
the Executive. The Compensation Committee shall furnish to the
Executive annually (within
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sixty (60) days after the end of each fiscal year) a report
detailing the Executive's performance pursuant to the Primary
Performance Award criteria.
3/ If the Executive achieves all Primary Performance Award
criteria established by the Compensation Committee for that year,
the Compensation Committee shall recommend to the Board of
Directors the granting of a performance award up to 100% of the
base salary. The award will be paid in cash;
4/ If the Executive fails to achieve any of the Primary
Performance Award criteria, the Compensation Committee may still
grant a performance award in its sole discretion.
(ii) Financing Performance Award: Upon the successful closing
of the first major financing after the date of this Agreement,
which financing is currently expected to be a $40 million
convertible debt financing placed by Forum Capital Markets or
another major underwriter, the Executive shall be granted a
Financing Performance Award equal to (a) $200,000 paid in cash and
(b) a Financing Performance Option (the "Financing Performance
Option") to purchase 250,000 shares of the Company's common stock
at a price equal to (a) the conversion price of any convertible
debt or preferred stock sold in such offering, or (b) in the event
that no convertible debt or preferred stock is sold in such
offering, the sale price of any common stock sold in such offering.
Such Financing Performance Option shall vest to the Executive 1/3
upon closing of the related financing, 1/3 one year after the
closing of such financing and 1/3 two years after the closing of
such financing. In the event that a financing is closed for an
amount greater than or less $40 million, the Executive's
compensation paid pursuant to this paragraph shall be adjusted on a
pro-rata basis based on the terms provided in this paragraph..
(iii) Revenue Performance Award: The Executive shall be
compensated for Incremental Revenues generated during the term of
this Agreement. Incremental Revenues shall be defined as the
increase in revenues earned by the Company in any fiscal year
relative to the prior fiscal year. The Revenue Performance Award
shall be paid as follows: (a) In March 1988, the Executive shall
be paid 2.5% of the Incremental Revenues generated in the 1997
fiscal year, (b) in March 1999, the Executive shall be paid 2.0% of
the Incremental Revenues generated in the 1998 fiscal year, and (c)
in March 2000, the Executive shall be paid 1.5% of the Incremental
Revenues generated in the 1999 fiscal year. The Incremental
Revenues upon which the Revenue Performance Award is calculated
shall only be calculated for the immediately preceding fiscal year,
and shall not be cumulative over the term of this Agreement. In
the event that Gateway Worldwide Communications, Inc. ("Gateway")
is acquired by the Company, such Incremental Revenues shall not
include the revenues acquired from Gateway which shall be defined
as the revenues generated by Gateway in the three months
immediately preceding Gateway's acquisition multiplied by four.
Such Incremental Revenues will, however, include Incremental
Revenues generated by Gateway subsequent to its acquisition by the
Company.
(c) During the term of the Executive's employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable travel expenses incurred by the Executive in performing
services hereunder, including all expenses of travel (in business class
or superior class of service) and living expenses while away from home on
business or at the request of and in the service of the Company, provided
that such expenses are incurred and accounted for in accordance with the
policies and procedures presently established by the Company;
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(d) The Executive hereby is granted a non-qualified stock (the
"OPTION") to purchase 1,000,000 shares of the Company's common stock at
an exercise price equal to the lesser of (i) $3.90 (three dollars and
ninety cents), the five day trailing average closing price of the
Company's common stock on November 4, 1996, or (ii) the average closing
price of the Company's common stock during any five consecutive trading
days during the first fifteen calendar days after the date of this
Agreement. The Option may be exercised, in whole or in part, in
accordance with the following vesting schedule: (i) 1/3 of the Option
shall vest immediately upon the signing this Agreement, (ii) 1/3 of the
Option shall vest one year after the signing of this Agreement, (iii) 1/3
of the Option shall vest two years after the signing of this Agreement.
The Option shall expire ten (10) years from the date hereof (the
"EXPIRATION DATE"), and must be exercised, if at all, in whole or in
part, on or before the Expiration Date. The Option Agreement will be in
substantially the form of Exhibit "1" attached hereto. In the event that
the 30 day trailing average closing market price of the Company's common
stock on the date one year after the signing of this Agreement is below
the original exercise price of the Option, the exercise price of the
Option shall be adjusted to equal that 30 day trailing average price.
(e) Registration Rights: Any shares purchased by the Executive
through the exercise of either the Option or the Financing Performance
Option shall be granted piggy back registration rights upon the terms and
subject to the conditions of that certain Registration Rights Agreement,
of even date herewith, between the Company and the Executive, a copy of
which is attached hereto as Exhibit 2.
(f) The Executive shall be entitled to four weeks vacation in each
calendar year, and to compensation in respect of earned but unused
vacation days, determined in accordance with the Company's vacation plan
or policy. The Executive shall also be entitled to all paid holidays
provided by the Company to its executives;
(g) The Company shall furnish the Executive with office space, and
such other facilities and services as shall be suitable to the
Executive's position and adequate for the performance of the Executive's
duties as set forth in Section 4 herein.
(h) The Executive shall be provided a car allowance not to exceed
$1,000 per month.
(i) The Executive shall be provided with major medical,
hospitalization, and dental insurance; disability insurance; and term
life insurance equal to one year's salary.
7. OFFICES.
The Executive agrees to serve without additional compensation, if elected
or appointed thereto, as a member of the Board of Directors or any subsidiary
of the Company; provided, however, that the Executive is indemnified for
serving in any and all such capacities on a basis no less favorable than is
currently provided in the Company's bylaws.
8. TERMINATION AS A RESULT OF DEATH.
If the Executive shall die during the term of this Agreement, the
Executive's employment shall terminate on the Executive's date of death and the
Executive's surviving spouse, or the Executive's estate if the Executive dies
without a surviving spouse, shall be entitled to the Executive's Accrued
Benefits as of the Termination Date and any applicable Termination Payment as
defined in Section 13(a).
9. TERMINATION FOR DISABILITY.
If, as a result of the Executive's Disability, the Executive shall have
been unable to perform the Executive's duties hereunder on a full-time basis
for ninety consecutive days or 180 days in any 360 day
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period, the Company may terminate the Executive's employment subject to
Section 14 herein. During the term of the Executive's Disability prior to
termination, the Executive shall continue to receive all salary and benefits
payable under Section 6 herein, including participation in all employee benefit
plans, programs and arrangements in which the Executive was entitled to
participate immediately prior to the terms and provisions of such plans,
programs, and arrangements. In the event that the Executive's participation in
any such plan, program or arrangement is barred as the result of such
Disability, the Executive shall be entitled to receive an amount equal to the
contributions, payments, credits or allocations which would have been paid by
the Company to the Executive, to the Executive's account or on the Executive's
behalf under such plans, programs and arrangements. In the event the
Executive's employment is terminated on account of the Executive's Disability
in accordance with this Section 9, the Executive shall receive the Executive's
Accrued Benefits as of the Termination Date and shall remain eligible for all
benefits provided by any long-term disability programs of the Company in effect
at the time of such termination. The Executive shall be entitled to the
Termination Payment as defined in Section 13(a).
10. TERMINATION FOR CAUSE.
If the Executive's employment with the Company is terminated by the
Company for Cause, subject to the procedures set forth in Section 14 herein,
the Executive shall not be entitled to receipt of any Termination Payment.
11. OTHER TERMINATION BY COMPANY.
If the Executive's employment with the Company is terminated by the
Company other than by reason or death, disability or Cause, subject to the
procedures set forth in Section 14 herein, the Executive (or in the event of
the Executive's death following the Termination Date, the Executive's surviving
spouse or the Executive's estate if the Executive dies without a surviving
spouse) shall receive the applicable Termination Payment as defined in Section
13(b) and other benefits described in Sections 6(b) through 6(e) herein. The
Executive shall not, in connection with any consideration receivable in
accordance with this Section 11, be required to mitigate the amount of such
consideration by securing other employment or otherwise and such consideration
shall not be reduced by reason of the Executive securing other employment or
for any other reason.
12. VOLUNTARY TERMINATION BY EXECUTIVE.
Provided that the Executive furnishes thirty (30) days prior written
notice to the Company, the Executive shall have the right to voluntarily
terminate this Agreement at any time. If the Executive's voluntary termination
is without Good Reason, the Executive shall receive the Executive's Accrued
Benefits as of the Termination Date and shall not be entitled to any
Termination Payment. If the Executive's voluntary termination is for Good
Reason, the' Executive (or in the event of the Executive's death following the
Termination Date, the Executive's surviving spouse or the Executive's estate if
the Executive dies without a surviving spouse) shall receive the applicable
Termination Payment. The Executive shall not, in connection with any
consideration receivable in accordance with this Section 12, be required to
mitigate the amount of such consideration by securing other employment or
otherwise and such consideration shall not be reduced by reason of the
Executive securing other employment or for any other reason.
13. TERMINATION PAYMENT.
(a) If the Executive's employment is terminated as a result of death
or disability, the lump sum Termination Payment payable to the Executive
shall be equal to 100% of the Executive's then current annual base salary
and all vested options;
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(b) If the Executive's employment is terminated by the Company for
any reason other than death, disability or Cause, the lump sum
Termination Payment payable to the Executive shall be equal to 100% of
the Executive's then current annual base salary and all vested options;
(c) It is the intention of the Company and the Executive that no
portion of the Termination Payment and any other "payments in the nature
of compensation" (as defined in Section 280(3 of the Code and the
regulations adopted thereunder) to or for the benefit of the Executive
under this Agreement, or under any other agreement, plan or arrangement,
be deemed to be an "excess parachute payment" as defined in Section 280(3
of the Code. It is agreed that the present value of the Total Payments
shall not exceed an amount equal to two and ninety-nine hundredths (2.99)
times the Executive's Base Period Income, which is the maximum amount
which the Executive may receive without becoming subject to the tax
imposed by Section 4999 of the Code or which the Company may pay without
loss of deduction under Section 280G(a) of the Code. Present value for
purposes of this Agreement shall be calculated in accordance with the
regulations issued under Section 280(3 of the Code. Within sixty (60)
days following delivery of the Notice of Termination or notice by the
Company to the Executive of its belief that there is a payment or benefit
due the Executive which will result in an excess parachute payment as
defined in Section 2800 of the Code, the Executive and the Company shall,
at the Company's expense, obtain such opinions as more fully described
hereafter, which need not be unqualified, of legal counsel and certified
public accountants or a firm of recognized executive compensation
consultants. The Executive shall select said legal counsel, certified
public accountants and executive compensation consultants; provided,
however, that if the Company does not accept one (1) or more of the
parties selected by the Executive, the Company shall provide the
Executive with the names of such legal counsel, certified public
accountants and/or executive compensations consultants as the Company may
select; provided, further, however, that if the Executive does not accept
the party or parties selected by the Company, the legal counsel,
certified public accountants and/or executive compensation consultants
selected by the Executive and the Company, respectively, shall select the
legal counsel, certified public accountants add/or executive compensation
consultants, whichever is applicable, who shall provide the opinions
required by this Section 13(d). The opinions required hereunder shall
set forth (a) the amount of the Base Period Income of the Executive,
(~'.~} the present value of Total Payments and (c) the amount and present
value of any excess parachute payments. In the event that such opinions
determine that there would be an excess parachute payment, the
Termination Payment or any other payment determined by such counsel to be
includable in Total Payments shall be reduced or eliminated as specified
by the Executive in writing delivered to the Company within thirty (30)
days of his or her receipt of such opinions or, if the Executive fails to
so notify the Company, then as the Company shall reasonably determine, so
that under the bases of calculation set forth in such opinions there will
be no excess parachute payment. The provisions of this Section 13(d),
including the calculations, notices and opinions provided for herein
shall be based upon the conclusive presumption that the compensation and
benefits provided for in Section 6 herein and any other compensation,
including but not limited to the Accrued Benefits, are reasonable
compensation for services rendered; provided, however, that in the event
legal counsel so requests in connection with the opinion required by this
Section 13(d), a firm of recognized executive compensation consultants,
selected by the Executive and the Company pursuant to the procedures set
forth above, shall provide an opinion, upon which such legal counsel may
rely, as to the reasonableness of any item of compensation as reasonable
compensation for services rendered. In the event that the provisions of
Sections 280G and 4999 of the Code are repealed without succession this
Section 12(d) shall be of no further force or effect;
(d) The Termination Payment shall be payable in a lump sum not later
than ten (10) days following the Executive's Termination Date. Such
lump sum payment shall not be reduced by any present value or similar
factor. Further, the Executive shall not be required to mitigate the
amount of such payment by securing other employment or otherwise and such
payment shall not be reduced by reason of the Executive securing other
employment or for any other reason.
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14. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or the Executive of the Executive's
employment during the Employment Period shall be communicated by written Notice
of Termination to the Executive if such Notice of Termination is delivered by
the Company and to the Company if such Notice of Termination is delivered by
the Executive, all in accordance with the following procedures:
(a) The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances alleged to provide a
basis for termination;
(b) Any Notice of Termination by the Company shall be approved by a
resolution duly adopted by a majority of the directors of the Company
then in office;
(c) If the Executive shall in good faith furnish a Notice of
Termination for Good Reason and the Company notifies the Executive that a
dispute exists concerning the termination within the fifteen (15) day
period following the Company's receipt of such notice, the Executive
shall continue the Executive's employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, the Executive's
Termination Date shall be the earlier of (A) the date on which the
dispute is finally determined, either by mutual written agreement of the
parties or pursuant to Section 17 herein, (B) the date of the Executive's
death or (C) one day prior to the second (2nd) anniversary of a Change of
Control, and the Executive's Termination Payment, if applicable, shall
reflect events occurring after the Executive delivered the Executive's
Notice of Termination; or (Ii) Good Reason did not exist, the employment
of the Executive shall continue after such determination as if the
Executive had not delivered the Notice of Termination asserting Good
Reason;
(d) If the Executive gives notice to terminate his employment for
Good Reason and a dispute arises as to the validity of such dispute, and
the Executive does not continue his employment during such dispute, and
it is finally determined that the reason for termination set forth in
such Notice of Termination did not exist, if such notice was delivered by
the Executive, the Executive shall be deemed to have voluntarily
terminated the Executive's employment other than for Good Reason.
15. NON-COMPETE.
The Executive hereby agrees that during the term of this Agreement and for
the period of six months from the Executive's Termination Date or the
termination of this Agreement, that the Executive will not:
(a) With the exception of Item Al below, within any jurisdiction or
marketing area in the United States or Latin America in which the Company
or any subsidiary thereof is doing business, own, manage, operate or
control any business of the type and character engaged in and competitive
with the Company or any subsidiary thereof. For purposes of this
paragraph, ownership of securities of not in excess of five percent (5%)
of any class of securities of a public company shall not be considered to
be competition with the Company or any subsidiary thereof; or
Item Al: The Company recognizes that the Executive is a significant
shareholder in the certain Internet Company that is majority owned by
the Executive and his brother. The Executive's ownership position in
this Internet Company shall not be considered a conflict with the
Non-Compete provision of this Agreement.
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(b) Within any jurisdiction or marketing area in the United States
or Latin America in which the Company or any subsidiary thereof is doing
business, act as, or become employed as, an officer, director, employee,
consultant or agent of any business of the type and character engaged in
and competitive with the Company or at",' of its subsidiaries; or
(c) Solicit the business of or sell any products to any company in
the United States or Latin America, which is as of the date hereof, a
customer or client of the Company or any of its subsidiaries, or was such
a customer or client thereof within two years prior to the date of this
Agreement; or
(d) Solicit the employment of, or hire, any full time employee
employed by the Company or its subsidiaries as of the date of termination
of this Agreement.
16. EFFECTIVE DATE OF AGREEMENT.
This Agreement shall become binding and effective upon execution by all of
the parties hereto. Upon execution, this Agreement shall be deemed effective
as of November 1.1996.
17. ARBITRATION.
All claims, disputes and other matters in question between the parties
arising under this Agreement, shall, unless otherwise provided herein, be
decided by arbitration in Miami, Florida in accordance with the Model
Employment Arbitration Procedures of the American Arbitration Association
(including such procedures governing selection of the specific arbitrator or
arbitrators), unless the parties mutually agree otherwise. The Company shall
pay the costs of any such arbitration. The award by the arbitrator or
arbitrators shall be final, and judgment may be entered upon it in accordance
with applicable law in any state or Federal court having jurisdiction thereof.
18. ATTORNEYS' FEES.
In the event that either party hereunder institutes any legal proceedings
in connection with its rights or obligations under this Agreement, the
prevailing party in such proceeding shall be entitled to recover from the other
party, all costs incurred in connection with such proceeding, including
reasonable attorneys' fees, together with interest thereon from the date of
demand at the rate of twelve percent (12%) per annum.
19. SUCCESSORS.
This Agreement and all rights of the Executive shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
estates, executors, administrators, heirs and beneficiaries. In the event of
the Executive's death, all amounts payable to the Executive under this
Agreement shall be paid to the Executive's surviving spouse, or the Executive's
estate if the Executive dies without a surviving spouse. This Agreement shall
inure to the benefit of, be binding upon and be enforceable by, any successor
surviving or resulting corporation or other entity to which all or
substantially all of the business and assets of the Company shall be
transferred whether by merger, consolidation, transfer or safe.
20. ENFORCEMENT.
The provisions of this Agreement shall be regarded as divisible, and if
any of said provisions or any part hereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby
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21. AMENDMENT OR TERMINATION.
This Agreement may not be amended or terminated during its term as
specified above except by written instrument executed by the Company and the
Executive.
22. ENTIRE AGREEMENT.
This Agreement, in conjunction with the Executive's rights under any
general employee benefit program, sets forth the entire agreement between the
Executive and the Company with respect to the subject matter hereof, and
supersedes all prior oral or written agreements, negotiations, commitments and
understandings with respect thereto.
23. WITHHOLDING.
The Company shall be entitled to withhold from amounts to be paid to the
Executive under this Agreement any federal, state or local withholding or other
taxes or charges which it is from time to time required to withhold in
connection with this Agreement or in connection with any plan or arrangement in
which the Executive is a participant. The Executive shall also be required to
pay to the Company such amount of cash as shall be necessary to satisfy such
withholding or other taxes or charges to the extent that the amounts to be paid
to the Executive. under this Agreement are insufficient therefor. The Company
shall be entitled to rely on an opinion of counsel if any question as to the
amount or requirement of any such withholding shall arise.
24. VENUE; GOVERNING LAW.
This Agreement and the Executive's and Company's respective rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Florida without giving effect to the provisions,
principles, or policies thereof relating to choice or conflict laws.
25. NOTICE.
Notices given pursuant to this Agreement shall be in writing and shall be
deemed given when received, and if mailed, shall be mailed by United States
registered or certified mail, return receipt requested, addressee only, postage
prepaid, if to the Company, to:
InterAmericas Communications Corporation
104 Crandon Boulevard, Suite 324
Key Biscayne Florida 33149
or to such other address as the Company shall have given to the Executive or,
if to the Executive, to such address as the Executive shall have given to the'
Company.
26. NO WAIVER.
No waiver by either party at any time of any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
27. HEADINGS.
The headings herein contained are for reference only and shall not affect
the meaning ~ interpretation of any provision of this Agreement.
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28. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and the Executive has executed this Agreement,
on the date and year first above written.
INTERAMERICAS COMMUNICATIONS CORPORATION
/s/ Carlos M. Menendez
-------------------------------------
CARLOS M. MENENDEZ
CHIEF OPERATING OFFICER/
CHIEF FINANCIAL OFFICER
/s/ Patricio E. Northland
-------------------------------------
PATRICIO E. NORTHLAND
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EXHIBIT 1
Stock Option Agreement
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Page 1
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
INTERAMERICAS COMMUNICATIONS CORPORATION
InterAmericas Communications Corporation
T221 Brickell Avenue, Suite 900
Miami, Florida 33131
Ladies and Gentlemen:
The undersigned, NU Investments, LLC (the "Purchaser"), understands
that InterAmericas Communications Corporation, a Texas corporation (the
"Company"), is offering for sale its 7% Convertible Debentures, in the form
attached hereto as EXHIBIT A, IN the aggregate original principal amount of One
Million Five Hundred Thousand Dollars ($1,500,000) (the "Debentures"), and a
warrant, in the form attached hereto as EXHIBIT B (the "Warrant"), for the
purchase of an aggregate of One Hundred Thousand (100,000) shares of its common
stock, $.00 1 par value per share (the "Common Stock"). The Purchaser further
understands that the offering is being made without registration of the
Debentures, the Warrant or the shares of Common Stock issuable upon conversion
thereof (the Debentures, the Warrant and the shares of Common Stock issuable
upon conversion thereof are hereinafter sometimes referred to as the
"Securities") under the Securities Act of 1933, as amended (the "Securities
Act"), and is being made only to "accredited investors" (as defined in Rule 50
T of Regulation D under the Securities Act).
1. Subscription. Subject to the terms and conditions hereof the
Company agrees to sell, issue and deliver, and Purchaser hereby offers to
purchase and subscribes for (i) Debentures in the aggregate original principal
amount of $T,500,000, and (ii) a Warrant for the purchase of 100,000 shares of
Common Stock, for a purchase price equal to the aggregate original principal
amount of the Debentures so to be purchased.
2. The Closing. The closing of the transaction contemplated
hereby (the "Closing") shall lake place on February 3, 1997 at the offices of
Freeborn & Peters, 950 17th Street, Denver, Colorado 80202, at 9:30 a.m. or at
such other time and place as shall be agreed to by the Company and the
Purchaser (the "Closing Date"). At the Closing, payment shall be made by wire
transfer against delivery of the Debentures and the Warrant to be purchased by
the Purchaser. In addition, the Company shall deliver to the Purchaser an
opinion of Company counsel in the form of EXHIBIT C.
