<PAGE>
As Filed With the Securities and Exchange Commission on August 13, 1999
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
PICK COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Nevada 4813 75-2107261
- ------------------------- ---------------------------- ------------------
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
155 Route 46 West
Wayne, New Jersey 07470
(973) 812-7425
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------
Diego Leiva, Chairman of the Board
PICK Communications Corp.
155 Route 46 West
Wayne, New Jersey 07470
(973) 812-7425
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
(212) 687-3860
Facsimile: (212) 949-7052
----------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
-----------------------------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
-----------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be to be Offering Price Per Aggregate Offering Registration
Registered Registered Share Price Fee
- ---------------------- ---------- ------------------ ------------------------- -----------------
<S> <C> <C> <C> <C>
common stock, par
value $0.01 per share 1,628,372(1)(2) $3.5625(3) $ 5,801,075 $1,612.70
common stock, par
value $0.01 per share 174,310(1)(4) $ 1.00(5) $ 174,297 $ 48.45
common stock, par
value, $.01 per share 111,550(1)(6) $ 5.00(5) $ 557,750 $ 155.05
common stock, par
value, $.01 per share 283,400(1)(7) $ 1.00(5) $ 283,400 $ 78.78
common stock, par
value, $.01 per share 23,400(1)(8) $3.5625(3) $ 83,363 $ 23.18
common stock, par
value $0.01 per share 20,000(9) $ 2.50(10) $ 50,000 $ 13.90
common stock, par
value $0.01 per share 1,871,000(1)(11) $ 1.00(12) $ 1,871,000 $ 520.14
common stock, par
value, $.01 per share 20,000(1)(13) $ 4.30(5) $ 86,000 $ 23.91
common stock, par
value, $.01 per share 20,000(14) $3.5625(3) $ 71,250 $ 19.81
common stock, par
value, $.01 per share 1,190,489(15) $ 4.20(16) $ 5,000,054 $1,390.02
common stock, par
value, $.01 per share 70,000(1)(17) $ 6.30 $ 441,000 $ 122.60
common stock, par
value, $0.01 per share 300,000(18) $3.5625(3) $ 1,068,750 $ 297.11
common stock, par
value, $0.01 per share 69,728(19) $3.5625(3) $ 248,406 $ 69.06
common stock, par
value, $0.01 per share 125,000(20) $ 4.00(21) $ 500,000 $ 139.00
comm stock, par
value, $0.01 per share 200,000(22) $ 5.00(21) $ 1,000,000 $ 278.00
--------- ----------- ---------
Total ......................... 6,107,249 -- $17,236,345 $4,791.71
========= =========== =========
</TABLE>
- ---------------
(1) In accordance with Rule 416, this Registration Statement includes an
indeterminable number of additional shares of common stock, par value
$0.01 per share (the "common stock"), of PICK Communications Corp. (the
"Company"), issuable as a result of any future anti-dilution
adjustments in accordance with the terms of warrants, preferred stock
and/or promissory notes.
-ii-
<PAGE>
All share and per share data in this Registration Statement give
retroactive effect to a one-for-ten reverse split declared by the Board
of Directors on July 6, 1999, to holders of record on July 23, 1999.
(2) Represents 990,000 shares of common stock underlying the warrants
issued in connection with the Company's July 1998 Bridge Loan, 247,505
warrants issued in connection with an extension of the maturity of the
July 1998 Bridge Loan, plus an additional 390,867 shares issuable
pursuant to the anti-dilution provisions of the warrants, which are
currently issuable upon exchange and exercise of the warrants at zero
consideration.
(3) Pursuant to Rule 457(c), the proposed maximum offering price per share
has been calculated based on the average of the closing bid and asked
prices for the common stock on August 11, 1999.
(4) Represents shares of common stock, issuable on a one-for-ten basis,
underlying the 1,394,366 warrants issued to Commonwealth Associates as
Placement Agent for the July 1998 Bridge Loan, plus 34,873 shares
issuable pursuant to the anti-dilution provisions of the warrants.
(5) Pursuant to Rule 457(c), the proposed maximum offering price per share
has been calculated based on the price the Warrants may be exercised.
(6) Represents shares of common stock issuable on a one-for-ten basis to
Liberty Capital underlying its 1,115,493 warrants issued in connection
with the July 1998 Bridge Loan.
(7) Represents 260,000 shares issuable pursuant to the anti-dilution
provisions of the warrants described in note (6) above, plus 23,400
shares issuable upon exercise of warrants issued pursuant to a
consulting agreement between the Company and Liberty Capital entered
into in March 1998, as amended.
(8) Represents shares of common stock issued to Liberty Capital pursuant to
the Consulting Agreement described in note (7) above.
(9) Represents shares issuable upon conversion of Bridge Notes issued in
the July 1998 Bridge Loan which were not exchanged for Amended Notes in
April 1999.
(10) Pursuant to Rule 457(i) the proposed maximum offering price per share
has been calculated based on the conversion price of the July 1998
Bridge Notes.
(11) Represents shares of common stock underlying the Series B Preferred
Stock.
(12) Pursuant to Rule 457(i) the proposed maximum offering price per share
has been calculated based on the conversion price of the Series B
Preferred Stock.
(13) Represents shares of common stock underlying Warrants held by Michael
Binder.
(14) Represents shares of common stock issued to The Dilenschneider Group
Inc. for services rendered to the Company.
(15) Represents shares of common stock underlying the Series D Preferred
Stock which have either been issued (21,000 shares) or are issuable
(1,169,489 shares) upon conversion of Series D Preferred Stock.
-iii-
<PAGE>
(16) Pursuant to Rule 457(i) the proposed maximum offering price per share
has been calculated based on the conversion price of the Series D
Preferred Stock.
(17) Represents shares of common stock issuable on a one-for-ten basis
underlying the 700,000 warrants issued in connection with the sale of
Series D Preferred Stock.
(18) Represents shares of common stock issuable to Innovative Telecom Corp.
in satisfaction of indebtedness, the exact number to be determined
prior to the effective date of this registration statement.
(19) Represents shares of common stock issued to Commonwealth Associates and
its designees as Placement Agent for the July 1998 Bridge Loan.
(20) Represents shares of common stock issuable to Snow Becker Krauss P.C.,
counsel to the Company, underlying 125,000 options issued in
satisfaction of indebtedness.
(21) Pursuant to Rule 457(c) the proposed maximum offering price per share
has been calculated based on the price the options may be exercised.
(22) Represents shares of common stock issuable underlying options to
purchase 50,000 shares of common stock held by four corporations
controlled by two directors Robert Sams (Saicol Limited) and John
Tydeman (Dolphin Media Group) and two advisors to the Board of
Directors, Alberto Delgado (Final Age Corp.) and Ricardo Maranon
(Mother of Three, Inc.).
================================================================================
-iv-
<PAGE>
The information in this prospectus is not complete and may be changed.
You may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED AUGUST 13, 1999
PROSPECTUS
- ----------
PICK COMMUNICATIONS CORP.
The Offering:
<TABLE>
<CAPTION>
<S> <C>
Shares of common stock offered
by selling stockholders...................... 6,107,249
Offering Price................................... On August 12, 1999, the closing sale price of PICK
common stock on the OTC Bulletin Board was $2.50
per share. The selling stockholders may offer the
shares for sale at the market price at the time of the
sale, at a price related to the market price or at a
negotiated price. We expect that a significant number
of shares of common stock will be sold pursuant to Rule
144 prior to the effectvie date of this prospectus and
will be removed from this prospectus.
</TABLE>
Investing in the common stock involves a high degree of risk. See
"Risks Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any document we file at the SEC's public
reference room at the following locations:
- Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
- Regional Public Reference Room
75 Park Place, 14th Floor
New York, New York 10007
- Regional Public Reference Room
Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically.
You can access the electronic versions of these filings on the Internet at the
SEC's Web site, located at http://www.sec.gov.
We have included this prospectus in our registration statement that we
filed with the SEC (the "Registration Statement"). The Registration Statement
provides additional information that we are not required to include in the
prospectus. You can receive a copy of the entire Registration Statement as
described above. Please note that the Registration Statement also includes
complete copies of the documents described in the prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934 and are subject
to the safe harbor created thereby. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as the Company or we "believe," "anticipate," "estimate,"
"expect" or words of similar import as they relate to the Company or the
Company's management. Similarly, statements that describe the Company's future
plans, objectives or goals are forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties, including those
described in the section captioned "Risk Factors" below.
-2-
<PAGE>
These factors are not exhaustive, and should be read in conjunction
with other cautionary statements that are included in this prospectus. The
forward-looking statements made herein are only made as of the date of this
report and we are not obligated to publicly update forward- looking statements
to reflect subsequent events or circumstances.
PROSPECTUS SUMMARY
As used in this prospectus, unless the context otherwise requires, the
terms "we," "us" or "Company" mean PICK Communications Corp. and its
subsidiaries. This summary highlights information contained elsewhere in this
prospectus, and is not complete and may not contain all the information you
should consider before investing in the common stock. You should read the entire
prospectus carefully. All share and per share data in this prospectus give
retroactive effect to the one-for-ten reverse split to holders of record on July
23, 1999.
The Company
The Company has two active subsidiaries, PICK Sat, Inc. and PICK
Online.Com Inc. PICK Sat and PICK Online are both developing companies. Our
current focus is our PICK Sat subsidiary which has just begun commercial
operations. PICK Sat has developed satellite-based, broadband Internet access
and delivery services. One of these services makes it easier and more cost
efficient to send video and large multimedia files to Internet users. We are
marketing our services to media companies, large corporations, cable companies,
Internet Service Providers ("ISPs") and end-users. We are focusing our initial
marketing efforts in certain areas of the United States and Latin America, where
PICK Sat's services have a greater cost advantage due to the higher costs of
terrestrial Internet service in those areas.
We have entered into our first contract for this service. The customer,
Cadena Latinoamericana de Television, Inc. ("CLT"), is an owner and distributor
of Spanish-language video programming. CLT will utilize PICK Sat services to
transmit video content in Internet Protocol format to cable networks and
broadcast television stations in Latin America. CLT is currently using courier
services to send more than 20,000 Betacam cassettes a year to its affiliates.
CLT, using the PICK Sat service, will now transmit video files to affiliate
stations who will receive the files via satelitte dish, store them on a server,
and decode them into Betacam format as needed for local playout. The agreement
provides for up-front fees with continuing revenues thereafter. The agreement is
for three years and if successfully completed would provide us with
approximately $2.1 million in revenues.
We have also established two beta sites for other PICK Sat services,
one with a wireless cable operator in Mexico, and another with a educational
institution in the United States. These beta tests of PICK Sat service include
testing with both the customer, and end-users.
Once PICK Sat's service are more mature, and provided we receive
substantial additional financing, we intend to begin marketing our PICK
Online.Com services, which includes multimedia portal services that host radio,
TV and Web-based events.
We are in need of substantial immediate financing to implement our
business strategy and for working capital. In the event we are unable to obtain
interim financing in the immediate near term, we will be forced to cut back or
suspend operations and/or seek protection under the bankruptcy laws. We have
entered into a letter of intent with Atlantic Tele-Network, Inc. to sell them up
to 19.9% of the common stock of PICK Sat for up to $10 million, with an option
to acquire an additional 31.1% for up to an additional $15 million. There can be
no assurance we will obtain such financing.
-3-
<PAGE>
We have terminated marketing and distribution of prepaid telephone
calling cards through PICK US., Inc. We are seeking to terminate, divest or
reorganize the operations of PICK Net Inc. and PICK Net UK PLC, both of which
provide international long distance services to other carriers and resellers. We
have entered into a letter of intent to sell the stock of these three
subsidiaries for nominal value, thereby having up to approximately $10 million
of their liabilities assumed, but there can be no assurance a definitive
agreement will be reached.
The historical financial information in this prospectus is primarily
that of the three subsidiaries whose business we are terminating, as PICK Sat
and PICK Online.Com have had limited operations to date.
Our principal executive offices are located at 155 Route 46 West,
Wayne, New Jersey 07470, and our telephone number is (973) 812-7425.
Risk Factors
An investment in common stock involves certain risks that a potential
investor should carefully evaluate prior to making an investment. A discussion
of certain factors to be considered in evaluating the Company, its business and
an investment in common stock is included in the section titled "Risk Factors"
immediately following this Summary.
Summary Historical Consolidated Financial and Operating Data
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited) Years Ended December 31,
------------------------------ --------------------------------------------------
1999 1998 1998 1997 1996
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $3,995,568 $ 506,491 $ 9,822,903 $ 9,015,903 $ 5,869,682
Cost and expenses 6,680,408 1,403,180 20,758,095 10,709,816 11,103,440
----------- ------------ ------------- ------------ -------------
Loss before other income
(expense) (2,684,840) (896,689) (10,935,192) (1,693,913) (5,233,758)
Other income (expense), net (631,404) (113,534) (6,130,179) (10,047,953) 8,417,007
------------ ----------- ----------- ------------ -------------
Income (loss) before
minority interest in
subsidiary loss and
income taxes (3,316,244) (1,010,223) (17,065,371) (11,741,866) 3,183,249
Benefit (provision) for
deferred income taxes - - - 1,808,000 (1,808,000)
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(unaudited) Years Ended December 31,
------------------------------ --------------------------------------------------
1999 1998 1998 1997 1996
----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Minority interest in
subsidiary loss - 457 2,062 434,064 260,541
------------ ----------- ------------ ------------ ------------
Net income (loss) $ (3,316,244) $(1,009,766) $(17,063,309) $ (9,499,802) $ 1,635,790
============ =========== ============ ============ ============
Beneficial conversion
feature of preferred stock (3,570,000) - - - -
------------ ----------- ------------ ------------ ------------
Net loss applicable to
common stock $ (6,886,244) - - - -
============ =========== ============ ============ ============
Net income (loss) per
common share - basic $ (1.65) $ (.29) $ (4.62) $ (2.57) $ .39
============ =========== ============ ============ ============
Weighted-average shares
outstanding - basic 4,161,023 3,627,452 3,692,356 3,695,853 4,199,150
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At March 31,
(unaudited) At December 31,
----------------------------------------------- -------------------------------
1999 1998 1998 1997 1996
------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Working capital
(deficiency) $(16,805,887) $(8,306,754) $(14,677,342) $(7,405,608) $(3,152,216)
============ =========== ============ =========== ===========
Total Assets $ 7,487,754 $ 1,694,862 $ 6,791,156 $ 1,817,513 $ 8,917,149
============ =========== ============ =========== ===========
Current Liabilities $ 18,199,195 $ 8,730,428 $ 16,241,801 $ 8,027,642 $ 6,582,429
============ =========== ============ =========== ===========
Long-term liabilities $ 10,922,716 $ 860,102 $ 10,815,216 $ 794,905 -
============ =========== ============ =========== ===========
Stockholders' equity
(deficiency) $(21,720,175) $(7,983,291) $(20,351,879) $(7,093,114) $ 869,579
============ =========== ============ =========== ===========
</TABLE>
-5-
<PAGE>
NOTE RESTRUCTURING
Between July 29 and September 8, 1998, the Company sold an aggregate of
99 Units in a bridge loan (the "July Bridge Loan") and 9,900,000 warrants to
purchase 990,000 shares of the Company's common stock at $5.00 per share for
five years, for gross proceeds of $9,900,000. The Company allocated $8,587,066
of the gross sale proceeds to the debt and $1,312,934 to the warrants. The
$1,312,934 discount was amortized as interest expense over the original 120-day
life of the July Bridge Note. A security interest in the Company's assets was
filed on behalf of the investors in the July Bridge Loan. In November 1998, the
interest rate of the July Bridge Loan was increased retroactively to 18% and the
maturity date of the promissory notes evidencing the loan (the "Notes") was
extended to April 27, 1999. The Noteholders had the option to either foreclose
and seek repayment of the Notes or convert their Notes into common stock at
$2.50 per share, or 50% of market if lower, following a default in repayment by
the Company.
On April 27, 1999, $9,830,000 of the $9,900,000 in principal amount of
the Noteholders consented to a restructuring (the "Restructuring") to amend
their Notes (the "Amended Notes"), which had been conditioned on at least 80%
approval. The Noteholders have agreed for a two-year period to (a) exchange
983,000 shares of common stock registered under this registration statement for
the warrants issued in connection with the original issuance of the Notes,
245,750 shares for the warrants issued in connection with an extension of the
July Bridge Loan and 388,040 shares pursuant to the anti-dilution provisions of
the warrants, and (b) either receive one share of common stock for every ten
dollar ($10.00) principal amount of the Amended Notes, or alternatively elect to
have the conversion price of the Amended Notes reset from $10.00 to $5.00 per
share. Commonwealth Associates and its designees ("Commonwealth"), as agent for
the Noteholders, was paid 200,000 shares, plus warrants to purchase 50,000
shares exercisable at $13.75 per share, with the exercise price of warrants
previously issued to Commonwealth reduced to $1.00 per share.
The maturity date of the Amended Notes is April 27, 2002. Each Amended
Note is convertible at any time at the option of the holder thereof into shares
of common stock at $10.00 per share. The conversion price of the Amended Notes
will be reset to not lower than $5.00 per share in the event the Company issues
securities (with certain exceptions) for less than $10.00 per share, prior to
April 27, 2000, the first anniversary date of the Restructuring. In addition,
the Company has the option to extend the maturity date for one additional year,
in which event the Conversion Price shall be subject to adjustment.
The Amended Notes shall be automatically converted into shares of
common stock in the event that the closing bid price for the common stock has
exceeded $15.00 per share for 20 consecutive trading days. Commonwealth is
entitled to designate one nominee to the Board and the Noteholders shall have
the right to nominate one person to a reconstructed Board consisting of a
majority of independent Directors. Neither right to designate a nominee has been
exercised.
The Company has agreed to register the above described 983,000 shares
of common stock issuable to the Noteholders in exchange for the Warrants, as
well as 245,750 shares issuable upon exercise of warrants issued in connection
with a note extension and 388,040 shares (subject to adjustment) pursuant to the
anti-dilution provisions of the warrants under this Registration Statement along
with an aggregate of 11,514 shares issuable upon exercise of warrants to issue
7,000 shares of common stock not included in the
-6-
<PAGE>
Restructuring. The Company has also agreed to register all other shares
disclosed above in this section, including those issuable upon conversion of the
Amended Notes, within six months of the completion of the Restructuring.
RISK FACTORS
This offering involves a high degree of risk. Before you invest in our
common stock, you should be aware that there are various risks, including those
described below, that may affect our business, financial condition and results
of operations. We caution you, however, that this list of risk factors may not
be all inclusive. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In this case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
We have a history of significant and continuing losses and cannot guarantee that
we will be profitable.
We have experienced significant operating losses since we commenced
full operations in 1994. Our net losses for each fiscal year since 1994 were:
1998......................$17.1 million
1997......................$9.5 million
1995......................$1.1 million
1994......................$1.3 million
For the three month period ended March 31, 1999, we had a net loss of
approximately $3,316,000. Although we had net income of approximately $1,636,000
in 1996, this resulted from non-cash, non-operating income, which was offset in
1997 by non-cash non-operating losses.
We significantly curtailed our operations during 1998, while we
installed and tested two new switches. Our total revenues amounted to $9,822,903
for the twelve months ended December 31, 1998, compared to $9,015,903 for the
comparable period last year. Of this amount, however, prepaid telephones calling
card revenues were $7,844,462 for 1998, compared to $1,346,660 for 1997.
However, our cost of telephone time purchased increased by a greater amount than
our sales and caused us to continue to lose money. Therefore, we have since
shifted the focus of our business away from the prepaid calling card business,
for which we have discontinued marketing and distribution, as well as from the
resale of long distance telephone services (collectively, the "Old Business").
We have only recently started offering our new services. Therefore, we do not
expect to be able to achieve our prior level of sales in the foreseeable future.
Nevertheless, we will continue to have a high level of operating expenses. We
need to incur significant up-front expenses, including capital expenditures, in
connection with the development and marketing of our new services (collectively,
the "New Business"). This includes substantial increases in executive,
marketing,
-7-
<PAGE>
sales, finance and other personnel. We expect to incur additional losses during
the foreseeable future until we are able to generate significant revenues to
finance our operations and the costs of our new services. We cannot guarantee
that we will be able to generate such revenues and operate profitably.
We have an immediate need for additional financing.
We do not have sufficient cash on hand to meet our current obligations.
Between March and July 1999, we issued 1,871,000 shares of Series B preferred
stock convertible at $1.00 per share for $1,871,000, and 500,000 shares of
Series D preferred stock convertible at $4.20 per share for $5,000,000, subject
to adjustment under certain circumstances. However, we will not be able to
sustain our operations without additional funding. In the event we are unable to
obtain interim financing in the immediate near term, we will be forced to
cutback or suspend our operations. We are attempting to raise substantial
additional funds at below market value prices. We need additional funding
immediately to:
o pay our outstanding past due payables;
o meet our immediate payroll obligations; and
o finance our current business operations.
On March 31, 1999, we had a working capital deficit of approximately $16.8
million.
As of July 20, 1999, we had approximately $11.1 million of short term
indebtedness, including:
o $9.1 million of trade payables; and
o $2 million of a short-term loan which is past
due, but has been orally extended on a month to
month basis.
In April 1999 we were successful in converting all but $70,000 of the
$9.9 Million of the July 1998 Bridge Loan into three-year obligations. Of the
$70,000 not converted, $20,000 was repaid and $50,000 is convertible into Common
Stock at $2.50 per share. We are attempting to convert the majority of our trade
payables into long-term obligations, but there can be no assurance we will be
successful. We have entered into a letter of intent to sell the stock of the Old
Business for nominal value thereby having up to approximately $10 million of
their liabilities assumed. However, we may have to seek bankruptcy protection
for all or part of our "Old Business," if the sale of the Old Business does not
occur. In any event, unless we are able to obtain immediate additional financing
for the Company, certain of our largest creditors can declare a default and
force us to declare bankruptcy to protect ourselves. In such event, you may lose
your entire investment.
We have no firm arrangements with respect to additional financing. We
cannot guarantee that additional financing will be available to us on
commercially reasonable or acceptable terms or
-8-
<PAGE>
on terms which would not be substantially dilutive to stockholders, if at all.
If we fail to secure necessary financing we expect it would have a material
adverse impact on business.
Our financial statements are qualified and based on obtaining financing and
attaining successful operations.
We have incurred operating losses and negative cash flow from our
operations since 1995 and we have an accumulated deficit of approximately $34
million at March 31, 1999. Our operating losses and negative cash flow are
expected to continue until such time, if ever, that our new businesses begin to
produce sufficient revenues to cover our expenses. In addition, substantially
all of our debts are short term. Our former accountants issued a qualified
report on the Company's financial statements as at and for the year ended
December 31, 1997. Our current auditors issued a qualified report on our
financial statements as at and for its year ended December 31, 1998. These two
reports state that if we do not:
o extend payout terms;
o negotiate additional long-term financing
arrangements and raise additional funds; and
o increase revenues and/or decrease expenses,
we may be unable to continue as a going concern for a reasonable period of time.
See "Report of Certified Public Accountants" and "Note 16 of Notes to Financial
Statements."
We restated our financial statements in 1998.
Our financial statements as of March 31, 1997 were restated in June
1998. We initially did not report any gains or losses on the disposition of
marketable equity securities for transactions consummated in the first quarter
of 1997. We believed that it was not appropriate to recognize losses on the
acquisition of our and our subsidiary's common stock or on the exchange of one
investment in marketable equity securities for a similar investment. While we
believed our initial reporting was correct when made, we subsequently determined
that it would have been preferable to record these transactions based upon the
fair value of the assets exchanged, resulting in the recognition of
approximately $9,400,000 in non-cash, non-operating losses. The effect of the
restatement for the quarter ended March 31, 1997, was to reduce net income of
$948,711 to a net loss of $7,626,903. These transactions do not have a cash or
operating effect on our results of operations, and, to date, have not adversely
affected the price of our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We depend on a limited number of clients.
Our prepaid telephone calling card business, which we are no longer
marketing, largely depended upon our relationship with Blackstone Calling Card,
Inc. ("Blackstone"). In 1998,
-9-
<PAGE>
approximately 72% and 10% of our revenues were from Blackstone and IDT Corp.,
respectively. We expect to terminate the Blackstone Agreement, which can be
terminated by either party without cause after the first year. Nevertheless, we
expect to initially depend on a limited number of clients for the New Business
until these businesses become established.
Our limited history of operations may not be a reliable basis for evaluating our
prospects.
Because the New Business are developing companies, we have no operating
and financial data to give to you to evaluate our future performance and
prospects concerning these entities. Our prospects must be considered in light
of the risks, expenses, delays, problems and difficulties frequently encountered
in the establishment of a new business in the Internet industry, which is an
evolving industry characterized by intense competition. You must consider the
risks, expenses and uncertainties that an early stage business like ours faces.
These risks include our ability to:
o establish awareness of our services;
o expand the content and services on our network;
o attract a larger audience to our network;
o attract a large number of advertisers from a variety of
industries;
o maintain our current, strategic relationships with Microsoft,
Philips and Harmonic Data Systems and develop new relationships;
o respond effectively to competitive pressures; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks, our business,
financial condition and results of operations will be materially and adversely
affected.
Significant competition in providing Internet services could reduce the demand
for and profitability of our services.
The Internet services business is highly competitive and there are few
significant barriers to entry. Currently, we compete with a number of national
and local Internet Service Providers ("ISPs"). In addition, a number of
multinational corporations, including giant communications carriers such as
AT&T, MCI/Worldcom, Sprint and some of the regional Bell operating companies,
are offering, or have announced plans to offer, Internet access or on-line
services. We also face significant competition from Internet access
consolidators and from on-line service firms such as America Online ("AOL"),
CompuServe, and Prodigy.
-10-
<PAGE>
Our competitors also include, broadcast.com the largest aggregator of
Internet audio and Real Networks, an audio streaming software maker. We believe
that new competitors, which may include computer software and services,
telephone, media, publishing, cable television and other companies, are likely
to enter the on-line services market.
There are many companies that provide Internet services targeted to
Latin Americans and Spanish and Portuguese speaking people in general.
Competition for visitors, advertisers and electronic commerce partners is
intense and is expected to increase significantly in the future because there
are no substantial barriers to entry in our market.
In addition, we believe that the Internet service and on-line service
businesses will further consolidate in the future. We believe this could result
in increased price and other competition in the industry and adversely impact
us. In the last year, a number of on-line services have lowered their monthly
service fees. This may cause us to lower our fees in order to compete.
Many of our Internet service competitors possess financial resources
significantly greater than what we might expect to have and, accordingly, could
initiate and support prolonged price competition to gain market share. Many
competitive products and services are marketed by companies which:
o are well established;
o have reputations for success in the development
and sale of product and services; and
o have significantly greater financial, marketing,
distribution, personnel and other resources,
thereby permitting them to implement extensive advertising and promotional
campaigns, both general and in response to efforts by additional competitors to
enter into new markets and introduce new products and services.
We believe that the primary competitive factors among Internet access
providers are:
o price, both in prices charged and profit margins
o quality
o customer support and loyalty
o technical expertise
o speed of service provided
-11-
<PAGE>
o local presence in a market
o ease of use
o variety of value-added services
o reliability
We believe it will be able to compete favorably in these areas. However
increased competition in any one of these areas could materially adversely
affect our business, financial condition and results of operations. Our success
in the high-speed direct market will depend heavily upon our ability to provide
high quality Internet connectivity and value-added Internet services targeted in
select target markets. Other factors that will affect our success in these
markets include our continued ability to attract additional experienced
marketing, sales and management talent, and the expansion of support, training
and field service capabilities.
We believe that we compete on the basis of price and service. Our
success will depend on our ability to anticipate and respond to rapid changes in
consumer preferences and the introduction of new services, as well as our
ability to retain our favorable gross margins. We cannot assure you that we will
be able to compete successfully in our markets.
In addition, our competitors may develop content that is better than
ours or that achieves greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. A loss of users to
our competitors may have a material and adverse effect on our business,
financial condition and results of operations.
The Internet industry is characterized by frequent introduction of new
products and services, and is subject to changing consumer preferences and
industry trends, which may adversely affect our ability to plan for future
design, development and marketing of our products and services. The markets for
Internet products and services are also characterized by rapidly changing
technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles.
We are uncertain of our products being accepted by the market.
Achieving market acceptance for our products and services requires
substantial marketing efforts and the expenditure of significant funds, which we
don't currently have, to create both awareness and demand.
Our success depends, in large part, on our ability to attract large
corporations, media companies, cable companies and ISPs to use our services, as
well as the level of acceptance and usage by end-users. Because demand by our
customers may be interrelated, any lack or lessening of demand by any one of
these parties could have a negative affect on our products and services
-12-
<PAGE>
overall market acceptance. We can not assure you that markets will develop for
our New Business, nor can we assure you that we will be able to meet our current
marketing objectives or succeed in positioning ourselves as a key player in the
Internet industry.
If we do not effectively implement our marketing strategy and effectively manage
our operations, our business could suffer.
We grew from approximately $1.6 million of net sales in 1995 to
approximately $9.8 million of net sales in 1998. This placed demands on our
management, employees, operations and physical resources. We were forced to
curtail our unprofitable operations, terminate employees and restructure our
short-term indebtedness and seek to terminate, divest, or reorganize all or a
portion of our Old Business, all of which are currently being carried out.
Implementation of our business plan will depend on, among other things, the
following:
o our ability to establish contractual arrangements targeting
several market segments for our New Business; and
o hire and retain skilled management, financial, marketing, sales
and other personnel.
Our marketing strategy and plans are subject to change as a result of a
number of factors, including, but not limited to, progress or delays in:
o our marketing efforts;
o changes in market conditions, including the emergence of
significant supplementary markets;
o the nature of possible strategic alliances which may become
available to us in the future; and
o competitive factors.
We cannot assure you that we will be able to implement successfully our business
plan for our New Business or otherwise continue our operations.
In order to implement our business plan for our New Business, we will be
required to:
o improve our operating systems;
o attract and retain skilled executive, management and technical
personnel; and
o successfully manage growth, including monitoring operations,
controlling costs and maintaining effective quality, and service
controls.
-13-
<PAGE>
If we are unable to effectively manage our growth, our business, operating
results and financial condition could suffer.
We depend on satellites and third-party long distance carriers.
We currently depend on a limited number of satellites, domestic and
international long distance carriers and Internet Service Providers to provide
our services. Although we believe that we currently have sufficient access to
transmission facilities, satellites and long distance networks, if we fail to
obtain continued access to such facilities, satellites and networks it could
also have a negative impact on our New Business.
We may derive a portion of our revenues from reciprocal advertising agreements,
which do not generate cash revenue
We may derive a portion of our revenues from reciprocal advertising
arrangements under which we will exchange advertising space on our network
predominantly for advertising space on television and radio stations, rather
than cash payments. In the event that revenues from reciprocal advertising
arrangements account for a portion of our revenues in the foreseeable future, we
will be giving up cash revenues.
Joint ventures, acquisitions or strategic alliances may not be available
We do not know if we will be able to identify any future joint
ventures, acquisitions or strategic alliances or that we will be able to
successfully finance these transactions. A failure to identify or finance future
transactions may impair our growth. In addition, to finance these transactions,
it may be necessary for us to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may impact our
operations and, in the case of equity financings, may result in substantial
dilution to existing stockholders.
In the future we will depend on the developing market of the Internet.
Our ability to derive revenues by providing online commerce and
Internet services will depend, in part, upon a developed and robust industry and
the infrastructure for providing Internet access and carrying Internet traffic.
We cannot assure you that the necessary infrastructure, such as a reliable
network backbone, or complementary products, such as lower cost high speed cable
modems, will be developed or that the Internet will become a viable commercial
marketplace in those segments we target. Critical issues concerning the
commercial use of the Internet, including:
o security
o ease of use and access
o reliability
-14-
<PAGE>
o quality of service
o cost
remain unresolved and may impact the growth of Internet use. In the event that
the necessary infrastructure or complementary products are not developed or the
Internet does not become a viable commercial marketplace, our future business,
operating results and financial condition could be negatively affected if we
were to expend significant proceeds for the development of Internet services.
The Internet radio and television market is new and rapidly evolving,
particularly in Latin America. As a result, we cannot measure its effectiveness
or long term market acceptance as compared with traditional media.
Radio and television stations must direct a portion of their budgets to
the Internet and, specifically, to our network. Many of our current or potential
customers have limited experience using the Internet.
No standards exist for the acceptance of the Internet as a medium for
broadcasting radio and television
No standards have been widely accepted for the measurement of the
effectiveness of radio and television broadcasting over the Internet. Standards
may not develop sufficiently to support the Internet as an effective broadcast
medium. If these standards do not develop, broadcast stations may choose not to
use our network. This would have a material adverse effect on our business,
financial condition and results of operations.
Latin American Risks
Our operating results may also fluctuate due to seasonal factors
If we are successful in initially marketing our services in Latin
America, the level of use on our network may be seasonal. This may cause
fluctuations in our revenues and operating results. Visitor traffic on our
network may be significantly lower during the first calendar quarter of the year
because:
o it is the summer months in much of Latin America;
o our target audience tends to take extended vacations during these
months; and
o schools and universities are generally closed.
-15-
<PAGE>
As a result, advertisers have historically spent less in the first and
second calendar quarters. We believe that these seasonal trends will affect our
results of operations.
Social and political conditions in Latin America may cause volatility in our
operations and adversely affect our business
We hope to derive a substantial portion of our initial revenues from
the Latin American markets. Social and political conditions in Latin America are
volatile and may cause our operations to fluctuate. This volatility could make
it difficult for us to effect our business plan, which could have an adverse
effect on our business. Historically, volatility has been caused by:
o significant governmental influence over many aspects of local
economies;
o political instability; unexpected changes in regulatory
requirements;
o social unrest;
o slow or negative growth;
o imposition of trade barriers; and
o wage and price controls.
We have no control over these matters. Volatility resulting from these
matters may decrease Internet availability, create uncertainty regarding our
operating climate and adversely affect our customers' budgets, all of which may
adversely impact our business.
Currency fluctuations and general economic conditions in Latin America may
adversely affect our business
The currencies of many countries in Latin America, including Brazil and
Argentina, have experienced substantial depreciation and volatility. The
currency fluctuations, as well as high interest rates, inflation and high
unemployment, have materially and adversely affected the economies of these
countries. Poor general economic conditions in Latin American countries may
cause our customers to reduce their spending on Internet services, which could
adversely impact our business.
We may suffer currency exchange losses if local Latin American currencies
depreciate relative to the U.S. dollar
Our reporting currency is the U.S. dollar. In a number of cases,
however, customers in Latin America may be billed in local currencies. Our
accounts receivable from these customers will decline in value if the local
currencies depreciate relative to the U.S. dollar. Although we may enter
-16-
<PAGE>
into hedging transactions in the future, we may not be able to do so
successfully. In addition, our currency exchange losses may be magnified if we
become subject to exchange control regulations restricting our ability to
convert local currencies into U.S. dollars.
If Internet use in Latin America does not grow, our business will suffer
The Latin American Internet market is in an early stage of development.
Our near term prospects depends on the continued growth of the Internet in Latin
America. Our business, financial condition and results of operations will be
materially and adversely affected if Internet usage in Latin America does not
continue to grow or grows more slowly than we anticipate. Internet usage in
Latin America may be inhibited for a number of reasons, including:
o the cost of Internet access;
o concerns about security, reliability, and privacy;
o limited amount of content in Spanish or Portugese;
o ease of use; and
o quality of service.
Underdeveloped telecommunications infrastructure may limit the growth of the
Internet in Latin America and adversely affect our business
Access to the Internet requires a relatively advanced
telecommunications infrastructure for which we will be relying on a satellite
communications network. The telecommunications infrastructure in many parts of
Latin America is not as well-developed as in the United States. The quality and
continued development of the telecommunications infrastructure in Latin America
may have a substantial impact on our ability to deliver our services and on the
market acceptance of the Internet in Latin America in general. If further
improvements to the Latin American telecommunications infrastructure are not
made, the Internet will not gain broad market acceptance in Latin America. If
access to the Internet in Latin America does not continue to grow or grows more
slowly than we anticipate, our business, financial condition and results of
operations will be materially and adversely affected.
High cost of Internet access may limit the growth of the Internet in Latin
America and impede our growth
Each country in Latin America has its own telephone rate structure
which, if too expensive, may cause consumers to be less likely to access and
transact business over the Internet. Although rates charged by ISPs and local
telephone companies have been reduced recently in some countries, we do not know
whether this trend will continue. Unfavorable rate developments could decrease
our
-17-
<PAGE>
visitor traffic and our ability to derive revenues from transactions over the
Internet. This could have a material adverse effect on our business, financial
condition and results of operations.
Other Business Risks
We may not be able to develop the PICK Sat and PICK Online.Com names and attract
users to our network
Maintaining the PICK Sat and PICK Online.Com names is critical to our
ability to expand our user base and our revenues. We believe that the importance
of brand recognition will increase as the number of Internet sites in Latin
America grows. In order to attract and retain Internet users, advertisers and
electronic commerce partners, we intend to increase substantially our
expenditures for creating and maintaining brand loyalty.
