EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
BETWEEN
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ CAPITAL, LLC
AND
TELSCAPE INTERNATIONAL, INC.
DATED AS OF MAY 29, 1998
THIS SECURITIES PURCHASE AGREEMENT dated as of May 29, 1998 (the
"Agreement"), by and between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ CAPITAL, LLC, a limited liability
company organized and existing under the laws of the State of Delaware (the
"Investor"), and TELSCAPE INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Texas (the "Company").
RECITALS
A. The parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue to the Investor, and the Investor
shall purchase from the Company the Company's 8% Convertible Debenture, the form
of which is attached as Exhibit A hereto (the "Convertible Debenture"), for a
purchase price of up to $5,000,000.
B. Except as otherwise provided in this Agreement, such investment will
be made in reliance upon the provisions of Section 4(2) promulgated by the
Securities and Exchange Commission under the United States Securities Act of
1933, as amended, and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the
purchase of the Convertible Debenture hereunder.
NOW, THEREFORE, in consideration of the foregoing Recitals which are
hereby incorporated by this reference and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "CLOSING" means the consummation of the purchase and sale of
the Convertible Debenture pursuant to Section 2.1 hereof.
Section 1.2 "CLOSING DATE" means the date the Investor purchases the
Convertible Debenture pursuant to Section 2.1 hereof.
Section 1.3 "COMMON STOCK" means the Company's common stock, par value
$.001 per share.
Section 1.4 "CONVERSION NOTICE" means the written form of notice given
to notify the Company that the Investor is exercising its option to convert the
Convertible Debenture to Common Stock, and directing the Company or its transfer
agent to issue and deliver to the party
indicated, a certificate or certificates representing the Common Shares received
upon conversion, a form of which is attached as an exhibit to the form of the
Convertible Debenture attached hereto as EXHIBIT A.
Section 1.5 "EFFECTIVE DATE" means the date on which the SEC declares
effective the Registration Statement described in Section 6.4 hereof.
Section 1.6 "EXCHANGE ACT" means the United States Securities Exchange
Act of 1934, as amended.
Section 1.7 "EXERCISE PRICE" See Section 2.6(a) hereof.
Section 1.8 "FIXED CONVERSION PRICE" See Section 2.5 hereof.
Section 1.9 "LOOKBACK PERIOD" means the twenty (20) Trading Days on the
Principal Market immediately preceding the date of conversion by the Investor of
the Convertible Debenture.
Section 1.10 "MATERIAL ADVERSE EFFECT" means a material adverse effect
on the business, operations, properties, prospects, or financial condition of
the Company.
Section 1.11 "NASD" means the National Association of Securities
Dealers, Inc.
Section 1.12 "PRINCIPAL MARKET" means the NASDAQ National Market, the
NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Company's Common Stock.
Section 1.13 "REDEMPTION FLOOR PRICE" means $16.66.
Section 1.14 "REGISTRATION RIGHTS AGREEMENT" See Section 2.6(b) hereof.
Section 1.15 "REGISTRATION STATEMENT" See Section 6.4 hereof.
Section 1.16 "SEC" means the Securities and Exchange Commission.
Section 1.17 "SECURITIES ACT" means the United States Securities Act of
1933, as amended.
Section 1.18 "SEC DOCUMENTS" means registration statements, reports and
documents, including proxy statements filed with the SEC pursuant to the
Securities Act or Exchange Act since December 31, 1996.
Section 1.19 "SUBSCRIPTION DATE" means the date of this Agreement.
Section 1.20 "TRADING DAY" means any day during which the Principal
Market shall be open for business.
Section 1.21 "VARIABLE CONVERSION PRICE" See Section 2.5 hereof.
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Section 1.22 "WARRANT FORMULA" See Section 2.6(a) hereof.
Section 1.23 "WARRANTS" See Section 2.6(a) hereof.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURE
Section 2.1 INVESTMENTS. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), the
Company shall issue and sell to the Investor, and the Investor shall purchase
from the Company, the Convertible Debenture.
Section 2.2 PURCHASE. The Company agrees to sell and the Investor agrees
to purchase the Convertible Debenture in the principal amount of up to
$5,000,000 (the "Convertible Debenture").
Section 2.3. CLOSING.
(a) With respect to the sale of the Convertible Debenture, on or before
the Closing Date, (i) the Company shall deliver to the Investor the Convertible
Debenture, substantially in the form of EXHIBIT A attached hereto, to be
purchased by the Investor pursuant to Section 2.2, and (ii) the Investor shall
deliver or cause to be delivered to the Company the amount of the Convertible
Debenture (up to $5,000,000) by wire transfer of immediately available funds to
one or more accounts designated by the Company.
(b) In addition, on or prior to the Closing Date, the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein.
Section 2.4 TERMINATION OR SUSPENSION OF COMPANY'S OBLIGATION TO MAKE
PAYMENTS ON THE CONVERTIBLE DEBENTURE. If (i) the Common Stock closes at $33.50
or higher for twenty (20) consecutive Trading Days, as adjusted, without
limitation, for any stock splits or combinations, (ii) the Registration
Statement shall have been declared and shall then be effective and (iii) no
Default (as defined in the Convertible Debenture) shall exist, then the
Company's obligation to make interest payments on the Convertible Debenture
shall terminate. If the Company's obligation to make interest payments on the
Convertible Debenture terminates in accordance with the foregoing sentence, any
and all interest accrued in accordance with this Agreement or the Convertible
Debenture prior to such date of termination shall be due and payable on the last
day of the then current calendar month, without diminution or reduction
notwithstanding the termination of the Company's obligation to pay interest
accruing after such twentieth consecutive Trading Day. It is understood and
agreed that such termination shall not affect the Company's obligation to pay
the Exit Fee upon the payment of the principal of this Debenture.
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Section 2.5 CONVERSION; PREPAYMENT; REDEMPTION.
(a) CONVERSION.
(i) The Investor may, on or prior to November 1, 1998, convert
the Convertible Debenture into Common Stock at any time or from time to
time at a price equal to $29 per share, as adjusted for any stock splits
or combinations (the "Fixed Conversion Price").
(ii) Beginning on November 2, 1998, and at any time and from time
to time thereafter, the Investor may, at its option, convert the
Convertible Debenture into Common Stock at a price equal to the lesser
of (i) the Fixed Conversion Price or (ii) a price equal to 100% of the
average of the three highest of five lowest closing prices of the Common
Stock during the Lookback Period (the "Variable Conversion Price").
(b) PREPAYMENT; REDEMPTION.
(i) The Company may, upon at least two Business Days' prior
written notice, prepay the Convertible Debenture in whole at any time
and in part from time to time. Each partial prepayment made pursuant to
this clause (i) shall be in a minimum principal amount of $500,000 and
in an integral multiple of $500,000 in excess thereof. Any notice of
prepayment given to the Investor pursuant to this clause (i) shall be
irrevocable and binding on the Company and shall specify the date of
prepayment. Each prepayment made pursuant to this clause (i) shall be
accompanied by the payment of (A) accrued interest to the date of such
prepayment on the amount prepaid and (B) an Exit Fee (as defined in the
Convertible Debenture) on the amount of such prepayment in accordance
with the terms of Paragraph 2 of the Convertible Debenture.
(ii) If at any time during the term of the Convertible Debenture
the price per share of Common Stock has closed below the Redemption
Floor Price for the Convertible Debenture for three (3) consecutive
Trading Days, the Company may elect to redeem all or part of the
Convertible Debenture, if the Investor subsequently issues a Conversion
Notice and converts the Convertible Debenture, at one hundred seven
percent (107%) of par, plus any accrued interest or unpaid dividends
(but without any Exit Fee), by providing written notice via facsimile to
the Investor on the Trading Day immediately following the third
consecutive Trading Day that the Common Stock has closed below the
Redemption Floor Price, or such price per share as adjusted, of its
intent to redeem and the extent of the redemption. Such written notice
shall be valid and irrevocable for ten (10) Trading Days and shall
automatically expire at the end of such 10-day period.
Section 2.6 WARRANTS.
(a) On the Closing Date, the Company will issue to the Investor
warrants, exercisable beginning on the Effective Date (the "Warrants") and then
exercisable at any time over the following three year period, to purchase an
aggregate number of shares of Common Stock equal to the face amount of the
Convertible Debenture being simultaneously issued, multiplied by 5%, and divided
by the average closing price for the five (5) Trading Days immediately preceding
the Closing Date (the "Warrant Formula"), at an exercise price equal to the
average closing price for the five (5) Trading Days immediately preceding the
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Closing Date (the "Exercise Price"). The Warrants shall be in form and substance
similar to that warrant which is attached hereto as EXHIBIT B.
(b) The shares of Common Stock to be issued upon exercise of the
Warrants shall be registered for resale on the Registration Statement to be
filed in accordance with Section 6.4 hereof. The resale by the Investor of
Common Stock issuable upon exercise of the Warrants shall be subject to a
registration rights agreement (the "Registration Rights Agreement") to be
entered into between the Company and the Investor on the Closing Date. The
Registration Rights Agreement shall be in form and substance similar to that
agreement which is attached hereto as EXHIBIT C.
(c) The Company agrees that a breach of its obligations under this
Section 2.6 could cause the Investor irreparable injury and that monetary
damages may not be an adequate remedy for any such breach. In the event of a
breach or threatened breach by the Company of this Section 2.6, the Company
agrees that the Investor is entitled to equitable relief in any court of
competent jurisdiction, including the remedy of specific performance, in
addition to all other remedies available to the Investor at law or in equity.
ARTICLE III
CONDITIONS TO CLOSING
Section 3.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS TO ISSUE AND SELL
CONVERTIBLE DEBENTURE BY THE COMPANY AND TO PURCHASE CONVERTIBLE DEBENTURE BY
THE INVESTOR.
(a) CONDITIONS PRECEDENT TO COMPANY'S OBLIGATION. The obligation
hereunder of the Company to issue and sell the Convertible Debenture to the
Investor at the Closing is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below:
(i) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement and as
of the date of each Closing as though made at each such time.
(ii) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to the
Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which, in the reasonable opinion of the Company
and its legal counsel, prohibits or materially adversely affects any of
the transactions contemplated by this Agreement, and no proceeding shall
have been
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commenced which may have the effect of prohibiting or materially
adversely affecting any of the transactions contemplated by this
Agreement.
