EXHIBIT 4.2
NETSOURCE INTERNATIONAL TELECOMMUNICATIONS, INC.
SECURED SUBORDINATED CONVERTIBLE NOTE
TO PURCHASE COMMON STOCK
Series A- Petaluma, California
---
U.S. $ June 24, 1996
--------------
NETSOURCE INTERNATIONAL TELECOMMUNICATIONS, INC., a Delaware corporation
(the "Company"), the principal office of which is located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, for value received, hereby promises to
pay to _______________________, or registered assigns, the sum of ______________
U.S. Dollars (U.S.$_____________), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. Interest shall accrue on this Note at the rate of ten percent (10%)
per annum and be paid semi-annually, all as set forth in Section 2.a (below).
The principal hereof and any remaining unpaid but accrued interest hereon,
following the third semi-annual interest payment, as set forth below, shall be
due and payable on the second anniversary of the date of this Note (the "Due
Date"). Payment for all amounts due hereunder shall be made by mail to the
registered address of the Holder or by mail or wire transfer to the address of
any unaffiliated third-party "fiscal agent" appointed by the Company from time
to time (the "Fiscal Agent") to forward payments to the registered Holder by
mail or by wire transfer; provided, however, that for the Holder to receive its
interest or principal payments by wire transfer, the Fiscal Agent must receive
such ▇▇▇▇▇▇'s written bank wire transfer instructions by the record date for
such payment. This Note is one of a Series issued in connection with that
certain Fiscal Agency Agreement dated as of June 24, 1996 (the "Agency
Agreement") between the Company and the Fiscal Agent in connection with the
transactions described in that certain Subscription Agreement dated for
reference purposes only as of May 31, 1996 between the Company and the Holder
(the "Subscription Agreement"). The Holder of this Note is subject to certain
restrictions set forth in the Subscription Agreement and shall be entitled to
certain rights and privileges set forth in the Subscription Agreement.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms, unless the
-----------
context otherwise requires, have the following meanings:
a. "IPO" shall mean the Company's first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, (the "Act") cover ing the offering and sale of shares of
Common Stock for the account of the Company (other than a registration statement
effected solely to implement an employee benefit plan or a transaction in which
Rule 145 of the Securities and Exchange Commission is applicable).
b. "Company" includes any corporation which shall succeed to or assume
the obligations of the Company under this Note.
c. "Holder," when the context refers to a holder of this Note, shall
mean any person who shall at the time be the registered holder of this Note on
the register maintained by the Fiscal Agent.
d. "United States Alien" shall mean any person who, for United States
federal income tax purposes, is a foreign corporation, a foreign partnership, a
non-resident alien individual, or a foreign estate or trust.
-2-
2. Interest.
--------
a. Interest Rate. Until all outstanding principal and accrued
-------------
interest on this Note shall have been paid in full, interest shall accrue and be
payable on the outstanding principal balance of this Note, in arrears on each
sixth month anniversary date following the date of this Note (the "Interest
Payment Date"), at the lower of (i) the rate of ten percent (10%) per annum
accruing from the date of this Note; and (ii) applicable usury interest limits
(collectively, the "Interest Rate"). If applicable usury interest limits for
any interest payment are below the rate of ten percent (10%) per annum, the
Company shall, on or before the record date for such payment, deliver an
Officer's Certificate to the Fiscal Agent as provided in the Agency Agreement,
certifying the amount of the interest rate for such interest payment based on
the applicable usury limits. Interest on this Note shall accrue from the date
hereof on the outstanding principal balance, as such principal may decline from
time to time, until such principal is paid. Interest shall be calculated based
on actual days elapsed. Interest will be paid semiannually in arrears on
December 24 and June 24, commencing on December 24, 1996 (each an "Interest
Payment Date"). Any interest past due for more than five (5) business days
after the applicable Interest Payment Date (such five (5) business days referred
to herein as the "Grace Period") shall likewise bear interest at the rate of ten
percent (10%) per annum from such Interest Payment Date until paid in full.
b. Additional Interest. The Company shall, subject to the exceptions
-------------------
and limitations set forth below, pay as additional interest to a Holder who is a
United States Alien, such amounts as may be necessary so that every net payment
on this Note, after withholding for or on account of any present or future tax,
assessment or other governmental charge imposed upon or as a result of such
payment of interest by the United States (or any political subdivision or taxing
authority thereof or therein), will not be less than the amount of interest
provided in such Note to be then due and payable ("Additional Interest").