Our success in promoting and enhancing the PICK Sat and PICK Online.Com
names will also depend on our success in providing high quality content,
features and functionality. If we fail to promote our name successfully or if
visitors to our network or advertisers do not perceive our services to be of
high quality, the value of the names could be diminished. This could have a
material and adverse effect on the business, financial condition and results of
operations.
We will not be able to attract broadcasters if we do not continually enhance and
develop the content and features of our network
To remain competitive, we must continue to enhance and improve our
content. In addition, we must:
o continually improve the responsiveness, functionality and features
of our network; and
o develop other products and services that are attractive to users
and advertisers.
We may not succeed in developing or introducing features, functions,
products and services that users and advertisers find attractive in a timely
manner. This would likely reduce our visitor traffic and materially and
adversely affect our business, financial condition and results of operations.
If we fail to establish and maintain strategic relationships with content
providers, electronic commerce merchants and technology providers, we may not be
able to attract and retain users
Our business depends on establishing relationships with leading content
providers, electronic commerce merchants, and technology and infrastructure
providers. Because most of our agreements with these third parties including,
Microsoft and Philips, are not exclusive, our competitors may seek to use the
same partners as we do and attempt to adversely impact our relationships with
our
-18-
<PAGE>
partners. We might not be able to maintain these relationships or replace them
on financially attractive terms. If the parties with which we have these
relationships do not adequately perform their obligations, reduce their
activities with us, choose to compete with us or provide their services to a
competitor, we may have more difficulty attracting and maintaining visitors to
our network and our business, financial condition and results of operations
could be materially and adversely affected. Also, we intend to actively seek
additional relationships in the future. Our efforts in this regard may not be
successful.
Unexpected network interruptions caused by system failures may result in reduced
visitor traffic, reduced revenue and harm to our reputation
The Internet has been subject to:
o system disruptions;
o inaccessibility of networks;
o long response times;
o impaired quality; and
o loss of important reporting data.
Although we will continue to improve our network, we may not be
successful in avoiding the above disruptions. If we experience delays and
interruptions, visitor traffic may decrease and our name could be adversely
affected.
While we have designed our new network operating center in Miami,
Florida, which is still under construction, to safeguard our systems against
damage from fire, hurricanes (which are common where we are based), power loss,
telecommunications failure, break-ins or other events, such events could have a
material adverse effect on our business, financial condition and results of
operations.
Concerns about security of electronic commerce transactions and confidentiality
of information on the Internet may reduce the use of our network and impede our
growth
A significant barrier to electronic commerce and confidential
communications over the Internet has been the need for security. Internet usage
could decline if any well-publicized compromise of security occurred. We may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Unauthorized persons could attempt
to penetrate our network security. If successful, they could misappropriate
proprietary information or cause interruptions in our services. As a result, we
may be required to expend capital
-19-
<PAGE>
and resources to protect against or to alleviate these problems. Security
breaches could have a material adverse effect on our business, financial
condition and results of operations.
Computer viruses may cause our systems to incur delays or interruptions and may
adversely affect our business
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible liability.
Moreover, if a computer virus affecting our system is highly publicized, our
reputation could be materially damaged and our visitor traffic may decrease.
Year 2000 problems may disrupt our internal operations
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Therefore, the year 2000
will appear as "00", which the system might consider to be the year 1900 rather
than the year 2000. This could result in system failures, delays or
miscalculations causing disruptions to our operations. Our failure to correct a
material Year 2000 problem could have a material adverse effect on our business,
financial condition and results of operations.
We have reviewed our software and current operating systems and believe
that they are Year 2000 compliant. We are currently conducting an inventory, and
developing testing procedures, for all software and other systems that we
believe might be affected by Year 2000 issues. Since third parties developed and
currently support many of the systems that we use, a significant part of this
effort will be to ensure that these third-party systems are Year 2000 compliant.
We plan to confirm this compliance through a combination of the representation
by these third parties of their products' Year 2000 compliance, as well as
specific testing of these systems.
We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet which could adversely affect our business
To date, governmental regulations have not materially restricted use of
the Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be significantly slowed. This could delay growth in demand for
our network and limit the growth of our revenues.
In addition to new laws and regulations being adopted, existing laws
may be applied to the Internet. New and existing laws may cover issues which
include:
o sales and other taxes;
-20-
<PAGE>
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
o libel and defamation;
o copyright, trademark and patent infringement;
o pornography; and
o other claims based on the nature and content of Internet
materials.
We may become subject to claims regarding foreign laws and regulations which may
be expensive, time consuming and distracting
Because we have employees, property and business operations in the
United States and eventually throughout Latin America, we are subject to the
laws and the court systems of many jurisdictions. We may become subject to
claims based on foreign jurisdictions for violations of their laws. In addition,
these laws may be changed or new laws may be enacted in the future.
International litigation is often expensive, time consuming and distracting.
Accordingly, any of the foregoing could have a material adverse effect on our
business, financial condition and results of operations.
Unauthorized use of our intellectual property by third parties may adversely
affect our business
We regard our copyrights, service marks, trademarks, trade secrets and
other intellectual property as critical to our success. Unauthorized use of our
intellectual property by third parties may adversely affect our business and our
reputation. We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property rights. Despite our
precautions, it may be possible for third parties to obtain and use our
intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in Internet-
related industries is uncertain and still evolving. The laws of some foreign
countries are uncertain or do not protect intellectual property rights to the
same extent as do the laws of the United States.
-21-
<PAGE>
We may be subject to claims based on the content we provide over our network
The laws in the United States and in Latin American countries relating
to the liability of companies which provide online services, like ours, for
activities of their visitors are currently unsettled. Claims have been made
against online service providers and networks in the past for defamation,
negligence, copyright or trademark infringement, obscenity, personal injury or
other theories based on the nature and content of information that was posted
online by their visitors. We could be subject to similar claims and incur
significant costs in their defense.
We may be subject to claims based on products sold on our network
We expect to enter into arrangements to offer third-party products and
services on our network under which we may be entitled to receive a share of
revenues generated from these transactions. These arrangements may subject us to
additional claims including product liability or personal injury from the
products and services, even if we do not ourselves provide the products or
services. These claims may require us to incur significant expenses in their
defense or satisfaction. While our agreements with these parties often provide
that we will be indemnified against such liabilities, such indemnification may
not be adequate.
Although we carry general liability insurance, our insurance may not
cover all potential claims to which we are exposed or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on our business, financial condition and results
of operations or could result in the imposition of criminal penalties. In
addition, the increased attention focused on liability issues as a result of
these lawsuits and legislative proposals could impact the overall growth of
Internet use.
Our success depends on key personnel and we may not be able to replace key
personnel who leave.
The development of new Internet products and services or improvements
of our existing products depends on the efforts of our Chairman, Diego Leiva, as
well as certain other officers. If we lose any of these person's services for
any reason we expect it would have a material adverse effect on us. We have
obtained a $1 million key-man life insurance policy on Mr. Leiva's life. Our
future success is dependent on, among other factors, the successful recruitment
and retention of key personnel for sales, marketing, finance and operations.
Competition for skilled and technical talent is intense. We cannot assure you
that we will be successful in attracting and retaining such personnel. If we
fail to retain existing key employees or hire new employees when necessary we
could potentially be adversely effected.
-22-
<PAGE>
Our need to comply with government regulations can increase our costs and slow
our growth.
Long distance telecommunication services are subject to regulation by
the Federal Communications Commission (the "FCC") and by state regulatory
authorities. Among other things, these regulatory authorities impose regulations
governing the rates, terms and conditions for interstate and intrastate
telecommunication services. The federal law governing regulation of interstate
telecommunications are the Communications Acts of 1934 and 1996 (the
"Communications Acts"), which applies to all "common carriers," including AT&T,
Worldcom/MCI and Sprint, as well as ourselves, which resell the transmission
services provided through the facilities of other common carriers. In general,
under the Communications Acts, common carriers are required to charge reasonable
rates and are prohibited from engaging in unreasonable practices in the
provision of their services. Common carriers are also prohibited from engaging
in unreasonable discrimination in their rates, charges and practices.
The Communications Acts require each common carrier to file tariffs
with the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for services.
Upon filing a tariff, the service provider is required to provide the services
at the rates and under the terms and conditions specified in the tariff. Failure
to file a tariff could result in fines and penalties. We believe we have filed
all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and state
tariffs.
We believe that we are in substantial compliance with all material
laws, rules and regulations governing our operations and have obtained or are in
the process of obtaining all licenses, tariffs and approvals necessary for the
conduct of our business. In the future, legislation enacted by Congress, court
decisions relating to the telecommunications industry, or regulatory actions
taken by the FCC or the states in which we operate could have a negative impact
on our business. Changes in existing laws and regulations, particularly
relaxation of existing regulations resulting in significantly increased price
competition, may have a significant impact on our activities and on our
operating results. Adoption of new statutes and regulations and our expansion
into new geographic markets could require us to alter our methods of operations,
at costs which could be substantial, or otherwise limit the types of services we
offer. We cannot assure you that we will be able to comply with additional
applicable laws, regulations and licensing requirements.
Risks Involving Our Stock
Investors will not be able to exert control over us.
We currently have approximately 4.4 million shares of Common Stock
outstanding. The holders of our Series B and Series D Convertible Stock, which
includes directors and affiliates of
-23-
<PAGE>
the Company, are entitled to vote approximately 3 million shares on an as
converted basis. We are attempting to raise additional funds at prices
significantly lower than our current fair market value. Therefore, our preferred
stockholders are expected to have the ability to elect all of our directors and
to control the outcome of all other issues submitted to our stockholders.
You may have difficulty trading and obtaining quotations for our common stock.
Our common stock is currently traded in the over-the-counter market in
the so-called "pink sheets," and is quoted on the National Association of
Securities Dealers, Inc.'s Electronic Bulletin Board under the symbol "PICK." As
a result of trading in this over-the-counter market, you will likely find it
more difficult to dispose of, or to obtain quotations as to the price of our
common stock.
Our quarterly operating results are not an indication of our future results
because they are subject to significant fluctuations
Our future revenues and results of operations may vary significantly
due to a combination of factors, any of which are outside of our control.
Accordingly, you should not rely on quarter-to- quarter comparisons of our
results of operations as an indication of our future performance. It is possible
that in future periods our results of operations may be below the expectations
of public market analysts, if any, and investors. This could cause the trading
price of our common stock to decline.
Our stock price is likely to be highly volatile and could drop unexpectedly
Following this offering, the price at which our common stock will trade
is likely to be highly volatile and may fluctuate substantially.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of technology companies, particularly Internet companies. As
a result, investors in our common stock may experience a decrease in the value
of their common stock regardless of our operating performance or prospects.
If our stock price is volatile, we may become subject to securities litigation
which is expensive and could result in a diversion of resources
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
-24-
<PAGE>
Our common stock is subject to penny stock regulation.
The trading of our common stock is currently subject to SEC rules for
non-Nasdaq and non-exchange listed securities. Under such rules, brokers-dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from these rules if the market price is at
least $5.00 per share.
The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share subject to certain exceptions.
Such exceptions include equity securities listed on Nasdaq and equity securities
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for more than three years, or (ii)
net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 for the preceding three years, the latter of which tests
we meet. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated with the penny stock
market.
There are outstanding shares of our common stock eligible for future sale.
Of the approximately 4.4 million shares of our common stock outstanding
as of June 30, 1999, approximately 2.3 million are "restricted securities," as
that term is defined in the Securities Act, and may be sold in compliance with
the provisions of Rule 144.
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward- looking statements, including those
discussed under "Risk Factors".
This prospectus contains market data related to the Internet. This
market data includes projections that are based on a number of assumptions. The
assumptions include that:
o no catastrophic failure of the Internet will occur;
o the number of people online and the total number of hours
spent online will increase significantly over the next five
years;
-25-
<PAGE>
o the demand for download speed of content will increase
dramatically; and
o Internet security and privacy concerns will be adequately
addressed.
If any one or more of the foregoing assumptions turns out to be
incorrect, actual results may differ from the projections based on these
assumptions. The Internet-related markets may not grow over the next three to
four years at the rates projected by these market data, or at all. The failure
of these markets to grow at these projected rates may have a material adverse
effect on our business, results of operations and financial condition, and the
market price of our common stock.
The forward-looking statements made in this prospectus relate only to
events as of the date on which the statements are made.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders. If all the warrants and options are
exercised (on a non-cashless exercise basis), we will receive gross cash
proceeds of approximately $2,965,000 less offering expense of approximately
$100,000. The proceeds may be used to repay indebtedness and for working capital
purposes.
DIVIDEND POLICY
We have no present intention of paying any dividends on our common
stock. We expect that we will retain our earnings, if any, to finance
operations.
The declaration and payment of future dividends to holders of our
common stock will be at the discretion of the Company's Board of Directors and
will depend upon many factors, including the Company's financial condition,
earnings, the capital requirements of its operating subsidiaries, legal
requirements and such other factors as the Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The Company's common stock has been traded in the over-the-counter
market and reported on the OTC Bulletin Board under the symbol "PICK" since
September 1996. The following table sets forth the high and low bid prices of
the Company's common stock as reported on the over-the-counter market for the
last two completed fiscal years and the current fiscal year. These prices give
retroactive effect to a one-for-ten reverse split authorized by the Board of
Directors on July 6, 1999, to stockholders of record on July 23, 1999. The
prices represent inter-dealer quotations, without retail mark-up, mark down or
commission, and may not represent actual transactions.
-26-
<PAGE>
Bid Prices
-----------------------------------
Period High Low
------ ---- ---
Fiscal Year 1997
----------------
First quarter $7.80 $1.60
Second quarter 3.30 1.20
Third quarter 2.70 0.50
Fourth quarter 5.10 1.50
Period High Low
------ ---- ---
Fiscal Year 1998
----------------
First quarter $5.10 $1.90
Second quarter 10.50 4.10
Third quarter 8.80 4.20
Fourth quarter 9.30 3.90
Fiscal Year 1999
----------------
First quarter $15.20 $3.60
Second quarter $28.75 $7.30
As of July 12, 1999, we had 4,421,185 shares of common stock issued and
outstanding and 456 record holders of the common stock.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its Subsidiaries as of March 31, 1999 (unaudited), and as adjusted, giving
effect to the exercise of all warrants and options pursuant to which the common
stock offered hereby will be issued and the Company's receipt of net proceeds of
approximately $2,865,000, as well as certain stock issuances since April 1, 1999
described in the notes to the following table.
<TABLE>
<CAPTION>
March 31, 1999
(unaudited)
--------------------------------
Actual As Adjusted(1)
------ ------------
<S> <C> <C>
Cash $ 42,493 $2,907,493
========= ==========
Debt obligations:
Capitalized lease obligations, non current 1,042,716 1,042,716
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
(unaudited)
--------------------------------
Actual As Adjusted(1)
------ ------------
<S> <C> <C>
18% Senior Secured Notes 9,880,000 52,990(1)
--------- ----------
10% Senior Secured Amended Notes
with interest -0- 10,439,022
Stockholders' equity (deficit):
Preferred Stock, par value $.001; authorized 10,000,000 shares:
2,000,000 shares designated as Series B Convertible
Preferred Stock, aggregate liquidation value
$1,871,000, issued and outstanding 1,050,000 shares
(2), and 1,871,000 shares on a pro forma basis 1,050,000 1,871,000
500,000 shares designated as Series D Convertible
Preferred Stock, aggregate liquidation value
$5,000,000, issued and outstanding, none, and 500,000
shares on a pro forma basis (3) -0- 5,000,000
Common stock, par value $.01;
40,000,000 and 100,000,000 shares authorized, actual and as
adjusted, respectively; 4,202,698 shares issued
and outstanding at March 31, 1999 and 5,399,444 shares,
as adjusted (4) 42,062 65,779
Additional paid-in capital 8,693,875 11,493,096
Options and Warrants 2,470,679 2,470,679
Stock subscription (5,000) --
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated deficit (33,959,813) (33,959,813)
------------ -----------
Stockholders' deficiency (21,720,175) (13,071,237)
------------ -----------
Total capitalization $(10,797,459) $(1,536,509)
============ ===========
</TABLE>
- -------------
(1) As adjusted gives effect to the exchange of $9,830,000 of l8% Senior
Secured Notes for 10% Senior Secured Amended Notes and the 200,000 shares
of common stock issued as placement cost for that transaction. The holder
of $20,000 of the original notes was repaid and the holder of $50,000 of
such Notes may convert them into common stock at the rate of $2.50 per
share.
-28-
<PAGE>
(2) An additional 821,000 shares of Series B Convertible Preferred Stock, were
sold by the Company at $1.00 per share since April 1, 1999.
(3) All 500,000 shares of Series D Convertible Preferred Stock were sold by
the Company at $10.00 per share since April 1, 1999.
(4) Includes the issuance of 218,486 shares of common stock between April 1,
1999 and July 12, 1999 and an aggregate of 653,260 shares of common stock
upon exercise of all warrants and 325,000 shares of common stock upon
exercise of all options offered hereby. Does not include any shares
issuable upon exercise of warrants or stock options outstanding as of the
date of this prospectus.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected historical financial data
of the Company for each of the preceding five years ended December 31, 1998 and
for the three-month periods ended March 31, 1998 and 1999. The selected
financial information for and as of the years ended December 31, 1997, 1996,
1995 and 1994 are derived from the consolidated financial statements of the
Company, which financial statements have been audited by Durland & Company,
CPAs, P.A., independent certified public accountants. The selected financial
information for and as of the year ended December 31, 1998 have been audited by
Goldstein Golub Kessler LLP. The Consolidated Balance Sheets as of December 31,
1998 and 1997 and the Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 and the accountants' reports thereon are
included elsewhere in this Report. The selected historical data for each of the
three-month periods ended March 31, 1998 and 1999 are derived from the unaudited
interim consolidated financial statements of the Company. In the opinion of
management, the interim consolidated financial statements reflect all
adjustments (consisting only of normal and recurring adjustments necessary to
fairly present the information presented for such periods). The interim
consolidated financial statements are not necessarily indicative of the results
to be expected for the full year. The selected historical financial data
presented herein are qualified in their entirety by, and should be read in
conjunction with, the Company's Consolidated Financial Statements and Notes
thereto included herein.
-29-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 3,995,568 $ 506,491
Cost and expenses 6,680,408 1,403,180
------------ ------------
Loss before other
income (expense) (2,684,840) (896,689)
Other income (expense), net (631,404) (113,534)
------------ ------------
Income (loss) before minority
interest in subsidiary loss
and income taxes (3,316,244) (1,010,223)
Benefit (provision) for
deferred income taxes -- --
Minority interest in
subsidiary loss -- 457
------------ ------------
Net income (loss) $ (3,316,244) $ (1,009,766)
============ ============
Beneficial conversion
feature of preferred stock (3,570,000) --
------------ ------------
Net loss applicable to
common stock $ (6,886,244) --
============ ============
Net income (loss) per
common share - basic $ (1.65) $ (.29)
============ ============
Weighted-average shares
outstanding-basic 4,161,023 3,627,452
============ ============
Balance Sheet Data:
At March 31,
------------
1999 1998
------------ ------------
Working capital
(deficiency) $(16,805,887) $ (8,306,754)
============ ============
Total Assets $7,487,754 $ 1,694,862
============ ============
Current Liabilities $ 18,199,195 $ 8,730,428
============ ============
Long-term liabilities $ 10,922,716 $ 860,102
============ ============
Stockholders' equity
(deficiency) $(21,720,175) $ (7,983,291)
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,822,903 $ 9,015,903 $ 5,869,682 $ 1,565,039 $ 529,913
Cost and expenses 20,758,095 10,709,816 11,103,440 2,591,084 1,780,493
------------ ------------ ------------ ------------ ------------
Loss before other
income (expense) (10,935,192) (1,693,913) (5,233,758) (1,026,045) (1,250,580)
Other income (expense), net (6,130,179) (10,047,953) 8,417,007 (45,033) --
------------ ------------ ------------ ------------ ------------
Income (loss) before minority
interest in subsidiary loss
and income taxes (17,065,371) (11,741,866) 3,183,249 (1,071,078) (1,250,580)
Benefit (provision) for
deferred income taxes -- 1,808,000 (1,808,000) -- --
Minority interest in
subsidiary loss 2,062 434,064 260,541 37 --
------------ ------------ ------------ ------------ ------------
Net income (loss) $(17,063,309) $ (9,499,802) $ 1,635,790 $ (1,071,041) $ (1,250,580)
============ ============ ============ ============ ============
Beneficial conversion
feature of preferred stock -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss applicable to
common stock -- -- -- -- --
============ ============ ============ ============ ============
Net income (loss) per
common share - basic $ (4.62) $ (2.57) $ 0.39 $ (0.26) --
============ ============ ============ ============ ============
Weighted-average shares
outstanding-basic 3,692,356 3,695,853 4,199,150 4,044,252
============ ============ ============ ============ ============
Balance Sheet Data:
At December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
Working capital
(deficiency) $(14,677,342) $ (7,405,608) $ (3,152,216) $ (1,074,159) $ (1,127,590)
============ ============ ============ ============ ============
Total Assets $ 6,791,156 $ 1,817,513 $ 8,917,149 $ 2,449,024 $ 319,835
============ ============ ============ ============ ============
Current Liabilities $ 16,241,801 $ 8,027,642 $ 6,582,429 $ 2,679,923 $ 1,341,521
============ ============ ============ ============ ============
Long-term liabilities $ 10,815,216 $ 794,905 -- $ 400,000 --
============ ============ ============ ============ ============
Stockholders' equity
(deficiency) $(20,351,879) $ (7,093,114) $ 869,579 $ (846,407) $ (1,021,686)
============ ============ ============ ============ ============
</TABLE>
-30-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company generates revenues from the sale of telecommunication
services. Historically, this included international long distance service to
carriers and resellers, and revenues derived from prepaid telephone calling
cards to distributors for resale to retail outlets. In 1999, the Company,
through its wholly owned subsidiary PICK Sat Inc. ("PICK Sat") commenced
development of a system to multicast the delivery of Internet Protocol
multi-media content via satellite. Also in 1999, the Company formed PICK
Online.Com Inc. to provide broadband Internet content to users, including radio
streaming using the PICK Sat platform (www.pickradio.com). PICK Sat and PICK
Online.Com (collectively, "New Business") are developing companies and have not
generated any revenue.
We have terminated the marketing and distributing of prepaid telephone
calling cards through our subsidiary PICK US Inc. We are seeking to terminate,
divest or reorganize the operations of PICK Net Inc. and PICK Net UK PLC, both
of which provide international long distance services to other carriers and
resellers. We have entered into a letter of intent to sell the stock of these
three subsidiaries for nominal value thereby having up to approximately $10
million of their liabilities assumed, but there can be no assurance that a
definitive agreement will be reached. The historical financial information in
this prospectus is primarily that of these latter three subsidiaries as PICK Sat
and PICK Online.Com have had limited operations to date.
The Company's costs of sales primarily consist of the cost of telephone
services, for both the resale of international long distance services and for
prepaid telephone calling cards.
For the resale of international long distance, the Company recognizes
revenues as its customers use the traffic. For prepaid telephone calling cards
sales, the Company recognizes revenues at the time it provides the telephone
services associated with its cards and recognizes the cost of the carrier
telephone traffic based on the minutes used in the same periods that the Company
recognizes revenues. For PICK Sat business, the Company will charge its
customers for the cost of service including set-up, equipment, band width on the
satellite and a portion of the facilities cost. In addition, monthly service
fees will be charged both for the up link of broadband content and for the down
link to individual receivers.
Three Months Ended March 31, 1999 Compared with March 31, 1998
Revenues:
Total revenues amounted to approximately $3,996,000 for the three
months ended March 31, 1999, compared to approximately $506,000 for the three
months ended March 31, 1998, an increase of $3,490,000. The Company
significantly curtailed its operations during the first half of 1998,
-31-
<PAGE>
while it installed and tested two leased Siemens Digital Central Office
Switches. These switches replaced switching services previously purchased from
third party vendors. Consequently, the Company decided to curtail its marketing
efforts for the sale of international long distance services until it completed
this installation and until it had the capability to deliver traffic through
Gulfsat. Therefore, for the three months ended March 31, 1999, the Company
generated international long distance revenue of approximately $1,213,000,
compared with approximately $329,000 for the three months ended March 31, 1998.
Prepaid telephone calling card revenues were approximately $2,783,000 for the
three months ended March 31, 1999, compared to approximately $178,000 for the
three months ended March 31, 1998. This latter increase is attributable to sales
to Blackstone Calling Card, Inc. ("Blackstone") under the Company's agreement
with Blackstone, a major marketer and distributor of prepaid telephone calling
cards.
Costs and Expenses:
The cost of telephone time purchased increased from approximately
$539,000 to approximately $4,322,000. Due to Gulfsat's inability to provide
service to the countries originally anticipated, these costs increased by a
greater amount than the sales generated by the Company due primarily to the
Company's inability to obtain preferential rates from the common carriers. Other
cost of sales increased from approximately $289,000 to $892,000. The total
increase resulted primarily from the processing costs arising from the increased
prepaid telephone calling card activity sold through Blackstone and
long-distance services.
Selling, general and administrative expenses were approximately
$1,323,000 for the three months ended March 31, 1999, compared to $515,000 for
the three months ended March 31, 1998, reflecting an increase of $808,000 or
157%. Approximately $313,000 of this increase is due to start-up and development
expenses of the Company's newly formed PICK Sat subsidiary. The residual
increase is primarily due to other additions to staff and the amount of debt
placement expenses aggregating approximately $250,000.
Loss from Operations:
The Company's loss from operations increased from approximately
$897,000 to approximately $2,685,000 primarily due to the increases in cost of
sales and general and administrative expenses discussed above.
Other:
The Company's interest expense increased significantly from the prior
year due to the substantial increase in the amount of short-term debt placed in
the current year and additional interest costs attributable to the various loan
extensions.
-32-
<PAGE>
Year Ended December 31, 1998 as Compared with Year Ended December 31, 1997
Total revenues amounted to $9,822,903 for the twelve months ended
December 31, 1998 ("1998") compared to $9,015,903 for the twelve months ended
December 31, 1997 ("1997"). The Company significantly curtailed its operations
during the first half of 1998, while it installed and tested two leased Siemens
Digital Central Office Switches. Consequently, the Company decided to curtail
its marketing efforts for the sale of international long distance services until
the switches were installed and enough countries were hooked into the Gulfsat
network to give the Company the capability to deliver competitively priced
traffic through Gulfsat. For 1998, the Company generated international long
distance revenue of $1,978,441, compared with $7,669,243 for 1997, a decrease of
$5,690,802 or 74%. Prepaid telephone calling card revenues were $7,844,462 for
1998, compared to $1,346,660 for 1997. This represents an increase of
$6,497,802, or 483%. This increase reflects beginning of the Blackstone
Agreement, even at lower than anticipated levels.
The cost of telephone time purchased increased from $8,326,318 to
$13,322,978, an increase of $4,996,660. These costs increased by 60%, even
though revenues declined by 74%, primarily due to the costs of long distance
arising from the usage of prepaid telephone calling cards sold through
Blackstone. Other cost of sales increased from $762,431 to $3,069,566 primarily
due to the fixed costs associated with the Company's newly developed network and
processing costs arising from the increased prepaid telephone calling card
activity. In 1997, the cost of sales benefitted from the reversal of $649,563,
representing a portion of a previous provision for contingent costs.
The Company's selling, general and administrative expenses were
$3,880,100 for 1998, compared to $1,836,829 for 1997, reflecting an increase of
$2,043,271, or 111%. This increase is primarily due to increases in staffing.
The Company's loss before other income (expense) rose from $1,693,913
for 1997 to $10,935,192 for 1998 primarily due to the increases in cost of sales
and general and administrative expenses discussed above.
The interest and debt placement expenses increased significantly from
the prior year due to the substantial increase in the amount of short-term debt
placed in 1998.
Year Ended December 31, 1997 as Compared with Year Ended December 31, 1996
Total revenues amounted to $9,015,903 for the twelve months ended
December 31, 1997 ("1997") compared to $5,869,682 for the twelve months ended
December 31, 1996 ("1996"). This represents an increase of $3,146,221, or 54%.
For 1997, the Company generated international long distance revenue of
$7,669,243 compared to $4,444,342 for 1996; the international long distance
business began in May of 1996. Prepaid telephone calling card revenues were
$1,346,660 for 1997, compared to $1,425,340 for 1996. This represents a decrease
of $78,680, or 5.5%. This decrease reflects reductions in the Company's
advertising and market changes which have resulted in product returns and
reductions in repeat sales of calling cards.
-33-
<PAGE>
The direct costs of international long distance and calling card
services amounted to $9,088,749 (which excludes a $649,563 credit arising from
reversal of a portion of the previously-provided contingency reserve related to
billing disputes with AT&T - see Note 12 of Notes to the Consolidated Financial
Statements) for 1997 compared to $6,401,231 (which excludes a $1,749,563
provision for contingent costs provided related to billing disputes with AT&T)
for 1996. As a result, the gross margin was negative 0.8% of revenues for 1997,
compared to a negative gross margin of 9.1% in 1996. Including the adjustments
to the contingency reserve, gross margin would be 6.4% for 1997 and negative
38.9% for 1996.
The decrease in selling and marketing expenses were a direct result of
a reduction in product advertising, largely due to market changes. The general
and administrative costs increased primarily due to a need for increased outside
professional assistance. In addition, there was a modest increase in personnel
cost. Bad debt expense increased primarily because of the bankruptcy of one of
the Company's international long distance customers.
The Company's loss from operations improved from $5,233,758 for 1996 to
$1,693,913 for 1997. The primary reasons for this improvement are (i)
improvement in gross margin (other than changes to the contingency reserve) of
approximately $460,000, (ii) changes in amounts charged to the contingency
reserve of approximately $2,400,000 and (iii) reductions in advertising expenses
of approximately $1,040,000, offset by increases in general and administrative
expenses (primarily rent, salaries and professional fees) of approximately
$350,000. Absent changes in charges to the contingency reserve, the Company's
operating loss would have improved by approximately $1,140,000.
The Company recognized approximately $9,900,000 in non-cash,
non-operating losses in 1997 from losses from disposition of marketable equity
securities and a write-off of the Company's investment in prepaid cellular
telephone technology. The Company recognized approximately $8,400,000 in
non-cash, non-operating income in 1996 from gains on disposition of marketable
equity securities and a one-time license fee related to the Company's prepaid
cellular telephone technology.
The Company initially did not report any gains or losses on the
disposition of the marketable equity securities referred to above, as the
Company believed that it was not appropriate to recognize losses on the
acquisition of its and its subsidiary's common stock or on exchange of one
investment in marketable equity securities for another. The Company subsequently
determined that it would have been preferable to record these transactions based
upon the fair value of the assets exchanged, resulting in the recognition of
approximately $9,500,000 in losses.
-34-
<PAGE>
Liquidity and Capital Resources
Material Changes in Financial Condition from December 31, 1998 to March 31,
1999:
Due to the losses discussed above, the Company's working capital
deficit increased from approximately $14,677,000 as of December 31, 1998, to
approximately $16,806,000 as of March 31, 1999 (an increase in the working
capital deficit of $2,129,000) and the stockholders' deficiency changed from a
negative $20,352,000 at December 31, 1998 to approximately $21,720,000 at March
31, 1999 (an increase in negative net worth of approximately $1,368,000).
Current assets decreased by approximately $171,000 primarily due to a
decrease in prepaid expenses and other current assets at March 31, 1999. Current
liabilities increased by approximately $1,957,000. This increase is largely due
to net increases in accounts payable and accrued expenses as a result of funding
of continued losses, greater sales volume, offset, in part, by a decrease in
deferred revenue for pre-paid calling cards and a decrease in other current
liabilities of approximately $1,591,000.
As of March 31, 1999, approximately $18,200,000 of the liabilities of
the Company mature or are subject to payment agreements calling for payment
before the end of 1999. Management is in the process of negotiating with the
largest trade creditors to restructure a substantial portion of this short-term
debt. The Company is attempting to reach agreements to make a down payment
immediately and convert the balance of the Company's obligation into long-term
indebtedness and/or equity securities of the Company, but there can be no
assurance that agreements will be executed.
The Company is pursuing sources of capital in order to repay short-term
indebtedness and to commence operations of its new businesses. While the Company
believes it will be able to continue as a going concern, there can be no
assurance that the Company will be successful.
The Company is investigating various alternatives which include the
termination, divestiture or reorganization of the operations of PICK US, Inc.,
PICK Net Inc. and PICK Net UK PLC.
The Company has terminated marketing and distributing of prepaid
telephone calling cards through PICK US Inc. We are seeking to terminate, divest
or reorganize the operations of PICK Net Inc. and PICK Net UK PLC, both of which
provide international long distance services to other carriers and resellers. We
have entered into a letter of intent to sell the stock of these three
subsidiaries for nominal value, thereby having a substantial portion of their
liabilities assumed, but there can be no assurance a definitive agreement will
be reached.
Furthermore, the Company is in need of immediate financing for working
capital. If the Company is able to obtain adequate funding it expects that the
Company's operations on a going forward basis will be primarily through its PICK
Sat subsidiary which has only recently commenced operations and has not
generated any revenues to date. We have entered into a letter of intent with
Atlantic Tele-Network, Inc. to sell them up to 19.9% of the common stock of PICK
Sat for up to $10 million, with an option to acquire an additional 31.1% for up
to an additional $15 million. However, in the event that we are unable to obtain
interim financing in the immediate near term, we will be forced to cutback or
suspend operations and
-35-
<PAGE>
/or seek protection under the bankruptcy laws. Although the Company is in
discussions with several sources of financing, there can be no assurance we will
obtain such financing.
Material Changes in Cash Flows
Cash decreased during the three months ended March 31, 1999, by
approximately $206,000. This decline is attributable to an increase in cash used
in operating activities of approximately $692,000 and investing activities of
approximately $414,000. This is offset by increases in cash provided by
financing activities of approximately $900,000.
Cash Flows from Operating Activities
Operating activities used approximately $692,000 in cash for the three
months ended March 31, 1999, compared with a use of approximately $433,000 for
the three months ended March 31, 1998. The increased loss in operations of
approximately $3,316,000 resulted principally from the Company's sales in the
prepaid calling card business under the Blackstone agreement. This loss was
offset principally by an increase in accounts payable and accrued expenses.
Cash Flows from Investing Activities
The Company's capital expenditures of approximately $414,000 for the
three months ended March 31, 1999 increased over the three months ended March
31, 1998 of $4,137. This increase is attributable to the Company's continued
development of the satellite-based Internet access, interactive multimedia
structures for its PICK Sat subsidiary.
Cash Flows from Financing Activities
During the three months ended March 31, 1999, the Company had net cash
provided by financing of approximately $900,000, as compared to approximately
$437,000 in the three months ended March 31, 1998. The proceeds are from the
issuance of preferred stock for the current period and incurring debt in the
prior period.
At December 31, 1998
The Company's 1998 operating loss before other income (expense) of
$10,935,192 (and net loss of $17,063,309) generated negative cash flow from
operations of $5,073,495 for 1998, compared with negative cash flow from
operations of $419,672 and $1,218,381 for 1997 and 1996, respectively.
Due to the losses discussed above, the Company's working capital
deficiency increased from $7,405,608 at December 31, 1997 to $14,677,342 at
December 31, 1998 (an increase in the working capital deficiency of $7,271,734.
-36-
<PAGE>
The Company's net worth changed from a negative $7,093,114 at December 31, 1997
to a negative $20,351,879 at December 31, 1998 (an increase in negative net
worth of $13,258,765).
Current assets increased by $942,425 from December 31, 1997 to 1998,
primarily due to increases in cash, accounts receivable, and prepaid expenses
and other current assets. Current liabilities increased by $8,214,159 largely
due to net increases in debt, accounts payable, deferred revenue and other
current liabilities.
As of December 31, 1998, the Company had committed approximately
$690,000 to license computer software, payments for which will be due in 1999.
The Company significantly increased its' capital spending in property
and equipment to $3,817,153 in 1998 from $6,510 in 1997. These expenditures were
to support the development of the Company's international long distance
telephone and high speed broadband Internet service businesses.
Between July 29 and September 8, 1998, the Company sold an aggregate of
99 Units in a bridge loan (the "July Bridge Loan") for gross proceeds of
$9,900,000. A portion of the net proceeds of the July Bridge Loan was used to
repay a $1,000,000 unsecured bridge loan incurred in April 1998 and a $575,000
bank loan which bore interest at 8% above the bank's prime rate. Upon repayment
of the Bank Loan, the Bank released its security interest and a security
interest on the Company's assets was filed on behalf of the investors in the
July Bridge Loan. In November 1998, the interest rate of the July Bridge Loan
was increased retroactively to 18% and the maturity date of the promissory notes
evidencing the loan (the "Notes") was extended to April 27, 1999.