(b) CONDITIONS PRECEDENT TO THE INVESTOR'S OBLIGATIONS. The obligation
hereunder of the Investor to purchase the Convertible Debenture is subject to
the satisfaction, at or before the Closing Date, of each of the conditions set
forth below:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each Transaction Party (as defined in
the Security Agreement hereinafter referred to) in any Transaction
Document (as defined in the Security Agreement hereinafter referred to)
to which it is a party shall be true and correct in all material
respects as of the Closing Date as though made on the Closing Date, and
as to all events and circumstances occurring or existing to and
including the Closing Date, and no Default (as defined in the
Convertible Debenture) or "Event of Default" (as defined in the General
Security Agreement dated the date hereof (as amended or otherwise
modified from time to time, the "Security Agreement"), by Interlink
Communications, Inc. in favor of the Investor), or event which with the
giving of notice or the passage of time, or both, would constitute an
Event of Default, shall have occurred and be continuing.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or materially adversely affects
any of the transactions contemplated by this Agreement, and no
proceeding shall have been commenced which may have the effect of
prohibiting or materially adversely affecting any of the transactions
contemplated by this Agreement.
(iv) ADVERSE CHANGES. Since December 31, 1997, no event which had
or is reasonably likely to have a Material Adverse Effect has occurred.
(v) LEGAL OPINIONS. The Company shall have caused to be delivered
to the Investor an opinion of the Company's independent counsel in form
and substance reasonably acceptable to the Investor and its counsel.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Investor a certificate dated as of the Closing Date executed by an
executive officer of the Company and to the effect that all the
conditions to the Closing have been satisfied as at the date of each
such certificate.
(viii) DELIVERY OF DOCUMENTS. The Company shall have delivered
and the Investor shall have received, on or before the Closing Date,
each in form and substance reasonably satisfactory to the Investor,
dated as of the Closing Date:
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(A) Convertible Debenture, substantially in the
form of Exhibit A hereto;
(B) Stock Purchase Warrant, substantially in the
form of Exhibit B hereto;
(C) Registration Rights Agreement, substantially in
the form of Exhibit C hereto;
(D) Security Agreement by Interlink Communications,
Inc. in favor of the Investor;
(E) Assignments for Security (Trademark) by
Interlink Communications, Inc. in favor of the Investor;
(F) Guaranty made by Interlink Communications, Inc.
in favor of the Investor;
(G) Pledge Agreement made by the Company in favor
of the Investor, with respect to the issued and outstanding shares of
Convertible Participating Preferred Stock of Interlink Communications, Inc. and
the issued and outstanding equity securities of Telereunion, Inc. and the
promissory notes made by Interlink Communications, Inc. to the Company;
(H) side letter agreement made by the Investor and
agreed to and accepted by the Company and Interlink Communications, Inc. with
respect to the release of equity securities of Telereunion, Inc. pledged
pursuant to clause (G) above;
(I) stock certificates evidencing the shares
of stock being pledged pursuant to clause (G) above, together with undated stock
powers endorsed in blank, and the promissory notes made by Interlink
Communications, Inc. to the Company, duly endorsed in blank by the Company;
(J) appropriate financing statements on Form UCC-1,
duly executed by Interlink Communications, Inc. and appropriate for filing in
such office or offices as may be necessary or, in the opinion of the Investor,
desirable to perfect the security interests purported to be created by the
Security Agreement;
(K) certified copies of requests for copies of
information on Form UCC-11, listing all effective financing statements which
name as debtor the Company, Interlink Communications Holding Co., Inc.,
Interlink Communications, Inc. or California Microwave Services Division, Inc.,
together with results of judgment and tax lien searches on each such Person,
none of which, except as otherwise agreed to in writing by the Investor, shall
cover any of the collateral in which the Investor has purportedly been granted a
security interest;
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(L) Subordination Agreement dated the date hereof
(the "Subordination Agreement"), duly executed by Interlink Communications,
Inc., as obligor, and the Company, as subordinated creditor, in favor of the
Investor; and
(M) copies of the Stock Purchase Agreement, the
Subordinated Notes, the Subordinated Credit Agreement and the related Pledge
Agreement (all as defined in the Subordination Agreement), certified by an
authorized officer of the Company.
(ix) CONSUMMATION OF ACQUISITION. Concurrently with the purchase
of the Convertible Debenture, (i) the Company shall have purchased
pursuant to the Stock Purchase Agreement dated as of May 18, 1998 (the
"Stock Purchase Agreement"), by and among California Microwave, Inc.,
California Microwave Services Division, Inc. and the Company (no
provision of which shall have been amended or otherwise modified or
waived without the written consent of the Investor), and shall have
become the owner, free and clear of all liens and security interests of
all of the issued and outstanding shares of Convertible Participating
Preferred Stock of Interlink Communications, Inc., (ii) the proceeds of
the Convertible Debenture shall have been applied in full to pay the
purchase price payable pursuant to the Stock Purchase Agreement and the
closing and other costs relating thereto and (iii) each of the parties
thereto shall have fully performed all of the obligations to be
performed by it under the Stock Purchase Agreement.
(x) OTHER. The Investor shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by the Investor in order for the Investor to
confirm the Company's satisfaction of the conditions set forth in this
Agreement.
Section 3.2 DUE DILIGENCE REVIEW. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor), any underwriter
participating in any disposition of Common Stock on behalf of the Investor
pursuant to the Registration Statement, any such registration statement or
amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company to confirm the accuracy of the Registration Statement.
The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company
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identifies such information as being non-public information and provides the
Investor and such advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose non-public
information to the Investor, its respective advisors or representatives, and the
Company represents that it does not disseminate non-public information to any
investor who purchases stock in the Company in a public offering, to money
managers or to securities analysts; PROVIDED, HOWEVER, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and
underwriters, if any, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting non-public information (whether or not requested of
the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement, would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 3.2 shall limit the
Investor's respective advisors or representatives from obtaining or receiving
non-public information in the course of conducting due diligence in accordance
with the terms of this Agreement and nothing herein shall prevent any such
advisors or representatives from notifying the Company of their opinion that
based on such due diligence, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading;
PROVIDED, HOWEVER, that in no event shall the Investor's advisors or
representatives disclose to the Investor the nature of the specific event or
circumstances constituting any non-public information discovered by such
advisors or representatives in the course of their due diligence (without the
written consent of the Investor prior to disclosure of such information).
The Investor's advisors or representatives shall make complete
disclosure to the Investor's independent counsel, if any, of all events or
circumstances constituting non-public information discovered by such advisors or
representatives in the course of their due diligence upon which such advisors or
representatives form the opinion that the Registration Statement contains an
untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in the light of the circumstances in which they were made,
not misleading. Upon receipt of such disclosure, the Investor's independent
counsel shall consult with the Company's independent counsel in order to address
the concern raised as to the existence of a material misstatement or omission
and to discuss appropriate disclosure with respect thereto. In the event after
such consultation the Investor's independent counsel believes that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading, (x) the Company shall file with the SEC an
amendment to the Registration Statement
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responsive to such alleged untrue statement or omission and provide the
Investor, as promptly as practicable with copies of the Registration Statement
and related prospectus, as so amended, (y) if the Company disputes the existence
of any such material misstatement or omission, (i) the Company's independent
counsel shall provide the Investor's independent counsel with an opinion stating
that nothing has come to their attention that would lead them to believe that
the Registration Statement or the related prospectus, as of the date of such
opinion contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or the related prospectus or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading and (ii) in the event the
dispute relates to the adequacy of financial disclosure and the Investor shall
reasonably request, the Company's independent auditors shall provide to the
Company a letter outlining the performance of such "agreed upon procedures" as
shall be reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter, or (z) if the Company disputes the
existence of any such material misstatement or omission, and the dispute relates
to the timing of disclosure of a material event and the Company's independent
counsel is unable to provide the opinion referenced in clause (y) above to the
Investor, then this Agreement shall be suspended for a period of up to thirty
(30) days, at the end of which, if the dispute still exists between the
Company's independent counsel and the Investor's independent counsel, the
Company shall either (i) amend the Registration Statement as provided above,
(ii) provide to the Investor the Company's independent counsel opinion and a
copy of the letter of the Company's independent auditors referenced above, or
(iii) this Agreement shall be suspended for an additional period of up to thirty
(30) days; provided, however, that at the end of such sixty (60) day period, if
the dispute still exists between the Company's independent counsel and the
Investor's independent counsel, the Company shall either (i) amend the
Registration Statement as provided above, (ii) provide the Company's independent
counsel opinion referenced above, or (iii) the obligation of the Investor to
purchase the Convertible Debenture or shares of Common Stock pursuant to this
Agreement shall terminate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 4.1 INTENT. The Investor (which for purposes of this Article IV
shall include each beneficial owner of the Common Stock and the Convertible
Debenture, as determined pursuant to Rule 13d-3 under the Exchange Act) is
entering into this Agreement for its own account and the Investor has no present
arrangement (whether or not legally binding) at any time to sell the Convertible
Debenture or Common Stock to or through any person or entity; provided, however,
that by making the representations herein, the Investor does not agree to hold
the Convertible Debenture or Common Stock for any minimum or other specific term
and reserves the right to dispose of the Convertible Debenture or Common Stock
at any time in accordance with federal and state securities laws applicable to
such disposition.
Section 4.2 SOPHISTICATED AND ACCREDITED INVESTOR. The Investor is a
sophisticated Investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
an accredited Investor (as defined
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in Rule 501 of Regulation D), and the Investor has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Convertible Debenture or Common Stock. The Investor
acknowledges that an investment in the Convertible Debenture or Common Stock is
speculative and involves a high degree of risk. The Investor acknowledges that
the Convertible Debenture and the Warrants to be issued pursuant to this
Agreement are "restricted securities" within the meaning of the Securities Act
and the rules and regulations promulgated thereunder and may not be resold in
the absence of an effective registration statement under the Securities Act or
an available exemption from the Securities Act registration requirements.
Section 4.3 AUTHORITY. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.4 NOT AN AFFILIATE. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 4.5 ORGANIZATION AND STANDING. The Investor represents and
warrants that it is a limited liability company duly organized, validly
existing, and in good standing under the laws of Delaware.
Section 4.6 ABSENCE OF CONFLICTS. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on the Investor, or
the provision of any indenture, instrument or agreement to which the Investor is
a party or is subject, or by which the Investor or any of its assets is bound,
or conflict with or constitute a material default thereunder, or result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
the Investor to any third party, or require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which the Investor is subject or
to which any of its assets, operations or management may be subject.
Section 4.7 DISCLOSURE; ACCESS TO INFORMATION. The Investor has received
all documents, records, books and other information pertaining to the Investor's
investment in the Company that have been requested by the Investor. The Investor
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Investor has reviewed or received copies
of any such reports that have been requested by it.
Section 4.8 MANNER OF SALE. At no time was the Investor presented with
or solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 5.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the NASDAQ Small-Cap
Market.