3. Securities Act Registration.
3.1. The Company shall use its best efforts to register
promptly under the Securities Act, at the Company's expense (other than
underwriting discounts and commissions, if any), all of the shares of Common
Stock issuable upon the conversion of the Debentures and exercise of the
Warrants issued to the Purchaser (the "Registrable Shares") and in that
connection shall file, by no later than sixty (60) days after the date hereof a
registration statement with respect to the Registrable Shares (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC"). Notice of effectiveness of the Registration Statement shall be
furnished promptly to the Purchaser. The Company shall use its best efforts to
maintain the effectiveness of the Registration Statement and from time to time
will amend or supplement such Registration Statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act. The effectiveness of the Registration Statement shall be maintained with
respect to the Registrable Shares until all of the Registrable Shares have been
sold pursuant thereto or such date as all of the Registrable Shares may be sold
during any one period of three (3) consecutive months pursuant to Rule 144
under the Securities Act or otherwise without registration.
3.2 (a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating to a corporate reorganization or other transaction under Rule 145, or
a registration on any registration form that does not permit secondary sales,
the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 3.2(b) below, and in any
underwriting involved therein, all the
<PAGE> 2
Page 2
Registrable Shares specified in a written request or requests, made by any
Holder and received by the Company within ten (10) days after the written
notice from the Company described in clause (i) above is mailed or delivered by
the Company. Such written request may specify all or a part of a Holder's
Registrable Shares provided that such Registrable Shares have not previously
been registered pursuant to the Registration Statement filed pursuant to
Section 3.1
(b) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.2(a). In such event, the right of any Holder to
registration pursuant to this Section 3.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Shares in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section
3.2, if the representative of the underwriters advises the Company in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Shares from, or limit the number of Registrable
Shares to be included in, the registration and underwriting. The Company shall
so advise all holders of securities requesting registration, and the number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for securities being sold
for its own account. IF any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Registrable Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
3.3. In the event that the Company registers under the
Securities Act any of the Registrable Shares held by the Purchaser, the Company
shall indemnify and' hold harmless the Purchaser and each underwriter of such
shares (including any broker or dealer through whom such of the shares may be
sold) and each person, if any, who controls the Purchaser or any such
underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or the Exchange Act or otherwise, and, except as hereinafter
provided, shall reimburse the Purchaser and each of the underwriters and each
such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or in the prospectus (or the
Registration Statement or prospectus as from time to time amended or
supplemented by the Company) 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 in order to make the statements therein not misleading, unless
such untrue statement or omission was made in such Registration Statement or
prospectus in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by the Purchaser (insofar as
indemnification of the Purchaser is concerned) or any underwriter (insofar as
indemnification of any such underwriter is concerned) relating thereto
expressly for use therein. Promptly after receipt by the Purchaser or any
underwriter or any person controlling any of them, as the case may be, of
notice of a claim to which the foregoing indemnification applies, the Purchaser
or such other person shall notify' the Company in writing of the commencement
thereof and, subject to the provisions hereinafter stated, the Company shall
assume the defense of such action (including the employment of counsel, who
shall be counsel reasonably satisfactory to the Purchaser or such underwriter
or controlling person, as the case may be, and the payment of expenses) insofar
as such action shall relate to any alleged liability in respect of which
indemnity may be sought against the Company. The Purchaser or any underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action and to participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of the Company unless: (i)
the employment of such counsel has been specifically authorized by the Company,
(ii) the Company has failed to assume the defense and employ counsel, or (iii)
the named parties of any such action, suit or proceeding (including any
impleaded parties) include both the person or persons seeking indemnification
(the "indemnified person") and the Company and such indemnified person shall
have been advised by its counsel that representation of the indemnified person
and the Company by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case the Company shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such indemnified
person). The Company shall not be liable to indemnify any person for any
settlement by such person of any such action effected without the Company's
consent.
<PAGE> 3
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3.4. The Purchaser shall indemnify the Company, its officers
and directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, against all losses, claims, damages, expenses or liabilities or actions to
which they or any of them become subject under the Securities Act or the
Exchange Act or otherwise, and shall reimburse the Company, its officers and
directors and each such controlling person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims damages, expenses, liabilities or
actions arise out of or are based upon any information relating to the
Purchaser furnished by or on behalf of the Purchaser in writing specifically
for inclusion in such Registration Statement Notwithstanding the above, the
liability of the Purchaser under this' Section 3.4 shall not exceed the
proceeds (net of underwriting discounts or commissions) received by the
Purchaser upon the sale of the Registrable Shares.
3.5. Any losses, claims, damages, liabilities and reasonable
expenses for which an indemnified party is entitled to indemnification under
Sections 3.3 and 3.4 of this Agreement shall be paid by the indemnifying party
to the indemnified party as such losses, claims, damages, liabilities and
expenses are incurred.
3.6. The Company shall prepare and file with the SEC such
amendments and supplements to the Registration Statement, and the prospectus
used in connection with such Registration Statement as, in the opinion of the
counsel to the Company, may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement.
3.7 The Company shall notify each seller of Registrable
Shares covered by the Registration Statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or incomplete in
light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller 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 any untrue statement of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
incomplete in light of the circumstances then existing.
3.8. The Company shall furnish to the Purchaser such number
of copies of a prospectus in conformity with the requirements of the Securities
Act, and such other documents as may reasonably be requested in order to
facilitate the disposition of the Registrable Shares owned by the Purchaser.
3.9. The Company shall use its best efforts to register and
qualify the securities covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Purchaser; provided, however, that the Company shall not be
required in connection therewith, or as a condition thereto, to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act.
3.10. The Company shall notify each holder of Registrable
Shares covered by such Registration Statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act and of
the happening of any event as a result of which the prospectus included in such
Registration Statement, 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 the light of the
circumstances then existing.
3.11. [Reserved]
3.12 The Company shall use its best efforts to maintain the
listing of its Common Stock on The Nasdaq SmallCap Market (or on The Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange),
for at least the thirty-six (36) month period commencing on the Closing Date.
3.13 The Company will make and keep public information
regarding the Company available as those terms are understood and defined in
Rule 144 under the Securities Act, at all times from and after ninety (90) days
following the effective date of the initial registration statement filed by the
Company under the Securities Act; and
3.14 The Company will file with the SEC in a timely manner
all reports and other documents required of
<PAGE> 4
Page 4
the Company under the Securities Act and the Securities Exchange Act of 1934,
as amended, for at least the thirty-six (36) month period commencing on the
Closing Date.
3.15 In the event that all of the Registrable Shares have not
been registered for resale on or before June 30, 1997, the Company shall, for
each day or portion thereof that said Registration Statement is not declared
effective, in addition to the interest accruing at the rate of 7% per annum
otherwise payable pursuant to the terms of the Debentures, pay the Purchaser
the premium set forth in Section 1 of the Debentures
4. Representations Warranties and Covenants of the Company. The
Company represents and warrants to the Purchaser as follows, such
representations and warranties to be true and correct as of the Closing Date.
(a) The Common Stock issuable upon the conversion of the
Debentures has been duly authorized and, when issued and delivered to the
Purchaser in accordance with the terms of said Debentures, will be validly
issued, fully paid and nonassessable.
(b) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Texas with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company.
(c) The Company has registered its Common Stock pursuant to
Section 12 of the Exchange Act and the Common Stock is listed and trades on The
Nasdaq SmallCap Market. The Company has filed all material required to be filed
pursuant to all reporting obligations under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) calendar months
immediately preceding the offer or sale of the Debentures (or for such shorter
period that the Company has been required to file such material).
(d) Neither the issuance and sale of the Securities, the
execution, delivery or performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby (i)
requires any consent, approval, authorization or other order of or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official or conflicts or will conflict with or
constitutes or will constitute a breach O{ or a default under, the certificate
of incorporation or by-laws, or other organizational documents, of the Company
or any of its subsidiaries or (ii) conflicts or will conflict with, or
constitutes or will constitute a material breach of, or default under, any
material agreement, indenture, lease or other instrument to which the Company
or any of its subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or violates or will violate any statute,
law, or any of its subsidiaries or any of their respective properties, or will
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its subsidiaries pursuant to
the terms of any agreement or instrument to which any of them is a party or by
which any of them may be bound or to which any of the property, or assets of
any of them is subject.
(e) The execution and delivery O{ and by the performance by
the Company of its obligations under this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, and the Company has full corporate and legal power to enter into
this Agreement and perform all of its obligations hereunder.
(f) As of October 31, 1996, the Company has authorized Fifty
Million (50,000,000) shares of Common Stock, $.001 par value per share, of
which 16,152,518 shares are issued and outstanding and Ten Million (10,000,000)
shares of preferred stock, 5.001 par value per share, of which none are issued
and outstanding. All such shares have been duly and validly issued and are
fully paid and nonassessable. Except as set forth on SCHEDULE 4(f) attached
hereto, the Company has outstanding no other shares of any class of capital
stock. There are no subscriptions, options, warrants, scrip, rights, calls,
convertible securities, or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock,
or other securities of the Company obligating, or which may obligate the
Company to issue, deliver or sell or cause to be issued, delivered or sold,
additional shares of its capital stock or obligating or which may obligate the
Company to grant, extend or enter into any such subscription, option, warrant,
scrip, right, call, convertible security, or other similar agreement
arrangement, or similar commitment.
<PAGE> 5
Page 5
(g) There are no legal or administrative proceedings or
investigation of any kind or nature now pending or to the knowledge of the
Company, threatened before any court or administrative body against the Company
nor is the Company subject to any unsatisfied judgment, order or decree of any
court of law, administrative board, regulatory agency, arbitrator or
arbitration panel.
(h) Since September 30, 1996, the business of the Company has
been operated only in the ordinary and normal course, and there has not been,
after such date, any material adverse change in the earnings, assets,
liabilities, financial condition or in the operation of its businesses.
5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) The Purchaser is aware that no federal or state agency
has passed upon the Common Stock or made any finding or determination
concerning the fairness of this investment and that this investment is subject
to numerous risks, including those set forth on SCHEDULE 5(a) hereto.
(b) The Purchaser has had an opportunity to ask questions of
and receive answers from representatives of the Company, concerning the terms
and conditions of this investment.
(c) The Securities for which the Purchaser hereby subscribes
will be acquired for the Purchaser's own account, for investment only and not
with a view toward resale or distribution in a manner which would require
registration under the Securities Act.
(d) The Purchaser acknowledges that, until the Registration
Statement is declared effective by the SEC, there are restrictions on the
transferability of shares of Common Stock as required pursuant to federal and
state securities laws. The Purchaser further agrees to be responsible for
compliance with all conditions on transfer imposed by any state blue sky or
securities law. The Purchaser acknowledges that each certificate representing
the Registrable Shares shall be stamped with a restrictive legend substantially
similar to the following:
"The securities evidenced by this certificate have not been
registered under the United States Securities Act of 1933, as
amended (the "Act"), or any state securities laws, and may
not be offered or sold, transferred, pledged, hypothecated or
otherwise disposed of except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
the Act relating to the disposition of securities) or (iii)
if an exemption from registration under such Act is
available.
Notwithstanding the foregoing, the securities evidenced by
this certificate are also subject to the registration rights
set forth in that certain Subscription Agreement by and
between the original holder hereof and the Company, a copy of
which is on file at the Company's principal executive
office."
(e) The Purchaser is an "accredited investor" as defined in
Rule 501(a) under the Securities Act. The Purchaser is an organization
described in Section 50T(c)(3) of the Internal Revenue Code of 1986, as
amended, and is a corporation, Massachusetts or similar business trust or
partnership not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000. The Purchaser agrees to
furnish any additional information requested to assure compliance with
applicable federal and state securities laws in connection with the purchase
and sale of the Securities.
6. Brokers. Each of the Company and Purchaser hereby indemnifies
and holds the other harmless from any liability for any brokers' or finders' fee
with respect to this Agreement or the transactions contemplated hereby for
which the Company or the Purchaser, as the case may be, is responsible. It is
specifically acknowledged and agreed that the Company is liable for any fees
payable to Corporate Capital Management, L. L. C.
7. Waiver, Amendment. Neither this Agreement nor any provisions
hereof shall be modified, changed, discharged or terminated except by an
instrument in writing, signed by the party against whom any waiver, change,
discharge or termination is sought.
8. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties
<PAGE> 6
Page 6
hereto, their respective successors and assigns, and no other person shall have
any right or obligation hereunder. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or the Purchaser without the prior written
consent of other party and any assignment in violation hereof shall be void,
provided that the Purchaser may assign its rights and obligations hereunder to
any person acquiring some or all of the Securities, provided that such transfer
(i) is made in accordance with Section 5 hereof and is not pursuant to the
effective Registration Statement and (ii) such person agrees in writing to be
bound by the terms hereof.
9. Certain Agreements. The Company covenants and agrees that during
the sixty (60) days following the Closing Date, neither the Company, nor any
affiliate of the Company, nor any person acting on behalf of the Company shall,
without the prior written consent of the Purchaser, agree to enter, enter into,
or consummate any subsequent equity securities offering (including any debt
offering convertible into equity securities of the Company) except for: (i) the
issuance of stock options pursuant to the Company's existing stock option plans
and the issuance of Common Stock pursuant to presently outstanding stock
options and convertible securities; (ii) the firmly underwritten public
offering of its equity or debt securities: and (iii) the issuance of shares of
its capital stock in consideration in whole or in part for one or more
acquisitions made by the Company. Except as set forth above, the Company
further covenants and agrees that it shall not engage in any offering,
resulting in gross proceeds to the Company of less than $1,500,000, from the
period commencing with Closing Date and terminating one hundred twenty (120)
days after the Closing Date, without first offering the Purchaser the
opportunity (which shall remain open for a period often (10) business days from
the date the Purchaser receives notice thereof) to purchase up to all of such
additional securities (in the discretion of the Purchaser) on the terms and
conditions which the Company proposes to offer such additional securities to
third parties. Any proposed sale of securities on terms and conditions
different from those offered to the Purchaser, as well as any subsequent
proposed sale of any such additional securities by the Company, shall again be
subject to the first refusal rights of the Purchaser and shall require
compliance by the Company with the procedures described in this Agreement. The
Company further covenants and agrees to provide the Purchaser with prompt
notice (in any event not later than two (2) business days after the fact) of
the date of closing and the substantive terms and provisions of any such
offering with any third party which was the subject of the right of first offer
described in this Section 9.
10. Choice of Law: Conflict of Law: Jurisdiction and Venue. Except as
otherwise expressly provided herein, the terms, conditions and enforceability
of this Agreement shall be governed by and interpreted under the laws of the
State of Illinois. Any claim, dispute or disagreement relating to the terms and
conditions of this Agreement, or arising from this Agreement or the subject
matter of this Agreement, may be brought only in the Circuit Courts of Cook or
DuPage Counties in the State of Illinois or in the United States District Court
for the Northern District of Illinois, which shall have exclusive jurisdiction
thereof The parties to this Agreement consent to such jurisdiction and venue
and hereby knowingly and voluntarily waive all objections thereto on the basis
of lack of personal jurisdiction, venue or convenience.
11. Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
12. Multiple Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed to be an original but all of
which will constitute one and the same instrument. However, in enforcing any
party's rights under this Agreement it will be necessary to produce only one
copy of this Agreement signed by the party to be charged.
13. Notice. Any notice to be given or to be served upon any party in
connection with this Agreement must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by' Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With a copy to:
<PAGE> 7
Page 7
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Purchaser, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. BOX 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Any parry may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Fees and Expenses. Each of Purchaser and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder
including, but not limited to, the fees and disbursements of such party's legal
counsel; provided, however, that the prevailing party in any action, suit or
proceeding brought before or by any court or governmental agency or body,
domestic or foreign arising out of the transactions contemplated hereby shall
be entitled to be reimbursed for its reasonable legal fees and expenses.
16. Binding Effect. The provisions of this Agreement shall be binding
upon and accrue to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 8
Page 8
The undersigned acknowledges that this Agreement shall not be
effective unless and until accepted by the Company as indicated below.
Dated this 3rd day of February, 1997.
NU INVESTMENTS, LLC
By: /s/ Field Secretaries (Cayman) Ltd.
Name: Field Secretaries (Cayman) Ltd.
Title: Secretary
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 3RD DAY OF
FEBRUARY, 1997.
INTERAMERICAS COMMUNICATIONS CORPORATION
By: /s/ Patricio E. Northland
--------------------------------
Name: Patricio E. Northland
--------------------------------
Title: Chairman & CEO
--------------------------------
<PAGE> 9
Page 9
Exhibit A
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.____ $__________
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures")
FOR VALUE RECEIVED, the Company promises to pay to NU Investments,
LLC, registered holder hereof (the "Holder"), the principal sum of One Hundred
Fifty Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and
to pay interest on the principal sum outstanding from time to time in arrears
at the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof, computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the Debentures (the "Subscription Agreement"). The principal of;
and interest on, the Debentures is payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company, as designated in writing by the Holder from time to
time. In lieu of a cash interest payment, the Holder may require the Company to
issue shares of its Common Stock, 5.001 par value per share (the "Common
Stock"), or a combination of Common Stock ~d cash as payment of the interest
then due and payable. If the Holder elects to receive all or a portion of the
interest in Common Stock, the Company shall issue to the Holder such number of
fully paid and non-assessable shares of Common Stock as shall have an aggregate
average closing bid price (as reported on the Nasdaq SmallCap Market) for the
five (5) consecutive trading days ending on the trading day prior to the date
such interest is payable, equal in amount to the interest which the Holder has
elected to receive in kind.
This Debenture is subject to the following additional provisions:
1. In the event that the Company has not registered for resale all of
the Registrable Shares pursuant to Section 3 of the Subscription Agreement on
or before June 30, 1997, the Company shall, for each day or portion thereof
that such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the
<PAGE> 10
Page 10
anticipated damages for the failure of the Company to effect such registration
are uncertain in amount and difficult to be proved. The premium shall accrue
and be payable on a weekly basis in cash or, in lieu of a cash premium payment
the Holder may, at its option, require the Company to issue shares of its
Common Stock or a combination of Common Stock and cash as payment of the
premium then due and payable, until such time as the Holder receives
notification of the effectiveness of the Registration Statement or the
registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand
Dollars ($50,000) and integral multiples thereof This Debenture is exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or any other
applicable laws at the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof; the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
6. Conversion of this Debenture shall be effectuated by surrendering
the Debenture to the Company with the form of Notice of Conversion attached
hereto as Schedule 1, executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the "Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a
<PAGE> 11
Page 11
notice to such effect to the Company whereupon the Company and the Holder shall
each be restored t(; their respective positions immediately prior to delivery
of such Notice of Conversion. The parties agree that the foregoing damages are
reasonable and that the anticipated damages for the failure of the Company to
effect such delivery are uncertain in amount and difficult to be proved
7. The Conversion Price and number of shares of Common Stock
issuable upon conversion shall be subject to adjustment from time to time as
provided in this Section 7.
(a) In the event the Company should at any time or from time
to time after the date of this Debenture fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Fixed Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at
any time after the date of the Debentures is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Fixed Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of the
Debentures shall be decreased in proportion to such decrease in outstanding
shares.
8. 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 effecting the conversion of the Debentures, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the outstanding principal amount and accrued interest
thereon; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of the
Debentures, in addition to such other remedies as shall be available to the
Holder, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, using its best efforts to obtain the requisite
stockholder approval necessary to increase the Company's authorized Common
Stock.
9. The Company shall be entitled to prepay the entire amount of
the Debentures or any portion hereof; at any time or from time to time, upon
not less than ten (10) (nor more than twenty (20)) days' prior written notice.
The prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof
10. Any of the following shall constitute an" Event of Default"
a. The Company shall fail to make any payment (whether
principal, interest or otherwise) on the Debentures as and
when the same shall be due and payable and such default shall
continue for five (5) business days after the due date
thereof;
b. Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of the Debentures
or the Subscription Agreement shall be false or misleading in
any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision,
condition, agreement or obligation of the Company under the
Debentures or the Subscription Agreement and such failure
shall continue uncured for a period of five (5) business days
after the first date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of Default);
<PAGE> 12
Page 12
d. The Company shall (1) make an assignment for the benefit of
its creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator, custodian or receiver thereof; or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of; consent to, or acquiesce in any
such proceeding or admit the material allegations of; or
default in answering a petition filed in any such proceeding;
g. The Company shall have its Common Stock delisted from The
Nasdaq SmallCap Market or suspended from trading thereon, and
shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any debts in
excess of $100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered
against the Company or any of its assets or properties in an
aggregate amount in excess of $100,000 and such judgments,
levies or attachments shall not be dismissed, stayed, bonded
or discharged within thirty (30) days of the date of entry
thereof; or
j. The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimis amount of its outstanding shares of capital stock,
other than (i) a merger or share exchange effected solely for
the purpose of reincorporating the Company or (ii) a merger
or share exchange in which the Company is the surviving
corporation and the stockholders of the Company immediately
prior to such merger or share exchange own more than fifty
percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof; whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly
waives demand and presentment for payment, notice of nonpayment, protest,
notice of protest, notice of dishonor, notice of acceleration or intent to
accelerate, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
12. (a) Anything in this Debenture to the contrary
notwithstanding, the obligation of the Company to pay the principal of and
interest in this Debenture, and to discharge all its other obligations
hereunder, shall be subordinate and junior in right of payment, to (x) all
obligations of the Company to commercial banks for borrowed money, (y) all
obligations of the Company to commercials banks under guarantees by the Company
of obligations of wholly-owned subsidiaries of the Company to commercial banks
for borrowed money, in each case, whether such obligations are outstanding at
the date of this Debenture or created or incurred after the date of this
Debenture but prior to the maturity of this Debenture and (z) all obligations
of the Company to holders of the Company's indebtedness issued in connection
with one or more underwritten public offerings by the Company (hereinafter
referred to as "Senior Indebtedness").
