Registration No. 333 - ____
As filed with the Securities and Exchange Commission on November 14, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TELSCAPE INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2433637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TODD M. BINET, EXECUTIVE
VICE PRESIDENT AND CHIEF
4635 SOUTHWEST FREEWAY, SUITE 800 FINANCIAL OFFICER
HOUSTON, TEXAS 77027 TELSCAPE INTERNATIONAL, INC.
(713) 968-0968 4635 SOUTHWEST FREEWAY,
(Address, including zip code, and SUITE 800
telephone number, including area HOUSTON, TEXAS 77027
code, of registrant's principal (713) 968-0968
executive offices) (Name, address, including
zip code, and telephone
number, including area
code, of agent for service)
COPY TO:
ERIC A. BLUMROSEN
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
333 CLAY AVENUE, SUITE 800
HOUSTON, TEXAS 77002
(713) 308-5533
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. X
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
TITLE OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SHARES TO BE REGISTERED AGGREGATE PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED (1) PER SHARE PRICE (2) FEE
Common Stock, 661,000 $12.0625 $7,973,312.50 $2,417
$.001 par value
(1) The aggregate number of securities registered hereunder is 661,000
shares of Common Stock, 641,000 of which are issuable upon exercise of
certain warrants. Pursuant to Rule 416, there are also being registered
additional shares of Common Stock as may become issuable pursuant to the
antidilution provisions in the warrant agreements under which certain of
the shares of Common Stock registered herein are issuable.
(2) Estimated solely for the purpose of calculating the registration fee
in accordance with paragraph (c) of Rule 457 under the Securities Act of
1933, as amended, based upon $12.0625, the per share average of high and
low sales prices of the Common Stock on the Nasdaq SmallCap Market on
November 7, 1997.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended (the "Securities Act"),
or until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION - DATED NOVEMBER 14, 1997
PROSPECTUS
TELSCAPE INTERNATIONAL, INC.
Common Stock
661,000 Shares
This Prospectus relates to (i) the issuance of shares of the Common
Stock, $.001 par value (the "Common Stock"), of Telscape International, Inc.
(the "Company") by the Company upon exercise of certain warrants to purchase
Common Stock, (ii) the reoffer and resale by certain selling shareholders
(the "Selling Shareholders") of shares that will be issued by the Company to
certain of the Selling Shareholders upon the exercise of certain outstanding
warrants (the "Warrant Shares"), and (iii) certain shares previously issued by
the Company (together with the Warrant Shares, the "Shares"). The Company will
maintain the registration statement, of which this Prospectus is a part, until
August 10, 1998, during which period the Shares may be offered or sold.
The Company will not receive any of the proceeds from the sale of the Shares.
However, 641,000 of the Shares are issuable by the Company upon exercise of
certain outstanding warrants. If such warrants are fully exercised, the
Company will receive up to an aggregate of $5,074,590 in gross proceeds,
assuming none of the 11,000 shares of Common Stock issuable upon exercise of
certain warrants are exercised pursuant to a cashless exercise provision.
See "Use of Proceeds" and "Selling Shareholders." The Company has agreed
to bear certain expenses (other than brokerage and selling commissions and
any fees and expenses of counsel and other advisors to the Selling
Shareholders) in connection with the registration and sale of the Shares
being offered by the Selling Shareholders. See "Use of Proceeds."
The Selling Shareholders have advised the Company that the resale of their
Shares may be effected from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of the sale or at prices otherwise negotiated.
The Selling Shareholders may effect such transactions through public
or private markets by selling the Shares to or through broker-dealers who
may receive compensation in the form of discounts, concessions or commissions
from the Selling Shareholders and/or the purchasers of the Shares for whom
such broker-dealers may act as agent or to whom they sell as principal, or
both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). Any broker-dealer acquiring the Shares from the
Selling Shareholders may sell such securities in its normal market making
activities, through other brokers on a principal or agency basis, in privately
negotiated transactions, to its customers or through a combination of such
methods. See "Plan of Distribution."
The Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq SmallCap")
under the symbol "TSCP." On November 13, 1997, the closing sale price for the
Common Stock as reported by Nasdaq SmallCap was $11.75.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR CERTAIN
MATTERS TO BE CONSIDERED BY PROSPECTIVE INVESTORS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CERTAIN MATTERS DISCUSSED IN THIS REGISTRATION STATEMENT ARE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.
The date of this Prospectus is November , 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at its New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048;
and at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2411. Copies of such material can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material
may also be accessed electronically by means of the Commission's home
page on the internet at http://www.sec.gov.
The Company has filed with the Commission, a Registration Statement on
Form S-3 (as amended from time to time and together with all exhibits thereto,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules of the Commission. For further
information with respect to the Company and the Shares offered hereby,
reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are
not necessarily complete and, where such contract or other document is an
exhibit to the Registration Statement, each such statement is qualified in
all respects by the provisions of such exhibit, to which reference is
hereby made for a full statement of the provisions thereof.
The Common Stock is listed on Nasdaq SmallCap and reports and other
information concerning the Company can be inspected at Nasdaq.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and portions of documents are incorporated by
reference in this Prospectus and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
2. The Company's Quarterly Reports on Forms 10-QSB for the fiscal
quarters ended March 31, June 30 and September 30, 1997.
3. The Company's Current Reports on Forms 8-K dated June 10, 1997,
August 6, 1997, as amended, and October 15, 1997, as amended.
4. The Company's Proxy Statement for the Annual Meeting of Shareholders
dated May 19, 1997.
5. All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act, since December 31, 1996.
6. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form SB-2, dated August 10, 1994 (File Number
33-80542-D).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated
by reference into this Prospectus and made a part hereof from the respective
dates of filing of such documents. Any statement contained herein, or in
a document incorporated or deemed incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, upon written or oral request of that
person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to those documents. Requests should be directed
to Todd M. Binet, Executive Vice President and Chief Financial Officer,
Telscape International, Inc., 4635 Southwest Freeway, Suite 800, Houston,
Texas 77027 (telephone: (713) 968-0968) (e-mail: [email protected]).
No person is authorized in connection with the offering made by this
Prospectus to give any information or to make any representations not
contained or incorporated by reference in this Prospectus, and any
information or representation not contained or incorporated by reference
in this Prospectus must not be relied upon as having been authorized by the
Company. This Prospectus is not an offer to sell, or a solicitation of an
offer to buy, by any person in any jurisdiction in which it is unlawful for
that person to make an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made under this Prospectus shall, under any
circumstance, create any implication that the information in this
Prospectus is correct as of any time subsequent to the date of this Prospectus.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING THE
SHARES OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS.
INVESTORS MAY BE UNABLE TO EXERCISE WARRANTS OR SELL SHARES IN CERTAIN
JURISDICTIONS
The Company is permitted to issue shares of Common Stock upon exercise of
warrants only in those state jurisdictions in which the Shares are registered
or qualified. Of the 661,000 shares of Common Stock being registered
pursuant to the registration statement of which this Prospectus is a part,
525,000 shares are issuable pursuant to Redeemable Common Stock Purchase
Warrants (the "Redeemable Warrants") which were issued in connection with
the initial public offering of the Common Stock in August 1994 (the "IPO").
The Redeemable Warrants were registered or qualified in only certain
jurisdictions at the time of the IPO. In addition, although the underwriters
in the IPO agreed to not knowingly sell the Redeemable Warrants in any
jurisdiction in which they were not registered or otherwise qualified, initial
purchasers of the Redeemable Warrants may have relocated to a jurisdiction in
which the shares of Common Stock underlying the Redeemable Warrants are not so
registered or qualified. In addition, a purchaser of the Redeemable Warrants
in the open market may reside in a jurisdiction in which the shares of Common
Stock underlying the Redeemable Warrants are not registered or qualified. The
Company has not maintained the registration or qualification of the shares of
Common Stock underlying the Redeemable Warrants for sale in any of the states
in which the initial holders of the Redeemable Warrants originally resided.
Since the Company does not know the jurisdictions in which the current
beneficial owners of the Redeemable Warrants reside, the Company may not be
able to permit the holders of the Redeemable Warrants and other warrants
to exercise such warrants. As a result, holders of the Redeemable Warrants
and other warrants may have no choice but to either sell their warrants or let
them expire. Holders of the Redeemable Warrants and other warrants and other
interested persons who wish to know whether or not shares of Common Stock may
be issued upon the exercise of warrants by holders of the warrants in a
particular state should consult with the securities department of the state
in question or send a written inquiry to the Company.
POTENTIAL ADVERSE EFFECTS OF REDEMPTION OF REDEEMABLE WARRANTS
The Redeemable Warrants may be redeemed by the Company upon a 30 day notice,
at a price of $.20 per Redeemable Warrant, provided that the closing sales
price of the Common Stock on all of the 20 trading days ending on the third day
prior to the day on which the Company gives notice has been at least $10.125.
At the date of this Prospectus, the Company has the ability to provide notice
of a redemption. Redemption of the Redeemable Warrants could force the
holders of the Redeemable Warrants to exercise the Redeemable Warrants and pay
the exercise price at a time when it may be disadvantageous for such holders of
Redeemable Warrants to do so, to sell the Redeemable Warrants at the then
current market price when they might otherwise wish to hold the Redeemable
Warrants, or to accept the redemption price, which is likely to be
substantially less then the market value of the Redeemable Warrants at the
time of redemption. In addition, redemption of the Redeemable Warrants could
result in selling pressure which could have a negative impact on the price of
the Common Stock. The Redeemable Warrants expire on August 10, 1998.
RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY
The telecommunications equipment and services industry is changing rapidly
due to, among other things, deregulation, privatization of small
facilities-based providers in the United States that have emerged as a result
of deregulation and are sometimes referred to as Post, Telephone and Telegraphs
("PTTs"), technological improvements, expansion of the telecommunications
infrastructure and the globalization of the world's economies and free trade.
There can be no assurance that one or more of these factors will not vary
unpredictably, which could have a material adverse effect on the Company.
There can be no assurance, even if these factors turn out as anticipated,
that the Company will be able to implement its strategy or that its strategy
will be successful in this rapidly evolving market.
Much of the Company's planned growth in the services area is predicated
upon the deregulation of telecommunications markets. There can be no assurance
that such deregulation will occur when or as anticipated, if at all, or that
the Company will be able to grow in the manner or at the rates currently
contemplated.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings
and increased satellite and fiber optic cable transmission capacity for
services similar to those provided by the Company, including utilization
of the Internet and packetized transmission systems for international voice
and data communications. The Company cannot predict which of the many
possible future product and service offerings will be important to establish
and maintain a competitive position or what expenditures will be required
to develop and provide such offerings. The Company's profitability will
depend, in part, on its ability to anticipate and adapt to rapid technological
changes occurring in the telecommunications industry and on its ability
to offer, on a timely basis, services that meet evolving industry standards
and customer preferences. There can be no assurance that the Company will be
able to adapt to such technological changes or offer such services on a timely
basis or establish or maintain a competitive position.
As a result of existing excess international transmission capacity, the
marginal cost of carrying an additional international call is often very low
for carriers that own minimum investment units ("MIUs") or indefeasible rights
of use ("IRUs"). Industry observers have predicted that these low marginal
costs may result in significant pricing pressures and that, within the next
ten years, there may be no charges based on the distance or even the duration
of a call. Certain of the Company's competitors have introduced calling plans
that provide for flat rates on calls within the U.S. and Canada, regardless of
time of day or distance of the call. If this type of pricing were to become
prevalent, it may have a material adverse effect on the Company.
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS
The Company's operating results are difficult to forecast with any degree
of accuracy because a number of factors subject these results to significant
fluctuations. As a result, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.
FACTORS INFLUENCING OPERATING RESULTS, INCLUDING REVENUES, COSTS
AND MARGINS
The Company's revenues, costs and expenses have fluctuated significantly
in the past and are likely to continue to fluctuate significantly in the
future as a result of numerous factors. The Company's revenues in any given
period can vary due to factors such as market demand for its products and
services; call volume fluctuations, particularly in regions with relatively
high per-minute rates; the addition or loss of major customers, whether
through competition, merger, consolidation or otherwise; the loss of
economically beneficial routing options for the termination of the Company's
traffic; financial difficulties of major customers; pricing pressure resulting
from increased competition; and technical difficulties with, or failures of
portions of, the Company's network that impact the Company's ability to provide
services to or send invoices to its customers. The Company's cost of services
and operating expenses in any given period can vary due to factors such as
import duties charged to its equipment offering; changes in prices from
vendors; fluctuations in rates charged by carriers to terminate the Company's
traffic; increases in bad debt expense and reserves; timing of capital
expenditures, and other costs associated with acquiring or obtaining other
rights to switching and other transmission facilities; changes in the Company's
sales incentive plans; and costs associated with changes in staffing levels of
sales, marketing technical support and administrative personnel. In addition,
the Company's operating results can vary due to factors such as changes in
routing due to variations in the quality of vendor transmission capability;
loss of favorable routing options; the amount of, and the accounting policy
for, return traffic under operating agreements; actions by domestic or
foreign regulatory entities; the level, timing and pace of the Company's
expansion in international and commercial markets; and general domestic and
international economic and political conditions. Since the Company does not
generally have long term arrangements for the purchase or resale of long
distance services, and since rates fluctuate significantly over short
periods of time, the Company's gross margins are subject to significant
fluctuations over short periods of time. The Company's gross margins also
may be negatively impacted in the longer term by competitive pricing pressures.
NO ASSURANCE THAT RECENT GROWTH WILL CONTINUE; POTENTIAL IMPACT ON NET
INCOME AND MARKET EXPECTATIONS
Although the Company's revenues have significantly increased in the first,
second and third quarters of 1997, such growth should not be considered
indicative of future revenue growth or operating results. If revenue levels
fall below expectations, net income is likely to be disproportionately
adversely affected because a proportionately smaller amount of the Company's
operating expenses varies with its revenues. There can be no assurance that
the Company will be able to achieve or maintain profitability on a quarterly
or annual basis in the future.
As a result of the foregoing, it is likely that in some future period the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
RISKS ASSOCIATED WITH EQUIPMENT BUSINESS
RAPIDLY CHANGING INDUSTRY
The equipment sales of the Company are subject to the risks of rapidly
changing technology and a dynamic marketplace. Voice telephony equipment,
which has been the traditional source of equipment revenue for the Company,
is converging into a unified platform and network that will transmit both
data and video, creating increased complexity. As technology evolves, so do
the needs of the customer. Through its acquisitions of Integracion de Redes,
S.A. de C.V. ("Integracion") of Mexico City, and N.S.I., S.A. de C.V. ("NSI")
of Mexico City, the Company is attempting to address the technological changes
and its customers' needs. However, there can be no assurance that the Company
will be able to embrace completely these new technologies, modify its approach
to doing business, retain the necessary personnel and implement the appropriate
strategies to adapt to these new technical and service requirements.
DISTRIBUTION AGREEMENTS
The Company distributes telephony, data and networking equipment for
certain manufacturers. None of the distribution agreements under which the
Company sells this equipment contains any exclusivity provisions. In addition,
in most instances, the term of the distribution agreement is year-to-year.
There can be no assurance that the Company will continue to have distribution
arrangements with its major manufacturers on favorable terms, if at all.
FINANCING REQUIREMENTS
To date, the Company has not had any formal extended credit arrangement
with any of its suppliers. As a result, the Company's working capital has
been strained. The Company has attempted to mitigate this risk by requiring
accelerated payments from its customers but has not always been successful
in doing so. In addition, in order to be responsive to its customers' needs,
the Company has had to carry a certain level of inventory of equipment, which
also has put a strain on the Company's working capital. To date, the Company
has been unable to secure any form of conventional financing with respect to
its working capital requirements. There can be no assurance that the Company
will not face significant pressure on its working capital in the future or
that the Company will be able to finance such working capital requirements
through conventional financing means.
RISKS OF INTERNATIONAL TELECOMMUNICATIONS AND VALUE-ADDED
SERVICES BUSINESSES
Historically, the Company has generated substantially all of its
international long distance revenues by providing international
telecommunications services to its customers on a wholesale basis. The
international nature of the Company's operations involves certain risks,
such as changes in U.S. and foreign government regulations and
telecommunications standards; dependence on foreign partners; tariffs,
taxes and other trade barriers; and the potential for nationalization,
economic downturns and political instability in foreign countries. In
addition, the Company's business could be adversely affected by a reversal
in the current trend toward deregulation of telecommunications carriers.
The Company will be increasingly subject to these risks to the extent that
the Company proceeds with the planned expansion of its international
operations.
LIMITED OPERATING HISTORY
The Company did not commence as an international long distance provider
until the fourth quarter of 1996. As a result, the Company's business must
be considered in light of the risks faced by early stage companies in the
rapidly evolving international telecommunications market. Early stage
companies must respond to external factors, such as competition and changing
regulations, without the resources, infrastructure and broader business base
of more established companies. Early stage companies also must respond to
these risks while simultaneously developing systems, adding personnel and
entering new markets. As a result, these risks can have a much greater effect
on early stage companies. If the Company does not successfully address such
risks, the Company's business, operating results and financial condition
could be materially adversely affected.
DEPENDENCE ON FOREIGN PARTNERS
The Company will increasingly rely on foreign partners to handle its
traffic in and from foreign countries and to assist in installing
transmission facilities and network switches, complying with local regulations,
obtaining required licenses and assisting with customer and vendor
relationships. The Company may have limited recourse in the event its foreign
partners do not perform under their contractual arrangements with the
Company. The Company's arrangements with foreign partners may expose the
Company to significant legal, regulatory and economic risks.
FOREIGN GOVERNMENT CONTROL AND HIGHLY REGULATED MARKETS
Governments of many countries exercise substantial influence over various
aspects of the telecommunications market. In some cases, the government
owns or controls companies that are or may become competitors of the Company
or companies (such as national telephone companies) upon which the Company and
its foreign partners may depend for required interconnections to local
telephone networks and other services. Accordingly, government actions in
the future could have a material adverse effect on the Company's operations.
In highly regulated countries in which the Company is not dealing directly
with the dominant local exchange carrier, the dominant carrier may have the
ability to terminate service to the Company or its foreign partner and, if
this occurs, the Company may have limited or no recourse. In countries
where competition is not yet fully established and the Company is dealing with
an alternative carrier, foreign laws may prohibit or impede the entry of such
new carriers in the market.
INTERNATIONAL SETTLEMENT RATES AND INTERNATIONAL TRAFFIC
FLUCTUATIONS
The Company's revenues and costs of long distance services are sensitive
to changes in international settlement rates, imbalances in the ratios
between outgoing and incoming traffic and foreign currency fluctuations.
International rates charged to customers are likely to decrease in the future
for a variety of reasons, including increased competition between existing long
distance providers, new entrants into the market, new voice-packetized
technologies changing the economics of traditional long distance and the
consummation of joint ventures among large international long distance
providers that facilitate targeted pricing and cost reductions. There can
be no assurance that the Company will be able to increase its traffic volume
or reduce its operating costs sufficiently to offset any resulting rate
decreases. As the Company continues to pursue a strategy of entering into
operating agreements where it is economically advantageous to do so, the
Company's results of operations will become increasingly subject to the risks
of changes in international settlement rates and foreign currency fluctuations.
Similarly, if the Company pursues a strategy of developing and implementing
new technologies to adapt its business strategy to the new conditions caused
by the aforementioned technical developments, there can be no assurance that
the Company will have or be able to obtain the financial resources necessary
to utilize this technology to compete effectively.
DEPENDENCE ON AVAILABILITY OF TRANSMISSION CAPACITY
Historically, the Company's sales of international long distance and
value-added services have been handled through arrangements with other long
distance providers. The Company purchased capacity from three vendors in the
quarter ended September 30, 1997, which accounted for a majority of the
Company's capacity during such period. There can be no assurance that such
arrangements will continue to be available to the Company on a cost-effective
basis or at all. Currently, most transmission capacity used by the Company
is obtained on a variable, per minute basis, subjecting the Company to the
possibility of unanticipated price increases and service cancellations. The
Company also requires high voice quality transmission capacity, which may not
always be available at cost-effective rates. Failure by the Company
to continue to enter into cost-effective arrangements with its primary
vendors, or to locate suitable replacements, would have a material adverse
effect on the Company. To the extent that the Company's variable costs
increase, the Company may experience reduced or, in certain circumstances,
negative margins for some services. As its traffic volume increases on
particular routes, the Company expects to decrease its reliance on variable
usage arrangements and enter into fixed monthly or longer-term leasing or
ownership arrangements, subject to obtaining any requisite authorization.
