Exhibit 4.1
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement") is entered into this 9th day of
December, 2002, between Telesource International, Inc., a Delaware corporation
(the "Company"), and Financial Management Co., W.L.L. ("Subscriber").
1. Subscription, Purchase and Closing.
1.1 The Subscriber, intending to be legally bound, hereby subscribes
for and agrees to purchase 4,000,000 shares (the "Shares") of the Series A
Preferred Stock, par value $.01 per share (the "Series A Preferred"), of the
Company, at a price of $1.50 per Share (the "Purchase Price"), upon the terms
and conditions set forth in this Agreement. The terms of the Series A Preferred
are set forth in the certificate of designations attached hereto as Exhibit A.
1.2 The Shares subscribed for hereby shall not be deemed owned by
Subscriber, nor shall Subscriber be deemed a holder of securities of the Company
until this subscription has been accepted by the Company and the Purchase Price
with respect to such Shares has been paid. Subscriber understands and agrees
that the Company reserves the right to reject this subscription for the Shares
in whole or in part, in its sole discretion, at any time through the Tranche 1
Closing Date (as such term is defined in Section 1.5).
1.3 In the event of rejection of this subscription, or in the event
the sale of the Shares is not consummated for any reason (in which event this
Agreement shall be deemed to be rejected), this Agreement shall have no force or
effect.
1.4 Subscriber hereby agrees to deliver one-half of the Purchase
Price ($3,000,000) to purchase one-half of the number of Shares subscribed for
hereunder on the Tranche 1 Closing Date set pursuant to Section 1.5 and to
deliver the remaining one-half of the Purchase Price ($3,000,000) to purchase
the remaining one-half of the number of Shares subscribed for hereunder on the
Tranche 2 Closing Date set pursuant to Section 1.5.
1.5 The closing of the transactions contemplated herein shall take
place on two dates mutually agreed upon by the Company and the Subscriber, with
the first date occurring no later than December 16, 2002 (the "Tranche 1 Closing
Date") and the second date occurring no later than March 3, 2002 (the "Tranche 2
Closing Date" and, collectively with the Tranche 1 Closing Date, the "Closing
Dates").
1.6 Payment of the portion of the Purchase Price for the Shares to
be purchased on each Closing Date shall be made by 1:00 p.m. on the applicable
Closing Date by wire transfer of immediately available funds or at such other
time and by such other means as the Company shall approve. The Company will
notify Subscriber as to payment instructions. Upon the Closing Date, the Company
will deliver certificates representing the Shares purchased by Subscriber.
2. Conditions to Closing.
(a) The obligations of the Subscriber to proceed with the Closing is
subject to the following conditions, any and all of which may be waived by
Subscriber in whole or in part:
(i) Each of the representations and warranties of the Company
shall be true and correct on the Tranche 1 Closing Date,
except to the extent the same expressly relate to an earlier
date;
(ii) The Company shall be in full compliance with the terms,
covenants and conditions of this Agreement.
(b) The obligations of the Company to proceed with the Closing is
subject to the following conditions, any and all of which may be waived by
the Company in whole or in part:
(i) Each of the representations and warranties of the Subscriber
shall be true and correct on the Tranche 1 Closing Date,
except to the extent the same expressly relate to an earlier
date;
(ii) The Subscriber shall be in full compliance with the terms,
covenants and conditions of this Agreement.
3. Representations, Warranties and Agreements of Subscriber. Subscriber
hereby represents and warrants to the Company, and hereby covenants and agrees
with the Company, as follows:
(a) Subscriber has full power and authority to enter into this
Agreement and to perform its obligations hereunder. All requisite action
on the part of Subscriber necessary for the authorization, execution,
delivery and performance of Subscriber's obligations under this Agreement
and for the purchase of the Shares has been taken, and this Agreement,
when executed by a duly authorized officer of Subscriber, will be a valid
and binding agreement of Subscriber, enforceable in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, reorganization or other similar laws and legal and equitable
principles limiting or affecting the rights of creditors generally and/or
(ii) general principles of equity, regardless of whether considered in a
proceeding in equity or at law, and except as rights to indemnification
hereunder may be limited by Federal or state securities laws.
(b) Subscriber has carefully read this Agreement and, to the extent
Subscriber believes necessary, has discussed with Subscriber's counsel and
other professional advisor(s) the representations, warranties, covenants
and agreements which Subscriber makes by signing it, and any applicable
limitations upon Subscriber's transfer of the Shares issuable thereunder.