However, the Company shall not be required to make any payment of Additional
Interest for or on account of:
i. Any tax, assessment or other governmental charge that would not
have been so imposed but for (a) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor or beneficiary
of, or a person holding a power over, such Holder, if such Holder is an estate
or a trust, or a member or shareholder of such Holder is a corporation), and the
United States, including, without limitation, such Holder (or such fiduciary,
settlor, beneficiary, person holding a power, member or shareholder) being or
having been a citizen or resident thereof or being or having been engaged in a
trade or business or present therein or having or having had a permanent
establishment therein; or (b) the past or present status of such Holder as a
bank, personal holding company, foreign personal holding company, controlled
foreign corporation, or private foundation or other tax-exempt organization
with respect to the United States, or as a corporation that accumulates earnings
to avoid United States federal income tax;
ii. Any estate, inheritance, gift, sales, transfer or personal
property tax or any similar tax, assessment or other governmental charge;
iii. Any tax, assessment or other governmental charge that would not
have been imposed but for the presentation by such Holder of this Note for
payment more than fifteen (15) days after the date on which such payment became
due and payable or the date on which payment thereof was duly provided, for
whichever occurred later;
iv. Any tax, assessment or other governmental charge that is payable
otherwise than by withholding from payments of principal of and interest on this
Note;
v. Any tax, assessment or other governmental charge that would not
have been imposed but for a failure to comply with applicable certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or connection with the
-3-
United States of such Holder if, without regard to any tax treaty, such
compliance is required by statute or regulation of the United States as
precondition to relief or exemption from such tax, assessment or other
governmental charge;
vi. Any tax, assessment or other governmental charge imposed on
a Holder that actually or constructively owns ten percent (10%) or more of the
capital or profits interest of the Company;
vii. Any tax, assessment or other governmental charge required to
be withheld by any paying agent from a payment on this Note, if such payment can
be made without such withholding by any other paying agent; or
viii. Any combination of items 2.b.i through 2.b.vii.
Additional Interest shall not be paid with respect to a payment to a Holder that
is a fiduciary or company or other than the sole beneficial owner of such
payment to be extent such payment would be required by the laws of the United
States (or any political subdivision thereof) to be included in the income for
tax purposes of a beneficiary, settlor, with respect to such fiduciary or a
member of such company or a beneficial owner that would not have been entitled
to the Additional Interest had such beneficiary, settlor, member or beneficial
owner been the registered owner of this Note. Also, if the Company is required
to pay Additional Interest to a Holder, and the Holder subsequently receives a
tax credit or tax refund which is attributable to the tax, assessment or other
governmental charge which gave rise to the Company's obligation to pay the
Additional Interest, the Holder shall promptly reimburse the Company such amount
as will leave the Holder after the reimbursement in no better and no worse
position than it would have been if the payment of Additional Interest had not
been required; provided, however, that the Holder shall not be required to
disclose information regarding its tax affairs or computations to the Company
other than such non-proprietary information as may be necessary to permit the
Company to confirm its reimbursement rights hereunder.
3. Prepayment.
-----------
a. At Company's Election. The Company may prepay any portion or
---------------------
all of the principal balance and/or interest under this Note any time after the
one (1) year anniversary of the date of this Note upon twenty (20) calendar
days' prior written notice to the Holder, which notice for purposes of the
twenty (20) days may be given prior to such one (1) year anniversary. Any
prepayment of this Note will be credited first against accrued interest and then
against principal.
b. Mandatory. The Company shall be obligated to prepay all of the
---------
principal and accrued interest under this Note within five (5) business days
after July 31, 1996, if the Company's Reorganization (as defined in the
Company's Private Placement memorandum dated for reference purposes only as of
May 31, 1996) has not been consummated by July 31, 1996.