All but $70,000 of the Noteholders consented to a restructuring (the
"Restructuring") to amend their Notes (the "Amended Note"), for which the
Company has agreed for a two-year period to allow each consenting Noteholder to
(a) exchange one-tenth of a share of common stock for each warrant issued in
connection with the original issuance of the Notes, and (b) either receive one
share of common stock for every ten dollars principal amount of Notes amended,
or alternatively elect to have the conversion price of the Amended Note reset to
$5.00 per share. Commonwealth, and/or its designees, as agent for the
Noteholders was paid 200,000 shares, plus warrants exercisable at $13.75 per
share to purchase 50,000 shares, and the exercise price of warrants previously
issued to Commonwealth was reduced from $5.00 to $1.00 per share.
The maturity date of the Amended Notes is April 27, 2002. Each Amended
Note is convertible at any time at the option of the holder thereof into shares
of common stock at $10.00 per share, subject to adjustment under certain
circumstances at the first anniversary date of the Restructuring. In addition,
the Company shall have the option to extend the maturity date for one additional
year, in which event the Conversion Price shall be subject to adjustment.
-37-
<PAGE>
The Amended Notes shall be automatically converted into shares of
common stock in the event that the closing bid price for the common stock has
exceeded $15.00 per share for 20 consecutive trading days. Commonwealth shall be
entitled to designate one nominee to the Board and the Noteholders shall have
the right to nominate one person to a reconstructed Board consisting of a
majority of independent directors.
During March 1999, the Company authorized the issuance of Series B and
Series D convertible preferred stock totaling 2,500,000 shares. The Series B
Convertible Preferred Stock has a liquidation preference of $1.00 per share and
is convertible into shares of common stock at the rate of $1.00 per share.
During March and April 1999, the Company sold $1,871,000 of Series B Convertible
Preferred Stock convertible into 1,871,000 shares of common stock. The Series D
Convertible Preferred Stock has a liquidation preference of $10.00 per share and
is convertible into shares of common stock at the rate of $4.20 per share.
Commencing in April 1999, the Company sold $5,000,000 of Series D Convertible
Preferred Stock convertible into 1,190,489 shares of common stock along with
warrants to purchase 70,000 shares of Common Stock. Both of these offerings have
been completed.
Year 2000 Compliance
Many older computer software programs recognize only the last two
digits of the year and date (e.g.: "98 for "1998"). These programs were designed
and developed without considering the impact of the upcoming change in century.
If the software is not reprogrammed or replaced, many computer applications
could fail or create erroneous results by or at the Year 2000. The Year 2000
("Y2K") issue refers to possible events resulting directly or indirectly from
the inability of digital computer equipment or software to accurately and
without interruption handle dates both before and after January 1, 2000.
The Company has reviewed its software and current operating systems and
believes that they are Y2K compliant. The Company primarily utilizes operating
systems obtained from Microsoft, which the Company believes, based on
information provided by Microsoft, are Y2K compliant. The Company believes that
none of its equipment is date sensitive or otherwise uses imbedded computer
chips. Accordingly, the Company does not believe that imbedded chip technology
will present any Y2K issues. The Company is, however, checking its equipment to
verify this as part of its overall Y2K program. The Company expects that the
costs of achieving internal Y2K compliance will not have a material adverse
impact on results of operations, liquidity or capital resources.
The risk to the Company resulting from the failure of suppliers,
customers and other third parties to attain Y2K readiness is the same as other
companies in its industry or other business enterprises generally. The Company
has initiated a program of formally contacting its suppliers and customers to
identify any potential disruption due to Y2K. The Company expects to resolve any
significant Y2K issues before the occurrence of any business disruptions,
although the Company has limited or no control over the actions of its suppliers
and customers.
The Company expects to identify and adequately prepare for all
significant internal Y2K issues that could adversely affect its business
operations. The Company does not expect the cost of
-38-
<PAGE>
resolving such issues will have a material impact on its financial position,
results of operations or liquidity. The Company does not believe that it is
possible, with complete certainty, to identify all potential Y2K issues that may
affect the Company, its suppliers and its customers. While the Company believes
that its overall efforts are adequate to address the Y2K issues, there can by no
guarantee that all internal systems as well as those of third parties on which
the Company relies, will converted on a timely basis. These unknown or
unresolved Y2K issues may have a materially adverse affect on the Company's
business, financial condition, cash flows and operations.
CHANGE IN ACCOUNTANTS
Effective September 17, 1998, Goldstein Golub Kessler LLP ("GGK") were
engaged as the Company's independent accountants for the 1998 fiscal year. The
change in the independent accountants has been approved by the Company's Board
of Directors. Upon the engagement of GGK, the Company dismissed Durland &
Company, CPAs, P.A. (the "Former Accountants"), its independent accountant for
the years ended December 31, 1996 and 1997. The Company had no disagreements
with its current and former accountants on accounting and financial disclosures.
BUSINESS
PICK Communications Corp. ("PICK" or the "Company") was incorporated in
April 1984 under the laws of the State of Utah as S.T.V., Inc. In February 1986,
the Company changed its name to Adolphus Companies, Inc. and to Prime
International Products Inc. ("Prime") in May 1988. Prime ceased operations in
late 1990. In July 1995, Prime changed its state of organization from Utah to
Nevada. On September l2, 1995, Prime executed a Stock Purchase Agreement to
exchange 16,500,000 shares of Prime's common stock for all of the common stock
and warrants of Public Info/Comm. Kiosk, Inc. ("Kiosk"), which made Kiosk a
subsidiary of Prime. Kiosk was incorporated under the laws of New Jersey in
August 1992. Prime changed its name to PICK Communications Corp. in December
1995. Unless otherwise indicated, all references to "the Company" or "PICK"
hereinafter include the business and operations of Kiosk prior to the September
12, 1995 transaction and the combined companies thereafter. The transaction was
a reverse acquisition accounted for as a re-organization of Kiosk. On July 6,
1999, the Board of Directors authorized a one-for-ten reverse split to holders
of record on July 23, 1999.
The Company's subsidiary, PICK US Inc., has terminated the marketing
and distribution of prepaid telephone calling cards, its primary business. We
are seeking to terminate, divest or reorganize the operations of PICK Net Inc.
and PICK Net UK PLC, both of which provide international long distance services
to other carriers and resellers. We have entered into a letter of intent to sell
the stock of these three subsidiaries for nominal value, thereby having up to
approximately $10 million of their liabilities assumed, but there can be no
assurance a definitive agreement will be reached.
-39-
<PAGE>
Satellite Delivered Internet Services
PICK Sat has developed an Internet delivery platform that leverages the
inherent benefits of satellite transmission. The PICK Sat platform is an
open-platform capable of transmitting unicast and multicast Internet data.
Unicast data transmission is used to rapidly deploy broadband Internet services
at cost effective prices. Multicast Internet Protocol data is used for the
transmission of: streaming media including radio and video; music, software
downloads; and other asymmetric "streams" of data to multiple locations on the
Internet.
PICK Sat's technologies, which were achieved in collaboration with
Microsoft, Phillips, Harmonic Data, and other partners, also allows for the
delivery of data via satellite directly to routers on the Internet, instead of
moving the data over terrestrial links that exist between these routers.
PICK will market PICK Sat services initially in certain areas in the
United States and Latin America. The initial primary market penetration will be
to cable, both coaxial and wireless, and TV operators who wish to deploy
broadband Internet access to their customers as a value added product. Future
marketing efforts will target backbone Internet service to network Internet
Service Providers ("ISPs"), corporations, telephone companies and other users of
Internet services. The Company has targeted Latin America and certain exurban
areas of the United States because Internet connectivety can be delivered via
satellite at a lower cast than terrestrial Internet service. Further, there is
also a shortage of adequate backbone facilities in Latin America. This results
in slow speeds, poor transmission quality and high prices to end users. PICK
will collect per subscriber fees or fixed monthly site charges from cable
companies, ISPs and other network services companies who use PICK Sat for
Internet service.
PICK Sat multicast services are well suited for distance learning
applications, intra-company video events and large file transfers for
enterprises with multiple sites or remote customers. These applications are
designed to leverage the inherent advantages that satellites bring to the
simultaneous transmission of a message or images to a geographically dispersed
audience. PICK Sat will charge one-time and recurring monthly charges to
commercial distance learning customers and file-transfer customers.
The Company will be unable to complete its' Network Operating Center
("NOC") without additional funding. PICK Sat is operating out of temporary
facilities in Miami, Florida and will be headquartered in a 13,000 sq. ft.
facility in Miami, FL at Koger Park, where an advanced NOC is currently under
construction and is expected to be completed during the fall of 1999. This
facility will provide ample room for expansion and anticipated customer
transmission requirements. Additionally, a satellite broadcast dish farm may be
constructed next to the building.
In September 1998, Mario J. Pino was appointed as President of this new
subsidiary. Mr. Pino was former General Manager of ZakSat General Trading
Company W.L.L., a corporation
-40-
<PAGE>
formed under the laws of Kuwait to deliver global direct television, cable
television and broadband interactive services, which was a similar, but closed
content provider and delivery system.
The Company is negotiating for satellite transmission arrangements with
satellite operators including New Skies and the Sat Mex subsidiary of Loral and
others. There can be no assurance it will be successful in its efforts.
PICK Sat presently offers customers three different types of service:
broadband Internet service, asymetric Internet backbone services, data delivery
services, and video broadcast services. Broadband Internet service allows cable
TV operators to deploy high speed Internet service to their customers on a cost
effective, turnkey, basis. Internet backbone services allow users requiring
commercial amounts of bandwidth who are located in geographic regions of high
Internet connectivity cost, a cost effective alternative for additional
bandwidth requirements. Data delivery services allow for the simultaneous
distribution of data, video, audio and multimedia files, to single users or
groups of users over a geographically dispersed area. Broadcast delivery
services allow for the delivery of real time audio and video feeds to single
users or groups of users also over a geographically dispersed area.
The PICK Sat system provides real time multicast file delivery via
satellite and has accomplished its intended near term goal of true wide band
broadcast satellite distribution ability. As such, our first customer, Cadena
Latinoamericana de Television, Inc. ("CLT"), is an owner and distributor of
Spanish-language video programming. CLT will utilize a PICK Sat service to
transmit video content in Internet Protocol (IP) format to cable networks and
broadcast television stations in Latin America. CLT is currently using courier
services to send more than 20,000 Betacam cassettes a year to its affiliates.
CLT, using the PICK Sat service, will now transmit video files to affiliate
stations who will receive the files via satellite dish, store them on a server,
and decode them into Batacam format as needed for local playout. The agreement
provides for up-front fees with continuing revenues thereafter. The agreement is
for three years and if successfully completed would provide us with
approximately $2.1 million in revenues.
In addition to the services previously described, PICK Sat has
identified business models which includes: institutional and corporate distance
learning; push technology hosting; newsgroup caching; web page caching; and
secured corporate data file distribution and replication. All of these products
can utilize the same operating platform, personal and technology as PICK Sat's
currently deployed products. Deployment of these products would be subject to
the refinement of the technology, the development of implementation procedures,
the establishment of product pricing and the raising of additional funds to
launch marketing efforts.
Demand for multicast services that can be provided by the PICK Sat
platform continues to grow as margin conscious distributors and media content
companies search for cost effective solutions to deliver the bandwidth hungry
data. PICK Sat is well positioned to begin servicing content providers including
its sister company, PICK Online.Com.
-41-
<PAGE>
In June 1998, PICK Sat entered into agreements for hardware with
Philips and software with Microsoft for the above-described broadband
interactive service. Pursuant to the Company's strategic agreement with Philips,
the Company obtained the right to use the Philips Clevercast(TM) end-to-end data
broadcasting system and the Philips PC-DVB Digital Receiver Cards designed to be
installed into all modern multimedia PCs and to be integrated into PC software
via the Windows 95, 98 and NT features. This will allow PC desktop users to
receive satellite transmissions of digital data, television audio, high speed
Internet, E-commerce and other multimedia applications. Microsoft provided
software solutions to support PICK Sat's services. This is expected to be among
the first satellite interactive platforms that will use the complete range of
Microsoft's server software solutions. The Company's Commitment to Cooperate
with Microsoft provides for Microsoft to license certain equipment and provide
technical support, consulting services, know-how and training to the Company for
three years in exchange for a license fee with an initial platform license fee
and monthly fees based on usage. Microsoft may terminate the commitment to
cooperate if the Company does not have a certain amount of subscribers after two
years of commercial operation.
PICK Online.Com
PICK Online.Com, a recently formed subsidiary, is an aggregator and
delivery provider of audio and video streaming content (broadcasts). Utilizing
the PICK Sat platform, PICK Online intends to deliver its content to the "Edge
of the Internet". PICK Sat will provide the satellite-based platform for PICK
Online.Com and will contract for, assemble and broadcast live streams of audio
and video from broadcast radio stations, broadcast TV stations and other
streaming content from anywhere in the world. PICK intends to concentrate
corporate resources first on PICK Sat when funds become available and then PICK
Online.Com. only if substantial additional funding is obtained.
The Company's initial goal will be to offer radio and later TV
stations, the ability to reach an audience as IP Multicasting was intended to,
but in a more effective and economical way. Multicasting is a method of
disseminating an audio or video Internet media stream that is normally made
available from a source to a single end user and instead making it available to
an unlimited number of end users.
Through the use of the PICK Sat platform, PICK Online.Com intends to
present a common sense solution to bringing audio and video streaming to ISPs
and broadband networks such as Cable Modem and Asynchronous Digital Service Line
(ADSL) service providers. Later goals are to further utilize the PICK Sat
platform to provide Internet access and other IP services direct to office and
to home.
Microsoft has been a critical resource in the development of the PICK
Sat platform and PICK Online.Com. Contributions have included migration of
Microsoft Windows NT Server, Microsoft Commercial Internet Server (MCIS) and the
Windows Media Technology onto the PICK Sat platform.
PICK Online.Com will have the ability to deliver IP data directly to
ISPs, LANs, Broadband networks and any other IP end user "node" at the Edge of
the Internet. PICK Online.Com will be the portal for end users to access
multicast radio and TV streaming content. The service will use
-42-
<PAGE>
Microsoft Media Server to encode signals and multicast them efficiently to
Internet Edge points. End users will be able to listen to or watch a stream via
their ISP or Broadband provided through their Microsoft browser not knowing that
the stream is multicast and delivered via satellite.
Terrestrial technology using increasing quantities of the Internet
backbone has been available for some time, but has only been implemented in a
relatively small number of locations. To work properly, terrestrial multicasting
requires Internet-wide implementation which is both costly and time consuming.
PICK Online.Com "leapfrogs" the Internet infrastructure and delivers streaming
content directly to the Edge of the Internet. This not only gets the streams
there with higher quality, but also without using any of the provider's
expensive and limited backbone bandwidth.
International Long Distance Services
PICK Net Inc. and PICK Net UK PLC (collectively, "PICK Net") are two
separate subsidiaries both providing international long distance services to
other carriers and resellers. Each of these companies is a facilities based,
switched carrier, with wholesale digital licenses.
Our subsidiary, PICK US Inc., has terminated the marketing and
distribution of prepaid telephone calling cards. We are also seeking to
terminate, divest or reorganize the operations of PICK Net Inc. and PICK Net UK
PLC, both of which provide international long distance services to other
carriers and resellers. We have accepted a binding offer to purchase the assets
of these three subsidiaries for nominal value and have a substantial portion of
their liabilities assumed, but there can be no assurance a definitive agreement
will be reached.
To gain rapid market entry without investment in major capital
expenditures or a technical staff, PICK initially elected to contract for
services with an experienced switch service provider. In 1997 and 1998 PICK
leased and installed two Siemens Telecom Networks Digital Central Office
switches in Jersey City, New Jersey and Miami, Florida as international
gateways. PICK established a technical staff to bring this segment of its
business under direct Company control rather than relying on third party
providers.
PICK Net has organized and developed dedicated networks combining
transatlantic fiber and internationally based transponder facilities with
digital satellite delivery into the Gulf, Central and East Asian and North and
Central African regions in association (see agreement below) with Gulfsat
Communications Company ("Gulfsat"), a Kuwait based satellite telecommunications
firm primarily engaged in providing VSAT (Very Small Aperture Terminal)
solutions world wide. Gulfsat teamed with PICK to transform itself from a closed
network corporate communications provider, to a satellite based, international
long distance voice, data, and multimedia services provider.
PICK Net agreed with Gulfsat, to deploy and implement switches
internationally, and for PICK Net to deploy switches in the United States. Three
countries are on-line and fully operational as of June 1, 1999. To access the
Gulfsat satellite connections, the Company has access to earth stations in Nova
Scotia and the U.K.
-43-
<PAGE>
In late 1997, the Company entered into a reciprocal telecommunications
agreement (the "Gulfsat Contract") for international traffic termination in
Africa, the Middle East and Asia, via satellite, with Gulfsat, which agreement,
as amended in March 1998, terminates on February 28, 2003. Under the agreement,
the Company is entitled to terminate up to approximately 70 million minutes per
month in telecommunications services from the United States and Europe into the
above regions, at the most favorable price per minute rates charged by Gulfsat.
Management believed, based on its knowledge of the industry, that these rates
are lower than those currently available to its competitors. However, in the
second half of 1998, the Company became aware of newer, state-of-the-art
technology that would facilitate the transmission of not only voice traffic but
also data and Internet traffic. In order to capitalize on this technology and
maximize the benefit the Company could derive from the Gulfsat Contract, it
became necessary to defer installation. The Company first had to investigate the
companies offering the appropriate asynchronous transmission mode (ATM)
equipment and then, in concert with Gulfsat, select a strategic vendor in this
global effort. The Company and Gulfsat then had to purchase and install the
appropriate telephone switching and compression equipment for the Jersey City,
New Jersey, hub, the United Kingdom and the first of the several destination
countries. To begin installation, the Company required a portion of the proceeds
from the short-term debt financing obtained in the third quarter of 1998 to
purchase this equipment in late 1998. During 1998, the Company was only able to
terminate traffic into one country in the Middle East via Gulfsat and was unable
to satisfy the requirements of its existing customers. The Company believed it
had better long-term prospects in forming PICK Sat and PICK Online.Com and
decided to de-emphasize its PICK Net Services and seek a partner or terminate
those services.
On July 20, 1998, the Company signed an agreement (the "Nortel
Agreement") with Northern Telecom Inc. ("Nortel") pursuant to which the Company
may purchase Nortel equipment. The equipment purchased from Nortel was expected
to significantly increase the capacity of the Company's network and enabled the
Company to transition from a traditional, voice-only network to a network which
supports multimedia services and the Internet protocol. The Nortel Agreement
requires that Nortel and Gulfsat, as a network partner of Nortel, refer to the
Company purchasers of Nortel switches who intend to connect to the Gulfsat
system to connect through the Company's switch network. The Nortel Agreement
provides PICK with a premier ATM switch for its network and prevents its
partner, Gulfsat, from using its PICK network dedicated switches with any other
carriers. As of July 20, 1999, the Company has installed Nortel equipment in
Jersey City, New Jersey and London, England, and Gulfsat has purchased equipment
for installation in eight countries. The Company required additional financing
to increase the Company's ability to capitalize on the Gulfsat agreement and the
Company believed there were better opportunities available for the New Business.
In September 1998, PICK Net UK PLC commenced operations in London to
work in tandem with PICK Net, Inc. to grow PICK's international network
infrastructure. PICK Net UK PLC has been granted an International Simple Voice
Reseller Standard License from the United Kingdom to operate as a reseller of
international telephone traffic. PICK Net UK PLC also provides uplink
capabilities to numerous satellites terminating in Africa, Asia, Europe and the
Middle East.
-44-
<PAGE>
In late 1996, the Company entered into a reciprocal telecommunications
agreement with IDT Corporation ("IDT"), one of the Company's customers/carriers.
Under the agreement, IDT agreed to purchase certain telecommunication services
from the Company, and the Company agreed to purchase certain telecommunications
services from IDT for one year, renewable with the consent of both parties. In
February 1998, the Company amended its agreement with IDT to provide IDT with a
preferred purchasing arrangement for 16 months from February 1998. In return,
the Company agreed to allow IDT to purchase telecommunications services to
specified countries (up to a maximum of 10 million minutes per month) at a
preferred rate per minute and additional capacity available at the same rate
charged to the Company's other customers. Pursuant to the amendment, IDT loaned
the Company $2,000,000 in working capital financing for one year, which matured
on February 9, 1999.
The Company and IDT have reached an agreement in principle to execute a
new six-month note in the principal amount of $2,336,000. The Company has agreed
to issue to IDT 40,000 shares of PICK's common stock in exchange for IDT's
warrants to purchase 40,000 shares of PICK's common stock, which shall be
canceled upon such delivery, plus a restructuring fee of 50,000 shares of PICK
common stock. The Company also agreed to pay $250,000 upon the earlier to occur
of 60 days from the date of execution of the agreement or the completion of
additional financing for at least $10 million for PICK and shall make six
monthly principal payments of $25,000 each on the last business day of each
month following the issue date of this Note, beginning on August 31, 1999. In
the event PICK elects to exercise its option to extend the maturity date of the
Note from six months to three years, it shall deliver to IDT $375,000, payable
in immediately available funds or, at the option of PICK, 37,500 shares of
PICK's Common Stock. Thereafter, PICK agrees to pay IDT $25,000 per month for 12
months, including the six monthly payments described above beginning on August
31, 1999. Interest is payable monthly at 8% per annum and the Note will be
pre-paid pro rata in the event the Company prepays any indebtedness over $2
million including the July 1998 Bridge Notes, as amended. The Note will
automatically convert into common stock at $10.00 per share if the average price
of the Company's common stock exceeds $15.00 per share for at least 20
consecutive days. All shares of common stock issued or issuable to IDT will be
included in a registration statement filed on or before October 27, 1999.
Prepaid Telephone Calling Cards
PICK US Inc. is a pre-paid services company currently providing
domestic and international pre-paid calling card services through its dedicated
pre-paid network switching facility. The Company has suspended operations of
this subsidiary and intends to cease doing business in this sector exclusive of
its obligations to existing card holders. PICK provided a prepaid platform,
including a voice response unit, inbound 800 service, data base and customer
service, through a contract with a third-party provider (Innovative Telecom
Corp.) and supplies all domestic and international call termination through its
own switches.
PICK entered the prepaid telephone calling card business in 1993
utilizing its own branded cards. In February 1998, the Company entered into an
agreement with Blackstone Calling Card, Inc. ("Blackstone"), a major marketer
and distributor of prepaid telephone calling cards (the "Blackstone
-45-
<PAGE>
Agreement") expiring in April 2000. Under the terms of the Blackstone Agreement,
as amended, after a six month phase-in period ending October 27, 1998,
Blackstone was to purchase prepaid telephone calling cards with a minimum retail
face value of $5,000,000 per month from the Company, which was expected to
result in net revenues of approximately $3,000,000 per month to the Company.
These calls originate in the United States and are directed for termination
primarily to parts of Africa and Asia. The Company and Blackstone are
negotiating a termination agreement whereby the Company will continue to support
cards previously activated until their expiration dates, and payments between
the parties will be reconciled. In consideration of the early termination and
mutual releases the Company has agreed to grant Blackstone a one-year warrant to
purchase 30,000 shares at $7.50 per share.
Customers, Sales and Marketing
The Company commenced marketing efforts in March 1999 concerning the
New Business. PICK Sat is marketing to companies that transmit large amounts of
data (including video) to multiple locations, including television broadcasters
and programmers, corporations and other institutions, and to ISPs and cable
television companies with existing subscriber bases for the delivery of
"customer specific content" to such customer's end users. PICK Sat believes that
this strategy will enable it to market to a broader base of clients and gain
subscribers without the high costs of direct sales, while retaining its primary
focus, service delivery. As such, a necessary client base will include content
providers whose products can be bundled for distribution through PICK Sat's ISP
and cable television clients or directly to offices and homes. This approach
enables PICK Sat to negotiate with clients on a global basis. For example,
European content providers wishing to deliver content to South and Central
America, can do so through PICK Sat's contracts with South and Central American
ISPs and cable television companies. Both clients benefit since the content
provider broadens its base of distribution and the cable company enhances the
quality and volume of end user choices. In addition, PICK Sat will market to
corporations looking to broadcast presentations and training courses to their
locations worldwide.
PICK Online.Com intends to market its service first to radio stations
already hosted on the Internet. Full marketing activities will not commence,
however, until after PICK Sat has available sufficient funds for marketing and
sales. There will initially be no charge for them to participate. For ISPs, an
initial number of reception cards and dishes will be given away with no charge
for service until a predetermined number of radio stations becomes available.
Media-rich banner advertising opportunities on the Internet will exist
for both PICK Online.Com and its affiliate broadcasters and IP service
providers. Banners for local ads will alternate with national ads at both the
PICK Online.Com home page, as well as www.pickradio.com radio station page.
Banner space on the PICK Online.Com home page will be allocated for
local area ISP sales while radio station (destination) banners will be allocated
for radio station ad sales. Advertising
-46-
<PAGE>
space will be made available on consignment with a share of the revenue going to
PICK Online.Com The Company will sell banner space on both pages and charge for
creation and insertion of banners.
Once there is an established network of Internet Edge providers, PICK
Online.Com will be able to offer one-to-many closed circuit broadcasts of audio
and video for teleconferencing distant education, pay-per-view events or other
multicast applications.
In addition to aggregating radio stations and later TV stations for
broadcasting through its Web site portal, PICK Online.Com seeks to partner with
other important content providers to have them see the benefit of making their
content available on PICK Online.Com Microsoft has recognized the potential of
PICK Online.Com as a link to its new Internet Explorer 5.0 browser. Microsoft
Windows Media Server and Player are integral parts of PICK Online.Com services.
The Company did not perform any meaningful sales or marketing efforts
of its own during 1998, primarily because (a) Blackstone and others marketed the
Company's prepaid telephone calling card products, and (b) the Company has
commitments for most of its capacity for international long distance carrier
services and needs additional funding prior to being able to expand its customer
base. PICK's primary customers for its international long distance carrier
services are carriers and resellers such as ComTech International, IDT
Corporation, World Access Telecommunications Group, Inc. and Teleglobe USA Inc.
Carrier customers require little on-going maintenance, and the carrier segment
of the business shares certain costs with the prepaid telephone calling card
segment. In 1998, approximately 72% and 10% of the Company's revenues were from
two customers, Blackstone and IDT Corporation. In 1997, approximately 19% and
13% of the Company's revenues were derived from two customers, Trescom and DC
Communications Corp. and in 1996, 36% and 25% were from two customers.
Competition
The Internet services business is highly competitive and there are few
significant barriers to entry. Currently, the Company competes with a number of
national and local ISPs. In addition, a number of multinational corporations,
including giant communications carriers such as AT&T, MCI/Worldcom, Sprint and
some of the regional Bell operating companies, are offering, or have announced
plans to offer, Internet access or on-line services. The Company also faces
significant competition from Internet access consolidators and from on-line
service firms such as America Online (AOL), CompuServe, and Prodigy. The Company
believes that new competitors which may include computer software and services,
telephone, media, publishing, cable television and other companies, are likely
to enter the on-line services market.
In addition, the Company believes that the Internet service and on-line
service businesses will further consolidate in the future, which could result in
increased price and other competition in the industry and adversely impact the
Company. In the last year, a number of on-line services have lowered their
monthly service fees, which may cause the Company to lower its monthly fees in
order to compete.
-47-
<PAGE>
The Company believes that the primary competitive factors among
Internet access providers are price, customer support, technical expertise,
local presence in a market, ease of use, variety of value-added services and
reliability. The Company believes it will be able to compete favorably in these
areas. The Company's success in the high-speed Internet market will depend
heavily upon its ability to provide high quality Internet connectivity and
value-added Internet services targeted in select markets. Other factors that
will affect the Company's success in these markets include the Company's
continued ability to attract additional experienced marketing, sales and
management talent, and the expansion of support, training and field service
capabilities.
PICK Online.Com expects to be able to market its services to radio and
TV stations who want to reach large Internet audiences and by IP service
providers who are experiencing backbone bandwidth limitation and are not able to
deliver good quality streaming due to increased usage by their subscribers to
streaming media services. PICK is not aware of any other company today that can
offer streaming services to any ISPs and, in turn, to end users in the same
manner as PICK Online.Com. The company that has been the most successful in
providing streaming services is broadcast.com. This operator has well over 300
radio and TV streams available through its Web site and uses terrestrial IP
multicasting over the Internet. However, broadcast.com multicasts to only a
limited number of member ISPs and through private land line connections. Part of
broadcast.com's strength has been in using its private terrestrial
infrastructure to sell other specialized high margin services such as
teleconferencing, pay-per view and other types of Web events. Another strength
is its signing of hundreds of exclusive content agreements with broadcasters,
sports teams and a number of music and audio CDs.
PICK Online.Com's major strength is its ability to send its multicast
signal to an unlimited number of ISPs almost immediately and at a low cost.
There are hundreds of radio and TV stations that are not on broadcast.com or
even on the Internet at all. More streams to more Edge of the Internet sites and
the ability to roll out quickly are all factors in how the Company will compete
against broadcast.com. As the Company gains content and as it expands it
presence at the Edge of the Internet, it is expected to become a more effective
competitor to broadcast.com. Many of the Company's competitors possess financial
resources significantly greater than those of the Company and, accordingly,
could initiate and support prolonged price competition to gain market share. If
significant price competition were to develop, the Company might be forced to
lower its prices, possibly for a protracted period, which would have a material
adverse effect on its financial condition and results of operations and could
threaten its economic viability.
The international long distance services business is highly competitive
and is characterized by rapidly changing per minute rates, particularly to key
international cities and countries. The Company has not been able to compete
with other carriers, providing high quality service at competitive prices.
PICK's competitors in the sale of international long distance services include
AT&T, MCI/Worldcom and Sprint, as well as British Telecom and other first tier
carriers in deregulated European countries. However, AT&T, MCI/Worldcom and
Sprint are regulated carriers. This means they were the originally deployed long
distance carriers permitted to terminate traffic where government controlled
Post Telephone and Telegraph (PTT's) administrations existed. As
-48-
<PAGE>
such their rates were and still are significantly higher than those available to
the new, deregulated carriers.
Patents and Trademarks
The Company has obtained or applied for trademark registrations for the
name PICK and of each of its subsidiaries and has obtained trademark
registrations for the names "Communicard by PICK(R)", "LOVE CALL(R)",
"COMMUNICASH(R)", and "las Americas(R)." The Company and a non-affiliate are
joint owners of a patent on the technology for a microprocessor-controlled
prepaid cellular telephone system, which has not been marketed by the Company.
Government Regulation
Long distance telecommunication services are subject to regulation by
the FCC and by state regulatory authorities. Among other things, these
regulatory authorities impose regulations governing the rates, terms and
conditions for interstate and intrastate telecommunication services. The federal
law governing regulation of interstate telecommunications are the Communications
Acts of 1934 and 1996 (the "Communications Acts"), which apply to all "common
carriers," including AT&T, MCI/Worldcom and Sprint, as well as entities, such as
the Company, which resell the transmission services provided through the
facilities of other common carriers. In general, under the Communications Acts,
common carriers are required to charge reasonable rates and are prohibited from
engaging in unreasonable practices in the provision of their services. Common
carriers are also prohibited from engaging in unreasonable discrimination in
their rates, charges and practices.
The Communications Acts require each common carrier to file tariffs
with the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for services.
Upon filing a tariff, the service provider is required to provide the services
at the rates and under the terms and conditions specified in the tariff. Failure
to file a tariff could result in fines and penalties. The Company believes it
has filed all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and state
tariffs. As the Company expands the geographic scope of its long distance
operations, it intends to obtain operating authority as may be required to
provide long distance service.
The Company is also subject to regulations administered by the
Occupational Safety and Health Administration, various state agencies and county
and local authorities acting in cooperation with federal and state authorities.
The extensive regulatory framework imposes significant compliance burdens and
risks on the Company. Governmental authorities have the power to enforce
compliance with these regulations and to obtain injunctions or impose civil and
criminal fines in the case of violations.
-49-
<PAGE>
Employees
As of July 20, 1999, the Company employed a total of 31 full-time
employees and also employed independent contractors for various purposes. The
employees are not represented by a labor union.
Properties
The Company leases office space at Wayne Interchange Plaza II, 155
Route 46 West, Third Floor, Wayne, New Jersey 07470, under a lease that expires
on September 30, 2001, with a monthly rental of $8,000. In addition, the
Company leases space where its digital central office telephone switching
equipment is located in Jersey City, New Jersey (which expires September 1,
2000) and Miami, Florida (which expires July 1, 2000).
PICK Sat has signed a lease for its new facilities at 5255 N.W. 87th
Avenue, Miami, FL 33178. The lease as amended, is for approximately 13,280
square feet and expires on February 28, 2004. The rent is as follows: $6,441 per
month from November 1, 1998 to November 30, 1998; $12,883 per month from
December 1, 1998 to December 31, 1999; $16,600 per month from January 1, 2000 to
February 28, 2000; $17,098 per month from March 1, 2000 to February 28, 2001;
$17,611 from March 1, 2001 to February 28, 2002; $18,139 per month from March 1,
2002 to February 28, 2003; $18,683 per month from March 1, 2003 to February 28,
2004.
Legal Proceedings
Other than the following lawsuits, the Company is not a party to any
material legal proceedings. In February 1997, the Company commenced a mediation
action against AT&T seeking $10 million in damages for breach of contract and
fraudulent inducement and malicious conduct under a carrier agreement (the
"Carrier Agreement") entered into in February 1996. The Company contracted with
AT&T under the Carrier Agreement for inbound 800 service and outbound domestic
and international long distance service. The Company claims that AT&T reneged on
certain commitments to provide the Company with lower international rates than
the Company was invoiced by AT&T. AT&T has claimed that the Company owes it in
excess of $1,000,000. In 1996, the Company provided for a non-cash reserve of
$1,750,000, which was reduced to $1,100,000 in the third quarter of 1997 and is
a part of the Company's working capital deficiency and is included in other
current liabilities in the Company's consolidated financial statements. After
two mediation sessions, AT&T indicated that it intended to withdraw from the
mediation. Accordingly, on November 5, 1997, the Company filed for arbitration
proceedings against AT&T and reduced its claim to $5 million. The trial began on
April 19, 1999 and ended on April 22, 1999. There can be no assurance that the
Company will be able to prevail in this arbitration. Any adverse judgment or
settlement could have a material impact on the Company's financial condition.
On or about March 15, 1999, Worldcom Network Services, Inc., d/b/a
Wiltel, commenced a lawsuit against the Company in the United States District
Court, Southern District of New York
-50-
<PAGE>
demanding a judgment in the amount of $1,177,734 and interest at 18% per annum
plus costs and expenses. The plaintiff alleges that the Company failed to pay
for telecommunications services provided. The Company and Worldcom have agreed
to a Settlement Agreement. Under the terms of the Settlement Agreement, the
Company agreed to pay Worldcom $1,256,622 (the "Settlement") in exchange for a
full and complete settlement of Worldcom's lawsuit against the Company. The
Company agreed to pay the Settlement with interest at 16% per annum on or before
January 16, 2000 and for Worldcom to discontinue, without prejudice, the legal
proceedings until such date, although the Company has the option to extend the
forbearance through January 16, 2001. The Company agreed to pay Worldcom a
100,000 share restructuring fee. If the Company repays the Settlement by January
16, 2000 it shall be entitled to redeem one-half of the shares for $1.00.
-51-
<PAGE>
MANAGEMENT
The following table set forth the names, ages and positions with the
Company as of the date of this prospectus of all of the executive officers of
the Company and its principal subsidiaries and directors of the Company. Also
set forth below is information as to the principal occupation and background for
each named person in the table.
Name Age Position
- ---- --- --------
Diego Leiva 48 Chairman of the Board and Director
Henry Ewen 44 Acting Chief Financial Officer
Mario Pino 36 President of PICK Sat Inc.
Robert R. Sams (1) 60 Director
John Tydeman (1) 51 Director
- ----------------
(1) Member of audit committee and compensation committee.
Diego Leiva founded Public Info/Comm Kiosk, Inc. ("Kiosk"), a New
Jersey corporation, which is currently a wholly-owned subsidiary of the Company,
in August 1992, and has served as the Company's Chairman of the Board, a
Director and President since that time and as Chief Executive Officer until
April 1999. From 1989 through July 1992, Mr. Leiva served as Director of Sales
for Apertus Technologies, Inc., a computer telecommunications sales firm.
Henry Ewen is a certified public accountant. He has served as Acting
Chief Financial Officer of the Company since June 1999 and as Comptroller of
Pick Sat since April 1999. He has operated a financial and information
technology consulting practice for the last thirteen years. He has assisted
clients in mergers, acquisitions, private placements, initial public offerings,
development of information systems, and other information technology consulting.
During this period he managed offshore banks and mutual funds on behalf of
client companies. He has acted as CFO/CIO for a variety of companies as part of
the consulting practice including: Prepaid Solutions, Goldleaf Technologies,
Capital International Securities Group and others.