Subscriber acknowledges that Subscriber has not relied upon the legal
counsel or accountants for the Company regarding the transactions
contemplated by this Agreement, and Subscriber has been advised to engage
separate legal counsel and accountants to represent Subscriber's
individual interest and advise Subscriber regarding the structure of, and
risks associated with, such transactions.
(c) Subscriber acknowledges that the Company has delivered to
Subscriber within a reasonable time prior to the execution of this
Subscription Agreement a copy of the Company's most recent Annual Report
on Form 10-K, and all subsequently filed Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and such other documents as Subscriber
(and Subscriber's attorney, accountant and/or other advisors) deemed
pertinent in order for Subscriber to make an informed investment decision.
(d) Subscriber further acknowledges that no representations or
warranties of any nature have been made to Subscriber with respect to the
ultimate economic consequences or tax consequences of Subscriber's
investment in the Company. Subscriber acknowledges that any forecasted
financial data which may have been given to Subscriber is for illustration
purposes only and no assurance is given that actual results will
correspond with the results contemplated in any such data.
(e) Subscriber acknowledges that Subscriber has had the opportunity
to ask questions of, and receive answers from, or obtain additional
information from, the executive officers of the Company concerning the
financial and other affairs of the Company, and, to the extent deemed
necessary, Subscriber has asked such questions and received satisfactory
answers and desires to invest in the Company. In evaluating the
suitability of an investment in the Company, the Subscriber has not relied
upon any representations or other information (whether oral or written)
other than as set forth in this Agreement or as contained in any documents
delivered or answers given in writing by the Company to questions
furnished to the Company. Subscriber has been advised and acknowledges
that no federal or state agency has made any finding or determination as
to the fairness or merits of an investment in the Company and that no such
agency has made any recommendation or endorsement whatsoever with respect
to such an investment.
(f) Subscriber is an "accredited investor" as that term is defined
in Rule 501 of Regulation D promulgated by the U.S. Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as
amended (the "Securities Act"). For this purpose, Subscriber understands
that an "accredited investor" includes:
(i) any individual who: (A) has a net worth (with spouse) in
excess of $1 million; or (B) has had an individual income in excess
of $200,000 (or joint income with spouse in excess of $300,000) in
each of the two most recent years and who reasonably expects the
same income level for the current year; or (C) who is an executive
officer or director of the Company;
(ii) any entity in which all of the equity owners or partners
are "accredited investors"; or
(iii) any corporation or partnership with total assets in
excess of $5,000,000 that was not formed for the specific purpose of
purchasing the securities subscribed hereunder.
(g) Subscriber considers himself/herself/itself to be a
sophisticated investor in companies similarly situated to the Company, and
Subscriber has substantial knowledge and experience in financial and
business matters (including knowledge of finance, securities and
investments, generally, and experience and skill in investments based on
actual participation) such that Subscriber is capable of evaluating the
merits and risks of the prospective investment in the Company.
(h) Subscriber's current address is as set forth on the signature
page hereof. If Subscriber is an entity which does not meet the
classification set forth under Section 2(e)(iii) above, each of
Subscriber's equity owners and/or partners has the same jurisdiction of
residence as the Subscriber's jurisdiction of organization and none of
Subscriber's equity owners and/or partners has any present intention of
moving from such jurisdiction.
(i) Subscriber has been advised and acknowledges that the issuance
of the Shares will not be registered under the Securities Act, in reliance
upon the exemption(s) from registration promulgated thereunder, and,
therefore, are "restricted securities." Subscriber also acknowledges that
the issuance of the Shares will not be registered under the securities
laws of any state. Consequently, Subscriber agrees that the Shares cannot
be resold unless they are registered under the Securities Act and
applicable state securities laws, or unless an exemption from such
registration requirements is available. Subscriber has been advised and
acknowledges that the Company is under no obligation to take any action
necessary in order to make available any exemption for the transfer of the
Shares without registration.
(j) Subscriber is purchasing the Shares solely for Subscriber's own
account and not as nominee for, representative of, or otherwise on behalf
of, any other person. Subscriber is purchasing the Shares with the
intention of holding the Shares for investment, with no present intention
of participating directly or indirectly in a subsequent public
distribution of the Shares unless registered under the Securities Act and
applicable state securities laws, or unless an exemption from such
registration requirements is available. Subscriber shall not make any
sale, transfer or other disposition of the Shares in violation of state or
federal law.