Section 5.2 NO GENERAL SOLICITATION IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its affiliates nor any distributor or any person
acting on its or their behalf has conducted any general solicitation (as that
term is used in Rule 502(c) of Regulation D) with respect to any of the Common
Stock, nor have they made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Common Stock under the Securities Act or any state "blue
sky" law.
Section 5.3 Intentionally Omitted.
Section 5.4 VALID ISSUANCE OF CONVERTIBLE DEBENTURES AND STOCK.
(a) All of the outstanding shares of Common Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. As of the date of this Agreement, the Company has authorized
capitalization consisting of 25,000,000 shares of Common Stock, par value $.001
per share, 5,000,000 shares of Preferred Stock, par value $.001 per share, and
1,000,000 shares of Series A Preferred Stock, par value $.001 per SHARE. Stock
options granted or reserved for issuance to employees and directors of the
Company are as described in Schedule 5.4 hereto. As of May 26, 1998, there were
issued and outstanding 4,651,195 shares of Common Stock. As of the date of this
Agreement, the Company has no other capital stock issued and outstanding and no
other outstanding securities convertible into Common Stock other than as set
forth in Schedule 5.4 hereto.
(b) The Convertible Debenture has been duly authorized and, when issued
in accordance with this Agreement, will be a validly issued 8% Convertible
Debenture, with no personal liability attaching to the ownership thereof.
Additionally, the Convertible Debenture will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the Company
except as set forth in the Registration Rights Agreement and the holders of
outstanding Common Stock of the Company are not and shall not be entitled to
preemptive or other rights afforded by the Company to subscribe for the capital
stock or other securities of the Company as a result of the issuance or
conversion of the Convertible Debenture or issuance to or exercise of the
Warrants by the Investor hereunder.
12
(c) Upon conversion of the Convertible Debenture, or the exercise of
the Warrants, in accordance with the terms and conditions of this Agreement, the
Convertible Debenture or such Warrants, such Common Stock will be duly and
validly issued, fully paid and nonassessable.
Section 5.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Texas and has the requisite corporate power to own its properties and to carry
on its business as now being conducted. Except as disclosed in Schedule 5.5, the
Company does not have any subsidiaries. The Company and each subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 5.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and to issue the Convertible Debenture and the Warrants, (ii) the execution,
issuance and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or shareholders is required, and (iii) this
Agreement has been duly executed and delivered by the Company and constitutes
valid and binding obligations of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
Section 5.7 CORPORATE DOCUMENTS. The Company has furnished or made
available or will furnish and make available prior to the Closing Date to the
Investor true and correct copies of the Company's Articles of Incorporation, as
amended and in effect on the date hereof (the "Articles"), and the Company's
By-Laws, as amended and in effect on the date hereof (the "By-Laws").
Section 5.8 NO CONFLICTS. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Convertible Debenture and the Warrants do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); nor is the Company otherwise in
violation of, in conflict with or in default under any of the foregoing;
provided that, for purposes of
13
the Company's representations and warranties as to violations of foreign law,
rule or regulation referenced in clause (iii), such representations and
warranties are made only to the best of the Company's knowledge insofar as the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby are or may
be affected by the status of the Investor under or pursuant to any such foreign
law, rule or regulation). The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Convertible Debenture or the Warrants
in accordance with the terms hereof (other than any SEC, NASD or state
securities filings which may be required to be made by the Company subsequent to
any Closing, and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 5.9 SEC DOCUMENTS. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 5.10 NO MATERIAL ADVERSE EFFECT. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company or
its subsidiaries.
Section 5.11 NO UNDISCLOSED LIABILITIES. The Company and its
subsidiaries have no liabilities or obligations which are material, individually
or in the aggregate, and are not disclosed in the SEC Documents or otherwise
publicly announced, other than those incurred in the ordinary course of the
Company's or its subsidiaries' respective businesses since the filing of the
Company's most recent SEC Document, and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or upon any of
its subsidiaries.
14
Section 5.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since the filing of
the Company's most recent SEC Document, no event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 5.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Convertible Debenture or the Warrants or
the shares issuable on the exercise of the Warrants under the Securities Act or
any state "blue sky" law.
Section 5.14 LITIGATION AND OTHER PROCEEDINGS. Except as may be set
forth on Schedule 5.14 and in the SEC Documents, there are no lawsuits or
proceedings pending or to the best knowledge of the Company threatened, against
the Company, nor has the Company received any written or oral notice of any such
action, suit, proceeding or investigation, which could reasonably be expected to
have a Material Adverse Effect on the Company or which could reasonably be
expected to materially adversely affect the transactions contemplated by this
Agreement. Except as set forth on Schedule 5.14 or in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or, so
far as is known by the Company, requested of any court, arbitrator or
governmental agency which could reasonably be expected to result in a Material
Adverse Effect on the Company or which could reasonably be expected to
materially adversely affect the transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 REGISTRATION RIGHTS. The Registration Rights Agreement shall
remain in full force and effect and the Company shall comply in all respects
with the terms thereof.
Section 6.2 RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue shares of
its Common Stock incident to the conversion of the Convertible Debenture and
incident to the exercise of the Warrants; such amount of reserved shares of
Common Stock to be calculated based upon the minimum conversion price therefor
under the terms of this Agreement, and assuming the full exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder and the number of shares so reserved shall
be increased to reflect (a) potential increases in the Common Stock which the
Company may thereafter be so obligated to issue by reason of adjustments to the
purchase price therefor and the issuance of the Warrants and (b) stock splits
and stock dividends and distributions.
15
Section 6.3 LISTING OF COMMON STOCK. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable but in any event within thirty (30) days after the Closing Date
inform the Nasdaq National Market Inc. of the transactions contemplated by this
Agreement, complete and file the applicable application and pay the required fee
as and when due and payable, and take such other actions as may be necessary to
cause the additional shares of Common Stock issuable under this Agreement
(including Common Stock issuable upon conversion of the Convertible Debenture
and exercise of the Warrants) to be listed. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Common Stock issuable under this
Agreement (including Common Stock issuable upon conversion of the Convertible
Debenture and exercise of the Warrants), and will take such other action as is
necessary or desirable to cause the Common Stock to be listed on such other
Principal Market as promptly as possible.
Section 6.4 REGISTRATION OF THE COMMON STOCK WITH THE SEC. Within ninety
(90) days following the Closing Date (if the Company is eligible to file on Form
S-3) or one hundred twenty (120) days following the Closing Date (if the Company
is not eligible to file on Form S-3), a registration statement on Form S-3 or
otherwise appropriate form (the "Registration Statement") for the registration
of the resale by the Investor of Common Stock to be issued upon conversion of
the Convertible Debenture and upon exercise of the Warrants under the Securities
Act shall have been declared effective by the SEC and no stop order or
suspension or withdrawal of the effectiveness of or with respect to any such
Registration Statement or any other suspension of the use of any such
Registration Statement or related prospectus shall have been issued by the SEC
or any state securities commission as long as the Registration Rights Agreement
is in effect; the Company shall be in compliance in all material respects with
the terms of the Registration Rights Agreement.
Section 6.5 LEGAL OPINIONS. The Company shall have caused to be
delivered to the Investor, (i) within five (5) Trading Days prior to the
Effective Date of the Registration Statement and (ii) to the extent provided by
Section 3.2, an opinion of the Company's independent counsel in form and
substance reasonably acceptable to the Investor and their counsel, addressed to
the Investor stating, inter alia, that, subject to such qualifications relating
to the absence of independent inquiry and to such counsel's actual knowledge as
are contained in the opinion delivered to the Investor by counsel to the Company
on the Closing Date, nothing shall have come to such counsel's attention that
causes such counsel to believe that the Registration Statement (if applicable,
as amended to the date thereof) contains an untrue statement of material fact or
omits a material fact required to make the statements contained therein, not
misleading or that the underlying prospectus (if applicable, as so amended or
supplemented) contains an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances in which they were made, not misleading, except with respect to
the financial statements and the notes thereto and the schedules and other
financial and statistical data derived therefrom in the Registration Statement
or the Prospectus, as to which such counsel shall express no opinion; provided,
however, that in the event that such an opinion cannot be delivered by the
Company's independent counsel to the Investor, the Company shall promptly revise
the Registration Statement so that such opinion can be delivered, such opinion
shall be promptly delivered after such revision becomes effective. The Company's
independent counsel shall also
16
deliver to the Investor on the Closing Date an opinion in form and substance
satisfactory to the Investor and its counsel addressing, among other things,
corporate matters and the exemption from registration under the Securities Act
of the issuance of the Convertible Debenture and the Warrants by the Company to
the Investor under this Agreement.
Section 6.6 EXCHANGE ACT REGISTRATION. The Company will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
said Act, and will not take any action or file any document (whether or not
permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act. The Company will take all action to continue the listing and
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and the Principal Market.
Section 6.7 LEGENDS. The certificates evidencing the Common Stock to be
issued to the Investor upon the conversion of the Convertible Debenture and the
exercise of the Warrants, subject to the continued effectiveness of the
appropriate registration statement, shall be free of legends, so-called "stop
transfer," or "stock transfer restrictions," or other restrictions upon transfer
by the Investor to a bona fide third party which is not an affiliate of the
Company. Notwithstanding the absence of such legends or restrictions, the
Investor agrees to comply with Securities Act prospectus delivery requirements
in any sale of Common Stock not made in compliance with Rule 144 or another
available exemption. Immediately following the Effective Date, the Investor
shall have the right to surrender the Convertible Debenture in exchange for
certificates free of legends, "stop transfer" or "stock transfer restrictions,"
or other restrictions upon transfer, and the Company agrees to perform whatever
acts are reasonably necessary to facilitate such exchange on a timely basis.
Section 6.8 CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.9 ADDITIONAL SEC DOCUMENTS. The Company will furnish to the
Investor upon request copies of all SEC Documents furnished or submitted to the
SEC.
Section 6.10 "BLACKOUT PERIOD". The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of Common
Stock by the Investor: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the registration statement or for amendments or supplements
to the registration statement or related prospectus; (ii) the issuance by the
SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of the registration statement or the initiation or
threatening of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Common Stock for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event which makes any statement made in the registration
statement or related prospectus or any document incorporated or deemed to be
17
incorporated therein by reference untrue in any material respect or which
requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of the registration statement, it
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, and that in the case of the related prospectus, it 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, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the registration statement would be appropriate; and the Company
will promptly furnish to the Investor and counsel for the Investor any such
supplement or amendment to the related prospectus, which shall be subject to
review and comment by such parties and shall thereafter be promptly filed with
the SEC.
Section 6.11 PENALTIES FOR FAILURE TO OBTAIN OR MAINTAIN EFFECTIVENESS
OF A REGISTRATION STATEMENT.