Mario Pino has served as President of PICK Sat Inc. since October 1998.
Prior thereto, Mr. Pino was a division manager of Zaid Al Kazemi Trading from
1995 to 1998. From 1993 to 1995, he was general manager of American Cable
Trading.
Robert R. Sams has served as a director of the Company since September
1995 and of Kiosk since November 1994. He has been engaged in merchant banking,
corporate finance, acquisitions and financial advisory services since founding
Saicol Limited in 1983.
John Tydeman has served as a director of the Company since November
1998. He has been a strategic advisor since 1985 to a number of pay television
and satellite ventures worldwide. His expertise is in the commercial design,
restructuring and implementation of such ventures. His positions with these
entities include: SES, operator of ASTRA satellite system; Dolphin Group, a
privately held Middle East multi-business enterprise; CEO of ATL (News
Corporation and Zee Telefilm Joint Venture); CEO Showtime (Kipco/Viacom JV) and
advisor to Kipco; advisor to Zaksat; advisor to TVNZ; Advisor to Shinawatra
Group; advisor to Regional Television Operators (Australia); advisor to Jamison,
a merchant banking organization; advisor to Optus, Australia telco. Dr. Tydeman
holds a PhD in systems engineering and serves on the Board of Directors of
Nostrad Telecommunications, Asia Today Limited and Asia Television Limited and
as advisor to the Dolphin Group.
-52-
<PAGE>
Pursuant to the terms of the April 1999 Restructuring Agreement with
Commonwealth Associates, the Board of Directors of the Company is to be
restructured to consist of a majority of independent directors. The proposed
board will be Diego Leiva, Chairman of the Board, two existing independent
directors, a new Chief Executive Officer, one designee of Commonwealth
Associates, one designee of the July 1998 Bridge Loan Noteholders and one other
independent director. Subsequently, Tri-Links Investment Trust purchased Series
D Convertible Stock from the Company and obtained the right to designate a
nominee to the Board or an observer who has the right to attend and observe at
all Board Meetings prior to his actually joining the Board. To date, none of
these persons have joined the Board of Directors.
Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $0.01 ("common stock") or warrants are required to file
certain reports, within specified time periods, indicating their holdings of and
transactions in the common stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representations from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended December 31, 1998, other than one late
Form 4 filing by both Robert R. Sams and Ricardo Maranon.
Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid to the executive officers named therein for all services rendered to the
Company during the three fiscal years ending December 31, 1998. No other
executive officer of the Company received total compensation in excess of
$100,000 during any of the last three years:
Annual Compensation
<TABLE>
<CAPTION>
Shares
Underlying
Name and Positions Year Salary($) Bonus $ Stock Options
- ------------------ ---- ----------- ------- -------------
<S> <C> <C> <C> <C>
Diego Leiva, President, Chief 1998 $162,500(1) $15,201 275,000
Executive Officer and Chairman 1997 150,000 -- 75,000(1)
of the Board of Directors 1996 150,000 -- --(1)
Robert Bingham, Vice President 1998 $111,500 -- 5,000(2)
and Chief Financial Officer 1997 34,417 -- 50,000(3)
1996 -- -- --
</TABLE>
-53-
<PAGE>
<TABLE>
<CAPTION>
Shares
Underlying
Name and Positions Year Salary($) Bonus $ Stock Options
- ------------------ ---- ----------- ------- -------------
<S> <C> <C> <C> <C>
Raymond Brennan, Vice President 1998 $138,340 -- 25,000(4)
and Secretary 1997 88,419 -- 75,000(5)
1996 85,365 -- --
Karen M. Quinn 1998 $100,179 -- 30,000(6)
President PICK US Inc. 1997 85,164 -- 75,000(5)
1996 85,153 -- --
</TABLE>
- ------------------
(1) Includes options to purchase 50,000 shares granted in 1996, at prices
varying from $8.75 to $9.625 per share which were canceled and
re-issued in 1997 at $1.90 per share and 25,000 options granted in 1997
at $3.00 per share.
(2) Exercisable at $3.70 per share.
(3) Includes options to purchase 25,000 shares at $2.50 per share and
options to purchase 25,000 shares at $5.00 per share.
(4) Includes options to purchase 15,000 shares at $3.70 per share and
options to purchase 10,000 shares at $5.50 per share.
(5) Includes options to purchase 25,000 shares at $2.70 per share and
options to purchase 50,000 shares at $1.70 per share.
(6) Includes options to purchase 15,000 shares at $3.70 per share and
options to purchase 15,000 shares at $5.50 per share.
The Company maintained a $250,000 term life insurance policy for Diego
Leiva for his benefit, for which the Company paid $1,377, $1,257 and $1,186 in
1998, 1997 and 1996, respectively. In addition, the Company maintains a
$1,000,000 key man life insurance policy for Mr. Leiva.
Employment Agreement
In September 1998, the Company entered into a five-year employment
agreement with Diego Leiva, as President and Chief Executive Officer, which
commenced on January 1, 1999 (the "Commencement Date"). The Agreement is
automatically renewable for additional one-year periods unless terminated on 90
days' prior written notice. Mr. Leiva will be paid $300,000 per annum beginning
on the Commencement Date, increasing by $50,000 increments on January 1, in each
of the four following years and by $75,000 per year in each year after the fifth
anniversary date if the
-54-
<PAGE>
Agreement is automatically extended. The agreement provided that Mr. Leiva would
continue to receive his then current base salary until the Company's Senior
Secured Notes are repaid. Mr. Leiva is entitled to a monthly car allowance of
$1,600 per month for automobiles in Florida and New Jersey and shall also be
reimbursed for reasonable living expenses in the location which is not his
principal residence. Mr. Leiva's agreement precludes him from soliciting
employees of the Company or interfering with PICK's relationships with other
employees for 18 months after termination of employment. Mr. Leiva is also
prohibited from competing with the Company during the period following
termination of employment for which PICK is liable to pay him his base salary
or for one year, whichever is longer.
In April 1999, Mr. Leiva's employment agreement was amended to provide
he would continue solely as Chairman of the Board and a Director. Mr. Leiva
agreed to vote his shares of common stock in favor of Management's nominees,
provided he is a nominee for the Board.
Directors Compensation
Directors currently receive no cash compensation for serving on the
Board of Directors or any Committee of the Board, other than reimbursement of
travel expenses incurred by them and their spouses in attending Board meetings
held outside the New York Metropolitan area. One of the directors is an employee
of the Company. Each of the Directors has received stock options from the
Company. See "Certain Relationships and Related Transactions."
Option Grants in Last Fiscal Year
The table below contains certain information concerning stock options
granted to the Named Executive Officers, named in the Summary Compensation
Table, during the year ended December 31, 1998:
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of Stock Price
Securities Options Appreciation for Option Term
Underlying Granted to Exercise --------------------------------------------
Options Employees in Price Expiration 5% 10%
Name Granted Fiscal year ($/Share) Date ($) ($)
- ---- ----------- ---------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Diego Leiva 250,000 60% $5.50 11/2/03 $343,750 $687,500
15,000 3.6% 4.10 2/19/01 $9,225 $18,450
10,000 2.4% 6.10 11/4/01 $9,150 $18,300
Robert Bingham 5,000 1.2% $3.70 (1) (1) (1)
Raymond Brennan 15,000 3.6% $3.70 (2) $8,325 $16,650
10,000 2.4% 5.50 (2) $8,250 $16,500
Karen M. Quinn 15,000 3.6% $3.70 (2) $8,325 $16,650
15,000 3.6% 5.50 (2) $12,375 $24,750
</TABLE>
- ----------------
-55-
<PAGE>
(1) Forfeited following Mr. Bingham's resignation on February 10, 1999.
(2) Mr. Brennan and Ms. Quinn's employment were terminated on May 28, 1999 and
these options will terminate 90 days thereafter.
Option Grants in 1999
In March 1999, the Company granted an aggregate of 1,150,500 options,
587,000 of which were subsequently forfeited by employees and consultants, all
exercisable at $5.00 per share and vesting over a three-year period, except Mr.
Malone's option vesting over a four-year period. In July 1999, the Company
granted an aggregate of 68,000 options to 8 employees of PICK Sat, none of whom
are executive officers of the Company. Included were the following grants to
officers and/or directors: Thomas Malone, Former Chief Executive Officer
(500,000 shares) and Mario Pino, President of PICK Sat (250,000 shares).
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the Named
Executive Officers named in the Summary Compensation Table during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options Options
Acquired at FY-End(#) at FY-End (S)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable(1)
- ---- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Diego Leiva 25,000 $95,000 122,500/202,500 $345,750/$321,750
Robert Bingham 0 0 30,000/25,000 $120,500/$45,000
Raymond Brennan 25,000 $102,500 75,000/0 $307,000/0
Karen M. Quinn 25,000 $102,500 80,000/0 $321,000/0
</TABLE>
- -------------------------------
(1) As of December 31, 1998, the market value of the shares was $6.80.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of
the Company or any of its subsidiaries during the prior year or was formerly an
officer of the Company or of any of its subsidiaries. None of the Executive
Officers of the Company has served on the Compensation Committee during the last
fiscal year of any other entity, any of whose officers served on the
Compensation Committee of the Company.
-56-
<PAGE>
Employee Benefit Plans
Other than stock options, the Company does not currently have, nor
during the 1998 fiscal year did it have, any other long-term incentive plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Management-Executive Compensation" for terms and conditions of
employment agreements entered into between the Company and Diego Leiva and
options granted to the Company's Executive Officers and Directors.
On March 3, 1999, the Company, Diego Leiva ("Leiva"), the Company's
Chairman of the Board, and Commonwealth Associates L.P. ("Commonwealth") the
placement agent for the holders of the Company's outstanding 18% senior secured
notes, entered into an Agreement by which Commonwealth and its designees,
including J.P. Turner & Company, L.L.C. ("Turner") and management of the
Company, would purchase up to $2,000,000 of preferred stock of the Company (the
"Series B Preferred Stock") at a purchase price of $1.00 per share. On March 12,
1999, the Company filed a Certificate of Designation, as later amended, relating
to the Series B Preferred Stock (the "Series B Certificate") with the Secretary
of State for the State of Nevada. The Series B Certificate authorized 2,000,000
shares of Series B Preferred Stock convertible by the holders thereof into the
Company's common stock at $1.00 per share. In addition, the Series B Preferred
Stock has a liquidation preference of $1.00 per share. As of April 22, 1999, the
Company had received $1,871,000 (including part of Mr. Malone's signing bonus)
for 1,871,100 shares of Series B Preferred Stock from Commonwealth, Turner and
officers and directors of the Company convertible into 187,100 shares of common
stock. The following officers, directors and former officers and directors have
purchased the respective amounts of Series B Preferred Stock:
Robert R. Sams $160,000
Alberto M. Delgado 315,000
Ricardo Maranon 21,000
John Tydeman 60,000
Thomas M. Malone 50,000
--------
Total $606,000
On March 3, 1999, the Board of Directors granted to corporations
controlled by each of the Company's then four independent directors, Robert
Sams, Ricardo Maranon, Alberto M. Delgado and John Tydeman, with each abstaining
as to themselves, options to purchase 50,000 shares of common stock at $5.00 per
share in consideration of their substantial efforts in assisting the Company in
obtaining financing and other valuable consideration rendered to the Company.
These options shall be fully vested on March 3, 2000. Upon the resignation from
the Board of Directors on May 17, 1999, Messrs. Delgado and Maranon entered into
Advisory Agreements with the Company and these options, as
-57-
<PAGE>
well as all other previously granted options, remained in place as long as they
remain consultants to the Company.
Effective April 1, 1999, Thomas M. Malone became Chief Executive
Officer of the Company. He resigned as of July 8, 1999, to pursue other business
opportunities. Pursuant to the terms of a Confidential Separation Agreement and
Release of all Claims (the "Separation Agreement"), Mr. Malone is to receive six
(6) months severance pay at his pro rated salary of $250,000 per annum; retained
$50,000 of Series B Convertible Preferred Stock which was one-half of his
signing bonus with the other $50,000 being forfeited; and he retained stock
options to purchase 100,000 shares of common stock, which had vested and shall
be exercisable until July 8, 2000, at $5.00 per share. Mr. Malone also entered
into a 12 month consulting agreement with the Company pursuant to which he
retained stock options to purchase 50,000 shares of common stock at $5.00 per
share, until July 8, 2001.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 12, 1999, the number of
shares of the Company's outstanding common stock, giving retroactive effect to a
one-for-ten reverse split declared by the Board on July 6, 1999, to holders of
record on July 23, 1999, beneficially owned by (i) each director and advisor to
the Board of the Company, (ii) each Named Executive Officer named above, (iii)
each beneficial owner of more than 5% of the Company's common stock and (iv) all
of the Company's executive officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner(1) Beneficial Ownership(2) Percentage(3)
- ----------------------- ------------------------ --------------
<S> <C> <C>
Diego Leiva 1,467,578(4)(5) 31.7%
Thomas M. Malone 162,500(6) 3.5%
Robert R. Sams 263,368(7) 5.7%
Ricardo Maranon(15) 129,468(8) 2.9%
Alberto M. Delgado(15) 321,250(9)(10) 7.3%
John Tydeman 69,250(9)(11) 1.6%
Robert Bingham 2,500 0.1%
Raymond Brennan 144,968(12) 3.3%
Karen M. Quinn 137,943(13) 3.1%
All executive officers and directors
as a group (5 persons) 1,853,196(14) 37.7%
</TABLE>
- --------------------------------
-58-
<PAGE>
(1) The address of all officers and directors is c/o the Company, 155 Route 46
West, 3rd Floor, Wayne, New Jersey 07470.
(2) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(3) Based on 4,421,184 shares outstanding as of July 12, 1999. Each beneficial
owner's percentage ownership is determined by assuming that options or warrants
that are held by such person and which are convertible or exercisable within
sixty (60) days of such date pursuant to Rule 13d-3 under the Exchange Act have
been converted or exercised.
(4) Includes 429,000 shares beneficially owned by Mr. Leiva's wife.
(5) Includes an aggregate of 125,000 stock options consisting of incentive stock
options to purchase up to 13,158 shares of the Company's common stock at $1.90
per share, 15,000 shares at $4.10 per share, 6,300 shares at $6.10 per share,
non-qualified stock options to purchase up to 36,843 shares of the Company's
common stock at $1.90 per share, 3,700 shares at $6.10 per share under the Plan;
and non-qualified stock options to purchase 50,000 shares at $5.50 per share
outside of the Plan, but excludes non-qualified stock options to purchase
200,000 shares at $5.50 per share. Also includes 80,953 shares of common stock
issuable upon conversion of 340,000 shares of Series D Convertible Preferred
Stock at $4.20 per share and warrants to purchase an additional 6,800 shares of
Common Stock at $6.30 per share.
(6) Includes non-qualified stock options to purchase up to 112,500 shares of the
Company's common stock exercisable at $5.00 per share, exercisable through July
8, 2000. Also includes 50,000 shares of common stock issuable upon conversion of
50,000 shares of Series B Convertible Preferred Stock issued to Mr. Malone as a
signing bonus.
(7) Includes 160,000 shares of common stock issuable upon conversion of 160,000
shares of Series B Convertible Preferred Stock. Excludes 9,600 shares owned by
Vulcan Petroleum of which Mr. Sams is a director and minority shareholder and
50,000 shares of common stock issuable upon exercise of non-qualified stock
options which vest on March 3, 2000. See "Certain Relationships and Related
Transactions."
(8) Includes non-qualified stock options to purchase up to 75,000 shares of the
Company's common stock, including 50,000 shares at $1.70 per share, 15,000
shares at $3.70 per share and 10,000 shares at $5.50 per share pursuant to the
Plan; and 3,725 shares of the Company's common stock beneficially owned by Mr.
Maranon's daughter. Excludes 50,000 shares of common stock issuable upon
exercise of non-qualified stock options which vest on March 3, 2000. See
"Certain Relationships and Related Transactions."
-59-
<PAGE>
(9) Includes non-qualified stock options to purchase up to 6,250 shares at $5.50
per share. Excludes non-qualified stock options to purchase up to 18,750 shares
at $5.50 per share, vesting on November 2, 1999, and 50,000 shares of common
stock issuable upon exercise of non-qualified stock options which vest on March
3, 2000.
(10) Includes 315,000 shares of common stock issuable upon conversion of 315,000
shares of Series B Preferred Stock. See "Certain Relationships and Related
Transactions."
(11) Includes 60,000 shares of common stock issuable upon conversion of $60,000
shares of Series B Preferred Stock. See "Certain Relationships and Related
Transactions."
(12) Includes 34,000 shares beneficially owned by Mr. Brennan's wife. Also
includes an aggregate of 75,000 options, including incentive stock options to
purchase up to 19,118 shares at $1.70 per share, 15,000 shares at $3.70 per
share, 8,000 shares at $5.50 per share, non-qualified stock options to purchase
30,885 shares at $1.70 per share and 2,000 shares at $5.50 per share pursuant to
the Plan.
(13) Includes an aggregate of 81,950 options, including incentive stock options
to purchase up to 19,118 shares at $1.70 per share, 15,000 shares at $3.70 per
share, 8,000 shares at $5.50 per share, and non-qualified stock options to
purchase 30,883 shares at $1.70 per share, 70,000 shares at $5.50 per share and
1,950 shares at $5.00 per share pursuant to the Plan.
(14) Includes non-qualified stock options and incentive stock options to
purchase up to 184,250 shares by the named executive officers and directors
above and shares of Series B and D Preferred Stock and Series D warrants to
purchase up to 307,753 shares of Common Stock at the prices per share stated in
footnotes (5), (7), (9) and (11), also includes options to purchase 50,000 and
3,000 shares held by Mario Pino and Henry Ewen, current executive officers not
listed in the table, which are currently exercisable, but excludes options to
purchase an aggregate of 512,000 shares which are not currently exercisable.
(15) Resigned from the Board of Directors on May 17, 1999 and entered into an
Advisory Agreement with the Company.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of common stock
owned and the total number of shares assuming the conversion, exercise or
exchange of all the derivative securities (the "derivative securities") owned by
each of the Selling Shareholders and registered hereunder.
All share data gives retroactive effect to a one-for-ten reverse split
declared by the Board of Directors on July 6, 1999 to Stockholders of record on
July 23, 1999.
As described above under "Note Restructuring" each of the 9,830,000
warrants issued in connection with the July 1998 Bridge Loan ("Bridge Warrants")
plus an additional 2,457,500 of such
-60-
<PAGE>
warrants issued in connection with an extension of the Bridge Loan ("Note
Extension Warrants" and, together with the Bridge Warrants, the "Warrants")
immediately exchangeable on a one-for-ten basis for 1,237,505 shares of common
stock, plus 390,867 shares issuable upon exercise of the Warrants pursuant to
anti-dilution provisions of the Warrants and are included under the column
"Number of Shares Offered Hereby," together with 1,871,000 shares of common
stock on a one-for-one basis for shares of Series B Preferred Stock, 1,190,489
shares of Common Stock on a one-for-ten basis for shares of Series D Preferred
Stock plus 70,000 shares issuable in connection with warrants issued to the
Series D shareholders, and shares held by other Selling Stockholders. Also
included under "Number of Shares Offered Hereby" are 174,310 shares of Common
Stock issuable upon exercise of 1,394,366 Warrants issued to Commonwealth
Associates, as placement agent for the July 1998 Bridge Loan, now exercisable at
$1.00 per share. Also included are an aggregate of 69,728 Placement Agent Shares
issued to Commonwealth and its designees in connection with the July 1998 Bridge
Loan.
Because the selling stockholders may offer all or part of the shares of
common stock received upon conversion or exercise of the derivative securities
(the "Shares"), which they hold pursuant to the offering contemplated by this
prospectus, no estimate can be given as to the amount of the derivative
securities that will be held upon termination of this offering. The Shares
offered by this prospectus may be offered from time to time by the selling
stockholders named below.
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Abraham, Dean 5,055(2) 3,085 1,970 *
Abrams, Jodi 2,696(3) 1,645 1,051 *
Abrams, Richard 12,130(4) 7,402 4,728 *
Abrams, Rodney 12,130(4) 7,402 4,728 *
Acks, Shannon P. 13,477(5) 8,224 5,253 *
Adametz, James Revocable Trust 4,044(6) 2,468 1,576 *
Adkins, Daryl-Joy 8,087(7) 4,935 3,152 *
A'hearn, Michael F. & Maxine C., JTWROS 5,392(8) 3,290 2,102 *
Anderson, Ferdinand, Jr. 6,739(9) 4,112 2,627 *
Anzalone, Joseph 238(10) 175 63 *
Appelbaum, Michael 4,033(11) 1,370 2,663 *
Apploff, Evelyn 238(10) 175 63 *
Aukstuolis, Jim 26,954(12) 16,448 10,506 *
</TABLE>
-61-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Ballin, Scott J. 6,739(9) 4,112 2,627 *
Beck, Roderick 8,850(13) 3,850 5,000 *
Bergholic, Patricia 263(14) 263 0 *
Berglund, Don, Dr. 2,696(3) 1,645 1,051 *
Berman, Marc G. 5,392(8) 3,290 2,102 *
Bernstein, Howard Dr. 13,477(5) 8,224 5,253 *
Better Homes Plastics Corp. 134,764(15) 82,238 52,526 1.18%
Birchtree Investments 6,739(9) 4,112 2,627 *
BNB Associates Investments, L.P. 70,215(16) 62,336 7,879 *
Black, Lincoln Edward 10,782(17) 6,579 4,203 *
Blank, Gerald 5,392(8) 3,290 2,102 *
Blonmstedt, Jeffrey & Susan LaScala, JTROS 6,739(9) 4,112 2,627 *
Boatright, Mody K. 5,392(8) 3,290 2,102 *
Bodner, Hans C. 67,382(18) 41,119 26,263 *
Bolognue, Joseph T. 6,739(9) 4,112 2,627 *
Bradley, Charles E., Jr. 6,739(9) 4,112 2,627 *
The Burr Family Trust 13,477(5) 8,224 5,253 *
Campos, Felix & Joyce, JTROS 5,392(8) 3,290 2,102 *
Cardoso, Manuel 4,044(6) 2,468 1,576 *
Cardwell, James A. Jr. 6,739(9) 4,112 2,627 *
Carroll, Brewster B. 6,739(9) 4,112 2,627 *
Chestler, Daniel 13,477(5) 8,224 5,253 *
Chestler, Herbert 13,477(5) 8,224 5,253 *
Chestler, Steven 13,477(5) 8,224 5,253 *
Childhood Resource Corp. 5,392(8) 3,290 2,102 *
Clariden Bank 53,907(19) 32,896 21,011 *
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Clark, Oliver T. & Sharon L., JTROS 2,696(3) 1,645 1,051 *
Cohen, David 26,954(12) 16,448 10,506 *
Cohen, Jonathan & Nancy, JTWROS 5,392(8) 3,290 2,102 *
Cole, Julia R. 26,954(12) 16,448 10,506 *
Commonwealth Associates 626,172(20) 477,693 148,479 3.35%
Corbin, Bruce 2,696(3) 1,645 1,051 *
Corbin Family Dental Arts 2,696(3) 1,645 1,051 *
Corbin, Dr. Richard 6,739(9) 4,112 2,627 *
Corbin, Richard & Robyn, JTROS 2,696(3) 1,645 1,051 *
Cramer Taos Partners 40,430(21) 24,672 15,758 *
Cummings, Orman F. 13,477(5) 8,224 5,253 *
Dacey, Karen 755(22) 630 125 *
D'Avanzo, Marie E. IRA BSSC cust. for 4,044(6) 2,468 1,576 *
Davenport, James A & Rebecca C., JTROS 13,477(5) 8,224 5,253 *
Davidow, Peter C. 2,696(3) 1,645 1,051 *
DeAtkine, Jr., David 9,434(23) 5,757 3,677 *
Defini, Joseph 363(24) 263 100 *
Dellaquilla, Peter 38(25) 38 0 *
Dercher, David J. 13,477(5) 8,224 5,253 *
Sidney Deutsch Revocable Trust 26,954(12) 16,448 10,506 *
Dickey, David L. 5,392(8) 3,290 2,102 *
Dold, Richard J. 13,477(5) 8,224 5,253 *
Donahue, Heather 540(26) 540 0 *
Downe, Edward R. Jr. 13,477(5) 8,224 5,253 *
Dreyfuss, Jerome 5,392(8) 3,290 2,102 *
DW Trustees (B.V.I.) Limited as Trustee of 13,477(5) 8,224 5,253 *
Rectory Farm Settlement Main Fund
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
DW Trustees (B.V.I.) Limited as Trustee of 6,739(9) 4,112 2,627 *
Rectory Farm Settlement Children's Fund
Eldridge, Cornelia 2,439(27) 2,439 0 *
Elliott, Seth 1,200(28) 1,200 0 *
Falk, Else 238(10) 175 63 *
Falk, Michael S. 157,564(29) 112,945 44,619 1.00%
Faxon, David P., Jr. 3,371(30) 2,057 1,314 *
Feldman, Richard 26,954(12) 16,448 10,506 *
Fennikoh, Donna 630(31) 630 0 *
Fischhoff, Brian (Baruch) & Andrea JTROS 4,044(6) 2,468 1,576 *
Fleming, William K. 2,696(3) 1,645 1,051 *
FM Grandchildren's Trust 26,954(12) 16,448 10,506 *
Fox, Karen A. 5,392(8) 3,290 2,102 *
Friedman, Richard 53,907(19) 32,896 32,896 *
Fulton, Peter 4,223(50) 1,581 2,642 *
Gaba, Ilya & Alice, JTROS 2,696(3) 1,645 1,051 *
Gajeski, Donald K. 5,392(8) 3,290 2,102 *
Gaylord, Gregg M. 2,696(3) 1,645 1,051 *
Glashow, Jonathan 20,215(33) 12,336 7,879 *
Glazier, Edwin M. 5,392(8) 3,290 2,102 *
Goldberg, Ira 5,392(8) 3,290 2,102 *
Goldberg, Mark & Joanna, JTROS 8,087(7) 4,935 3,152 *
Goldman, Fred 2,696(3) 1,645 1,051 *
Gonchar, Andrew 6,739(9) 4,112 2,627 *
Graves, Eugene H. 26,954(12) 16,448 10,506 *
Steven B. Greenman, IRA, Bear Stearns 6,739(9) 4,112 2,627 *
Securities Corp. as Custodian for
</TABLE>
-64-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Gruenwald, Thomas J. 13,477(5) 8,224 5,253 *
Hammer, Robert 6,739(9) 4,112 2,627 *
Hart, Steven 1,085(34) 525 560 *
Hatten, Mark 26,954(12) 16,448 10,506 *
Herrmann, Timothy 3,762(35) 1,409 2,353 *
Hoffman, Susan 630(36) 630 0 *
Ianazzai, Jeanine 275(37) 175 100 *
Intercontinental Associates, Inc. 6,739(9) 4,112 2,627 *
Isbell, Charles E. 2,696(3) 1,645 1,051 *
Jackson, Kevin L. 3,371(30) 2,057 1,314 *
Jeffers, Robert G. & Theresa W., JTROS 4,313(38) 2,632 1,681 *
Jensen, Eric & Julia JTWROS 26,954(12) 16,448 10,506 *
Jhunjhnuwala, Chatri & Lourdes, JTROS 26,954(12) 16,448 10,506 *
Jhunjhnuwala, Chatri & Lourdes, JTROS 1,079(39) 658 421 *
Custodian for Nadia Jhunjhnuwala
Jhunjhnuwala, Chatri & Lourdes, JTROS 1,349(40) 823 526 *
Custodian for Giselle Jhunjhnuwala
Jhunjhnuwala, Chatri & Lourdes, JTROS 1,618(41) 987 631 *
Custodian for Jasmine Jhunjhnuwala
Jhunjhnuwala, Ramesh 5,392(8) 3,290 2,102 *
Jimenez, Audrey 175(42) 175 0 *
Johnson, L. Wayne 13,477(5) 8,224 5,253 *
Jordan, Bette Plink 3,371(30) 2,057 1,314 *
Joos-Vandewalle, John 6,739(9) 4,112 2,627 *
Jordan, Edward C. 2,696(3) 1,645 1,051 *
Jordan, Peggy 26,954(12) 16,448 10,506 *
K & K Development 6,739(9) 4,112 2,627 *
Kabuki Partners ADD GP 13,477(5) 8,224 5,253 *
Karraker, Valerie L. 6,739(9) 4,112 2,627 *
Kassner, Fred 26,954(12) 16,448 10,506 *
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Keating, Patrick N. 6,739(9) 4,112 2,627 *
Kennett, David R. & Joyce A., JTROS 3,371(30) 2,057 1,314 *
Khulpateea, Neekianund, M.D. 6,739(9) 4,112 2,627 *
Layne, Marlene 300(43) 175 125 *
Lawless, Stephen & Nina, JTWROS 6,739(9) 4,112 2,627 *
Leppla, Craig 1,810(44) 1,310 500 *
Lerner, Brian 2,696(3) 1,645 1,051 *
The Lenox Trust 2,696(3) 1,645 1,051 *
Liebel, C. William & Roberta, JTROS 4,044(6) 2,468 1,576 *
Lim, Cassandra 475(45) 350 125 *
Maerki, Baumann & Co. AG 26,954(12) 16,448 10,506 *
Mallis, Stephen 6,739(9) 4,112 2,627 *
Malone, Zach 339(46) 175 164 *
Mansfield, Gary 350(47) 350 0 *
Marcus, Jed S. 2,696(3) 1,645 1,051 *
Mark, Laurel Lester 6,739(9) 4,112 2,627 *
Markowitz, Jeffery 26,954(12) 16,448 10,506 *
Martin, John R. & Victoria, JTROS 6,739(9) 4,112 2,627 *
Mazzacchi, Leo F., M.D. & Nancy, JTWROS 13,477(5) 8,224 5,253 *
McCleary, Robert A. 13,477(5) 8,224 5,253 *
McKone, Fiona 350(47) 350 0 *
Meinershagen, Alan J. 13,477(5) 8,224 5,253 *
Messana, Jerry 2,798(61) 1,048 1,750 *
Monie, Vijaykumar S. 6,739(9) 4,112 2,627 *
Morfesis, F.A. & Gail, JTWROS 26,954(12) 16,448 10,506 *
Morley, David 4,044(6) 2,468 1,576 *
</TABLE>
-66-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
David Mulkey II Limited Partnership 80,185(91) 48,932 31,253 *
Nelson, David R. & Donna L., JTWROS 6,739(9) 4,112 2,627 *
Notowitz, Allen 26,954(12) 16,448 10,506 *
Norman, Gregory P. 26,954(12) 16,448 10,506 *
Nussbaum, Samuel R. 26,954(12) 16,448 10,506 *
Ocepek, David B., Ret. Plan 3,371(30) 2,057 1,314 *
Orden, Jeremy F. 6,470(94) 3,948 2,522 *
O'Toole, Diana 363(62) 263 100 *
Pallini, Larry H. 13,477(5) 8,224 5,253 *
Pallotta, Joseph 350(47) 350 0 *
Palmer, Richard & Lynne Marie, JTROS 6,739(9) 4,112 2,627 *
Palmieri, Peter 2,499(48) 936 1,563 *
Pamela Equities 26,954(12) 16,448 10,506 *
Pannu, Jaswant & Debra, JTROS 5,392(8) 3,290 2,102 *
Partoyan, Garo A. 13,477(5) 8,224 5,253 *
Pepe, Danielle 175(42) 175 0 *
Perreira, Richard 238(10) 175 63 *
Piccolo, August 4,044(6) 2,468 1,576 *
Piccolo, John 13,477(5) 8,224 5,253 *
Pocisk, George Roth IRA 6,739(9) 4,112 2,627 *
Polyviou, P. Tony 6,739(9) 4,112 2,627 *
Poujol, Albert C. 6,739(9) 4,112 2,627 *
Poujol, Michael & Angela, JTROS 13,477(5) 8,224 5,253 *
Priddy, Robert 204,762(49) 152,236 52,526 1.18%
Primo, Joseph C. 6,739(9) 4,112 2,627 *
Progressive Footcare 13,477(5) 8,224 5,253 *
</TABLE>
-67-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Rand, Eric 1,999(51) 749 1,250 *
Rion, James H. 4,044(6) 2,468 1,558 *
Roberts, Cindy D. 26,954(12) 16,448 10,506 *
Rosenfield, Laurence & Janet, JTROS 6,739(9) 4,112 2,627 *
Royal Bank of Canada Trust 67,382(18) 41,119 26,263 *
Rubenstein, Eric 14,633(52) 5,800 8,883 *
Salas, Alexandra 510(53) 175 335 *
Salmon, Robert M. & Margaret, TIC 4,313(38) 2,632 1,681 *
Saltzberg, Darren 681(54) 431 250 *
Sandhu, Avtar S. 6,739(9) 4,112 2,627 *
Scaglione, Domenick G. & Josephine, JTROS 3,371(30) 2,057 1,314 *
Schoen, William R. & Barbara J. JTROS 6,739(9) 4,112 2,627 *
Schorlemmer, Vikki K. 13,477(5) 8,224 5,253 *
Schriver, James E. & Jayne A., JTROS 2,696(3) 1,645 1,051 *
Schroeder, Charles F.A. 3,371(30) 2,057 1,314 *
Schultz, Gary D. & Barbara A., JTROS 13,477(5) 8,224 5,253 *
Stellway, David L 13,477(5) 8,224 5,253 *
Shea, Edmund 8,643(55) 4,268 4,375 *
JF Shea & Co., Inc. 231,719(56) 168,688 63,031 1.42%
Sheppard, Matthew P. 2,696(3) 1,645 1,051 *
Simon Asset Management LLC 26,954(12) 16,448 10,506 *
Singer, Michael A. 26,954(12) 16,448 10,506 *
Skoly, Stephen T., Dr. 6,739(9) 4,112 2,627 *
Spencer, Robert J. 6,739(9) 4,112 2,627 *
Stahnke, Ronald 6,739(9) 4,112 2,627 *
</TABLE>
-68-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Stein, David 2,349(57) 880 1,469 *
Stern, Theodore & Eliabeth, JTROS 26,954(12) 16,448 10,506 *
Stollwerk, David & Ida, JTROS 6,739(9) 4,112 2,627 *
Stollwerk, David & Susan JTROS 6,739(9) 4,112 2,627 *
Swiatek, Nicole 275(58) 175 100 *
Tachibana, Rick Glen 5,392(8) 3,290 2,102 *
Tsamutalis, George 3,409(59) 1,277 2,132 *
Toombs, Walter F. 26,954(12) 16,448 10,506 *
TriYar Capital 6,739(9) 4,112 2,627 *
Turbee, Mederic 263(14) 263 0 *
Vainberg, Vladik 5,073(95) 2,218 2,855 *
Syd Verbin & Helen Verbin Trustee under 2,696(3) 1,645 1,051 *
Trust Agreement dated 12/20/88 FBO Syd
Verbbin
Verdino, Lorraine 275(58) 175 100 *
Voight, Bryon & Jacelyn, JTROS 13,477(5) 8,224 5,253 *
Voight, Kevin & Cindy JTROS 13,477(5) 8,224 5,253 *
Ward, Gary 6,739(9) 4,112 2,627 *
Wasserstrum, Seymour 6,739(9) 4,112 2,627 *
Wilkins, Charles P. 6,739(9) 4,112 2,627 *
Winchester Fiduciary Services FBO Conzett 53,907(19) 32,896 21,011 *
Europa Investment
Wisseman, Charles L. III 6,739(9) 4,112 2,627 *
Ashley Cooper 170,000(60) 170,000 0 *
John R. Clarke 139,000(60) 139,000 0 *
Dean A. Vernoia 15,000(60) 15,000 0 *
Craig Blitz 1,840(63) 690 1,150 *
Craig Blitz and Annette Blitz JTWROS 5,696(64) 4,645 1,051 *
</TABLE>
-69-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Harold Blue 11,739(65) 9,112 2,627 *
Saicol Limited (66) 313,368 210,000(107) 103,368 2.2%
Anthony S. Mowrer 20,000(60) 20,000 0 *
Timothy Moore 10,000(60) 10,000 0 *
William L. Mello 10,000(60) 10,000 0 *
Brian Megenity 10,000(60) 10,000 0 *
Mark Danieli 6,000(67) 5,375 625 *
Anthony J. Giardina 3,810(68) 3,310 500 *
P.A.M.D. Investors, Inc. (69) 371,250 365,000 6,250 *
Andrea Becker 100,000(60) 100,000 0 *
Tim McAfee 10,000(60) 10,000 0 *
Bruce Glaser 10,470(70) 7,970 2,500 *
Carl Kleidman (71) 17,500(72) 5,000 12,500 *
Beth Lipman 6,736(73) 5,630 1,106 *
Ron Moschetta 64,625(74) 45,515 19,110 *
Robert O'Sullivan 8,192(75) 3,836 4,356 *
Robert A. O'Sullivan Family Trust 5,000(60) 5,000 0 *
A.G. Rappaport 50,000(60) 50,000 0 *
Richard Rosenblatt 11,739(65) 9,112 2,627 *
Keith M. Rosenbloom 18,823(76) 10,571 8,252 *
Inder Tallur 10,725(77) 8,850 1,875 *
Joseph P. Wynne (71) 14,814(78) 9,189 5,625 *
Richard A. Campanella 3,810(79) 3,310 500 *
Basil Asciutto 4,856(80) 3,606 1,250 *
Basil Asciutto Retirement Plan 5,000(60) 5,000 0 *
Dolphin Media Group Inc. (81) 119,250 110,000(105) 9,250 *
</TABLE>
-70-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Ricardo Maranon (82) 200,468 50,000(106) 150,468 3.3%
Douglas E. Miller 10,000(60) 10,000 0 *
Dawn Becker 5,000(60) 5,000 0 *
Truxton K. Mann and Nancy W. Mann 5,000(60) 5,000 0 *
JTWROS
Ron Bloom 5,000(60) 5,000 0 *
Thomas Malone (83) 150,000 50,000(60) 100,000 2.26%
Michael Bollag 90,430(84) 74,672 15,668 *
Robert Beuret 2,536(85) 2,536 0 *
J.P. Turner 10,000(60) 10,000 0 *
John La Porta 1,000(60) 1,000 0 *
Liberty Capital, Ltd. (86) 418,350 418,350 0 *
Innovative Telecom Corp. (87) 300,000 300,000 0 *
Michael Binder (88) 20,000 20,000 0 *
The Dilenschneider Group, Inc. (89) 20,000 20,000 0 *
AFG Resources Partnership 127,758(90)(97) 127,758 0 *
Salahkhalid Al-Fulaij 148,858(90)(98) 148,858 0 *
Al Jandool Brides Jewellery 99,239(90)(99) 99,239 0 *
Saqer A. Almousherji 238,096(90) 238,096 0 *
E-Cash Card Services Inc. 25,810(90)(100) 25,810 0 *
James Season 16,777(90)(101) 16,777 0 *
Yaseen Tabtabei 129,048(90)(102) 129,048 0 *
Diego Leiva 1,474,378(96)(103) 87,753 1,386,625 30%
Martin Gangel Trust 28,224 28,224(92) 0 *
Arthur Chase 3,290 3,290(93) 0 *
Tri-Links Investment Trust 387,150(90)(104) 387,150 0 *
Jose Garcia 9,500 9,500(109) 0 *
Felix Lopez 9,500 9,500(109) 0 *
Pedro Rivero 2,000 2,000(109) 0 *
Snow Becker Krauss P.C. 180,000(108) 125,000 55,000 *
</TABLE>
-71-
<PAGE>
* Less than one percent of the issued and outstanding common stock
- ----------------
(1) Based on 4,421,184 shares of common stock issued and outstanding as of
July 12, 1999. Unless otherwise noted, we believe that all persons
named in the table have sole investment power with respect to all
shares of common stock beneficially owned by them. Under the Federal
securities laws, a person is deemed to be the beneficial owner of
securities that can be acquired by that person within 60 days from the
date hereof upon the conversion of convertible securities or the
exercise of warrants or options. We have assumed for each person that
any exercisable and convertible securities that are held by that person
(but not those held by any other person) and that are exercisable or
convertible within 60 days from the date hereof have been exercised or
converted and that after the offering, all underlying shares set forth
under "Number of Shares Offered Hereby" have been sold. Except where
noted, none of the selling stockholders has had any position, office or
other material relationship with the Company other than as a
shareholder during the past three years.