To the extent that the Company does so, and incorrectly projects traffic
volume in a particular geographic area, the Company would experience higher
fixed costs without a related increase in revenue. The Company has invested
substantial resources and intends to continue to invest in developing its own
transmission and switching facilities, which is a capital intensive and time-
consuming process. There can be no assurance that the Company will successfully
complete development of its network in a timely manner or within budget.
POTENTIAL ADVERSE EFFECTS OF GOVERNMENT REGULATION
The Company's business is subject to various U.S. and foreign laws,
regulations, agency actions and court decisions. The Company's international
facilities-based and resale services are subject to regulation by the Federal
Communications Commission (the "FCC"). The FCC requires authorization prior
to leasing capacity, acquiring international facilities, or initiating
international service. Prior FCC approval is also required to transfer control
of an authorized carrier. The Company is also subject to the FCC rules that
regulate the manner in which international services may be provided, including,
for instance, the circumstances under which carriers may provide international
switched services by using private lines or routing traffic through third
countries.
MEXICAN PERMIT
The Company has been issued a license to provide value-added
telecommunications services by the Mexican Secretaria de Comunicaciones y
Transportes ("SCT"), the equivalent of the FCC in the U.S. The license
grants the Company the right for an unspecified term to provide these services
throughout Mexico involving the use of data, facsimile and voice transmissions,
and the resulting embedded international and intra-national long distance
traffic generated thereby. The Company is required to pay a license fee
quarterly to the Mexican government. Under the license, the Company is
free to set its service rates without government approval; however, the
Company's rate schedule must be filed with the SCT. There can be no
assurance that the Mexican government will not revoke this permit or
construe it more narrowly than the Company. The revocation of this permit
would have a material adverse effect on the Company.
THE FCC'S PRIVATE LINE RESALE POLICY
The FCC's private line resale policy prohibits a carrier from reselling
international private leased circuits to provide switched services to a
country unless the FCC has found that the country affords U.S. carriers
equivalent opportunities to engage in similar activities in that country.
Certain of the Company's arrangements with foreign carriers may involve
the transmission of switched services for termination in a country that
has not been found by the FCC to offer equivalent resale opportunities.
These arrangements are with foreign carriers that are not the dominant
carriers in their respective foreign countries. There can be no assurance
that the FCC, upon viewing these alternate carrier arrangements, would
permit these arrangements under its private line resale policy. If the FCC
finds that these arrangements conflict with its policy, it may issue, among
other measures, a cease and desist order or impose fines on the Company, which
could have a material adverse effect on the Company. It is also possible
that the regulatory agency of the foreign government would find that foreign
law does not permit the operation of alternate carriers or that the alternate
carriers have not met foreign law requirements for such operations. Such a
finding could have a material adverse effect on the Company.
THE FCC'S INTERNATIONAL SETTLEMENTS POLICY
The Company is also required to conduct its international business in
compliance with the FCC's international settlements policy (the "ISP"). The
ISP establishes the permissible arrangements for carriers based in the U.S.
and their foreign counterparts to settle the cost of terminating each other's
traffic over their respective networks. It is possible that the FCC could take
the view that some of the Company's current or future arrangements with
alternative foreign carriers do not comply with the existing ISP rules.
If the FCC, on its own motion or in response to a challenge filed by a
third party, determines that the Company's foreign carrier arrangements
do not comply with FCC rules, among other measures, it may issue a cease
and desist order or impose fines on the Company. Such action could have a
material adverse effect on the Company.
RECENT AND POTENTIAL FCC ACTIONS
Regulatory action that has been and may be taken in the future by the
FCC may enhance the intense competition faced by the Company. The FCC
recently enacted certain changes in its rules designed to permit more
flexibility in its ISP as a method of achieving lower cost-based accounting
rates as more facilities-based competition is permitted in foreign markets.
Specifically, the FCC has decided to allow U.S. carriers, subject to certain
competitive safeguards, to propose methods to pay for international call
termination that deviate from traditional bilateral accounting rates and the
ISP. The FCC has recently adopted a REPORT AND ORDER that will significantly
reduce the cost of international long distance telephone service by setting
new, lower benchmarks on international settlement rates. While these rule
changes may provide more flexibility to the Company to respond more rapidly
to changes in the global telecommunications market, it will also provide
similar flexibility to the Company's competitors.
FOREIGN REGULATIONS
The Company may also be subject to regulation in foreign countries in
connection with certain of its business activities. For example, the
Company's use of transit, international simple resale ("ISR") or other
routing arrangements may be affected by laws or regulations in either the
transited or terminating foreign jurisdiction. Foreign countries, either
independently or jointly as members of the International Telecommunications
Union, may have adopted or may adopt laws or regulatory requirements
regarding such services for which compliance would be difficult or expensive,
that could force the Company to choose less cost-effective routing alternatives
and that could adversely affect the Company's business, operating results and
financial condition. In Mexico, the Company's value-added services are
subject to regulation by the SCT.
To the extent that it seeks to provide telecommunications services in
other non-U.S. markets, the Company is subject to the developing laws and
regulations governing the competitive provision of telecommunications services
in those markets. The Company currently plans to provide a limited range of
services in several Latin American countries, as permitted by regulatory
conditions in those markets, and to expand its operations as these markets
implement scheduled liberalization to permit competition in the full range of
telecommunications services in the next several years. The nature, extent and
timing of the opportunity for the Company to compete in these markets will be
determined, in part, by the actions taken by the governments in these
countries to implement competition and the response of incumbent carriers to
these efforts. There can be no assurance that the regulatory regime in these
countries will provide the Company with practical opportunities to compete
in the near future, or at all, or that the Company will be able to take
advantage of any such liberalization in a timely manner.
RISKS ASSOCIATED WITH COMPLEX SWITCHING AND INFORMATION SYSTEMS
HARDWARE AND SOFTWARE
The Company's information systems and switching equipment are expensive
to purchase, complex to install and maintain, and subject to hardware
defects and software bugs. The Company may experience technical difficulties
with its hardware or software, which could adversely affect the Company's
ability to provide service to its customers, manage its network, collect
billing information, or perform other vital functions. Although the
Company has certain technical capabilities, it must rely on a third party
to help maintain certain of its switching equipment. This reliance on a
third party subjects the Company to certain risks associated with the lack
of direct control over the installation of software upgrades, routine
maintenance, routing, collection of call detail records and failure of
the switching equipment.
CUSTOMER CONCENTRATION AND INCREASED CUSTOMER DEFAULT EXPOSURE
The Company has very few customers in the international long distance
business and one customer accounts for a disproportionate amount of the
Company's international call volume. This customer in turn has several
customers; however, one of its customers accounts for a disproportionate
amount of its international call volume. The Company mitigates this risk by
requiring weekly payment from this customer. Although the Company has
experienced insignificant customer defaults in the international long
distance business to date, there can be no assurance that the Company will
not experience significant customer defaults in the future, which could have
a material adverse effect on the Company. Moreover, there is no guarantee
that this significant customer of the Company will not transfer all or a
material portion of its business away from the Company. If this customer
were to transfer all or a material portion of its business, such transfer
could have a material adverse effect on the Company.
EFFECTS OF NATURAL DISASTERS AND OTHER CATASTROPHIC EVENTS
The Company's business is susceptible to natural disasters such as
earthquakes, as well as other catastrophic events such as fire, terrorism
and war. Although the Company has taken a number of steps to prevent its
network from being affected by natural disasters, fire and the like, such
as building redundant systems for power supply to the switching equipment,
there can be no assurance that any such systems will prevent the Company's
switches from becoming disabled in the event of an earthquake, power outage
or otherwise. The failure of the Company's network, or a significant
decrease in traffic resulting from effects of a natural or man-made disaster,
could have a material adverse effect on the Company's relationship with its
customers and the Company.
REGULATION OF CUSTOMERS
The Company's customers are also subject to actions taken by domestic or
foreign regulatory authorities that may affect the ability of customers to
deliver traffic to the Company. While such sanctions have not adversely
impacted the volume of traffic received by the Company from such customers
to date, future regulatory actions could materially adversely affect the
volume of traffic received from a major customer, which could have a
material adverse effect on the Company.
RISKS OF EXPANSION INTO COMMERCIAL MARKET
While the Company has focused to date solely on the wholesale market, the
Company may expand into the commercial market and such expansion will increase
the risk of bad debt exposure and lead to higher operating costs. The Company
also may be required to update and improve its billing systems and procedures
and/or hire new management personnel to handle the demands of the commercial
market. There can be no assurance that the Company will be able to effectively
manage the cost of, and risks associated with, expansion into the commercial
market.
MANAGEMENT OF CHANGING BUSINESS
The Company has recently experienced significant revenue growth and has
expanded the geographic scope of its operations. These factors have resulted
in increased responsibilities for management personnel and placed increased
demands upon the Company's operating and financial systems. The Company
expects that its expansion into foreign countries will lead to increased
financial and administrative demands, such as increased operational
complexity associated with expanded network facilities, administrative burdens
associated with managing an increasing number of relationships with foreign
partners and expanded treasury functions to manage foreign currency risks.
The Company will require additional financial and accounting personnel,
systems and policies to comply with the reporting requirements of a publicly
held company. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's future
operations. The failure to implement and improve the Company's operation,
financial and management systems as needed to accommodate any expansion of
the Company's business could have a material adverse effect on the Company.
RISKS ASSOCIATED WITH ANTICIPATED GROWTH AND ACQUISITIONS
The Company has experienced rapid growth and intends to continue to grow
through further expansion of its existing operations, acquisitions, joint
ventures, strategic alliances and the establishment of new operations.
The Company constantly evaluates acquisition and joint venture opportunities.
The Company's ability to manage its anticipated future growth will depend
on its ability to evaluate new markets and investment vehicles, monitor
operations, control costs, maintain effective quality controls, obtain
satisfactory and cost-effective lease rights from, and interconnection
agreements with, competitors that own transmission lines (in many cases
intra-national transmission lines may be available from only one dominant
competitor) and significantly expand the Company's internal management,
technical and accounting systems. The Company's growth will also depend
on its ability to purchase successfully MIUs and IRUs, which ability may be
adversely affected by, among other factors, competition to purchase such rights
and regulatory restrictions on ownership. The Company's rapid growth has
placed, and its planned future growth will continue to place, a significant
and increasing strain on the Company's financial, management and operational
resources, including the identification of acquisition targets and joint
venture partners, the negotiation of acquisition and joint venture agreements
and the maintenance of satisfactory relations, including, when necessary,
the resolution of disputes with its joint venture partners and minority
investors in acquired entities. In addition, acquisitions and the
establishment of new operations will entail considerable expenses in advance
of anticipated revenues and may cause substantial fluctuations in the Company's
operating results.
The Company, as a result of legal restrictions or other reasons, may
acquire a minority interest in strategic targets, in which case the Company
would lack control over the target company's operations and strategies.
There can be no assurance that such lack of control will not interfere with
the Company's growth and integration of its operations.
The Company may also acquire interests in operations for strategic
reasons, despite the fact that such operations have operational or managerial
problems. In such cases, there can be no assurance that such operational or
managerial problems will not cause significant problems or consume substantial
resources of the Company.
The Company's planned new business will need to be integrated with its
existing operations. For acquired business, this will entail, among other
things, integration of switching, transmission, technical, sales, marketing,
billing, accounting, quality control, management, personnel, payroll,
regulatory compliance and other systems and operating hardware and software,
some or all of which may be incompatible. Furthermore, employees and
customers of acquired businesses generally experience turnover at higher
rates during and after the acquisition. In countries where the Company
expands by establishing a new business, it must, among other things, recruit,
hire and train personnel, establish offices, obtain regulatory authorization,
lease transmission lines from, and obtain interconnection agreements with,
competitors that own intra-national transmission lines, and install hardware
and software. Since the Company may operate businesses in countries other that
the U.S., Mexico and Poland, the Company must manage the problems associated
with integrating a culturally and linguistically diverse workforce.
The Company has limited experience dealing with these problems.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the efforts of
senior management personnel and a group of employees with longstanding
industry relationships and technical knowledge of the Company's operations,
in particular, E. Scott Crist, the Company's Chief Executive Officer, and
Manuel Landa Rangel, the Company's Chairman of the Board. Several of the
Company's key management personnel joined the Company in the past 12 months,
including the Company's Chief Financial Officer. The Company's management
team has limited experience working together and there can be no assurance
that they can successfully integrate as a management team. The Company believes
that its future success will depend in large part upon its continuing ability
to attract and retain highly skilled personnel. Competition for qualified,
high-level telecommunications personnel is intense and there can be no
assurance that the Company will be successful in attracting and retaining
such personnel. The loss of the services of one or more of the Company's
key individuals, or the failure to attract and retain other key personnel,
could materially adversely affect the Company.
SIGNIFICANT COMPETITION
The international telecommunications industry is intensely competitive and
subject to rapid change. The Company's competitors in the international
wholesale switched long distance market and in the value-added services
include large, facilities-based multinational corporations and PTTs,
switched-based resellers of international long distance services and
international joint ventures and alliances among such companies.
International wholesale switched long distance providers compete on the
basis of price, customer service, transmission quality, breadth of service
offerings and value-added services. The number of the Company's competitors
is likely to increase as a result of the new competitive opportunities created
by the World Trade Organization Agreement ("WTO Agreement"). Under the terms
of the WTO Agreement, the United States and the other 67 countries
participating in the WTO Agreement have committed to open their
telecommunications markets to competition and foreign ownership and to adopt
measures to protect against anti-competitive behavior, effective starting on
January 1, 1998. As a result, the Company believes that competition will
continue to increase, placing downward pressure on prices. Such pressure
could adversely affect the Company's gross margins if the Company is not
able to reduce its costs commensurate with such price reductions.
The Company's competitors in the equipment business include other
distributors of voice, data and video equipment who carry competing lines
of manufacturers' equipment or equipment manufactured by the same companies
that manufacture the Company's products. In addition, in the equipment market,
the Company competes with companies with significantly greater financial
resources, such as a division of Telefonos de Mexico ("Telmex"). New forms
of competition in the equipment business have recently evolved, such as
telecommunications outsourcing. Outsourcing offers the customer an alternative
to purchasing. The customer may instead lease the equipment or even get it
free from other companies such as long distance carriers, which will offer
equipment free solely to capture the customer's long distance business.
Although the Company has recently developed an outsourcing program, there
can be no assurance that the program will be successful or that the Company
will be able to develop the relationships with the appropriate partners or
have the financing necessary to support is outsourcing program.
COMPETITION FROM DOMESTIC AND INTERNATIONAL COMPANIES AND ALLIANCES
The U.S.-based international telecommunications services market is
dominated by American Telephone & Telegraph Co. ("AT&T"), MCI Communications
Corp. ("MCI") and Sprint Communications Company L.P. ("Sprint"). The
Company also competes with WorldCom, Inc., Pacific Gateway Exchange,
Inc., TresCom International, Inc. and other U.S.-based and foreign long
distance providers, many of which have considerably greater financial
and other resources and more extensive domestic and international
communications networks than the Company. The Company anticipates that
it will encounter additional competition as a result of the formation of
global alliances among large long distance telecommunications providers.
Consolidation in the telecommunications industry could not only create even
larger competitors with greater financial and other resources, but could also
adversely affect the Company by reducing the number of potential customers
for the Company's services.
COMPETITION FROM NEW TECHNOLOGIES
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings
and increasing satellite and undersea cable transmission capacity for services
similar to those provided by the Company. Such technologies include
satellite-based systems such as the proposed Iridium and GlobalStar systems,
utilization of the Internet and other packetized methods of transmission for
international voice and data communications and digital wireless communication
systems such as personal communications services ("PCS"). The Company is
unable to predict which of many possible future product and service offerings
will be important to maintain its competitive position or what expenditures
will be required to develop and provide such products and services.
INCREASED COMPETITION AS A RESULT OF A CHANGING REGULATORY ENVIRONMENT
The FCC recently granted AT&T's petitions to be classified as a non-dominant
carrier in the domestic interstate and international markets, which has allowed
AT&T to obtain relaxed pricing restrictions and relief from other regulatory
constraints, including reduced tariff notice requirements. These reduced
regulatory requirements could make it easier for AT&T to compete with the
Company. In addition, the Telecommunications Act of 1996, which substantially
revises the Communications Act of 1934, permits and is designed to promote
additional competition in the intrastate, interstate and international
telecommunications markets by both U.S.-based and foreign companies, including
the Regional Bell Operating Companies ("RBOCs"). RBOCs, as well as other
existing or potential competitors of the Company, have significantly more
resources than the Company. The Company also expects that competition from
carriers will increase in the future along with increasing deregulation of
telecommunications markets worldwide. As a result of these and other factors,
there can be no assurance that the Company will continue to compete favorably
in the future.
FOREIGN CORRUPT PRACTICES ACT
The Company is also subject to the Foreign Corrupt Practices Act ("FCPA"),
which generally prohibits U.S. companies and their intermediaries from
bribing foreign officials for the purpose of obtaining or keeping business.
The Company may be exposed to liability under the FCPA as a result of past or
future actions taken without the Company's knowledge by agents, strategic
partners and other intermediaries. Such liability could have a material
adverse effect on the Company.
CAPITAL EXPENDITURES; POTENTIAL NEED FOR ADDITIONAL FINANCING
Expansion of the Company's international long distance business,
value-added services business, equipment business, and acquisition efforts
will require significant additional capital. The Company may be required
to obtain additional financing depending on factors such as the rate and
extent of the Company's growth in these areas. Issuance of additional
equity securities would result in dilution to shareholders. There can be no
assurance that additional financing will be available on terms acceptable to
the Company, if at all. The Company's inability to fund its capital
requirements would have a material adverse effect on the Company.
NASDAQ SMALLCAP
The Common Stock is listed on Nasdaq SmallCap. The market price of the
Common Stock has been volatile, and there may be significant volatility in
the trading price for the Shares. The equity markets have, on occasion,
experienced significant price and volume fluctuation that have affected
the market prices for many companies' securities and that have been often
unrelated to the operating performance of these companies. The trading price
of the Common Stock may also be subject to significant fluctuations in respect
of variations in the Company's results of operations, actual or anticipated
announcements of technical innovations or new products and services by the
Company or its competitors, general conditions in the telecommunications
industry, rumors relating to the Company or its competitors and other events
or factors. Accordingly, there can be no assurance as to the price at which
the Shares will trade in the future.
Historically, the shares of Common Stock have had relatively low trading
volume on Nasdaq SmallCap. During the four week period ended September 30,
1997, for example, the weekly trading volume averaged 97,690 shares. Low
trading volume can influence the trading price of a security, hamper the
liquidity of an investment in a security and result in volatility of the
price of a security.
FOREIGN CURRENCY RISK
The Company derives a significant portion of its revenues from sales in
or related to Mexico. The Company's functional currency in Mexico for
equipment sales is the U.S. dollar due to the fact that the majority of
these transactions are in such currency. However, the Company transacts
mainly in the local currency with all of the Company's providers of the
facilities necessary to carry out its value-added services and thus faces
foreign currency risk in the event of a revaluation of the Mexican peso
in relation to the U.S. dollar. In addition, a significant amount of the
Company's operating expenses are paid in pesos. Furthermore, the general
economic condition of Mexico is greatly affected by the fluctuations in
exchange rates and inflation. Any decline in the general economic conditions
of Mexico would materially affect the operations of the Company. As the
Company expands its presence in countries other than the U.S. and Mexico,
it will be exposed to additional exchange rate risk. The Company may
choose to limit its exposure to foreign currency risk through the purchase
of forward foreign exchange contracts or similar hedging strategies.
There can be no assurance that any foreign currency hedging strategy would
be successful in avoiding exchange-related losses.
DIVIDENDS
The Company has never paid dividends on its Common Stock. The Company
currently intends to retain earnings, if any, to provide funds for the
operation and planned expansion of the business and does not anticipate
paying any cash or stock dividends to its shareholders in the
foreseeable future.
CONTROL OF COMPANY BY NAMED OFFICERS, DIRECTORS AND FIVE PERCENT STOCKHOLDERS
The directors, officers and five percent shareholders and their affiliates in
the aggregate will beneficially own approximately 40.4% of the outstanding
shares of Common Stock (including shares issuable upon the exercise of certain
options and warrants which by their terms are exerciseable within 60 days of the
date of this prospectus.) These shareholders will be able to exercise
control over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions.