(a) In the event the Company fails to file a Registration Statement and
obtain the effectiveness of a Registration Statement within the applicable
period set forth in Section 6.4, or the effectiveness of the Registration
Statement is suspended or a current prospectus meeting the requirements of
Section 10 of the Securities Act is not available for delivery by the Investor
(such suspension or failure of delivery is referred to herein as a
"suspension"), and such occurrence is not the result of any information provided
or failed to be provided by the Investor or some unforeseeable catastrophe
affecting the operation of the SEC, the Company shall pay to the Investor within
five (5) days following the end of the first 30-day period following the date by
which such Registration Statement was required to have been declared effective,
or following the date of suspension, in cash, an aggregate amount equal to two
percent (2%) of the principal amount of the Convertible Debenture then
outstanding, and for each 30-day period thereafter an aggregate amount equal to
three (3%) of the principal amount of the Convertible Debenture then
outstanding. If the Registration Statement is declared effective after the
passage of such 90-day period, the applicable payment will be reduced PRO RATA
based upon the actual number of days between (i) the date on which such
Registration Statement is declared effective, and (ii) the end of such 30-day
period. All amounts payable hereunder shall be paid to the Investor by cashier's
check or wire transfer in immediately available funds to such account or
accounts as shall be designated in writing by the Investor.
(b) The parties agree that the actual damages suffered by the Investor
if the Company fails to file and obtain the effectiveness of a Registration
Statement may be difficult to ascertain with precision and that the parties have
agreed to this liquidated damage provision in view of such uncertainty and not
as a penalty.
Section 6.12 LEGAL FEES AND EXPENSES. The Company shall pay upon
demand or otherwise 50% of all reasonable legal fees and expenses incurred by
the Investor in connection with negotiation, drafting, documentation and closing
of the transactions contemplated by this Agreement, the Warrants and the
Registration Rights Agreement except as otherwise expressly provided in Section
3.2 of the Registration Rights Agreement.
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ARTICLE VII
LEGENDS; INVESTOR COVENANTS
Section 7.1 LEGENDS. The Convertible Debenture and each Warrant will
bear the following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Convertible Debenture and Common Stock (and to any
substitute or replacement transfer agent for the Convertible Debenture and
Common Stock contemporaneous with the Company's appointment of any such
substitute or replacement transfer agent) irrevocable instructions. Such
instructions shall be irrevocable by the Company from and after the date hereof
or from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be, except as otherwise expressly provided in
the Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Convertible Debenture and Common Stock from time to time upon transfer of the
Convertible Debenture and Common Stock by the Investor to issue certificates
evidencing Common Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer agent
with the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) At any time after the Effective Date: (i) incident to the conversion
of shares of the Convertible Debenture; (ii) incident to the exercise of any
Warrant; or (iii) upon any surrender of one or more certificates evidencing
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered; and
(b) At any time upon any surrender of the Convertible Debenture or
Common Stock which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace those
surrendered and containing representations that (i) the Investor has a bona fide
intention to dispose of such stock pursuant to Rule 144 under the Securities Act
or is otherwise permitted to dispose thereof without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act; or (ii) the
Investor has sold, pledged or otherwise transferred or agreed to sell, pledge or
otherwise transfer such stock in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities; provided that in connection with an event
described in clause (i) or (ii), the transfer agent shall be entitled to receive
an opinion of counsel to
19
the Investor that in such circumstances the Legend may be removed and that the
transferee (provided that such transferee is not an affiliate of the Company)
shall be entitled to hold freely tradable securities.
Section 7.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend
has been or shall be placed on the Convertible Debenture and Common Stock and no
instructions or "stop transfers," so called, "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer agent
with respect thereto other than as expressly set forth in this Article VII.
Section 7.3 INVESTOR'S COMPLIANCE. Nothing in this Article VII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Convertible Debenture and
Common Stock.
Section 7.4 COVENANTS OF THE INVESTOR. The Investor agrees that any
short sales made by the Investor with respect to Common Stock will be (i)
followed by a notice of conversion with respect to an equivalent number of
shares of Common Stock within five (5) Trading Days of such short sale, and (ii)
made in compliance with all applicable federal and state securities laws.
ARTICLE VIII
JURY TRIAL WAIVER
Section 8.1 JURY TRIAL WAIVER. THE COMPANY AND THE INVESTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM CONCERNING THIS SECURITIES PURCHASE AGREEMENT OR ANY
AMENDMENT, MODIFICATION OR OTHER DOCUMENT NOW OR HEREAFTER DELIVERED IN
CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY SUCH ACTION, PROCEEDING
OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
ARTICLE IX
CHOICE OF LAW AND VENUE
Section 9.1 CHOICE OF LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby irrevocably
and unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Agreement, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts thereof;
20
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 11.1 of
this Agreement or at such other address of which the Investor shall have been
notified pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Investor to effect service of process in any other manner permitted by law or
shall limit the right to ▇▇▇ in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
ARTICLE X
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; PUBLICITY
Section 10.1 ASSIGNMENT. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by any party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Warrants, Convertible Debenture and Common Stock purchased or acquired by
the Investor hereunder with respect to the Convertible Debenture and Common
Stock held by such person, and (b) the Investor's interest in this Agreement may
be assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor) upon the prior written consent of the
Company, which consent shall not to be unreasonably withheld, PROVIDED that if
any Default has occurred and is continuing, this Agreement may be assigned at
any time by the Investor without the consent of the Company.
Section 10.2 ENTIRE AGREEMENT, AMENDMENT. This Agreement, the
Registration Rights Agreement, and the other documents delivered or to be
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject hereof and thereof, and
no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
Section 10.3 PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
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ARTICLE XI
NOTICES; COST AND EXPENSES; INDEMNIFICATION
Section 11.1 NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice:
(a) if to the Company, to: Telscape International, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Executive
Vice President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ & Berlin, Chartered
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Investor, to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 11.2 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to indemnify and
hold harmless the Investor and each person, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act as follows:
22
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement of
a material fact contained in the Registration Statement (or any
amendment thereto), including any prospectus, or in any offering
circular or other document, as applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statement therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement thereto), or
in any offering circular or other document, as applicable, or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
11.2(d) below) any such settlement is effected with the written consent
of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Investor), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above; provided, however, that
this indemnity shall not apply to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by the
Investor expressly for use in the Registration Statement (or any
amendment thereto), including any prospectus (or any amendment or
supplement thereto), or in any offering circular or other document, as
applicable.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including any prospectus (or any amendment or supplement thereto), or in
offering circular or other document, as applicable, in reliance upon and in
conformity with written information furnished to the Company by the Investor
expressly for use in the Registration Statement (or any amendment or supplement
thereto) or in any offering circular or other document, as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it
23
in respect of which indemnity may be sought hereunder, but failure to so notify
an indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 11.2(a) above, counsel to the
indemnified parties shall be selected by the Investor, and in the case of
parties indemnified pursuant to Section 11.2(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, unless the named parties to any
such litigation (including impleaded parties) include both such indemnified
parties and one or more of the indemnifying parties and their affiliates, and
representation of such parties by the same counsel would be inappropriate due to
actual or potential conflicting defenses, in which case such parties with a
conflicting defense shall be represented by one counsel selected by such
parties. No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry or any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section or Section 11.3 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of an any indemnified
party.
(d) SETTLEMENT WITHOUT CONSENT OR FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 11.2(a)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
Section 11.3 CONTRIBUTION. If the indemnification provided for in
Section 11.2 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to herein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred in such proportion
as is appropriate to reflect the relative fault of the Company on the one hand
and of the Investor on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company
24
on the one hand and the Investor on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Investor and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 11.3 were determined on a
pro-rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11.3.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 11.3
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 11.3, the Investor shall
not be required to contribute any amount in excess of the amount by which the
total price at which the shares of Common Stock sold by the Investor to the
public exceeds the amount of any damages which the Investor would have otherwise
been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 11.3, each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as such Investor,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company.
ARTICLE XII
MISCELLANEOUS
Section 12.1 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which together shall constitute one instrument.
Section 12.2 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. The indemnity and contribution agreements contained in Sections 11.2
and 11.3 hereof shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any indemnified party or by or on behalf of the Company, and (iii) the
consummation of the sale or successive resales of the Common Stock. In the event
that any
25
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that such severability
shall be ineffective if it materially changes the economic benefit of this
Agreement to any party.
Section 12.3 TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.4 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg L.P. or any other reputable pricing service chosen by the Investor
and reasonably acceptable to the Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first
written above.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ CAPITAL, LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
Its: President
TELSCAPE INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
Its: Executive Vice President
27
LIST OF EXHIBITS AND SCHEDULES
Exhibits
A Form of Convertible Debenture
B Form of Warrant
C Form of Registration Rights Agreement
SCHEDULES
5.4 Common Stock Equivalents
5.5 List of Subsidiaries
5.14 Litigation and Other Proceedings
28
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
CONVERTIBLE DEBENTURE
$5,000,000 Issued: May 29, 1998
Due Date: May 28, 1999
FOR VALUE RECEIVED, TELSCAPE INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Texas (herein referred to
as the "COMPANY"), for value received, acknowledges itself indebted and hereby
promises to pay to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ CAPITAL, LLC, a Delaware limited liability
company (the "REGISTERED OWNER") on the due date written above (the "DUE DATE"),
the sum of Five Million Dollars and No Cents ($5,000,000), along with interest
accrued thereon from the date hereof at the rate of eight percent (8%) per annum
and Exit Fee (as hereinafter defined) as applicable; PROVIDED, HOWEVER, that
following the occurrence and during the continuance of a Default (as defined
below), the Company shall pay to Registered Owner interest from the date of such
Default at the rate of twelve percent (12%) per annum on the outstanding balance
of this Convertible Debenture. Payment of interest shall be made monthly in
arrears on the last day of each calendar month (commencing June 30, 1998) and,
after maturity, upon demand of Registered Owner.
This Convertible Debenture is issued pursuant to the terms of that
certain Securities Purchase Agreement of even date herewith between the Company
and the Registered Owner (the "SECURITIES PURCHASE AGREEMENT"), to which
reference is hereby made for additional provisions governing the obligations of
the Company. Capitalized terms used in this Convertible Debenture which are not
defined herein shall have the meanings assigned to them in the Securities
Purchase Agreement
1. PAYMENT OF PRINCIPAL AND INTEREST. The principal and interest
outstanding under this Convertible Debenture shall be made at the principal
office of the Registered Owner, located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇. All computations of interest under this Convertible Debenture shall be
made on the basis of a year of 365 days, for the actual number of days elapsed.