(2) Includes 3,085 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,875 Bridge Warrants, 469 Note
Extension Warrants and 741 shares issued pursuant to the Warrants'
anti-dilution provisions. Also includes an additional 1,875 shares
issuable to this person as a result of the Note Restructuring, plus 95
shares of common stock received in connection with the Note Extension.
(3) Includes 1,645 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note
Extension Warrants and 395 shares issued pursuant to the Warrants'
anti-dilution provisions. Also includes an additional 1,000 shares
issuable to this person as a result of the Note Restructuring, plus 51
shares of common stock received in connection with the Note Extension.
(4) Includes 7,402 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 4,500 Bridge Warrants, 1,125
Note Extension Warrants and 1,777 shares issued pursuant to the
Warrants' anti-dilution provisions. Also includes an additional 4,500
shares issuable to this person as a result of the Note Restructuring,
plus 228 shares of common stock received in connection with the Note
Extension.
(5) Includes 8,224 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 5,000 Bridge Warrants, 1,250
Note Extension Warrants and 1,974 shares issued pursuant to the
Warrants' anti-dilution provisions. Also includes an additional 5,000
shares issuable to this person as a result of the Note Restructuring,
plus 253 shares of common stock received in connection with the Note
Extension.
(6) Includes 2,468 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,500 Bridge Warrants, 375 Note
Extension Warrants and 593 shares issued pursuant to the Warrants'
anti-dilution provisions. Also includes an additional 1,500 shares
issuable to this person as a result of the Note Restructuring, plus 76
shares of common stock received in connection with the Note Extension.
(7) Includes 4,935 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 3,000 Bridge Warrants, 750 Note
Extension Warrants and 1,185 shares issued pursuant to the Warrants'
anti-dilution provisions. Also includes an additional 3,000 shares
issuable to this person as a result of the Note Restructuring, plus 152
shares of common stock received in connection with the Note Extension.
(8) Includes 3,290 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,000 Bridge Warrants, 500 Note
Extension Warrants and 790 shares issued pursuant to the Warrants'
anti-dilution provisions. Also includes an additional 2,000 shares
issuable to this person as a result of the Note Restructuring, plus 102
shares of common stock received in connection with the Note Extension.
(9) Includes 4,112 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,500 Bridge Warrants, 625 Note
Extension Warrants and 987 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional
2,500 shares of common stock issuable to
-72-
<PAGE>
this person as a result of the Note Restructuring, plus 127 shares of
common stock received in connection with the Note Extension.
(10) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 50 shares
of common stock issuable to this person as part of the Note
Restructuring Agent's Shares and 13 shares of common stock issuable to
this person upon the exercise of five-year warrants issued in
connection with a debt restructuring (the "Restructuring Warrants").
(11) Includes 1,370 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 979 Placement Agent's Warrants,
plus 391 Placement Agent's Shares. Also includes an additional 533
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 2,130 shares of common stock issuable as
part of the Note Restructuring Agent's Shares.
(12) Includes 16,448 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 10,000 Bridge Warrants, 2,500
Note Extension Warrants and 3,948 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 10,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 506 shares of common stock
received in connection with the Note Extension.
(13) Includes 3,850 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 2,750 Placement Agent's
Warrants, plus 1,100 Placement Agent's Shares. Also includes an
additional 1,000 shares of common stock issuable to this person upon
the exercise of the Restructuring Warrants and 4,000 shares of common
stock issuable to this person as part of the Note Restructuring Agent's
Shares.
(14) Includes 188 Placement Agent's Warrants plus 75 Placement Agent's
Shares.
(15) Includes 82,238 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 50,000 Bridge Warrants, 12,500
Note Extension Warrants and 19,738 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 50,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 2,526 shares of common stock
received in connection with the Note Extension.
(16) Includes 62,336 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 7,500 Bridge Warrants, 1,875
Note Extension Warrants, 2,961 shares issued pursuant to the Warrants'
anti-dilution provisions and 50,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 7,500 shares issuable to this person as a result
of the Note Restructuring plus 379 Placement Agent's Warrants.
(17) Includes 6,579 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 4,000 Bridge Warrants, 1,000
Note Extension Warrants and 1,579 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 4,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 203 shares of common stock
received in connection with the Note Extension.
(18) Includes 41,119 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 25,000 Bridge Warrants, 6,250
Note Extension Warrants and 9,869 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 25,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 1,263 shares of common stock
received in connection with the Note Extension.
-73-
<PAGE>
(19) Includes 32,896 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 20,000 Bridge Warrants, 5,000
Note Extension Warrants and 7,896 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 20,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 1,011 shares of common stock
received in connection with the Note Extension.
(20) Includes 477,693 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 25,025 Bridge Warrants, 6,257
Note Extension Warrants, 9,878 shares of common stock issued pursuant
to the Warrants' anti-dilution provisions, 83,899 Placement Agent's
Warrants, 34,634 Placement Agent's Shares and 318,000 shares of common
stock issuable upon conversion of Series B Preferred Stock, at $1.00
per share. Also includes an additional 25,025 shares issuable to this
company as a result of the Note Restructuring, 1,264 shares of common
stock received in connection with the Note Extension and 24,438 shares
of common stock issuable upon the exercise of the Restructuring
Warrants and 97,752 shares of common stock issuable to this company as
part of the Note Restructuring Agent's Shares.
(21) Includes 24,672 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 15,000 Bridge Warrants, 3,750
Note Extension Warrants and 5,922 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 15,000 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 758 shares of common stock
received in connection with the Note Extension.
(22) Includes 630 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 450 Placement Agent's Warrants,
plus 180 Placement Agent's Shares. Also includes an additional 25
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 100 shares of common stock issuable as part
of the Note Restructuring Agent's Shares.
(23) Includes 5,757 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 3,500 Bridge Warrants, 875 Note
Extension Warrants and 1,382 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional
3,500 shares of common stock issuable to this person as a result of the
Note Restructuring, plus 177 shares of common stock received in
connection with the Note Extension.
(24) Includes 263 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 188 Placement Agent's Warrants,
plus 75 Placement Agent's Shares. Also includes an additional 20 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 80 shares of common stock issuable as part
of the Note Restructuring Agent's Shares.
(25) Includes 27 Placement Agent's Warrants, plus 11 Placement Agent's
Shares.
(26) Includes 450 Placement Agent's Warrants, plus 90 Placement Agent
Shares.
(27) Includes 1,743 Placement Agent's Warrants, plus 696 Placement Agent's
Shares.
(28) Includes 1,000 Placement Agent's Warrants, plus 200 Placement Agent's
Shares.
(29) Includes 112,945 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 15,000 Bridge Warrants, 3,750
Note Extension Warrants, 5,922 shares of common stock issued pursuant
to the Warrants' anti-dilution provisions, 13,068 Placement Agent's
Warrants and 70,000 shares of common stock issuable upon conversion of
Series B Preferred Stock, at $1.00 per share plus 5,205 Placement
Agent's Shares. Also includes an additional 15,000 shares of common
stock issuable to this person as a result of the Note Restructuring,
758 shares of common stock received in connection with the note
extension, 5,608
-74-
<PAGE>
shares of common stock issuable upon the exercise of the Restructuring
Warrants and 23,253 shares of common stock issuable as part of the Note
Restructuring Agent's Shares.
(30) Includes 2,057 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,250 Bridge Warrants, 313 Note
Extension Warrants and 494 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional
1,250 shares of common stock issuable to this person as a result of the
Note Restructuring, plus 64 shares of common stock received in
connection with the Note Extension.
(31) Includes 450 Placement Agent's Warrants, plus 180 Placement Agent's
Shares.
(32) Includes 1,130 Placement Agent's Warrants, plus 451 Placement Agent's
Shares.
(33) Includes 12,336 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 7,500 Bridge Warrants, 1,875
Note Extension Warrants and 2,961 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions. Also includes an
additional 7,500 shares of common stock issuable to this person as a
result of the Note Restructuring, plus 379 shares of common stock
received in connection with the Note Extension.
(34) Includes 525 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 375 Placement Agent's Warrants,
plus 150 Placement Agent's Shares. Also includes an additional 110
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 450 shares of common stock issuable as part
of the Note Restructuring Agent's Shares.
(35) Includes 1,409 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 1,007 Placement Agent's
Warrants, plus 402 Placement Agent's Shares. Also includes an
additional 471 shares of common stock issuable to this person upon the
exercise of the Restructuring Warrants and 1,882 shares issuable as
part of the Note Restructuring Agent's Shares.
(36) Includes 450 Placement Agent's Warrants, plus 180 Placement Agent's
Shares.
(37) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 20 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 80 shares issuable as part of the Note
Restructuring Agent's Shares.
(38) Includes 2,632 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,600 Bridge Warrants, 400 Note
Extension Warrants and 632 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional
1,600 shares of common stock issuable to this person as a result of the
Note Restructuring, plus 81 shares of common stock received in
connection with the Note Extension.
(39) Includes 658 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 400 Bridge Warrants, 100 Note
Extension Warrants and 158 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional 400
shares of common stock issuable to this person as a result of the Note
Restructuring, plus 21 shares of common stock received in connection
with the Note Extension.
(40) Includes 823 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 500 Bridge Warrants, 125 Note
Extension Warrants and 198 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional 500
shares of common stock issuable to this
-75-
<PAGE>
person as a result of the Note Restructuring, plus 26 shares of common
stock received in connection with the note extension.
(41) Includes 987 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 600 Bridge Warrants, 150 Note
Extension Warrants and 237 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional 600
shares of common stock issuable to this person as a result of the Note
Restructuring, plus 31 shares of common stock received in connection
with the note extension.
(42) Includes 125 Placement Agent's Warrants, plus 50 Placement Agent's
Shares.
(43) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 25 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 100 shares issuable as part of the Note
Restructuring Agent's Shares.
(44) Includes 1,310 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 936 Placement Agent's Warrants,
plus 374 Placement Agent's Shares. Also includes an additional 100
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 400 shares issuable as part of the Note
Restructuring Agent's Shares.
(45) Includes 350 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 250 Placement Agent's Warrants,
plus 100 Placement Agent's Shares. Also includes an additional 25
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 100 shares issuable as part of the Note
Restructuring Agent's Shares.
(46) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 34 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 130 shares issuable as part of the Note
Restructuring Agent's Shares.
(47) Includes 250 Placement Agent's Warrants plus 100 Placement Agent's
Shares.
(48) Includes 936 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 669 Placement Agent's Warrants,
plus 267 Placement Agent's Shares. Also includes an additional 313
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 1,250 shares issuable as part of the Note
Restructuring Agent's Shares.
(49) Includes 152,236 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 50,000 Bridge Warrants, 12,500
Note Extension Warrants, 19,736 shares of common stock issued pursuant
to the Warrants' anti-dilution provisions and 70,000 shares of common
stock issuable upon conversion of Series B Preferred Stock, at $1.00
per share. Also includes an additional 50,000 shares issuable to this
person as a result of the Note Restructuring plus 2,526 shares of
common stock received in connection with the Note Extension.
(50) Includes 1,581 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 1,130 Placement Agent's
Warrants, plus 451 Placement Agent's Shares. Also includes an
additional 529 shares of common stock issuable to this person upon the
exercise of the Restructuring Warrants and 2,113 shares issuable as
part of the Note Restructuring Agent's Shares.
-76-
<PAGE>
(51) Includes 749 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 535 Placement Agent's Warrants,
plus 214 Placement Agent's Shares. Also includes an additional 250
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 1,000 shares issuable as part of the Note
Restructuring Agent's Shares.
(52) Includes 5,800 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note
Extension Warrants, 395 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 3,464 Placement Agent's Warrants
and 691 Placement Agent's Shares. Also includes an additional 1,000
shares issuable to this person as a result of the Note Restructuring,
51 shares of common stock received in connection with the Note
Extension, 1,557 shares of common stock issuable upon the exercise of
the Restructuring Warrants and 6,225 shares issuable as part of the
Note Restructuring Agent's Shares.
(53) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 70 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 265 shares issuable as part of the Note
Restructuring Agent's Shares.
(54) Includes 431 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 308 Placement Agent's Warrants,
plus 123 Placement Agent's Shares. Also includes an additional 50
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 200 shares issuable as part of the Note
Restructuring Agent's Shares.
(55) Includes 4,268 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 3,051 Placement Agent's
Warrants, plus 1,217 Placement Agent's Shares. Also includes an
additional 875 shares of common stock issuable to this person upon the
exercise of the Restructuring Warrants and 3,500 shares issuable as
part of the Note Restructuring Agent's Shares.
(56) Includes 168,688 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 60,000 Bridge Warrants, 15,000
Note Extension Warrants and 23,688 shares of common stock issued
pursuant to the Warrants' anti-dilution provisions and 70,000 shares of
common stock issuable upon conversion of Series B Preferred Stock, at
$1.00 per share. Also includes an additional 60,000 shares issuable to
this person as a result of the Note Restructuring, plus 3,031 shares of
common stock received in connection with the Note Extension.
(57) Includes 880 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 629 Placement Agent's Warrants,
plus 251 Placement Agent's Shares. Also includes an additional 294
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 1,175 shares issuable as part of the Note
Restructuring Agent's Shares.
(58) Includes 175 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 125 Placement Agent's Warrants,
plus 50 Placement Agent's Shares. Also includes an additional 20 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 80 shares issuable as part of the Note
Restructuring Agent's Shares.
(59) Includes 1,277 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 913 Placement Agent's Warrants,
plus 364 Placement Agent's Shares. Also includes an additional 427
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 1,705 shares issuable as part of the Note
Restructuring Agent's Shares.
(60) Consists of shares of Common Stock issuable upon conversion of Series B
Preferred Stock, at $1.00 per share.
-77-
<PAGE>
(61) Includes 1,048 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 749 Placement Agent's Warrants,
plus 299 Placement Agent's Shares. Also includes an additional 350
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 1,400 shares issuable as part of the Note
Restructuring Agent's Shares.
(62) Includes 263 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 188 Placement Agent's Warrants,
plus 75 Placement Agent's Shares. Also includes an additional 20 shares
of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 80 shares issuable as part of the Note
Restructuring Agent's Shares.
(63) Includes 690 shares currently issuable and listed under "Number of
Shares Offered Hereby upon exchange of 493 Placement Agent's Warrants,
plus 197 Placement Agent's Shares. Also includes an additional 230
shares of common stock issuable to this person upon the exercise of the
Restructuring Warrants and 920 shares issuable as part of the Note
Restructuring Agent's Shares.
(64) Includes 4,645 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note
Extension Warrants, 395 shares issued pursuant to the Warrants'
anti-dilution provisions, and 3,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 1,000 shares issuable to this person as a result
of the Note Restructuring plus 51 shares of common stock received in
connection with the note extension.
(65) Includes 9,112 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,500 Bridge Warrants, 625 Note
Extension Warrants, 987 shares issued pursuant to the Warrants'
anti-dilution provisions and 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 2,500 shares issuable to this person as a result
of the Note Restructuring, plus 127 shares of common stock received in
connection with the note extension.
(66) This entity is controlled by Robert R. Sams, a member of PICK's Board
of Directors. This selling stockholder's beneficial ownership includes
shares owned by Mr. Sams, but excludes 9,600 shares owned by Vulcan
Petroleum of which Mr. Sams is a director and minority shareholder. See
"Certain Relationships and Related Transactions."
(67) Includes 5,375 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 268 Placement Agent's Warrants,
107 Placement Agent's Shares and 5,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 125 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 500 shares
issuable as part of the Note Restructuring Agent's Shares.
(68) Includes 3,310 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 936 Placement Agent's Warrants,
374 Placement Agent's Shares and 2,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 100 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 400 shares
issuable as part of the Note Restructuring Agent's Shares.
(69) This entity is controlled by Pastor Alberto Delgado, an advisor to the
Company and a former member of the Board of Directors. This selling
shareholder's beneficial ownership includes Pastor Delgado's
non-qualified
-78-
<PAGE>
stock options to purchase up to 6,250 shares at $5.50 per share,
315,000 shares of Common stock issuable upon conversion of Series B
Preferred Stock and 50,000 shares of Common stock issuable upon
exercise of non-qualified stock options which vest on March 3, 2000.
Excludes non-qualified stock options to purchase up to 18,750 shares at
$5.50 per share, vesting on November 2, 1999. See "Certain
Relationships and Related Transactions."
(70) Includes 7,970 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,122 Placement Agent's
Warrants, 848 Placement Agent's Shares and 5,000 shares of common stock
issuable upon conversion of Series B Preferred Stock, at $1.00 per
share. Also includes an additional 500 shares of common stock issuable
to this person upon the exercise of the Restructuring Warrants and
2,000 shares issuable as part of the Note Restructuring Agent's Shares.
(71) This person is an officer of Commonwealth, however his shareholdings
excludes all shares owned by Commonwealth. See footnote (21) above.
(72) Includes 5,000 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon conversion of Series B Preferred Stock, at
$1.00 per share. Also includes an additional 2,500 shares of common
stock issuable to this person upon the exercise of the Restructuring
Warrants and 10,000 shares issuable as part of the Note Restructuring
Agent's Shares.
(73) Includes 5,630 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 450 Placement Agent's Warrants,
180 Placement Agent's Shares and 5,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 275 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 831 shares
issuable as part of the Note Restructuring Agent's Shares.
(74) Includes 45,515 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 28,960 Placement Agent's
Warrants, 11,555 Placement Agent's Shares and 5,000 shares of common
stock issuable upon conversion of Series B Preferred Stock, at $1.00
per share. Also includes an additional 3,822 shares of common stock
issuable to this person upon the exercise of the Restructuring Warrants
and 15,288 shares issuable as part of the Note Restructuring Agent's
Shares.
(75) Includes 3,836 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,742 Placement Agent's
Warrants plus 1,094 Placement Agent's Shares. Also includes an
additional 1,032 shares of common stock issuable to this person upon
the exercise of the Restructuring Warrants and 3,324 shares issuable as
part of the Note Restructuring Agent's Shares.
(76) Includes 10,571 shares currently issuable listed under "Number of
Shares Offered Hereby" upon exchange of 3,984 Placement Agent's
Warrants, 5,000 shares of common stock issuable upon conversion of
Series B Preferred Stock, at $1.00 per share and 1,587 Placement
Agent's Shares. Also includes 1,604 shares of common stock issuable
upon the exercise of the Restructuring Warrants and 6,648 shares of
common stock issuable as part of the Note Restructuring Agent's Shares.
Does not include 626,172 shares of common stock beneficially owned by
Commonwealth Associates, listed above. Mr. Rosenbloom is an employee
director and shareholder of Commonwealth. When combined with his
shares, Mr. Rosenbloom would be deemed the beneficial owner of 14.59%
of the Company's outstanding securities prior to the offering.
(77) Includes 8,850 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,750 Placement Agent's
Warrants, 1,100 Placement Agent's Shares and 5,000 shares of common
stock issuable upon conversion of Series B Preferred Stock, at $1.00
per share. Also includes an additional 375 shares of common stock
issuable to this person upon the exercise of the Restructuring Warrants
and 1,500 shares issuable as part of the Note Restructuring Agent's
Shares.
-79-
<PAGE>
(78) Includes 9,189 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,993 Placement Agent's
Warrants, 1,196 Placement Agent's Shares and 5,000 shares of common
stock issuable upon conversion of Series B Preferred Stock, at $1.00
per share. Also includes an additional 1,125 shares of common stock
issuable to this person upon the exercise of the Restructuring Warrants
and 4,500 shares issuable as part of the Note Restructuring Agent's
Shares.
(79) Includes 3,310 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 936 Placement Agent's Warrants,
374 Placement Agent's Shares and 2,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 100 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 400 shares
issuable as part of the Note Restructuring Agent's Shares.
(80) Includes 3,606 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,583 Placement Agent's
Warrants plus 1,023 Placement Agent's Shares. Also includes an
additional 250 shares of common stock issuable to this person upon the
exercise of the Restructuring Warrants and 1,000 shares issuable as
part of the Note Restructuring Agent's Shares.
(81) This entity is controlled by John Tydeman, a member of the Company's
Board of Directors. This selling stockholder's beneficial ownership
includes non-qualified stock options to purchase up to 6,250 shares at
$5.50 per share and 60,000 shares of common stock issuable upon
conversion of Series B Preferred Stock. Excludes non-qualified stock
options to purchase up to 18,750 shares at $5.50 per share, vesting on
November 2, 1999, and 50,000 shares of common stock issuable upon
exercise of non-qualified stock options which vest on March 3, 2000.
See "Certain Relationships and Related Transactions."
(82) Mr. Maranon is an advisor to the Company and a former member of the
Board of Directors. This selling stockholders's beneficial ownership
includes non-qualified stock options to purchase 75,000 shares of the
Company's common stock, including 50,000 shares at $1.70 per share,
15,000 shares at $3.70 per share and 10,000 shares at $5.50 per share
pursuant to the Plan and 50,000 shares of common stock issuable upon
exercise of non-qualified stock options which vest on March 3, 2000 and
3,725 shares of the Company's common stock beneficially owned by Mr.
Maranon's daughter. See "Certain Relationships and Related
Transactions."
(83) Mr. Malone is Chief Executive Officer of the Company. He received these
shares as part of his signing bonus. Includes non-qualified stock
options to purchase up to 100,000 shares of the Company's Common stock
exercisable at $5.00 per share, and 50,000 shares of Common stock
issuable upon conversion of 50,000 shares of Series B Convertible
Preferred Stock issued to Mr. Malone as a signing bonus. Excludes
400,000 shares of Common stock issuable upon exercise of options which
vest from April 1, 2000 through April, 2003.
(84) Includes 74,672 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 15,000 Bridge Warrants, 3,750
Note Extension Warrants, 5,922 shares issued pursuant to the Warrants'
anti-dilution provisions, and 50,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share. Also
includes an additional 15,000 shares issuable to this person as a
result of the Note Restructuring, plus 758 shares of common stock
received in connection with the note extension.
(85) Includes 2,536 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exercise of 1,811 Placement Agent's
Warrants plus 725 Placement Agent's Shares. Does not include 626,172
shares of common stock beneficially owned by Commonwealth Associates,
listed above. Mr. Beuret is an employee,
-80-
<PAGE>
director and shareholder of Commonwealth. When combined with his
shares, Mr. Beuret would be deemed the beneficial owner of 14.22% of
the Company's outstanding securities prior to the offering.
(86) Includes 283,400 shares issuable upon the exercise of warrants at $1.00
per share, 111,550 shares issuable upon exercise of warrants at $5.00
per share issued in connection with the July 1998 Bridge Loan, as well
as 23,400 shares issued to Liberty Capital pursuant to a March 1998, as
amended, Consulting Agreement.
(87) Includes shares issuable upon the exercise of warrants issued in
connection with the satisfaction of indebtedness.
(88) Includes 10,000 shares of common stock issued to Michael Binder and
10,000 shares of common stock underlying warrants issued to Michael
Binder.
(89) Includes shares of common stock issued to The Dilenschneider Group Inc.
(90) Consists of Common Stock issuable upon conversion of Series D Preferred
Stock, at $4.20 per share.
(91) Includes 48,932 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 29,750 Bridge Warrants, 7,438
Note Extension Warrants and 11,744 shares issued pursuant to the
Warrants' anti-dilution provisions. Also includes an additional 29,750
shares issuable to this person as a result of the Note Restructuring,
plus 1,503 shares of common stock received in connection with the Note
Extension.
(92) Includes 28,224 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 5,000 Bridge Warrants, 1,250
Note Extension Warrants, 1,974 shares of common stock issued pursuant
to the Warrants' anti-dilution provisions and 20,000 shares of common
stock issued upon conversion of Bridge Notes issued in the July 1998
Bridge Loan which were not exchanged for Amended Notes in April 1999.
(93) Includes 3,290 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,000 Bridge Warrants, 500 Note
Extension Warrants and 790 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions.
(94) Includes 3,948 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,400 Bridge Warrants, 600 Note
Extension Warrants and 948 shares of common stock issued pursuant to
the Warrants' anti-dilution provisions. Also includes an additional
2,400 shares of common stock issuable to this person as a result of the
Note Restructuring, plus 122 shares of common stock received in
connection with the Note Extension.
(95) Includes 2,218 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 500 Bridge Warrants, 125 Note
Extension Warrants, 198 shares issuable pursuant to the Warrants'
anti-dilution provisions, 997 Placement Agent's Warrants and 398
Placement Agent's Shares. Also includes an additional 500 shares
issuable to this person as a result of the Note Restructuring, 26
shares of common stock received in connection with the Note Extension,
466 shares of common stock issuable upon the exercise of the
Restructuring Warrants and 1,863 shares of common stock issuable as
part of the Note Restructuring Agent's Shares.
-81-
<PAGE>
(96) Includes an aggregate of 125,000 stock options consisting of incentive
stock options to purchase up to 13,158 shares of the Company's common
stock at $1.90 per share, 15,000 shares at $4.10 per share, 6,300
shares at $6.10 per share, non-qualified stock options to purchase up
to 36,843 shares of the Company's common stock at $1.90 per share,
3,700 shares at $6.10 per share under the Plan; and non-qualified stock
options to purchase 50,000 shares at $5.50 per share outside of the
Plan, but excludes non-qualified stock options to purchase 200,000
shares at $5.50 per share. Also includes 80,953 shares of common stock
issuable upon conversion of 340,000 shares of Series D Convertible
Preferred Stock at $4.20 per shares and warrants to purchase an
additional 6,800 shares of Common Stock at $6.30 per share.
(97) Includes 9,900 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(98) Includes 6,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(99) Includes 4,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(100) Includes 2,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(101) Includes 1,300 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(102) Includes 10,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(103) Includes 6,800 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(104) Includes 30,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(105) Includes 60,000 shares of common stock issuable upon conversion of
Series B Preferred Stock at $1.00 per share and 50,000 shares issuable
upon exercise of stock options at $5.00 per share, but does not include
any other shares owned by John Tydeman, a director of the Company, who
controls this entity.
(106) Includes 50,000 shares issuable upon exercise of stock options at $5.00
per share held by Mother of Three, Inc., a company controlled by
Ricardo Maranon, an advisor to the Board of Directors.
(107) Includes 160,000 shares of common stock issuable upon conversion of
Series B Preferred Stock at $1.00 per share and 50,000 shares issuable
upon exercise of stock options at $5.00 per share, but does not include
any other shares owned by Robert R. Sams, a director of the Company,
who controls this entity. See note (66) above.
(108) This entity is counsel to the Company and its shares include 50,000
shares issuable upon exercise of non-qualified stock options to
purchase 50,000 shares at $5.00 per share held by SBK Investment
Partners, an affiliated partnership, and 125,000 shares of common stock
issuable upon exercise of non-qualified stock option in exchange for
legal fees owed to such entity.
(109) Represents shares of common stock issued upon conversion of Series B
Preferred Stock.
-82-
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED
The Company's authorized capital stock consists of 100,000,000 shares
of common stock, $.01 par value, and 10,000,000 shares of preferred stock, $.001
par value.
COMMON STOCK
We are authorized to issue 100,000,000 shares of our common stock, $.01
par value per share, of which 4,421,185 shares were issued and outstanding as of
July 12, 1999. All of the outstanding shares of our common stock and those
issuable upon completion of this offering, are and will be, duly authorized,
validly issued, fully paid and non-assessable. Holders of shares of our common
stock are entitled to one vote for each share held of record on all matters to
be voted by shareholders. There are no preemptive, subscription, conversion or
redemption rights pertaining to our common stock. Holders of shares of our
common stock are entitled to receive dividends as they are declared on common
stock by the Board of Directors out of funds legally available therefor and to
share ratably in the assets available upon liquidation subject to rights of
creditors and any shares of preferred stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred
stock, $.001 par value per share.
The preferred stock may be divided by the Board of Directors from time
to time into one or more series. The Board of Directors is authorized to
determine the rights, preferences, privileges and restrictions, including the
dividend rights, conversion rights, voting rights, terms of redemption
(including sinking fund provisions, if any) and liquidation preferences, of any
series of preferred stock and to fix the number of shares of any series without
any further vote or action by stockholders. The Company has no present plans,
proposals, commitments or arrangements to issue any additional shares of
Preferred Stock except in connection with raising additional funds. The
Company's Certificate of Incorporation authorizes the issuance of Preferred
Stock with such designations, rights, and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the common stock. The Preferred
Stock may be used for any lawful purpose, and under certain circumstances it may
be deemed to be an anti-takeover device that could be utilized as a method of
discouraging, delaying or preventing a change in control of the Company without
approval of the Company's stockholders.
-83-
<PAGE>
The Board of Directors of the Company authorized seventy thousand
(70,000) of the ten million (10,000,000) shares of Preferred Stock of the
Company be designated Series A Convertible Preferred Stock, $.001 par value per
share, none of which shares have been issued.
The Board of Directors of the Company authorized two million
(2,000,000) of the ten million (10,000,000) authorized shares of Preferred Stock
of the Company shall be designated Series B Convertible Preferred Stock, $.001
par value per share, of which 1,871,000 shares have been issued. The shares of
Series B Convertible Preferred Stock are convertible into 1,871,000 shares of
common stock at the rate of $1.00 per share. The shares of Series B Convertible
Preferred Stock have a $1.00 per share liquidation preference or an aggregate of
$1,871,000.
The Board of Directors of the Company authorized five hundred thousand
(500,000) of the ten million (10,000,000) authorized shares of Preferred Stock
of the Company shall be designated Series D Convertible Preferred Stock, $.001
par value per share, of which 500,000 shares have been issued. The 500,000
shares of Series D Convertible Preferred Stock are convertible into 1,190,476
shares of common stock at the rate of $4.20 per share. The shares of Series D
Convertible Preferred Stock have a $10.00 per share liquidation preference or an
aggregate of $5,000,000.
The holders of Series B and Series D Convertible Preferred Stock
("Holders") shall be entitled to receive, when, as and if declared by the Board
of Directors of the Company, out of the funds of the Company legally available
therefor, dividends ratably with any declaration or payment of any dividend with
holders of the common stock or other junior securities of the Company, when, as
and if declared by the Board of Directors, based on the number of shares of
common stock into which each share of Series B and Series D Preferred Stock is
then convertible.
In addition to any other rights provided for herein or by law, the
holders of Series B and Series D Convertible Preferred Stock shall be entitled
to vote, together with the holders of common stock as one class, on all matters
as to which holders of common stock shall be entitled to vote, in the same
manner and with the same effect as such common stock holders. In any such vote,
each share of Series B and Series D Convertible Preferred Stock shall entitle
the holder thereof to the number of votes per share that equals the number of
whole shares of common stock into which each such share of Series B and Series D
Convertible Preferred Stock is then convertible, calculated to the nearest
share.
So long as at least twenty percent (20%) of either the Series B or
Series D Convertible Preferred Stock remains outstanding, the consent of the
holders of two-thirds of the then outstanding Series B or Series D Convertible
Preferred Stock, each voting as one class, either expressed in writing or at a
meeting called for that purpose, shall be necessary to permit effect or validate
the creation and issuance of any series of preferred stock or other security of
the Company which is senior as to distributions to either the Series B or Series
D Convertible Preferred Stock.
So long as at least twenty percent (20%) of either the Series B or
Series D Convertible Preferred Stock remains outstanding, the consent of
two-thirds of the holders of the then outstanding
-84-
<PAGE>
Series B or Series D Convertible Preferred Stock, each voting as one class,
either expressed in writing or at a meeting called for that purpose, shall be
necessary to repeal, amend or otherwise change the Company's Certificate of
Designation or the Articles of Incorporation, as amended, in a manner which
would alter or change the powers, preferences, rights, privileges, restrictions
and conditions of the Series B or Series D Convertible Preferred Stock so as to
adversely affect either the Series B or Series D Convertible Preferred Stock.
PLAN OF DISTRIBUTION
The selling stockholders shares may be sold from time to time by the
selling stockholders in one or more transactions in the over-the-counter market,
in negotiated transactions or a combination of those methods of sale at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices.
The selling stockholders shares may be sold from time to time directly
to purchasers by the selling stockholders and/or by their assignees,
transferees, pledgees or other successors for their own accounts and not for the
account of the Company. Alternatively, the selling stockholders may from time to
time offer the selling stockholder shares through underwriters, dealers or
agents. The distribution of the selling stockholder shares by the selling
stockholders may be effected from time to time in one or more transactions or a
combination of such methods of sale, that may take place in the over-the-counter
market including:
o ordinary broker's transactions and transactions in which the broker
solicits purchasers;
o privately negotiated transactions or pledges;
o through sales to one or more broker/dealers for resale of these
shares for their own account as principals, pursuant to this
prospectus;
o in a block trade in which the broker or dealer so engaged will
attempt to sell the securities as agent, but may position and resell
a portion of the block as principal to facilitate the transaction;
or
o in exchange distributions and/or secondary distributions, at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by these holders in connection with the sales.
In connection with distributions of the selling stockholder shares or
otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers. In connection with these transactions, broker-dealers may engage
in short sales of the selling stockholder shares in the course
-85-
<PAGE>
of hedging the positions they assume with selling stockholders. The selling
stockholders also may sell selling stockholder shares short and deliver the
selling stockholder shares to close out short positions. The selling
stockholders also may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the selling
stockholder shares, which the broker-dealer may resell pursuant to this
prospectus. The selling stockholders also may pledge the selling stockholder
shares to a broker or dealer and upon a default, the broker or dealer may effect
sales of the pledged selling stockholder shares pursuant to this prospectus.