Such concentration of ownership may have the effect of delaying or preventing
a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts of Common Stock
offered hereby, and in the public market pursuant to Rule 144 promulgated
under the Securities Act or otherwise, could adversely affect the market price
of the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities.
The Shares will be freely tradeable without restriction under the Securities
Act upon resale by the Selling Shareholders. The Selling Shareholders are not
restricted as to the price or prices at which they may sell the Shares. Sales
of the Shares may have an adverse effect on the market price of the Common
Stock. Moreover, the Selling Shareholders are not restricted as to the
number of Shares that may be sold at any time, and it is possible that a
significant number of Shares could be sold at the same time, which may also
have an adverse effect on the market price of the Company's Common Stock.
THE COMPANY
GENERAL
The Company, a Texas corporation, is a "turn-key" telecommunications
company strategically positioned to tap the growing markets of Latin America,
with an emphasis on Mexico. Through organic growth and strategic acquisitions,
the management of the Company believes that it is positioned as a premier
telecommunications company with a focus on value-added services and
international long distance.
The Company was founded in 1992 with the objective of becoming a significant
participant in the emerging Eastern European telecommunications equipment
market through its 90% interest in Digital Telecommunications Systems/ZWUT,
a Polish limited liability company. However, the strategic focus of the
Company has been shifted to Latin America, and revenues from Poland now
represent less than 5% of the Company's revenues.
In May 1996, the Company acquired all of the stock of Telereunion, Inc.,
a Delaware corporation ("Telereunion") and 97% owner of Vextro de Mexico,
S. A. de C.V. ("Vextro"). Vextro is a telecommunications equipment and
service company with operations in Mexico. In September 1996,
Orion Communications, Inc., a U.S.-based reseller of long-distance services
("Orion"), was merged into Telscape USA, Inc., a subsidiary of the Company.
In November 1996, the Company's name was changed from Polish Telephones and
Microwave Corporation to Telscape International, Inc. to more accurately
reflect the Company's overall strategy to increase internal growth and
to identify and acquire companies which fit into its objectives of providing
telecommunications products and services with an emphasis on Latin America.
The management capabilities that came with the Orion merger have also enabled
the Company to expand its strategy to include international long distance.
Effective July 1, 1997, the Company acquired Integracion de Redes,
S.A. de C.V. ("Integracion") of Mexico City, Mexico, a data and network
integrator. The acquisition of Integracion marked the Company's entry into
the fast growing data and network market. In addition, effective October 1,
1997, the Company acquired N.S.I., S.A. de C.V. ("NSI") of Mexico City, Mexico,
also a data and network integrator. Management of the Company believes that
these acquisitions, coupled with Vextro, strategically position the Company
in Mexico to address the technological convergence of data, voice and video
transmission.
INDUSTRY BACKGROUND AND MARKET DEMAND
MEXICO
The most significant issue affecting the Mexican telecommunications market
is the introduction of full competition in the long distance market. The
monopoly of Telmex ended in August 1996 when new long distance competitors
were allowed to offer services over their networks. In January 1997, Telmex
was required to begin providing interconnection services to these new
competitors. Full competition has been gradually spreading across the
country during 1997. Like the U.S. market in the early 1980's when long
distance deregulation occurred, the Mexican telecommunications market is
poised for rapid expansion as barriers to competition are removed and new
technologies enter the marketplace.
Mexico has a growing marketplace that is undergoing deregulation. Several
factors have affected the Mexican economy after the signing of the
North American Free Trade Agreement ("NAFTA"), such as the currency
devaluation in late 1994, but since then the peso has significantly stabilized
against the U.S. dollar and the Mexican economy has a pent-up demand that is
causing expansion of important markets like telecommunications. Mexico has
one-third the population of the United States, and the telecommunications
market in Mexico is growing in excess of 15% annually. The telephone
density (number of telephones per capita) is only one-sixth that of the
United States. The overall market for telecommunications services in Mexico
is concentrated in three cities, namely Mexico City, Guadalajara and Monterrey,
where 65% of the country's usage resides.
INTERNATIONAL LONG DISTANCE
As of December 31, 1996, the Company had generated an insignificant
amount of revenues from the sale of international long distance services.
However, since January 1, 1997, a significant portion of the Company's revenues
have been generated from the sale of U. S.-originated international long
distance.
The international long distance telecommunications services industry
consists of all transmissions of voice and data that originate in one
country and terminate in another. This industry is in the midst of some
fundamental changes that present the Company with an opportunity to take
advantage of the substantial growth in international telecommunications
traffic. According to industry sources, worldwide sales for providers of
international voice telephone services were approximately $57 billion in
1995, and the volume of international traffic on the public telephone
network is expected to grow at a compound annual growth rate of 12% or more
through the year 2000.
The Company believes that a number of trends in the international
telecommunications market will continue to drive growth in international
long distance traffic, including:
- continuing deregulation and privatization of telecommunications
markets;
- pressure to reduce international outbound long distance rates paid
by end users driven by increased competition among U.S. long distance
carriers and among emerging foreign long distance carriers in
deregulated countries;
- dramatic increase in the availability of telephones and the number
of access lines in service around the world;
- increasing globalization of commerce, trade and travel;
- proliferation of communications devices such as faxes, cellular
telephones, pagers and data communications devices;
- increasing demand for data transmission services, including the
Internet; and
- increased utilization of high quality digital undersea cable and
resulting expansion of bandwidth availability.
PRODUCTS AND SERVICES
MEXICO
The Company's revenues in Mexico are generated from a combination of
equipment sales and telecommunications services. One of the Company's
principal strategies in Mexico is to be a provider of complete
telecommunications solutions, both from a services and equipment standpoint.
In Mexico, the Company sells its equipment manufacturer's products through
Vextro, Integracion and NSI, and sells its services through two brand
identities, TELEREUNION and UNITEL.
TELEPHONE EQUIPMENT. Since 1992, the Company has been one of five
non-exclusive distributors in Mexico of Nortel (Northern Telecom)
telecommunications equipment. Vextro also distributes products of the
following leading manufacturers: Octel Communications, Polycom, Centigram
and VTEL.
DATA AND NETWORKING EQUIPMENT. Through its acquisitions of Integracion
and NSI, the Company now distributes, installs and maintains equipment in
the data and networking equipment market. The Company represents such data
equipment manufacturers as 3Com Corporation, Cisco, Nortel and Newbridge
Networks.
TELECONFERENCING SERVICES. The Company was the first teleconferencing
company in Mexico and launched the first conference call service bureau
in Mexico. Under the name Telereunion, the Company offers the most
comprehensive package of teleconferencing products and services available
in Mexico, including consulting services for requirement detection, design,
development and implementation of specific teleconferencing applications;
multipoint audioconferencing and audiographics; design and implementation of
videoconferencing rooms and design and development of telecommunications
projects for various teleconferencing technologies.
CALL CENTER SERVICES. The Company recently signed a multi-year contract
with the U.S. embassy to provide certain call center services. The Company
is in the process of establishing a call center bureau, which management
of the Company hopes it will be able to leverage to service additional
call center business.
TELECOMMUNICATIONS OUTSOURCING. The Company's telecommunications outsourcing
program is being developed to allow the Company to (i) acquire market share
with the more long distance-intensive users in Mexico, the business sector;
and (ii) provide the Company nationwide points of presence for its
telecommunications services program without the sometimes substantial
investments required by other international long distance companies. As a
provider of outsourced telecommunications services, the Company provides its
customers with telecommunications hardware, software, maintenance, moves, adds
and changes, traffic engineering, network planning, management of and
coordination with other telecommunications suppliers, telecommunications
consultation, and competitive long distance and dial tone through personnel
and facilities owned by the Company and leased to its customers. The Company
currently has one significant contract in the outsourcing area and is in the
process of attempting to secure other contracts, although no assurances can be
given that it will be successful.
INTERNATIONAL LONG DISTANCE
The Company serves the large and growing international long distance
telecommunications market as a wholesale provider of both switched and
dedicated services. The Company focuses its efforts on U.S.-originated
traffic bound for Latin America and a significant portion of the Company's
revenues are being derived from such business.
MARKETING AND SALES
EQUIPMENT
The Company promotes its equipment through a combination of advertising,
trade shows, direct mail and telemarketing. The Company has historically
utilized its own direct sales force but recently started to develop a dealer
network to broaden its distribution channel.
SERVICES
In Mexico, the Company markets its telecommunications services through
advertising in trade magazines, telemarketing, direct mail and attending
trade shows. In addition, the Company's equipment customer base provides
an excellent platform for the follow-on sales of advanced telecommunications
services, since many of the current customers have developed confidence in
the Company's ability to implement complex projects.
INTERNATIONAL LONG DISTANCE
The Company markets its services on a wholesale basis to other
telecommunications companies through a direct sales effort. The Company
intends to establish strategic relationships with entities that have
gateways to international destinations and, thus, provide a more complete
package of international rates to its customers. When appropriate, the
Company will establish in-country relationships for the termination of
international long distance.
COMPETITION
MEXICO
Among the Company's principal competitors in the Mexican equipment
market are other distributors of the Company's products, as well as
distributors of products that compete with the products the Company sells.
For instance, Lucent Technologies and Ericsson each have a substantial
presence in the Mexican market. Competition for equipment customers is
based primarily on price and quality of the equipment and services
offered. The Company believes that the price and quality of its equipment
and services generally compare favorably with those of its competitors. In
addition, the Company differentiates itself through its quality customer
service, and the Company currently enjoys a high level of end-user
satisfaction.
The Mexican telecommunications services sector is less mature than that
in the United States. The Company is currently one of a very small number
of teleconferencing providers based in Mexico; however, the same services
are offered by a number of large U.S.-based carriers. For Mexican customers
to access these services in the United States, however, it is necessary to
originate a call that travels to the United States and then reconnects to
Telmex and the various parties on the call in Mexico.
The Company holds one of the few value-added licenses in Mexico to provide
teleconferencing and other interrelated services, which include the resale of
embedded domestic and international long distance services. However, new
regulations will allow others to enter this market in 1997 as both resellers
and network providers. In the former case, the competitors will require a
permit similar to that of the Company, and in the latter, they will need a
concession from the Mexican government.
There are numerous competitors in the call center services business in
Mexico, many of which have greater experience and financial resources than
the Company. However, the Company believes it differentiates itself on the
basis of its technological capabilities with respect to the equipment
necessary to establish an effective low cost call center solution and its
superior customer service.
The Company faces numerous competitors in the outsourcing business.
However, the Company believes it distinguishes itself on the basis of its
technological and telecommunications understanding with respect to the
equipment, maintenance, support and services necessary to implement an
effective low cost outsourcing solution and its superior customer service.
INTERNATIONAL LONG DISTANCE
The international long distance business is intensely competitive and
subject to rapid change. The Company's competitors in this market include
large, facilities-based multinational corporations and PTTs, switched-based
resellers of international long distance services and international joint
ventures and alliances among such companies. International wholesale
switched long distance providers compete on the basis of price, customer
service, transmission quality, breadth of service offerings and value-added
services. The Company believes that it will compete favorably on the basis
of price, transmission quality and customer service. The Company believes,
however, that competition will continue to increase, placing downward pressure
on prices.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from the sale of
the Shares. The Company will, however, receive the exercise price for
641,000 of the Shares issuable upon exercise of the warrants. The exercise
prices for the warrants, covering 525,000, 105,000 and 11,000 shares of
Common Stock, all of which were determined at the time of grant of such
warrants, are $8.00, $8.10 and $2.19, per share, respectively. Warrants
covering 11,000 of the Shares include a cashless exercise feature pursuant
to which the holder thereof may exercise such warrants without payment of
cash consideration. In the event the holder of such warrant utilizes the
cashless exercise feature, the Company will not receive any cash proceeds
upon such exercise. In the event that all of the warrants are fully exercised
and the holders thereof pay the exercise price in cash, the gross proceeds that
would be received by the Company are estimated to be approximately $5,074,590.
The Company intends to use the proceeds from the exercise of such warrants,
if any, for working capital and for general corporate purposes.
SELLING SHAREHOLDERS
The following table sets forth (i) the number of shares of Common Stock
owned by each Selling Shareholder at November 7, 1997, (ii) the number of
Shares to be offered for resale by each Selling Shareholder and (iii) the
number and percentage of shares of Common Stock to be held by each Selling
Shareholder after the completion of the offering. Except as set forth below,
none of the Selling Shareholders has had a material relationship with the
Company during the past three years.
Number of Shares Number of Number of Shares
NAME of Common Stock Shares to be of Common Stock
Beneficially Owned Offered for Stock/Percentage
at November 7, 1997 Resale (1) Class to be Owned
Completion of the
Offering
Dickinson & Co. (2) 38,000(3) 25,000 13,000/*
T. Marshall Swartwood (4) 91,000 55,000 36,000/*
Thomas M. Swartwood (5) 22,000(6) 19,000 3,000/*
Glenn S. Cushman (7) 6,000 6,000 0/*
*Less than one percent.
(1) Consists solely of shares of Common Stock issuable upon the exercise
of certain warrants.
(2) Dickinson & Co. served as representative of the several underwriters in
connection with the initial public offering of the Company in August 1994.
In connection therewith, the Company sold to Dickinson & Co. warrants to
purchase 105,000 shares of Common Stock (the "Dickinson Warrants"), which
Dickinson Warrants were subsequently transferred, as a result of which,
T. Marshall Swartwood owns warrants to purchase 55,000 shares of Common
Stock; Thomas M. Swartwood owns warrants to purchase 19,000 shares of
Common Stock; Glenn S. Cushman owns warrants to purchase 6,000 shares
of Common Stock; and Dickinson & Co. owns warrants to purchase 25,000
shares of Common Stock.
(3) Includes Redeemable Warrants to purchase 13,000 shares of Common Stock.
(4) T. Marshall Swartwood served as the Chairman of the Board and as a
director of Dickinson & Co. from December 1990 through September 1997,
and he served as the President of Dickinson & Co. from April 1994 through
January 1995.
(5) Thomas M. Swartwood is the President and a director of Dickinson & Co.
(6) Does not include 900 shares of Common Stock owned by Thomas M. Swartwood's
wife, as to which Mr. Swartwood disclaims any and all interest.
(7) Glenn S. Cushman served as a director of Dickinson & Co. from May 1994
through March 1997.
The Selling Shareholders have represented to the Company that they intend
to exercise their warrants and sell that number of Shares set forth next to
their respective names in the table set forth above during the effectiveness
of the Registration Statement of which this Prospectus is a part. To the
extent required, the specific Shares to be sold, the names of the Selling
Shareholders, other additional shares of Common Stock beneficially owned
by the Selling Shareholders, the public offering price of the Shares to be
sold, the names of any agent, dealer or underwriter employed by the Selling
Shareholders in connection with such sale, and any applicable commission or
discount with respect to a particular offer will be set forth in an
accompanying supplement to this Prospectus.
The Shares covered by this Prospectus may be sold from time to time so
long as this Prospectus remains in effect; provided, however, that the
Selling Shareholders are first required to contact the Company's Chief
Financial Officer to confirm that this Prospectus is in effect. The Company
intends to distribute to each Selling Shareholder a letter setting forth the
procedures whereby such Selling Shareholder may use this Prospectus to sell
the Shares and under what conditions this Prospectus may not be used. The
Selling Shareholders expect to sell the Shares at prices then attainable,
less ordinary brokers' commissions and dealers' discounts as applicable.
The Selling Shareholders and any broker or dealer to or through whom any
of the Shares are sold may be deemed to be underwriters within the meaning
of the Securities Act with respect to the Shares offered hereby, and any
profits realized by the Selling Shareholders or such brokers or dealers may
be deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the Selling
Shareholders are not expected to exceed normal selling expenses for sales
over-the-counter or otherwise, as the case may be. The registration of the
Shares under the Securities Act shall not be deemed an admission by the Selling
Shareholders or the Company that the Selling Shareholders are underwriters for
purposes of the Securities Act of any Shares offered under this Prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
PLAN OF DISTRIBUTION
This Prospectus covers 661,000 Shares. The Company will realize no proceeds
from the sale of the Shares, but will receive amounts upon exercise of the
warrants, if any, which amounts will be used for working capital and for
general corporate purposes.
The distribution of the Shares is not subject to any underwriting
agreement. The Shares may be sold from time to time in transactions in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices. The Shares may be sold in transactions to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from owners of the Shares and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of the customary commissions). The Selling
Shareholders and any broker-dealers that participate with the Selling
Shareholders in the distribution of the Shares may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Shares commissioned by them
may be deemed to be underwriting commissions or discounts under the Securities
Act. The owners of the Shares will pay any transaction costs associated
with effecting any sales that occur.
In order to comply with the securities laws of certain states, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Shares may not
be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the holder
of the Shares. See "Risk Factors - Investors May Be Unable to Exercise
Warrants or Sell Shares in Certain Jurisdictions."
The holders of the Shares are not restricted as to the price or prices at
which they may sell the Shares. Sales of such Shares may have an adverse
effect on the market price of the Common Stock. Moreover, the holders of
the Shares are not restricted as to the number of Shares that may be sold
at any time and it is possible that a significant number of Shares could be
sold at the same time, which may also have an adverse effect on the market
price of the Common Stock.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses
of counsel or any other professionals or other advisors, if any, to the
Selling Shareholders.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Gardere
Wynne Sewell & Riggs, L.L.P., Houston, Texas.
EXPERTS
The financial statements of the Company for the fiscal year ended
December 31, 1996, incorporated by reference in this Prospectus, have been
audited by BDO Seidman, LLP, independent certified public accountants,
as indicated in their report with respect thereto, and are incorporated
herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Polish Telephones and Microwave Corporation
for the fiscal year ended December 31, 1995, incorporated by reference
in this Prospectus, have been audited by Hoffman, McBryde & Co., P.C.,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Integracion de Redes, S.A. de C.V. for the
fiscal years ended December 31, 1995 and 1996, incorporated by reference
in this Prospectus, have been audited by De las Fuentes, De la Mora y
Valdivia, S.C., independent public accountants, as indicated in their report
with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing.
661,000 Shares
TELSCAPE INTERNATIONAL, INC.
Common Stock
TABLE OF CONTENTS __________________
PROSPECTUS
PAGE
Available Information 2 __________________
Incorporation of Certain
Documents
by Reference 2
Risk Factors 4
The Company 15 November , 1997
Use of Proceeds 19
Selling Shareholders 19
Transfer Agent and Registrar 20
Plan of Distribution 20
Legal Matters 21
Experts 21
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid by
the Registrant in connection with the securities being registered. With the
exception of the SEC Registration Fee, all amounts are estimates.
SEC Registration Fee $ 2,417
Accounting Fees and Expenses 10,000
Legal Fees and Expenses (other than Blue Sky) 25,000
Blue Sky Fees and Expenses (including legal and filing fees) 20,000
Miscellaneous Expenses 2,583
Total $ 60,000
ITEM 15: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by him in connection with or in defending any action, suit or
proceeding in which he is a party by reason of his position. With respect
to any proceeding arising from actions taken in his official capacity as a
director or officer, he may be indemnified so long as it shall be determined
that he conducted himself in good faith and that he reasonably believed that
such conduct was in the corporation's best interests. In cases not concerning
conduct in his official capacity as a director or officer, a director
may be indemnified as long as he reasonably believed that his conduct was
not opposed to the corporation's best interests. In the case of any criminal
proceeding, a director or officer may be indemnified if he had no reasonable
cause to believe his conduct was unlawful. If a director or officer is wholly
successful, on the merits or otherwise, in connection with such a proceeding,
such indemnification is mandatory.
Texas corporations are also authorized to obtain insurance to protect
officers and directors from certain liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers.
Article XI of the Registrant's Articles of Incorporation and Section 7.06
of the Registrant's Bylaws give the Registrant the right to indemnify a
director or officer to the fullest extent permitted under Texas law.
ITEM 16: EXHIBITS:
4.1 Form of Common Stock Certificate (incorporated by
reference to such exhibit to the RegistrantRs
Registration Statement (File No. 33-80542-D) on Form SB-2
dated August 10, 1994).
4.2 Warrant Agreement dated as of August 17, 1994, but
made effective as of August 10, 1994, between the Company
and American Stock Transfer & Trust Company.
4.3 Form of Series B Common Stock Warrants dated as of October 24, 1997.
4.4 Form of Warrants to Purchase Shares of Common Stock dated
August 17, 1994.
5.1 Opinion of Gardere Wynne Sewell & Riggs, L.L.P., legal counsel
to the Company.