(k) Subscriber has been advised that there is no assurance that the
Company will continue to be a "Public Company" (i.e., a company with
equity securities registered with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or, even if the
Company continues to be a Public Company, that there will be an active
market for the Shares. Subscriber is aware that Subscriber's investment in
the Company is speculative and involves a high degree of risk of loss
arising from, among other things, substantial market, operational,
competitive and other risks, and, having made Subscriber's own evaluation
of the risks associated with this investment, Subscriber is aware and
Subscriber has been advised that Subscriber must bear the economic risks
of a purchase of the Shares indefinitely.
(l) Subscriber acknowledges that the Shares were not offered to
Subscriber by means of any form of general or public solicitation or
general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media,
or broadcast over television or radio, or (ii) any seminar or meeting to
which Subscriber was invited by any of the foregoing means of
communication.
(m) Subscriber understands and agrees that the Company, and all
current and future stockholders of the Company, are relying on the
agreements and representations contained herein.
(n) In connection with the purchase of the Shares by Subscriber,
Subscriber has not paid and will not pay, and has no knowledge of the
payment of, any commission or other direct or indirect renumeration to any
person or entity for soliciting or otherwise coordinating the purchase of
the Shares.
(o) Subscriber has been advised and agrees that there will be placed
on any certificates representing the Shares, or any substitution(s)
thereof, a legend stating in substance the following (and including any
restrictions or conditions that may be required by any applicable state
law), and Subscriber has been advised and further agrees that the Company
will refuse to permit the transfer of the Shares out of Subscriber's name
in the absence of compliance with the terms of such legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws and may not be sold, pledged, transferred, assigned or
otherwise disposed of except in accordance with such Act and the rules and
regulations thereunder and in accordance with applicable state securities
laws. The Company will transfer such shares only upon receipt of evidence
satisfactory to the Company, which may include an opinion of counsel, that
the registration provisions of such Act have been compiled with or that
such registration is not required and that such transfer will not violate
any applicable state securities laws."
(p) Subscriber is aware that the Company may offer and sell
additional shares of Preferred Stock, Common Stock or other securities in
the future, thereby diluting Subscriber's percentage equity ownership of
the Company.
4. Representations of the Company. As used in this Section 4, the
following capitalized terms shall have the meanings set forth below:
"Contract" means any agreement, indenture, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy,
annuity, mortgage, restriction, commitment, obligation or other contract,
agreement or instrument (whether written or oral).
"GAAP" means generally accepted accounting principles in effect in
the United States of America from time to time.
"Material Adverse Change" or "Material Adverse Effect" means, with
respect to any Person, any change or effect that is or is reasonably likely to
be materially adverse to the financial condition, business, prospects or results
of operations of such Person.
"Person(s)" means any individual, sole proprietorship, partnership,
joint venture, trust, limited liability company, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
Subscriber is subscribing for the Shares based upon the following
representations and warranties of the Company, which the Company hereby confirms
by accepting this subscription:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to own and/or lease its properties
and to conduct its business in the places where such properties are now
owned, leased or operated or such business is presently conducted.
The Company is duly qualified and licensed as a foreign corporation in the
State of Illinois and in each additional jurisdiction in which it owns or
leases real property or in which its operations or activities would
otherwise require such qualification.
(b) Authorization. The execution, delivery and performance of this
Agreement by the Company has been duly and validly authorized and approved
by its Board of Directors, and this Agreement, when executed by a duly
authorized officer of this Company, will be a valid and binding agreement
of the Company, enforceable in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization or other similar laws and legal and equitable principles
limiting or affecting the rights of creditors generally and/or (ii)
general principles of equity, regardless of whether considered in a
proceeding in equity or at law, and except as rights to indemnification
hereunder may be limited by Federal or state securities laws.
(c) Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.01 par value per share,
and 10,000,000 shares of Preferred Stock, 4,000,000 of which have been
designated as the Series A Preferred, and the remainder of which have not
been designated. All issued and outstanding shares of capital stock of the
Company have been, and as of the Closing Date will be, duly authorized and
validly issued and are fully paid and non-assessable.