Interest shall accrue from and including the date that the purchase price of
this Convertible Debenture is paid. The date of redemption of this Convertible
Debenture shall be excluded from the calculation of interest. Whenever any
payment to be made under this Convertible Debenture shall be stated to be due on
a Saturday, Sunday, or public or bank holiday or the equivalent for banks
generally under the laws of the State of New York (any other day being a
"BUSINESS DAY"), such payment may be made on the next succeeding business day.
2. PREPAYMENT. The Company may, upon at least two Business Days' prior
written notice, prepay this Convertible Debenture in whole at any time and in
part from time to time. Each partial prepayment made pursuant to this paragraph
shall be in a minimum principal amount of $500,000 and in an integral multiple
of $500,000 in excess thereof. Any notice of prepayment given to the Registered
Owner pursuant to this paragraph 2 shall be irrevocable and binding on the
Company and shall specify the date of prepayment. Each prepayment made pursuant
to this paragraph 2 shall be accompanied by the payment of (a) accrued interest
to the date of such prepayment on the amount prepaid and (b) the applicable exit
fee (the "EXIT FEE") relating to such prepayment amount. The Exit Fee shall be
an amount which is a function of the number of days after the Closing Date that
the prepayment or payment of the Convertible Debenture occurs (the "PAYMENT
DATE"), as set forth in the following table:
Number of Days after Closing
Date that Payment Occurs
("PAYMENT PERIOD") EXIT FEE
PART A
0-90 6 1/2% of principal payment on Convertible Debenture
91-180 13% of principal payment on Convertible Debenture
181-270 19% of principal payment on Convertible Debenture
271-365 25% of principal payment on Convertible Debenture
PART B
After the Due Date, the Exit Fee shall be equal to twenty
five percent (25%) of any subsequent principal payment, PLUS
twenty five percent (25%) of such subsequent principal
payment times a fraction, the numerator of which is the
number of days elapsed from the Due Date as of such
subsequent principal payment date and the 366 days and
thereafter denominator of which is 365.
Notwithstanding the foregoing or anything to the contrary contained in this
Convertible Debenture, for each repayment period set forth above in Part A
(other than the 0-90 day period), the applicable Exit Fee shall be reduced PRO
RATA based upon the actual number of days between the Payment Date and the
ending date of the APPLICABLE PAYMENT PERIOD.
3. TERMINATION OR SUSPENSION OF COMPANY'S OBLIGATION TO MAKE PAYMENTS.
If (i) the Common Stock closes at $33.50 or higher for twenty (20) consecutive
Trading Days, as adjusted, without limitation, for any stock splits or
combinations, (ii) the Registration Statement shall have been declared and shall
then be effective and (iii) no Default shall exist, then the
-2-
Company's obligation to make interest payments on this Convertible Debenture
shall terminate. If the Company's obligation to make interest payments on this
Convertible Debenture terminates in accordance with the foregoing sentence, any
and all interest accrued in accordance with this Convertible Debenture prior to
such date of termination shall be due and payable on the last day of the then
current calendar month, without diminution or reduction notwithstanding the
termination of the Company's obligation to pay interest accruing after such
twentieth consecutive Trading Day. It is understood and agreed that such
termination shall not affect the Company's obligation to pay the Exit Fee upon
the payment of the principal of this Debenture.
4. SECURITY. This Convertible Debenture shall be secured by the Pledge
Agreement made by the Company in favor of the Investor, the Guaranty made by
Interlink Communications, Inc. in favor of the Investor, and the Security
Agreement made by Interlink Communications, Inc. in favor of the Investor, each
as amended or otherwise modified from time to time.
5. CONVERSION.
(a) CONVERSION CALCULATION. The Registered Owner is entitled at
any time and from time to time to convert all, or any part thereof, of
the unpaid principal and interest (but without any Exit Fee) outstanding
under this Convertible Debenture (the "OUTSTANDING DEBENTURE AMOUNT")
into that number of fully paid and non-assessable shares of Common Stock
(as defined in the Securities Purchase Agreement), at a price calculated
as follows:
(i) if the Registered Owner converts the Outstanding
Debenture Amount on or prior to November 1, 1998, the conversion
price shall be equal to the Fixed Conversion Price (as defined in
the Securities Purchase Agreement), or
(ii) if the Registered Owner converts the Outstanding
Debenture Amount on November 2, 1998, or at any time thereafter,
the conversion price shall be equal to the lesser of the Fixed
Conversion Price or the Variable Conversion Price (as defined in
the Securities Purchase Agreement).
Notwithstanding anything to the contrary, the Company shall have the
option to pay the outstanding interest of this Convertible Debenture
then accrued upon receipt of the Conversion Notice (as defined below) in
cash.
(b) EXERCISE OF CONVERSION. To exercise its right of conversion,
the Registered Owner shall surrender this Convertible Debenture to the
Company at its registered office, accompanied by a written notice in the
form of EXHIBIT A hereto, properly completed (the "CONVERSION NOTICE").
Within five (5) Trading Days following its receipt of this Convertible
Debenture and Conversion Notice, the Company shall, assuming it has not
elected to exercise its right to redeem pursuant to Paragraph 6 below,
issue and deliver (i) a certificate or certificates for the number of
full Conversion Shares issuable, registered in the Registered Owner's
name, and (ii) if less than the entire remaining outstanding principal
balance of this Convertible Debenture is being converted, a replacement
note in the remaining outstanding principal amount of this Convertible
Debenture. Such conversion shall be deemed to have been effected and the
number of Conversion Shares issuable in connection with such conversion
shall be determined as of the close of
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business on the date on which this Convertible Debenture and Conversion
Notice shall have been received by the Company. No Exit Fee shall be
payable on the portion of the Convertible Debenture being converted.
6. REDEMPTION. If at any time during the term of this Agreement the
price per share of Common Stock has closed below the Redemption Floor Price for
three (3) consecutive Trading Days, the Company may elect to redeem all or part
of this Convertible Debenture, if the Investor subsequently issues a Conversion
Notice and converts any Convertible Debenture, at one hundred seven percent
(107%) of par, plus any accrued interest or unpaid dividends (but without any
Exit Fee), by providing written notice via facsimile to the Investor on the
Trading Day immediately following the third consecutive Trading Day that the
Common Stock has closed below the Redemption Floor Price, as adjusted pursuant
Section 8.1 of the Securities Purchase Agreement, of its intent to redeem and
the extent of the redemption. Such written notice shall be valid and irrevocable
for ten (10) Trading Days and shall automatically expire at the end of such
10-Trading Day period.
7. REGISTRATION RIGHTS AGREEMENT. The resale of the shares of Common
Stock issuable upon conversion of this Convertible Debenture is subject to the
provisions of the Registration Rights Agreement of even date herewith by and
between the Company and the Registered Owner.
8. DEFAULT.
(a) DEFAULT. If any of the following events ("DEFAULTS") shall
occur and be continuing:
(i) the Company fails to pay within five (5) days when due
or declared due (whether by scheduled maturity, required payment,
acceleration, demand or otherwise) any principal or interest due
hereunder or any amount payable to the Registered Owner under the
Securities Purchase Agreement; or
(ii) the Company shall fail to perform or observe any
covenant or agreement contained in Article VI of the Securities
Purchase Agreement (other than with respect to any payment
covenants, as to which subsection (i) shall apply), as the case
may be, on its part to be performed or observed, and any such
failure shall remain unremedied for thirty (30) days after
written notice thereof shall have been given to the Company by
the Registered Owner; or
(iii) any "Event of Default" shall occur and be continuing
under the General Security Agreement dated the date hereof (as
amended or otherwise modified from time to time, the "Security
Agreement"), by Interlink Communications, Inc. in favor of the
Investor;
then the Registered Owner may declare all or any portion of the principal and
interest due hereunder, the Exit Fee and all amounts due under the Securities
Purchase Agreement to be immediately due and payable.
-4-
(b) RIGHTS AND REMEDIES. In the event of a Default, the
Registered Owner shall have, in addition to any other rights and
remedies contained in the Securities Purchase Agreement, under the other
Transaction Documents (as defined in the Security Agreement), at law or
otherwise, all of which such rights and remedies shall be cumulative,
and non-exclusive, to the extent permitted by law, the Registered Owner
shall have the right to immediately convert any remaining Outstanding
Debenture Amount. It is understood and agreed that the Exit Fee will be
due and payable with respect to any payment of principal hereunder
(whether before or after the occurrence of Default), except for any
payment of principal pursuant to Section 6 hereof; PROVIDED, HOWEVER,
that no Exit Fee shall be payable on the portion of any Outstanding
Debenture Amount which is converted.
9. TRANSFER. THIS CONVERTIBLE DEBENTURE IS REGISTERED IN THE NAME OF THE
REGISTERED OWNER ON THE DEBENTURE REGISTER MAINTAINED BY THE COMPANY, AND IS
TRANSFERABLE UPON THE WRITTEN ORDER OF THE REGISTERED OWNER. THIS CONVERTIBLE
DEBENTURE (AND THE COMMON STOCK OF THE COMPANY INTO WHICH IT MAY BE CONVERTED)
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
WITHOUT THE REGISTRATION THEREOF UNDER THE SECURITIES ACT, AND ANY APPLICABLE
STATE SECURITIES LAW, OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
10. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Convertible Debenture, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 11.1 of the
Securities Purchase Agreement or at such other address of which the Registered
Holder shall have been notified pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Registered Holder to effect service of process in any other manner permitted by
law or shall limit the right to ▇▇▇ in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
-5-
11. AMENDMENTS. No amendment or waiver of any provision of this
Convertible Debenture, nor consent to any departure by the Company therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Registered Owner, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
12. EXPENSES. The Company agrees to promptly pay all reasonable costs
and expenses (including attorneys' fees, expenses and disbursements, and costs
of settlement and the fees, expenses and disbursements of experts or advisors)
incurred by the Registered Owner in enforcing any obligations of or in
collecting any payments due from the Company under this Convertible Debenture
and the Securities Purchase Agreement.
13. JURY TRIAL WAIVER. THE COMPANY AND THE REGISTERED HOLDER (BY ITS
ACCEPTANCE HEREOF) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING THIS
CONVERTIBLE DEBENTURE OR ANY AMENDMENT, MODIFICATION OR OTHER DOCUMENT NOW OR
HEREAFTER DELIVERED IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREE THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
IN WITNESS WHEREOF, TELSCAPE INTERNATIONAL, INC. has caused this
Convertible Debenture to be duly executed this 29th day of May, 1998.
TELSCAPE INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
Its: Executive Vice President
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EXHIBIT A
[FORM OF CONVERSION NOTICE]
TO: Telscape International, Inc.