23.1 Consent of BDO Seidman, L.L.P.
23.2 Consent of Hoffman, McBryde & Co., P.C.
23.3 Consent of De las Fuentes, De la Mora y Valdivia, S.C.
23.4 Consent of Gardere Wynne Sewell & Riggs, L.L.P. (included
in Exhibit 5.1).
24.1 Power of Attorney (included on Signature Page).
ITEM 17: UNDERTAKINGS.
(a) The Registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) Iclude any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
(d) The Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time the Commission declared it effective.
(2) That, for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on this
14th day of November, 1997.
TELSCAPE INTERNATIONAL, INC.
BY: /S/E. SCOTT CRIST
E. Scott Crist,
President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following individuals in the
capacities and on the date indicated. Each person whose signature appears
below constitutes and appoints E. Scott Crist and Todd M. Binet true
and lawful attorneys-in-fact and agents, each acting alone, with full
powers of substitution and re-substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full powers and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone,
or his or her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 14, 1997.
SIGNATURE TITLE
/S/MANUEL LANDA Chairman of the Board
Manuel Landa
/S/E. SCOTT CRIST President, Chief Executive Officer
E. Scott Crist and Director
(principal executive officer)
/S/TODD M. BINET Executive Vice President, Treasurer,
Todd M. Binet Secretary, Chief Financial Officer
and Director
(principal financial and accounting officer)
/S/OSCAR GARCIA Director
Oscar Garcia
/S/RICARDO OREA Director
Ricardo Orea
/S/DARREL O. KIRKLAND Director
Darrel O. Kirkland
INDEX OF EXHIBITS
EXHIBIT DOCUMENT PAGE
4.1 Form of Common Stock Certificate (incorporated by
reference to such exhibit to the Company's
Registration Statement (File No. 33-80542-D) on
Form SB-2 dated August 10, 1994).
4.2 Warrant Agreement dated as of August 17, 1994, but
made effective as of August 10, 1994, between the
Company and American Stock Transfer & Trust
Company.
4.3 Form of Series B Common Stock Warrants dated as of
October 24, 1997.
4.4 Form of Warrants to Purchase Shares of Common
Stock dated August 17, 1994.
5.1 Opinion of Gardere Wynne Sewell & Riggs, L.L.P.
legal counsel to the Company.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Hoffman, McBryde & Co., P.C.
23.3 Consent of De las Fuentes, De la Mora y Valdivia,
S.C.
23.4 Consent of Gardere Wynne Sewell & Riggs, L.L.P.
(included in Exhibit 5.1).
24.1 Power of Attorney (included on Signature Page).
POLISH TELEPHONES AND MICROWAVE CORPORATION
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement") is dated as of August 17, 1994,
but made effective as of the 10th day of August, 1994, between Polish
Telephones and Microwave Corporation, a Texas corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Warrant Agent").
WHEREAS, the Company has entered into an agreement (the "Underwriting
Agreement") with Dickinson & Co. (the "Underwriter"), pursuant to which the
Underwriter has committed to purchase and offer to sell to the public 525,000
firm units and up to 78,750 over-allotment option units (the "Units"), each
Unit consisting of two shares of the Company's Common Stock ("Common Stock")
and one Redeemable Common Stock Purchase Warrant (individually, a "Warrant" and
collectively, the "Warrants");
WHEREAS, each Warrant entitles the holder to purchase one share of the
Company's Common Stock through August 10, 1998, subject to certain rights of
redemption granted to the Company which are triggered by the price of the
underlying Common Stock;
WHEREAS, the Company desires to provide for the form and provisions of the
Warrants, the terms upon which they shall be issued and exercised, and the
respective rights, limitation of rights and immunities of the Company, the
Warrant Agent, and the registered holders of the Warrants; and
WHEREAS, all acts and things necessary to make the Warrants, when executed
on behalf of the Company and countersigned by or on behalf of the Warrant Agent
as provided in this Agreement, the valid, binding and legal obligations of the
Company, and to authorize the execution and delivery of this Agreement, have
been done and performed;
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE 1
ISSUANCE OF WARRANTS
1.1 ISSUANCE OF DEFINITIVE WARRANTS. At the closing date under the
Underwriting Agreement (the "Warrant Date"), the Company will issue Warrant
Certificates representing the Warrants for the total number of Warrants
contained within the Units held by each Unit holder, substantially in the form
of EXHIBIT A attached hereto, each Warrant evidencing the right of the
registered holder thereof, subject to the terms and condition hereof, to
subscribe for one share of Common Stock of the Company.
1.2 EXECUTION AND DELIVERY OF WARRANTS. Each Warrant Certificate shall
be dated the Warrant Date and shall be signed on behalf of the Company by the
facsimile or manual signature of the President and Secretary. The Company may
adopt and use the facsimile or manual signature of any person who is such
officer of the Company at the time of the execution of any Warrant,
irrespective of the date as of which the same is executed, or of any person now
or hereafter holding such office, notwithstanding the fact that at the time the
Warrant is issued he has ceased to be such officer of the Company, and prior to
the delivery of any Warrant it shall be countersigned by or on behalf of the
Warrant Agent by an authorized officer (who may sign by facsimile or manual
signature). No Warrant shall be valid unless it shall have been countersigned
as herein provided.
ARTICLE 2
DURATION, EXERCISE AND REDEMPTION OF WARRANTS
2.1 DURATION OF WARRANTS AND TERMS OF EXERCISE. Each Warrant entitles
the holder to purchase one share of Common Stock at a price of $8.00 per share
of Common Stock subject to adjustment at any time through August 10, 1998
(respectively as the context indicates, the "Purchase Price" and "Exercise
Period"). If notice has been given as provided in Section 4.1 in connection
with the liquidation, dissolution or winding up of the Company, the right to
exercise the Warrant shall expire at the close of business on the third full
business day before the date specified in such notice as the record date for
determining registered holders entitled to receive any distribution upon such
liquidation, dissolution or winding up.
2.2 EXERCISE OF WARRANTS. Warrants may be exercised by surrendering, at
the principal corporate office of the Warrant Agent in New York, New York, the
Warrant Certificate evidencing such Warrants together with a subscription in
the form set forth on the reverse side of the Warrant Certificate, duly
executed, and accompanied by the tender, in U.S. dollars, of either federal
funds or a certified check or bank cashier's check, payable to the order of the
Warrant Agent for the applicable Purchase Price. The Warrants may be exercised
from time to time and at any time during the Exercise Period, in whole or in
part. As soon as practicable after any Warrants have been so exercised, the
Company shall cause to be issued and delivered to the holder, or upon the order
of the registered holder of such Warrant, such name or names as may be directed
by him, a certificate or certificates for the number of full shares of Common
Stock to which he is entitled, and if such Warrant Certificate shall not have
been exercised in full, a new Warrant Certificate for the number of Warrants as
to which such Warrant Certificate shall not have been exercised. All Warrant
Certificates so surrendered shall be delivered to and canceled by the Warrant
Agent. The Warrant Agent shall promptly forward to the Company all monies
received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of such Warrants.
2.3 COMMON STOCK ISSUED UPON EXERCISE OF WARRANTS. All shares of Common
Stock issued upon the exercise of Warrants shall be duly authorized, validly
issued and outstanding, fully-paid and nonassessable. Fractional shares of
Common Stock will not be issued upon exercise of a Warrant. With respect to
any fraction of a share called for upon any such exercise hereof, the Company
shall pay to the holder an amount in cash equal to such fraction multiplied by
the Current Market Price Per Share, determined in accordance with Section 3.8.
2.4 RECORD DATE OF SHARES. Irrespective of the date of issue and
delivery of certificates for any Common Stock issuable upon the exercise of
Warrants, each person in whose name any such certificate is issued shall be
deemed to have become the holder of record of the shares represented thereby on
the date on which the Warrant Certificate surrendered in connection with the
subscription therefor was surrendered and payment of the Purchase Price was
surrendered. No surrender of Warrant Certificates on any date when the stock
transfer books of the Company are closed, however, shall be effective to
constitute the person or persons entitled to receive shares upon such surrender
as the record holder of such shares on such date, but such person or persons
shall be constituted the record holder or holders of such shares at the close
of business on the next succeeding date on which the stock transfer books are
opened. Except as otherwise provided in Section 3.4, each person holding any
shares received upon exercise of Warrants shall be entitled to receive only
dividends or distributions payable to holders of record on or after the date on
which such person shall be deemed to have become the holder of record of such
shares.
2.5 REDEMPTION OF WARRANTS. On 30 days' written notice the Company may,
at its option, redeem the Warrants at $.20 per Warrant if the average closing
bid price or the closing sales price, as the case may be, of the Common Stock
on any interdealer quotation system or exchange on which the Common Stock is
quoted or listed has exceeded $10.125 per share for 20 consecutive trading days
(the "Target Price"). Any redemption shall also be subject to the following
conditions: (i) the Company must give, within three days after the end of the
particular 20 consecutive days upon which the redemption is based ("Redemption
Date"), a notice to each registered holder of Warrant stating the Company's
intention to redeem the Warrants; (ii) the Company must permit each registered
holder of any Warrant to exercise his Warrant for a period, which may be
extended by the Company in its discretion, of not less than 30 days following
the Notice Date as defined in this Section 2.5(a) below; (iii) within three
business days after the Redemption Date, the Company will deposit with the
Warrant Agent sufficient immediately available funds for the purpose of
redeeming the outstanding, unexercised Warrants being redeemed; and (iv)
following the Redemption Date, holders of unexercised Warrants may surrender
their Warrant at the corporate office of such Warrant Agent in New York, New
York, with the Form of Assignment of the Warrant on the reverse side duly
completed and signed with the signature guaranteed. As soon as practicable
after surrender of the Warrants by the holder, the Warrant Agent shall forward
payment of the redemption price for such Warrants to each said holder by first
class or certified mail, postage pre-paid.
(a) NOTICE OF REDEMPTION. Notice of any redemption pursuant to this
Section 2.5 shall be deemed given if mailed by first class or certified
mail on the date deposited (the "Notice Date") in the United States Mail,
postage prepaid, within three days after the Redemption Date addressed to
the registered holder of Warrants so to be redeemed at his address as it
appears on the books of the Warrant Agent. Neither failure to deliver
such notice nor defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any Warrants so to be
redeemed.
(b) REDEMPTION OF PART OF WARRANTS. If less than all the Warrants
at the time outstanding will be redeemed, the selection of the Warrants to
be redeemed may be made pro rata, by lot or in any other equitable manner.
The Board of Directors of the Company shall have the power to prescribe
the manner in which the selection is to be made.
(c) REDEMPTION EQUALS CANCELLATION. After expiration of the 30-day
period following the Notice Date (as it may be extended by the Company in
accordance with this Section 2.5), each Warrant then noticed for
redemption shall automatically be converted into a right to receive the
redemption price and the Warrant Agent will no longer honor any purported
exercise of such Warrant.
ARTICLE 3
ADJUSTMENT OF PURCHASE PRICE,
NUMBER OF SHARES OR NUMBER OF WARRANTS
3.1 GENERAL. The Purchase Price and the number of shares covered by each
Warrant and the number of Warrants outstanding are subject to adjustment from
time to time upon the occurrence of the events enumerated in this Article 3.
3.2 ISSUANCE OF ADDITIONAL SHARES AND WARRANTS. If and whenever the
Company shall issue any shares of its Common Stock for consideration per share
which is less than the Current Market Price per share (as defined in Section
3.8) at the time of such issuance, under circumstances not specifically
enumerated in Sections 3.3 through 3.9 inclusive, the Purchase Price under the
Warrant shall be reduced to a price determined by dividing (i) the sum of (A)
the number of shares of Common Stock outstanding immediately prior to such
issue multiplied by the Purchase Price in effect immediately prior to such
issue, plus (B) the consideration, if any, received by the Company upon such
issue, by (ii) the number of shares of Common Stock outstanding immediately
after such issue. No such adjustment shall be made in an amount less than
$.01, but any such amount shall be carried forward and shall be given effect in
connection with the next subsequent adjustment. For purposes of this Section
3.2, the following shall also be applicable;
(a) PUBLIC OFFERINGS OF CONVERTIBLE SECURITIES, OPTIONS, RIGHTS OR
WARRANTS. Subject to Section 3.3, if the Company shall issue in a public
offering any stock, security, obligation, option or other right or warrant
which directly or indirectly may be converted into, exchanged for, or
satisfied in shares of Common Stock in an integrated transaction when 1%
or more of such securities or instruments are acquired by persons who,
immediately prior to such transaction, were not security holders of the
Company, the Common Stock issuable upon exercise of such rights,
securities or instruments shall thereupon be deemed to have been issued
and to be outstanding and the consideration received by the Company
therefor shall be deemed to include the sum of the consideration received
for the issue of such rights, securities or instruments and the minimum
additional consideration payable upon the exercise of such rights,
securities or instruments. No further adjustment shall be made for the
actual issuance of the Common Stock upon the exercise of any such rights,
securities or instruments. If the provision of any such rights,
securities or instruments with respect to purchase price or shares
purchasable shall change or expire, any adjustment previously made
hereunder with respect to such rights, securities or instruments shall be
readjusted to such as would have obtained on the basis of the rights as
modified by such change or expiration.
(b) CONSIDERATION. In case the Company shall issue shares of its
Common Stock for a consideration wholly or partly other than cash, the
amount of the consideration other than cash received by the Company shall
be deemed to be the lesser of (i) the Current Market Price Per Share (as
defined in Section 3.8) on the issue date of the Common Stock so issued by
the Company multiplied by the number of shares so issued or (ii) the fair
market value of such consideration as determined by the Board of Directors
of the Company. In case Common Stock shall be deemed (under Section
3.2(a) or otherwise) to have been issued upon the issuance by the Company
of any right to acquire such Common Stock, in connection with the issue or
sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to
rights, such rights shall be deemed to have been issued without
consideration. Consideration received by the Company for issuance of its
Common Stock shall be determined in all cases without deduction therefrom
of any expenses, underwriting commission or concessions incurred in
connection therewith.
(c) TREASURY STOCK. The number of shares of Common Stock
outstanding for purposes of this Article 3 at any given time shall include
shares owned or held by or for the account of the Company in its treasury,
and the disposition of any such shares so owned or held shall not be
considered an issue of Common Stock.
3.3 WHEN NO ADJUSTMENT REQUIRED. Notwithstanding any other provision of
this Article 3, no change in the Purchase Price or the number of shares of
Common Stock issuable upon exercise of the Warrant shall be required by reason
of any issue or sale by the Company of shares of Common Stock, options,
warrants, rights or securities convertible into shares of Common Stock (i) for
cash in an amount equal to or in excess of the Current Market Price Per Share,
or (ii) pursuant to any Warrants presented to the initial purchasers of Units
issued pursuant to this offering or pursuant to any warrant entered into with
any underwriter or professional consultant in connection with the public or
private offering of any securities of the Company or with any lender in
connection with any loan heretofore or hereafter made by the Company, or (iii)
pursuant to options and stock purchase agreements heretofore or hereafter
granted to or entered into with officers of employees of the Company or of any
subsidiary in connection with their employment, whether granted or entered into
at the beginning of the employment or at any time thereafter, or as a result of
or in connection with the granting of such options or the making of such stock
purchase agreements, or (iv) as consideration, in whole or in part for any
acquisition of another corporation or business whether by means of
consolidation, merger or sale to the Company of assets or securities, and
whether such shares of Common Stock are issued directly or upon exchange or
exercise of convertible securities or rights or options to subscribe to or
purchase the same; provided, however, that this Section shall not apply to, and
an adjustment shall be required with respect to, the issue or sale by the
Company of shares of Common Stock pursuant to options or stock purchase
agreements hereafter granted to or entered into with officers or employees of
the Company if and to the extent the aggregate number of shares of Common Stock
so issued during the Exercise Period shall exceed fifteen percent (15%) of the
fully diluted number of shares of Common Stock as of the Warrant Date; and
provided further, that this Section shall not apply to, and an adjustment shall
be required with respect to any merger, consolidation or reorganization in
which the Common Stock of the Company shall be reclassified or in which the
Company shall be the disappearing corporation.
3.4 STOCK DIVIDENDS, STOCK SPLITS, COMBINATION, RECLASSIFICATION, ETC.
In case the Company shall at any time after the date of this Agreement (i)
declare a dividend on the Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock into a larger number of shares, (iii)
combine the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock in connection with a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
the Purchase Price in effect at the time of the record date for such dividend
or the effective date of such subdivision, combination or reclassification,
and/or the number and kind of shares of stock issuable on such date shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be entitled, at no additional expense, to receive the aggregate
number and kind of shares of stock which, if such Warrant had been exercised
immediately prior to such date, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed above shall occur.
3.5 DISTRIBUTION OF ASSETS. If at any time after the date hereof the
Company shall make any distribution of its assets upon or with respect to its
Common Stock, as a liquidating or partial liquidating dividend (other than upon
a liquidation, dissolution or winding up of the Company as provided for in
Section 4.1, or other than as permitted under the laws of the State of Texas),
each registered holder of any Warrant then outstanding shall, upon the exercise
of such Warrant after the record date for such distribution or, in the absence
of a record date, after the date of such distribution, receive in addition to
the shares of Common Stock to which he would otherwise be entitled hereunder,
such assets (or, at the option of the Company, a sum equal to the value thereof
at the time of the distribution as determined by its Board in its sole
discretion) which would have been distributed to such registered holder if he
had exercised his Warrant immediately prior to the record date for such
distribution, or, in the Absence of a record date, immediately prior to the
date of such distribution.
3.6 CONSOLIDATION, MERGER AND SALE OF ASSETS. If, prior to the end of
the Exercise Period, the Company shall at any time consolidate with or merge
into another corporation, the holder of any Warrant will thereafter receive,
upon exercise thereof, in lieu of the shares of Common Stock of the Company
immediately theretofore issuable upon exercise of the rights then represented
by the Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
the Common Stock of the Company equal to the number of shares of such Common
Stock immediately theretofore issuable upon exercise of the Warrant, had such
consolidation or merger not taken place. The Company shall take such steps in
connection with such consolidation or merger as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to any securities or property thereafter deliverable upon
the exercise of the Warrants. The Company or the successor corporation, as the
case may be, shall execute and deliver to the Warrant Agent a supplemental
agreement so providing. The provisions of this Section 3.6 shall similarly
apply to successive mergers or consolidations. A sale of all or substantially
all of the assets of the Company for a consideration (apart from the assumption
of obligations) consisting primarily of securities, shall be deemed a
consolidation or merger for the foregoing purposes.
3.7 DIVIDENDS IN CONVERTIBLE SECURITIES, OPTIONS, RIGHTS OR WARRANTS. In
case the Company shall issue stock, securities, rights, options or warrants to
all holders of the Common Stock, or in an integrated transaction where more
than 99% of such instruments or securities are acquired by persons who, prior
to such transaction, were security holders of the Company, entitling them to
subscribe for or purchase Common Stock or securities convertible into Common
Stock at a price per share less than the Current Market Price Per Share (as
defined in Section 3.8) on the record date for the issuance of such securities,
instruments or rights or the granting of such securities, options or warrant,
as the case may be, the Purchase Price to be in effect after the record date
for the issuance of such rights or the date of grant of such options or
warrants shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the sum of (a) the number of shares of Common Stock outstanding
immediately prior to such sale and (b) the number of shares of Common Stock
which could be purchased at the Current Market Price Per Share (as defined in
Section 3.8) with the consideration received by the Company upon such sale, and
the denominator of which shall be the total number of shares of Common Stock
that would be outstanding immediately after such sale if the full amount of
convertible securities, options, rights or warrants were exercised immediately
after the sale. In the event the consideration for such securities, rights,
options or warrants is paid in a form other than cash, the value of such
consideration shall be determined as provided in Section 3.2(b). In the event
such securities, instruments or rights shall change or expire, or such
convertible securities shall not be converted, any adjustment previously made
hereunder shall be readjusted to such as would have obtained on the basis of
the rights as modified by such change or expiration.