(d) No Violations; Defaults. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not (i) violate, result (with the lapse of time or giving
of notice, or both) in a violation of, conflict with, or constitute a
default under, or permit the termination or acceleration of the maturity
of, any material indebtedness or material obligation of the Company; (ii)
violate, result (with the lapse of time or giving of notice, or both) in a
violation of, conflict with or constitute a default under, any material
term of, or permit the termination of, any material note, mortgage,
indenture, license, agreement, contract, arrangement, understanding or
other instrument to which the Company is a party, or by which it is bound,
or the Certificate of Incorporation or By Laws of the Company; (iii)
except as contemplated by this Agreement or where the absence would not
have a material adverse effect on the Company or its subsidiaries, taken
as a whole, require consent, approval, waiver or authorization from or
registration or filing with any party, including but not limited to any
party to any material agreement to which the Company is a party or by
which it is bound or by any regulatory or governmental agency, body or
entity (except as obtained prior to the Closing); or (iv) violate any
statute, law, rule, regulation or ordinance, or any judgment, decree,
order, regulation or rule of any court, tribunal, administrative or
governmental agency, body or entity to which the Company or its properties
are subject.
(e) Validity of Securities. The Shares, when issued in accordance
with the terms and conditions hereof, will be duly authorized, validly
issued, fully paid and non-assessable, and the delivery to Subscriber of
the Shares delivered pursuant to this Agreement shall vest in it good and
marketable title thereto, free of any and all liens, options,
encumbrances, charges, third-party rights or claims of any nature
whatsoever except for restrictions on transfers imposed by law.
(f) No Commissions. The Company has not incurred any other
obligation for any finder's or broker's or agent's fees or commissions in
connection with the sale of the Shares.
The Company represents that the foregoing representations and
warranties are true and correct as of the date hereof and, unless the Company
otherwise notifies Subscriber prior to the Closing Date, shall be true and
correct as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
5. Security.
5.1 As security for the obligations of the Company to pay the
dividends required on the Series A Preferred, the Company agrees to
provide the security set forth in this Section 5. The Company is the
holder of a series of promissory notes issued by Commonwealth Utilities
Corporation, each in the amount of $180,000 (the "CUC Notes"). One CUC
Note matures at the end of each month through February 28, 2009, and is
payable to the bearer thereof.
5.2 The Company shall deliver one CUC Note for each two million
shares of Series A Preferred then owned by the Subscriber. The CUC Note
for the first two million shares of Series A Preferred will be the CUC
Note maturing on July 31, 2003. The CUC Note for the second two million
shares of Series A Preferred will be an additional CUC Note maturing on
January 31, 2004. Each CUC Note is to be replaced with a new CUC Note
within 30 days after payment of all dividends accrued through the
immediately preceding Dividend Date by delivery to the Subscriber of a
replacement CUC Note and by the Subscriber returning to the Company the
CUC Note which is being replaced. Detailed replacement schedule for the
CUC Notes is attached hereto as Exhibit B.
5.3 Subscriber may present any such CUC Note to the issuer thereof
for payment up to the amount of dividends that have accrued but have not
been timely paid to Subscriber. Such payment shall be deemed to satisfy
the Company's requirement to pay an equivalent amount of dividends on the
Series A Preferred held by Subscriber, and such dividends shall be deemed
to have been paid on the date of maturity of the CUC Note.
6. Indemnification.
6.1 Indemnification by the Company. The Company shall indemnify
Subscriber from and against any and all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies resulting from any breach of a representation,
warranty or covenant by the Company and all claims, charges, actions or
proceedings incident to or arising out of the foregoing.
6.2 Indemnification by the Subscriber. Subscriber shall indemnify
the Company from and against any and all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without limitation, attorneys' fees and
expenses) or deficiencies resulting from any breach of a representation,
warranty or covenant by Subscriber and all claims, charges, actions or
proceedings incident to or arising out of the foregoing.
6.3 Indemnification Procedures. A party entitled to indemnification
under this Section (an "Indemnified Party") shall give notice as promptly as
reasonably practicable to each party required to provide indemnification under
this Section (an "Indemnifying Party") of any action commenced against or by 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 that it may have otherwise than on account of this indemnity agreement
except to the extent such failure shall have prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party shall assume
the defense of such action if it is a claim brought by a third party. In any
such action, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the contrary or (ii) the named parties in
any such action (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing or
conflicting interests between them. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent (which
shall not be unreasonably withheld or delayed by such Indemnifying Party), but
if settled with such consent or if there be final judgment for the plaintiff,
the Indemnifying Party shall indemnify the Indemnified Party from and against
any loss, damage or liability by reason of such settlement or judgment.