The selling stockholders and/or their assignees, transferees,
intermediaries, donees, pledgees or other successors in interest through whom
the selling stockholder shares are sold may be deemed "underwriters" within the
meaning of section 2(11) of the Securities Act, with respect to the selling
stockholder shares offered and any profits realized or commissions received may
be deemed to be underwriting compensation. Any broker-dealers that participate
in the distribution of the selling stockholder shares also may be deemed to be
"underwriters," as defined in the Securities Act, and any commissions,
discounts, concessions or other payments made to them, or any profits realized
by them upon the resale of any selling stockholder shares purchased by them as
principals, may be deemed to be underwriting commissions or discounts under the
Securities Act. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of selling stockholder shares by the selling stockholders.
Under states' securities laws, the selling stockholder shares may be
sold only through registered or licensed brokers or dealers. In addition, the
selling stockholder shares may not be sold unless the selling stockholder shares
have been registered or qualified for sale in various states or an exemption
from registration or qualification is available and is complied with.
Registration of the selling stockholder shares is being made pursuant
to the individual securities purchase agreements between us and each of the
selling stockholders. Pursuant to the terms of these agreements, we will pay all
expenses incident to the offering and sale of the selling stockholder shares to
the public except as described hereinafter. We will not pay, among other
expenses, commissions and discounts of underwriters, dealers or agents or the
fees and expenses of counsel for the selling stockholders. In some cases, we
have agreed to indemnify the selling stockholders and may indemnify any
broker-dealer that participates in transactions involving the sale of selling
stockholder shares against various liabilities, including liabilities under the
Securities Act.
There can be no assurance that we or any of the selling stockholders
will sell any or all of the selling stockholder shares offered by them
hereunder.
The sale of the selling stockholder shares is subject to the prospectus
delivery and other requirements of the Securities Act. To the extent required,
we will use our best efforts to file and distribute, during any period in which
offers or sales are being made, one or more amendments or supplements to this
prospectus or a new registration statement with respect to the selling
stockholder
-86-
<PAGE>
shares to describe any material information with respect to the plan of
distribution not previously disclosed in this prospectus, including, but not
limited to, the number of shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, if any, the
purchase price paid by the underwriter for selling stockholder shares purchased
from a selling stockholder, and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and the proposed selling price to the
public, and other facts material to the transaction. In addition, upon the
Company being notified by a selling stockholder that a donee or pledgee intends
to sell more than 500 shares, a supplement to this prospectus will be filed.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the selling stockholder shares offered by this
prospectus may not simultaneously engage in market-making activities with
respect to our common stock during the applicable "cooling off" period five
business days prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Regulation M, in connection with
transactions in the shares, which provisions may limit the timing of purchases
and sales of selling stockholder shares by the selling stockholders.
Selling stockholders also may resell all or a portion of the selling
stockholder shares in open market transactions in reliance upon Section 4(l) of
the Securities Act or Rule 144 promulgated thereunder, provided they meet the
criteria and conform to the requirements of such rules.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 appearing in this prospectus and Registration Statement have been audited
by Goldstein Golub Kessler LLP, independent auditors, as indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1997 appearing in this prospectus and Registration Statement have been audited
by Durland & Company, CPAs, P.A., independent auditors, as indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Effective September 17, 1998, Goldstein Golub Kessler LLP were engaged
as the Company's independent accountants for the 1998 fiscal year. The change in
the independent accountants had been approved by the Company's Board of
Directors. Upon the engagement of Goldstein Golub Kessler LLP, the Company
dismissed Durland & Company, CPA's, P.A., its independent accountant for the
years ended December 31, 1996 and 1997. The Company has no disagreements with
its current and former accountants on accounting and financial disclosures.
-87-
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of the
common stock offered hereby will be passed upon for the Company by Snow Becker
Krauss P.C., New York, New York. Snow Becker Krauss P.C. owns an option to
purchase 125,000 shares of common stock of the Company. SBK Investment Partners,
a partnership consisting of members of Snow Becker Krauss P.C. owns 5,000 shares
of common stock and an option to purchase 50,000 shares of common stock of the
Company.
-88-
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
Independent Auditor's Report F-2
Independent Auditor's Report F-3
Consolidated Financial Statements:
Balance Sheet F-4
Statement of Operations F-5
Statement of Stockholders' Deficiency F-6 - F-7
Statement of Cash Flows F-8 - F-9
Notes to Financial Statements F-10 - F-21
For the Three Months Ended
March 31, 1999
(unaudited)
Consolidated Financial Statements:
Balance Sheet F-22
Statement of Operations F-23
Statement of Stockholder' Deficiency F-24
Statement of Cash Flows F-25
Notes to Financial Statements F-26 - F-35
-89-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
PICK Communications Corp.
We have audited the accompanying consolidated balance sheet of PICK
Communications Corp. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PICK Communications
Corp. and Subsidiaries as of December 31, 1998, and the results of their
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company has incurred substantial
recurring losses from operations, has a net capital deficiency and has a working
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 5, 1999, except for portions of
Notes 13 and 17 as to which the
date is March 26, 1999, Notes 6 and 16
as to which the date is April 28, 1999
and except for the last paragraph of
Note 17 as to which the date
is July 23, 1999
F-2
<PAGE>
Report of Certified Public Accountants
To: The Board of Directors
PICK Communications Corp.
Wayne, New Jersey
We have audited the accompanying consolidated balance sheets of PICK
Communications Corp. and its Subsidiaries (the "Company") as of December 31,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of PICK
Communications Corp. and its Subsidiaries as of December 31, 1997 and the
results of its operations and its cash flows for the years ended December 31,
1997 and 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 14 to
the consolidated financial statements, the Company has experienced significant
losses, resulting in a deficit equity position. The Company's financial position
and operating results raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 14. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
April 29, 1998
F-3
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 248,551 $ 44,400
Accounts receivable, less allowance for doubtful accounts of
$351,838 and $326,497, respectively 740,886 451,818
Prepaid expenses and other current assets 575,022 125,816
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 1,564,459 622,034
- ----------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
and amortization of $428,199 and $68,488, respectively 5,048,551 1,000,083
- ----------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 178,146 24,396
Investment in marketable equity securities - 171,000
Deferred income tax asset, net of valuation allowance of $11,000,000
and 4,800,000 respectively - -
- ----------------------------------------------------------------------------------------------------------------------
Total other assets 178,146 195,396
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,791,156 $ 1,817,513
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of debt $ 2,127,500 $ 1,000,000
Current portion of capital leases 271,676 146,128
Accounts payable and accrued expenses 7,690,978 4,876,336
Deferred revenue - prepaid calling cards 2,183,806 681,653
Other current liabilities 3,967,841 1,323,525
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 16,241,801 8,027,642
Capital Leases, less current portion 1,042,716 794,905
Short term debt expected to be refinanced, less current portion 9,772,500 -
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 27,057,017 8,822,547
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 86,018 88,080
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Common stock - $.01 par value; authorized 10,000,000 shares at December 31,
1998 and 7,500,000 shares at December 31, 1997; 3,820,188 issued and
3,816,638 outstanding at December 31, 1998;
4,332,532 issued and 3,605,982 outstanding at December 31, 1997 38,202 43,325
Additional paid-in capital 4,008,029 5,886,825
Options and warrants 2,687,461 21,242
Treasury stock, at cost, 3,550 and 726,550 shares at
December 31, 1998 and 1997, respectively (11,978) (3,072,222)
Accumulated other comprehensive income - 38,000
Accumulated deficit (27,073,593) (10,010,284)
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (20,351,879) (7,093,114)
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 6,791,156 $ 1,817,513
======================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-4
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of long-distance services $ 1,978,441 $ 7,669,243 $ 4,444,342
Sales of prepaid calling cards 7,844,462 1,346,660 1,425,340
- ----------------------------------------------------------------------------------------------------------------------
Net sales 9,822,903 9,015,903 5,869,682
- ----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales:
Cost of telephone time purchased 13,322,978 8,326,318 5,308,626
Other cost of sales 3,069,566 762,431 1,092,605
Adjustment to provision for contingent costs - (649,563) 1,749,563
- ----------------------------------------------------------------------------------------------------------------------
Total cost of sales 16,392,544 8,439,186 8,150,794
Selling, general and administrative 3,880,100 1,836,829 2,551,142
Depreciation and amortization 359,711 180,531 181,758
Bad debt expense 125,740 253,270 219,746
- ----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 20,758,095 10,709,816 11,103,440
- ----------------------------------------------------------------------------------------------------------------------
Loss before other income (expense) (10,935,192) (1,693,913) (5,233,758)
- ----------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (3,191,869) (157,669) (19,802)
Debt placement expenses (2,805,310) - -
Gain on in-substance defeasance - - 53,080
License fees - - 3,650,000
Loss on disposal of fixed assets - - (50,271)
Write-off of intangible asset - (441,205) -
Net gains (losses) on marketable equity securities (133,000) (9,449,079) 4,784,000
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (6,130,179) (10,047,953) 8,417,007
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest in subsidiary
loss and income taxes (17,065,371) (11,741,866) 3,183,249
Benefit (provision) for income taxes - 1,808,000 (1,808,000)
Minority interest in subsidiary loss 2,062 434,064 260,541
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $(17,063,309) $ (9,499,802) $ 1,635,790
======================================================================================================================
Net income (loss) per common share - basic $ (4.62) $ (2.57) $ .39
======================================================================================================================
Weighted average shares outstanding - basic 3,692,356 3,695,853 4,199,150
======================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-5
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Options
Number Paid-in and Stock Treasury
of Shares Amount Capital Warrants Subscription Stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 40,542,516 $81,085 $2,018,780 - $(800,000) -
one for ten reverse stock split
(See Note 17) (36,488,264) - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,054,252 81,085 2,018,780 (800,000)
Issuance of common stock for cash
and reduction of receivable 25,000 500 249,500 - (125,000) -
Issuance of common stock
for prepaid advertising 115,000 2,300 2,697,700 - - -
Issuance of common stock for
500,000 shares of Ultimistics, Inc. 125,000 2,500 1,272,500 - - -
Reacquisition of shares for cash (23,000) - - - - $ (29,500)
Reacquisition of shares for cash,
prepaid calling cards and unused
advertising (25,000) - - - - (572,589)
Issuance of common stock for
compensation and services 50,500 1,010 161,240 - - -
Collections of subscription
receivable - - - - 325,000 -
Accumulated other comprehensive
income (loss) - - - - - -
Net income - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,321,752 87,395 6,399,720 - (600,000) (602,089)
Reduction of $.02 to $.01
par value - (43,697) 43,697 - - -
Cancellation of 60,000 shares
subscribed (60,000) (600) (599,400) - 600,000 -
Reacquisition of shares for cash (3,550) - - - - (11,978)
Reacquisition of shares for
unused prepaid advertising, with
a book value of $2,038,155 (75,000) - - - - (2,038,155)
<CAPTION>
Accumulated Total
Other Stockholders'
Comprehensive Accumulated Equity
Income (Loss) Deficit (Deficiency)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 - $(2,146,272) $(846,407)
one for ten reverse stock split
(See Note 17) - - -
- --------------------------------------------------------------------------------------
Balance at December 31, 1995 - (2,146,272) (846,407)
Issuance of common stock for cash
and reduction of receivable - - 125,000
Issuance of common stock
for prepaid advertising - - 2,700,000
Issuance of common stock for
500,000 shares of Ultimistics, Inc. - - 1,275,000
Reacquisition of shares for cash - - (29,500)
Reacquisition of shares for cash,
prepaid calling cards and unused
advertising - - (572,589)
Issuance of common stock for
compensation and services - - 162,250
Collections of subscription
receivable - - 325,000
Accumulated other comprehensive
income (loss) $(3,904,965) - (3,904,965)
Net income - 1,635,790 1,635,790
- ------------------------------------------------------------------------------------
Balance at December 31, 1996 (3,904,965) (510,482) 869,579
Reduction of $.02 to $.01
par value - - -
Cancellation of 60,000 shares
subscribed - - -
Reacquisition of shares for cash - - (11,978)
Reacquisition of shares for
unused prepaid advertising, with
a book value of $2,038,155 - - (2,038,155)
(continued)
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-6
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Options
Number Paid-in and Stock Treasury
of Shares Amount Capital Warrants Subscription Stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reacquisition of shares for
Firenze, Ltd. and Ultimistics, Inc. (600,000) - - - - $ (420,000)
Issuance of common stock for
services 22,700 $ 227 $ 42,808 - - -
Issuance of warrants in connection
with short-term debt - - - $ 21,242 - -
Accumulated other comprehensive
income (loss) - - - - - -
Net loss - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,605,902 43,325 5,886,825 21,242 - (3,072,222)
Issuance of common stock for
compensation 66,299 663 296,363 - - -
Issuance of common stock in
connection with private placement 139,437 1,394 864,405 - - -
Issuance of common stock upon - - -
exercise of warrants by director 5,000 50 13,450 - - -
Issuance of warrants in connection
with short-term debt - - - 2,359,940 - -
Issuance of options for compensation - - - 306,279 - -
Cancellation of 723,000
shares of treasury stock - (7,230) (3,053,014) - - 3,060,244
Accumulated other comprehensive
income (loss) - - - - - -
Net loss - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,816,638 $38,202 $ 4,008,029 $2,687,461 $-0- $ (11,978)
================================================================================================================================
<CAPTION>
Accumulated Total
Other Stockholders'
Comprehensive Accumulated Equity
Income (Loss) Deficit (Deficiency)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reacquisition of shares for
Firenze, Ltd. and Ultimistics, Inc. - - $ (420,000)
Issuance of common stock for
services - - 43,035
Issuance of warrants in connection
with short-term debt - - 21,242
Accumulated other comprehensive
income (loss) $3,942,965 - 3,942,965
Net loss - $ (9,499,802) (9,499,802)
- --------------------------------------------------------------------------------------
Balance at December 31, 1997 38,000 (10,010,284) (7,093,114)
Issuance of common stock for
compensation - - 297,026
Issuance of common stock in
connection with private placement - - 865,799
Issuance of common stock upon - -
exercise of warrants by director - - 13,500
Issuance of warrants in connection
with short-term debt - - 2,359,940
Issuance of options for compensation - - 306,279
Cancellation of 723,000
shares of treasury stock - - -
Accumulated other comprehensive
income (loss) (38,000) - (38,000)
Net loss - (17,063,309) (17,063,309)
- --------------------------------------------------------------------------------------
Balance at December 31, 1998 $ -0- $(27,073,593) $(20,351,879)
======================================================================================
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-7
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(17,063,309) $(9,499,802) $ 1,635,790
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss (gain) on marketable securities 133,000 9,449,079 (4,784,000)
Revenue from license fees - - (3,650,000)
Gain on in-substance defeasance - - (53,080)
Advertising expense - - 256,845
Stock, options and warrants issued for compensation
or services 603,305 64,277 162,250
Amortization of debt discounts and placement expenses 4,656,773 - -
Depreciation and amortization 359,711 180,531 181,758
Write-off of intangible asset - 441,205 -
Loss on abandonment of property and equipment - - 50,271
Minority interest in subsidiary loss (2,062) (434,064) (260,541)
Bad debt expense 125,740 253,270 219,746
Adjustment to provision for contingent liabilities - (649,563) 1,749,563
Provision (benefit) for deferred income taxes - (1,808,000) 1,808,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (414,808) 73,092 (163,490)
Decrease (increase) in other operating assets (602,956) (44,046) 175,716
Increase in accounts payable and accrued expenses 2,814,642 3,408,763 880,161
Increase (decrease) in deferred revenue 1,502,153 (985,735) 862,005
Increase (decrease) in other operating liabilities 2,814,316 (868,679) (289,375)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,073,495) (419,672) (1,218,381)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in debt securities - - (371,920)
Purchase of property and equipment (3,817,153) (6,510) (65,966)
- ----------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (3,817,153) (6,510) (437,886)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock issued for cash 13,500 - 250,000
Common stock issued for cash by subsidiary - - 527,612
Acquisition of treasury stock for cash - (11,978) (44,500)
Proceeds from stock subscriptions receivable - - 200,000
Principal paid on capital leases (217,667) - -
Proceeds from third-party debt 11,468,966 250,000 750,000
Payments on third-party debt (2,000,000) - (75,000)
Funds advanced by stockholder 15,000 170,000 75,152
Payments on stockholder advances (185,000) (25,152) (50,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,094,799 382,870 1,633,264
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 204,151 (43,312) (23,003)
Cash at beginning of year 44,400 87,712 110,715
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 248,551 $ 44,400 $ 87,712
======================================================================================================================
(continued)
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-8
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $1,167,716 $ 75,877 $ 8,271
==================================================================================================================
Supplemental schedule of noncash investing and
financing activities:
Assets acquired under capital leases $ 591,026 $ 941,033 -
==================================================================================================================
Discount on short-term debt $1,312,934 - -
==================================================================================================================
Book value of marketable equity securities exchanged
for common stock of the Company and its subsidiary - $6,390,625 -
==================================================================================================================
Book value of marketable equity securities exchanged
for other marketable equity securities - $4,085,000 -
==================================================================================================================
Book value of prepaid advertising and telephone cards
exchanged for common stock of the Company and
its subsidiary - $2,458,155 $ 557,589
==================================================================================================================
Stock issued for investment in marketable equity securities - - $1,275,000
==================================================================================================================
Stock issued for suscriptions receivable - - $ 125,000
==================================================================================================================
Stock issued to acquire prepaid advertising - - $2,700,000
==================================================================================================================
In-substance defeasance - - $ 425,000
==================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-9
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PRINCIPAL PICK Communications Corp. and Subsidiaries acts as a
BUSINESS wholesaler of long-distance telephone services and sells
ACTIVITY AND prepaid telephone calling cards through distributors. Also,
SUMMARY OF the Company intends to provide satellite-based Internet
SIGNIFICANT access and interactive multimedia services to end user
ACCOUNTING service providers. The Company is headquartered in Wayne, New
POLICIES: Jersey, and also leases facilities and telephone switching
equipment in Jersey City, New Jersey, and Miami, Florida.
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned
subsidiaries: PICK US Inc. f/k/a PICK Inc. ("PICK US"); PICK
Net Inc. ("PICK Net"); PICK Net UK PLC; PICK Sat Inc. and
P.C.T. Prepaid Telephone, Inc. ("PCT"), a majority-owned
subsidiary (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated.
Subsequent to year-end, the Company formed a new subsidiary,
PICK Online.Com Inc., a media content aggregator using a
satellite-based multicast delivery system for Internet
Service Providers and Broadband Networks.
Minority interest represents the minority shareholders'
proportionate share of the equity and loss of PCT.
For comparability, certain 1997 and 1996 amounts have been
reclassified, where appropriate, to conform to the
consolidated financial statement presentation used in 1998.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of
the consolidated balance sheet and revenue and expenses for
the periods then ended. Actual results could differ from
those estimates.
Sales of long-distance time are recognized at the time that
service is provided, as reported by the electronic switching
devices. The Company defers revenue related to prepaid
calling cards (which is recorded net of distributor
discounts) and recognizes revenue as the card is used.
Basic net loss per share is computed by dividing the net loss
by the weighted-average number of common shares outstanding
during the year. Diluted net loss per share is not presented
because the inclusion of common share equivalents would be
antidilutive.
The Company does not believe that any recently issued but not
yet effective accounting standards will have a material
effect on the Company's consolidated financial position,
results of operations or cash flows.
In 1998, approximately 72% and 10% of revenue were from two
customers; in 1997, approximately 19% and 13% of revenue were
from two customers; and in 1996, approximately 36% and 25% of
revenue were from two customers. The Company performs
periodic credit evaluations of its customers, and may, under
certain circumstances, require deposits or prepayments where
deemed appropriate.
F-10
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Two customers comprised approximately 65% and 11%
of gross accounts receivable, respectively, at
December 31, 1998. Five customers comprised
approximately 35%, 20%, 16%, 13% and 10% of gross
accounts receivable, respectively, at December 31,
1997. The Company also purchases
telecommunications services from many of its
customers. Frequently, accounts receivable are
settled by set-offs against liabilities with the
same party.
Depreciation of property and equipment is provided
for by the straight-line method over the estimated
useful lives of the related assets.
The Company's intangible assets (patent and
related rights for prepaid cellular technology)
were valued at cost and amortized over their
estimated useful lives of five years. Since, among
other factors, this technology generated no
revenue during 1997, the Company elected to write
off the unamortized balance at December 31, 1997.
The Company accounts for income taxes in
accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income
Taxes. The Company recorded a deferred tax asset
for the tax effect of net operating loss
carryforwards and temporary differences. In
recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be
derived, the Company has recorded a full valuation
allowance.
2. PREPAID Prepaid expense and other current assets consist
EXPENSES AND of the following:
OTHER CURRENT
ASSETS:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment for resale $100,624 $ 2,054
Prepaid expenses 99,722 27,699
Advances and other current assets 225,020 -
Deposits 149,656 96,063
----------------------------------------------------------------------------------------
$575,022 $125,816
========================================================================================
</TABLE>
F-11
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. PROPERTY AND Property and equipment, at cost, consists of the
EQUIPMENT: following:
<TABLE>
<CAPTION>
Estimated
December 31, 1998 1997 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property, equipment and software $1,186,464 $ 127,538 3 and 5 years
Telephone switching equipment 1,532,059 941,033 5 years
Asset development/installation
in process 2,758,227 -
----------------------------------------------------------------------------------------
5,476,750 1,068,571
Less accumulated depreciation and
amortization 428,199 68,488
----------------------------------------------------------------------------------------
$5,048,551 $1,000,083
========================================================================================
</TABLE>
Telephone switching equipment was acquired under
capital leases costing $1,252,271 and $941,033 at
December 31, 1998 and 1997, respectively, net of
accumulated depreciation of approximately $280,000
at December 31, 1998.
Asset development/installation in process consists
of (i) hardware and software costs related to the
Company's high-speed Internet business, which is
under development, and (ii) costs of
telecommunication equipment being installed.
Depreciation will commence when the development
and/or installation is complete and the assets are
fully operational.
4. PREPAID In October 1995, the Company acquired the
CELLULAR worldwide rights to market, distribute, sell and
TELEPHONE manufacture a prepaid cellular telephone
TECHNOLOGY technology for $712,500, of which $212,500 was
AND WRITE-OFF paid by the issuance of 10,000 shares of the
OF INTANGIBLE Company's stock. Although the Company believes
ASSET: this technology may prove to have value, the
technology generated no revenue in 1997 and the
Company elected to write off its remaining
investment ($441,205) as of December 31, 1997.
5. INVESTMENT IN In 1996, the Company acquired 4,700,000 restricted
MARKETABLE shares of the common stock of Ultimistics, Inc.
EQUITY ("Ultimistics"). During the first quarter of 1997,
SECURITIES: the Company, in four separate transactions,
disposed of all of its shares of Ultimistics,
along with $420,000 of prepaid advertising, in
return for (i) 100,000 shares of the Company's
common stock, (ii) 10,000,000 shares of PCT, and
(iii) 380,000 restricted shares of the common
stock of Fairbanks, Inc. (which subsequently
changed its name to Jet Vacations, Inc. and then
Precom Tech Inc.). The Company recorded losses of
$9,399,079 on these transactions. During 1998, the
balance of $133,000 was written off.
F-12
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. SHORT-TERM DEBT Debt consists of the following:
EXPECTED TO BE
REFINANCED:
<TABLE>
<CAPTION>
December 31, 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings from bank - $ 750,000(a)
Loan from customer/supplier $ 2,000,000(c) -
Private placement debt 9,900,000(d) 250,000(b)
-----------------------------------------------------------------------------------------------
11,900,000 1,000,000
Less current portion of debt 2,127,500 1,000,000
-----------------------------------------------------------------------------------------------
Short-term debt expected to be refinanced, less current portion $ 9,772,500 $ -
===============================================================================================
</TABLE>
(a) The bank borrowing was repaid on July
29,1998 from a portion of the proceeds of
the borrowing discussed below (d).
(b) The $250,000 short-term loan outstanding at
December 31, 1997 was repaid in April 1998
from the borrowing discussed in the
following paragraph. As additional
compensation for lending the Company funds,
the individual was initially granted
warrants (exercisable over three years) to
purchase 25,000 shares of the Company's
common stock at $5.00 per share. In return
for extending the maturity date of the loan
from March 9, 1998 to April 13, 1998, the
individual was granted warrants for an
additional 12,500 shares on the same terms.
Management estimates the value of these
additional warrants reflected in interest
expense in 1998 at $5,750.
(c) In February 1998, the Company amended its
existing telecommunications agreement with
IDT Corporation ("IDT"), one of its long
distance vendors/customers. Under the terms
of the amendment, the Company agreed to sell
IDT up to 10,000,000 minutes per month of
long distance traffic, through June 9, 1999,
at favorable rates and IDT agreed to lend
the Company $2,000,000. Of this amount,
$500,000 was funded when the transaction was
signed, $1,000,000 was funded in April 1998
and the remaining $500,000 was advanced in
June 1998. Concurrently, the Company has
issued 100,000 warrants with an exercise
price of $2.40 per share to purchase 10,000
shares of common stock, 200,000 warrants
with an exercise price of $10.00 per share
to purchase 20,000 share of common stock
and 100,000 warrants with an exercise price
of $5.60 per share to purchase 10,000
shares of common stock. The warrants are
exercisable for a period of one year from
the respective dates of grant. Management
estimates the value of these warrants
reflected in interest expense in 1998 at
$30,879. The loan bears interest at 9% per
annum and matured on February 9, 1999. In
April 1999 the Company and IDT agreed in
principal to a new note (the "New Note") due
in six months with a principal amount of
$2,060,000 at 12% interest per annum. The
Company is required to make a payment of
$500,000 on May 31, 1999, half of which
shall be applied to the New Note and the
balance against accounts receivable due to
IDT. Thereafter, the Company has agreed to
pay IDT $50,000 per month against the New
Note. In connection with the New Note, the
Company has granted additional shares of
common stock and warrants as defined in the
agreement.
<PAGE>
In April 1998, the Company borrowed
$1,000,000 from unaffiliated investors. The
loan was unsecured, bore interest at 10% per
annum and matured July 1, 1998. In
consideration for advancing the funds, the
lenders received warrants to purchase
100,000 shares of the Company's common
stock at $3.50 per share, which are
exercisable on or before April 1, 2001. The
$175,000 value assigned to these warrants is
reflected in interest expense. The placement
agent for this loan received $75,000 and
warrants to purchase 25,000 shares of the
Company's common stock at $3.50 per share.
The $43,750 value assigned to these warrants
is included in debt placement expenses. This
borrowing was repaid on July 31, 1998 from a
portion of the proceeds of the borrowing
discussed below. Because the borrowing was
repaid after the maturity date, the interest
rate was increased, effective July 1, 1998,
to 18% and the lenders and the placement
agent were granted warrants to purchase
125,000 shares of the Company's common
stock, exercisable through August 14, 2001,
at $2.50 per share. Management estimates the
value of these warrants reflected in
interest and debt placement expense at
$326,900 and $81,725, respectively.
F-13
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) Between July 29, 1998 and September 8, 1998,
the Company, through Commonwealth Associates
("Commonwealth") placed $9,900,000 (face
amount) of 10%, 120-day Senior Secured Notes
(the "Original Notes") and 9,900,000 warrants
to purchase 990,000 shares of the Company's
common stock at $5.00 per share for five
years (the "Placement"). The Notes are
secured by all of the assets of PICK
Communications Corp. The Company allocated
$8,587,066 of the gross sale proceeds to the
debt and $1,312,934 to the warrants. The
$1,312,934 discount was amortized as interest
expense over the original 120-day life of the
Notes. In November and December 1998, the
Company exercised its right to extend the
maturity date of the Notes for 60 days. Under
the terms of the Notes, the interest rate of
the Notes was increased to 18% per annum,
retroactive to the issuance of the Notes. In
January, February and March 1999, the holders
of the Notes agreed to extend the maturity of
the Notes until April 27, 1999. In return for
the extensions, the Company agreed to issue
50,000 shares of its common stock and
warrants to purchase 247,500 shares of the
Company's common stock for five years at
$5.00 per share to the holders of the Notes.
On April 27, 1999, the holders of the
Original Notes, who control in excess of 90%
of the principal which was due on April 27,
1999, consented to restructure their Original
Notes (the "Restructured Notes") and extend
the maturity date until April 27, 2002. In
return, the Company has agreed, for a two
year period, to allow each of the holders of
the Restructured Notes certain rights
regarding the purchase or exchange of the
Company's common stock or warrants as
defined in the agreement.
For the Placement of the Original Notes, the
Company paid Commonwealth and Liberty Capital (the
Company's co-financial advisor) $1,099,000 in
cash, issued 139,437 shares of common stock
(valued at $865,799) and warrants to purchase
250,986 shares of common stock at $5.00 per
share for five years (valued at $383,002). The
costs related to the Placement were being deferred
and amortized as debt placement expenses over the
term of the debt. At December 31, 1998, all debt
placement expenses were amortized and included in
the consolidated statement of operations.
7. ACCOUNTS Accounts payable and accrued expenses consist of
PAYABLE AND the following.
ACCRUED
EXPENSES:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, 1998 1997
----------------------------------------------------------------------------------------
Accounts payable - operating $5,530,511 $4,480,815
Accrued expenses - operating 510,467 395,521
Accrued expenses - for equipment 1,650,000 -
----------------------------------------------------------------------------------------
$7,690,978 $4,876,336
========================================================================================
</TABLE>
Accounts payable at December 31, 1998 include
$1,120,544 payable to WorldCom Network Services,
Inc., which was payable in monthly installments of
between $350,000 and $385,544, plus interest at
18% per annum, through December 1998. The Company
is in the process of renegotiating payment terms
(see Note 13).
F-14
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. OTHER CURRENT Other current liabilities consist of the following:
LIABILITIES:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for contingent liability $1,100,000 $1,100,000
Advance from customer 1,000,000 -
Provision for loss on deferred revenue -
prepaid calling cards 1,580,000 -
Customer deposits 287,841 -
Advances from stockholder - 170,000
Accrued compensation due to stockholders - 53,525
----------------------------------------------------------------------------------------
$3,967,841 $1,323,525
========================================================================================
</TABLE>
9. CAPITAL LEASE The Company leases telephone switching equipment
OBLIGATIONS: under capital leases which expire during 2002. The
leases require monthly payments of principal and
interest imputed at 12% per annum.
Future minimum lease payments under capital leases
are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
1999 $ 414,783
2000 414,783
2001 414,783
2002 414,783
----------------------------------------------------------------------------------------
1,659,132
Less amount representing interest 344,740
----------------------------------------------------------------------------------------
1,314,392
Less current portion 271,676
----------------------------------------------------------------------------------------
Capital leases, less current portion $1,042,716
========================================================================================
</TABLE>
10. COMMITMENTS: The Company leases facilities under noncancelable
operating leases expiring from July 2000 through
October 2003. The future minimum payments due
under such leases as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 482,483
2000 400,744
2001 251,425
2002 169,769
2003 144,994
----------------------------------------------------------------------------------------
Total payments $1,449,415
========================================================================================
</TABLE>
F-15
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Rental expense under operating leases was
$356,718, $106,586 and $45,315 for the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company has the right to renew its operating
leases for terms of between three and five years.
At December 1998, the Company has outstanding
commitments for the purchase of telecommunications
and computer equipment and for the license of
computer software of approximately $690,000.
In September 1998, the Company entered into an
employment agreement with a key executive. This
agreement commenced January 1, 1999. The agreement
provides for annual base salaries of $300,000,
$350,000, $400,000, $450,000 and $500,000 for the
next five years. In addition, the agreement
provides for additional compensation, as defined
in the agreement.
11. INCOME TAXES: The Company's deferred tax assets at December 31,
1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Federal $ 9,300,000
State 1,700,000
----------------------------------------------------------------------------------------
11,000,000
Less valuation allowance (11,000,000)
----------------------------------------------------------------------------------------
Net deferred tax assets $ - 0 -
========================================================================================
</TABLE>
The deferred tax assets are comprised of the tax
benefit of net operating loss carryforwards and
capital loss carryforwards of approximately
$20,000,000 and $8,300,000, respectively, at
December 31, 1998. These losses are available to
offset future taxable income through the years
2018 and 2003, respectively.
12. CONTRACT WITH In February 1998, the Company entered into a
BLACKSTONE two-year agreement with Blackstone Calling Card,
CALLING CARD, Inc. ("Blackstone" and the "Blackstone
INC.: Agreement"), a major distributor of prepaid
telephone calling cards. Under the terms of the
Blackstone Agreement, as amended, after a
six-month phase-in period commencing April 27,
1998, Blackstone would purchase prepaid calling
cards with a minimum retail value of $5,000,000
per month from the Company, which was expected to
result in net revenue of approximately $3,000,000
per month to the Company. While Blackstone's
purchases from the Company had increased
significantly during the first nine months of the
contract, it is anticipated that the Blackstone
Agreement will have to be amended to raise the per
minute rates charged to users of the prepaid
telephone calling cards sold through Blackstone
and lower the purchase minimum amount and the
corresponding revenue to the Company. The
Blackstone Agreement is also subject to
termination by either party without cause at the
end of any year upon 60 days' prior notice, or by
Blackstone if the Company fails to maintain
overall network quality.
Other current liabilities includes a provision of
$1,580,000 for anticipated losses from providing
future service on prepaid telephone calling cards
sold prior to December 31, 1998.
F-16
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. LITIGATION AND The Company is, from time to time, party to
RESERVE FOR litigation that arises in the ordinary course of
CONTINGENT its business operations. Except as described
LIABILITY: below, the Company is not presently a party to any
litigation that it believes would have a material
adverse effect on its business.
In February 1997, the Company commenced a
mediation action against American Telephone &
Telegraph ("AT&T") seeking $10,000,000 in damages
for breach of contract and fraudulent inducement
and malicious conduct under a carrier agreement
(the "Carrier Agreement") entered into in February
1996. The Company contracted with AT&T under the
Carrier Agreement for inbound 800 service and
outbound domestic and international long distance
service. The Company claims that AT&T reneged on
certain commitments to provide the Company with
lower international rates than the Company was
invoiced by AT&T. AT&T has claimed that the
Company owes it in excess of $1,000,000. In 1996,
the Company provided for a noncash reserve of
$1,750,000, which was reduced to $1,100,000 in the
third quarter of 1997. The reserve is included in
other current liabilities in the accompanying
consolidated financial statements. After two
mediation sessions, AT&T indicated that it
intended to withdraw from the mediation. On
November 5, 1997, the Company filed for
arbitration proceedings against AT&T and reduced
its claim to $5,000,000. The trial began on April
19, 1999 and ended on April 22, 1999. There can be
no assurance that the Company will be able to
prevail in this arbitration. Any adverse judgement
or settlement could have a material impact on the
Company's financial condition.
During March of 1999, Worldcom Network Services,
Inc., d/b/a Wiltel, (Worldcom) commenced a lawsuit
against the Company in the United States District
Court, Southern District of New York demanding a
judgment in the amount of $1,256,622 which
includes interest of 18% per annum plus costs and
expenses. The plaintiff had previously sued the
Company for failure to pay for telecommunications
services provided and the parties reached
agreement on a settlement. However, the Company
has not made the required payments. On April 15,
1999 the Company and Worldcom agreed to a 90-day
extension of monies due at an interest rate of 16%
per annum payable by June 30, 1999. Accounts
payable and accrued expenses includes a liability
of $1,137,352 for this settlement at December 31,
1998.
F-17
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. STOCK OPTIONS:
In February 1996, the Company adopted an incentive
stock option plan for employees, directors,
independent contractors and consultants of the
Company which provides for the grant of stock
options and stock appreciation rights. Options may
be granted at prices not less than fair market
value of the Company's common stock at the date of
grant and may not be exercised more than 10 years
after the date granted. Unless otherwise provided,
options vest at a rate of 20% a year commencing
with the date of grant. Pursuant to this plan an
aggregate of 750,000 shares of common stock have
been reserved for issuance. Of the total number of
shares of common stock as of December 31, 1998,
395,500 shares of common stock relate to options
issued outside of the incentive stock option plan.
Transactions related to stock options are as
follows:
<TABLE>
<CAPTION>
Number of Weighted-average
Shares Price per share
----------------------------------------------------------------------------------------
<S> <C> <C>
Granted during 1996 350,000 $ 8.80
----------------------------------------------------------------------------------------
Balance at December 31, 1996 350,000 8.80
Granted 450,000 2.30
Expired/canceled (350,000) (8.80)
----------------------------------------------------------------------------------------
Balance at December 31, 1997 450,000 2.30
Granted 680,000 5.20
Exercised (5,000) (2.70)
----------------------------------------------------------------------------------------
Balance at December 31, 1998 1,125,000 $ 4.10
========================================================================================
</TABLE>
The weighted-average fair value per share of
options granted during the years ended December
31, 1998, 1997 and 1996 amounted to $1.30, $6.40
and $1.00, respectively.
Approximately $306,000 is reflected in selling,
general and administrative expenses for the year
ended December 31, 1998 relating to options
granted to nonemployees.