3.8 CURRENT MARKET PRICE PER SHARE. For the purpose of this Agreement,
the "Current Market Price Per Share" of Common Stock on any date shall be
determined as follows:
(a) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on any such exchange, the
Current Market Price Per Share shall be the average of the daily closing
prices for the 20 consecutive trading days commencing 23 trading days
before such date. If no sale is made on any trading day, the closing
price shall be deemed to be average of the closing bid and asked prices
for such day on such exchange; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges on any exchange, the Current Market Price Per Share
shall be the average of the last reported sale price (or prices, if
applicable) or the mean of the last reported bid and asked prices reported
by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") (or, if not so quoted on NASDAQ, as quoted by the
National Quotations Bureau, Inc.) for the 20 consecutive trading days
commencing 23 trading days before such date; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and prices are not reported on NASDAQ or the National
Quotations Bureau, Inc., the Current Market Price Per Share shall be the
fair market value of the Common Stock as determined by the Board of
Directors of the Company in good faith, whose determination shall be
conclusive.
3.9 DIVIDEND IN OPTIONS, WARRANTS, RIGHTS OR CONVERTIBLE SECURITIES
CAUSING SUBSTANTIAL DILUTION. In case the Company shall issue nights, options,
warrants or convertible securities to all holders of Common Stock entitling
them to subscribe for or purchase Common Stock or securities convertible into
Common Stock at a price less than the Current Market Price Per Share (as
defined in Section 3.8) and where the number of shares of Common Stock issuable
upon exercise of all rights, options, warrants or convertible securities so
issued by the Company in the preceding 12 months exceeds 10% of the then
outstanding Common Stock of the Company (excluding Common Stock issuable upon
exercise of such options, rights or warrants or conversion of such convertible
securities), and where an adjustment to the Purchase Price is made under
Section 3.7, each Warrant outstanding immediately prior to the making of such
adjustment shall thereunder evidence the right to purchase, at the adjusted
Purchase Price, that number of shares obtained by (i) multiplying the number of
shares covered by the Warrant immediately prior to such adjustment by the
Purchase Price in effect immediately prior to such adjustment and (ii) by
dividing the product so obtained by the Purchase Price in effect immediately
after the adjustment made under Section 3.7.
3.10 FORM OF WARRANT. The Form of Warrant need not be changed because of
any change in the Purchase Price or the number of shares of Common Stock
issuable upon exercise of the Warrant pursuant to this Article 3, and Warrants
issued after such change may state the same terms with respect to the Purchase
Price and number of shares of Common Stock and Warrants issuable thereunder as
stated in the Warrants initially issued pursuant to this Agreement. The
Company may at any time, in its sole discretion, make any charge in the form of
Warrant that the Company may deem appropriate that does not affect the
substance thereof in a manner inconsistent with this Agreement; any Warrant
thereafter issued or countersigned, whether in exchange or substitution for an
outstanding Warrant or otherwise, may be in the form so changed.
3.11 DIVIDENDS. Other than as specified in Section 3.5, no registered
holder of any Warrant shall, upon the exercise thereof, be entitled to any
dividend that may have accrued or which may previously have been paid with
respect to shares of stock issuable upon exercise of the Warrants.
3.12 REDUCTION OF PURCHASE PRICE BELOW PAR VALUE. Before taking any
action which would cause an adjustment reducing the Purchase Price below the
then par value, if any, of the shares of Common Stock of the Company issuable
upon exercise of the Warrant, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Purchase Price.
3.13 CERTIFICATION OF ADJUSTED PURCHASE PRICE AND NUMBER OF SHARES AND
WARRANTS ISSUABLE. Whenever the Purchase Price and the number of shares of
Common Stock issuable upon the exercise of each Warrant are adjusted as
provided in the Article 3, the Company shall (a) promptly prepare a certificate
signed by the Chairman of the Board, President or any Vice President of the
Company and by the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary setting forth the Purchase Price as so adjusted, the number
of shares of Common Stock issuable upon the exercise of each Warrant as so
adjusted and/or the number of Warrants as so adjusted and a brief statement of
the facts accounting for such adjustment, (b) promptly file with the Warrant
Agent and with each transfer agent for the Common Stock a copy of such
certificate, and (c) mail a brief summary thereof to each registered holder of
Warrants in accordance with Section 7.1.
3.14 CERTIFICATES AND OPINIONS. The Company may obtain and rely upon the
certificate of any independent firm of public accountants of recognized
standing, selected by the Board of Directors of the Company, as to the
correctness of any adjustment required under this Article 3, and any such
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Article 3.
ARTICLE 4
OTHER PROVISIONS FOR PROTECTION OF WARRANT HOLDERS
4.1 LIQUIDATION OF THE COMPANY. In the event of the liquidation,
dissolution or winding up of the Company, a notice thereof shall be filed by
the Company with the Warrant Agent and each transfer agent for the Common Stock
at least 30 days before the record date (which date shall be specified in such
notice) for determining holders of the Common Stock entitled to receive any
distribution upon such liquidation, dissolution or winding up. Such notice
shall also specify the date on which the right to exercise Warrants shall
expire, as provided in Section 2.1. A copy of such notice shall be published
once in an Authorized Newspaper (as defined in Section 7.3) in Dallas, Texas,
no more than 30 days prior to such record date. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of the
liquidation, dissolution or winding up, or of any distribution in connection
therewith.
4.2 RESERVATION OF SHARES. The Company shall reserve and keep available
out of its authorized but unissued Common Stock, such number thereof as shall
from time to time be sufficient to permit the exercise of all outstanding
Warrants. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient for such purposes, 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 purpose.
4.3 NO RIGHTS AS STOCKHOLDER CONFERRED BY WARRANTS. The Warrants shall
not entitle the registered holders thereof to any of the rights, either at law
or in equity, of a stockholder of the Company.
4.4 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If any Warrant
becomes lost, stolen, mutilated or destroyed, the Company and the Warrant Agent
may, on such terms as to indemnity or otherwise as they may in their discretion
impose, respectively, issue and countersign a new Warrant of like denomination,
tenor and date as the Warrant so lost, stolen, mutilated or destroyed. Any
such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
4.5 ENFORCEMENT OF WARRANT RIGHTS. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Warrants;
and any registered holder of any Warrant may in his own behalf and for his own
benefit enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise his Warrant for the purchase of Common Stock in the manner provided
in the Warrant and in this Agreement.
4.6 REGISTRATION; SHAREHOLDER INFORMATION. For so long as any unexpired
Warrants are outstanding, the Company shall use its best efforts to cause
post-effective amendments to the registration statement covering the Warrants
(Form SB-2, Registration No. 33-80542-D) (the "Registration Statement") to
become effective in compliance with the Act and to prepare all supplements to
the prospectus forming a part of the Registration Statement as shall be
necessary to enable the sale of the Common Stock underlying the Warrants in
compliance with applicable securities laws and shall cause a copy of each such
prospectus, as then amended and supplemented, to be delivered to each holder of
record of a Warrant as they request and as otherwise required by law. The
Company will use its beat efforts to qualify such underlying shares under the
Blue Sky or securities laws of such of the jurisdictions in which holders of
Warrants reside as may be required for such holders to exercise their Warrants;
provided that the Company shall not be obligated to qualify to do business in
any jurisdiction where the nature of its business or ownership of assets does
not require it to be no qualified. No Warrant will be exercisable unless at
the time of exercise a current registration statement is in effect with respect
to such shares of Common Stock and such shares have been registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrant. The Company shall cause copies of all
financial statements and reports, proxy statements and other documents that are
sent to its shareholders to be sent by first class mail, postage prepaid, on
the date of mailing to such shareholders, to each registered holder of Warrants
at his address appearing in the Warrant register as of the record date for the
determination of the shareholders entitled to such documents.
ARTICLE 6
TRANSFER AND OWNERSHIP OF WARRANTS
5.1 NEGOTIABILITY AND OWNERSHIP. Warrants issued hereunder shall be
fully registered and shall be transferable only by transfer on the books of the
Warrant Agent. Presentations may be made and notices and demands may be served
at the principal corporate office of the Warrant Agent in New York, New York.
5.2 REGISTER. The Company shall, by and through the Warrant Agent, cause
to be kept a register or registers in which, subject to such reasonable
regulations as the Company or the Warrant Agent may prescribe, the Warrant
Agent shall transfer Warrants as herein provided. Upon surrender for transfer
of any Warrant, the Warrant Agent shall countersign, authenticate and deliver
in the name of the transferee or transferees a new Warrant for a like amount of
Warrants.
5.3 WARRANT SURRENDER. All Warrants presented or surrendered for
exchange, transfer or registration as provided in this Section shall be
accompanied (if so required by the Company or the Warrant Agent) by a written
instrument or instruments of transfer, in form satisfactory to the Company and
the Warrant Agent, duly executed by the registered holder or by his duly
authorized attorney.
5.4 EXCHANGE OF WARRANTS. On and after the Warrant Date and prior to the
end of the Exercise Period, one or more Warrants may be surrendered at the
office of the Warrant Agent for exchange and, upon cancellation thereof, there
shall be issued and delivered in exchange therefor one or more new Warrants, as
requested by the registered holder of the canceled Warrant or Warrants, for the
same aggregate number of shares of Common Stock as were evidenced by the
Warrant or Warrants so canceled. In case of any exchange of a Warrant pursuant
to this Article 5 or of any transfer of a Warrant, the Company may impose a
charge sufficient to reimburse it for any stamp or other tax or governmental
charge required to be paid in connection therewith but no other charge shall be
made to the Warrant holder for any transfer or issue of new Warrants in case of
any such exchange.
5.5 AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant Certificate,
by accepting the same, consents and agrees with the Company and the Warrant
Agent and with all other Warrant holders that: (a) the Warrant is transferable
only on the registry books of the Warrant Agent as herein provided and (b) the
Company and the Warrant Agent may deem and treat the person in whose name of
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby for all purposes whatsoever, and neither the Company
nor the Warrant Agent shall be affected by any notice to the contrary, whether
such notice be in the form of notations on the Warrant Certificates or
otherwise.
ARTICLE 6
CONCERNING THE WARRANT AGENT
6.1 APPOINTMENT OF WARRANT AGENT. The Company hereby appoints American
Stock Transfer & Trust Company to act as agent for the Company in accordance
with the terms and conditions herein set forth in this Agreement, and American
Stock Transfer & Trust Company hereby accepts such appointment. The Company
may, from time to time, appoint such co-Warrant Agents as it may deem necessary
or desirable. The Company may terminate the appointment of American Stock
Transfer & Trust Company as agent upon 30 days' notice in writing to American
Stock Transfer & Trust Company.
6.2 PAYMENT OF TAXES. The Company will from time to time promptly pay or
make provision for the payment of any and all taxes and charges which may
hereafter be imposed by the laws of the United States or of any state or any
local governmental unit thereof which shall be payable with respect to the
issuance or delivery to or upon the order of the registered holders of the
Warrant (upon the exercise of the right to subscribe) of Common Stock of the
Company pursuant to the terms of such Warrant and of this Agreement, but the
Company shall not be obligated to pay any transfer taxes in respect of the
Warrants or such shares.
6.3 RESIGNATION OF WARRANT AGENT. The Warrant Agent may resign its
duties and be discharged from all further duties and liabilities hereunder
after giving 30 days' notice in writing to the Company; provided that such
shorter notice may be given as the Company shall accept as sufficient. In the
event the office of the Warrant Agent shall become vacant by resignation or
incapacity to act or otherwise, the Company shall appoint in writing a new
Warrant Agent hereunder in place of the Warrant Agent vacating the office. If
the Company fails for a period of 10 days in making such appointment, then the
registered holder of any of the Warrants may petition any court of competent
Jurisdiction for the appointment of a new Warrant Agent. On any new
appointment, the new Warrant Agent shall be vested with the same powers,
rights, duties, responsibilities and immunities as if it had been originally
named as Warrant Agent without any further assurance, conveyance, act or deed;
but if for any reason it becomes necessary or expedient to execute any further
assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and may and shall be legally and validly executed by the former
Warrant Agent.
Subject to the foregoing provision, any corporation into which any Warrant
Agent or any new Warrant Agent may be merged or with which it may be
consolidated or any corporation resulting from any merger or consolidation to
which any Warrant Agent shall be a party shall be the successor Warrant Agent
under this Agreement without any further act.
6.4 FEES AND EXPENSES OF WARRANT AGENT. The Company covenants and
agrees:
(a) that it will pay the Warrant Agent reasonable remuneration for
its services as such hereunder and will repay to the Warrant Agent on
demand the amount of all expenditures whatsoever which the Warrant Agent
may reasonably incur in and about the execution of the duties hereby
created; and
(b) that it will do, execute, acknowledge and delivery or cause to
be done executed, acknowledged or delivered, all and every such other
acts, deeds and assurances in law as the Warrant Agent may reasonably
require for the better accomplishing and effectuating of the intentions
and provisions of this Agreement
6.5 ACTIONS BY WARRANT AGENT. The Warrant Agent may, for the execution
of the duties and in the execution of the powers conferred upon it, appoint or
employ as agents or representatives or otherwise any solicitors, counsel,
bankers, brokers, accountants, clerks or inspectors or other agents, and all
reasonable expenses and disbursements made and incurred by the Warrant Agent in
connection with the execution of its duties hereunder shall be promptly paid by
the Company.
6.6 EXCULPATORY PROVISIONS. In order to induce the Warrant Agent to act
hereunder, the Company agrees, and each registered holder of a Warrant by
acceptance thereof, also agrees that:
(a) The Warrant Agent shall be entitled to obtain legal or other
advice and employ such assistance as it may deem necessary to the proper
discharge of its duties hereunder and to pay proper and reasonable
compensation therefor and may in connection with any matter relating to
this Agreement, act on the opinion or advice or information obtained from
any lawyer, including company counsel, auditor, valuer or other expert
whether obtained by such Warrant Agent or by the Company or otherwise and
shall not be responsible for any loss occasioned by acting thereon;
(b) Whenever, in the administration of its duties under this
Agreement, the Warrant Agent shall deem it necessary or desirable that any
matter be provided or established by the Company prior to taking or
suffering any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by an Officer's Certificate (as
hereinafter defined) delivered to the Warrant Agent and such certificate
shall be full justification and cause to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this
Agreement on the faith thereof; but in its discretion of the Warrant Agent
may in lieu thereof accept other evidence of such fact or matter or may
require such further or additional evidence as it may deem reasonable;
(c) Warrant Agent shall be liable hereunder only for its own
negligence or willful misconduct; the Company agrees to indemnify the
Warrant Agent and save it harmless against any and all liabilities,
include judgments, costs and reasonable counsel fees, for anything done or
omitted by the Warrant Agent in the execution of this Agreement except as
a result of the Warrant Agent's negligence, willful misconduct, or bad
faith;
(d) Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
Warrants or be required to verify the same but all such statements and
recitals are and shall be deemed to have been made by the Company only;
(e) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
thereof or in respect of the validity of the execution of any Warrant
issued hereunder; nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
such Warrant; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares to be issued upon the right to purchase provided for in this
Agreement or in any Warrant or as to whether any shares will when issued
be duly authorized or be validly issued and fully paid and nonassessable,
it being hereby agreed and declared that as to all the matters and things
referred to in this subparagraph the duty and responsibility shall rest
upon the Company and not upon the Warrant Agent, and the failure of the
Company to discharge any such duty and responsibility shall not in any way
render the Warrant Agent liable or place upon it any duty or
responsibility for breach of which it would be liable;
(f) The Warrant Agent shall not at any time be under any duty or
responsibility to determine whether any facts exist which may require any
change m Warrants pursuant to any of the provisions in Article 3, or with
respect to the nature or extent of any such change, or with respect to any
other adjustment provided for herein, or with respect to the method
provided herein (or which may be provided in any supplemental agreement)
to be employed in making any such change or adjustment; and
(g) Except as in the Agreement expressly provided, the Warrant Agent
acts hereunder solely as agent of the Company and does not assume any
fiduciary or other relationship or agency or trust for or with any
registered holder of any of the Warrants. The duties and obligations of
the Warrant Agent under this Agreement shall be determined solely by the
provisions hereof, and no implied covenants or obligations shall be read
into this Agreement against the Warrant Agent.
6.7 MODIFICATION OF AGREEMENT. The Warrant Agent may without the consent
or concurrence of the registered holders of the Warrants enter into such
supplemental agreements or otherwise concur with the Company in making any
changes or corrections in this Agreement as to which it shall have been advised
by counsel (who may but need not also be counsel for the Company) that are not
prejudicial to the rights of the Warrant holders as indicated by the general
sense or intent of the original language and are required by the purpose of
curing or correcting any ambiguity or defective or inconsistent provision or
clerical omission or mistake or manifest error herein contained.
ARTICLE 7
CERTAIN DEFINITIONS AND OTHER MATTERS
7.1 NOTICE OF PROPOSED ACTIONS. In case the Company shall propose (a) to
pay any dividend in stock of any class or to make any other distribution to the
holders of its Common Stock (other than a cash dividend), or (b) to offer to
the holders of its Common Stock rights or warrants to subscribe for or to
purchase any additional shares of Common Stock, or (c) to effect any stock
dividend, stock split, combination or reclassification of its Common Stock, or
(d) to effect any distribution of assets or capital reorganization, merger,
consolidation or sale transfer or other disposition of all or substantially all
of its assets or business, or (e) to effect the liquidation, dissolution or
winding-up of the Company, or (f) to effect any other transaction which would,
upon consummation, result in a change in the Purchase Price of the Warrants or
the number of shares of Common Stock issuable upon exercise of the Warrants
pursuant to Articles 3 and 4 hereof, the Company shall give notice to each
holder of a Warrant in accordance with Section 7.2 of such proposed action,
which shall specify that date on which a record is to be taken for purposes of
such proposed transaction. Such notice shall be given not later than 15 days
prior to the record date for determining the holders of Common Stock for
purposes of such action or, if no record date is required, not later than 15
days prior to the date of the taking of such proposed action.
7.2 NOTICES. Notices or demands authorized by this Agreement to be given
or made by the Warrant Agent or by the holder of any Warrant Certificate to or
upon the Company shall be sent by first class mail, postage prepaid, addressed
(until another address is filed in writing by the Company with the Warrant
Agent) as follows:
Polish Telephones and Microwave Corporation
1721 W. Plano Parkway
Suite 121
Plano, Texas 75075
Attention: President
Any notice or demand authorized by this Agreement to be given or made by the
Company or by the holder of any Warrant Certificate to or on the Warrant Agent
shall be deemed given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Herbert J. Lemmer
Notices or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the holder of any Warrant Certificate shall be
deemed given or made if sent first class mail, postage prepaid, addressed to
such holder at the address of such holder as shown on the registry books of the
Company.
7.3 AUTHORIZED NEWSPAPER. The term "Authorized Newspaper" when used with
reference to the publication of a notice provided for in the Agreement shall
mean a newspaper printed in the English language and customarily published on
Saturdays, Sundays or legal holidays and of general circulation.
7.4 OFFICER'S CERTIFICATE. The term "Officer's Certificate" in this
Agreement shall mean a certificate or instrument signed by one of the
following: the President, a Vice President, the Treasurer or the Secretary of
the Company.
7.5 APPLICABLE LAW. The validity, interpretation and performance of this
Agreement and validity and interpretation of the Warrants shall be governed by
the laws of the State of New York.
7.6 EXAMINATION OF AGREEMENT. A copy of this Agreement shall be
available at all reasonable times at the office of the Warrant Agent for
examination by the registered holder of any Warrant. Any such registered
holder may be required to submit his Warrant for inspection before being
entitled to make such examination.
7.7 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Warrant Agent and the
registered holders of the Warrants.
7.8 SUCCESSORS. All of the covenants and provisions of this Agreement by
or for the benefit of the parties hereto shall bind and inure to the benefit of
their respective successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto under their respective corporate seals as of the date first above
written.
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
Name:
Its:
VICE PRESIDENT
POLISH TELEPHONES AND
MICROWAVE CORPORATION
By:
Name: W. Dal Berry
Its: President and Chief Executive Officer
SERIES B COMMON STOCK WARRANT
THESE SECURITIES (A) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 AND (B) ARE SUBJECT TO THE TERMS OF
AND PROVISIONS OF AN AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL
29, 1996 BY AND AMONG POLISH TELEPHONES AND MICROWAVE CORPORATION,
PTMC ACQUISITION SUB, INC., TELEREUNION, INC. AND CERTAIN OF
STOCKHOLDERS OF TELEREUNION, INC. (AS SUCH AGREEMENT MAY BE
SUPPLEMENTED, MODIFIED, AMENDED, OR RESTATED FROM TIME TO TIME, THE
"AGREEMENT"). COPIES OF THE AGREEMENT IS AVAILABLE AT THE OFFICES OF
POLISH TELEPHONES AND MICROWAVE CORPORATION.