(b) The term "Senior Indebtedness" does not include any
indebtedness as to which the instrument
<PAGE> 13
Page 13
creating or evidencing it provides that such indebtedness is on a parity with
or otherwise not superior in right of payment to this Debenture.
(c) No payment on account of principal or interest on this
Debenture shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness.
(d) In the event of any insolvency proceedings, and any
receivership, liquidation or other similar proceedings in connection therewith,
relative to the Company or its property, and in the event of any proceedings
for voluntary or involuntary liquidation, dissolution or other winding-up of
the Company, whether or not involving insolvency, then the holders of Senior
Indebtedness shall be entitled to receive payment in full of all principal,
interest fees and charges, including without limitation post-petition interest,
on all Senior Indebtedness before Holder is entitled to receive any payment on
account of principal or interest upon this Debenture and no claim or proof of
claim shall be filed with the Company by or on behalf of Holder that shall
assert any right to receive any payments in respect of this Debenture, except
subject to the payment in lull of the principal and interest on all of the
Senior Indebtedness then outstanding.
(e) If funds or assets which would otherwise be available to
make payments in respect of this Note are instead paid or distributed to the
holders of Senior Indebtedness on account of the subordination provisions of
this Section 1.2, the Holder shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of; and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company. This Debenture ranks equally with all other Debentures now or
hereafter issued under the terms set forth herein.
14. Any notice to be given or to be served upon any party in
connection with the Debentures must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
<PAGE> 14
Page 14
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms,
conditions and enforceability of the Debentures shall be governed by and
interpreted under the laws of the State of Illinois. Any claim, dispute or
disagreement relating to the terms and conditions of the Debentures, or arising
from the Debentures or the subject matter of the Debentures, may be brought
only in the Circuit Courts of Cook or DuPage Counties in the State of Illinois
or in the United States District Court for the Northern District of Illinois,
which shall have exclusive jurisdiction thereof The parties to the Debentures
consent to such jurisdiction and venue and hereby knowingly and voluntarily
waive all objections thereto on the basis of lack of personal jurisdiction,
venue or convenience.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 15
Page 15
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
-------------------------------
Name: Patricio E. Northland
Title: Chairman & CEO
<PAGE> 16
Page 16
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above
Debenture No. into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below
-------------------------------------
Date of Notice
-------------------------------------
Signature
-------------------------------------
Name
-------------------------------------
Address:
* The original Debenture and a manually signed original of this Notice
of Conversion must be received by the Company by the third business
day following the date of delivery of this Notice of Conversion by
facsimile.
<PAGE> 17
Page 17
Exhibit B
THIS WARRANT AND THE SHARES OF COMMON STOCK OF INTERAMERICAS COMMUNICATIONS
CORPORATION TO BE ISSUED UPON ANY EXERCISE THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
INTERAMERICAS COMMUNICATIONS CORPORATION
FEBRUARY 3, 1997
This certifies that, for value received, NU Investments, LLC ("NUI")
and any subsequent transferee pursuant to the terms of the Agreement (as
defined below) of even date herewith and this Warrant (each a "Holder") is
entitled to purchase, subject to the provisions of this Warrant, from
InterAmericas Communications Corporations, a Texas corporation (the "Issuer"),
at any time or from time to time on or after the date hereof and on or before
February 2, 2002 (the "Expiration Date"), One Hundred Thousand (100,000) fully
paid and nonassessable shares of common stock, par value $.001 per share (the
- -Common Stock"), of the Issuer at an exercise price of Five Dollars ($5.00) per
share, subject to adjustment pursuant to the terms hereunder (the "Exercise
Price") (such shares of Common Stock and other securities issued and issuable
upon exercise of this Warrant, the "Warrant Shares").
Section 1, Definitions. Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the Subscription
Agreement of even date herewith by and between Kessler and the Issuer (the
"Agreement")
Section 2. Exercise of Warrant
(a)Subject to the provisions hereof this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at any time
or from time to time on or after the date hereof and on or before the
Expiration Date, by presentation and surrender hereof to the Issuer at the
address which, in accordance with the provisions of Section 9 hereof, is then
effective for notices to the Issuer, with the Election to Purchase Form annexed
hereto as SCHEDULE ONE, duly executed and accompanied by payment to the Issuer
as further set forth below in this Section 2 for the account of the Issuer, of
the Exercise Price for the number of Warrant Shares specified in such form. If
this Warrant should be exercised in part only, the Issuer' shall, upon
surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder hereof to purchase the balance of the Warrant Shares
purchasable hereunder. The Issuer shall maintain at its principal place of
business a register for the registration of this Warrant and registration of
transfer of this Warrant. The Exercise Price for the number of Warrant Shares
specified in the Election to Purchase Form shall be payable in United States
Dollars by certified or official bank check payable to the order of the Issuer
or by wire transfer of immediately available funds to an account specified by
the Issuer for that purpose.
(b)Certificates representing Warrant Shares shall bear the
following restrictive legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws. They may not
be offered or transferred by sale, assignment, pledge or
otherwise unless (i) a registration
<PAGE> 18
Page 18
statement for the securities under the Securities Act is in
effect or (ii) the corporation has received an opinion of
counsel, which opinion is satisfactory to the corporation, to
the effect that such registration is not required under the
Securities Act."
(c) Notwithstanding any provisions herein to the contrary, if
the Fair Market Value (hereinafter defined) of one share of Common
Stock is greater than the Exercise Price (at the date of calculation
as set forth below), in lieu of exercising this Warrant for cash, the
Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the lssuer
together with the properly endorsed Notice of Exercise and notice of
such elect ion in which event the Issuer shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
Y (A-B)
-------
A
Where X the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the
Warrant is being exercised, the
portion of the Warrant being
canceled (at the date of such
calculation)
A = the Fair Market Value of one share of the Issuer's
Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted at the date of such
calculation)
For purposes of the above calculation, Fair Market Value of one share of Common
Stock shall be the average closing bid price (as reported by The Nasdaq
SmallCap Market) of the Issuer's Common Stock for the five (5) consecutive
trading days ending on the trading day immediately preceding the date of the
Election to Purchase.
Section 3. Reservation of Shares.' Preservation of Rights of Holder.
The Issuer hereby agrees that there shall be reserved for issuance and/or
delivery' upon exercise of this Warrant, such number of Warrant Shares as shall
be required for issuance or delivery' upon exercise of this Warrant. The
Warrant surrendered upon exercise shall be canceled by the Issuer. After the
Expiration Date, no shares of Common Stock shall be subject to reservation in
respect of this Warrant. The Issuer further agrees (i) that it will not, by
amendment of its Articles of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary' act, avoid or seek to avoid the observation or performance of any of
the covenants, stipulations or conditions to be observed or performed hereunder
by the Issuer, (ii) promptly to take such action as may be required of the
Issuer to permit the Holder to exercise this Warrant and the Issuer duly and
effectively to issue shares of its Common Stock or other securities as provided
herein upon the exercise hereof and (iii) promptly to take all action required
or provided herein to protect the rights of the Holder granted hereunder
against dilution. Without limiting the generality of the foregoing, should the
Warrant Shares at any time consist in whole or in part of shares of capital
stock having a par value, the Issuer agrees that before taking any action which
would cause an adjustment of the Exercise Price so that the same would be less
than the then par value of such Warrant Shares, the Issuer shall take any
corporate action which may, in the opinion of its counsel, be necessary' in
order that the Issuer may validly and legally issue fully paid and
nonassessable shares of such Common Stock at the Exercise Price as so adjusted.
The Issuer further agrees that it will not establish a par value for its Common
Stock while this Warrant is outstanding in an amount greater than the Exercise
Price.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant. Any
attempted transfer of his Warrant, the Warrant Shares or any new Warrant not in
accordance with this Section shall be null and void, and the Issuer shall not
in any way be required to give effect to such transfer. No transfer of this
Warrant shall be effective for any purpose hereunder until (i) written notice
of such transfer and of the name and address of the transferee has been
received by the Issuer, and (ii) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by
any transferee authorized under the provisions of this Section 4, the Issuer
shall, without charge, execute and deliver a new Warrant registered in the name
of such transferee at the address specified by such transferee, and this
Warrant shall promptly be canceled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner thereof for all
purposes, and the
<PAGE> 19
Page 19
Issuer shall not be affected by any notice to the contrary. Any Warrant, if
presented by an authorized transferee, may be exercised by such transferee
without prior delivery of a new Warrant issued in the name of the transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
Section 5. Rights of Holder. Neither a Holder nor his transferee by
devise or the laws of descent and distribution or otherwise shall be, or have
any rights or privileges of a shareholder of the Issuer with respect to any
Warrant Shares, unless and until certificates representing such Warrant Shares
shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or smaller
number of shares, the number of shares of Common Stock for which this Warrant
may be exercised shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock, and the Exercise Price shall ~e adjusted so
that the aggregate amount payable for the purchase of all Warrant Shares
issuable hereunder immediately after the record date for such recapitalization
shall equal the aggregate amount so payable immediately before such record
date.
(b) If the Issuer declares a dividend on Common Stock, or
makes a distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities convertible into
or exchangeable for Common Stock, or rights to purchase Common Stock or
securities convertible into or exchangeable for Common Stock, the number of
shares of Common Stock for which this Warrant may be exercised shall be
increased, as of the record date for determining which holders of Common Stock
shall be entitled to receive such dividend or distribution, in proportion to
the increase in the number of outstanding shares (and shares of Common Stock
issuable upon conversion of all such securities convertible into Common Stock)
of Common Stock as a result of such dividend or distribution, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record date
for such dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
(c) If the Issuer declares a dividend on Common Stock (other
than a dividend covered by subsection (b) above) or distributes to holders of
its Common Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any shares of its capital stock, any evidence of
indebtedness or any cash or other of its assets (other than Common Stock or
securities convertible into or exchangeable for Common Stock), the Holder shall
receive notice of such event as set forth in Section 8 below.
(d) In case of any consolidation of the Issuer with, or
merger of the Issuer into, any other corporation (other than a consolidation or
merger in which the Issuer is the surviving or resulting corporation and in
which the stockholders of the Issuer immediately prior to the merger or
consolidation hold more than 50% of the voting stock of the Issuer following
the merger or consolidation), or in case of any sale or transfer of all or
substantially all of the assets of the Issuer, or in the case of any statutory
exchange of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the Issuer,
except where the Issuer is the surviving entity and the stockholders of the
Issuer immediately prior to the exchange hold more than 50% of the voting stock
of the Issuer after the exchange), the corporation formed by such consolidation
or the corporation resulting from such merger or the corporation which shall
have acquired such assets or securities of the Issuer, as the case may be,
shall execute and deliver to the Holder simultaneously therewith a new Warrant,
satisfactory in form and substance to the Holder, together with such other
documents as the Holder may reasonably request, entitling the Holder thereof to
receive upon exercise of such Warrant the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or exchange of securities, or upon the dissolution following
such sale or other transfer, by a holder of the number of shares of Common
Stock purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale, transfer, or exchange. Such new Warrant shall
contain the same basic other terms and conditions as this Warrant and shall
provide for adjustments which, for events subsequent to the effective date of
such written instrument, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 6. The above provisions of this
paragraph (d) shall similarly apply to successive consolidations, mergers,
exchanges, sales or other transfers covered hereby.
<PAGE> 20
Page 20
(e) If the Issuer shall, at any time before the expiration of
this Warrant, sell all or substantially all of its assets and distribute the
proceeds thereof to the Issuer's shareholders, the Holder shall, upon exercise
of this Warrant have the right to receive, in lieu of the shares of Common
Stock of the Issuer that the Holder otherwise would have been entitled to
receive, the same kind and amount of assets as would have been issued,
distributed or paid to the Holder upon any such distribution with respect to
such shares of Common Stock of the Issuer had the Holder been the holder of
record of such shares of Common Stock receivable upon exercise of this Warrant
on the date for determining those entitled to receive any such distribution. If
any such distribution results in any cash distribution in excess of the
Exercise Price provided by this Warrant for the shares of Common Stock
receivable upon exercise of this Warrant, the Holder may, at the Holder's
option, exercise this Warrant without making payment of the Exercise Price and,
in such case, the Issuer shall, upon distribution to the Holder, consider the
Exercise Price to have been paid in full and, in making settlement to the
Holder, shall obtain receipt of the Exercise Price by deducting an amount equal
to the Exercise Price for the shares of Common Stock receivable upon exercise
of this Warrant from the amount payable to the Holder.
(f) If an event occurs which is similar in nature to the
events described in this Section 6, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock of
the Issuer as the same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the purpose of this Section 6,
the term "Common Stock" shall include any stock of any class of the Issuer
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Issuer and which is not subject to redemption by the Issuer.
(h) Whenever the number of Warrant Shares or the Exercise
Price shall be adjusted as required by the provisions of this Section 6, the
Issuer forthwith shall file in the custody of its secretary or an assistant
secretary, at its principal office, and furnish to each Holder hereof, a
certificate prepared in accordance with paragraph (h) above, showing the
adjusted number of Warrant Shares and the Exercise Price and setting forth in
reasonable detail the circumstances requiring the adjustments.
(i) Notwithstanding any other provision, this Warrant shall
be binding upon and inure to the benefit of any successors and assigns of the
Issuer.
(j) No adjustment in the Exercise Price in accordance with
the provisions of this Section 6 need be made if such adjustment would amount
to a change in such Exercise Price of less than $.01; provided however, that
the amount by which any adjustment is not made by reason of the provisions of
this paragraph (k) shall be carried forward and taken into account at the time
of any subsequent adjustment in the Exercise Price
(k) If an adjustment is made under this Section 6 and the
event to which the adjustment relates does not occur, then any adjustments in
accordance with this Section 6 shall be readjusted to the Exercise Price and
the number of Warrant Shares which would be in effect had the earlier
adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant..
The Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment.. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holders of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least ten (10) days prior
to the relevant date described below (or
<PAGE> 21
Page 21
such shorter period as is reasonably possible if thirty days is not reasonably
possible), a notice containing a description of the proposed action or event
and stating the date or expected date on which a record of the Issuer's
stockholders is to be taken for any of the foregoing purposes, and the date or
expected date on which any such dividend, distribution, subscription,
reclassification, reorganization, consolidation, combination, merger,
conveyance, sale, lease or transfer, dissolution, liquidation or winding up is
to take place and the date or expected date, if any is to be fixed, as of which
the holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
event.
Section 9 Notice. Any notice to be given or to be served upon any
party, in connection with the Warrant must be in writing and will be deemed to
have been given and received upon confirmed receipt, if sent by facsimile, or
two (2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Issuer, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to.
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party,
designate any other address in substitution of an address established pursuant
to the foregoing to which such notice will be given.
Section 10. Choice of Law: Conflict of Law: Jurisdiction and Venue.
Except as otherwise expressly provided herein, the terms, conditions and
enforceability of the Warrant shall be governed by and interpreted under the
laws of the
<PAGE> 22
Page 22
State of Illinois. Any claim, dispute or disagreement relating to the terms and
conditions of this Warrant, or arising from this Warrant or the subject matter
of this Warrant, may be brought only in the Circuit Courts of Cook or DuPage
Counties in the State of Illinois or in the United States District Court for
the Northern District of Illinois, which shall have exclusive jurisdiction
thereof. The parties to the Warrant consent to such jurisdiction and venue and
hereby knowingly and voluntarily waive all objections thereto on the basis of
lack of personal jurisdiction, venue or convenience.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 23
Page 23
INTERAMERICAS COMMUNICATIONS
CORPORATION
By.
Name:
Title:
ATTEST:
, Secretary
<PAGE> 24
Page 24
SCHEDULE ONE
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and
to purchase _______ shares of InterAmericas Communications Corporation Common
Stock issuable upon the exercise of this Warrant, and requests that
certificates for such shares be issued in the name of:
--------------------------------------------
(Name)
--------------------------------------------
(Address)
--------------------------------------------
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
--------------------------------------------
(Name)
--------------------------------------------
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date: _________ ___, ______,
Name of Registered Owner:
Address:
Signature:
<PAGE> 1
Page 1
EXHIBIT 10.3
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.1 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments, LLC,
registered holder hereof (the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
1. In the event that the Company has not registered for resale all of the
Registrable Shares pursuant to Section 3 of the Subscription Agreement on or
before June 30, 1997, the Company shall, for each day or portion thereof that
such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the
<PAGE> 2
Page 2
Holder may, at its option, require the Company to issue shares of its Common
Stock or a combination of Common Stock and cash as payment of the premium then
due and payable, until such time as the Holder receives notification of the
effectiveness of the Registration Statement or the registration to be effected
pursuant to Section 3.2 of the Subscription Agreement. If the Holder elects to
receive all or a portion of the premium in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on The Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such premium is payable, equal in amount
to the cash premium which the Company is required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand Dollars
($50,000) and integral multiples thereof This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of interest
on this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or any other applicable laws at
the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
6. Conversion of this Debenture shall be effectuated by surrendering the
Debenture to the Company with the form of Notice of Conversion attached hereto
as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions
<PAGE> 3
Page 3
immediately prior to delivery of such Notice of Conversion. The parties agree
that the foregoing damages are reasonable and that the anticipated damages for
the failure of the Company to effect such delivery are uncertain in amount and
difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in this
Section 7.
(a) In the event the Company should at any time or from time to time after
the date of this Debenture fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Fixed
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of the Debentures shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time after
the date of the Debentures is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Fixed Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
decreased in proportion to such decrease in outstanding shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether principal,
interest or otherwise) on the Debentures as and when the same
shall be due and payable and such default shall continue for
five (5) business days after the due date thereof;
b. Any of the representations or warranties made by the Company
herein. in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of the Debentures
or the Subscription Agreement shall be false or misleading in
any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision,
condition, agreement or obligation of the Company under the
Debentures or the Subscription Agreement and such failure
shall continue uncured for a period of five (5) business days
after the first date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of
<PAGE> 4
Page 4
Default);
d. The Company shall (1) make an assignment for the benefit of
its creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator, custodian or receiver thereof, or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by
any action or answer approve O{ consent to, or acquiesce in
any such proceeding or admit the material allegations O{ or
default in answering a petition filed in any such
proceeding;
g. The Company shall have its Common Stock delisted from The
Nasdaq SmallCap Market or suspended from trading thereon, and
shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any debts in
excess of $100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered
against the Company or any of its assets or properties in an
aggregate amount in excess of $100,000 and such judgments,
levies or attachments shall not be dismissed, stayed, bonded
or discharged within thirty (30) days of the date of entry
thereof; or
j. The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimis amount of its outstanding shares of capital stock,
other than (i) a merger or share exchange effected solely for
the purpose of reincorporating the Company or (ii) a merger
or share exchange in which the Company is the surviving
corporation and the stockholders of the Company immediately
prior to such merger or share exchange own more than fifty
percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding, the
obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
<PAGE> 5
Page 5
(b) The term "Senior Indebtedness" does not include any indebtedness
as to which the instrument creating or evidencing it provides that such
indebtedness is on a parity with or otherwise not superior in right of payment
to this Debenture.
(c) No payment on account of principal or interest on this Debenture
shall be made if; at the time of such payment or immediately after giving effect
thereto, there shall exist with respect to any Senior Indebtedness any default
or any condition, event or act that, with notice or lapse of time, or both,
would constitute a default, unless waived, and if any such payments are
received by Holder, Holder shall forthwith deliver such payment to the holders
of the Senior Indebtedness, for application on account of the Senior
Indebtedness, and until so delivered, such payment shall be held in trust by
Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any receivership,
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal, interest fees
and charges, including without limitation post-petition interest, on all Senior
Indebtedness before Holder is entitled to receive any payment on account of
principal or interest upon this Debenture and no claim or proof of claim shall
be filed with the Company by or on behalf of Holder that shall assert any right
to receive any payments in respect of this Debenture, except subject to the
payment in full of the principal and interest on all of the Senior Indebtedness
then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the
holders of Senior Indebtedness on account of the subordination provisions of
this Section 1.2, the Holder shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of; and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
14. Any notice to be given or to be served upon any party in connection
with the Debentures must be in writing and will be deemed to have been given
and received upon confirmed receipt, if sent by facsimile, or two (2) days
after it has been submitted for delivery by Federal Express or an equivalent
carrier, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
<PAGE> 6
Page 6
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of the Debentures shall be governed by and interpreted under
the laws of the State of Illinois. Any claim, dispute or disagreement relating
to the terms and conditions of the Debentures, or arising from the Debentures
or the subject matter of the Debentures, may be brought only in the Circuit
Courts of Cook or DuPage Counties in the State of Illinois or in the United
States District Court for the Northern District of Illinois, which shall have
exclusive jurisdiction thereof. The parties to the Debentures consent to such
jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
---------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
<PAGE> 8
Page 7
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
----------------------------------------------
Date of Notice
----------------------------------------------
Signature
----------------------------------------------
Name
----------------------------------------------
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
<PAGE> 9
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.2 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments,
LLC, registered holder hereof (the "Holder"), the principal sum of One Hundred
Fifty Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and
to pay interest on the principal sum outstanding from time to time in arrears
at the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
<PAGE> 10
1. In the event that the Company has not registered for resale all of
the Registrable Shares pursuant to Section 3 of the Subscription Agreement on
or before June 30, 1997, the Company shall, for each day or portion thereof
that such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the Holder may, at its option, require the
Company to issue shares of its Common Stock or a combination of Common Stock
and cash as payment of the premium then due and payable, until such time as the
Holder receives notification of the effectiveness of the Registration Statement
or the registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand
Dollars ($50,000) and integral multiples thereof This Debenture is exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or any other
applicable laws at the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
2
<PAGE> 11
6. Conversion of this Debenture shall be effectuated by surrendering
the Debenture to the Company with the form of Notice of Conversion attached
hereto as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable
upon conversion shall be subject to adjustment from time to time as provided in
this Section 7.