The Company has elected, in accordance with the
provisions of SFAS No. 123, "Accounting for Stock
Based Compensation" to apply the current
accounting rules under Accounting Principles Board
Opinion No. 25 and related interpretations in
accounting for its stock options and, accordingly,
has presented the disclosure-only information as
required by SFAS No. 123. If the Company had
elected to recognize compensation cost based on
the fair value of the options granted at the grant
date as prescribed by SFAS No. 123, the Company's
net income (loss) and net income (loss) per common
share for the years ended December 31, 1998, 1997
and 1996 would approximate the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $(17,063,309) $ (9,499,802) $1,635,790
Net income (loss) - pro forma $(17,253,914) $(10,138,680) $1,295,676
Diluted net income (loss) per
common share - as reported $(4.62) $(2.57) $ .39
Diluted net income (loss) per
common share - pro forma $(4.67) $(2.74) $ .31
----------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated
on the date of grant using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for the years
ended December 31, 1998, 1997 and 1996,
F-18
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
respectively; expected volatility of 18%, 134% and
68%, respectively; risk-free interest rates of
6.01%, 6.00% and 6.26%, respectively; no
annualized dividends paid with respect to a share
of common stock at the date of grant, and options
have expected lives of between two and five years.
The following table summarizes information about
fixed stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
------------------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 1998 Life (Years) Price 1998 Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 - $1.70-$2.70 395,000 0.6 $2.10 395,000 $2.10
2 - $3.00-$4.10 135,000 1.8 $3.60 135,000 $3.70
3 - $5.00-$5.50 575,000 4.2 $5.40 270,375 $5.40
4 - $6.10-$9.90 20,000 3.8 $8.00 20,000 $8.00
------------------------------------------------------------------------------------------
Total 112,500 2.6 $4.10 820,375 $5.40
==========================================================================================
</TABLE>
15. COMPREHENSIVE Comprehensive income, as defined in SFAS No. 130,
INCOME(LOSS): "Reporting Comprehensive Income", includes all
changes in equity during a period from nonowner
sources. An example of items included in
comprehensive income that are excluded from net
income are unrealized gains or losses on
marketable equity securities. For the years ended
December 31, 1998, and 1997, changes in
accumulated other comprehensive income (loss) were
($38,000) and $3,942,965, respectively and
relates to unrealized gains or losses on
marketable equity securities.
16. GOING CONCERN The accompanying consolidated financial statements
MATTERS: have been prepared assuming that the Company will
continue as a going concern, which contemplates
the realization of assets and the satisfaction of
liabilities in the normal course of business. The
Company has incurred substantial recurring losses
from operations, has a net capital deficiency
in the amount of $20,351,879 and has a working
capital deficiency of $14,677,342 that raise
substantial doubt about its ability to continue as
a going concern. In addition, the Company had
negative cash flow from operations in the years
ended December 31, 1998, 1997 and 1996.
Significant short-term obligations exist including
the payment of a settlement with Wiltel in the
amount of $1,256,622 payable by June 30, 1999 (See
Note 13); an agreement with IDT which requires a
payment of $500,000 by May 31, 1999 (See Note
(6c)) and normal cash flows from operations.
Without the Company's ability to extend the
pay-out terms of the aforementioned liabilities or
obtain additional long-term financing, as well as
increasing revenue and/or decreasing expenses, the
F-19
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Company will be unable to continue as a going
concern. The financial statements do not include
any adjustments relating to the recoverability of
assets or the classification of liabilities should
the Company be unable to continue as a going
concern.
The Company is negotiating with several potential
investors to raise additional funds through
private placement of debt and/or equity. The
Company believes that these plans, if successfully
implemented, will enable it to continue as a going
concern. However, there can be no assurance that
the Company will be successful in either
generating positive operating income or raising
additional funds in the immediate future in
amounts sufficient to allow it to continue as a
going concern.
17. SUBSEQUENT During March 1999, the Company authorized the
EVENTS: issuance of Series B and Series D Convertible
Preferred Stock totaling 2,500,000 shares of
convertible preferred stock. The Series B
Convertible Preferred Stock has a stated par value
of $.001 per share and is convertible into
2,000,000 shares of the Company's common stock.
The Series D Convertible Preferred Stock has a
stated par value of $.001 per share and is
convertible into 1,190,500 shares of the
Company's common stock.
During early 1999, the Company formed a 100% -
owned subsidiary, PICK Online.Com, Inc. to provide
audio and video broadcasting from radio and
television stations to be sent over the Internet.
This company is in its development stage and
management anticipates operations to commence
during 1999.
On March 3, 1999, the Board of Directors granted
each of the four independent directors three year
options to purchase 50,000 shares of common stock
at $5.10 per share. These options shall be fully
vested on March 3, 2000.
The Company intends to increase its authorized
shares of common stock from 10,000,000 to
40,000,000.
During July of 1999, the Company's Board of
Directors authorized a one for ten reverse split
of its common stock effective July 23, 1999. All
shares and per-share amounts in the accompanying
consolidated financial statements have been
restated to give effect to the reverse stock
split.
F-20
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
18. ALLOWANCE FOR Information relating to the allowance for doubtful
DOUBTFUL accounts is as follows at December 31,:
ACCOUNTS:
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Balance at
of Year Expense Deductions End of Year
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 42,650 $219,746 $ 98,233 $164,163
========================================================================================
1997 $164,163 $253,270 $ 90,936 $326,497
========================================================================================
1998 $326,497 $125,740 $100,399 $351,838
========================================================================================
</TABLE>
F-21
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 42,493 $ 248,551
Accounts receivable, less allowance for doubtful accounts of
$387,366 and $351,838, respectively 723,142 740,886
Prepaid expenses and other current assets 452,056 575,022
Deferred interest 175,617 -
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 1,393,308 1,564,459
- ----------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
and amortization of $536,972 and $428,199, respectively 5,353,780 5,048,551
- ----------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 198,146 178,146
Investment in marketable equity securities - -
Deferred interest, less current portion 542,520 -
Deferred income tax asset, net of valuation allowance of $11,000,000 - -
- ----------------------------------------------------------------------------------------------------------------------
Total other assets 740,666 178,146
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,487,754 $ 6,791,156
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of debt $ 2,020,000 $ 2,127,500
Current portion of capital leases 206,768 271,676
Accounts payable and accrued expenses 11,412,187 7,690,978
Deferred revenue - prepaid calling cards 1,402,399 2,183,806
Other current liabilities 3,157,841 3,967,841
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,199,195 16,241,801
Capital Leases, less current portion 1,042,716 1,042,716
Debt, less current portion 9,880,000 9,772,500
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 29,121,911 27,057,017
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies Minority Interest in Consolidated Subsidiary 86,018 86,018
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 10,000,000 shares at March 31,
1999; 2,000,000 shares designated as Series B Convertible Preferred Stock,
aggregate liquidation value - $1,050,000, issued and
outstanding 1,050,000 shares 1,050,000 -
Common stock - $.01 par value; authorized 40,000,000 and
10,000,000 shares, respectively; issued and outstanding 4,202,698
and 3,816,638 shares, respectively 42,062 38,202
Additional paid-in capital 8,693,875 4,008,029
Options and warrants 2,470,679 2,687,461
Stock subscription (5,000) -
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated deficit (33,959,813) (27,073,593)
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (21,720,175) (20,351,879)
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 7,487,754 $ 6,791,156
======================================================================================================================
</TABLE>
F-22
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three-month period ended March 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales of long-distance services $ 1,212,997 $ 328,732
Sales of prepaid calling cards 2,782,571 177,759
- ----------------------------------------------------------------------------------------------------------------------
Net sales 3,995,568 506,491
- ----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales:
Cost of telephone time purchased 4,321,626 539,446
Other 891,698 288,572
- ----------------------------------------------------------------------------------------------------------------------
Total cost of sales 5,213,324 828,018
Selling, general and administrative 1,322,785 515,064
Depreciation and amortization 108,771 58,026
Bad debt expense 35,528 2,072
- ----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 6,680,408 1,403,180
- ----------------------------------------------------------------------------------------------------------------------
Loss before interest expense (2,684,840) (896,689)
Interest expense 631,404 113,534
- ----------------------------------------------------------------------------------------------------------------------
Loss before minority interest in subsidiary loss (3,316,244) (1,010,223)
Minority interest in subsidiary loss - 457
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (3,316,244) $ (1,009,766)
======================================================================================================================
Beneficial conversion feature of preferred stock (3,570,000) -
- ----------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ (6,886,244) -
======================================================================================================================
Net loss per common share - basic $ (1.65) $ (.29)
======================================================================================================================
Weighted-average shares outstanding - basic 4,161,023 3,627,452
======================================================================================================================
</TABLE>
F-23
<PAGE>
PICK COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common
----------------------- ---------------------- Additional Options
Number of Number of Paid-In and
Shares Amount Shares Amount Capital Warrants
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 - 3,816,638 $38,202 $4,008,029 $2,687,461
Issuance of preferred stock 1,050,000 $1,050,000
Issuance of common stock for services 95,012 950 465,393
Issuance of options for services 31,500
Issuance of warrants in connection with debt 485,081
Expiration of options and warrants 89,743 (89,743)
Preferred stock issuance cost (85,000)
Issuance of common stock upon
exercise of options and warrants 291,048 2,910 645,710 (643,620)
Beneficial Dividend 3,570,000
Other
Net loss
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 1,050,000 $1,050,000 4,202,698 $42,062 $8,693,875 $2,470,679
==========================================================================================================================
</TABLE>
[RESTUBBED TABLE]
PICK COMMUNICATIONS CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
<TABLE>
<CAPTION>
Total
Stock Treasury Accumulated Stockholders'
Subscription Stock Deficit (Deficiency)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ - $ (11,978) $(27,073,593) $(20,351,879)
Issuance of preferred stock 1,050,000
Issuance of common stock for services 466,343
Issuance of options for services 31,500
Issuance of warrants in connection with debt 485,081
Expiration of options and warrants -
Preferred stock issuance cost (85,000)
Issuance of common stock upon -
exercise of options and warrants (5,000) -
Beneficial Dividend (3,570,000) -
Other 24 24
Net loss (3,316,244) (3,316,244)
- -----------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $ (5,000) $(11,978) $(33,959,813) $(21,720,175)
===========================================================================================================
</TABLE>
F-24
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three-month Three-month
period ended period ended
March 31, March 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,316,244) $(1,009,766)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock, options and warrants issued for compensation or services 232,761 119,589
Amortization of debt discounts and placement expenses 32,026 -
Depreciation and amortization 108,773 58,026
Minority interest in subsidiary loss - (457)
Bad debt expense 35,528 2,072
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (17,784) 181,537
Decrease in other operating assets 102,990 13,947
Increase (decrease) in accounts payable and accrued expenses 3,721,209 (70,021)
Decrease in deferred revenue (781,407) (115,036)
(Decrease) increase in other current liabilities (810,000) 386,631
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (692,148) (433,478)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activity - purchase of property and equipment (414,002) (4,137)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Preferred stock issued for cash,
net of issuance cost of $85,000 965,000 -
Principal paid on capital leases (64,908) (38,189)
Proceeds from third-party debt - 500,000
Payments on third-party debt - (25,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 900,092 436,811
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash (206,058) (804)
Cash at beginning of period 248,551 44,400
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 42,493 $ 43,596
======================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 67,824 $ 55,372
======================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Deferred interest from issuance of stock and options $ 750,163 -
======================================================================================================================
Assets acquired under capital leases - $ 129,598
======================================================================================================================
</TABLE>
F-25
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Principal Business Activity and Summary of Significant Accounting
Policies:
PICK Communications Corp. and Subsidiaries acts as a wholesaler of
long-distance telephone services and sells prepaid telephone calling
cards through distributors. Also, the Company intends to provide
satellite-based Internet access and interactive multimedia services to
end user service providers. In March 1999, the Company formed a new
subsidiary, PICK Online.Com Inc., a media content aggregator using a
satellite-based multicast delivery system for Internet Service
Providers and Broadband Networks. The Company is headquartered in
Wayne, New Jersey and also leases facilities and telephone switching
equipment in Jersey City, New Jersey and Miami, Florida.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, PICK US Inc. f/k/a
PICK Inc. ("PICK US"), PICK Net Inc. ("PICK Net"), PICK Net UK PLC,
PICK Sat Inc. ("PICK Sat"), PICK Online.Com Inc. ("POL") and P.C.T.
Prepaid Telephone Inc. ("PCT"), a majority-owned subsidiary
(collectively the "Company"). All significant intercompany balances and
transactions have been eliminated.
Minority interest represents the minority shareholders' proportionate
share of the equity and loss of PCT.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the dates of the consolidated balance sheet and
revenue and expenses for the periods then ended. Actual results could
differ from those estimates.
Sales of long distance time are recognized at the time that service is
provided, as reported by the electronic switching devices. The Company
defers revenue related to prepaid calling cards (which is recorded net
of distributor discounts) and recognizes revenue as the card is used.
Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
Diluted net loss per share is not presented because the inclusion of
common share equivalents would be anti-dilutive.
The Company does not believe that any recently issued but not yet
effective accounting standards will have a material effect on the
Company's consolidated financial position, results of operation or cash
flows.
In the three months ended March 31, 1999, approximately 62% and 23% of
revenues were from two customers; in the three months ended March 31,
1998, approximately 50% and 20% of revenues were from two customers.
The Company performs periodic credit
F-26
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
evaluations of its customers, and may, under certain circumstances,
require deposits or prepayments where deemed appropriate.
Two customers comprised approximately 23% and 16% of gross accounts
receivable, respectively, at March 31, 1999. Two customers comprised
approximately 65% and 11% of gross accounts receivable, respectively,
at December 31, 1998. The Company also purchases telecommunications
services from many of its customers. Frequently, accounts receivable
are settled by set-offs against liabilities with the same party.
Depreciation of property and equipment is provided for by the
straight-line method over the estimated useful lives of the related
assets.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. The Company recorded a deferred tax asset for the tax effect of
net operating loss carryforwards and temporary differences. In
recognition of the uncertainty regarding the ultimate amount of income
tax benefits to be derived, the Company has recorded a full valuation
allowance.
(2) Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Computer equipment for resale $ 97,409 $100,624
Prepaid expenses 191,432 99,722
Advances and other current assets 132,195 225,020
Deposits 31,020 149,656
-------- --------
$452,056 $575,022
======== ========
</TABLE>
F-27
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Property and Equipment:
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, Estimated
1999 1998 Useful Life
---- ---- -----------
<S> <C> <C> <C>
Property, equipment and software $1,403,387 $1,186,464 3 and 5 years
Telephone switching equipment 1,649,340 1,532,059 5 years
Asset development/installation in process 2,838,025 2,758,227
---------- ----------
5,890,752 5,476,750
Less accumulated depreciation
and amortization 536,972 428,199
---------- ----------
$5,353,780 $5,048,551
========== ==========
</TABLE>
Telephone switching equipment was acquired under capital leases costing
$1,175,627 and $1,252,271 at March 31, 1999 and December 31, 1998,
respectively, net of accumulated depreciation of approximately $356,000
and $280,000 at March 31, 1999 and December 31, 1998, respectively.
Asset development/installation in process consists of (i) hardware and
software costs related to the Company's high-speed Internet business,
which is under development, and (ii) costs of telecommunication
equipment being installed.
Depreciation will commence when the development and/or installation is
complete and the assets are fully operational.
(4) Investment in Marketable Equity Securities:
In 1996, the Company acquired 4,700,000 restricted shares of the common
stock of Ultimistics, Inc. ("Ultimistics"). During the first quarter of
1997, the Company, in four separate transactions, disposed of all of
its shares of Ultimistics, along with $420,000 of prepaid advertising,
in return for (i) 100,000 shares of the Company's common stock, (ii)
10,000,000 shares of PCT, and (iii) 380,000 restricted shares of the
common stock of Fairbanks, Inc. (which subsequently changed its name to
Jet Vacations, Inc. and then Precom Tech Inc. The Company recorded
losses of $9,399,079 on these transactions. During 1998, the balance of
$133,000 was written off.
F-28
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) Debt:
Debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C> <C>
Loan from customer/supplier (a) $ 2,000,000 $ 2,000,000
Private placement debt (b) 9,900,000 9,900,000
----------- -----------
11,900,000 11,900,000
Less current portion of debt 2,020,000 2,127,500
----------- -----------
Debt, less current portion $ 9,880,000 $ 9,772,500
=========== ===========
</TABLE>
(a) In February 1998, the Company amended its existing
telecommunications agreement with IDT Corporation ("IDT"), one
of its long distance vendors/customers. Under the terms of the
amendment, the Company agreed to sell IDT up to 10,000,000
minutes per month of long distance traffic, through June 9,
1999, at favorable rates and IDT agreed to lend the Company
$2,000,000. Of this amount, $500,000 was funded when the
transaction was signed, $1,000,000 was funded in April 1998
and the remaining $500,000 was advanced in June 1998.
Concurrently, the Company has issued 100,000 warrants with an
exercise price of $2.40 per share to purchase 10,000 shares
of common stock, 200,000 warrants with an exercise price of
$10.00 per share to purchase 20,000 shares of common stock and
100,000 warrants with an exercise price of $5.60 per share to
purchase 10,000 shares of common stock. The warrants are
exercisable for a period of one year from the respective dates
of grant. Management estimates the value of these warrants
reflected in the interest expense for the three months ended
March 31, 1998 at $6,158. The loan bears interest at 9% per
annum and matured on February 9, 1999. The Company is
currently negotiating with IDT to extend the terms of
repayment.
(b) Between July 29, 1998 and September 8, 1998, the Company,
through Commonwealth Associates ("Commonwealth") placed
$9,900,000 (face amount) of 10%, 120-day Senior Secured Notes
(the "Original Notes") and 9,900,000 warrants to purchase
990,000 shares of the Company's common stock at $5.00 per
share for five years (the "Placement"). The Notes are secured
by all the assets of PICK Communications Corp. The Company
allocated $8,587,066 of the gross sales proceeds to the debt
and $1,312,934 to the warrants. The $1,312,934 discount was
amortized as interest expense over the original 120-day life
of the Notes. In November and December 1998, the Company
exercised its rights to extend the maturity date of the Notes
for 60 days. Under the terms of the Notes, the interest rate
of the Notes was increased to 18% per annum, retroactive to
the issuance of the Notes. In January, February and March
1999, the holders of the Notes agreed to extend the maturity
of the Notes until April 27, 1999. In return for the
extensions, the Company agreed to issue 50,012 shares of its
common stock (valued at $265,063) and warrants (valued at
$485,100) to purchase 247,500 shares of the Company's common
stock for five years at $5.00 per share to the holders of the
Notes. On April 27,1999, the holders of the Original Notes,
who control in excess of 99% of the principal which was due on
April 27, 1999, consented to restructure their Original Notes
(the "Restructured Notes") and
F-29
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
extend the maturity date until April 27, 2002. Under the terms
of the restructuring, the New Notes are convertible to shares
of Common Stock at $10.00 or less per share, as defined in the
terms of restructuring. The notes automatically convert to
common stock if the closing bid price exceeds $15.00 per
share, as defined. Interest expense is deferred and amortized
over the restructured term of the note.
For the Placement of the Original Notes, the Company paid Commonwealth
and Liberty Capital (the Company's co-financial advisor) $1,099,000 in
cash, issued 139,437 shares of common stock (valued $865,799) and
warrants to purchase 250,986 shares of common stock at $5.00 per
share for five years (valued at $383,002). The costs related to the
Placement were being deferred and amortized as debt placement expenses
over the term of the debt. At December 31, 1998, all debt placement
expenses were amortized and included in the consolidated statement of
operations.
In consideration for executing the restructuring, the 9,880,000 warrant
previously issued to consenting note holders will be exchanged for
988,000 shares of common stock at no cost to the note holder.
Additionally, the Company will issue to the consenting noteholders
988,000 shares of stock.
In consideration of the restructuring of the notes, the Company issued
to Commonwealth 200,000 shares of common stock plus warrants to
purchase 50,000 of the Company's common stock at $13.75 per share.
Additionally, warrants previously issued to Commonwealth will be
exercisable at $1.00 per share. The costs related to the restructuring
will be deferred and amortized as debt placement expenses over the
restructured term of the note.
(6) Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Accounts payable - operating $ 8,703,100 $5,530,511
Accrued expenses - operating 1,059,087 510,467
Accrued expenses - for equipment 1,650,000 1,650,000
----------- ----------
$11,412,187 $7,690,978
=========== ==========
</TABLE>
Accounts payable at March 31, 1999 and at December 31, 1998 include
$1,120,544 payable to WorldCom Network Services, Inc., which was
payable in monthly installments of between $350,000 and $385,544, plus
interest at 18% per annum, through December 1998. The Company is in the
process of renegotiating payment terms (see Note 12).
F-30
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(7) Other Current Liabilities:
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Reserve for contingent liability $1,100,000 $1,100,000
Advance from customer 1,000,000 1,000,000
Accrued loss on deferred revenue -
prepaid calling cards 770,000 1,580,000
Customer deposits 287,841 287,841
---------- ----------
$3,157,841 $3,967,841
========== ==========
</TABLE>
(8) Capital Lease Obligations:
The Company leases telephone switching equipment under capital leases
which expire during 2002. The leases require monthly payments of
principal and interest imputed at 12% per annum.
Future minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the Three Months Ended March 31, 1999 $ 311,087
Year ending December 31, 2000 414,783
2001 414,783
2002 414,783
----------
1,555,436
Less amount representing interest 305,952
----------
1,249,484
Less current portion 206,768
----------
Capital leases, less current portion $1,042,716
==========
</TABLE>
F-31
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9) Commitments:
The Company leases facilities under non-cancellable operating leases
expiring from July 2000 through October 2003. The future minimum
payments due under such leases are as follows:
<TABLE>
<CAPTION>
Operating
Leases
------
<S> <C>
For the Three Months Ended March 31, 1999 $ 361,862
December 31, 2000 400,744
2001 251,425
2002 169,769
2003 144,994
----------
Total payments $1,328,794
==========
</TABLE>
Rental expense under operating leases was $88,750 and $81,890 for the
three months ended March 31, 1999 and 1998, respectively. The Company
has the right to renew its operating leases for terms of between three
and five years.
At March 31, 1999, the Company had outstanding commitments for the
purchase of telecommunications and computer equipment and for the
license of computer software of approximately $690,000.
In September 1998, the Company entered into an employment agreement
with a key executive. This agreement commenced January 1, 1999. The
agreement provides for annual base salaries of $300,000, $350,000,
$400,000, $450,000 and $500,000 for the next five years. The agreement
provides for additional compensation, as defined in the agreement. In
April of 1999, the Agreement was amended to provide the key executive
continue solely as chairman of the Board.
(10) Income Taxes:
The Company's deferred tax assets at March 31, 1999 consist of the
following:
Federal $ 9,300,000
State 1,700,000
------------
11,000,000
Less valuation allowance (11,000,000)
------------
Net deferred tax assets $ -0-
============
The deferred tax assets are comprised of the tax benefit of net
operating loss carryforwards and capital loss carryforwards of
approximately $20,000,000 and $8,300,000, respectively, at March 31,
1999. These losses are available to offset future taxable income
through the years 2018 and 2003, respectively.
F-32
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11) Contract with Blackstone Calling Card, Inc.:
In February, 1998, the Company entered into a two-year agreement with
Blackstone Calling Card, Inc ("Blackstone" and the "Blackstone
Agreement, as amended,"). After a six month phase-in period commencing
April 27, 1998, Blackstone would purchase prepaid calling cards with a
minimum retail value of $5,000,000 per month from the Company, which
was expected to result in net revenues of approximately $3,000,000 per
month to the Company. The Blackstone Agreement is subject to
termination by either party without cause at the end of any year upon
60 days' prior notice, or by Blackstone if the Company fails to
maintain overall network quality. The parties are seeking a termination
of the Blackstone Agreement.
Other current liabilities include a provision of $770,000 and
$1,580,000 for anticipated losses from providing future services on
prepaid telephone calling cards sold prior to March 31, 1999 and
December 31, 1998, respectively.
(12) Litigation and Reserve for Contingent Liability:
The Company is, from time to time, party to litigation that arises in
the ordinary course of its business operations or otherwise. Except as
described below, the Company is not presently a party to any litigation
that it believes would have a material adverse effect on its business.
In February 1997, the Company commenced a mediation action against
American Telephone & Telegraph ("AT&T") seeking $10,000,000 in damages
for breach of contract and fraudulent inducement and malicious conduct
under a carrier agreement (the "Carrier Agreement") entered into in
February 1996. The Company contracted with AT&T under the Carrier
Agreement for inbound 800 service and outbound domestic and
international long distance service. The Company claims that AT&T
reneged on certain commitments to provide the Company with lower
international rates than the Company was invoiced by AT&T. AT&T has
claimed that the Company owes it in excess of $1,000,000. In 1996, the
Company provided for a non-cash reserve of $1,750,000, which was
reduced to $1,100,000 in the third quarter of 1997 and is a part of the
Company's working capital deficiency. The reserve is included in other
current liabilities in the accompanying consolidated financial
statements. After two mediation sessions, AT&T indicated that it
intended to withdraw from the mediation. Accordingly, on November 5,
1997, the Company filed for arbitration proceedings against AT&T and
reduced its claim to $5,000,000. The trial began on April 19, 1999 and
ended on April 22, 1999. There can be no assurance that the Company
will be able to prevail in this arbitration. Any adverse judgment or
settlement could have a material impact on the Company's financial
condition.
During March 1999, Worldcom Network Services, Inc., d/b/a Wiltel,
commenced a lawsuit against the Company in the United States District
Court, Southern District of New York,
F-33
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
demanding a judgment in the amount of $1,256,622 and interest at 18%
per annum plus costs and expenses. The plaintiff alleges that the
Company failed to pay for telecommunications services provided. On
April 15, 1999, the Company and Worldcom agreed to a Settlement
Agreement. Under the terms of the Settlement Agreement, the Company
agreed to pay Worldcom $1,256,622 by June 30, 1999, in exchange for a
full and complete settlement of Worldcom's lawsuit against the Company.
The Company is entitled to deduct $580 per day interest charge for each
day in advance of June 30, 1999 on which the Company makes payment to
Worldcom. The Company is seeking an extension of time to make payment
to Worldcom. Accounts payable and accrued expenses include a liability
of $1,187,813 and $1,137,352 for this settlement at March 31, 1999 and
December 31, 1998, respectively.
(13) Going Concern Matters:
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
substantial recurring losses from operations, has a net capital
deficiency in the amount of $21,720,175 and has a working capital
deficiency of $16,805,887 at March 31, 1999, that raise substantial
doubt about its ability to continue as a going concern. In addition,
the Company had negative cash flow from operations in the three months
ended March 31, 1999 and the years ended December 31, 1998, 1997 and
1996.
Significant short-term obligations exist including the payment of a
settlement with Wiltel in the amount of $1,256,622 payable by June 30,
1999 (See Note 12); The Company is under negotiation with IDT to extend
their $2,000,000 loan. (See Note 5(a)) and normal cash flows from
operations. Without the Company's ability to extend the pay-out terms
of the aforementioned liabilities or obtain additional long-term
financing, as well as increasing revenues and/or decreasing expenses,
the Company will be unable to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability of assets or the classifications of liabilities should
the Company be unable to continue as a going concern.
The Company is negotiating with several potential investors to raise
additional funds through private placement of debt and/or equity. The
Company believes that these plans, if successfully implemented, will
enable it to continue as a going concern. However, there can be no
assurance that the Company will be successful in either generating
positive operating income or raising additional funds in the immediate
future in amounts sufficient to allow it to continue as a going
concern.
F-34
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(14) Other Matters and Subsequent Events:
In March 1999, the Board of Directors authorized the issuance of
2,000,000 shares of Series B Convertible Preferred Stock. The Series B
Convertible Preferred Stock has a stated par value of $.001 per share
and is convertible into 2,000,000 shares of the Company's common stock
at the rate of $1.00 per share. As of March 31, 1999, the Company had
sold an aggregate of 1,050,000 shares of Series B Convertible Preferred
Stock for $1,050,000. Subsequent to March 31, 1999, the Company sold an
additional 821,000 shares of Series B Convertible Preferred Stock for
$821,000.
In April 1999, the Board of Directors authorized the issuance of
500,000 shares of Series D Convertible Preferred Stock. The Series D
Convertible Preferred Stock has a stated par value of $.001 per share
and is convertible into 1,190,500 shares of the Company's common
stock, at the rate of $4.20 per share. As of June 23, 1999, the Company
had sold an aggregate of 466,000 shares of Series D Convertible
Preferred Stock for $4,660,000, prior to the payment of $324,500 of
sales commissions. In addition, the Company issued an aggregate of
63,200 Common Stock Purchase Warrants in connection with the sale of
Series D Convertible Preferred Stock. Each Warrant is exercisable at
$6.30 per share of Common Stock for a two-year period.
On March 3, 1999, the Board of Directors granted each of the then four
independent directors 3-year options to purchase 50,000 shares of
common stock at $5.10 per share. Those options shall be fully vested on
March 3, 2000.
On February 26, 1999, the Board of Directors of the Company authorized
an increase of the Company's authorized shares of common stock from
10,000,000 to 40,000,000 shares which was effective on April 13,
1999.
During July of 1999, the Company's Board of Directors authorized a one
for ten reverse split of its common stock effective July 23, 1999. All
shares and per-share amounts in the accompanying consolidated financial
statements have been restated to give effect to the reverse stock
split.
F-35
<PAGE>
================================================================================
No person has been authorized to give any information or make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having
been. This prospectus does not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities to which it relates
or an offer to sell or the solicitation of an offer to buy such securities in
any circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
-----------------
TABLE OF CONTENTS
Page
----
Where You Can Find More Information............. 2
Special Note Regarding
Forward-Looking Statements................... 2
Prospectus Summary.............................. 3
Note Restructuring.............................. 6
Risk Factors.................................... 7
Use of Proceeds................................. 26
Dividend Policy................................. 26
Price Range of Common Stock..................... 26
Capitalization.................................. 27
Selected Historical Consolidated
Financial Data.............................. 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 31
Change in Accountants........................... 39
Business........................................ 39
Management...................................... 52
Certain Relationships and Related
Transactions................................ 57
Security Ownership of Certain Beneficial
Owners and Management....................... 58
Selling Stockholders............................ 60
Description of Capital Stock.................... 83
Plan of Distribution............................ 85
Experts......................................... 87
Legal Matters................................... 88
Index to Financial Statements................... 89
-90-
<PAGE>
================================================================================
PICK COMMUNICATIONS CORP.
6,107,249 Shares
common stock
------------------------------------
PROSPECTUS
------------------------------------
,1999
-91-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission filing fee............ 4,791.71
Accountants' fees and expenses........................... 25,000.00
Legal fees and expenses.................................. 60,000.00
Miscellaneous............................................ 10,208.29
----------
Total........................................... 100,000.00
------------------------
* To be filed by amendment.
The foregoing costs and expenses will be paid by the Company. Other
than the Securities and Exchange Commission filing fee, all fees and expenses
are estimated.
Item 14. Indemnification of Directors and Officers.
The Nevada General Corporation Law ("GCL") provides in relevant part as
follows:
Section 78.751:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the
II-1
<PAGE>
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions
II-2
<PAGE>
of this subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 78.752:
1. A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection nay provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be
II-3
<PAGE>
liable for intentional misconduct, fraud or a knowing violation of law, except
with respect to the advancement of expenses or indemnification ordered by a
court.
3. Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the insurance
or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal
liability for his action, even if a director approving the insurance or other
financial arrangement is a beneficiary of the insurance or other financial
arrangement.
5. A corporation or its subsidiary which provides self-insurance for
itself or for another affiliated corporation pursuant to this section is not
subject to the provisions of Title 57 of NRS [The Nevada Revised Statutes].
Article VI of the Registrant's Bylaws provides as follows:
Indemnification
On the terms, to the extent, and subject to the condition prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in its discretion impose in general or particular cases
or classes of cases, (a) the Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding, civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, and (b) the Corporation may pay, in advance
of final
II-4
<PAGE>
disposition of any such action or proceeding, expenses incurred by such person
in defending such action or proceeding.
On the terms, to the extent, and subject to the conditions prescribed
by statute and by such rules and regulations, not inconsistent with statute, as
the Board of Directors may in its discretion impose in general or particular
cases or classes of cases, (a) the Corporation shall indemnify any person made a
party to an action by or in the right of the Corporation to procure a judgment
in its favor, by reason of the fact that he, his testator or intestate, is or
was a director or officer of the Corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with an appeal
therein, and (b) the Corporation may pay, in advance of final disposition of any
such action, expenses incurred by such person in defending such action or
proceeding.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended Articles of Incorporation (1)
*3.2 Certificate of Amendment to Articles of Incorporation
3.3 By-Laws(2)
4.1 Form of Warrant Agreement between Registrant and certain holders of warrants (3)
*4.2 Form of Note issued by the Registrant to the Noteholders in the July Bridge Loan
*4.3 Form of Note issued by the Registrant to the Noteholders in the July Bridge Loan, as
amended
*4.4 Form of Warrant issued by the Registrant to the Noteholders in the July Bridge Loan
*4.5 Form of Warrant issued by the Registrant to the Noteholders in the July Bridge Loan, as
amended
*4.6 Certificate of Designation, Number, Powers, Preferences and Relative Participating,
Optional and Other Special Rights, Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B Convertible Preffered Stock
*4.7 Certificate of Designation, Number, Powers, Preferences and Relative Participating, Optional
and Other Special Rights, Qualifications, Limitations, Restrictions, and Other Distinguishing
Characteristics of Series D Convertible Preferred Stock
*4.8 Form of Warrant issued by the Registrant to holders of the Series D Convertible Preferred Stock
**5.1 Opinion of Snow Becker Krauss P.C.
10.1 Distributor Agreement, dated February 11, 1988, between the Registrant and Blackstone
Calling Card. Inc. (the "Blackstone Agreement") (3)
10.2 Amendment dated April 13, 1998 to the Blackstone Agreement (3)
10.3 Amendment dated April 27, 1998 to the Blackstone Agreement (3)
10.4 Reciprocal Telecommunications Agreement, dated December 4, 1997, between Pick Net,
Inc, and Gulfsat Communications Company (the "Gulfsat Agreement") (3)
10.5 Amendment, dated March 7, 1998, to the Gulfsat Agreement (3)
10.6 Promissory Note, dated April 2, 1998, between the Registrant and Wolfson Equities (3)
10.7 Letter Agreement, dated April 2, 1998, between the Registrant and Wolfson Equities (3)
10.8 Reciprocal Telecommunications Agreement, dated November 11, 1996 between Pick Net, Inc.
and IDT Corporation (the "IDT Agreement") (3)
10.9 Amendment, dated November 11, 1996, to the IDT Agreement (3)
10.10 Promissory Note, dated February 12, 1998 between Pick Net, Inc. and IDT Corporation (3)
10.11 Form of Lease Agreement between Telecommunications Finance Group and PICK Communications, Corp.(3)
10.12 Employment Agreement, dated September 28, 1998 between Diego Leiva and the Registrant.(4)
21.1 Subsidiaries of the Registrant (4)
*23.1 Consent of Goldstein Golub Kessler LLP
**23.2 Consent of Durland & Company, CPA, P.A.
*27.1 Financial Data Schedule
</TABLE>
* Filed with this Registration Statement
**To be filed by Amendment
- --------------
(1) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996.
(2) Incorporated herein by reference from Exhibits to Registrant's Form 10.
(3) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997.
(4) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.
(b) Financial Statement Schedules. The schedules filed herewith
are as specified on the Index to Schedules included herein.
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(1) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(i) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(ii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
II-5
<PAGE>
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Wayne, State
of New Jersey, on this 12th day of August 1999.
PICK Communications Corp.
By: /s/ Diego Leiva
----------------------
Diego Leiva
Chairman of the Board
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Diego Leiva
- --------------------- Chairman of the Board August 12, 1999
Diego Leiva (Principal Executive Officer)
/s/ Henry Ewen Acting Chief Financial Officer August 12, 1999
- --------------------- (Principal Financial Officer)
Henry Ewen
/s/ Robert R. Sams
- --------------------- Director August 12, 1999
Robert R. Sams
/s/ John Tydeman
- --------------------- Director August 12, 1999
John Tydeman
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Name Page No.