WARRANT TO PURCHASE SHARES OF COMMON STOCK, $0.001 PAR VALUE PER SHARE, OF
TELSCAPE INTERNATIONAL, INC.
THIS CERTIFIES that, for value received, SV Capital Partners, L.P., a
Texas limited partnership (the "Warrantholder"), is entitled, upon the terms
and subject to the conditions hereinafter set forth, to purchase from Telscape
International, Inc., a Texas corporation (the "Company"), that number of fully
paid and nonassessable shares of the Company's common stock, $0.001 par value
per share (the "Common Stock"), at the purchase price per share (the "Exercise
Price") as set forth in Section 1 below. The number of shares and Exercise
Price are subject to adjustment as provided in Section 10 below.
1. NUMBER OF SHARES; EXERCISE PRICE; TERM.
(a) This Warrant is exercisable for 11,000 shares (the "Shares") of
Common Stock at a purchase price of $2.19 per share (the "EXERCISE
PRICE").
(b) Subject to the terms and conditions set forth in this Warrant,
this Warrant will be exercisable (i) upon the attainment by the
Company of an increase in net shareholders equity of the Company of
at least $5,000,000 computed by comparing (A) the net shareholders
equity of the Company on a pro forma basis after giving effect to the
acquisition of Telereunion, Inc., a Delaware corporation
("Telereunion") by the Company as of the date of the consummation of
such acquisition to (B) the net shareholders equity of the Company as
set forth in a consolidated balance sheet of the Company as of any
date occurring during the 24-month period immediately following the
consummation of the acquisition of Telereunion by the Company, which
balance sheet shall be contained in any periodic report of the
Company on Form 10-KSB or Form 10-QSB as filed with the Securities
and Exchange Commission or (ii) if the closing price for a share of
Common Stock quoted on The NASDAQ Stock Market or other reliable
public market (e.g., either the New York Stock Exchange or the
American Stock Exchange) equals or exceeds $12.00 for any ninety (90)
consecutive trading days. If the condition for vesting is not
satisfied within the 24 month period immediately following the
consummation of the acquisition of Telereunion by the Company, this
Warrant will expire and no longer be exercisable. In any event, this
Warrant will expire on and no longer be exercisable after May 16,
2003.
2. TRANSFER AND EXCHANGE. This Warrant and all options and rights under
this Warrant are transferable, as to all or any part of the number of
Shares issuable under the terms of this Warrant, by the holder of this
Warrant, in person or by duly authorized attorney, on the books of the
Company upon surrender of the Warrant at the principal offices of the
Company, together with the attached, properly endorsed, Assignment Form.
Absent any such transfer, the Company may deem and treat the registered
holder of this Warrant at any time as the absolute owner of the Warrant
for all purposes and will not be affected by any notice to the contrary.
If this Warrant is transferred in part, the Company will, at the time of
surrender, issue to the transferee a Warrant covering the number of
issuable Shares transferred and to the transferor a Warrant covering the
number of issuable Shares not transferred.
3. EXERCISE.
(a) This Warrant may be exercised as to all or any of the Shares as
to which this Warrant has vested and become fully exercisable at any
time or from time to time on or after the date on which such vesting
of the Warrant occurs as to such Shares, on any Business Day (as
defined in Section 9 below). In order to exercise this Warrant, in
whole or in part, the holder will deliver to the Company at its
principal offices (i) a written notice of such holder's election to
exercise its Warrant, substantially in the form of the Warrant
Exercise Notice attached to this Warrant, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase price
for all Shares to be purchased pursuant to such exercise, and (iii)
the Warrant. Upon receipt of such notice, the Company will, as
promptly as practicable, and in any event within ten (10) Business
Days, execute, or cause to be executed, and deliver to such holder a
certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock
certificate or certificates so delivered will be in such
denominations as may be specified in such notice and will be
registered in the name of such holder, or such other name as
designated in such notice. A Warrant will be deemed to have been
exercised, such certificate or certificates will be deemed to have
been issued, and such holder or any other person or entity so
designated or named in such notice will be deemed to have become a
holder of record of such shares for all purposes, as of the date that
such notice (together with payment of the Exercise Price and the
Warrant) is received by the Company. If the Warrant has been
exercised in part, the Company will, at the time of delivery of such
certificate of certificates, either deliver to such holder a new
Warrant evidencing the rights of such holder to purchase a number of
Shares with respect to which the Warrant has not been exercised,
which new Warrant will, in all other respects, be identical to this
Warrant, or, at the request of such holder, appropriate notation may
be made on the Warrant and the Warrant returned to such holder.
(b) Payment of the Exercise Price will be made, at the option of the
holder, by (i) company or individual check (subject to collection),
certified or official bank check or (ii) cancellation of any debt
owed by the Company to the holder. If the holder surrenders a
combination of cash or cancellation of any debt owed by the Company
to the holder, the holder will specify the respective number of
shares of Common Stock to be purchased with each form of
consideration, and the foregoing provisions will be applied to each
form of consideration with the same effect as if the Warrant were
being separately exercised with respect to each form of
consideration; PROVIDED, HOWEVER, that a holder may designate that
any cash to be remitted to a holder in payment of debt be applied,
together with other monies, to the exercise of the portion of the
Warrant being exercised for cash.
(c) In lieu of exercising this Warrant in the manner set forth in
paragraph 3(b) above, this Warrant may be exercised by surrender of
the Warrant without payment of any other consideration, commission or
remuneration, together with the cashless exercise subscription form
at the end hereof, duly executed. The number of shares to be issued
in exchange for the Warrant shall be the product of (x) the excess of
the Market Price (as defined below) of the Common Stock on the date
of surrender of the Warrant and the exercise subscription form OVER
the Exercise Price per share and (y) the number of shares subject to
issuance upon exercise of the Warrant, divided by the Market Price of
the Common Stock on such date. Upon such exercise and surrender of
this Warrant, the Company will (i) issue a certificate or
certificates in the name of the holder for the largest number of
whole shares of the Common Stock to which the holder shall be
entitled and, in lieu of any fractional share of the Common Stock to
which the Holder shall be entitled, pay cash equal to the fair value
of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (ii) deliver
the other securities and properties receivable upon the exercise of
this Warrant, pursuant to the provisions of this Warrant.
(d) The market price of a share of the Common Stock (the "Market
Price") on any date of determination shall be (i) the average of the
last reported sale price of the Common Stock on the five business
days immediately preceding the date of determination as reported on
the Nasdaq Market ("NASDAQ") or (ii) if there is no such reported
sale on any of the dates in question, the average of the closing bid
and asked quotations as so reported on NASDAQ for such dates.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares will be issued upon the exercise of this
Warrant. In lieu of any fractional share to which a holder would
otherwise be entitled, such holder will be entitled to receive, at its
option, either (i) a cash payment equal to the excess of fair market value
for such fractional share above the Exercise Price for such fractional
share (as mutually determined by the Company and the holder) or (ii) a
whole share if the holder tenders the Exercise Price for one whole share.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares
upon the exercise of this Warrant will be made without charge to the
holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and
expenses will be paid by the Company.
6. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the holder
to any voting rights, dividend rights or other rights as a shareholder of
the Company prior to exercise.
7. WARRANT REGISTER. The Company will, at all times while this Warrant
remains outstanding and exercisable, keep and maintain at its principal
office a register in which the registration, transfer, and exchange of the
Warrants will be provided for. The Company will not at any time, except
upon the dissolution, liquidation, or winding up of the Company, close
such register so as to result in preventing or delaying the exercise or
transfer of any Warrant.
8. LOST, STOLEN, MUTILATED, OR DESTROYED WARRANT. If this Warrant is
lost, stolen, mutilated, or destroyed, the Company will issue a new
Warrant of like denomination, tenor, and date upon receipt of and
appropriate affidavit and indemnity executed by the Holder. Any such new
Warrant will constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant
is at any time enforceable by any person or entity.
9. BUSINESS DAYS. A "Business Day" is any day other than Saturday,
Sunday, or legal holiday. If the last or appointed day for the taking of
any action or the expiration of any right required or granted in this
Warrant is not a Business Day, then such action may be taken or such right
may be exercised on the following Business Day.
10. ADJUSTMENTS.
(a) ADJUSTMENT EVENTS. The Warrant will be exercisable for the
number of shares of Common Stock in such manner that, following the
complete and full exercise of this Warrant, the amount of Common
Stock and other property issued to the holder of this Warrant will
equal the aggregate number of shares of Common Stock set forth in
Section 1(a), as adjusted, to the extent necessary, to give effect to
the following events:
(i) (A) The holder of this Warrant will be entitled to an
adjustment as set forth in Section 10(a)(i)(B), if at any time
or from time to time, the holders of any class of Common Stock
or any option, warrant, right, or similar security exercisable
into or exchangeable for Common Stock ("Common Stock
Equivalent") have received, or (on or after the record date
fixed for the determination of shareholders eligible to receive)
have become entitled to receive, without payment therefor, (I)
property (other than cash) by way of dividend or distribution;
or (II) property (including cash) by way of spin-off, split-up,
reclassification (including any reclassification in connection
with a consolidation or merger in which the Company is the
surviving corporation), recapitalization, combination of shares
into a smaller number of shares, or similar corporate
restructuring.
(B) In each such case, the holder of this Warrant will be
entitled to receive for each share of Common Stock issuable
under this Warrant as of the record date fixed for such
distribution, the greatest per share amount of property received
or receivable by any holder of any class of Common Stock or
Common Stock Equivalent. With respect to any subsequent
distribution, all such consideration receivable pursuant to this
Section 10(a)(i) will be deemed outstanding and owned by the
holder when determining the amount of consideration due to the
holder upon exercise of the Warrant.
(C) This Section 10(a)(i) does not apply to additional
shares of Common Stock issued as a stock dividend or in a stock-
split.
(ii) If at any time there occurs any stock split, stock
dividend, reverse stock split, or other subdivision of the
Common Stock, then the number of shares of Common Stock to
be received and the Exercise Price to be paid will be
proportionately adjusted.
(iii) (A) The following events will constitute
"Reorganization Events": (I) any reclassification or
change of outstanding shares of any class of Common
Stock or Common Stock Equivalent (other than a change
in par value, or from par value to no par value, or
from no par value to par value), or (II) any
consolidation of the Company with, or merger or share
exchange of the Company with or into, another entity,
or (III) any sale of all or substantially all of the
property, assets, business, income or revenue
generating capacity, or goodwill of the Company.
(B) Upon the occurrence of a Reorganization Event,
the Company, or the successor or other entity, as the
case may be, will provide that the holder of this
Warrant will receive the highest per share kind and
amount of consideration (including cash) received or
receivable upon such Reorganization Event by any
holder of any class of Common Stock or Common Stock
Equivalent for each Share issuable under this Warrant
immediately prior to such Reorganization Event (as
adjusted pursuant to Section 10(a)(i)). Any such
successor entity, which thereafter will be deemed to
be the Company for purposes of this Warrant, will
provide for adjustments that are as nearly equivalent
as may be possible to the adjustments provided for by
this Section 10.
(iv) In case any event occurs as to which the preceding
Sections 10(a)(i) through (iii) are not strictly
applicable, but as to which the failure to make any
adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the
essential intent and principles of this Section 10, then,
in each such case, the holder and the Company will
negotiate for 30 days in good faith in an attempt to reach
a mutually agreeable solution. If, at the end of such 30-
day period the Company and the holder have not reached such
an agreement, the holder may appoint an independent
investment bank or firm of independent public accountants
reasonably acceptable to the Company, which will give its
opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established in
this Section 10, necessary to preserve the purchase rights
represented by this Warrant. Upon receipt of such opinion,
the Company will promptly deliver a copy of such opinion to
the holder and will make the adjustments described in such
opinion. The fees and expenses of such investment bank or
independent public accountants will be borne equally by the
Company and the holder.
(b) ROUNDING. Any calculation under this Section 10 will be made to
the nearest one ten-thousandth of a share and the number of issuable
Shares resulting from such calculation will be rounded up to the next
whole share of Common Stock comprising issuable Shares.
(c) NOTICE OF EVENTS.
(i) In the event of (A) any setting by the Company of a record
date with respect to the holders of any class of the capital
stock of the Company for the purpose of determining which of
such holders are entitled to dividends, repurchases of
securities or other distributions, or any right to subscribe
for, purchase or otherwise acquire any shares of such capital
stock or other property or to receive any other right; or (B)
any capital reorganization of the Company, or reclassification
or recapitalization of the capital stock of the Company or any
transfer of all or a majority of the assets, business, or
revenue or income generating capacity of the Company, or
consolidation, merger, share exchange, reorganization, or
similar transaction involving the Company; or (C) any voluntary
or involuntary dissolution, liquidation, or winding up of the
Company; or (D) any proposed issue or grant by the Company of
any capital stock of the Company, or any right or option to
subscribe for, purchase, or otherwise acquire any capital stock
of the Company (other than the issue of Issuable Warrant Shares
upon exercise of this Warrant), then, in each such event, the
Company will deliver or cause to be delivered to the holders a
notice specifying, as the case may be, (I) the date on which any
such record is to be set for the purpose of such dividend,
distribution, or right, and stating the amount and character of
such dividend, distribution, or right; (II) the date as of which
the holders of record will be entitled to vote on any
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up; (III) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, share exchange, conveyance, dissolution,
liquidation, or winding-up is to take place and the time, if any
is to be fixed, as of which the holders of record of any class
of capital stock of the Company will be entitled to exchange
their shares of capital stock for securities or other property
deliverable upon such event; (IV) the amount and character of
any capital stock, property, or rights proposed to be issued or
granted, the consideration to be received therefor, and, in the
case of rights or options, the exercise price thereof, and the
date of such proposed issue or grant and the persons or class of
persons to whom such proposed issue or grant will be offered or
made; and (V) such other information as the holders may
reasonably request. Any such notice will be deposited in the
United States mail, postage prepaid, at least thirty (30) days
prior to the date therein specified, and notwithstanding
anything in this Agreement or this Warrant to the contrary the
holders may exercise this Warrant within thirty (30) days from
the receipt of such notice.
(ii) If there is any adjustment as provided above in Section
10(a), the Company will immediately cause written notice thereof
to be sent to the holder, which notice will be accompanied by a
certificate of the independent public accountants of the Company
setting forth in reasonable detail the facts requiring any such
adjustment in the number of shares receivable after such
adjustment. At the request of the holder and upon surrender of
this Warrant of such holder, the Company will reissue this
Warrant of such holder in a form conforming to such adjustments.
11. ASSURANCES. The Company will not by any action including, without
limitation, amending, or permitting the amendment of, the charter
documents, bylaws, or similar instruments of the Company or through any
reorganization, reclassification, transfer of assets, consolidation,
merger, share exchange, dissolution, issue or sale of securities, or any
other similar voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
of all such actions as may be necessary or appropriate to protect the
rights of the holder against impairment or dilution. Without limiting the
generality of the foregoing, the Company will, with respect to this
Warrant, (i) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock, free and clear of all liens,
encumbrances, equities, and claims and (ii) use its best efforts to obtain
all such authorizations, exemptions, or consents from any public
regulatory body having jurisdiction as may be necessary to enable the
Company to perform its obligations under this Warrant.
12. MISCELLANEOUS.
(a) EMPLOYMENT OF HOLDER. The parties hereto acknowledge and agree
that the issuance, vesting and exercise of this Warrant is in no way
tied to or conditioned upon the employment by the Company or any
affiliate of the Company of the holder hereof or any person
affiliated with or related to the holder hereof.
(b) SUCCESSORS. This Warrant will be binding upon any
successors or assigns of the Company.
(C) GOVERNING LAW. THIS WARRANT WILL CONSTITUTE A CONTRACT UNDER
THE LAWS OF TEXAS AND FOR ALL PURPOSES WILL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE, WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES OR ANY OTHER
PRINCIPLE THAT COULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION.
(d) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the holder relating hereto, the
prevailing party will be entitled to reasonable attorneys' fees and
expenses incurred in enforcing this Warrant.
(e) NOTICE. Any notice required or permitted under this Warrant
will be deemed effectively given upon personal delivery to the party
to be notified or upon deposit with the United States Post Office, by
certified mail, postage prepaid and addressed to the party to be
notified at the address indicated below for such party, or at such
other address as such other party may designate by ten-day advance
written notice.
IN WITNESS WHEREOF, TELSCAPE INTERNATIONAL, INC. has caused this Warrant
to be executed by its officer thereunto duly authorized.
Dated: October 24, 1997
TELSCAPE INTERNATIONAL, INC.
By:
Title:
Address: 4635 Southwest Freeway, Suite 800
Houston, TX 77027
Attn: President
WARRANTHOLDER:
SV Capital Partners, L.P.
By:
Its:
WARRANT EXERCISE NOTICE
To: Telscape International, Inc.
1. The undersigned hereby elects to purchase shares of
Common Stock (the "SHARES"), of Telscape International, Inc. (the "COMPANY")
pursuant to the terms of the attached Warrant, and tenders payment of the
purchase price in cash or cancellation of indebtedness owed by the Company to
the undersigned, as provided in Section 3(b), and/or by surrender of this
Warrant (or a portion hereof) in accordance with Section 3(c) of such Warrant,
in each case as indicated in the accompanying instruction letter from the
undersigned.
2. Please issue a certificate or certificates representing said Shares
in the following names:
NAME NUMBER OF ISSUABLE SHARES
3. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the following names:
NAME NUMBER OF SHARES
Dated: , 19 .
By:
[Name]
[Title, if applicable]
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to (Please Print):
whose address is
Dated: , 19__.
Holder's Signature:
Holder's Address:
Signature Guaranteed:
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
THIS WARRANT IS ONE OF A SERIES OF WARRANTS ISSUED ON APRIL 11, 1996
TO REPLACE THAT CERTAIN WARRANT TO PURCHASE 105,000 SHARES OF COMMON STOCK
OF POLISH TELEPHONES AND MICROWAVE CORPORATION ORIGINALLY ISSUED ON
AUGUST 17,1994 AND MARKED AS NO. 1.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
WARRANT TO PURCHASE 78,000
SHARES OF COMMON STOCK
NO. 5
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
POLISH TELEPHONES AND MICROWAVE CORPORATION
TRANSFER RESTRICTED - SEE SECTION 5.2
This certifies that, for and in consideration of $78.00, Dickinson & Co. and
its registered, permitted assigns is entitled to purchase from Polish
Telephones and Microwave Corporation, a corporation incorporated under the laws
of the State of Texas (the "Company"), subject to the terms and conditions
hereof, at any time on or after 9:00 a.m., Dallas time, on August 10, 1995, and
before 5:00 p.m., Dallas time, on August 10, 1999, (or, if such day is not a
Business Day, at or before 5:00 p.m., Dallas time, on the next following
Business Day), the number of Shares (as defined herein) stated above at the
Exercise Price (as defined herein). The Exercise Price and the number and type
of Shares purchasable hereunder are subject to adjustment from time to time as
provided in Article 3 hereof.
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITION OF TERMS. As used in this Warrant, the following
capitalized terms shall have the following respective meanings:
(a) BUSINESS DAY. A day other than a Saturday, Sunday or other day
on which banks in the State of Texas or the State of New York are
authorized by law to remain closed.
(b) COMMON STOCK. Common Stock, $.001 par value per share, of the
Company.
(c) COMMON STOCK EQUIVALENTS. Securities that are convertible into
or exercisable for shares of Common Stock.
(d) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
(e) EXERCISE PRICE. $8.10 per Share, as such price may be adjusted
from time to time pursuant to Article 3 hereof.
(f) EXPIRATION DATE. 5:00 p.m., Dallas time on August 10, 1999 or,
if such day is not a Business Day, the next succeeding day that is a
Business Day.
(g) HOLDER. A holder of Registrable Securities.
(h) NASD. National Association of Securities Dealers, Inc.
(i) NASDAQ. NASD Automated Quotation System.
(j) PERSON. An individual, partnership, joint venture, limited
liability company, corporation, trust, unincorporated organization,
government or department or agency thereof
(k) PIGGYBACK REGISTRATION. Any registration of Registrable
Securities under the terms of Section 6. 1.
(l) PIGGYBACK REGISTRATION RIGHTS. The rights of the Warrantholder
to have the Registrable Securities registered under the Securities Act in
conjunction with a registration by the Company of its securities as set
forth in Section 6. 1.
(m) PROSPECTUS. Any prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the Prospectus, including post-effective amendments and
all material incorporated by reference in such Prospectus.