The undersigned owner of this Convertible Debenture hereby: (i)
irrevocably exercises the option to convert this Convertible Debenture, or the
portion hereof below designated, for Common Stock of Telscape International,
Inc. (the "Conversion Shares") in accordance with the terms hereof and (ii)
directs that such Conversion Shares deliverable upon the conversion, together
with any check in payment for fractional shares and interest and the Convertible
Debenture representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If Conversion Shares are to be delivered or registered in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes with respect thereto, and the Company will not be required to
issue or deliver a certificate for such Conversion Shares until the undersigned
has paid to the Company the amount of such transfer tax or has established to
the satisfaction of the Company that such transfer tax has been paid.
Dated:______________________
-------------------------
Signature
Fill in for registration of shares if to be delivered, and of this Convertible
Debenture if to be issued, otherwise than to and in the name of the registered
holder.
-------------------------
Social Security or Other
Taxpayer Identifying Number
-----------------------------
(Name)
-----------------------------
(Street Address)
-----------------------------
(City, State and Zip Code)
(Please print name and address)
Principal Amount to be Converted (if
less than all):
$___________________________________
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STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Warrant ▇-▇▇
▇▇▇ ▇▇, ▇▇▇▇
▇▇▇▇▇▇▇ to Purchase 12,136 Shares of Common Stock of
Telscape International, Inc.
Telscape International., a Texas corporation (the "COMPANY"), hereby
acknowledges that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital, LLC ("INVESTOR") or any other Warrant
Holder is entitled, on the terms and conditions set forth below, to purchase
from the Company, at any time, from time to time thereafter beginning after the
effectiveness of the Registration Statement and continuing for three years, with
respect to the above number of fully paid and nonassessable shares of Common
Stock, par value $0.001 per share, of the Company (the "COMMON STOCK") at the
Purchase Price (hereinafter defined), as the same may be adjusted pursuant to
Section 5 herein. The resale of the shares of Common Stock or other securities
issuable upon exercise or exchange of this Warrant is subject to the provisions
of the Registration Rights Agreement of even date herewith (the "REGISTRATION
RIGHTS AGREEMENT") between the Company and the Investor.
1. DEFINITIONS.
(a) "AGREEMENT" shall mean the Securities Purchase Agreement of
even date herewith between the Company and the Investor.
(b) "INVESTOR" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital, LLC, a
Delaware limited liability company.
(c) "PURCHASE PRICE" shall be the average closing price for the
five (5) Trading Days immediately preceding the Closing Date, which is $20.60.
(d) "WARRANT HOLDER" shall mean the Investor or any permitted
assignee of all or any portion of this Warrant.
(e) "WARRANT SHARES" shall mean the shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(f) Other capitalized terms used herein which are defined in the
Agreement shall have the same meanings herein as therein.
2. EXERCISE OR EXCHANGE OF WARRANT.
(a) This Warrant may be exercised by the Warrant Holder, in whole
or in part, in accordance with the terms hereof by surrender of this Warrant,
together with the form of exercise attached hereto as Exhibit A (the "EXERCISE
FORM") duly executed by the Warrant Holder, together with the full Purchase
Price (as defined in Section 1 hereof) for each share of Common Stock as to
which this Warrant is exercised, to the Company at the address set forth in
Section 13 hereof. In the event that the Warrant is not exercised in full, the
number of Warrant Shares shall be reduced by the number of such Warrant Shares
for which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of the Warrant Holder a new
Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder
may request, reflecting such reduced number of Warrant Shares.
(b) The "DATE OF EXERCISE" of the Warrant shall be the date that
the completed Exercise Form is delivered to the Company, together with the
original Warrant and payment in full of the Purchase Price.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) Trading Days (as defined in the Agreement) thereafter, the
Company at its expense (including, without limitation, the payment by it of any
applicable transfer taxes) will cause to be issued in the name of and delivered
to the Warrant Holder, or as the Warrant Holder may lawfully direct, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock to which the Warrant Holder shall be entitled on such
exercise, together with any other stock or other securities or property
(including cash, where applicable) to which the Warrant Holder is entitled upon
such exercise in accordance with the provisions hereof.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock, then
in such event the Warrant Holder shall be entitled to an amount of cash equal to
the fair market value of such fractional share. For purposes of this Warrant,
"FAIR MARKET VALUE" shall equal the closing bid price of the Common Stock on the
Nasdaq National Market or Small-Cap Market, the American Stock Exchange or the
New York Stock Exchange, whichever is the principal trading exchange or market
for the Common Stock (the "PRINCIPAL MARKET") on the date of exercise hereof, or
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq National Market or Small-Cap Market,
the closing bid price on the over-the-counter market as furnished by any New
York Stock Exchange member firm that makes a market in the Common Stock
reasonably selected from time to time by the Company for that purpose, or, if
the Common Stock is not traded over-the-counter and the average price cannot be
determined as contemplated above, the fair market value of
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the Common Stock shall be as reasonably determined in good faith by the
Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall file and cause to declared effective a
registration statement under the Securities Act covering the resale or other
disposition thereof of the Warrant Shares by the Warrant Holder to the extent
provided by the Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation,
including, without limitation, the notification of the Nasdaq National Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to the
Warrant Holder.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps necessary and within
its control to insure that the Common Stock remains listed or quoted on the
Principal Market and shall not amend its Articles of Incorporation or By-Laws so
as to materially and adversely affect any rights of the Warrant Holder under
this Warrant; provided, however, that increasing the number of authorized shares
shall not be deemed a material adverse effect.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant Shares.
(e) The Warrant Shares, when issued in accordance with the terms
hereof; will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to the Warrant Holder the
requisite number of shares of Common Stock to be issued pursuant to this
Warrant.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Securities Act ("RULE 144") and any
other rule or regulation of the Securities and Exchange Commission (the "SEC"),
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms are defined in
Rule 144, at all times; and (ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number
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of Warrant Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price, but the aggregate purchase price payable for the
total number of Warrant Shares purchasable under this Warrant as of such date
shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable for
Common Stock ("COMMON STOCK EQUIVALENTS"), without payment of any consideration,
or with payment of consideration less than eighty-five percent of the fair
market value of such Common Stock or Common Stock Equivalents, by holders of
Common Stock for the additional shares of Common Stock or Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock for
which this Warrant may be exercised shall be increased as of the record date (or
the date of such dividend distribution if no record date is set) for determining
which holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend (but taking into
account any consideration paid), and the Purchase Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date (or on the date of such
distribution, if applicable) for such dividend shall equal the aggregate amount
so payable.
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of a
dissolution or liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets without payment
of any consideration, or with payment of consideration that is less than
eighty-five percent of the fair market value of such shares of capital stock,
evidence of indebtedness or assets so distributed, by holders of Common Stock
(other than cash, Common Stock or securities convertible into or exchangeable
for Common Stock), then, in any such case, the Warrant Holder shall be entitled
to receive, upon exercise of this Warrant, with respect to each share of Common
Stock issuable upon such exercise, the amount of cash or evidences of
indebtedness or other securities or assets (taking into account any
consideration paid) which such Warrant Holder would have been entitled to
receive with respect to each such share of Common Stock as a result of the
happening of such event had this Warrant been exercised immediately prior to the
record date or other date determining the shareholders entitled to participate
in such distribution (the "DETERMINATION DATE") or, in lieu thereof, if the
Board of Directors of the Company should so determine at the time of such
distribution, a reduced Purchase Price determined by multiplying the Purchase
Price on the Determination Date by a fraction, the numerator of which is the
result of such Purchase Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined in good
faith by the Company's Board of Directors) and the denominator of which is such
Purchase Price.
(d) MERGER, CONSOLIDATION, ETC. If at any time after the date
hereof there shall be a merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "CONSOLIDATION EVENT"), then the Warrant Holder
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shall be entitled to receive upon such transfer, merger or consolidation
becoming effective, and upon payment of the aggregate Purchase Price then in
effect, the number of shares or other securities or property of the Company or
of the successor corporation resulting from such merger or consolidation, which
would have been received by Warrant Holder for the shares of stock subject to
this Warrant had this Warrant been exercised immediately prior to such transfer,
merger or consolidation becoming effective or to the applicable record date
thereof, as the case may be. The Company shall not effect any Consolidation
Event unless the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligation to deliver to the Warrant Holder
such shares of stock and/or securities as the Warrant Holder is entitled to
receive had this Warrant been exercised in accordance with the foregoing;
provided, however, that if as of the third business day prior to the
consummation of the Consolidation Event the closing bid price of the Common
Stock shall be equal to at least 200% of the Purchase Price, then the Warrant
shall be automatically exchanged on the date of consummation of the
Consolidation Event, as provided in Section 2 hereof.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reclassification of any securities as to which purchase rights
under this Warrant exist, into the same or a different number of securities of
any other class or classes, then the Warrant Holder shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Purchase Price then in effect, the number of shares or other
securities or property resulting from such reorganization or reclassification,
which would have been received by the Warrant Holder for the shares of stock
subject to this Warrant had this Warrant at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than issuance of
shares of Common Stock upon conversion thereof, shares or options issued or
which may be issued to employees, directors or consultants pursuant to the
Company's stock option or stock purchase plans as of the date hereof or shares
issued upon exercise of options, warrants or rights outstanding as of the date
hereof) at an effective purchase price per share which is less than the Purchase
Price then in effect and more than fifteen percent (15%) less than the fair
market value (as herein above defined) of the Common Stock on the Trading Day
next preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying the
Purchase Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, including, without duplication, those deemed to
have been issued under the Warrants plus (2) the number of shares of Common
Stock which the aggregate consideration received by the Company for such
additional shares would purchase at such fair market value then in effect and
(y) the denominator of which shall be the number of shares of Common Stock of
the Company outstanding immediately after such issue or sale including, without
duplication, those deemed to have been issued under the Warrants. For purposes
of the foregoing fraction, Common Stock outstanding shall include, without
limitation, any equity offerings then outstanding, whether or not they are
exercisable or convertible when such fraction is to be determined.
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The foregoing price adjustment shall not apply to the issuance of shares
of Common Stock which may be issued upon exercise of options under the Company's
employee or director stock option plans, upon the conversion or exchange of
convertible or exchangeable securities or upon the exercise of warrants, or
other rights, which options, convertible or exchangeable securities, warrants or
other rights are outstanding on the date of execution and delivery of this
Warrant.
The number of shares which may be purchased shall be increased
proportionately to any reduction in Purchase Price pursuant to this paragraph
5(f), so that after such adjustments the aggregate Purchase Price payable
hereunder for the increased number of shares of Common Stock shall be the same
as the aggregate Purchase Price in effect immediately prior to such adjustments.
Notwithstanding anything else contained in this Warrant to the contrary,
there shall be no adjustment of the Purchase Price or the number of shares of
Common Stock issuable pursuant to the exercise of this Warrant in the event that
during the term of this Warrant, the Company issues shares of Common Stock, or
securities convertible into Common Stock to the Purchaser.