(a) In the event the Company should at any time or from time to time
after the date of this Debenture fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Fixed Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of the Debentures is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Fixed Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of the
Debentures shall be decreased in proportion to such decrease in outstanding
shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time
3
<PAGE> 12
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether
principal, interest or otherwise) on the Debentures as and
when the same shall be due and payable and such default shall
continue for five (5) business days after the due date
thereof;
b. Any of the representations or warranties made by the Company
herein. in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of the Debentures
or the Subscription Agreement shall be false or misleading in
any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision,
condition, agreement or obligation of the Company under the
Debentures or the Subscription Agreement and such failure
shall continue uncured for a period of five (5) business days
after the first date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the benefit of
its creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator, custodian or receiver thereof, or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve O{ consent to, or acquiesce in any
such proceeding or admit the material allegations O{ or
default in answering a petition filed in any such proceeding;
4
<PAGE> 13
g. The Company shall have its Common Stock delisted from The
Nasdaq SmallCap Market or suspended from trading thereon, and
shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any debts in
excess of $100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered
against the Company or any of its assets or properties in an
aggregate amount in excess of $100,000 and such judgments,
levies or attachments shall not be dismissed, stayed, bonded
or discharged within thirty (30) days of the date of entry
thereof; or
j. The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimis amount of its outstanding shares of capital stock,
other than (i) a merger or share exchange effected solely for
the purpose of reincorporating the Company or (ii) a merger
or share exchange in which the Company is the surviving
corporation and the stockholders of the Company immediately
prior to such merger or share exchange own more than fifty
percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding,
the obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
5
<PAGE> 14
(b) The term "Senior Indebtedness" does not include any
indebtedness as to which the instrument creating or evidencing it provides that
such indebtedness is on a parity with or otherwise not superior in right of
payment to this Debenture.
(c) No payment on account of principal or interest on this
Debenture shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any
receivership, liquidation or other similar proceedings in connection therewith,
relative to the Company or its property, and in the event of any proceedings
for voluntary or involuntary liquidation, dissolution or other winding-up of
the Company, whether or not involving insolvency, then the holders of Senior
Indebtedness shall be entitled to receive payment in full of all principal,
interest fees and charges, including without limitation post-petition interest,
on all Senior Indebtedness before Holder is entitled to receive any payment on
account of principal or interest upon this Debenture and no claim or proof of
claim shall be filed with the Company by or on behalf of Holder that shall
assert any right to receive any payments in respect of this Debenture, except
subject to the payment in full of the principal and interest on all of the
Senior Indebtedness then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the holders
of Senior Indebtedness on account of the subordination provisions of this
Section 1.2, the Holder shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of; and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company. This Debenture ranks equally with all other Debentures now or
hereafter issued under the terms set forth herein.
14. Any notice to be given or to be served upon any party in
connection with the Debentures must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
6
<PAGE> 15
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms,
conditions and enforceability of the Debentures shall be governed by and
interpreted under the laws of the State of Illinois. Any claim, dispute or
disagreement relating to the terms and conditions of the Debentures, or arising
from the Debentures or the subject matter of the Debentures, may be brought
only in the Circuit Courts of Cook or DuPage Counties in the State of Illinois
or in the United States District Court for the Northern District of Illinois,
which shall have exclusive jurisdiction thereof. The parties to the Debentures
consent to such jurisdiction and venue and hereby knowingly and voluntarily
waive all objections thereto on the basis of lack of personal jurisdiction,
venue or convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
-------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
8
<PAGE> 17
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
-------------------------
Date of Notice
-------------------------
Signature
-------------------------
Name
Address:
-------------------------
-------------------------
-------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 18
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.3 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments, LLC,
registered holder hereof (the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
<PAGE> 19
1. In the event that the Company has not registered for resale all of
the Registrable Shares pursuant to Section 3 of the Subscription Agreement on
or before June 30, 1997, the Company shall, for each day or portion thereof
that such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the Holder may, at its option, require the
Company to issue shares of its Common Stock or a combination of Common Stock
and cash as payment of the premium then due and payable, until such time as the
Holder receives notification of the effectiveness of the Registration Statement
or the registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand
Dollars ($50,000) and integral multiples thereof This Debenture is exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or any other
applicable laws at the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
2
<PAGE> 20
6. Conversion of this Debenture shall be effectuated by surrendering
the Debenture to the Company with the form of Notice of Conversion attached
hereto as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable
upon conversion shall be subject to adjustment from time to time as provided in
this Section 7.
(a) In the event the Company should at any time or from time to time
after the date of this Debenture fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Fixed Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of the Debentures is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Fixed Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of the
Debentures shall be decreased in proportion to such decrease in outstanding
shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time
3
<PAGE> 21
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether
principal, interest or otherwise) on the Debentures as and
when the same shall be due and payable and such default shall
continue for five (5) business days after the due date
thereof;
b. Any of the representations or warranties made by the Company
herein. in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of the Debentures
or the Subscription Agreement shall be false or misleading in
any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision,
condition, agreement or obligation of the Company under the
Debentures or the Subscription Agreement and such failure
shall continue uncured for a period of five (5) business days
after the first date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the benefit of
its creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator, custodian or receiver thereof, or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve O{ consent to, or acquiesce in any
such proceeding or admit the material allegations O{ or
default in answering a petition filed in any such proceeding;
4
<PAGE> 22
g. The Company shall have its Common Stock delisted from The
Nasdaq SmallCap Market or suspended from trading thereon, and
shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any debts in
excess of $100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered
against the Company or any of its assets or properties in an
aggregate amount in excess of $100,000 and such judgments,
levies or attachments shall not be dismissed, stayed, bonded
or discharged within thirty (30) days of the date of entry
thereof; or
j. The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimis amount of its outstanding shares of capital stock,
other than (i) a merger or share exchange effected solely for
the purpose of reincorporating the Company or (ii) a merger
or share exchange in which the Company is the surviving
corporation and the stockholders of the Company immediately
prior to such merger or share exchange own more than fifty
percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding,
the obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
5
<PAGE> 23
(b) The term "Senior Indebtedness" does not include any
indebtedness as to which the instrument creating or evidencing it provides that
such indebtedness is on a parity with or otherwise not superior in right of
payment to this Debenture.
(c) No payment on account of principal or interest on this
Debenture shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any
receivership, liquidation or other similar proceedings in connection therewith,
relative to the Company or its property, and in the event of any proceedings
for voluntary or involuntary liquidation, dissolution or other winding-up of
the Company, whether or not involving insolvency, then the holders of Senior
Indebtedness shall be entitled to receive payment in full of all principal,
interest fees and charges, including without limitation post-petition interest,
on all Senior Indebtedness before Holder is entitled to receive any payment on
account of principal or interest upon this Debenture and no claim or proof of
claim shall be filed with the Company by or on behalf of Holder that shall
assert any right to receive any payments in respect of this Debenture, except
subject to the payment in full of the principal and interest on all of the
Senior Indebtedness then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the holders
of Senior Indebtedness on account of the subordination provisions of this
Section 1.2, the Holder shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of; and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company. This Debenture ranks equally with all other Debentures now or
hereafter issued under the terms set forth herein.
14. Any notice to be given or to be served upon any party in
connection with the Debentures must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
6
<PAGE> 24
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of the Debentures shall be governed by and interpreted under
the laws of the State of Illinois. Any claim, dispute or disagreement relating
to the terms and conditions of the Debentures, or arising from the Debentures
or the subject matter of the Debentures, may be brought only in the Circuit
Courts of Cook or DuPage Counties in the State of Illinois or in the United
States District Court for the Northern District of Illinois, which shall have
exclusive jurisdiction thereof. The parties to the Debentures consent to such
jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
----------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
8
<PAGE> 26
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
---------------------------------
Date of Notice
---------------------------------
Signature
---------------------------------
Name
Address:
---------------------------------
---------------------------------
---------------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 27
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.4 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments, LLC,
registered holder hereof (the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
<PAGE> 28
1. In the event that the Company has not registered for resale all of
the Registrable Shares pursuant to Section 3 of the Subscription Agreement on
or before June 30, 1997, the Company shall, for each day or portion thereof
that such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the Holder may, at its option, require the
Company to issue shares of its Common Stock or a combination of Common Stock
and cash as payment of the premium then due and payable, until such time as the
Holder receives notification of the effectiveness of the Registration Statement
or the registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand
Dollars ($50,000) and integral multiples thereof This Debenture is exchangeable
for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or any other
applicable laws at the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
2
<PAGE> 29
6. Conversion of this Debenture shall be effectuated by surrendering
the Debenture to the Company with the form of Notice of Conversion attached
hereto as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable
upon conversion shall be subject to adjustment from time to time as provided in
this Section 7.
(a) In the event the Company should at any time or from time to time
after the date of this Debenture fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Fixed Conversion Price shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the date of the Debentures is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Fixed Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of the
Debentures shall be decreased in proportion to such decrease in outstanding
shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time
3
<PAGE> 30
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether
principal, interest or otherwise) on the Debentures as and
when the same shall be due and payable and such default shall
continue for five (5) business days after the due date
thereof;
b. Any of the representations or warranties made by the Company
herein. in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of the Debentures
or the Subscription Agreement shall be false or misleading in
any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision,
condition, agreement or obligation of the Company under the
Debentures or the Subscription Agreement and such failure
shall continue uncured for a period of five (5) business days
after the first date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the benefit of
its creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator, custodian or receiver thereof, or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve O{ consent to, or acquiesce in any
such proceeding or admit the material allegations O{ or
default in answering a petition filed in any such proceeding;
4
<PAGE> 31
g. The Company shall have its Common Stock delisted from The
Nasdaq SmallCap Market or suspended from trading thereon, and
shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any debts in
excess of $100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered
against the Company or any of its assets or properties in an
aggregate amount in excess of $100,000 and such judgments,
levies or attachments shall not be dismissed, stayed, bonded
or discharged within thirty (30) days of the date of entry
thereof; or
j. The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimis amount of its outstanding shares of capital stock,
other than (i) a merger or share exchange effected solely for
the purpose of reincorporating the Company or (ii) a merger
or share exchange in which the Company is the surviving
corporation and the stockholders of the Company immediately
prior to such merger or share exchange own more than fifty
percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding,
the obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
5
<PAGE> 32
(b) The term "Senior Indebtedness" does not include any
indebtedness as to which the instrument creating or evidencing it provides that
such indebtedness is on a parity with or otherwise not superior in right of
payment to this Debenture.
(c) No payment on account of principal or interest on this
Debenture shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any
receivership, liquidation or other similar proceedings in connection therewith,
relative to the Company or its property, and in the event of any proceedings
for voluntary or involuntary liquidation, dissolution or other winding-up of
the Company, whether or not involving insolvency, then the holders of Senior
Indebtedness shall be entitled to receive payment in full of all principal,
interest fees and charges, including without limitation post-petition interest,
on all Senior Indebtedness before Holder is entitled to receive any payment on
account of principal or interest upon this Debenture and no claim or proof of
claim shall be filed with the Company by or on behalf of Holder that shall
assert any right to receive any payments in respect of this Debenture, except
subject to the payment in full of the principal and interest on all of the
Senior Indebtedness then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the holders
of Senior Indebtedness on account of the subordination provisions of this
Section 1.2, the Holder shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of; and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company. This Debenture ranks equally with all other Debentures now or
hereafter issued under the terms set forth herein.
14. Any notice to be given or to be served upon any party in
connection with the Debentures must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
6
<PAGE> 33
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms,
conditions and enforceability of the Debentures shall be governed by and
interpreted under the laws of the State of Illinois. Any claim, dispute or
disagreement relating to the terms and conditions of the Debentures, or arising
from the Debentures or the subject matter of the Debentures, may be brought
only in the Circuit Courts of Cook or DuPage Counties in the State of Illinois
or in the United States District Court for the Northern District of Illinois,
which shall have exclusive jurisdiction thereof. The parties to the Debentures
consent to such jurisdiction and venue and hereby knowingly and voluntarily
waive all objections thereto on the basis of lack of personal jurisdiction,
venue or convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 34
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
--------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
8
<PAGE> 35
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
----------------------------------
Date of Notice
----------------------------------
Signature
----------------------------------
Name
Address:
----------------------------------
----------------------------------
----------------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 36
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.5 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments, LLC,
registered holder hereof (the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
<PAGE> 37
1. In the event that the Company has not registered for resale all of the
Registrable Shares pursuant to Section 3 of the Subscription Agreement on or
before June 30, 1997, the Company shall, for each day or portion thereof that
such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the Holder may, at its option, require the
Company to issue shares of its Common Stock or a combination of Common Stock
and cash as payment of the premium then due and payable, until such time as the
Holder receives notification of the effectiveness of the Registration Statement
or the registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand Dollars
($50,000) and integral multiples thereof This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of interest
on this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or any other applicable laws at
the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
2
<PAGE> 38
6. Conversion of this Debenture shall be effectuated by surrendering the
Debenture to the Company with the form of Notice of Conversion attached hereto
as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in this
Section 7.
(a) In the event the Company should at any time or from time to time after
the date of this Debenture fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Fixed
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of the Debentures shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time after
the date of the Debentures is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Fixed Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
decreased in proportion to such decrease in outstanding shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time
3
<PAGE> 39
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether principal,
interest or otherwise) on the Debentures as and when the same shall
be due and payable and such default shall continue for five (5)
business days after the due date thereof;
b. Any of the representations or warranties made by the Company herein.
in the Subscription Agreement, or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the execution and delivery
of the Debentures or the Subscription Agreement shall be false or
misleading in any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision, condition,
agreement or obligation of the Company under the Debentures or the
Subscription Agreement and such failure shall continue uncured for a
period of five (5) business days after the first date on which such
failure arises (it being understood that in the case of defaults which
can not reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to perform such
covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the benefit of its
creditors or commence proceedings for its dissolution; or (2) apply
for or consent to the appointment of a trustee, liquidator,
custodian or receiver thereof, or for a substantial part of its
property or business;
e. A trustee, liquidator, custodian or receiver shall be appointed for
the Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed
within sixty (60) days after such institution or the Company shall
by any action or answer approve O{ consent to, or acquiesce in any
such proceeding or admit the material allegations O{ or default in
answering a petition filed in any such proceeding;
4
<PAGE> 40
g. The Company shall have its Common Stock delisted from The Nasdaq
SmallCap Market or suspended from trading thereon, and shall not
have its Common Stock relisted or have such suspension lifted, as
the case may be, within five (5) business days;
h. The Company shall default on the payment of any debts in excess of
$100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered against the
Company or any of its assets or properties in an aggregate amount in
excess of $100,000 and such judgments, levies or attachments shall
not be dismissed, stayed, bonded or discharged within thirty (30)
days of the date of entry thereof; or
j. The Company shall be a party to any merger or consolidation or shall
dispose of all or substantially all of its assets in one or more
transactions or shall redeem more than a de minimis amount of its
outstanding shares of capital stock, other than (i) a merger or
share exchange effected solely for the purpose of reincorporating
the Company or (ii) a merger or share exchange in which the Company
is the surviving corporation and the stockholders of the Company
immediately prior to such merger or share exchange own more than
fifty percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding, the
obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
5
<PAGE> 41
(b) The term "Senior Indebtedness" does not include any indebtedness
as to which the instrument creating or evidencing it provides that such
indebtedness is on a parity with or otherwise not superior in right of payment
to this Debenture.
(c) No payment on account of principal or interest on this Debenture
shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any receivership,
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal, interest fees
and charges, including without limitation post-petition interest, on all Senior
Indebtedness before Holder is entitled to receive any payment on account of
principal or interest upon this Debenture and no claim or proof of claim shall
be filed with the Company by or on behalf of Holder that shall assert any right
to receive any payments in respect of this Debenture, except subject to the
payment in full of the principal and interest on all of the Senior Indebtedness
then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the
holders of Senior Indebtedness on account of the subordination provisions of
this Section 1.2, the Holder shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of; and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
14. Any notice to be given or to be served upon any party in connection
with the Debentures must be in writing and will be deemed to have been given
and received upon confirmed receipt, if sent by facsimile, or two (2) days
after it has been submitted for delivery by Federal Express or an equivalent
carrier, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
6
<PAGE> 42
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of the Debentures shall be governed by and interpreted under
the laws of the State of Illinois. Any claim, dispute or disagreement relating
to the terms and conditions of the Debentures, or arising from the Debentures
or the subject matter of the Debentures, may be brought only in the Circuit
Courts of Cook or DuPage Counties in the State of Illinois or in the United
States District Court for the Northern District of Illinois, which shall have
exclusive jurisdiction thereof. The parties to the Debentures consent to such
jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 43
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
------------------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
8
<PAGE> 44
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
----------------------------------
Date of Notice
----------------------------------
Signature
----------------------------------
Name
Address:
----------------------------------
----------------------------------
----------------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 45
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (111) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No.6 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to NU Investments, LLC,
registered holder hereof (the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company, as designated in
writing by the Holder from time to time. In lieu of a cash interest payment,
the Holder may require the Company to issue shares of its Common Stock, $.001
par value per share (the "Common Stock"), or a combination of Common Stock and
cash as payment of the interest then due and payable. If the Holder elects to
receive all or a portion of the interest in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
<PAGE> 46
1. In the event that the Company has not registered for resale all of the
Registrable Shares pursuant to Section 3 of the Subscription Agreement on or
before June 30, 1997, the Company shall, for each day or portion thereof that
such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1%) of the aggregate outstanding principal amount of the Debentures,
payable weekly in arrears, commencing July 1, 1997. The premium to be paid, if
any, shall constitute liquidated damages for the Company's failure to cause the
registration of the Registrable Shares. The parties agree that the foregoing
damages are reasonable and that the anticipated damages for the failure of the
Company to effect such registration are uncertain in amount and difficult to be
proved. The premium shall accrue and be payable on a weekly basis in cash or,
in lieu of a cash premium payment the Holder may, at its option, require the
Company to issue shares of its Common Stock or a combination of Common Stock
and cash as payment of the premium then due and payable, until such time as the
Holder receives notification of the effectiveness of the Registration Statement
or the registration to be effected pursuant to Section 3.2 of the Subscription
Agreement. If the Holder elects to receive all or a portion of the premium in
Common Stock, the Company shall issue to the Holder such number of fully paid
and non-assessable shares of Common Stock as shall have an aggregate average
closing bid price (as reported on The Nasdaq SmallCap Market) for the five (5)
consecutive trading days ending on the trading day prior to the date such
premium is payable, equal in amount to the cash premium which the Company is
required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand Dollars
($50,000) and integral multiples thereof This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of interest
on this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or any other applicable laws at
the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmallCap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the "Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq SmallCap Market) of the Company's Common Stock for ten (10) consecutive
trading days is equal to, or less than $2.25 (as adjusted for stock splits,
combinations and similar recapitalizations affecting the Common Stock), the
Company may, on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
2
<PAGE> 47
6. Conversion of this Debenture shall be effectuated by surrendering the
Debenture to the Company with the form of Notice of Conversion attached hereto
as SCHEDULE 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued at the Conversion Price. No fractional shares of the Common Stock
or scrip representing fractional shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded to the nearest whole
share. The date on which Notice of Conversion is given shall be deemed to be
the date on which the Holder has delivered the Debentures, with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the 'Conversion Date." Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or (ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in this
Section 7.
(a) In the event the Company should at any time or from time to time after
the date of this Debenture fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Fixed
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of the Debentures shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time after
the date of the Debentures is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Fixed Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
decreased in proportion to such decrease in outstanding shares.
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time
3
<PAGE> 48
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares ~f Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at any time or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment (whether principal,
interest or otherwise) on the Debentures as and when the same shall
be due and payable and such defaul shall continue for five (5)
business days after the due date thereof;
b. Any of the representations or warranties made by the Company herein.
in the Subscription Agreement, or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the execution and delivery
of the Debentures or the Subscription Agreement shall be false or
misleading in any material respect as of the date made;
c. The Company shall fail to perform or observe, in any material
respect, any other material covenant, term, provision, condition,
agreement or obligation of the Company under the Debentures or the
Subscription Agreement and such failure shall continue uncured for a
period of five (5) business days after the first date on which such
failure arises (it being understood that in the case of defaults which
can not reasonably be cured within a 5-day period no grace period
shall be necessary as a precondition to the failure to perform such
covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the benefit of its
creditors or commence proceedings for its dissolution; or (2) apply
for or consent to the appointment of a trustee, liquidator,
custodian or receiver thereof, or for a substantial part of its
property or business;
e. A trustee, liquidator, custodian or receiver shall be appointed for
the Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment;
f. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed
within sixty (60) days after such institution or the Company shall
by any action or answer approve O{ consent to, or acquiesce in any
such proceeding or admit the material allegations O{ or default in
answering a petition filed in any such proceeding;
4
<PAGE> 49
g. The Company shall have its Common Stock delisted from The Nasdaq
SmallCap Market or suspended from trading thereon, and shall not
have its Common Stock relisted or have such suspension lifted, as
the case may be, within five (5) business days;
h. The Company shall default on the payment of any debts in excess of
$100,000 beyond any applicable grace period;
i. Any judgments, levies or attachments shall be rendered against the
Company or any of its assets or properties in an aggregate amount in
excess of $100,000 and such judgments, levies or attachments shall
not be dismissed, stayed, bonded or discharged within thirty (30)
days of the date of entry thereof; or
j. The Company shall be a party to any merger or consolidation or shall
dispose of all or substantially all of its assets in one or more
transactions or shall redeem more than a de minimis amount of its
outstanding shares of capital stock, other than (i) a merger or
share exchange effected solely for the purpose of reincorporating
the Company or (ii) a merger or share exchange in which the Company
is the surviving corporation and the stockholders of the Company
immediately prior to such merger or share exchange own more than
fifty percent (50%) of the outstanding voting stock of the Company
following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding, the
obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in connection with one or more
underwritten public offerings by the Company (hereinafter referred to as
"Senior Indebtedness").