(n) PUBLIC OFFERING. A public offering of any of the Company's
equity or debt securities pursuant to a Registration Statement.
(o) REGISTRATION EXPENSES. Any and all expenses incurred in
connection with any registration or action incident to performance of or
compliance by the Company with Article 6, including, without limitation
(i) all SEC, national securities exchange and NASD registration and filing
fees; all listing fees and all transfer agent fees; (ii) all fees and
expenses of complying with state securities or blue sky laws (including
the fees and disbursements of counsel of the underwriters in connection
with blue sky qualifications of the Registrable Securities); (iii) all
printing, mailing, messenger and delivery expenses; (iv) all reasonable
fees and disbursements of counsel for the Company and of its accountants,
including the expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance; and (v) any
disbursements of underwriters customarily paid by issuers or sellers of
securities including the reasonable fees and expenses of any special
experts retained in connection with the requested registration, but
excluding underwriting discounts or concessions and commissions, brokerage
fees and transfer taxes, if any, and fees of counsel or accountants
retained by the Holders to advise them in their capacity as Holders.
(p) REGISTRABLE SECURITIES. This Warrant, in whole or in part, and
any Shares issued to Dickinson & Co. and/or its designees or transferees
as permitted under Section 5.2 and/or other securities that may be or are
issued by the Company upon exercise of this Warrant, including those which
may thereafter be issued by the Company in respect of any such securities
by means of any stock splits, stock dividends, recapitalizations,
reclassifications or the like, and as adjusted pursuant to Article 3
hereof; PROVIDED, HOWEVER, that as to any particular security contained in
Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a Registration Statement with respect to the sale of
such securities shall have been effective under the Securities Act and
such securities shall have been disposed of in accordance with such
Registration Statement; (ii) such securities shall have been sold to the
public pursuant to Rule 144 (or any successor provisions) under the
Securities Act; or (iii) such securities shall have been sold, assigned or
otherwise transferred to any person other than those persons specified in
Section 5.2(i) below ("5.2(i) Person") and other than to any spouses,
lineal descendants or adopted children of a 5.2(i) Person to whom such
securities are transferred upon the death of any 5.2(i) Person by
operation of law or by bequest.
(q) REGISTRATION STATEMENT. Any registration statement of the
Company filed or to be filed with the SEC which covers any of the
Registrable Securities pursuant to the provisions of this Warrant,
including all amendments (including post-effective amendments) and
supplements thereto, all exhibits thereto and all material incorporated
therein by reference.
(r) SEC. The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act or the
Exchange Act.
(s) SECURITIES ACT. The Securities Act of 1933, as amended.
(t) SHARES. The shares of Common Stock or other securities the
Warrantholder is entitled to purchase upon exercise of this Warrant.
(u) TRANSFERS. The disposition or encumbering of a Warrant or
Shares as set forth in Section 5.2.
(v) WARRANT(S). This Warrant, all other warrants issued to the
Underwriters on the date hereof and all other warrants that may be issued
in its or their place (together initially evidencing the right to purchase
an aggregate of 105,000 Shares, as adjusted), originally issued as set
forth in the definition of Registrable Securities.
(w) WARRANTHOLDER. The person(s) or entity(ies) to whom this
Warrant is originally issued, or any successor in interest thereto, or any
registered, permitted assignee or transferee thereof, in whose name(s)
this Warrant is registered upon the books to be maintained by the Company
for that purpose.
ARTICLE 2
DURATION AND EXERCISE OF WARRANT
Section 2.1 DURATION OF WARRANT. The Warrantholder may exercise this
Warrant at any time and from time to time after 9:00 a.m., Dallas time, on
August 10, 1995, and before 5:00 p.m., Dallas time, on the Expiration Date. If
this Warrant is not exercised on the Expiration Date, it shall become void, and
all rights hereunder shall thereupon cease.
Section 2.2 EXERCISE OF WARRANT.
(a) The Warrantholder may exercise this Warrant, in whole or in
part, by presentation and surrender of this Warrant to the Company at its
corporate office at 433 E. Las Colinas Boulevard, Suite 815, Irving, Texas
75039 or at the office of its stock and warrant transfer agent, American
Stock Transfer & Trust Company, with the Subscription Form annexed hereto
duly executed and accompanied by payment of the full Exercise Price for
each Share to be purchased.
(b) Upon receipt of this Warrant with the Subscription Form fully
executed and accompanied by payment of the aggregate Exercise Price for
the Shares for which this Warrant is then being exercised, the Company
shall cause to be issued certificates for the total number of Shares for
which this Warrant is being exercised (adjusted to reflect the effect of
the anti-dilution provisions contained in Article 3 hereof, if any, and as
provided in Section 2.4 hereof) in such denominations as are requested for
delivery to the Warrantholder, and the Company shall thereupon deliver
such certificates to the Warrantholder. The Warrantholder shall be deemed
to be the Holder of record of the Shares not then actually delivered to
the Warrantholder. If at the time this Warrant is exercised, a
Registration Statement is not in effect to register under the Securities
Act the Shares issuable upon exercise of this Warrant, the Company may
require the Warrantholder to make such representations, and may place such
legends on certificates representing the Shares, as may be reasonably
required in the opinion of counsel to the Company to permit the Shares to
be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this
Warrant for the balance of such Shares and deliver such new warrant to the
Warrantholder.
(d) The Company shall pay any and all stock transfer and similar
taxes which may be payable in respect of the issue of any Shares.
Section 2.3 RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant such number of Shares or other shares of capital stock of the Company
from time to time issuable upon exercise of this Warrant. All such shares
shall be duly authorized, and when issued upon such exercise, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (except as
provided in Section 5.2 hereof) and free and clear of all preemptive rights.
Section 2.4 FRACTIONAL SHARES. The Company shall not be required to issue
any fraction of a share of its capital stock in connection with the exercise of
this Warrant, and in any case where the Warrantholder would, except for the
provisions of this Section 2.4, be entitled under the terms of this Warrant to
receive a fraction of a Share upon the exercise of this Warrant, the Company
shall, upon the exercise of this Warrant and receipt of the Exercise Price,
issue only the number of whole Shares purchasable upon exercise of this
Warrant. The Company shall not be required to make any cash or other
adjustment in respect of such fraction of a Share to which the Warrantholder
would otherwise be entitled.
Section 2.5 LISTING. Prior to the issuance of any Shares upon exercise of
this Warrant, the Company shall secure the listing or quotation of such Shares
upon each national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed or quoted (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such listing or
quotation of all Shares from time to time issuable upon the exercise of this
Warrant; and the Company shall so list or have quoted on each national
securities exchange or automated quotation system, and shall maintain such
listing or quotation of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of the
same class shall be listed or quoted on such national securities exchange or
automated quotation system.
ARTICLE 3
ADJUSTMENT OF SHARES
PURCHASABLE AND OF EXERCISE PRICE
Section 3.1 GENERAL. The Exercise Price and the number and kind of Shares
are subject to adjustment from time to time upon the occurrence of the events
enumerated in this Article 3.
Section 3.2 ISSUANCE OF ADDITIONAL SHARES. If and whenever the Company
shall issue any shares of its Common Stock for consideration per share which is
less than the Current Market Price per share (as defined in Section 3.8) at the
time of such issuance, under circumstances not specifically enumerated in
Sections 3.3 through 3.9 inclusive, the Exercise Price under the Warrant shall
be reduced to a price determined by dividing (i) the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issue multiplied
by the Exercise Price in effect immediately prior to such issue, plus (B) the
consideration, if any, received by the Company upon such issue, by (ii) the
number of shares of Common Stock outstanding immediately after such issue. No
such adjustment shall be made in an amount less than $.01, but any such amount
shall be carried forward and shall be given effect in connection with the next
subsequent adjustment. For purposes of this Section 3.2, the following shall
also be applicable:
(a) PUBLIC OFFERINGS OF CONVERTIBLE SECURITIES, OPTIONS, RIGHTS OR
WARRANTS. Subject to Section 3.3, if the Company shall issue in a public
offering any stock, security, obligation, option or other right or warrant
which directly or indirectly may be converted into, exchanged for, or
satisfied in shares of Common Stock in an integrated transaction when 1%
or more of such securities or instruments are acquired by persons who,
immediately prior to such transaction, were not security holders of the
Company, the Common Stock issuable upon exercise of such rights,
securities or instruments shall thereupon be deemed to have been issued
and to be outstanding and the consideration received by the Company
therefor shall be deemed to include the sum of the consideration received
for the issue of such rights, securities or instruments and the minimum
additional consideration payable upon the exercise of such rights,
securities or instruments. No further adjustment shall be made for the
actual issuance of the Common Stock upon the exercise of any such rights,
securities or instruments. If the provision of any such rights,
securities or instruments with respect to purchase price or shares
purchasable shall change or expire, any adjustment previously made
hereunder with respect to such rights, securities or instruments shall be
readjusted to such as would have obtained on the basis of the rights as
modified by such change or expiration.
(b) CONSIDERATION. In case the Company shall issue shares of its
Common Stock for a consideration wholly or partly other than cash, the
amount of the consideration other than cash received by the Company shall
be deemed to be the lesser of (1) the Current Market Price Per Share (as
defined in Section 3.8) on the issue date of the Common Stock so issued by
the Company multiplied by the number of shares so issued or issuable or
(ii) the fair market value of such consideration as determined by the
Board of Directors of the Company. In case Common Stock shall be deemed
(under Section 3.2(a) or otherwise) to have been issued upon the issuance
by the Company of any right to acquire such Common Stock, in connection
with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration
is allocated to rights, such rights shall be deemed to have been issued
without consideration. Consideration received by the Company for issuance
of its Common Stock shall be determined in all cases without deduction
therefrom of any expenses, underwriting commission or concessions incurred
in connection therewith.
(c) TREASURY STOCK. The number of shares of Common Stock
outstanding for purposes of this Article 3 at any given time shall include
shares owned or held by or for the account of the Company in its treasury,
and the disposition of any such shares so owned or held shall not be
considered an issue of Common Stock.
Section 3.3 WHEN NO ADJUSTMENT REQUIRED. Notwithstanding any other
provision of this Article 3, no change in the Exercise Price or the number of
Shares issuable upon exercise of the Warrant shall be required by reason of any
issue or sale by the Company of shares of Common Stock, options, warrants,
rights or securities convertible into shares of Common Stock (i) for cash in an
amount equal to or in excess of the Current Market Price Per Share, or (ii)
pursuant to the underwritten initial public offering of 603,750 Units
(including the underwriter's over allotment option) of the Company comprised of
Common Stock and warrants to purchase Common Stock, or (iii) pursuant to
options and stock purchase agreements heretofore or hereafter granted to or
entered into with officers or employees of the Company or of any subsidiary in
connection with their employment, whether granted or entered into at the
beginning of the employment or at any time thereafter, or as a result of or in
connection with the granting of such options or the making of such stock
purchase agreements, or (iv) as consideration, in whole or in part for any
acquisition of another corporation or business whether by means of
consolidation, merger or sale to the Company of assets or securities, and
whether such shares of Common Stock are issued directly or upon exchange or
exercise of convertible securities or rights or options to subscribe to or
purchase the same; provided, however, that this Section shall not apply to, and
an adjustment shall be required with respect to, the issue or sale by the
Company of shares of Common Stock pursuant to options or stock purchase
agreements hereafter granted to or entered into with officers or employees of
the Company if and to the extent the aggregate number of shares of Common Stock
so issued during the term of this Warrant shall exceed fifteen percent (15%) of
the fully diluted number of shares of Common Stock as of August 17, 1994; and
provided further, that this Section shall not apply to, and an adjustment shall
be required with respect to any merger, consolidation or reorganization in
which the Common Stock of the Company shall be reclassified or in which the
Company shall be the disappearing corporation.
Section 3.4 STOCK DIVIDENDS, STOCK SPLITS, COMBINATION, RECLASSIFICATION,
ETC. In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock into a larger number of shares,
(iii) combine the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of its capital stock in connection with a
reclassification of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation), the Exercise Price in effect at the time of the record
date for such dividend or the effective date of such subdivision, combination
or reclassification, and/or the number and kind of Shares issuable on such date
shall be proportionately adjusted so that the holder of any Warrant exercised
after such time shall be entitled, at no additional expense, to receive the
aggregate number and kind of shares which, if such Warrant had been exercised
immediately prior to such date, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed above shall occur.
Section 3.5 DISTRIBUTION OF ASSETS. If at any time after the date hereof
the Company shall make any distribution of its assets upon or with respect to
its Common Stock, as a liquidating or partial liquidating dividend (other than
upon a liquidation, dissolution or winding up of the Company as permitted under
the laws of the State of Texas), the Warrantholder shall, upon the exercise of
such Warrant after the record date for such distribution or, in the absence of
a record date, after the date of such distribution, receive in addition to the
Shares to which it would otherwise be entitled hereunder, such assets (or, at
the option of the Company, a sum equal to the value thereof at the time of the
distribution as determined by its Board of Directors in its sole discretion)
which would have been distributed to the Warrantholder if it had exercised the
Warrant immediately prior to the record date for such distribution, or, in the
absence of a record date, immediately prior to the date of such distribution.
Section 3.6 CONSOLIDATION. MERGER AND SALE OF ASSETS. If, prior to the
Expiration Date, the Company shall at any time consolidate with or merge into
another corporation, the Warrantholder will thereafter receive, upon exercise
thereof, in lieu of the shares of Common Stock of the Company immediately
theretofore issuable upon exercise of the Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of the Common Stock of the Company equal to
the number of shares of such Common Stock immediately theretofore issuable upon
exercise of the Warrant, had such consolidation or merger not taken place. The
Company shall take such steps in connection with such consolidation or merger
as may be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of the Warrant. The Company
or the successor corporation, as the case may be, shall execute and deliver to
the Warrantholder a supplemental agreement so providing. The provisions of
this Section 3.6 shall similarly apply to successive mergers or consolidations.
A sale of all or substantially all of the assets of the Company for a
consideration (apart from the assumption of obligations) consisting primarily
of securities, shall be deemed a consolidation or merger for the foregoing
purposes.
Section 3.7 DIVIDENDS IN CONVERTIBLE SECURITIES, OPTIONS, RIGHTS OR
WARRANTS. In case the Company shall issue stock, securities, rights, options
or warrants to all holders of the Common Stock, or in an integrated transaction
where more than 99% of such instruments or securities are acquired by persons
who, prior to such transaction, were security holders of the Company, entitling
them to subscribe for or purchase Common Stock or securities convertible into
Common Stock at a price per share less than the Current Market Price Per Share
(as defined in section 3.8) on the record date for the issuance of such
securities, instruments or rights or the granting of such securities, options
or warrants, as the case may be, the Exercise Price to be in effect after the
record date for the issuance of such rights or the date of grant of such
options or warrants shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the sum of (a) the number of shares of Common Stock outstanding
immediately prior to such sale and (b) the number of shares of Common Stock
which could be purchased at the Current Market Price Per Share (as defined in
Section 3.8) with the consideration received by the Company upon such sale, and
the denominator of which shall be the total number of shares of Common Stock
that would be outstanding immediately after such sale if the full amount of
convertible securities, options, rights or warrants were exercised immediately
after the sale. In the event the consideration for such securities, rights,
options or warrants is paid in a form other than cash, the value of such
consideration shall be determined as provided in Section 3.2(b). In the event
such securities, instruments or rights shall change or expire, or such
convertible securities shall not be converted, any adjustment previously made
hereunder shall be readjusted to such as would have obtained on the basis of
the rights as modified by such change or expiration.
Section 3.8 CURRENT MARKET PRICE PER SHARE. For the purpose of this
Agreement, the "Current Market Price Per Share" of Common Stock on any date
shall be determined as follows:
(a) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on any such exchange, the
Current Market Price Per Share shall be the average of the daily closing
prices for the 20 consecutive trading days commencing 23 trading days
before such date. If no sale is made on any trading day, the closing
price shall be deemed to be the average of the closing bid and asked
prices for such day on such exchange; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges on any exchange, the Current Market Price Per Share
shall be the average of the last reported sale price (or prices, if
applicable) or the mean of the last reported bid and asked prices reported
by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") (or, if not so quoted on NASDAQ, as quoted by the
National Quotations Bureau, Inc.) for the 20 consecutive trading days
commencing 23 trading days before such date; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and prices are not reported on NASDAQ or the National
Quotations Bureau, Inc., the Current Market Price Per Share shall be the
fair market value of the Common Stock as determined by the Board of
Directors of the Company in good faith, whose determination shall be
conclusive.
Section 3.9 DIVIDEND IN OPTIONS, WARRANTS, RIGHTS OR CONVERTIBLE SECURITIES
CAUSING SUBSTANTIAL DILUTION. In case the Company shall issue rights, options,
warrants or convertible securities to all holders Common Stock entitling them
to subscribe for or purchase Common Stock or securities convertible into Common
Stock at a price less than the Current Market Price Per Share (as defined in
Section 3.8) and where the number of shares of Common Stock issuable upon
exercise of all rights, options, warrants or convertible securities so issued
by the Company in the preceding 12 months exceeds 10% of the then outstanding
Common Stock of the Company (excluding Common Stock issuable upon exercise of
such options, rights or warrants or conversion of such convertible securities),
and where an adjustment to the Exercise Price is made under Section 3.7, the
Warrant shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares obtained by (i) multiplying the number of
shares covered by the Warrant immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment and (ii) by
dividing the product so obtained by the Exercise Price in effect immediately
after the adjustment made under Section 3.7.
Section 3.10 FORM OF WARRANT. The form of this Warrant need not be changed
because of any change in the Exercise Price or the number or kind of Shares
issuable upon exercise of the Warrant, and Warrants issued after such change
may state the same terms with respect to the Exercise Price and number of
Shares issuable thereunder as stated in the Warrant as initially issued.
Section 3.11 DIVIDENDS. Other than as specified in Section 3.5, no
Warrantholder shall, upon the exercise thereof, be entitled to any dividend
that may have accrued or which may previously have been paid with respect to
shares of stock issuable upon exercise of the Warrant.
Section 3.12 REDUCTION OF EXERCISE PRICE BELOW PAR VALUE. Before taking any
action which would cause an adjustment reducing the Exercise Price below the
then par value, if any, of the shares of Common Stock of the Company issuable
upon exercise of the Warrant, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Exercise Price.
Section 3.13 CERTIFICATION OF ADJUSTED EXERCISE PRICE AND NUMBER OF SHARES
ISSUABLE. Whenever the Exercise Price and the number of Shares issuable upon
the exercise of each Warrant are adjusted as provided in the Article 3, the
Company shall (a) promptly prepare a certificate signed by the Chairman of the
Board, President or any Vice President of the Company and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary setting forth the
Exercise Price as so adjusted, the number and kind of Shares issuable upon the
exercise of the Warrant as so adjusted and a brief statement of the facts
accounting for such adjustment and (b) mail a brief summary thereof to the
Warrantholder in accordance with Section 7.10.
Section 3.14 CERTIFICATES AND OPINIONS. The Company may obtain and rely upon
the certificate of any independent firm of public accountants of recognized
standing, selected by the Board of Directors of the Company, as to the
correctness of any adjustment required under this Article 3, and any such
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Article 3.
ARTICLE 4
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
Section 4.1 NO RIGHTS AS SHAREHOLDERS: NOTICE TO WARRANTHOLDER. Nothing
contained in this Warrant shall be construed as conferring upon the
Warrantholder, or such Warrantholder's transferees, the right to vote or to
receive dividends or to consent or to receive notice as a shareholder in
respect of any meeting of shareholders for the election of directors of the
Company or of any other matter, or any rights whatsoever as shareholders of the
Company. The Company shall give notice to the Warrantholder by registered mail
if at any time prior to the expiration or exercise in full of the Warrants, any
of the following events shall occur:
(a) the Company shall authorize the payment of any dividend payable
in any securities upon shares of Common Stock or authorize the making of
any distribution to all holders of Common Stock;
(b) the Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options or warrants to subscribe for or purchase
Common Stock or Common Stock Equivalents or of any other subscription
rights, options or warrants;
(c) a dissolution, liquidation or winding up of the Company shall be
proposed; or
(d) a capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification or
change of Common Stock outstanding) or in the case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety.