(g) ADJUSTMENTS; ADDITIONAL SHARES, SECURITIES OR ASSETS. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, the Warrant Holder shall, upon exercise of this Warrant, become
entitled to receive shares and/or other securities or assets (other than Common
Stock) then, wherever appropriate, all references herein to shares of Common
Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 5.
6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrant Holder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, and (b) will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall execute and deliver (by first class mail, postage
prepaid) to the Warrant Holder a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Purchase Price and number
of shares purchasable hereunder after giving effect to such adjustment.
8. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions
6
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Company
shall mail to each Warrant Holder, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of the Warrant,
upon delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
10. CONSENT TO JURISDICTION. The Company hereby irrevocably and
unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Warrant, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process in
any such action, suit or proceeding by the mailing of copies of such process by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Company, at its address set forth in Section 13 of this
Warrant or at such other address of which the Investor shall have been notified
pursuant thereto;
(d) Agrees that nothing herein shall affect the right of the
Investor to effect service of process in any other manner permitted by law or
shall limit the right to ▇▇▇ in any other jurisdiction; and
(e) Waives any right it may have to claim or recover in any legal
action, suit or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Registration Rights
Agreement and the Agreement contain the entire understanding of the parties with
respect to the matters covered hereby and thereby. No provision of this Warrant
may be waived or amended other than by a written instrument signed by the party
against whom enforcement of any such amendment or waiver is sought.
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12. RESTRICTED SECURITIES.
(a) REGISTRATION OR EXEMPTION REQUIRED. This Warrant has been
issued in a transaction exempt from the registration requirements of the
Securities Act in reliance upon the provisions of Section 4(2) under the
Securities Act of 1933 and the rules promulgated thereunder by the SEC. This
Warrant and the Warrant Shares issuable upon exercise of this Warrant may not be
resold except pursuant to an effective registration statement or an exemption to
the registration requirements of the Securities Act and applicable state laws.
(b) LEGEND. The Warrant and any Warrant Shares issued upon
exercise thereof (until a registration statement has been declared effective by
the SEC with respect to the Warrant Shares, at which time, such legend shall be
removed, and the Warrant Shares shall be freely tradable), shall bear the
following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
(c) ASSIGNMENT. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Warrant Holder may sell,
transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in
part. The Warrant Holder shall deliver a written notice to Company,
substantially in the form of the Assignment attached hereto as Exhibit B,
indicating the person or persons to whom the Warrant shall be assigned and the
respective number of warrants to be assigned to each assignee. The Company shall
effect the assignment within ten (10) days, and shall deliver to the assignee(s)
designated by the Warrant Holder after delivery to the Company of the original
Warrant or Warrants for cancellation, a Warrant or Warrants of like tenor and
terms for the appropriate number of shares.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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to the Company: Telscape International, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Executive Vice
President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
to the Warrant Holder: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 13 by giving at least 10 days
prior written notice of such changed address or facsimile number to the other
party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of New York. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any of
the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
TELSCAPE INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President
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EXHIBIT A
FORM OF WARRANT EXERCISE
I/we hereby exercise Telscape International, Inc. (the "Company") Common
Stock Purchases Warrant A-____.
(a) Number of Shares of the Company common stock conferred
in Purchase Warrant A-_____: ________________ shares.
(b) Total Exercise price ($_________ per share): $___________
_____________________________________ ________________________________
Name: Employment Identification Number
Title:
Address: _______________________________________________________________
________________________________________________________________________
______________________________________
Telephone Number
______________________________________ ________________________________
Name: Employment Identification Number
Title:
Address: _______________________________________________________________
________________________________________________________________________
______________________________________
Telephone Number
a. ( ) Individual Ownership
b. ( ) Husband and Wife as Community Property
c. ( ) Joint Tenants w/Right to Survivorship (JTRS)
d. ( ) Tenants in Common
e. ( ) Other_______________________________
Dated:_________________________, _____.
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Warrant Holder desiring to
transfer the Warrant)
FOR VALUED RECEIVED, the undersigned holder of the attached Warrant
hereby sells, assigns and transfers unto the persons below named the right to
purchase __________ shares of the Common Stock of TELSCAPE INTERNATIONAL, INC.
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint __________________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.
Dated:
________________________________________
Signature
Fill in for new Registration of Warrant:
________________________________________
Name
________________________________________
Address
________________________________________
Please print name and address of assignee
(including zip code number)
NOTICE: The signature to the foregoing Assignment must correspond to the name
as written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as
of May 29, 1998 (the "Effective Date"), is made and entered into among TELSCAPE
INTERNATIONAL, INC., a Texas corporation (the "COMPANY"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
CAPITAL, LLC, a Delaware limited liability company, (the "INVESTOR").
RECITALS:
A. The Company and the Investor have entered into that certain
Securities Purchase Agreement, dated of even date herewith (the "SECURITIES
PURCHASE AGREEMENT"), pursuant to which the Company will issue to the Investor
its 8% Convertible Debenture (the "CONVERTIBLE DEBENTURE"), for an aggregate
purchase price of up to $5,000,000.
B. Pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Securities Purchase Agreement, the
Company has issued to the Investor Stock Purchase Warrants of even date
herewith, exercisable from time to time commencing on the Effective Date of the
Registration Statement (the "WARRANTS"), for the purchase of shares of Common
Stock as computed in accordance with the Warrant Formula (as defined in the
Securities Purchase Agreement) at the Exercise Price (as defined in the
Securities Purchase Agreement).
C. Pursuant to the terms of, and in partial consideration for,
the Investor's agreement to enter into the Securities Purchase Agreement, the
Company has agreed to provide the Investor with certain registration rights with
respect to the Registrable Securities (as defined below).
NOW, THEREFORE, in consideration of the premises, the
representations, warranties, covenants and agreements contained herein, in the
Convertible Debenture, in the Warrants and in the Securities Purchase Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. Capitalized terms defined in the Securities
Purchase Agreement, the Convertible Debenture, or the Warrants shall have the
same meanings herein as are ascribed to them therein. In addition, the following
terms shall have the meanings ascribed below:
"REGISTRABLE SECURITIES" means all of the Common Stock and any other
securities issued or issuable upon conversion of the Convertible Debenture and
the exercise of the Warrants as provided therein until (i) a registration
statement under the Securities Act covering the offering of such securities has
been declared effective by the SEC and such securities have been disposed
of pursuant to such effective registration statement, (ii) such securities are
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar provision then in force) under the Securities Act ("RULE 144")
are met, (iii) such securities have been otherwise transferred and the Company
has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the
Investor, such securities may be sold without any time, volume or manner
limitation pursuant to Rule 144(k) (or any similar provision then in effect)
under the Securities Act.
"REGISTRATION STATEMENT" See Section 2.1 (a).
ARTICLE II
REGISTRATION RIGHTS
Section 2.1. REGISTRATION STATEMENTS.
(a) Subject to the terms and conditions of this Agreement and in
accordance with the provisions of Section 6.4 of the Securities Purchase
Agreement, the Company shall file with the SEC a registration statement on Form
S-3 or otherwise appropriate form (the "REGISTRATION STATEMENT") under the
Securities Act for the registration of the resale by the Investor of Common
Stock to be issued upon conversion of the Convertible Debenture and exercise of
the Warrants.
(b) The Registration Statement shall be declared effective by the SEC no
later than one hundred twenty (120) days from the Closing Date (if the Company
is not eligible to file the Registration Statement on Form S-3) or ninety (90)
days from the Closing Date (if the Company is eligible to file the Registration
Statement on Form S-3) and shall remain in effect until such time as no
Registrable Securities remain unsold.
(c) In the event the Company fails to obtain the effectiveness of a
Registration Statement within the time period set forth in Section 2.1(b) or the
effectiveness of the Registration Statement is suspended or a current prospectus
meeting the requirements of Section 10 of the Securities Act is not available
for delivery by the Investor, and such occurrence is not the result of any
information provided or failed to be provided by the Investor or some
unforeseeable catastrophe affecting the operation of the SEC, the Company shall
pay to the Investor the amounts set forth in Section 6.11 of the Securities
Purchase Agreement.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1. FILINGS; INFORMATION. Whenever the Company is required to
effect or cause the registration of Registrable Securities pursuant to Section
2.1 hereof, the Company will use its best efforts to effect the registration of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
request:
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(a) The Company will as expeditiously as possible, prepare and file with
the SEC the Registration Statement and use its best efforts to cause such filed
Registration Statement to be declared effective as soon as possible and to
remain effective thereafter (pursuant to Rule 415 under the Securities Act or
otherwise), and the Company will as expeditiously as possible prepare and file
with the SEC such amendments and supplements to such Registration Statement and
the prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for the time periods prescribed in Section
2.1(b) hereof 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
Investor set forth in such Registration Statement.
(b) The Company will (i) prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto (excluding amendments deemed
to result from the filing of documents incorporated by reference therein),
furnish to the Investor and counsel for the Investor, copies of such
Registration Statement, prospectus, amendment or supplement as proposed to be
filed, together with exhibits thereto, (ii) provide the Investor and counsel an
adequate and appropriate opportunity to review and comment on such documents,
(iii) not file any such documents to which the Investor or counsel shall have
reasonably objected on the grounds that such filing does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder, and (iv) thereafter furnish to the Investor and its
counsel for their review such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such Registration Statement (including each
preliminary prospectus) and such other documents or information as the Investor
or counsel may reasonably request in order to facilitate the disposition of the
Registrable Securities.
(c) After the filing of the Registration Statement, the Company will
promptly notify the Investor of any stop order issued or threatened by the SEC
that the Company has knowledge of in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(d) The Company will use its reasonable good faith efforts to (i)
register or qualify such Registrable Securities under such other securities or
blue sky laws of such jurisdictions in the United States as the Investor may
reasonably (in light of its intended plan of distribution) request, and (ii)
cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable the Investor to consummate the disposition of the Registrable Securities;
provided that the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (B) subject itself to taxation in any such
jurisdiction or (C) consent or subject itself to general service of process in
any such jurisdiction.
(e) The Company will immediately notify the Investor upon the occurrence
of any of the following events in respect of a Registration Statement or related
prospectus in respect of an
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offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement, for amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose; (iii) receipt of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose that the Company has knowledge of; (iv) the happening of any event which
makes any statement made in the Registration Statement or related prospectus or
any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
the Registration Statement, related prospectus or documents so that, in the case
of the Registration Statement, it 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, and that in the case
of the related prospectus, it 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, in the light of the circumstances
under which they were made, not misleading; and (vi) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor and counsel for the Investor any such supplement or amendment to the
related prospectus in accordance with paragraph (b) hereof.