4. Conversion.
----------
a. Holder's Conversion Rights. So long as any principal remains
--------------------------
outstanding hereunder up to and through the Due Date, Holder may, at its option
by written notice to the Fiscal Agent given by delivery to the Fiscal Agent of
the Conversion Election Form appended to this Note (the "Conversion Election
Form") at any time after the Conversion Price has been established pursuant to
Section 4.b (below), and prior to the Due Date (collectively, the "Conversion
Period"), convert all or any portion of the principal outstanding hereunder
(such conversion of principal to be in increments of Ten Thousand Dollars
($10,000) and/or such lesser or additional amount as may remain outstanding
under this Note at the time of conversion) into Common Stock of the Company at
the Conversion Price established in Section 4.b (below).
-4-
b. Conversion Price. The conversion price per share at which the
----------------
principal under this Series A Note shall be convertible shall equal the price
established below (the "Conversion Price"):
i. If an IPO is consummated by the Company on, or before,
December 31, 1996, the Conversion Price shall be equal to seventy percent (70%)
of the per share price to the public of the Common Stock in the IPO (rounded to
the nearest whole cent). If the Company consummates an IPO on, or before,
December 31, 1996, it shall, within thirty (30) days thereafter, notify the
Fiscal Agent in writing of the Conversion Price by delivery of an Officer's
Certificate; and
ii. If an IPO has not been consummated on, or before, December 31,
1996, the Conversion Price shall be Eighty-one Dollars ($81.00) based upon the
pre-money valuation of the Company prior to the sale of the Series A Notes
determined by taking the annualized gross revenues of the Company during the
first calendar quarter of 1996 (comprising the revenues of MTC Telemanagement
Corporation, MTC International, Inc., and NetSource Interactive, Inc.). These
gross revenues are currently estimated to be approximately One Hundred Million
Dollars ($100,000,000) on an annualized basis. If an audit of the Company's
gross revenues results in an adjustment either up or down of more than Two
Million Five Hundred Thousand Dollars ($2,500,000) for such quarter, then the
Conversion Price shall be appropriately adjusted by dividing such audited gross
revenues (on an annualized basis) by the number of issued and outstanding shares
of the Company's Common Stock on a fully-diluted basis (1,065,204 shares +
169,582 shares issuable under outstanding options = 1,234,786 fully-diluted
shares). If there is an adjustment to the Conversion Price as a result of such
audit, the Company shall notify the Holder in writing of the adjusted Conversion
Price within thirty (30) days after such adjustments by delivery of an Officer's
Certificate.
c. General Conversion Terms. The Company shall not be obligated to
------------------------
issue certificates evidencing the shares of the Common Stock issuable upon
conversion of this Note unless this Note is delivered to the Fiscal Agent,
together with a properly executed Conversion Election Form; provided, however,
that this Note need not be delivered for conversion if the Holder notifies the
Fiscal Agent that such Note has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company and the Fiscal Agent to indemnify the
Company and the Fiscal Agent from any loss incurred by it in connection with
such Note, including the posting of a bond as may be reasonably requested by the
Company and the Fiscal Agent. The Company shall, as soon as practicable after
such delivery to the Fiscal Agent, or such agreement, indemnification and bond
if required by the Company, issue and deliver to such Holder of such Note, a
certificate or certificates for the securities to which the Holder shall be
entitled accompanied by any appropriate restrictive legends on transfer, a check
payable to the Holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock, as the case may be, and a
new Note upon the same terms as this Note for any remaining principal in the
case of a conversion of only a portion of this Note. The shares issued upon
conversion will bear legends which are substantially the same as the Securities
Legends appearing on the face of this Note if conversion occurs prior to the
Anniversary Date; thereafter shares issued upon conversion will be issued
without the "Securities Legends." In addition, the shares issued upon
conversion will bear a legend which is substantially the same as the Lock-Up
Legend appearing on the face of this Note if conversion occurs prior to the
expiration date of the Lock-Up Period set forth in Section 8 of this Note;
thereafter shares issued upon conversion will be issued without the "Lock-Up
Legend." Any shares issued upon conversion will not bear the Security Agreement
Legend. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of receipt by the Fiscal Agent of the Holder's
Conversion Election Form and this Note (or agreement, indemnification and bond
if required by the Company). The person or persons entitled to receive Common
Stock issuable upon such conversion shall be treated for all purposes as the
record Holder or Holders of such Common Stock on such date.
-5-
5. Note Confers No Rights of Shareholder. The Holder shall not have any
-------------------------------------
rights as a shareholder of the Company with regard to the shares issuable
hereunder prior to actual conversion hereunder.