Such notice shall be given at least 10 Business Days prior to the date fixed as
a record date or effective date or the date of closing of the Company's stock
transfer books for the determination of the shareholders entitled to such
dividend, distribution or subscription rights, or for the determination of the
shareholders entitled to vote on such proposed reorganization,
reclassification, merger, consolidation, sale, conveyance, dissolution,
liquidation or winding up. Such notice shall specify such record date or the
date of closing the stock transfer books, as the case may be. Failure to
provide such notice shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or proposed
reorganization, reclassification, merger, consolidation, sale, conveyance,
dissolution, liquidation or winding up.
Section 4.2 LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this Warrant
is lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as, and in substitution for, this
Warrant.
ARTICLE 5
SPLIT-UP, COMBINATION, EXCHANGE
AND TRANSFER OF WARRANTS
Section 5.1 SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS.
Subject to the provisions of Section 5.2 hereof, this Warrant may be split-up,
combined or exchanged for another Warrant or Warrants containing the same terms
to purchase a like aggregate number of Shares. If the Warrantholder desires to
split-up, combine, or exchange this Warrant, the Warrantholder shall make such
request in a writing delivered to the Company and shall surrender to the
Company this Warrant and any other Warrants to be so split-up, combined or
exchanged. Upon any such surrender for a split-up, combination or exchange,
the Company shall execute and deliver to the person entitled thereto a Warrant
or Warrants, as the case may be, as so requested. The Company shall not be
required to effect any split-up, combination or exchange which will result in
the issuance of a Warrant entitling the Warrantholder to purchase upon exercise
a fractional Share. The Company may require such Warrantholder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split-up, combination or exchange of Warrants.
Section 5.2 RESTRICTIONS ON TRANSFER. This Warrant may not be sold,
transferred, hypothecated or assigned, except to (i) officers or partners of
Dickinson & Co., (ii) other underwriters named in the final prospectus dated
August 10, 1994 relating to the public offering of 525,000 units of the
Company, or (iii) officers or partners of such underwriters, and thereafter
only in accordance with and subject to the provision of the Securities Act and
rules and regulations promulgated thereunder. If at the time of a Transfer, a
Registration Statement is not in effect to register this Warrant, in whole or
in part, or the Shares, the Company may require the Warrantholder to make such
representations, and may place such legends on certificates representing this
Warrant or the Shares, as the case may be, as may be reasonably required in the
opinion of counsel to the Company to permit a Transfer without such
registration.
ARTICLE 6
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 6.1 PIGGYBACK REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time prior
to the Expiration Date, the Company proposes to file a post-effective
amendment to its registration statement on Form SB-2 (file no. 33-80542-D)
covering the issuance by the Company of units comprised of Common Stock
and Warrants or proposes to register any of its securities under the
Securities Act on any form for the registration of securities under the
Securities Act, whether or not for its own account (other than by a
registration statement on Form S-8 or other form which does not include
substantially the same information as would be required in a form for the
general registration of securities or would not be available for the
Registrable Securities), it shall as expeditiously as possible, but not
less than 30 days prior to the proposed date of filing, give written
notice to all Holders of its intention to do so and of such Holders'
rights under this Section 6.1. Upon the written request of any such
Holder made within 20 days after receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by
such Holder), the Company shall include in the Registration Statement the
Registrable Securities which the Company has been so requested to register
by the Holders thereof and the Company shall keep such Registration
Statement in effect and maintain compliance with each federal and state
law or regulation for the period necessary for such Holder to effect the
proposed sale or other disposition (but in no event for a period greater
than 180 days). The Company shall be obligated under this Section 6.1
until such time as all of the Registrable Securities have been registered.
(b) WITHDRAWAL OF PIGGYBACK REGISTRATION BY COMPANY. If, at any
time after giving written notice of its intention to register any
securities in a Piggyback Registration but prior to the effective date of
the related Registration Statement, the Company shall determine for any
reason not to register such securities, the Company shall give notice of
such determination to each Holder and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
Piggyback Registration. All best efforts obligations of the Company
pursuant to Section 6.2 shall cease if the Company determines to terminate
prior to such effective date any registration where Registrable Securities
are being registered pursuant to this Section 6.1.
(c) PIGGYBACK REGISTRATION OF UNDERWRITTEN PUBLIC OFFERINGS. If a
Piggyback Registration involves an offer by and through underwriters, (i)
all Holders requesting to have their Registrable Securities included in
the Company's Registration Statement must sell their Registrable
Securities to The Underwriters selected by the Company on the same terms
and conditions as apply to the Company or other selling shareholders, as
the case may be; and (ii) any Holder requesting to have such Holder's
Registrable Securities included in such Registration Statement may elect
in writing, not later than three Business Days prior to the effectiveness
of the Registration Statement filed in connection with such registration,
not to have such Holder's Registrable Securities so included in connection
with such registration.
(d) PAYMENT OF REGISTRATION EXPENSES FOR PIGGYBACK REGISTRATION.
The Company shall pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.1.
(e) PRIORITY IN PIGGYBACK REGISTRATION. If a Piggyback Registration
involves an offer by or through underwriters, the Company, except as
otherwise provided herein, shall not be required to include Registrable
Securities therein if and to the extent that the underwriter managing the
offering reasonably believes in good faith and advises each Holder
requesting to have Registrable Securities included in the Company's
Registration Statement that such inclusion would materially adversely
affect such offering; provided that (1) if other selling shareholders who
are employees, officers, directors or other affiliates of the Company have
requested registration of securities in the proposed offerings, the
Company will reduce or eliminate such other selling shareholders'
securities before any reduction or elimination of Registrable Securities;
and (ii) any such reduction or elimination (after taking into account the
effect of clause (i) shall be PRO RATA to all other holders of the
securities of the Company exercising "Piggyback Registration Rights"
similar to those set forth herein in proportion to the respective number
of shares they have requested to be registered.
Section 6.2 REGISTRATION PROCEDURES. If and whenever the Company is
required to effect or cause the registration of any Registrable Securities
under the Securities Act as provided in Section 6.1, the Company shall, as
expeditiously as practicable:
(a) prepare and file with the SEC, as soon as practicable within
ninety (90) days after the end of the period within which requests for
registration may be given to the Company, a Registration Statement
relating to the registration on any appropriate form under the Securities
Act, which form shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution thereof, subject to Section 6.1(e) hereof, and use its best
efforts to cause such Registration Statement to become effective; PROVIDED
that before filing a Registration Statement or Prospectus or any amendment
or supplements thereto, including documents incorporated by reference
after the initial filing of any Registration Statement, the Company will
furnish to the Holders of the Registrable Securities covered by such
Registration Statement and The Underwriters, if any, copies of all such
documents provided to be filed, which documents will be subject to the
review of such Holders and underwriters;
(b) prepare and file with the SEC such amendments and post-effective
amendments to a Registration Statement as may be necessary to keep such
Registration Statement effective for a reasonable period not to exceed 180
days; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 (or any successor provisions) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement or supplement to
such Prospectus;
(c) notify the selling Holders and the managing underwriters, if
any, promptly, and (if requested by any such Person) confirm such advice
in writing (i) when a Prospectus or any Prospectus supplement, or post-
effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to
a Registration Statement or related Prospectus or for additional
information; (iii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and (v) of the
happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in
the Registration Statement or Prospectus so that they will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending effectiveness of a Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriters,
immediately incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters believe (on advice
of counsel) should be included therein as required by applicable law
relating to such sale of Registrable Securities, including, without
limitation, information with respect to the purchase price being paid for
the Registrable Securities by such underwriters and with respect to any
other terms of the underwritten (or "best-efforts" underwritten) offering;
and make all required filings of such Prospectus supplement or post-
effective amendment as soon as notified of the matters to be incorporated
in such Prospectus supplement or post-effective amendment;
(f) furnish to each managing underwriter, without charge, at least
one signed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(g) deliver to each selling Holder and the underwriters, if any,
without charge, as many copies of the Prospectus or Prospectuses
(including each preliminary Prospectus) and any amendment or supplement
thereto as such Persons may reasonably request; the Company consents to
the use of such Prospectus or any amendment or supplement thereto by each
of the selling Holders and the underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
cooperate with the selling Holders, the underwriters, if any, and their
respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or
blue sky laws of such jurisdictions within the United States as any
selling Holder or underwriter reasonably requests in writing, keep each
such registration or qualification effective during the period such
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; PROVIDED that the Company will not be required to
qualify to do business in any jurisdiction where it is not then so
qualified or otherwise required to be so qualified or to take any action
that would subject the Company to general service of process in any
jurisdiction where it is not at the time so subject;
(i) cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any restrictive legend; and enable such Registrable Securities to
be in such denominations and registered in such names as the managing
underwriters may request at least two Business Days prior to any sale of
Registrable Securities to the underwriters; use its best efforts to cause
the Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other governmental
agencies or authorities within or without the United. States as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph
(c)(v) above, prepare a supplement or post-effective amendment to the
applicable Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such Registration Statement or
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading;
(l) use its best efforts to cause all Registrable Securities covered
by the Registration Statements to be listed on each securities exchange,
if any, on which similar securities issued by the Company are then listed;
(m) enter into such agreements (including an underwriting agreement)
and take all such other action reasonably required in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, if the registration is in connection
with an underwritten offering (i) make such representations and warranties
to the underwriters in such form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings and confirm the
same if and when requested; (ii) obtain opinions of counsel to the Company
and updates thereof (which counsel and opinions in form, scope and
substance shall be reasonably satisfactory to the underwriters) addressed
to the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Underwriters; (iii) obtain "cold comfort"
letters and updates thereof from the Company's accountants addressed to
the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with underwritten offerings; (iv) set forth in
full in any underwriting agreement entered into the indemnification
provisions and procedures of Section 6.3 hereof with respect to all
parties to be indemnified pursuant to such Section; and (v) deliver such
documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company; the above shall be done at each
closing under such underwriting or similar agreement or as to the extent
required thereunder;
(n) provide a transfer agent and registrar for the Registrable
Securities not later than the effective date of such registration
statement;
(o) make available for inspection by one or more representatives of
the selling Holders, any underwriter participating in any disposition
pursuant to such registration, and any attorney or accountant retained by
such Holders or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such representatives, in connection with such; and
(p) otherwise use its best efforts to comply with all applicable
foreign, federal and state regulations; and take such other action as may
be reasonably necessary to or advisable to enable each such Holder and
each such underwriter to consummate the sale or disposition in such
jurisdictions in which any such Holder or underwriter shall have requested
that the Registrable Securities be sold.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders.
The Company may require that each seller of Registrable Securities as to
which any registration is being effected shall furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included
in the Registration Statement.
Section 6.3 INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. In connection with each
Registration Statement relating to a disposition of Registrable
Securities, the Company shall indemnify and hold harmless each Holder and
each underwriter of Registrable Securities and each Person, if any, who
controls such Holder or underwriter (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) against any and all
losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of any action, suit or proceeding
or any claim asserted), to which they, or any of them, may become subject
under the Securities Act, the Exchange Act or other foreign, federal or
state law or regulation, at common law, or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement, Prospectus or preliminary prospectus or any
amendment thereof or supplemental thereto, or arise out of or are based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED, HOWEVER, that such indemnity shall not inure to
the benefit of any Holder or underwriter (or any Person controlling such
Holder or underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) on account of any losses, claims,
damages or liabilities arising from the sale of the Registrable Securities
if such untrue statement or omission or alleged untrue statement or
omission was made in such Registration Statement, Prospectus or
preliminary prospectus, or such amendment or supplement, in reliance upon
and in conformity with information furnished in writing to the Company by
the Holder or underwriter specifically for use therein. The Company shall
also indemnify selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers
and directors and each Person who controls such Persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as provided above with respect to the
indemnification of the Holders, if requested. This indemnity agreement
shall be in addition to any liability to which the Company may otherwise
have.
(b) INDEMNIFICATION BY HOLDER. In connection with each Registration
Statement, each Holder shall indemnify, to the same extent as to the
indemnification provided by the Company in Section 6.3(a), the Company,
its directors and each officer who signs the Registration Statement and
each Person who controls the Company (within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act) but only insofar as
such losses, claims, damages and liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in the Registration Statement, the Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in writing by
such Holder to the Company specifically for use therein. In no event
shall the liability of any selling Holder hereunder be greater in amount
than the dollar amount of net proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same
extent as provided above, with respect to information so furnished in
writing by such Persons specifically for inclusion in any Prospectus,
Registration Statement or preliminary prospectus or any amendment thereof
of supplement thereto.
(c) CONDUCT OF INDEMNIFICATION PROCEDURE. Any party that proposes
to assert the right to be indemnified hereunder will, promptly after
receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section, notify each such
indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 6.3(a) or 6.3(b) shall be available to any party who shall fail to
give notice as provided in this Section 6.3(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give such notice, but
the omission so to notify such indemnifying party of any such action, suit
or proceeding shall not relieve it from any liability that it may have to
any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the
indemnifying party to such indemnified party of its election so to assume
the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, except as provided below and except
for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its counsel in any such action, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the indemnified
party in the conduct of the defense of such action (in which case the
indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party) or (iii) the indemnifying
parties shall not have employed counsel to assume the defense of such
action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. An indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claim
effected without its written consent, which shall not be unreasonably
withheld.
(d) CONTRIBUTION. In connection with each Registration Statement
relating to the disposition of Registrable Securities, if the
indemnification provided for in subsection (a) hereof is unavailable to an
indemnified party thereunder with respect to any losses, claims, damages
or liabilities referred to therein, then the Company shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities. The amount to be contributed by the Company
hereunder shall be an amount which is in the same proportionate
relationship to the total amount of such losses, claims, damages or
liabilities as the total net proceeds from the offering (before deducting
expenses) of the Registrable Securities bears to the total price to the
public (including underwriters' discounts) for the offer of the
Registrable Securities covered by such registration.
(e) SPECIFIC PERFORMANCE. The Company and the Holder acknowledge
that remedies at law for the enforcement of this Section 6.3 may be
inadequate and intend that this Section 6.3 shall be specifically
enforceable.
ARTICLE 7
OTHER MATTERS
Section 7.1 SUCCESSORS AND ASSIGNS. All covenants and provisions of this
Warrant by and for the benefit of the Company shall bind and inure to the
benefit of its successors and assigns hereunder.
Section 7.2 NO INCONSISTENT Agreements. The Company will not on or after
the date of this Warrant enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Warrantholder or
otherwise conflicts with the provisions hereof. The rights granted to the
Warrantholder hereunder do not in any way conflict with and are not
inconsistent with the rights granted to holders of the Company's securities
under any other agreements.
Section 7.3 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will
not take any action outside the ordinary course of business, or permit any
change within its control to occur outside the ordinary course of business,
with respect to the Registrable Securities which is without a bona fide
business purpose, and which is intended to interfere with the ability of the
Holders to include their Registrable Securities in a registration undertaken
pursuant to this Warrant.
Section 7.4 INTEGRATION/ENTIRE AGREEMENT. This Warrant is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the Warrants. This Warrant supersedes all prior
agreements and understandings with respect to the subject matter contained
herein.
Section 7.5 AMENDMENTS AND Waivers. The provisions of this Warrant,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of Warrants exercisable for at least a majority of the Shares. Holders shall
be bound by any consent authorized by this Section whether or not certificates
representing such Warrants have been marked to indicate such consent.
Section 7.6 GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of New York without regard to choice
of laws principles.
Section 7.7 SEVERABILITY. In the event that any one or more of the
provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable, the validity, legality and enforceability of any such provisions
in every other respect and of the remaining provisions contained herein shall
not be affected or impaired hereby.
Section 7.8 ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Warrant, or where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees and disbursements in addition to its costs
and expenses and any other available remedy.
Section 7.9 COMPUTATIONS OF CONSENT. Whenever the consent or approval of
holders of a specified percentage of Warrants is required hereunder, Warrants
held by the Company or its affiliates (other than the Warrantholder or
subsequent holders if they are deemed to be such affiliates solely by reason of
their holdings of such Warrants) shall not be counted in determining whether
such consent or approval was given by the holders of such required percentage.
Section 7.10 NOTICE. Any notices or certificates by the Company to the
Warrantholder and by the Warrantholder to the Company shall be deemed delivered
if in writing and delivered in person by registered mail (return receipt
requested) to the Warrantholder addressed to such Warrantholder in care of
Dickinson & Co. or, if the Warrantholder has designated by notice in writing to
the Company any other address, to such other address, and if to the Company,
addressed to it at:
Polish Telephones and Microwave Corporation
433 E. Las Colinas Boulevard
Suite 815
Irving, Texas 75039
The Company may change its address by written notice to the Warrantholder, and
the Warrantholder may change its address by written notice to the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of this 17th day of August, 1994.
POLISH TELEPHONES AND MICROWAVE CORPORATION
By:
President and
Chief Executive Officer
ATTEST:
Secretary
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, ___________________ hereby sells, assigns and transfers
unto _______________ the within Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
____________________ attorney, to transfer said Warrant Certificate on the
books of the within-named Company with respect to the number of Warrants set
forth below, with full power of substitution in the premises:
NAME OF ASSIGNEE AND ADDRESS NO. OF WARRANTS
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
the undersigned for the balance remaining of the Warrants registered by such
Warrant Certificate.
Date:
Signature
Printed Name
Note: The above signature should
correspond exactly with the name on
the face of this Warrant Certificate.
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right of purchaser
represented by the within Warrant Certificate for, and to purchase thereunder
shares of Common Stock, as provided for therein, and tenders herewith payment
of the purchase price in full in the form of cash or a certified or official
bank check in the amount of $_________________________.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
(Please print Name, Address
and Social Security No.)
Signature
Note: The above signature should
correspond exactly with the name on
the first page of the within Warrant
Certificate or with the name of the
assignee appearing in the assignment
form.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of the signatory for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
<PAGE>
Exhibit 5.1
Opinion of Gardere Wynne Sewell & Riggs, L.L.P.
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
333 Clay, Suite 800
Houston, Texas 77002-4086
(713) 308-5500
November 14, 1997
Telscape International, Inc.
4635 Southwest Freeway, Suite 800
Houston, Texas 77027
Gentlemen:
We have acted as counsel for Telscape International, Inc. (the
"Company") in connection with the registration statement on Form
S-3 of the Company (the "Registration Statement"), filed on or
about the date of this opinion, by the Company with the
Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"). The Registration Statement relates
to an aggregate of 661,000 shares (the "Shares") of the Common
Stock, $.001 par value (the "Common Stock"), of the Company.
In the capacity as counsel for the Company, we have familiarized
ourselves with the Articles of Incorporation of the Company, as
amended, and the Bylaws of the Company, as amended. We have
examined all statutes and other records, instruments and
documents pertaining to the Company that we have deemed necessary
to examine for the purpose of this opinion.
Based upon and subject to the foregoing, we are of the opinion
that upon completion of the proceedings being taken to permit
such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares
have been duly authorized and reserved for and, either are
legally issued, fully paid and non-assessable or when issued upon
exercise of the underlying warrants, will be legally issued,
fully paid and non-assessable.
We are members of the Bar of the State of Texas and we do not
express an opinion herein concerning any law other than the laws
of the State of Texas and the federal law of the United States.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
caption "Legal Matters" in the Prospectus forming a part thereof.
Very truly yours,
GARDERE WYNNE SEWELL & RIGGS, L.L.P.
By: /S/ERIC A. BLUMROSEN
Eric A. Blumrosen, Partner
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Telscape International, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
21, 1997, relating to the consolidated financial statements of Telscape
International, Inc., appearing in the Company's Annual report on Form 10-KSB
for the year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts"in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Houston, Texas
November 12, 1997
INDEPENDENT AUDITORS' CONSENT
Telscape International, Inc.
Houston, Texas
We consent to the incorporation by reference in this Registration Statement of
Telscape International, Inc. on Form S-3 of our report dated March 27, 1996, on
the financial statements of Polish Telephones and Microwave Corporation for the
year ended December 31, 1995, included in the Annual Report on Form 10-KSB of
Telscape International, Inc. for the year ended December 31, 1996.
/s/ HOFFMAN, MCBRYDE & CO., P.C.
HOFFMAN, MCBRYDE & CO., P.C.
Dallas, Texas
November 12, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Telscape International, Inc.
Houston, Texas
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement on Form S-3, of our report dated
September 6, 1997 on the Financial Statements of Integracion de Redes, S.A. de
C.V. for the two years ended December 31, 1996 and 1995, included in Telscape
International, Inc.'s Current Report on Form 8-K/A dated October 6, 1997.
/s/ De Las Fuentes, De La Mora y Valdivia, S.C.
De Las Fuentes, De La Mora y Valdivia, S.C.
Mexico City
November 12, 1997