(f) The Company will enter into customary agreements and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (the Investor may, at its option,
require that any or all of the representations, warranties and covenants of the
Company also be made to and for the benefit of the Investor).
(g) The Company will make available to the Investor (and will deliver to
Investor's counsel), subject to restrictions imposed by the United States
federal government or any agency or instrumentality thereof, copies of all
correspondence between the SEC and the Company, its counsel or auditors and will
also make available for inspection by the Investor and any attorney, accountant
or other professional retained by the Investor (collectively, the "INSPECTORS"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "RECORDS") as shall be reasonably necessary to
enable the Investor to exercise its due diligence responsibility, and cause the
Company's officers and employees to supply all information reasonably requested
by any Inspectors in connection with such Registration Statement. Records which
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement or (ii) the disclosure
or release of such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided that
prior to any disclosure or release pursuant to clause (ii), the Inspectors shall
provide the Company with prompt notice of any such request or requirement so
that the Company may seek an appropriate
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protective order or waive such Inspectors' obligation not to disclose such
Records; and, provided further, that if failing the entry of a protective order
or the waiver by the Company permitting the disclosure or release of such
Records, the Inspectors, upon advice of counsel, are compelled to disclose such
Records, the Inspectors may disclose that portion of the Records which counsel
has advised the Inspectors that the Inspectors are compelled to disclose. The
Investor agrees that information obtained by it solely as a result of such
inspections (not including any information obtained from a third party who,
insofar as is known to the Investor after reasonable inquiry, is not prohibited
from providing such information by a contractual, legal or fiduciary obligation
to the Company) shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such information is made generally available to the
public. The Investor further agrees that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of the Records deemed confidential.
(h) The Company will otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
(i) The Company will appoint a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effective date of such Registration Statement.
The Company may require the Investor to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the SEC, the NASD or the Principal Market. The Investor agrees to
provide such information requested in connection with such registration within
ten (10) business days after receiving such written request and the Company
shall not be responsible for (and the penalties specified in Section 2.1(c)
hereof shall not apply in respect of) any delays in obtaining or maintaining the
effectiveness of the Registration Statement caused by the Investor's failure to
timely provide such information. The Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3.1(e) hereof, the Investor will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(e) hereof, and,
if so directed by the Company, the Investor will deliver to the Company all
copies, other than permanent file copies then in the Investor's possession, of
the most recent prospectus covering such Registrable Securities at the time of
receipt of such notice. In the event the Company shall give such notice, the
Company shall extend the period during which such Registration Statement shall
remain effective (including the period referred to in Section 3.1(a) hereof) by
the number of days during the period from and including the date of the giving
of notice pursuant to Section 3.1(e) hereof to the date when the Company shall
make available to the Investor a prospectus supplemented or amended to conform
with the requirements of Section 3.1 (e) hereof.
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Section 3.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all expenses incurred in connection with the
registration thereunder including, without limitation, the following (the
"REGISTRATION EXPENSES"): (i) all registration and filing fees, (ii) fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) printing expenses, (iv) the Company's
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v) the fees
and expenses incurred in connection with the listing of the Registrable
Securities, (vi) reasonable fees and disbursements of counsel for the Company
and customary fees and expenses, if any, for independent certified public
accountants retained by the Company, (vii) the fees and expenses of any special
experts retained by the Company in connection with such registration and (viii)
reasonable fees and expenses (which shall not exceed the sum of (i) $1,000 of
such fees and expenses, and (ii) 50% of any additional fees and expenses in
excess thereof up to $5,000, it being understood that the Company shall not have
liability for such fees and expenses in excess of $3,000 in the aggregate
pursuant to this clause) of counsel for the Investor retained as the Investor's
counsel with respect to such Registration Statement. The Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, such costs to be borne by the Investor.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
Section 4.1 INDEMNIFICATION.
(a) INDEMNIFICATION OF INVESTOR. The Company agrees to indemnify and
hold harmless the Investor, its members, partners, Affiliates (as defined
below), officers, directors, employees and duly authorized agents, and each
Person (as defined below) or entity, if any, who controls the Investor within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the partners, Affiliates, officers, directors, employees and
duly authorized agents of such controlling Person or entity (collectively, the
"CONTROLLING PERSONS"), from and against any loss, claim, damage, liability,
reasonable attorneys' fees, costs or expenses and costs and expenses of
investigating and defending any such claim (collectively, "DAMAGES"), joint or
several, and any action in respect thereof to which the Investor, its partners,
Affiliates, officers, directors, employees and duly authorized agents, and any
such Controlling Person may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or prospectus relating to
the Registrable Securities or any preliminary prospectus, or arises 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, except insofar as the same are based upon information furnished
in writing to the Company by the Investor expressly for use therein, and shall
reimburse the Investor, its partners, Affiliates, officers, directors, employees
and duly authorized agents, and each such Controlling Person for any legal and
other expenses reasonably incurred by the Investor, its partners, Affiliates,
officers, directors, employees and duly authorized agents, or any such
Controlling Person in investigating or defending or preparing to
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defend against any such Damages or proceedings; provided, however, that the
Company shall not be liable to the Investor to the extent that any such Damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Investor failed to send or deliver a copy of
the final prospectus with or prior to the delivery of written confirmation of
the sale by the Investor to the Person asserting the claim from which such
Damages arise, and (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission.
For purposes of this agreement, "AFFILIATE" shall mean, as to any
Person, any other Person that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person; and "PERSON" shall mean an individual, corporation, partnership,
limited liability company, business trust, association, joint-stock company,
trust, unincorporated organization, joint venture or governmental authority or
other regulatory body.
(b) INDEMNIFICATION OF COMPANY. The Investor agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each of its Controlling Persons from and against any
Damages, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including any prospectus (or any amendment or
supplement thereto), or offering circular or other document, as applicable, in
reliance upon and in conformity with written information furnished to the
Company by the Investor expressly for use in the Registration Statement (or any
amendment or supplement thereto), or in any offering circular or other document,
as applicable.
(c) ACTION AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of his indemnity
agreement. In the case of parties indemnified pursuant to Section 4.1(a) hereof,
counsel to the indemnified parties shall be selected by the Investor, and in the
case of parties indemnified pursuant to Section 4.1(b) hereof, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or
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consent to the entry or any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 4.1 or Section 4.2 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of an any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT OR FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for the fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 4.1(a) hereof effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
Section 4.2 CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to the indemnified parties in respect of any Damages
referred to herein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Damages as between the Company on the one
hand and the Investor on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of the Investor in connection with
such statements or omissions, as well as other equitable considerations. The
relative fault of the Company on the one hand and the Investor on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Investor and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 4.2 were determined by a pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 4.2. The
amount paid or payable by an indemnified party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
Notwithstanding the provisions of this Section 4.2, the Investor shall
in no event be required to contribute any amount in excess of the amount by
which the total proceeds from the public sale of the Registrable Securities
(less underwriting discounts and commissions) exceeds the amount of any Damages
which the Investor has otherwise paid in accordance with this Agreement.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
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For purposes of this Section 4.2, each person, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Investor, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company.
ARTICLE V
MISCELLANEOUS
Section 5.1. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate one (1) year from the end of
the exercise period of the Warrant; PROVIDED, HOWEVER, that the provisions of
Article IV hereof shall survive any termination of this Agreement.
Section 5.2. RULE 144. The Company covenants that it will file all
reports required to be filed by it under the Act and the Exchange Act and that
it will take such further action as holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144,
as such Rule may be amended from time to time, or (b) any successor or similar
rule or regulation hereafter adopted by the SEC. If at any time the Company is
not required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144. Upon the request of the
Investor, the Company will deliver to the Investor a written statement as to
whether it has complied with such requirements.
Section 5.3. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. The provisions
of this Agreement, 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 the holders of a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, the waiver of any provision hereof
with respect to a matter that relates exclusively to the rights of holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and does not directly or indirectly affect the rights of
other holders of Registrable Securities may be given by holders of at least a
majority of the Registrable Securities being sold by such holders; provided that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
No course of dealing between or among any Persons having any interest in this
Agreement will be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any person under or by reason of
this Agreement.
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Section 5.4. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. The Investor
may assign its rights under this Agreement to any subsequent holder of the
Convertible Debenture, the Warrants or the Registrable Securities, provided that
the Company shall have the right to require any holder of the Registrable
Securities to execute a counterpart of this Agreement as a condition to such
holder's claim to any rights hereunder. This Agreement, together with the
Securities Purchase Agreement, the Convertible Debenture and the Warrants, set
forth the entire agreement and understanding among the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
Section 5.5. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 5.6. NOTICES. All notices, demands, requests, consents,
approvals or other communications required or permitted to be given hereunder or
which are given with respect to this Agreement shall be in writing and shall be
personally served or deposited in the mail, registered or certified, return
receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below, or to such other address as such
party shall have specified most recently by written notice:
(a) if to the Company, to: Telscape International, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Executive
Vice President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ & Berlin, Chartered
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Investor, to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Capital, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with copies to: ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery
of such notice by a reputable air courier service.
Section 5.7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 5.8. SUBMISSION TO JURISDICTION. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall, at the option of either party, be litigated only in a
state or federal court located in the New York, New York. The parties consent to
the jurisdiction and venue of the foregoing court and consent that any process
or notice of motion or other application to said court or a judge thereof may be
served inside or outside the State of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its address
set forth in this Agreement (and service so made shall be deemed complete five
(5) days after the same has been posted as aforesaid) or by personal service or
in such other manner as may be permissible under the rules of said court.
Section 5.9. WAIVER OF JURY TRIAL. Each of the Company and the Investor
hereby waives any right to a trial by jury in any action, proceeding or
counterclaim concerning any rights under this Agreement or under any amendment,
waiver, consent, instrument, document or the Agreement delivered or which in the
future may be delivered in connection herewith, or arising from any relationship
existing in connection with this Agreement, and agrees that any such action,
proceeding or counterclaim shall be tried before a court and not before a jury.
The Company certifies that no officer, representative, agent or attorney of the
Investor has represented, expressly or otherwise, that the Company would not, in
the event of any action, proceeding or counterclaim, seek to enforce the
foregoing waivers. The Company hereby acknowledges that this provision is a
material inducement for the Investor entering into this Agreement.
Section 5.10. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
Section 5.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
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Section 5.12. FURTHER ASSURANCES. Each party hereto shall cooperate and
take such action as may be reasonably requested by another party in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 5.13. REMEDIES. In the event of a breach or a threatened breach
by any party to this Agreement of its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, hereunto duly authorized, as of the date first set
forth above.
TELSCAPE INTERNATIONAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice
President
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ CAPITAL, LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: President
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