6. Reservation of Shares. The Company agrees at all times during the
---------------------
Conversion Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon conversion of this Note, a sufficient number of
shares of its Common Stock to provide for the conversion of the rights
represented hereby. On, or before, the Anniversary Date, the Company will give
its stock transfer agent a standing order authorizing the stock transfer agent
to issue, after the Anniversary Date, free of the Securities Legends, the shares
of Common Stock issuable upon conversion of this Note.
7. Adjustments. If the Company at any time during the Conversion Period
------------
shall, by subdivision, combination or re-classification of securities, change
any of the Company's Common Stock to which purchase rights under this Note exist
into the same or a different number of securities of any class or classes, this
Note shall thereafter entitle the Holder to acquire such number and kind of
securities as would have been issuable as a result of such change with respect
to the shares here under immediately prior to such subdivision, combination, or
re-classification. If shares of the Company's Common Stock are subdivided into
a greater number of shares of Common Stock, the conversion price for the shares
hereunder upon conversion of this Note shall be proportionately reduced and the
number of such shares shall be proportionately increased; and conversely, if
shares of the Company's Common Stock are combined into a smaller number of
Common Stock shares, the price shall be proportionately increased, and the
number of shares hereunder shall be proportionately decreased. If there is any
such adjustment to the Conversion Price, the Company shall notify the Fiscal
Agent in writing of the adjusted Conversion Price within thirty (30) days after
such adjustment by delivery of an Officer's Certificate.
8. Public Offering Lock-Up. In connection with the IPO, the Holder
-----------------------
agrees, upon the written request of the Company or the underwriters managing
such underwritten offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any of the Company's securities without the prior written consent of the
Company, and such underwriters, as the case may be, for a period of time, not to
exceed one hundred eighty (180) days from the effective date of the registration
statement for the IPO (the "Lock-Up Period"). Such agreement shall be in
writing in the form reasonably satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to this Note and
the shares subject to the foregoing restrictions until the end of said Lock-Up
Period. On, or before, the expiration date of the Lock-Up Period, the Company
will give its stock transfer agent a standing order authorizing the stock
transfer agent to issue, after such expiration date, free of the Lock-Up Legend,
the shares of Common Stock issuable upon conversion of this Note. In addition,
on, or before, the expiration date of the Lock-Up Period, the Company will give
the Fiscal Agent a standing order authorizing the Fiscal Agent to issue, after
such expiration date, free of the Lock-Up Legend, a new Note instrument for this
Note upon surrender and at the request of the Holder. The Company will also, at
least thirty (30) days prior to the expiration date of the Lock-Up Period, give
notice in writing to the Fiscal Agent of such expiration date by delivery of an
Officer's Certificate.
9. Secured Interest. The original Holders of all Series A Notes are
----------------
parties to a Security Agreement dated for reference purposes only as of May 31,
1996 (the "Security Agreement") which encumbers the assets of the Company as
provided in the Security Agreement (herein the "Collateral"). Any permitted
transferees of the Notes will be entitled to become parties to the Security
Agreement. Variations or amendments with or among the Series A Notes shall not
affect the pari passu security interest of each Holder therein in the
Collateral. The Holder will share in the Collateral and proceeds
-6-
therefrom in the ratio that ▇▇▇▇▇▇'s Series A Note principal bears to the
aggregate unpaid principal then due all Holders of Series A Notes. THE RIGHTS OF
ANY TRANSFEREE, PLEDGEE OR OTHER ASSIGNEE OF THIS NOTE UNDER THE SECURITY
AGREEMENT COULD POTENTIALLY BE ENCUMBERED BY CERTAIN THIRD PARTY CLAIMS AND
COULD THEREFORE PROVE TO BE INEFFECTUAL UNLESS EACH PREVIOUSLY REGISTERED HOLDER
OF THIS NOTE HAS PROPERLY FILED A FORM UCC-2 STATEMENT OF ASSIGNMENT OF ITS
RIGHTS UNDER THE SECURITY AGREEMENT PURSUANT TO APPLICABLE STATE LAW COMMERCIAL
CODES IN CONNECTION WITH ANY SALE, TRANSFER OR PLEDGE OF SUCH NOTE.