5
<PAGE> 50
(b) The term "Senior Indebtedness" does not include any indebtedness
as to which the instrument creating or evidencing it provides that such
indebtedness is on a parity with or otherwise not superior in right of payment
to this Debenture.
(c) No payment on account of principal or interest on this Debenture
shall be made if; at the time of such payment or immediately after
giving effect thereto, there shall exist with respect to any Senior
Indebtedness any default or any condition, event or act that, with notice or
lapse of time, or both, would constitute a default, unless waived, and if any
such payments are received by Holder, Holder shall forthwith deliver such
payment to the holders of the Senior Indebtedness, for application on account
of the Senior Indebtedness, and until so delivered, such payment shall be held
in trust by Holder as the property of the holders of the Senior Indebtedness
(d) In the event of any insolvency proceedings, and any receivership,
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal, interest fees
and charges, including without limitation post-petition interest, on all Senior
Indebtedness before Holder is entitled to receive any payment on account of
principal or interest upon this Debenture and no claim or proof of claim shall
be filed with the Company by or on behalf of Holder that shall assert any right
to receive any payments in respect of this Debenture, except subject to the
payment in full of the principal and interest on all of the Senior Indebtedness
then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the
holders of Senior Indebtedness on account of the subordination provisions of
this Section 1.2, the Holder shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of; and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
14. Any notice to be given or to be served upon any party in connection
with the Debentures must be in writing and will be deemed to have been given
and received upon confirmed receipt, if sent by facsimile, or two (2) days
after it has been submitted for delivery by Federal Express or an equivalent
carrier, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
6
<PAGE> 51
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of the Debentures shall be governed by and interpreted under
the laws of the State of Illinois. Any claim, dispute or disagreement relating
to the terms and conditions of the Debentures, or arising from the Debentures
or the subject matter of the Debentures, may be brought only in the Circuit
Courts of Cook or DuPage Counties in the State of Illinois or in the United
States District Court for the Northern District of Illinois, which shall have
exclusive jurisdiction thereof. The parties to the Debentures consent to such
jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 52
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3, 1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
-------------------------------------
Name: Patricio E. Northland
Title: Chairman and CEO
8
<PAGE> 53
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. ________ into _________________________ shares of Common Stock of
InterAmericas Communications Corporation (the "Company") according to the
conditions hereof; as of the date written below.
--------------------------------
Date of Notice
--------------------------------
Signature
--------------------------------
Name
Address:
--------------------------------
--------------------------------
--------------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 1
EXHIBIT 10.4 PAGE 1
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK OF INTERAMERICAS COMMUNICATIONS
CORPORATION TO BE ISSUED UPON ANY EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
INTERAMERICAS COMMUNICATIONS CORPORATION
FEBRUARY 3,1997
This certifies that, for value received, NU Investments, LLC ("NUI") and
any subsequent transferee pursuant to the terms of the Agreement (as defined
below) of even date herewith and this Warrant (each, a "Holder") is entitled to
purchase, subject to the provisions of this Warrant, from InterAmericas
Communications Corporation, a Texas corporation (the "Issuer"), at any time or
from time to time on or after the date hereof and on or before February 2, 2002
(the "Expiration Date"), One Hundred Thousand (100,000) fully paid and
nonassessable shares of common stock, par value $.001 per share (the 'Common
Stock"'), of the Issuer at an exercise price of Five Dollars ("5.00) per share,
subject to adjustment pursuant to the terms hereunder (the "Exercise Price")
(such shares of Common Stock and other securities issued and issuable upon
exercise of this Warrant, the "Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the
Subscription Agreement of even date herewith by and between NUI and the Issuer
(the "Agreement").
Section 2 Exercise of Warrant.
(a) Subject to the provisions hereof this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at any
time or from time to time on or after the date hereof and on or before
the Expiration Date, by presentation and surrender hereof to the Issuer
at the address which, in accordance with the provisions of Section 9
hereof is then effective for notices to the Issuer, with the Election to
Purchase Form annexed hereto as SCHEDULE ONE, duly executed and
accompanied by payment to the Issuer as further set forth below in this
Section 2, for the account of the Issuer, of the Exercise Price for the
number of Warrant Shares specified in such form. If this Warrant should
be exercised in part only, the Issuer" shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant Shares purchasable
hereunder. The Issuer shall maintain at its principal place of business a
register for the registration of this Warrant and registration of
transfer of this Warrant. The Exercise Price for the number of Warrant
Shares specified in the Election to Purchase Form shall be payable in
United States Dollars by certified or official bank check payable to the
order of the Issuer or by wire transfer of immediately available funds to
an account specified by the Issuer for that purpose.
(b) Certificates representing Warrant Shares shall bear the
following restrictive legend:
""The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
""Securities Act") or any state securities laws. They may not be
offered or transferred by sale, assignment, pledge or otherwise
unless (i) a registration statement for the securities under the
Securities Act is in effect or (ii) the corporation has
<PAGE> 2
PAGE 2
- --------------------------------------------------------------------------------
received an opinion of counsel, which opinion is
satisfactory to the corporation. to the effect that
such registration is not required under the Securities
Act."
c) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value (hereinafter defined) of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Issuer together with the properly
endorsed Notice of Exercise and notice of such election in which event
the Issuer shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
Y (A - B)
----------
X = A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
date of such calculation)
A = the Fair Market Value of one share of the Issuer's Common
Stock (at the date of such calculation)
B = Exercise Price (as adjusted at the date of such calculation)
For purposes of the above calculation, Fair Market Value of one share of
Common Stock shall be the average closing bid price (as reported by The Nasdaq
SmallCap Market) of the Issuer's Common Stock for the five (5) consecutive
trading days ending oh the trading day immediately preceding the date of the
Election to Purchase.
Section 3. Reservation of Shares Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date, no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observation or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by the Issuer,
(ii) promptly to take such action as may be required of the Issuer to permit
the Holder to exercise this Warrant and the Issuer duly and effectively to
issue shares of its Common Stock or other securities as provided herein upon
the exercise hereof and (iii) promptly to take all action required or provided
herein to protect the rights of the Holder granted hereunder against dilution.
Without limiting the generality of the foregoing, should the Warrant Shares at
any time consist in whole or in part of shares of capital stock having a par
value, the Issuer agrees that before taking any action which would cause an
adjustment of the Exercise Price so that the same would be less than the then
par value of such Warrant Shares, the Issuer shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Issuer
may validly and legally issue fully paid and nonassessable shares of such
Common Stock at the Exercise Price as so adjusted. The Issuer further agrees
that it will not establish a par value for its Common Stock while this Warrant
is outstanding in an amount greater than the Exercise Price.
Section 4. Exchange. Transfer. Assignment or Loss of Warrant. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not
in accordance with this Section shall be null and void, and the Issuer shall
not in any way be required to give effect to such transfer No transfer of this
Warrant shall be effective for any purpose hereunder until (i) written notice
of such transfer and of the name and address of the transferee has been
received by the Issuer, and (ii) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by
any transferee authorized under the provisions of this Section 4, the Issuer
shall, without charge, execute and deliver a new Warrant registered in the name
of such transferee at the address specified by such transferee, and this
Warrant shall promptly be canceled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner thereof for all
purposes, and the Issuer shall not be affected by any notice to the contrary.
Any Warrant, if presented by an authorized transferee, may be exercised by such
transferee without prior delivery of a new Warrant issued in the name of the
transferee.
<PAGE> 3
PAGE 3
- --------------------------------------------------------------------------------
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so lost. stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
Section 5 Rights of Holder. Neither a Holder nor his transferee by
devise or the laws of descent and distribution or otherwise shall be,
or have any rights or privileges O{ A shareholder of the Issuer with respect to
any Warrant Shares, unless and until certificates representing such Warrant
Shares shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and Warrant Shares shall be subject to adjustment from
time to time as provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for which
this Warrant may be exercised shall be increased or reduced, as of the
record date for such recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount payable for
the purchase of all Warrant Shares issuable hereunder immediately after
the record date for such recapitalization shall equal the aggregate
amount so payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities convertible
into or exchangeable for Common Stock, or rights to purchase Common Stock
or securities convertible into or exchangeable for Common Stock, the
number of shares of Common Stock for which this Warrant may be exercised
shall be increased, as of the record date for determining which holders
of Common Stock shall be entitled to receive such dividend or
distribution, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of
such dividend or distribution, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date for such
dividend or distribution shall equal the aggregate amount so payable
immediately before such record date.
(c) If the Issuer declares a dividend on Common Stock (other
than a dividend covered by subsection (b) above) or distributes to
holders of its Common Stock, other than as part of its dissolution or
liquidation or the winding up of its affairs, any shares of its capital
stock. any evidence of indebtedness or any cash or other of its assets
(other than Common Stock or securities convertible into or exchangeable
for Common Stock), the Holder shall receive notice of such event as set
forth in Section 8 below.
(d) In case of any consolidation of the Issuer with, or merger of
the Issuer into, any other corporation (other than a consolidation or
merger in which the Issuer is the surviving or resulting corporation and
in which the stockholders of the Issuer immediately prior to the merger
or consolidation hold more than 50% of the voting stock of the Issuer
following the merger or consolidation), or in case of any sale or
transfer of all or substantially all of the assets of the Issuer, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the issuer, except where the Issuer is the surviving
entity and the stockholders of the Issuer immediately prior to the
exchange hold more than 50% of the voting stock of the Issuer after the
exchange), the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which shall
have acquired such assets or securities of the Issuer, as the case may
be, shall execute and deliver to the Holder simultaneously therewith a
new Warrant, satisfactory in form and substance to the Holder, together
with such other documents as the Holder may reasonably request, entitling
the Holder thereof to receive upon exercise of such Warrant the kind and
amount of shares of stock and other securities and property receivable
upon such consolidation, merger, sale, transfer, or exchange of
securities, or upon the dissolution following such a sale or other
transfer, by a holder of the number of shares of Common Stock purchasable
upon exercise of this Warrant immediately prior to such consolidation,
merger, sale, transfer, or exchange. Such new Warrant shall contain the
same basic other terms and conditions as this Warrant and shall provide
for adjustments which, for events subsequent to the effective date of
such written instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The above
provisions of this paragraph (d) shall similarly apply to successive
consolidations, mergers, exchanges, sales or other transfers
<PAGE> 4
PAGE 4
- --------------------------------------------------------------------------------
covered hereby.
(e) If the Issuer shall, at any time before the expiration of this
Warrant, sell all or substantially all of its assets and distribute the
proceeds thereof to the Issuer's shareholders, the Holder shall, upon
exercise of this Warrant have the right to receive, in lieu of the shares
of Common Stock of the Issuer that the Holder otherwise would have been
entitled to receive, the same kind and amount of assets as would have
been issued, distributed or paid to the Holder upon any such distribution
with respect to such shares of Common Stock of the Issuer had the Holder
been the holder of record of such shares of Common Stock receivable upon
exercise of this Warrant on the date for determining those entitled to
receive any such distribution. If any such distribution results in any
cash distribution in excess of the Exercise Price provided by this
Warrant for the shares of Common Stock receivable upon exercise of this
Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in such case, the
Issuer shall, upon distribution to the Holder, consider the Exercise
Price to have been paid in full and, in making settlement to the Holder,
shall obtain receipt of the Exercise Price by deducting an amount equal
to the Exercise Price for the shares of Common Stock receivable upon
exercise of this Warrant from the amount payable to the Holder.
(f) If an event occurs which is similar in nature to the events
described in this Section 6, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock of the
Issuer as the same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the purpose of this
Section 6, the term "Common Stock" shall include any stock of any class
of the Issuer which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Issuer and which is not subject to
redemption by the Issuer.
(h) Whenever the number of Warrant Shares or the Exercise Price
shall be adjusted as required by the provisions of this Section 6, the
Issuer forthwith shall file in the custody of its secretary or an
assistant secretary, at its principal office, and furnish to each Holder
hereof, a certificate prepared in accordance with paragraph (h) above,
showing the adjusted number of Warrant Shares and the Exercise Price and
setting forth in reasonable detail the circumstances requiring the
adjustments.
(i) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successors and assigns of
the Issuer.
(j) No adjustment in the Exercise Price in accordance with the
provisions of this Section 6 need be made if such adjustment would amount
to a change in such Exercise Price of less than $.01; provided however,
that the amount by which any adjustment is not made by reason of the
provisions of this paragraph (k) shall be carried forward and taken into
account at the time of any subsequent adjustment in the Exercise Price
(k) If an adjustment is made under this Section 6 and the event to
which the adjustment relates does not occur, then any adjustments in
accordance with this Section 6 shall be readjusted to the Exercise Price
and the number of Warrant Shares which would be in effect had the earlier
adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for)
Section 8. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holders of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer
<PAGE> 5
PAGE 5
- --------------------------------------------------------------------------------
shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least ten (10) days prior
to the relevant date described below (or such shorter period as is reasonably
possible if thirty days is not reasonably possible), a notice containing a
description of the proposed action or event and stating the date or expected
date on which a record of the Issuer's stockholders is to be taken for any of
the foregoing purposes, and the date or expected date on which any such
dividend, distribution, subscription reclassification, reorganization,
consolidation, combination, merger, conveyance, sale, lease or transfer.
dissolution, liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
Section 9. Notice. Any notice to be given or to be served upon any party
in connection with the Warrant must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Issuer, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.:Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33T31-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
NU Investments, LLC
Field Secretaries
do Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.:Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate
any other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
Section 10. Choice of Law: Conflict of Law: Jurisdiction and Venue.
Except as otherwise expressly provided
<PAGE> 6
PAGE 6
- --------------------------------------------------------------------------------
herein, the terms, conditions and enforceability of the Warrant shall be
governed by and interpreted under the laws of the State of Illinois. Any claim,
dispute or disagreement relating to the terms and conditions of this Warrant,
or arising from this Warrant or the subject matter of this Warrant, may be
brought only in the Circuit Courts of Cook or DuPage Counties in the State of
Illinois or in the United States District Court for the Northern District of
Illinois, which shall have exclusive jurisdiction thereof The parties to the
Warrant consent to such jurisdiction and venue and hereby knowingly and
voluntarily waive all objections thereto on the basis of lack of personal
jurisdiction, venue or convenience.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 7
DATED: FEBRUARY 3, 1997
INTERAMERICAS COMMUNICATIONS
CORPORATION
BY: /s/ Patricio E. Northland
--------------------------------
Name: Patricio E. Northland
Title: Chairman & CEO
ATTEST:
- -----------------------
, Secretary
<PAGE> 8
PAGE 7
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SCHEDULE ONE
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and to
purchase _______ shares of InterAmericas Communications Corporation Common
Stock issuable upon the exercise of this Warrant, and requests that
certificates for such shares be issued in the name of:
---------------------------------------------------------------------
(Name)
---------------------------------------------------------------------
(Address)
---------------------------------------------------------------------
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
---------------------------------------------------------------------
(Name)
---------------------------------------------------------------------
(Address)
and, if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date:
--------------- ---, -------
Name of Registered Owner:
-------------------------------------------------------
Address:
----------------------------------------
----------------------------------------
Signature:
--------------------------------------
<PAGE> 1
EXHIBIT 10.5
SUBSCRIPTION AGREEMENT
INTERAMERICAS COMMUNICATIONS CORPORATION
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Ladies and Gentlemen:
The undersigned, KA Investments, LDC (the "Purchaser"), understands that
InterAmericas Communications Corporation, a Texas corporation (the "Company"),
is offering for sale its 7% Convertible Debentures, in the form attached hereto
as Exhibit A, in the aggregate original principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000) (the "Debentures"). and a warrant, in the
form attached hereto as Exhibit B (the "Warrant"), for the purchase of an
aggregate of One Hundred Thousand (100,000) shares of its common stock, $.00 1
par value per share (the "Common Stock"). The Purchaser further understands
that the offering is being made without registration of the Debentures, the
Warrant or the shares of Common Stock issuable upon conversion thereof (the
Debentures, the Warrant and the shares of Common Stock issuable upon conversion
thereof are hereinafter sometimes referred to as the "Securities") under the
Securities Act of 1933, as amended (the "Securities Act"), and is being made
only to "accredited investors" (as defined in Rule 501 of Regulation D under
the Securities Act).
1. Subscription. Subject to the terms and conditions hereof, the Company
agrees to sell. issue and deliver. and Purchaser hereby offers to purchase and
subscribes for (i) Debentures in the aggregate original principal amount of
$600,000, and (ii) a Warrant for the purchase of 40,000 shares of Common Stock,
for a purchase price equal to the aggregate original principal amount of the
Debentures so to be purchased.
2. The Closing. The closing of the transaction contemplated hereby (the
"Closing") shall take place on February 3, 1997 at the offices of Freeborn &
Peters, 950 17th Street, Denver, Colorado 80202, at 9:30 a.m. or at such other
time and place as shall be agreed to by the Company and the Purchaser (the
"Closing Date"). At the Closing, payment shall be made by wire transfer against
delivery of the Debentures and the Warrant to be purchased by the Purchaser. In
addition, the Company shall deliver to the Purchaser an opinion of Company
counsel in the form of Exhibit C
3. Securities Act registration.
3.1. The Company shall use its best efforts to register promptly under the
Securities Act, at the Company's expense (other than underwriting discounts and
commissions, if any), all of the shares of Common Stock issuable upon the
conversion of the Debentures and exercise of the Warrants issued to the
Purchaser (the "Registrable Shares") and in that connection shall file, by no
later than ninety (90) days after the date hereof, a registration statement
with respect to the Registrable Shares (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC"). Notice of effectiveness of the
Registration Statement shall be furnished promptly to the Purchaser. The
Company shall use its best efforts to maintain the effectiveness of the
Registration Statement and from time to time will amend or supplement such
Registration Statement and the prospectus contained therein as and to the
extent necessary to comply with the Securities Act. The effectiveness of the
Registration Statement shall be maintained with respect to the Registrable
Shares until all of the Registrable Shares have been sold pursuant thereto or
such date as all of the Registrable Shares may be sold during any one period of
three (3) consecutive months pursuant to Rule 144 under the Securities Act or
otherwise without registration.
3.2 (a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand
<PAGE> 2
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating to a corporate reorganization or
other transaction under Rule 145, or a registration on any registration form
that does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), except as set forth in
Section 3.2(b) below and in any underwriting involved therein, all the
Registrable Shares specified in a written request or requests, made by any
Holder and received by the Company within ten (10) days after the written
notice from the Company described in clause (i) above is mailed or delivered by
the Company. Such written request may specify all or a part of a Holder's
Registrable Shares provided that such Registrable Shares have not previously
been registered pursuant to the Registration Statement filed pursuant to
Section 3.1.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
3.2(a). In such event, the right of any Holder to registration pursuant to this
Section 3.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Shares in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 3.2, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Shares from, or limit the number of Registrable
Shares to be included in, the registration and underwriting. The Company shall
so advise all holders of securities requesting registration, and the number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for securities being sold
for its own account. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Registrable Shares or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
3.3. In the event that the Company registers under the Securities Act any
of the Registrable Shares held by the Purchaser, the Company shall indemnify
and hold harmless the Purchaser and each underwriter of such shares (including
any broker or dealer through whom such of the shares may be sold) and each
person, if any, who controls the Purchaser or any such underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") from and against any and
all losses, claims, damages, expenses or liabilities, joint or several, to
which they or any of them become subject under the Securities Act or the
Exchange Act or otherwise, and, except as hereinafter provided, shall reimburse
the Purchaser and each of the underwriters and each such controlling person, if
any, for any legal or other expenses reasonably incurred by them or any of them
in connection with investigating or defending any actions whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or in the prospectus (or the Registration Statement or prospectus as
from time to time amended or supplemented by the Company) 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 in order to make the statements
therein not misleading. unless such untrue statement or omission was made in
such Registration Statement or prospectus in reliance upon and in conformity
with information furnished in writing to the Company in connection therewith by
the Purchaser (insofar as indemnification of the Purchaser is concerned) or any
underwriter (insofar as indemnification of any such underwriter is
2
<PAGE> 3
concerned) relating thereto expressly for use therein. Promptly after receipt
by the Purchaser or any underwriter or any person controlling any of them, as
the case may be, of notice of a claim which the foregoing indemnification
applies, the Purchaser or such other person shall notify the Company in writing
of the commencement thereof, and, subject to the provisions hereinafter stated,
the Company shall assume the defense of such action (including the employment
of counsel, who shall be counsel reasonably satisfactory to the Purchaser or
such underwriter or controlling person, as the case may be. and the payment of
expenses) insofar as such action shall relate to any alleged liability in
respect of which indemnity may be sought against the Company. The Purchaser or
any underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
but the fees and expenses of such counsel shall not be at the expense of the
Company unless: (i) the employment of such counsel has been specifically
authorized by the Company. (ii) the Company has failed to assume the defense
and employ counsel, or (iii) the named parties of any such action, suit or
proceeding (including any impleaded parties) include both the person or persons
seeking indemnification (the "indemnified person") and the Company and such
indemnified person shall have been advised by its counsel that representation
of the indemnified person and the Company by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or
not such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Company shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such indemnified person). The Company shall not be liable to
indemnify any person for any settlement by such person of any such action
effected without the Company's consent.