7. Miscellaneous.
7.1 Amendment; Waiver. Neither this Agreement nor any provisions
hereof shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any such waiver,
modification, discharge or termination is sought to be enforced.
7.2 Notices. Any notice, demand or other communication which any
party hereby may be required or may elect to give to anyone interested hereunder
shall be sufficiently given if (a) deposited, postage prepaid, in a United
States mail letter box, registered or certified mail, return receipt requested,
addressed to such address as may
be given herein three business days after such deposit, or (b) delivered
personally at such address. The parties' addresses for notices are set forth on
the signature page.
7.3 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
the parties, notwithstanding that all parties are not signatories to the same
counterpart.
7.4 Successors and Assigns. Except as otherwise provided herein, the
Agreement shall be binding upon and inure to the benefit of the parties and
their successors, legal representatives and assigns.
7.5 Entire Agreement. This Agreement (including the Exhibits
attached hereto) contains the entire agreement of the parties, and there are no
representations, covenants or other agreements except as stated or referred to
herein.
7.6 Assignment. This Agreement is not transferable or assignable by
Subscriber except as may be provided herein.
7.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of Illinois applicable to agreements
made and to be performed in that State.
7.8 Submission to Jurisdiction. The Company and Subscriber each
hereby submits to the non-exclusive jurisdiction of the United States District
Court for the Northern District of Illinois and of any Illinois state court
sitting in the City of Chicago for purposes of all legal proceedings arising out
of or relating to this Agreement or the transactions contemplated hereby or
thereby. The Company and Subscriber each irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum.
IN WITNESS WHEREOF, Subscriber has caused to be executed this
Agreement as of the date indicated and agrees to be bound by this Agreement.
SUBSCRIBER:
Al Soor Consulting
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[exact name to appear on stock certificate]
By: /s/ Xxxxxx Xxx Xxxxxxx Xxxxx
-----------------------------------------------
Name: Xxxxxx Xxx Xxxxxxx Xxxxx
Title: Chairman and Chief Executive Officer
Al Soor Consulting for Financial
Management Co. W.L.L.
XX Xxx 0000, Xxxxx 00000 Xxxxxx
--------------------------------------------------
[Principal Address]
Accepted By:
TELESOURCE INTERNATIONAL
By: /s/ Xxx Xxxxxx .
-------------------------------------
Name: Xxx Xxxxxx
Title: Chief Financial Officer
and Vice President
000 Xxxxxxxx Xxxx., Xxxxxxx, XX 00000
Principal Address
EXHIBIT A
See Exhibit 3.1 Certificate of Designations
EXHIBIT B
CUC NOTE REPLACEMENT SCHEDULE
Pursuant to Section 5.2 of the Subscription Agreement, the Company will deliver
one promissory note for each two million shares of Series A Preferred then owned
by the Subscriber. The CUC Note for the first two million shares of Series A
Preferred will be the CUC Note maturing on July 31, 2003. The CUC Note for the
second two million shares of Series A Preferred will be an additional CUC Note
maturing on January 31, 2004. Each CUC Note is to be replaced with a new CUC
Note within 30 days after payment of all dividends accrued through the
immediately preceding Dividend Date by delivery to the Subscriber of a
replacement CUC Note and by the Subscriber returning to the Company the CUC Note
which is being replaced. as follows:
CUC Promissory Note Held by CUC Promissory Note to be given to
Dividend Date Subscriber Subscriber as a Replacement
------------------- ----------------------------- ------------------------------------
June 30, 2003 July 31, 2003 July 31, 2004
December 31, 2003 January 31, 2004 January 31, 2005
June 30, 2004 July 31, 2004 July 31, 2005
December 31, 2004 January 31, 2005 January 31, 2006
June 30, 2005 July 31, 2005 July 31, 2006
December 31, 2005 January 31, 2006 January 31, 2007
June 30, 2006 July 31, 2006 July 31, 2007
December 31, 2006 January 31, 2007 January 31, 2008
June 30, 2007 July 31, 2007 April 30, 2008
December 31, 2007 January 31, 2007 Not to be replaced