10. Original Issue Discount Disclosure. This Note is being issued in
----------------------------------
conjunction with certain warrants. A portion of the original issue price of
this investment unit (consisting of this Note and its associated warrants) has
been allocated to these warrants. The original issue price of this Note is
therefore less than its principal amount. Because the excess of the principal
amount of this Note over its original issue price is less than (a) one-quarter
of one percent of this Note's principal amount (b) multiplied by the number of
complete years to this Note's maturity, this Note will not have "original issue
discount" as that phrase is defined for United States income tax purposes. Any
Holder may contact the Company's Chief Financial Officer or Treasurer at its
address as indicated on this Note (or such other address as the Company shall
subsequently furnish to the Holder) for further information concerning the
computation of original issue discount under the terms of this Note.
11. Defaults. If any of the Defaults specified in Section 7 of the
--------
Security Agreement shall occur, the Holder of this Note may, so long as such
condition exists, declare the entire unpaid principal and accrued interest
hereon immediately due and payable, by notice in writing to the Company. In the
event of a Default, interest shall continue to accrue at the rate provided for
in Section 2.a on any amounts of principal and accrued interest which remain
unpaid and outstanding. The Fiscal Agent shall have no duty whatsoever with
respect to a "Default" under the Note and owes no fiduciary duty to any Holder
of a Note, except as provided in Section 20 hereof.
12. Assignment. Subject to any restrictions on transfer described
----------
elsewhere herein or the Subscription Agreement, the rights and obligations of
the Company and the Holder of this Note shall be binding upon and benefit the
successors, assigns, heirs, administrators and transferees of the parties
hereto.
13. Waiver and Amendment. Any provision of this Note may be amended,
--------------------
waived or modified upon the approval of the Company and the Holders of fifty
percent (50%) or more of the outstanding principal amount of all then
outstanding Series A Notes; provided, however, that any amendment to the Due
Date, Interest Rate, Conversion Price, or Sections 9 and 11 above, shall require
the approval of Holders of seventy-five percent (75%) or more of the outstanding
principal amount of all then outstanding Series A Notes; and further provided,
however, that any such amendments shall apply to all Series A Notes. Upon the
obtaining of the approval of the Holders of seventy-five percent (75%) or more
of the outstanding principal amount, the Company has the right to effect such
amendment, and the Fiscal Agent has no duty or right to sign such amendment on
behalf of the Holders; provided, however, that no amendments to the Series A
Notes shall alter the Fiscal Agent's rights or duties without its consent.
14. Transfer of this Note or Securities Issuable on Conversion Hereof.
-----------------------------------------------------------------
With respect to any offer, sale or other disposition of this Note or
any underlying securities to be made prior to the Anniversary Date, the Holder
will give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such ▇▇▇▇▇▇'s counsel, to the
effect that such offer, sale or other distribution may be effected without
registration or qualification (under any applicable federal or state law then in
effect, including, but not limited to, Regulation S under the Act).
Furthermore, no such transfer shall be made unless the transferee meets the same
investor
-7-
suitability standards set forth in the Subscription Agreement. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such Holder
that such Holder may sell or otherwise dispose of this Note or the underlying
securities, as the case may be, all in accordance with the terms of the written
notice delivered to the Company. The Company shall promptly deliver to the
Fiscal Agent a copy of its notice to the Holder, together with a written order
directing the Fiscal Agent to effect such transfer. If a determination has been
made pursuant to this Section 14 that the opinion of counsel for the Holder is
not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made. Each Note or underlying
securities thus transferred shall bear the same legends appearing on the face of
this Note immediately prior to such transfer. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Notes issued upon transfers after the Anniversary Date shall be
issued without Securities Legends or the Security Agreement Legend, and Notes
issued after the expiration date of the Lock-Up Period shall be issued without
the Lock-Up Legend.
15. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
----------------------------------------------
Company and the Fiscal Agent of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Note or a stock certificate
issued pursuant to conversion of this Note, and in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company and the Fiscal Agent of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Note or such
stock certificate, if mutilated, the Company and the Fiscal Agent will make and
deliver a new Note or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Note or such stock certificate.