3.4. The Purchaser shall indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, against all
losses, claims, damages, expenses or liabilities or actions to which they or
any of them become subject under the Securities Act or the Exchange Act or
otherwise, and shall reimburse the Company, its officers and directors and each
such controlling person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, insofar as such losses,
claims damages. expenses, liabilities or actions arise out of or are based upon
any information relating to the Purchaser furnished by or on behalf of the
Purchaser in writing specifically for inclusion in such Registration Statement.
Notwithstanding the above, the liability of the Purchaser under this Section
3.4 shall not exceed the proceeds (net of underwriting discounts or
commissions) received by the Purchaser upon the sale of the Registrable Shares.
3.5. Any losses, claims, damages, liabilities and reasonable expenses for
which an indemnified party is entitled to indemnification under Sections 3.3
and 3.4 of this Agreement shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities and expenses are
incurred.
3.6. The Company shall prepare and file with the SEC such amendments and
supplements to the Registration Statement, and the prospectus used in
connection with such Registration Statement as, in the opinion of the counsel
to the Company, may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement.
3.7 The Company shall notify each seller of Registrable Shares covered by
the Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in light of the circumstances
then existing, and at the request of any such seller. prepare and furnish to
such seller 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 any untrue
statement of a material fact required to be stated therein or
3
<PAGE> 4
necessary to make the statements therein not misleading or incomplete in light
of the circumstances then existing.
3.8. The Company shall furnish to the Purchaser such number of copies of a
prospectus in conformity with the requirements of the Securities Act, and such
other documents as may reasonably be requested in order to facilitate the
disposition of the Registrable Shares owned by the Purchaser.
3.9. The Company shall use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Purchaser; provided, however, that the Company shall not be required in
connection therewith, or as a condition thereto, to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act.
3.10. The Company shall notify each holder of Registrable Shares covered
by such Registration Statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act and of the happening of
any event as a result of which the prospectus included in such Registration
Statement, 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 the light of the circumstances
then existing.
3.11. [Reserved]
3.12 The Company shall use its best efforts to maintain the listing of its
Common Stock on The Nasdaq SmaIlCap Market (or on The Nasdaq National Market,
the American Stock Exchange or the New York Stock Exchange), for at least the
thirty-six (36) month period commencing on the Closing Date.
3.13 The Company will make and keep public information regarding the
Company available as those terms are understood and defined in Rule 144 under
the Securities Act, at all times from and after ninety (90) days following the
effective date of the initial registration statement filed by the Company under
the Securities Act; and
3.14 The Company will file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of I 934 as amended, for at least the thirty-six (36)
month period commencing on the Closing Date.
3.15 In the event that all of the Registrable Shares have not been
registered for resale on or before June 30, 1997, the Company shall, for each
day or portion thereof that said Registration Statement is not declared
effective, in addition to the interest accruing at the rate of 7% per annum
otherwise payable pursuant to the terms of the Debentures, pay the Purchaser
the premium set forth in Section 1 of the Debentures.
4. Representations. Warranties and Covenants of the Company. The Company
represents and warrants to the Purchaser as follows, such representations and
warranties to be true and correct as of the Closing Date.
(a) The Common Stock issuable upon the conversion of the Debentures has
been duly authorized and, when issued and delivered to the Purchaser in
accordance with the terms of said Debentures, will be validly issued, fully
paid and nonassessable.
(b) The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Texas with full corporate power
and authority to own, lease and
4
<PAGE> 5
operate its properties and to conduct its business as currently conducted, and
is duly registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or qualification. except
where the failure so to register or qualify does not have a material adverse
effect on the condition (financial or other), business, properties, net worth
or results of operations of the Company.
(c) The Company has registered its Common Stock pursuant to Section 12 of
the Exchange Act and the Common Stock is listed and trades on The Nasdaq
SmallCap Market. The Company has filed all material required to be filed
pursuant to all reporting obligations under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) calendar months
immediately preceding the offer or sale of the Debentures (or for such shorter
period that the Company has been required to file such material).
(d) Neither the issuance and sale of the Securities, the execution.
delivery or performance of this Agreement by the Company, nor the consummation
by the Company of the transactions contemplated hereby (i) requires any
consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official or conflicts or will conflict with or constitutes or
will constitute a breach of. or a default under, the certificate of
incorporation or by-laws, or other organizational documents, of the Company or
any of its subsidiaries or (ii) conflicts or will conflict with, or constitutes
or will constitute a material breach of, or default under, any material
agreement, indenture, lease or other instrument to which the Company or any of
its subsidiaries is a party or by which any of them or any of their respective
properties may be bound. or violates or will violate any statute, law, or any
of its subsidiaries or any of their respective properties, or will result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to the terms of
any agreement or instrument to which any of them is a party or by which any of
them may be bound or to which any of the property or assets of any of them is
subject.
(e) The execution and delivery of, and by the performance by the Company
of its obligations under this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms. and the Company
has full corporate and legal power to enter into this Agreement and perform all
of its obligations hereunder.
(f) As of October 31, 1996, the Company has authorized Fifty Million
(50,000.000) shares of Common Stock, $001 par value per share, of which
16,152,518 shares are issued and outstanding and Ten Million (10,000,000)
shares of preferred stock, $001 par value per share. of which none are issued
and outstanding. All such shares have been duly and validly issued and are
fully paid and nonassessable. Except as set forth on Schedule 4(f) attached
hereto, the Company has outstanding no other shares of any class of capital
stock. There are no subscriptions, options, warrants, scrip, rights. calls,
convertible securities, or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock,
or other securities of the Company obligating. or which may obligate the
Company to issue, deliver or sell or cause to be issued, delivered or sold.
additional shares of its capital stock or obligating or which may obligate the
Company to grant. extend or enter into any such subscription, option, warrant,
scrip, right, call, convertible security, or other similar agreement.
arrangement, or similar commitment.
(g) There are no legal or administrative proceedings investigation of any
kind or nature now pending or to the knowledge of the Company, threatened
before any court or administrative body against the Company nor is the Company
subject to any unsatisfied judgment, order or decree of any court of law,
administrative board, regulatory agency, arbitrator or arbitration panel.
5
<PAGE> 6
(h) Since September 30, 1996, the business of the Company has been
operated only in the ordinary and normal course, and there has not been, after
such date, any material adverse change in the earnings, assets, liabilities,
financial condition or in the operation of its businesses.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a) The Purchaser is aware that no federal or state agency has passed upon
the Common Stock or made any finding or determination concerning the fairness
of this investment and that this investment is subject to numerous risks,
including those set forth on Schedule 5(a) hereto.
(b) The Purchaser has had an opportunity to ask questions of and receive
answers from representatives of the Company, concerning the terms and
conditions of this investment.
(c) The Securities for which the Purchaser hereby subscribes will be
acquired for the Purchaser's own account, for investment only and not with a
view toward resale or distribution in a manner which would require registration
under the Securities Act.
(d) The Purchaser acknowledges that, until the Registration Statement is
declared effective by the SEC, there are restrictions on the transferability of
shares of Common Stock as required pursuant to federal and state securities
laws. The Purchaser further agrees to be responsible for compliance with all
conditions on transfer imposed by any state blue sky or securities law. The
Purchaser acknowledges that each certificate representing the Registrable
Shares shall be stamped with a restrictive legend substantially similar to the
following:
"The securities evidenced by this certificate have not
been registered under the United States Securities Act of
1933. as amended (the "Act"), or any state securities
laws. and may not be offered or sold, transferred,
pledged, hypothecated or otherwise disposed of except (i)
pursuant to an effective registration statement under the
Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under the Act relating to the
disposition of securities) or (iii) if an exemption from
registration under such Act is available.
Notwithstanding the foregoing, the securities evidenced
by this certificate are also subject to the registration
rights set forth in that certain Subscription Agreement
by and between the original holder hereof and the
Company, a copy of which is on file at the Company's
principal executive office."
(e) The Purchaser is an "accredited investor" as defined in Rule 501(a)
under the Securities Act. The Purchaser is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, and is a
corporation, Massachusetts or similar business trust or partnership not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000. The Purchaser agrees to furnish any additional
information requested to assure compliance with applicable federal and state
securities laws in connection with the purchase and sale of the Securities.
6. Brokers. Each of the Company and Purchaser hereby indemnifies and holds
the other harmless from any liability for any brokers' or finders' fee with
respect to this Agreement or the transactions contemplated hereby for which the
Company or the Purchaser, as the case may be, is responsible. It is
specifically acknowledged and agreed that the Company is liable for any fees
payable to Corporate Capital Management, L.L.C.
6
<PAGE> 7
7. Waiver. Amendment. Neither this Agreement nor any provisions hereof
shall be modified, changed, discharged or terminated except by an instrument in
writing, signed by the party against whom any waiver, change, discharge or
termination is sought.
8. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective successors and
assigns, and no other person shall have any right or obligation hereunder.
Neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by either the Company or the
Purchaser without the prior written consent of other party and any assignment
in violation hereof shall be void, provided that the Purchaser may assign its
rights and obligations hereunder to any person acquiring some or all of the
Securities, provided that such transfer (i) is made in accordance with Section
5 hereof and is not pursuant to the effective Registration Statement and (ii)
such person agrees in writing to be bound by the terms hereof.
9. Certain Agreements. The Company covenants and agrees that during the
sixty (60) days following the Closing Date, neither the Company, nor any
affiliate of the Company, nor any person acting on behalf of the Company shall,
without the prior written consent of the Purchaser, agree to enter. enter into,
or consummate any subsequent equity securities offering (including any debt
offering convertible into equity securities of the Company) except for : (i)
the issuance of stock options pursuant to the Company's existing stock option
plans and the issuance of Common Stock pursuant to presently outstanding stock
options and convertible securities; (ii) the firmly underwritten public
offering of its equity or debt securities; and (iii) the issuance of shares of
its capital stock in consideration in whole or in part for one or more
acquisitions made by the Company. Except as set forth above, the Company
further covenants and agrees that it shall not engage in any offering,
resulting in gross proceeds to the Company of less than $1,500,000, from the
period commencing with Closing Date and terminating one hundred twenty (120)
days after the Closing Date, without first offering the Purchaser the
opportunity (which shall remain open for a period often (10) business days from
the date the Purchaser receives notice thereof) to purchase up to all of such
additional securities (in the discretion of the Purchaser) on the terms and
conditions which the Company proposes to offer such additional securities to
third parties. Any proposed sale of securities on terms and conditions
different from those offered to the Purchaser. as well as any subsequent
proposed sale of any such additional securities by the Company, shall again be
subject to the first refusal rights of the Purchaser and shall require
compliance by the Company with the procedures described in this Agreement. The
Company further covenants and agrees to provide the Purchaser with prompt
notice (in any event not later than two (2) business days after the fact) of
the date of closing and the substantive terms and provisions of any such
offering with any third party which was the subject of the right of first offer
described in this Section 9.
10. Choice of Law; Conflict of Law; Jurisdiction and Venue. Except as
otherwise expressly provided herein, the terms, conditions and enforceability
of this Agreement shall be governed by and interpreted under the laws of the
State of Illinois. Any claim, dispute or disagreement relating to the terms
and conditions of this Agreement, or arising from this Agreement or the subject
matter of this Agreement, may be brought only in the Circuit Courts of Cook or
DuPage Counties in the State of Illinois or in the United States District Court
for the Northern District of Illinois, which shall have exclusive jurisdiction
thereof. The parties to this Agreement consent to such jurisdiction and venue
and hereby knowingly and voluntarily waive all objections thereto on the basis
of lack of personal jurisdiction, venue or convenience.
11. Section and Other Headings. The section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
12. Multiple Counterparts. This Agreement may be executed in one or more
counterparts. each of which will be deemed to be an original but all of which
will constitute one and the same instrument. However, in enforcing any party's
rights under this Agreement it will be necessary to produce only one copy of
this Agreement signed by the party to be charged.
7
<PAGE> 8
13. Notice. Any notice to be given or to be served upon any party in
connection with this Agreement must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.:Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With a copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Purchaser, to:
KA Investments, LDC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Islands
Attn.:Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 1 7th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Fees and Expenses. Each of Purchaser and the Company agrees to pay
its own expenses incident to the performance of its obligations hereunder
including, but not limited to, the fees and disbursements of such party's legal
counsel; provided, however, that the prevailing party in any action suit or
proceeding brought before or by any court or governmental agency or body,
domestic or foreign
8
<PAGE> 9
arising out of the transactions contemplated hereby shall be entitled to be
reimbursed for its reasonable legal fees and expenses.
16. Binding Effect. The provisions of this Agreement shall be binding
upon and accrue to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.
[SIGNATURE PAGE FOIIOWS]
9
<PAGE> 10
The undersigned acknowledges that this Agreement shall not be effective
unless and until accepted by the Company as indicated below.
Dated this 3rd day of February, 1997.
KA INVESTMENTS, LDC
By: /s/ Field Secretaries (Cayman) Ltd.
------------------------------------
Name: Field Secretaries (Cayman) Ltd.
------------------------------------
Title: Secretary
------------------------------------
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 3RD DAY OF FEBRUARY,
1997.
INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
----------------------------------
Name: Patricio E. Northland
----------------------------------
Title: Chairman & CEO
----------------------------------
10
<PAGE> 11
Exhibit A
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION TO BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT,
(II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE
UNDER THE ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES
EVIDENCED BY THIS DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET
FORTH IN THAT CERTAIN SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE
HOLDER HEREOF AND THE COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S
PRINCIPAL EXECUTIVE OFFICE.
No.___ $_______
____ INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures of
InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to KA Investments, LDC
registered holder hereof(the "Holder"), the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on February 3, 2000 (the "Maturity Date") and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of 7% per annum, compounded annually and payable on a semi-annual
basis commencing six months after the date hereof, computed on the basis of the
actual number of days elapsed in a 365-day year. Any accrued and unpaid
interest shall be payable in full on the Maturity Date or, if earlier, on each
Conversion Date (hereinafter defined). Accrual of interest shall commence on
the date hereof until payment in full of the principal sum has been made or
duly provided for. All accrued and unpaid interest shall bear interest at the
same rate from and after the due date of the interest payment until so paid.
The interest so payable, less any amounts required by law to be deducted or
withheld, will be paid on the Maturity Date or, if earlier, on each Conversion
Date, to the person in whose name the Debenture is registered on the records of
the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the Debentures (the "Subscription Agreement"). The principal of,
and interest on, the Debentures is payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company, as designated in writing by the Holder from time to
time. In lieu of a cash interest payment, the Holder may require the Company to
issue shares of its Common Stock, $.001 par value per share (the "Common
Stock"), or a combination of Common Stock and cash as payment of the interest
then due and payable. If the Holder elects to receive all or a portion of the
interest in Common Stock, the Company shall issue to the Holder such number of
fully paid and non-assessable shares of
<PAGE> 12
Common Stock as shall have an aggregate average closing bid price (as reported
on the Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such interest is payable, equal in amount
to the interest which the Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
1. In the event that the Company has not registered for resale all of the
Registrable Shares pursuant to Section 3 of the Subscription Agreement on or
before June 30, 1997, the Company shall, for each day or portion thereof that
such Registrable Shares are not registered for resale, in addition to the
interest accruing at the rate of 7% per annum otherwise payable pursuant to the
terms of the Debentures, pay the Holder a premium equal to one tenth of one
percent (0.1 O/O) of the aggregate outstanding principal amount of the
Debentures, payable weekly in arrears. commencing July 1, 1997. The premium to
be paid, if any, shall constitute liquidated damages for the Company's failure
to cause the registration of the Registrable Shares. The parties agree that the
foregoing damages are reasonable and that the anticipated damages for the
failure of the Company to effect such registration are uncertain in amount and
difficult to be proved. The premium shall accrue and be payable on a weekly
basis in cash or, in lieu of a cash premium payment the Holder may, at its
option, require the Company to issue shares of its Common Stock or a
combination of Common Stock and cash as payment of the premium then due and
payable until such time as the Holder receives notification of the
effectiveness of the Registration Statement or the registration to be effected
pursuant to Section 3.2 of the Subscription Agreement. If the Holder elects to
receive all or a portion of the premium in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on The Nasdaq SmalICap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such premium is payable, equal in amount
to the cash premium which the Company is required to pay in kind.
2. The Debentures are issuable in denominations of Fifty Thousand Dollars
($50,000) and integral multiples thereof. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder. No service charge will be made for
such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments of interest
on this Debenture any amounts required to be withheld under the applicable
provisions of the United States income tax laws or any other applicable laws at
the time of such payments.
4. This Debenture has been issued subject to certain investment
representations of the original Holder hereof (set forth in Section 5 of the
Subscription Agreement) and may be offered, sold, transferred or exchanged only
in compliance with the Securities Act. Prior to due presentment for transfer of
this Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
5. Subject to the provisions of Section 7 hereof, the Holder of this
Debenture shall have the option to convert up to One Hundred percent (100%) of
the of the principal amount of the Debentures originally issued to the Holder
at any time and from time to time into shares of the Company's Common Stock, at
a conversion price for each share of Common Stock equal to the lesser of (i)
the average closing bid price (as reported by The Nasdaq SmaIlCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of the Debentures (the "Fixed
Conversion Price") or, (ii) eighty-three percent (83%) of the average closing
bid price (as reported by The Nasdaq SmalICap Market) of the Company's Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately preceding the Conversion Date (hereinafter defined) (such lesser
value being hereinafter referred to as the 'Conversion Price"). Notwithstanding
the foregoing, in the event that the closing bid price (as reported by The
Nasdaq
2
<PAGE> 13
SmalICap Market) of the Company's Common Stock for ten (10) consecutive trading
days is equal to, or less than $2.25 (as adjusted for stock splits.
combinations and similar recapitalizations affecting the Common Stock), the
Company may. on one and only one occasion, suspend the Purchaser's ability to
convert any part of the outstanding Debentures for a period not to exceed
forty-five (45) days.
6. Conversion of this Debenture shall be effectuated by surrendering the
Debenture to the Company with the form of Notice of Conversion attached hereto
as Schedule 1. executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
provided for above) hereof. The amount of accrued but unpaid interest as of the
Conversion Date shall be subject to conversion and paid in shares of Common
Stock valued. at the Conversion Price. No fractional shares of the Common
Stock or scrip representing fractional shares will be issued on conversion, but
the number of shares of Common Stock issuable shall be rounded to the nearest
whole share. The date on which Notice of Conversion is given shall be deemed to
be the date on which the Holder has delivered the Debentures with the Notice of
Conversion duly executed, to the Company, or if earlier, the date such Notice
of Conversion is delivered to the Company provided the Debentures are received
by the Company within five (5) trading days thereafter. Such date is referred
to herein as the "Conversion Date". Facsimile delivery of the Notice of
Conversion shall be accepted by the Company. The Company shall issue and
register, within three (3) trading days after delivery to the Company of such
Notice of Conversion, if the Company has received the original Notice of
Conversion and Debenture(s) being so converted by such date, the number of
shares of Common Stock to which the Holder shall be entitled, registered in
such street or nominee name as may be directed by the Holder in the Notice of
Conversion. The Company shall ensure that the shares of Common Stock are at all
times Depository Trust Corporation eligible. In the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
such three (3) trading day period; (i) the Company shall pay the Holder a
premium equal to one percent (1%) of the aggregate principal amount of the
Debentures then outstanding and held by the Holder, payable daily, commencing
on the fourth (4th) trading day after delivery to the Company of such Notice of
Conversion or(ii) the Holder may, in its sole discretion, revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion. The
parties agree that the foregoing damages are reasonable and that the
anticipated damages for the failure of the Company to effect such delivery are
uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common Stock issuable upon
conversion shall be subject to adjustment from time to time as provided in this
Section 7.
(a) In the event the Company should at any time or from time to time after
the date of this Debenture fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly. additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Fixed
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of the Debentures shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time after
the date of the Debentures is decreased by a combination of the outstanding
shares of Common Stock. then, following the record date of such combination,
the Fixed Conversion Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of the Debentures shall be
decreased in proportion to such decrease in outstanding shares.
3
<PAGE> 14
8. 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
effecting the conversion of the Debentures, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the outstanding principal amount and accrued interest thereon; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Debentures, in addition to such
other remedies as shall be available to the Holder, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes, including, without limitation,
using its best efforts to obtain the requisite stockholder approval necessary
to increase the Company's authorized Common Stock.