16. Notices. Any notice required or permitted under this Note shall be
-------
given in writing and shall be deemed effectively given upon personal delivery to
the party to be notified by hand or professional courier service or for
mailings from and to any address in North America (Canada, United States and
Mexico) five (5) days after receipt, by registered or certified mail, postage
prepaid at the address of the party to be notified as set forth for such party
in the Subscription Agreement, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
17. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California. Venue for all disputes hereunder shall be San
Francisco, California.
18. Attorneys' Fees. If any action at law or in equity is necessary to
---------------
enforce or interpret the terms of this Note between the Company and the Holder
of the Note, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and disbursements in addition to any other relief to which such
party may be entitled.
19. Heading; References. All headings used herein are used for
-------------------
convenience only and shall not be used to construe or interpret this Note.
20. Fiscal Agent. Notwithstanding anything to the contrary herein, the
------------
Fiscal Agent is the agent of the Company and does not owe any fiduciary duty to
the Holders of the Series A Notes; provided, however, that the Fiscal Agent
shall have a duty to deliver to such Holders all payments of interest and
principal which are delivered by the Company to the Fiscal Agent.
-8-
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first set forth above.
NETSOURCE INTERNATIONAL
TELECOMMUNICATIONS, INC.
By:
------------------------------------------------
(Signature)
------------------------------------------------
(Print Name and Title)
-9-
FISCAL AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the 10% Series A Secured Subordinated Convertible Notes
described in the Subscription Agreement and Fiscal Agency Agreement.
Dated: UNITED STATES TRUST COMPANY
-------------------------------- OF NEW YORK
as Fiscal Agent
By:
----------------------------------
Authorized Signature
-10-
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (We) assign and transfer this Note to:
--------------------------------------------------------------------------------
(Insert Assignee's Social Security or Tax I.D. Number)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Print or Type Assignee's Name, Address and Zip Code)
and irrevocably appoint the Company's Transfer Agent to transfer this Note on
the books of the Company. The Transfer Agent may substitute another to act for
it/him/her.
Dated:
---------------------------
*Signature:
--------------------------------
(Sign exactly as your name
appears on the first page of
this Note.)
It is understood and agreed that the Company may request in writing such
assurances and representations as may be reasonably requested pursuant to
Section 14 of this Note.
*NOTICE: This Signature must be guaranteed by an Institution which is a member
of one of the following recognized Signature Guaranty Programs: (i) The
Securities Transfer Agent Medallion Program ("STAMP"); (ii) The New York Stock
Exchange Medallion Program ("MSP"); (iii) The Stock Exchange Medallion Program
("SEMP"); or (iv) in such other guaranty program acceptable to the Company's
Transfer Agent.
-11-
NOTICE OF CONVERSION
To: NETSOURCE INTERNATIONAL TELECOMMUNICATIONS, INC.
(1) The undersigned hereby elects to convert $____________ in principal
amount of the attached Note for ____________ shares of Common Stock of NetSource
International Telecommunications, Inc., pursuant to the terms of the attached
Note.
(2) In converting this Note, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), including, but not limited to, Regulation S promulgated thereunder, or
any state securities laws.
(3) Please issue a certificate representing said shares of Common Stock in
the name of the undersigned.
(4) Please issue a new Note for the non-converted portion of the attached
Note in the name of the undersigned.
-------------------------------------
(Name)
----------------------- -------------------------------------
(Date) (Signature)*
(Sign exactly as your name appears on
the first page of this Note.)
*NOTICE: This Signature must be guaranteed by an Institution which is a member
of one of the following recognized Signature Guaranty Programs: (i) The
Securities Transfer Agent Medallion Program ("STAMP"); (ii) The New York Stock
Exchange Medallion Program ("MSP"); (iii) The Stock Exchange Medallion Program
("SEMP"); or (iv) in such other guaranty program acceptable to the Company's
Transfer Agent.
To exercise your right of conversion, this Notice of Conversion should be
delivered, together with the Note, to the Fiscal Agent at the applicable address
shown below:
By Registered
or Certified Mail By Hand By Overnight Courier
----------------- ------- --------------------
United States Trust United States Trust United States Trust
Company of New York Company of New York Company of New York
P.O. Box ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-0844 New York, NY 10006 Attention: Corporate
Attention: Corporate Trust Attention: Corporate Trust Services
Services Trust Services
-12-