9. The Company shall be entitled to prepay the entire amount of the
Debentures or any portion hereof, at anytime or from time to time, upon not
less than ten (10) (nor more than twenty (20)) days' prior written notice. The
prepayment price shall equal One Hundred Seventeen Percent (117%) of the
principal amount so to be prepaid plus all accrued and unpaid interest. Such
prepayment shall be effected by written notice to the Holder, accompanied by
prepayment by wire transfer of immediately available funds to an account
designated by the Holder. Any such prepayment shall be made pro rata among the
Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of Default":
a. The Company shall fail to make any payment
(whether principal, interest or otherwise) on the Debentures
as and when the same shall be due and payable and such default
shall continue for five (5) business days after the due date
thereof;
b. Any of the representations or warranties made by
the Company herein, in the Subscription Agreement, or in any
certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of the
Debentures or the Subscription Agreement shall be false or
misleading in any material respect as of the date made;
c. The Company shall fail to perform or observe. in
any material respect, any other material covenant, term,
provision, condition, agreement or obligation of the Company
under the Debentures or the Subscription Agreement and such
failure shall continue uncured for a period of five (5)
business days after the first date on which such failure
arises (it being understood that in the case of defaults which
can not reasonably be cured within a 5-day period no grace
period shall be necessary as a precondition to the failure to
perform such covenant constituting an Event of Default);
d. The Company shall (1) make an assignment for the
benefit of its creditors or commence proceedings for its
dissolution; or (2) apply for or consent to the appointment of
a trustee, liquidator, custodian or receiver thereof, or for a
substantial part of its property or business;
e. A trustee, liquidator, custodian or receiver
shall be appointed for the Company or for a substantial part
of its property or business without its consent and shall not
be discharged within sixty (60) days after such appointment;
f. Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors
4
<PAGE> 15
shall be instituted by or against the Company and. if
instituted against the Company, shall not he dismissed
within sixty (60) days after such institution or the
Company shall by any action or answer approve of; consent
to, or acquiesce in any such proceeding or admit the
material allegations of. or default in answering a petition
filed in any such proceeding;
g. The Company shall have its Common Stock delisted
from The Nasdaq SmaIlCap Market or suspended from trading
thereon, and shall not have its Common Stock relisted or have
such suspension lifted. as the case may be, within five (5)
business days;
h. The Company shall default on the payment of any
debts in excess of $100,000 beyond any applicable grace
period;
I. Any judgments, levies or attachments shall be
rendered against the Company or any of its assets or
properties in an aggregate amount in excess of $100,000 and
such judgments, levies or attachments shall not be dismissed.
stayed, bonded or discharged within thirty (30) days of the
date of entry thereof; or
j. The Company shall be a party to any merger or
consolidation or shall dispose of all or substantially all of
its assets in one or more transactions or shall redeem more
than a ~ minimis amount of its outstanding shares of capital
stock, other than (i) a merger or share exchange effected
solely for the purpose of reincorporating the Company or (ii)
a merger or share exchange in which the Company is the
surviving corporation and the stockholders of the Company
immediately prior to such merger or share exchange own more
than fifty percent (50%) of the outstanding voting stock of
the Company following the merger or share exchange.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder in the Holder's
sole discretion, the Holder may, upon written notice to the Company, accelerate
the maturity hereof, whereupon all principal and interest hereunder shall be
immediately due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights or remedies afforded by law.
11. The Company, should an Event of Default occur, expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
12. (a) Anything in this Debenture to the contrary notwithstanding, the
obligation of the Company to pay the principal of and interest in this
Debenture, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment, to (x) all obligations of the
Company to commercial banks for borrowed money, (y) all obligations of the
Company to commercials banks under guarantees by the Company of obligations of
wholly-owned subsidiaries of the Company to commercial banks for borrowed
money, in each case, whether such obligations are outstanding at the date of
this Debenture or created or incurred after the date of this Debenture but
prior to the maturity of this Debenture and (z) all obligations of the Company
to holders of the Company's indebtedness issued in
5
<PAGE> 16
connection with one or more underwritten public offerings by the Company
(hereinafter referred to as "Senior Indebtedness").
(b) The term "Senior Indebtedness" does not include any indebtedness as to
which the instrument creating or evidencing it provides that such indebtedness
is on a parity with or otherwise not superior in right of payment to this
Debenture.
(c) No payment on account of principal or interest on this Debenture shall
be made if, at the time of such payment or immediately after giving effect
thereto, there shall exist with respect to any Senior Indebtedness any default
or any condition, event or act that, with notice or lapse of time, or both,
would constitute a default, unless waived, and if any such payments are
received by Holder, Holder shall forthwith deliver such payment to the holders
of the Senior Indebtedness, for application on account of the Senior
Indebtedness, and until so delivered, such payment shall be held in trust by
Holder as the property of the holders of the Senior Indebtedness.
(d) In the event of any insolvency proceedings, and any receivership.
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal, interest fees
and charges. including without limitation post-petition interest, on all Senior
Indebtedness before Holder is entitled to receive any payment on account of
principal or interest upon this Debenture and no claim or proof of claim shall
be filed with the Company by or on behalf of Holder that shall assert any right
to receive any payments in respect of this Debenture, except subject to the
payment in full of the principal and interest on all of the Senior Indebtedness
then outstanding.
(e) If funds or assets which would otherwise be available to make payments
in respect of this Note are instead paid or distributed to the holders of
Senior Indebtedness on account of the subordination provisions of this Section
1.2, the Holder shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness.
13. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on. this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
14. Any notice to be given or to be served upon any party in connection
with the Debentures must be in writing and will be deemed to have been given
and received upon confirmed receipt, if sent by facsimile, or two (2) days
after it has been submitted for delivery by Federal Express or an equivalent
carrier, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.:Patricio E. Northland, Chief Executive Officer
Telephone:(305)377-6790
Facsimile:(305) 377-6791
With copy to:
6
<PAGE> 17
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone:(305) 789-8900
Facsimile:(305) 789-8953
If to the Holder, to:
KA Investments, LDC
Field Secretaries
do Bank of Butterfield International Ltd
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may, at any time by giving notice to the other party, designate, any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
15. Except as otherwise expressly provided herein, the terms, conditions
and enforceability of the Debentures shall be governed by and interpreted under
the laws of the State of Illinois. Any claim, dispute or disagreement relating
to the terms and conditions of the Debentures. or arising from the Debentures
or the subject matter of the Debentures, may be brought only in the Circuit
Courts of Cook or DuPage Counties in the State of Illinois or in the United
States District Court for the Northern District of Illinois, which shall have
exclusive jurisdiction thereof. The parties to the Debentures consent to such
jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: February 3,1997 INTERAMERICAS COMMUNICATIONS
CORPORATION
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
8
<PAGE> 19
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
____ into _______________________ shares of Common Stock of InterAmericas
Communications Corporation (the "Company") according to the conditions hereof,
as of the date written below.
-------------------------
Date of Notice
-------------------------
Signature
-------------------------
Name
Address:
-------------------------
-------------------------
-------------------------
* The original Debenture and a manually signed original of this Notice of
Conversion must be received by the Company by the third business day
following the date of delivery of this Notice of Conversion by facsimile.
9
<PAGE> 20
Exhibit B
THIS WARRANT AND THE SHARES OF COMMON STOCK OF INTERAMERICAS COMMUNICATIONS
CORPORATION TO BE ISSUED UPON ANY EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT'), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISTRIBUTION OF SECURITIES) OR (Ill) IF AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
INTERAMERICAS COMMUNICATIONS CORPORATION
FEBRUARY 3, 1997
This certifies that, for value received, KA Investments, LDC ("KAI") and
any subsequent transferee pursuant to the terms of the Agreement (as defined
below) of even date herewith and this Warrant (each, a "Holder") is entitled to
purchase, subject to the provisions of this Warrant. from InterAmericas
Communications Corporations, a Texas corporation (the "Issuer"), at any time or
from time to time on or after the date hereof and on or before February 2, 2002
(the "Expiration Date"), One Hundred Thousand (1 00,000) fully paid and
nonassessable shares of common stock, par value $001 per share (the "Common
Stock"), of the Issuer at an exercise price of Five Dollars ($5.00) per share,
subject to adjustment pursuant to the terms hereunder (the "Exercise Price")
(such shares of Common Stock and other securities issued and issuable upon
exercise of this Warrant, the "Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the Subscription
Agreement of even date herewith by and between KAI and the Issuer (the
"Agreement").
Section 2. Exercise of Warrant.
(a) Subject to the provisions hereof, this Warrant may be exercised,
in whole or in part, but not as to a fractional share, at any time or
from time to time on or after the date hereof and on or before the
Expiration Date, by presentation and surrender hereof to the Issuer at
the address which, in accordance with the provisions of Section 9 hereof,
is then effective for notices to the Issuer, with the Election to
Purchase Form annexed hereto as Schedule One. duly executed and
accompanied by payment to the Issuer as further set forth below in this
Section 2, for the account of the Issuer, of the Exercise Price for the
number of Warrant Shares specified in such form. If this Warrant should
be exercised in part only, the lssuer shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant Shares purchasable
hereunder. The Issuer shall maintain at its principal place of business a
register for the registration of this Warrant and registration of
10
<PAGE> 21
transfer of this Warrant. The Exercise Price for the number of Warrant
Shares specified in the Election to Purchase Form shall be payable in
United States Dollars by certified or official bank check payable to the
order of the Issuer or by wire transfer of immediately available funds to
an account specified by the Issuer for that purpose.
(b) Certificates representing Warrant Shares shall bear the following
restrictive legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act") or any state securities
laws. They may not be offered or transferred by sale,
assignment, pledge or otherwise unless (i) a
registration statement for the securities under the
Securities Act is in effect or (ii) the corporation
has received an opinion of counsel, which opinion is
satisfactory to the corporation, to the effect that
such registration is not required under the Securities
Act."
c) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value (hereinafter defined) of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Issuer together with the properly
endorsed Notice of Exercise and notice of such election in which event
the Issuer shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
<TABLE>
<S> <C> <C> <C>
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being canceled (at the date of such calculation)
A = the Fair Market Value of one share of the Issuer's Common Stock (at the date of such calculation)
B = Exercise Price (as adjusted at the date of such calculation)
</TABLE>
For purposes of the above calculation, Fair Market Value of one share of
Common Stock shall be the average closing bid price (as reported by The
Nasdaq SmalICap Market) of the Issuer's Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding
the date of the Election to Purchase.
Section 3. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date. no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization. consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Issuer, (ii) promptly
to take such action as may be required of the lssuer to permit the Holder to
11
<PAGE> 22
exercise this Warrant and the Issuer duly and effectively to issue shares of
its Common Stock or other securities as provided herein upon the exercise
hereof, and (iii) promptly to take all action required or provided herein to
protect the rights of the Holder granted hereunder against dilution. Without
limiting the generality of the foregoing, should the Warrant Shares at any time
consist in whole or in part of shares of capital stock having a par value, the
Issuer agrees that before taking any action which would cause an adjustment of
the Exercise Price so that the same would be less than the then par value of
such Warrant Shares, the Issuer shall take any corporate action which may. in
the opinion of its counsel, be necessary in order that the Issuer may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
the Exercise Price as so adjusted. The Issuer further agrees that it will not
establish a par value for its Common Stock while this Warrant is outstanding in
an amount greater than the Exercise Price.
Section 4. Exchange. Transfer. Assignment or Loss of Warrant. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not
in accordance with this Section shall be null and void, and the Issuer shall
not in any way be required to give effect to such transfer. No transfer of this
Warrant shall be effective for any purpose hereunder until (i) written notice
of such transfer and of the name and address of the transferee has been
received by the Issuer, and (!i) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by
any transferee authorized under the provisions of this Section 4, the Issuer
shall, without charge, execute and deliver a new Warrant registered in the name
of such transferee at the address specified by such transferee, and this
Warrant shall promptly be canceled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner thereof for all
purposes, and the Issuer shall not be affected by any notice to the contrary.
Any Warrant, if presented by an authorized transferee, may be exercised by such
transferee without prior delivery of a new Warrant issued in the name of the
transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so lost. stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
Section 5 Rights of Holder. Neither a Holder nor his transferee by devise
or the laws of descent and distribution or otherwise shall be, or have any
rights or privileges o~ a shareholder of the Issuer with respect to any Warrant
Shares, unless and until certificates representing such Warrant Shares shall
have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The Exercise
Price and Warrant Shares shall be subject to adjustment from time to time as
provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for which
this Warrant may be exercised shall be increased or reduced. as of the
record date for such recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount payable for
the purchase of all Warrant Shares issuable hereunder immediately after
the record date for such recapitalization shall equal the aggregate
amount so payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities convertible
into or exchangeable for Common Stock, or rights to purchase
Common Stock or securities convertible into or exchangeable for Common
Stock, the number of shares of
12
<PAGE> 23
Common Stock for which this Warrant may be exercised shall be increased,
as of the record date for determining which holders of Common Stock shall
be entitled to receive such dividend or distribution, in proportion to
the increase in the number of outstanding shares (and shares of Common
Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend or
distribution, and the Exercise Price shall be adjusted so that the
aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date for such dividend or
distribution shall equal the aggregate amount so payable immediately
before such record date.
(c) If the Issuer declares a dividend on Common Stock (other than a
dividend covered by subsection (b) above) or distributes to holders of
its Common Stock, other than as part of its dissolution or liquidation or
the winding up of its affairs. any shares of its capital stock, any
evidence of indebtedness or any cash or other of its assets (other than
Common Stock or securities convertible into or exchangeable for Common
Stock), the Holder shall receive notice of such event as set forth in
Section 8 below.
(d) In case of any consolidation of the Issuer with, or merger of
the Issuer into, any other corporation (other than a consolidation or
merger in which the Issuer is the surviving or resulting corporation and
in which the stockholders of the Issuer immediately prior to the merger
or consolidation hold more than 50% of the voting stock of the Issuer
following the merger or consolidation), or in case of any sale or
transfer of all or substantially all of the assets of the Issuer, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Issuer, except where the Issuer is the surviving
entity and the stockholders of the Issuer immediately prior to the
exchange hold more than 50% of the voting stock of the Issuer after the
exchange). the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which shall
have acquired such assets or securities of the Issuer as the case may be
shall execute and deliver to the Holder simultaneously therewith a new
Warrant, satisfactory in form and substance to the Holder, together with
such other document as the Holder may reasonably request, entitling the
Holder thereof to receive upon exercise of such Warrant the kind and
amount of shares of stock and other securities and property receivable
upon such consolidation, merger, sale, transfer, or exchange of
securities, or upon the dissolution following such sale or other
transfer, by a holder of the number of shares of Common Stock purchasable
upon exercise of this Warrant immediately prior to such consolidation,
merger, sale, transfer, or exchange. Such new Warrant shall contain the
same basic other terms and conditions as this Warrant and shall provide
for adjustments which, for events subsequent to the effective date of
such written instrument, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The above
provisions of this paragraph (d) shall similarly apply to successive
consolidations, mergers, exchanges, sales or other, transfers covered
hereby.
(e) If the Issuer shall, at any time before the expiration of this
Warrant, sell all or substantially all of its assets and distribute the
proceeds thereof to the Issuer's shareholders, the Holder shall, upon
exercise of this Warrant have the right to receive, in lieu of the shares
of Common Stock of the Issuer that the Holder otherwise would have been
entitled to receive, the same kind and amount of assets as would have
been issued, distributed or paid to the Holder upon any such distribution
with respect to such shares of Common Stock of the Issuer had the Holder
been the holder of record of such shares of Common Stock receivable upon
exercise of this Warrant on the date for determining those entitled to
receive any such distribution. If any such distribution results in any
cash distribution in excess of the Exercise Price provided by this
Warrant for the shares of Common Stock receivable upon exercise of this
Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price and, in such case, the
Issuer shall, upon distribution to the Holder, consider the Exercise
Price to have been paid in full and, in making settlement to the Holder,
shall obtain receipt of the Exercise
13
<PAGE> 24
Price by deducting an amount equal to the Exercise Price for the shares
of Common Stock receivable upon exercise of this Warrant from the amount
payable to the Holder.
(f) If an event occurs which is similar in nature to the events
described in this Section 6, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock of the
Issuer as the same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the purpose of this
Section 6, the term "Common Stock" shall include any stock of any class
of the Issuer which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Issuer and which is not subject to
redemption by the Issuer.
(h) Whenever the number of Warrant Shares or the Exercise Price
shall be adjusted as required by the provisions of this Section 6, the
Issuer forthwith shall file in the custody of its secretary or an
assistant secretary, at its principal office, and furnish to each Holder
hereof. a certificate prepared in accordance with paragraph (h) above,
showing the adjusted number of Warrant Shares and the Exercise Price and
setting forth in reasonable detail the circumstances requiring the
adjustments.
(i) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successors and assigns of
the Issuer.
(j) No adjustment in the Exercise Price in accordance with the
provisions of this Section 6 need be made if such adjustment would amount
to a change in such Exercise Price of less than $.01; provided however,
that the amount by which any adjustment is not made by reason of the
provisions of this paragraph (k) shall be carried forward and taken into
account at the time of any subsequent adjustment in the Exercise Price.
(k) If an adjustment is made under this Section 6 and the event to
which the adjustment relates does not occur, then any adjustments in
accordance with this Section 6 shall be readjusted to the Exercise Price
and the number of Warrant Shares which would be in effect had the earlier
adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holders of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the
Holder, at least ten (10) days prior
14
<PAGE> 25
to the relevant date described below (or such shorter period as is reasonably
possible if thirty days is not reasonably possible), a notice containing a
description of the proposed action or event and stating the date or expected
date on which a record of the lssuer's stockholders is to be taken for any of
the foregoing purposes, and the date or expected date on which any such
dividend, distribution, subscription, reclassification, reorganization,
consolidation. combination, merger, conveyance, sale, lease or transfer,
dissolution, liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
Section 9. Notice. Any notice to be given or to be served upon any party
in connection with the Warrant must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Issuer, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Attn.:Patriclo E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305)377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
KA Investments. LDC
Field Secretaries
do Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.:Jrwin Dikau
Telephone:(809) 949-7055
Facsimile:(809) 949-7004
With a copy to;
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
15
<PAGE> 26
Any party may, at any time by giving notice to the other party, designate
any other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
Section 10. Choice of Law; Conflict of Law; Jurisdiction and Venue.
Except as otherwise expressly provided herein, the terms, conditions and
enforceability of the Warrant shall be governed by and interpreted under the
laws of the State of Illinois. Any claim, dispute or disagreement relating to
the terms and conditions of this Warrant, or arising from this Warrant or the
subject matter of this Warrant, may be brought only in the Circuit Courts of
Cook or DuPage Counties the State of Illinois or in the United States District
Court for the Northern District of Illinois, which shall have exclusive
jurisdiction thereof. The parties to the Warrant consent to such jurisdiction
and venue and hereby knowingly and voluntarily waive all objections thereto on
the basis of lack of personal jurisdiction. venue or convenience.
[SIGNATURE PAGE FOLLOWS)
16
<PAGE> 27
Dated: February 3, 1997
INTERAMERICAS COMMUNICATIONS
CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
--------------------------
ATTEST:
- ----------------------------
,Secretary
17
<PAGE> 28
ScheduleOne
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and to
purchase _______ shares of InterAmericas Communications Corporation Common
Stock issuable upon the exercise of this Warrant. and requests that
certificates for such shares be issued in the name of:
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
(United States Social Security or other taxpayer
identifying number. if applicable)
and, if different from above, be delivered to:
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
and if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant, that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date:
--------- ---
Name of Registered Owner:
----------------------------------------------------
- ------------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
- ------------------------------------------------------------------------------
Signature:
-------------------------------------------------------------------
18
<PAGE> 1
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THE DEBENTURES AND THE SHARES OF COMMON STOCK OF
INTERAMERICAS COMMUNICATIONS CORPORATION 10 BE ISSUED UPON ANY CONVERSION OF
THIS DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II)
TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE
ACT RELATING TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
DEBENTURE ARE ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN THAT CERTAIN
SUBSCRIPTION AND PURCHASE AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
No. 7 $150,000
INTERAMERICAS COMMUNICATIONS CORPORATION
7% CONVERTIBLE DEBENTURE DUE FEBRUARY 3,2000
THIS DEBENTURE is one of a duly authorized issue of Debentures
of InterAmericas Communications Corporation, a corporation duly organized and
existing under the laws of the State of Texas (the "Company"), designated as
its 7% Convertible Debentures due February 3, 2000 in an aggregate original
principal amount not exceeding One Million Five Hundred Thousand Dollars
($1,500,000) (the "Debentures")
FOR VALUE RECEIVED, the Company promises to pay to KA
Investments, LDC, registered holder hereof (the "Holder"), the principal sum of
One Hundred Fifty Thousand Dollars ($ I 50,000) on February 3, 2000 (the
"Maturity Date") and to pay interest on the principal sum outstanding from time
to time in arrears at the rate of 7% per annum, compounded annually and payable
on a semi-annual basis commencing six months after the date hereof, computed on
the basis of the actual number of days elapsed in a 365-day year. Any accrued
and unpaid interest shall be payable in full on the Maturity Date or, if
earlier, on each Conversion Date (hereinafter defined). Accrual of interest
shall commence on the date hereof until payment in full of the principal sum
has been made or duly provided for. All accrued and unpaid interest shall bear
interest at the same rate from and after the due date of the interest payment
until so paid. The interest so payable, less any,' amounts required by law to
be deducted or withheld, will be paid on the Maturity Date or, if earlier. on
each Conversion Date, to the person in whose name the Debenture is registered
on the records of the Company regarding registration and transfers of the
Debentures (the "Debenture Register"); provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Subscription Agreement executed by the original Holder in connection with the
purchase of the Debentures (the "Subscription Agreement"). The principal of,
and interest on, the Debentures is payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company, as designated in writing by the Holder from time to
time. In lieu of a cash interest payment, the Holder may require the Company to
issue shares of its Common Stock, $.001 par value per share (the "Common
Stock"), or a combination of Common Stock and cash as payment of the interest
then due and payable. If the Holder elects to receive all or a portion of the
interest in Common Stock, the Company shall issue to the Holder such number of
fully paid and non-assessable shares of Common Stock as shall have an
<PAGE> 2
aggregate average closing bid price (as reported on the Nasdaq SmaIlCap Market)
for the five (5) consecutive trading days ending on the trading day prior to
the date such interest is payable, equal in amount to the interest which the
Holder has elected to receive in kind.
This Debenture is subject to the following additional provisions:
1. In the event that the Company has not registered for
resale all of the Registrable Shares pursuant to Section 3 of the Subscription
Agreement on or before June 30, 1997, the Company shall, for each day or
portion thereof that such Registrable Shares are not registered for resale, in
addition to the interest accruing at the rate of 7% per annum otherwise payable
pursuant to the terms of the Debentures, pay the Holder a premium equal to one
tenth of one percent (0.1%) of the aggregate outstanding principal amount of
the Debentures, payable weekly in arrears, commencing July 1, 1997. The premium
to be paid, if any, shall constitute liquidated damages for the Company's
failure to cause the registration of the Registrable Shares. The parties agree
that the foregoing damages are reasonable and that the anticipated damages for
the failure of the Company to effect such registration are uncertain in amount
and difficult to be proved. The premium shall accrue and be payable on a weekly
basis in cash or, in lieu of a cash premium payment the Holder may, at its
option, require the Company to issue shares of its Common Stock or a
combination of Common Stock and cash as payment of the premium then due and
payable, until such time as the Holder receives notification of the
effectiveness of the Registration Statement or the registration to be effected
pursuant to Section 3.2 of the Subscription Agreement. If the Holder elects to
receive all or a portion of the premium in Common Stock, the Company shall
issue to the Holder such number of fully paid and non-assessable shares of
Common Stock as shall have an aggregate average closing bid price (as reported
on The Nasdaq SmallCap Market) for the five (5) consecutive trading days ending
on the trading day prior to the date such premium is payable, equal in amount
to the cash premium which the Company is required to pay in kind.
2. The Debentures are issuable in denominations of Fifty
Thousand Dollars ($50,000) and integral multiples thereof. This Debenture is
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder. No service charge will be
made for such registration or transfer or exchange.
3. The Company shall be entitled to withhold from all payments
of interest on this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or any other
applicable laws at the time of such payments.
4. This Debenture has been issued subject to certain
investment representations of the original Holder hereof (set forth in Section
5 of the Subscription Agreement) and may be offered, sold, transferred or
exchanged only in compliance with the Securities Act. Prior to due presentment
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
5. Subject to the provisions of Section 7 hereof, the
Holder of this Debenture shall have the option to convert up to One Hundred
percent (1 00%) of the of the principal amount of the Debentures originally
issued to the Holder at any time and from time to time into shares of the
Company's Common Stock, at a conversion price for each share of Common Stock
equal to the lesser of (i) the average closing bid price (as reported by The
Nasdaq Small Cap Market) of the Company's Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding the
date of the Debentures (the "Fixed Conversion Price") or, (ii) eighty-three
percent (83%)
2
<PAGE> 3
of the average closing bid price (as reported by The Nasdaq SmallCap Market) of
the Company's Common Stock for the five (5) consecutive trading days ending on
the trading day immediately preceding the Conversion Date (hereinafter defined)
(such lesser value being hereinafter referred to as the "Conversion Price").
Notwithstanding the foregoing, in the event that the closing bid price (as
reported by The Nasdaq SmallCap Market) of the Company's Common Stock for ten
(10) consecutive trading days is equal to, or less than $2.25 (as adjusted for
stock splits, combinations and similar recapitalizations affecting the Common
Stock), the Company may, on one and only one occasion, suspend the Purchaser's
ability to convert any part of the outstanding Debentures for a period not to
exceed forty-five (45) days.
6. Conversion of this Debenture shall be effectuated b~
surrendering the Debenture to the Company with the form of Notice of Conversion
attached hereto as Schedule 1, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as provided for above) hereof. The amount of accrued but unpaid
interest as of the Conversion Date shall be subject to conversion and paid in
shares of Common Stock valued at the Conversion Price. No fractional shares of
the Common Stock or scrip representing fractional shares will be issued on
conversion, but the number of shares of Common Stock issuable shall be rounded
to the nearest whole share. The date on which Notice of Conversion is given
shall be deemed to be the date on which the Holder has delivered the
Debentures, with the Notice of Conversion duly executed, to the Company, or if
earlier, the date such Notice of Conversion is delivered to the Company
provided the Debentures are received by the Company within five (5) trading
days thereafter. Such date is referred to herein as the "Conversion Date."
Facsimile delivery of the Notice of Conversion shall be accepted by the
Company. The Company shall issue and register, within three (3) trading days
after delivery to the Company of such Notice of Conversion, if the Company has
received the original Notice of Conversion and Debenture(s) being so converted
by such date, the number of shares of Common Stock to which the Holder shall be
entitled, registered in such street or nominee name as may be directed by the
Holder in the Notice of Conversion. The Company shall ensure that the shares of
Common Stock are at all times Depository Trust Corporation eligible. In the
event that the Company fails for any reason to effect delivery of such shares
of Common Stock within such three (3) trading day period; (i) the Company shall
pay the Holder a premium equal to one percent (1%) of the aggregate principal
amount of the Debentures then outstanding and held by the Holder, payable
daily, commencing on the fourth (4th) trading day after delivery to the Company
of such Notice of Conversion or (ii) the Holder may, in its sole discretion,
revoke the relevant Notice of Conversion by delivering a notice to such effect
to the Company whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion. The parties agree that the foregoing damages are reasonable and
that the anticipated damages for the failure of the Company to effect such
delivery are uncertain in amount and difficult to be proved.
7. The Conversion Price and number of shares of Common
Stock issuable upon conversion shall be subject to adjustment from time to time
as provided in this Section 7.
(a) In the event the Company should at any time or from
time to time after the date of this Debenture fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Fixed Conversion Price shall be appropriately decreased so that the number
3
<PAGE> 4
of shares of Common Stock issuable on conversion of the Debentures shall be
increased in proportion to such increase in tile aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(b) If the number of shares of Common Stock outstanding
at any time after the date of the Debentures is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Fixed Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of the
Debentures shall be decreased in proportion to such decrease in outstanding
shares.
8. 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 effecting the conversion of the Debentures, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the outstanding principal amount and accrued interest
thereon; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of the
Debentures, in addition to such other remedies as shall be available to the
Holder, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, using its best efforts to obtain the requisite
stockholder approval necessary to increase the Company's authorized Common
Stock.
9. The Company shall be entitled to prepay the entire
amount of the Debentures or any portion hereof, at any time or from time to
time, upon not less than ten (10) (nor more than twenty (20)) days' prior
written notice. The prepayment price shall equal One Hundred Seventeen Percent
(117%) of the principal amount so to be prepaid plus all accrued and unpaid
interest. Such prepayment shall be effected by written notice to the Holder,
accompanied by prepayment by wire transfer of immediately available funds to an
account designated by the Holder. Any such prepayment shall be made pro rata
among the Debentures in proportion to the original principal amount thereof.
10. Any of the following shall constitute an "Event of
Default":
a. The Company shall fail to make any payment (whether
principal, interest or otherwise) on the Debentures
as and when the same shall be due and payable and
such default shall continue for five (5) business
days after the due date thereof;
b. Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written
statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the
execution and delivery of the Debentures or the
Subscription Agreement shall be false or misleading
in any material respect as of the date made;
c. The Company shall fail to perform or observe, in any
material respect any other material covenant, term,
provision, condition, agreement or obligation of the
Company under the Debentures or the Subscription
Agreement and such failure shall continue uncured for
a period of five (5) business days after the first
date on which such failure arises (it being
understood that in the case of defaults which can not
reasonably be cured within a 5-day period no grace
period shall be necessary as a precondition to the
failure to perform such covenant constituting an
Event of Default);
4
<PAGE> 1
EXHIBIT 10.7
THIS WARRANT AND THE SHARES OF COMMON STOCK OF INTERAMERICAS COMMUNICATIONS
CORPORATION TO BE ISSUED UPON ANY EXERCISE OF THUS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISTRIBUTION OF SECURITIES) OR (III) IF AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE,
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
INTERAMERICAS COMMUNICATIONS CORPORATION
FEBRUARY 3, 1997
This certifies that for value received, KA Investments, LDC ("KAI") and
any subsequent transferee pursuant to the terms of the Agreement (as defined
below) of even date herewith and this Warrant (each a "Holder") is entitled to
purchase, subject to the provisions of this warrant, from InterAmericas
Communications Corporation, a Texas corporation (the "Issuer"), at any time or
from time to time on or after the date hereof and on or before February 2, 2002
(the "Expiration Date"), Forty Thousand (40,000) fully paid and nonassessable
shares of common stock, par value $,001 per share (the "Common Stock"), of the
Issuer at an exercise price of Five Dollars ($5,00) per share, subject to
adjustment pursuant to the terms hereunder (the "Exercise Price") (such shares
of Common Stock and other securities issued and issuable upon exercise of this
Warrant (the "Warrant Shares").
Section 1, Definitions Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the Subscription
Agreement of even date herewith by and between KAI and the Issuer (the
"Agreement").
Section 2, Exercise of Warrant,
(a) Subject to the provisions hereof, this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at any
time or from time to time on or after the date hereof and on or before the
Expiration Date, by presentation and surrender hereof to the issuer at
the address which in accordance with the provisions of Section 9 hereof
is then effective for notices to the Issuer, with the Election to
Purchase Form annexed hereto as SCHEDULE ONE, duly executed and
accompanied by payment to the Issuer as further set forth below in this
Section 2, for the account of the Issuer, of the Exercise Price for the
number of Warrant Shares specified in such form, If this Warrant should
be exercised in part only, the Issuer shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the Warrant Shares purchasable
hereunder, The Issuer shall maintain at its principal place of business
a register for the registration of this Warrant and registration of
transfer of this Warrant, The Exercise Price for the number of Warrant
Shares specified in the Election to Purchase Form shall be payable in
United States Dollars by certified or official bank
5
<PAGE> 2
check payable to the order of the Issuer or by wire transfer of
immediately available funds to an account specified by the Issuer for
that purpose.
(b) Certificates representing Warrant Shares shall bear the
following restrictive legend:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act") or any state securities
laws. They may not be offered or transferred by sale,
assignment, pledge or otherwise unless (i) a
registration statement for the securities under the
Securities Act is in effect or (ii) the corporation
has received an opinion of counsel, which opinion is
satisfactory to the corporation, to the effect that
such registration is not required under the Securities
Act."
(c) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value (hereinafter defined) of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Issuer together with the properly
endorsed Notice of Exercise and notice of such election in which event
the Issuer shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A = the Fair Market Value of one share of the Issuer's Common
Stock (at the date of such calculation)
B = Exercise Price (as adjusted at the date of such
calculation)
For purposes of the above calculation, Fair Market Value of one share of
Common Stock shall be the average closing bid price (as reported by The
Nasdaq SmallCap Market) of the Issuer's Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding the
date of the Election to Purchase.
Section 3. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date, no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Issuer, (ii) promptly
to take such action as may be required of the Issuer to permit the Holder to
exercise this Warrant and the Issuer duly and effectively to issue shares of
its Common Stock or other securities as provided herein upon the exercise
hereof, and (iii) promptly to take all action required or provided herein to
protect the rights of the Holder granted hereunder against dilution. Without
limiting the
5
<PAGE> 3
(generality of the foregoing, should the Warrant Shares at any time
consist in whole or in part of shares of capital stock having a par value, the
Issuer agrees that before taking any action which would cause an adjustment of
the Exercise Price so that the same would be less than the then par value of
such Warrant Shares, the Issuer shall take any corporate action which may. in
the opinion of its counsel, be necessary in order that the Issuer may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
the Exercise Price as so adjusted. The Issuer further agrees that it will not
establish a par value for its Common Stock while this Warrant is outstanding in
an amount greater than the Exercise Price.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not
in accordance with this Section shall be null and void, and the Issuer shall
not in any way be required to give effect to such transfer. No transfer of this
Warrant shall be effective for any purpose hereunder until (i) written notice
of such transfer and of the name and address of the transferee has been
received by the Issuer, and (ii) the transferee shall first agree in a writing
deposited with the Secretary of the Issuer to be bound by all the provisions of
this Warrant and the Agreement. Upon surrender of this Warrant to the Issuer by
any transferee authorized under the provisions of this Section 4, the Issuer
shall, without charge, execute and deliver a new Warrant registered in the name
of such transferee at the address specified by such transferee, and this
Warrant shall promptly be canceled. The Issuer may deem and treat the
registered holder of any Warrant as the absolute owner thereof for all
purposes, and the Issuer shall not be affected by any notice to the contrary.
Any Warrant, if presented by an authorized transferee, may be exercised by such
transferee without prior delivery of a new Warrant issued in the name of the
transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on
the part of the Issuer, whether or not the Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
Section 5. Rights of Holder. Neither a Holder nor his transferee by
devise or the laws of descent and distribution or otherwise shall be,
or have any rights or privileges of, a shareholder of the Issuer with respect to
any Warrant Shares, unless and until certificates representing such Warrant
Shares shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The Exercise
Price and Warrant Shares shall be subject to adjustment from time to time as
provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for which
this Warrant may be exercised shall be increased or reduced, as of the
record date for such recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount payable for
the purchase of all Warrant Shares issuable hereunder immediately after
the record date for such recapitalization shall equal the aggregate
amount so payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities convertible
into or exchangeable for Common Stock, or rights to purchase Common Stock
or securities convertible into or exchangeable for Common Stock, the
number of shares of Common Stock for which this Warrant may be exercised
shall be increased, as of the record date for determining which holders of
Common Stock shall be entitled to receive such dividend or distribution,
in proportion to the increase in the number of outstanding shares (and
shares of
5
<PAGE> 4
Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such
dividend or distribution, and the Exercise Price shall be adjusted so that
the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date for such dividend or
distribution shall equal the aggregate amount so payable immediately
before such record date.
(c) If the Issuer declares a dividend on Common Stock (other than a
dividend covered by subsection (b) above), or distributes to holders of
its Common Stock, other than as part of its dissolution or liquidation or
the winding up of its affairs, any shares of its capital stock, any
evidence of indebtedness or any cash or other of its assets (other than
Common Stock or securities convertible into or exchangeable for Common
Stock), the Holder shall receive notice of such event as set forth in
Section 9 below.
(d) In case of any consolidation of the Issuer with, or merger of
the Issuer into, any other corporation (other than a consolidation or
merger in which the Issuer is the surviving or resulting corporation and
in which the stockholders of the Issuer immediately prior to the merger
or consolidation hold more than 50% of the voting stock of the Issuer
following the merger or consolidation), or in case of any sale or
transfer of all or substantially all of the assets of the Issuer, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Issuer, except where the Issuer is the surviving
entity and the stockholders of the Issuer immediately prior to the
exchange hold more than 50% of the voting stock of the Issuer after the
exchange), the corporation formed by such consolidation or the
corporation resulting from such merger or the corporation which shall
have acquired such assets or securities of the Issuer as the case may be
shall execute and deliver to the Holder simultaneously therewith a new
Warrant, satisfactory in form and substance to the Holder, together with
such other documents as the Holder may reasonably request, entitling the
Holder thereof to receive upon exercise of such Warrant the kind and
amount of shares of stock and other securities and property receivable
upon such consolidation, merger, sale, transfer, or exchange of
securities, or upon the dissolution following such sale or other
transfer, by a holder of the number of shares of Common Stock purchasable
upon exercise of this Warrant immediately prior to such consolidation,
merger, sale, transfer, or exchange. Such new Warrant shall contain the
same basic other terms and conditions as this Warrant and shall provide
for adjustments which, for events subsequent to the effective date of
such written instrument shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The above
provisions of this paragraph (d) shall similarly apply to successive
consolidations, mergers, exchanges, sales or other transfers covered
hereby.
(e) If the Issuer shall, at any time before the expiration of this
Warrant, sell all or substantially all of its assets and distribute the
proceeds thereof to the Issuer's shareholders, the Holder shall, upon
exercise of this Warrant have the right to receive, in lieu of the shares
of Common Stock of the Issuer that the Holder otherwise would have been
entitled to receive the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such distribution with
respect to such shares of Common Stock of the Issuer had the Holder been
the holder of record of such shares of Common Stock receivable upon
exercise of this Warrant on the date for determining those entitled to
receive any such distribution. If any such distribution results in any
cash distribution in excess of the Exercise Price provided by this Warrant
for the shares of Common Stock receivable upon exercise of this Warrant,
the Holder may at the Holder's option exercise this Warrant without
making payment of the Exercise Price and, in such case, the Issuer shall,
upon distribution to the Holder, consider the Exercise Price to have been
paid in full and, in making settlement to the Holder, shall obtain receipt
of the Exercise Price by deducting an amount equal to the Exercise Price
for the shares of Common Stock receivable upon exercise of this Warrant
from the amount payable to the Holder.
5
<PAGE> 5
(f) If an event occurs which is similar in nature to the events
described in this Section 6, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) The term Common Stock shall mean the Common Stock of the
Issuer as the same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the purpose of this
Section 6, the term Common Stock shall include any stock of any class
of the Issuer which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Issuer and which is not subject to
redemption by the Issuer.
(h) Whenever the number of Warrant Shares or the Exercise Price
shall be adjusted as required by the provisions of this Section 6, the
Issuer forthwith shall file in the custody of its secretary or an
assistant secretary at its principal office, and furnish to each Holder
hereof a certificate prepared in accordance with paragraph (h) above,
showing the adjusted number of Warrant Shares and the Exercise Price and
setting forth in reasonable detail the circumstances requiring the
adjustments.
5
<PAGE> 6
(i) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successors and assigns of
the Issuer.
(j) No adjustment in the Exercise Price in accordance with the
provisions of this Section 6 need be made if such adjustment would amount
to a change in such Exercise Price of less than $.01; provided however,
that the amount by which any adjustment is not made by reason of the
provisions of this paragraph (k) shall be carried forward and taken into
account at the time of any subsequent adjustment in the Exercise Price.
(k) If an adjustment is made under this Section 6 and the event to
which the adjustment relates does not occur, then any adjustments in
accordance with this Section 6 shall be readjusted to the Exercise Price
and the number of Warrant Shares which would be in effect had the earlier
adjustment not been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary' stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may, be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or
make any distribution upon the Common Stock, or (b) if the Issuer shall offer
generally to the holders of Common Stock the right to subscribe to or purchase
any shares of any class of Common Stock or securities convertible into Common
Stock or any other similar rights or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least ten (10) days prior
to the relevant date described below (or such shorter period as is reasonably
possible if thirty days is not reasonably possible), a notice containing a
description of the proposed action or event and stating the date or expected
date on which a record of the lssuer's stockholders is to be taken for any of
the foregoing purposes, and the date or expected date on which any such
dividend, distribution, subscription, reclassification, reorganization,
consolidation, combination, merger, conveyance, sale, lease or transfer,
dissolution, liquidation or winding up is to take place and the date or
expected date, if any is to be fixed, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
Section 9. Notice. Any notice to be given or to be served upon any party
in connection with the Warrant must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two
(2) days after it has been submitted for delivery by Federal Express or an
equivalent carrier, charges prepaid and addressed to the following addresses
with a confirmation of delivery:
If to the Issuer, to:
InterAmericas Communications Corporation
1221 Brickell Avenue, Suite 900
5
<PAGE> 7
Miami, Florida 33131
Attn.: Patricio E. Northland, Chief Executive Officer
Telephone: (305) 377-6790
Facsimile: (305) 377-6791
With copy to:
Andrew Hulsh, Esq.
Baker & McKenzie
Barnett Tower - Suite 1600
701 Brickell Avenue
Miami, Florida 33131-2827
Telephone: (305) 789-8900
Facsimile: (305) 789-8953
If to the Holder, to:
KA Investments, LDC
Field Secretaries
c/o Bank of Butterfield International Ltd.
P.O. Box 705
Butterfield House, Fort Street
Grand Cayman, Cayman Island
Attn.: Irwin Dikau
Telephone: (809) 949-7055
Facsimile: (809) 949-7004
With a copy to:
Kenneth S. Witt, Esq.
Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
Any party may at any time by giving notice to the other party, designate
any other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
Section 10. Choice of Law; Conflict of Law: Jurisdiction and Venue.
Except as otherwise expressly provided herein, the terms, conditions and
enforceability of the Warrant shall be governed by and interpreted under the
laws of the State of Illinois. Any claim, dispute or disagreement relating to
the terms and conditions of this Warrant, or arising from this Warrant or the
subject matter of this Warrant, may be brought only in the Circuit Courts of
Cook or DuPage Counties in the State of Illinois or in the United States
District Court for the Northern District of Illinois, which shall have exclusive
jurisdiction thereof. The parties to the Warrant consent to such jurisdiction
and venue and hereby knowing and voluntarily waive all objections thereto on
the basis of lack of personal jurisdiction, venue or convenience.
[SIGNATURE PAGE FOLLOWS)
<PAGE> 8
DATED: FEBRUARY 3, 1997
INTERAMERICAS COMMUNICATIONS
CORPORATION
By: /s/ Patricio E. Northland
----------------------------
Name: Patricio E. Northland
----------------------------
Title: Chairman & CEO
--------------------------
ATTEST:
- ----------------------------
, Secretary
<PAGE> 9
SCHEDULE ONE
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant and to
purchase _______ shares of InterAmericas Communications Corporation Common
Stock issuable upon the exercise of this Warrant and requests that
certificates for such shares be issued in the name of:
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
(United States Social Security or other taxpayer
identifying number, if applicable)
and, if different from above, be delivered to:
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
and if the number of Warrant Shares so purchased are not all of the Warrant
Shares issuable upon exercise of this Warrant that a Warrant to purchase the
balance of such Warrant Shares be registered in the name of, and delivered to,
the undersigned at the address stated below.
Date:
--------------
Name of Registered Owner:
----------------------------------------------------
- ------------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
- ------------------------------------------------------------------------------
Signature:
-------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FILED UNDER ITEM 7. HEREIN AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 723
<SECURITIES> 0
<RECEIVABLES> 210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,327
<PP&E> 3,956
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,354
<CURRENT-LIABILITIES> 1,674
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 8,264
<TOTAL-LIABILITY-AND-EQUITY> 10,354
<SALES> 652
<TOTAL-REVENUES> 652
<CGS> 958
<TOTAL-COSTS> 958
<OTHER-EXPENSES> 4,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> (4,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,626)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