- ----------- ---- --------
<S> <C>
*3.2 Certificate of Amendment to Articles of Incorporation
*4.2 Form of Note issued by the Registrant to the Noteholders in the July Bridge Loan
*4.3 Form of Note issued by the Registrant to the Noteholders in the July Bridge Loan, as
amended
*4.4 Form of Warrant issued by the Registrant to the Noteholders in the July Bridge Loan
*4.5 Form of Warrant issued by the Registrant to the Noteholders in the July Bridge Loan, as
amended
*4.6 Certificate of Designation, Number, Powers, Preferences and Relative Participating,
Optional and Other Special Rights, Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series B Convertible Preffered Stock
*4.7 Certificate of Designation, Number, Powers, Preferences and Relative Participating, Optional
and Other Special Rights, Qualifications, Limitations, Restrictions, and Other Distinguishing
Characteristics of Series D Convertible Preferred Stock
*4.8 Form of Warrant issued by the Registrant to holders of the Series D Convertible Preferred Stock
*23.1 Consent of Goldstein Golub Kessler LLP
*27.1 Financial Data Schedule
</TABLE>
* Filed with this Registration Statement
<PAGE>
CERTIFICATE
OF
PICK COMMUNICATIONS CORP.
PURSUANT TO NRS 78.207
Pursuant to the provisions of the Nevada Revised Statutes, Title 7,
Chapter 78, the undersigned officer of PICK Communications Corp., a Nevada
corporation (the "Corporation") does hereby certify that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is PICK Communications Corp.
SECOND: The Articles of Incorporation of the Corporation are hereby
amended by striking out paragraph (a) of Article FOURTH thereof and by
substituting in lieu of said paragraph (a) of Article FOURTH the following new
paragraph (a) of Article FOURTH:
(a) The Corporation is authorized to issue up to one hundred ten
million (110,000,000) shares, consisting of one hundred million (100,000,000)
shares of Common Stock, $.01 par value ("Common Stock"), and ten million
(10,000,000) shares of Preferred Stock, $.01 par value ("Preferred Stock").
Effective as of 9:00 a.m., East Coast Time, on July 26, 1999, all
outstanding shares of common stock, one-tenth of one cent ($.001) par value,
held by each holder of record on July 23, 1999 shall be automatically combined
at the rate of one-for-ten without any further action on the part of the holders
thereof or this Corporation. No fractional shares shall be issued. Each holder
of record will receive one additional share for any fractional shares.
The number of authorized shares and par value of the Corporation before
and after the reverse stock split are as follows:
<TABLE>
<CAPTION>
Before After
------ -----
Class Par Authorized Class Par Authorized
----- --- ---------- ----- --- ----------
<S> <C> <C> <C> <C> <C>
Common Stock $.001 par value 400,000,000 Common Stock $.01 par value 100,000,000
Preferred Stock $.001 par value 10,000,000 Preferred Stock $.01 par value 10,000,000
</TABLE>
<PAGE>
The Board of Directors of the Corporation adopted the Amendments herein
certified by a Special Meeting of the Board of Directors of the Corporation in
accordance with the provisions of Nevada Revised Statutes, Title 7, Section
78.207.
Signed on July 22, 1999
/s/ Diego Leiva
- ----------------------------------
President
/s/ Henry L. Ewen
- ----------------------------------
Secretary
<PAGE>
Exhibit 4.2
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
- -------------------------------------------------------------------------------
PICK COMMUNICATIONS CORP.
No. _________ $______________
10% Senior Secured Note
PICK Communications Corp., a Nevada corporation (the
"Company"), for value received, hereby promises to pay to the order of
___________________ (the "Payee") on the earlier of (i) completion by the
Company of an equity financing resulting in gross proceeds of $5,000,000 or more
or (ii) November 28, 1998 (the "Maturity Date") at the offices of the Company,
the principal sum of ________________ Dollars ($______________) or such lesser
principal amount as shall at such time be outstanding hereunder (the "Principal
Amount"). The Maturity Date set forth in (ii) above may be extended by up to 60
days (the "Extension Period") at the sole discretion of the Company (the
"Extension Option"). Each payment by the Company pursuant to this Note shall be
made without set-off or counterclaim and shall be made in lawful currency of the
United States of America and in immediately available funds. Interest on this
Note shall accrue on the Principal Amount outstanding from time to time at a
rate per annum computed in accordance with Section 2 hereof.
Accrued and unpaid interest shall be payable (i) upon maturity (whether
at the Maturity Date, by acceleration or otherwise); provided, however, that if
the Extension Option is exercised, accrued and unpaid interest shall be payable
within five days thereafter; (ii) upon any prepayment, on the amount prepaid and
(iii) after maturity until paid in full (after as well as before judgment), on
demand. Each of the dates referred to in clauses (i), (ii), and (iii) is
sometimes hereinafter referred to as an "Interest Payment Date." All
computations of interest hereunder shall be made based on the actual number of
days elapsed in a year of 360 days (including the first day but excluding the
last day during which any such Principal Amount is outstanding).
<PAGE>
The amount of all repayments of principal, interest rates
applicable thereto and interest accrued thereon shall be recorded on the records
of the Payee and, prior to any transfer of, or any action to collect, this Note
shall be endorsed on this Note. Any such recordation or endorsement shall
constitute prima facie evidence of the accuracy of the information so recorded
or endorsed, but the failure to record any such amount or rate shall not limit
or otherwise affect the obligations of the Company hereunder to make payments of
principal or interest when due. All payments by the Company hereunder shall be
applied first to pay any interest which is due, but unpaid, then to reduce the
Principal Amount.
The Company (i) waives presentment, demand, protest or notice
of any kind in connection with this Note and (ii) agrees to pay to the holder
hereof, on demand, all costs and expenses (including reasonable legal fees and
expenses) incurred in connection with the enforcement and collection or this
Note.
This Note is issued pursuant to a Subscription Agreement
between the Company and the Payee (the "Subscription Agreement"), a copy of
which agreement is available for inspection at the Company's principal office.
Notwithstanding any provision to the contrary contained herein, this Note is
subject and entitled to certain terms, conditions, covenants and agreements
contained in the Subscription Agreement. Any transferee of this Note, by its
acceptance hereof, assumes the obligations of the Payee in the Subscription
Agreement with respect to the conditions and procedures for transfer of this
Note. Reference to the Subscription Agreement shall in no way impair the
absolute and unconditional obligation of the Company to pay both principal
hereof and interest hereon as provided herein.
In consideration for the loan evidenced by this Note and other
identical notes in the aggregate principal amount of up to $6,000,000 (the
"Notes"), the Company shall issue to the holders of the Notes (the "Holders")
five-year warrants to purchase 100,000 shares of the Company's common stock,
$.001 par value (the "Common Stock") at an exercise price of $.50 per share for
each $100,000 Principal Amount of Notes held.
The obligations of the Company under the Notes are secured by
liens on the Company's assets as set forth in and pursuant to a Security
Agreement of even date herewith.
1. Prepayment. The Principal Amount of this Note may be prepaid, in
whole or in part, only in the event and to the extent the Company obtains
proceeds from a debt or equity financing.
2. Computation of Interest.
A. Base Interest Rate. Subject to subsection B below, the
outstanding Principal Amount shall bear interest at the rate of 10% per annum.
2
<PAGE>
B. Penalty Interest Rate. In the event the Extension Option is
exercised or the Note is otherwise not repaid on the Maturity Date, the rate of
interest applicable to the unpaid Principal Amount shall be retroactively
adjusted to 18% per annum; provided, that in no event shall the interest rate
exceed the Maximum Rate provided in Section 2C below.
C. Maximum Rate. In the event that it is determined that,
under the laws relating to usury applicable to the Company or the indebtedness
evidenced by this Note ("Applicable Usury Laws"), the interest charges and fees
payable by the Company in connection herewith or in connection with any other
document or instrument executed and delivered in connection herewith cause the
effective interest rate applicable to the indebtedness evidenced by this Note to
exceed the maximum rate allowed by law (the "Maximum Rate"), then such interest
shall be recalculated for the period in question and any excess over the Maximum
Rate paid with respect to such period shall be credited, without further
agreement or notice, to the Principal Amount outstanding hereunder to reduce
said balance by such amount with the same force and effect as though the Company
had specifically designated such extra sums to be so applied to principal and
the Payee had agreed to accept such extra payment(s) as a premium-free
prepayment. All such deemed prepayments shall be applied to the principal
balance payable at maturity. In no event shall any agreed-to or actual exaction
as consideration for this Note exceed the limits imposed or provided by
Applicable Usury Laws in the jurisdiction in which the Company is resident
applicable to the use or detention of money or to forbearance in seeking its
collection in the jurisdiction in which the Company is resident.
3. Covenants of Company
A. Affirmative Covenants. The Company covenants and agrees
that, so long as this Note shall be outstanding, it will perform the obligations
set forth in this Section 3A:
(i) Taxes and Levies. The Company will promptly pay and
discharge all taxes, assessments, and governmental charges or levies imposed
upon the Company or upon its income and profits, or upon any of its property,
before the same shall become delinquent, as well as all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings and the Company shall set aside on its books adequate reserves in
accordance with generally accepted accounting principles ("GAAP") with respect
to any such tax, assessment, charge, levy or claim so contested;
(ii) Maintenance of Existence. The Company will do or cause to
be done all things reasonably necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all laws
applicable to the Company, except where the failure to comply would not have a
material adverse effect on the Company;
3
<PAGE>
(iii) Maintenance of Property. The Company will at all times
maintain, preserve, protect and keep its property used or useful in the conduct
of its business in good repair, working order and condition, and from time to
time make all needful and proper repairs, renewals, replacements and
improvements thereto as shall be reasonably required in the conduct of its
business;
(iv) Insurance. The Company will, to the extent necessary for
the operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
(v) Books and Records. The Company will at all times keep true
and correct books, records and accounts reflecting all of its business affairs
and transactions in accordance with GAAP. Such books and records shall be open
at reasonable times and upon reasonable notice to the inspection of the Payee or
its agents; and
(vi) Notice of Certain Events. The Company will give prompt
written notice (with a description in reasonable detail) to the Payee of:
(a) the occurrence of any Event of Default or any event which,
with the giving of notice or the lapse of time, would constitute an
Event of Default; and
(b) the occurrence of any event of default or any event which,
with the giving of notice or the lapse of time, would constitute an
event of default under any document or instrument evidencing or
governing any material indebtedness (i.e. in excess of $100,000
principal amount) of the Company and the delivery of any notice
effecting the acceleration of any such indebtedness.
B. Negative Covenants. The Company covenants and agrees that,
so long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 3B:
(i) Liquidation, Dissolution. The Company will not liquidate
or dissolve, consolidate with, or merge into or with, any other corporation or
other entity, except that any wholly-owned subsidiary may merge with another
wholly-owned subsidiary or with the Company (so long as the Company is the
surviving corporation and no Event of Default shall occur as a result thereof);
(ii) Sales of Assets. The Company will not sell, transfer,
lease or otherwise dispose of, or grant options, warrants or other rights with
respect to, all or a substantial part of its properties or assets to any person
or entity, provided that this clause (ii) shall not restrict any disposition
made in the ordinary course of business and consisting of
4
<PAGE>
(a) capital goods which are obsolete or have no
remaining useful life; or
(b) finished goods inventories.
(iii) Redemptions. The Company will not redeem or repurchase
any outstanding equity securities of the Company, except for (a) repurchases of
unvested or restricted shares of Common Stock at cost from employees,
consultants or members of the Board of Directors pursuant to repurchase options
of the Company (1) currently outstanding or (2) hereafter entered into pursuant
to a stock option plan or restricted stock plan approved by the Company's Board
of Directors or (b) rescission offers contemplated in the Term Sheet or
necessary or appropriate to address violations of applicable securities laws;
(iv) Indebtedness. The Company will not create, incur, assume
or suffer to exist, contingently or otherwise, any indebtedness which is not
expressly subordinated in right of payment to the Notes, except as set forth in
(v) below;
(v) Negative Pledge. The Company will not create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any financing lease) (each, a "Lien") upon any of its property, revenues or
assets, whether now owned or hereafter acquired, except:
(a) Liens granted to secure indebtedness incurred to
finance the acquisition (whether by purchase or capitalized lease) of
tangible assets, but only on the assets acquired with the proceeds of
such indebtedness;
(b) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(c) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(d) Liens (other than Liens arising under the
Employee Retirement Income Security Act of 1974, as amended, or Section
412(n) of the Internal Revenue Code of 1986, as amended) incurred in
the ordinary course of business in connection with workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases
5
<PAGE>
and contracts (other than for borrowed money) entered into in the
ordinary course of business or to secure obligations on surety or
appeal bonds; and
(e) judgment Liens to the extent not covered by
insurance which do not exceed $100,000 and are in existence less than
30 days after the entry thereof or with respect to which execution has
been stayed;
(vi) Investments. The Company will not purchase, own, invest
in or otherwise acquire, directly or indirectly, any stock or other securities
or make or permit to exist any investment or capital contribution or acquire any
interest whatsoever in any other person or entity or permit to exist any loans
or advances for such purposes except for existing investments as described in
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1998,
and investments in direct obligations of the United States of America or any
agency thereof, obligations guaranteed by the United States of America and
certificates of deposit or other obligations of any bank or trust company
organized under the laws of the United States or any state thereof and having
capital and surplus of at least $500,000,000; provided, however, that nothing
contained in this clause (v) shall preclude the Company from making acquisitions
for the purpose of expanding its business.
(vii) Transactions with Affiliates. The Company will not enter
into any transaction, including, without limitation, the purchase, sale, lease
or exchange of property, real or personal, or the rendering of any service, with
any person or entity affiliated with the Company, except in the ordinary course
of and pursuant to the reasonable requirements of its business and upon fair and
reasonable terms not less favorable than would be obtained in a comparable
arms-length transaction with any other person or entity not affiliated with the
Company;
(viii) Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
4. Events of Default
A. The term "Event of Default" shall mean any of the events
set forth in this Section 4A:
(i) Non-Payment of Obligations. The Company shall default in
the payment of the principal or accrued interest of this Note as and when the
same shall become due and payable, whether by acceleration or otherwise.
(ii) Non-Performance of Affirmative Covenants. The Company
shall default in the due observance or performance of any covenant set forth in
Section 3A, which default shall continue uncured for five (5) business days.
6
<PAGE>
(iii) Non-Performance of Negative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 3B.
(iv) Bankruptcy, Insolvency, etc. The Company shall:
(a) become insolvent or generally fail or be unable to pay, or
admit in writing its inability to pay, its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Company or
any of its property, or make a general assignment for the benefit of
creditors;
(c) in the absence of such application, consent or acquiesce
in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for any part of its
property;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Company, and,
if such case or proceeding is not commenced by the Company or converted
to a voluntary case, such case or proceeding shall be consented to or
acquiesced in by the Company or shall result in the entry of an order
for relief; or
(e) take any corporate or other action authorizing, or in
furtherance of, any of the foregoing.
(v) Cross-Default. The Company shall default in the payment
when due of any amount payable under any other obligation of the Company for
money borrowed in excess of $100,000, exclusive of indebtedness which was past
due at July 10, 1998.
(vi) Cross-Acceleration. Any senior debt or any other
indebtedness of the Company in an aggregate principal amount exceeding $100,000
(i) shall be duly declared to be or shall become due and payable prior to the
stated maturity thereof or (ii) shall not be paid as and when the same becomes
due and payable including any applicable grace period.
(vii) Warrants. The Company shall violate any material
representation, warranty or obligation under the warrants described elsewhere
herein.
B. Action if Bankruptcy. If any Event of Default described in
clauses (iv)(a) through (d) of Section 4A shall occur, the outstanding principal
amount of this Note and all other obligations hereunder shall automatically be
and become immediately due and payable, without notice or demand.
7
<PAGE>
C. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (iv)(a) through (d) of
Section 4A) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the holder of the Note may, upon notice to the Company, declare all
or any portion of the outstanding principal amount of the Notes together with
interest accrued thereon to be due and payable and any or all other obligations
hereunder to be due and payable, whereupon the full unpaid principal amount
hereof, such accrued interest and any and all other such obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand, or presentment.
5. Conversion of the Note.
A. Optional Conversion. If the Event of Default described in
clause 4A(i) shall occur, the Payee shall have the right to convert all, but not
less than all, of the outstanding Principal Amount of this Note, together with
accrued interest, into shares of the Company's Common Stock on either of two
occasions. The first option exercise period will be the 10-day period following
the date on which the Company defaults in payment of the Notes (the "Default
Date"), during which time the Payee shll have the right to convert at a per
share conversion price equal to the lower of 50% of the closing bid price on the
the Default Date or $.25. The second option exercise period will be the 10-day
period following the effective date of a registration statement covering the
resale of the shares of Common Stock issuable upon conversion of the Notes (the
"Effective Date"), during which time the conversion price per share will be the
lower of 50% of the closing bid price on the the Effective Date or $.25. The
shares of Common Stock issuable upon conversion of this Note at either such
conversion price (the "Conversion Price") are referred to herein as the
"Conversion Shares."
B. Adjustment of Conversion Price. In case the Company shall
(i) declare a dividend or make a distribution on its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding shares of Common Stock into a smaller
number of shares, the applicable Conversion Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the number of shares determined by multiplying the Conversion Price by a
fraction, the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. Such adjustment shall be made successively whenever any event listed
above shall occur.
C. Mechanics of Conversion. Before the Payee shall be entitled
to convert this Note into Conversion Shares, the Payee shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company, and shall give written notice to the Company at its
8
<PAGE>
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for the
Conversion Shares are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver to the Payee, or to the nominee or nominees of
Payee, a certificate or certificates for the number of Conversion Shares to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Note to be converted, and the person or persons
entitled to receive the Conversion Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
D. Cash Payments. No fractional shares (or scrip representing
fractional shares) of Common Stock shall be issued upon conversion of this Note.
In the event that the conversion of the Principal Amount of this Note would
result in the issuance of a fractional share of Common Stock, the Company shall
pay a cash adjustment in lieu of such fractional share to the holder of this
Note based upon the Conversion Price.
7. Amendments and Waivers.
A. The provisions of this Note may from time to time be
amended, modified or waived, if such amendment, modification or waiver is in
writing and consented to by the Company and the holders of not less than 50% in
principal amount of the Notes (the "Required Holders"); provided, however, that
no such amendment, modification or waiver:
(i) which would modify this Section 7A, change the definition
of "Required Holders", extend the Maturity Date for more than 90 days
beyond the Extension Period, or subject the Payee under each Note to
any additional obligations shall be made without the consent of the
Payee of each Note, or
(iii) which would reduce the amount of any payment of
principal of or interest on any Principal Amount payable hereunder (or
reduce the Principal Amount of or rate of interest payable hereunder)
shall be made without the consent of the holder of each Note so
affected.
B. No failure or delay on the part of the Payee in exercising
any power or right under this Note shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Company in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by the Payee shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
9
<PAGE>
C. To the extent that the Company makes a payment or payments
to the Payee, and such payment or payments or any part thereof are subsequently
for any reason invalidated, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all rights
and remedies therefor, shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
D. After any waiver, amendment or supplement under this
section becomes effective, the Company shall mail to the holders of the Notes a
copy thereof.
8. Miscellaneous
A. Registered Holder. The Company may consider and treat the
person in whose name this Note shall be registered as the absolute owner thereof
for all purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. In case of transfer
of this Note by operation of law, the transferee agrees to notify the Company of
such transfer and of its address, and to submit appropriate evidence regarding
such transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder hereof,
in person or by attorney, on the surrender hereof, duly endorsed. Communications
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the communication.
B. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York. Sections 5-1401 and 5-1402
of the General Obligations Law of the State of New York shall apply to this Note
and the Company hereby waives any right to stay or dismiss on the basis of forum
non conveniens any action or proceeding brought before the courts of the State
of New York sitting in New York County or of United States of America for the
Southern District of New York and hereby submits to the jurisdiction of such
courts.
C. Notices. All notices required or permitted under this Note
shall be given in accordance with the Subscription Agreement.
D. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR
10
<PAGE>
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING
THIS NOTE.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer.
PICK COMMUNICATIONS CORP.
By
------------------------------
Name: Raymond M. Brennan
Title: Vice President
11
<PAGE>
Exhibit 4.3
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES
ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH
TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL
BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
----------------------------------------------------------------------
PICK COMMUNICATIONS CORP.
No. _________ $______________
8% Senior Secured Note
PICK Communications Corp., a Nevada corporation (the
"Company"), for value received, hereby promises to pay to the order of
___________________ (the "Payee") on the earlier of (i) completion by the
Company of an equity financing resulting in gross proceeds of $10,000,000 or
more (ii) May __, 2000 [one year from the date of this note]; the consummation
of an underwritten public offering by the Company; or (iv) a merger or
combination of the Company or the sale of substantially all the assets of the
Company or the purchase by a single entity or persons or group of affiliated
persons of more than 50% of the voting stock of the Company (the "Maturity
Date") at the offices of the Company, the principal sum of ___________ Dollars
($_____________) or such lesser principal amount as shall at such time be
outstanding hereunder (the "Principal Amount"), plus all accrued and unpaid
interest. The Maturity Date set forth in (i) above shall be subject to the
automatic conversion provisions in Sections 5A (the "Automatic Conversion").
Each payment by the Company pursuant to this Note shall be made without set-off
or counterclaim and shall be made in lawful currency of the United States of
America and in immediately available funds. Interest on this Note shall accrue
on the Principal Amount outstanding from time to time at a rate per annum
computed in accordance with Section 2 hereof.
In consideration for the loan evidenced by this Note and other
identical notes in the aggregate principal amount of up to $5,000,000 (the
"Notes"), the Company shall issue to the holders of the Notes (the "Holders")
five-year warrants to purchase 375,000 shares of the Company's common stock,
$.001 par value (the "Common Stock") at an exercise price of $.50 per share for
each $250,000 Principal Amount of Notes held.
Accrued and unpaid interest shall be payable (i) upon maturity (whether
at the Maturity Date, by acceleration or otherwise); (ii) upon any prepayment,
on the amount prepaid and (iii)
<PAGE>
after maturity until paid in full (after as well as before judgment), on demand.
Each of the dates referred to in clauses (i), (ii), and (iii) is sometimes
hereinafter referred to as an "Interest Payment Date." All computations of
interest hereunder shall be made based on the actual number of days elapsed in a
year of 360 days (including the first day but excluding the last day during
which any such Principal Amount is outstanding).
The amount of all repayments of principal, interest rates
applicable thereto and interest accrued thereon shall be recorded on the records
of the Payee and, prior to any transfer of, or any action to collect, this Note
shall be endorsed on this Note. Any such recordation or endorsement shall
constitute prima facie evidence of the accuracy of the information so recorded
or endorsed, but the failure to record any such amount or rate shall not limit
or otherwise affect the obligations of the Company hereunder to make payments of
principal or interest when due. All payments by the Company hereunder shall be
applied first to pay any interest which is due, but unpaid, then to reduce the
Principal Amount.
The Company (i) waives presentment, demand, protest or notice
of any kind in connection with this Note and (ii) agrees to pay to the holder
hereof, on demand, all costs and expenses (including reasonable legal fees and
expenses) incurred in connection with the enforcement and collection of this
Note.
This Note is issued pursuant to a Subscription Agreement
between the Company and the Payee (the "Subscription Agreement"), a copy of
which agreement is available for inspection at the Company's principal office.
Notwithstanding any provision to the contrary contained herein, this Note is
subject and entitled to certain terms, conditions, covenants and agreements
contained in the Subscription Agreement. Any transferee of this Note, by its
acceptance hereof, assumes the obligations of the Payee in the Subscription
Agreement with respect to the conditions and procedures for transfer of this
Note. Reference to the Subscription Agreement shall in no way impair the
absolute and unconditional obligation of the Company to pay both principal
hereof and interest hereon as provided herein.
The obligations of the Company under the Notes will be senior
to all other indebtedness, except the 10% Senior Secured Notes and the Amended
Notes dated April 30, 1999 in the original principal amount of $9.9 million
initially issued pursuant to the July 1998 Term Sheet and as set forth in and
pursuant to an Amended Security Agreement, and are secured by liens on the
Company's assets as set forth in and pursuant to a Security Agreement of even
date herewith.
1. Prepayment. The Principal Amount of this Note may not be prepaid, in
whole or in part, except pursuant to the hereinabove terms of the Maturity Date.
2
<PAGE>
2. Computation of Interest.
Base Interest Rate. Subject to subsection B below,
the outstanding Principal Amount shall bear interest at the rate of 8% per
annum, payable quarterly.
3. Covenants of Company
A. Affirmative Covenants. The Company covenants and agrees
that, so long as this Note shall be outstanding, it will perform the obligations
set forth in this Section 3A:
(i) Taxes and Levies. The Company will promptly pay and
discharge all taxes, assessments, and governmental charges or levies imposed
upon the Company or upon its income and profits, or upon any of its property,
before the same shall become delinquent, as well as all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings and the Company shall set aside on its books adequate reserves in
accordance with generally accepted accounting principles ("GAAP") with respect
to any such tax, assessment, charge, levy or claim so contested;
(ii) Maintenance of Existence. The Company will do or cause to
be done all things reasonably necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all laws
applicable to the Company, except where the failure to comply would not have a
material adverse effect on the Company;
(iii) Maintenance of Property. The Company will at all times
maintain, preserve, protect and keep its property used or useful in the conduct
of its business in good repair, working order and condition, and from time to
time make all needful and proper repairs, renewals, replacements and
improvements thereto as shall be reasonably required in the conduct of its
business;
(iv) Insurance. The Company will, to the extent necessary for
the operation of its business, keep adequately insured by financially sound
reputable insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
(v) Books and Records. The Company will at all times keep true
and correct books, records and accounts reflecting all of its business affairs
and transactions in accordance with GAAP. Such books and records shall be open
at reasonable times and upon reasonable notice to the inspection of the Payee or
its agents; and
3
<PAGE>
(vi) Notice of Certain Events. The Company will give prompt
written notice (with a description in reasonable detail) to the Payee of:
(a) the occurrence of any Event of Default or any event which,
with the giving of notice or the lapse of time, would constitute an
Event of Default; and
(b) the occurrence of any event of default or any event which,
with the giving of notice or the lapse of time, would constitute an
event of default under any document or instrument evidencing or
governing any material indebtedness (i.e. in excess of $100,000
principal amount) of the Company and the delivery of any notice
effecting the acceleration of any such indebtedness.
B. Negative Covenants. The Company covenants and agrees that,
so long as this Note shall be outstanding, it will perform the obligations set
forth in this Section 3B:
(i) Redemptions. The Company will not redeem or repurchase any
outstanding equity securities of the Company, except for (a) repurchases of
unvested or restricted shares of Common Stock at cost from employees,
consultants or members of the Board of Directors pursuant to repurchase options
of the Company (1) currently outstanding or (2) hereafter entered into pursuant
to a stock option plan or restricted stock plan approved by the Company's Board
of Directors or (b) rescission offers contemplated in the Private Placement
Memorandum or necessary or appropriate to address violations of applicable
securities laws;
(ii) Indebtedness. The Company will not create, incur, assume
or suffer to exist, contingently or otherwise, any indebtedness which is not
expressly subordinated in right of payment to the Notes, except as set forth in
(iii) below;
(iii) Negative Pledge. The Company will not create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any financing lease) (each, a "Lien") upon any of its property, revenues or
assets, whether now owned or hereafter acquired, except:
(a) Liens granted to secure indebtedness incurred to
finance the acquisition (whether by purchase or capitalized lease) of
tangible assets, but only on the assets acquired with the proceeds of
such indebtedness;
(b) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter
payable without penalty or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
4
<PAGE>
(c) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(d) Liens (other than Liens arising under the
Employee Retirement Income Security Act of 1974, as amended, or Section
412(n) of the Internal Revenue Code of 1986, as amended) incurred in
the ordinary course of business in connection with workers'
compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure performance of tenders, statutory
obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds; and
(e) judgment Liens to the extent not covered by
insurance which do not exceed $100,000 and are in existence less than
30 days after the entry thereof or with respect to which execution has
been stayed;
(vi) Investments. The Company will not purchase, own, invest
in or otherwise acquire, directly or indirectly, any stock or other securities
or make or permit to exist any investment or capital contribution or acquire any
interest whatsoever in any other person or entity or permit to exist any loans
or advances for such purposes except for existing investments as described in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
and investments in direct obligations of the United States of America or any
agency thereof, obligations guaranteed by the United States of America and
certificates of deposit or other obligations of any bank or trust company
organized under the laws of the United States or any state thereof and having
capital and surplus of at least $500,000,000; provided, however, that nothing
contained in this clause (vi) shall preclude the Company from making
acquisitions for the purpose of expanding its business.
(vii) Transactions with Affiliates. The Company will not enter
into any transaction, including, without limitation, the purchase, sale, lease
or exchange of property, real or personal, or the rendering of any service, with
any person or entity affiliated with the Company, except in the ordinary course
of and pursuant to the reasonable requirements of its business and upon fair and
reasonable terms not less favorable than would be obtained in a comparable
arms-length transaction with any other person or entity not affiliated with the
Company;
(viii) Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
4. Events of Default
5
<PAGE>
A. The term "Event of Default" shall mean any of the events
set forth in this Section 4A:
(i) Non-Payment of Obligations. The Company shall default in
the payment of the principal or accrued interest of this Note as and when the
same shall become due and payable, whether by acceleration or otherwise.
(ii) Non-Performance of Affirmative Covenants. The Company
shall default in the due observance or performance of any covenant set forth in
Section 3A, which default shall continue uncured for five (5) business days.
(iii) Non-Performance of Negative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 3B.
(iv) Bankruptcy, Insolvency, etc. The Company shall:
(a) become insolvent or generally fail or be unable to pay, or
admit in writing its inability to pay, its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Company or
any of its property, or make a general assignment for the benefit of
creditors;
(c) in the absence of such application, consent or acquiesce
in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for any part of its
property;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Company, and,
if such case or proceeding is not commenced by the Company or converted
to a voluntary case, such case or proceeding shall be consented to or
acquiesced in by the Company or shall result in the entry of an order
for relief; or
(e) take any corporate or other action authorizing, or in
furtherance of, any of the foregoing.
(v) Cross-Default. The Company shall default in the payment
when due of any amount payable under any other obligation of the Company for
money borrowed in excess of $100,000, exclusive of indebtedness which was past
due at May __, 1999.
(vi) Cross-Acceleration. Any senior debt or any other
indebtedness of the Company in an aggregate principal amount exceeding $100,000
(i) shall be duly declared to be
6
<PAGE>
or shall become due and payable prior to the stated maturity thereof or (ii)
shall not be paid as and when the same becomes due and payable including any
applicable grace period.
(vii) Warrants. The Company shall violate any material
representation, warranty or obligation under the Warrants described elsewhere
herein.
B. Action if Bankruptcy. If any Event of Default described in
clauses (iv)(a) through (d) of Section 4A shall occur, the outstanding principal
amount of this Note and all other obligations hereunder shall automatically be
and become immediately due and payable, without notice or demand.
C. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (iv)(a) through (d) of
Section 4A) shall occur for any reason, whether voluntary or involuntary, and be
continuing, the holder of the Note may, upon notice to the Company, declare all
or any portion of the outstanding principal amount of the Notes together with
interest accrued thereon to be due and payable and any or all other obligations
hereunder to be due and payable, whereupon the full unpaid principal amount
hereof, such accrued interest and any and all other such obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand, or presentment.
5. Conversion of the Note.
A. Automatic Conversion. Upon the completion by the Company of
a private financing resulting in gross proceeds of $5,000,000 or more, all of
the outstanding Principal Amount of this Note, together with accrued interest,
shall automatically be converted into the same type of securities issued in
connection with such financing the same price paid by the investors in such
offering.
B. Mechanics of Conversion. Before the Payee receives the
securities referred to in Section 5A, the Payee shall surrender the certificate
or certificates therefor, duly endorsed at the office of the Company, and shall
give written notice to the Company at its principal corporate office, of the
conversion and shall state therein the name or names in which the certificate or
certificates for the securities referred to in Section 5A or the Conversion
Shares are to be issued. The Company shall, as soon as practicable thereafter,
issue and deliver to the Payee, or to the nominee or nominees of Payee, a
certificate or certificates for the number of securities referred to in Section
5A or the Conversion Shares to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the Note to be converted, and the
person or persons entitled to receive the securities referred to in Section 5A
or the Conversion Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.
7
<PAGE>
C. Cash Payments. No fractional shares (or scrip representing
fractional shares) of Common Stock shall be issued upon conversion of this Note
pursuant to Section 5A. In the event that the conversion of the Principal Amount
of this Note would result in the issuance of a fractional share of capital
stock, the Company shall pay a cash adjustment in lieu of such fractional share
to the holder of this Note based upon the Conversion Price.
7. Amendments and Waivers.
A. The provisions of this Note may from time to time be
amended, modified or waived, if such amendment, modification or waiver is in
writing and consented to by the Company and the holders of not less than 50% in
principal amount of the Notes (the "Required Holders"); provided, however, that
no such amendment, modification or waiver:
(i) which would modify this Section 7A, change the definition
of "Required Holders", extend the Maturity Date for more than 90 days
beyond the Maturity Date, or subject the Payee under each Note to any
additional obligations shall be made without the consent of the Payee
of each Note, or
(iii) which would reduce the amount of any payment of
principal of or interest on any Principal Amount payable hereunder (or
reduce the Principal Amount of or rate of interest payable hereunder)
shall be made without the consent of the holder of each Note so
affected.
B. No failure or delay on the part of the Payee in exercising
any power or right under this Note shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Company in any case shall entitle it to any notice or demand
in similar or other circumstances. No waiver or approval by the Payee shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
C. To the extent that the Company makes a payment or payments
to the Payee, and such payment or payments or any part thereof are subsequently
for any reason invalidated, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all rights
and remedies therefor, shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
D. After any waiver, amendment or supplement under this
section becomes effective, the Company shall mail to the holders of the Notes a
copy thereof.
8
<PAGE>
8. Miscellaneous
A. Registered Holder. The Company may consider and treat the
person in whose name this Note shall be registered as the absolute owner thereof
for all purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. In case of transfer
of this Note by operation of law, the transferee agrees to notify the Company of
such transfer and of its address, and to submit appropriate evidence regarding
such transfer so that this Note may be registered in the name of the transferee.
This Note is transferable only on the books of the Company by the holder hereof,
in person or by attorney, on the surrender hereof, duly endorsed. Communications
sent to any registered owner shall be effective as against all holders or
transferees of the Note not registered at the time of sending the communication.
B. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York. Sections 5-1401 and 5-1402
of the General Obligations Law of the State of New York shall apply to this Note
and the Company hereby waives any right to stay or dismiss on the basis of forum
non conveniens any action or proceeding brought before the courts of the State
of New York sitting in New York County or of United States of America for the
Southern District of New York and hereby submits to the jurisdiction of such
courts.
C. Notices. All notices required or permitted under this Note
shall be given in accordance with the Subscription Agreement.
D. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING
THIS NOTE.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer.
PICK COMMUNICATIONS CORP.
By
------------------------------
Name: Thomas M. Malone
Title: Chief Executive Officer.
10
<PAGE>
Exhibit 4.4
WARRANT TO PURCHASE COMMON STOCK
OF
PICK COMMUNICATIONS CORP.
This is to Certify That, FOR VALUE RECEIVED, ____________, or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from PICK Communications Corp., a Delaware corporation ("Company"), ___________
(________) fully paid, validly issued and nonassessable shares of common stock,
$.001 par value, of the Company ("Common Stock") at a price of $1.25 per share
at any time or from time to time during the period from __________, 1998 until
__________, 2003, subject to adjustment as set forth herein. The number of
shares of Common Stock to be received upon the exercise of this Warrant and the
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price". This Warrant, together with warrants of
like tenor, constituting in the aggregate warrants (the "Warrants") to purchase
_________ shares of Common Stock, was originally issued in connection with a
private offering of the Company's securities (the "Private Placement") through
Commonwealth Associates ("Commonwealth") in consideration for loans evidenced by
8% senior subordinated secured promissory notes issued in the Private Placement
(the "Notes").
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any
time or from time to time on or after __________, 1999 and until __________,
2004 (the "Exercise Period"), subject to the provisions of Section (j)(2)
hereof; provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to __________, 2004, the Holder shall have the right to exercise this
Warrant commencing at such time through __________, 2004 into the kind and
amount of shares of stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Warrant might have been exercisable immediately prior thereto. This Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of the warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the
<PAGE>
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this Section
(a)(2), by surrendering this Warrant at the principal office of the Company or
at the office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange or market on the
last business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange or market; or
2
<PAGE>
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, but is traded on the Nasdaq SmallCap Market, the
current market value shall be the average of the closing bid and asked prices
for such day on such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the date
of the exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
3
<PAGE>
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common
Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the Exercise Price on
such record date (if on the record date the Company's Common
Stock is not publicly traded on either a nationally recognized
securities exchange, the Nasdaq Stock Market, Inc., the
over-the-counter market or otherwise listed in the "pink
sheets" (hereinafter referred to as the Company being
"Public")) or less than the current market price of the Common
Stock (as defined in Subsection (vii) below) on the record
date mentioned below (if on the record date the Company is
Public), the Exercise Price shall be adjusted so that the same
shall equal the price determined by multiplying the Exercise
Price in effect immediately prior to the date of such issuance
by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the record
date mentioned below and the number of additional shares of
Common Stock which the aggregate offering price of the total
number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered)
would purchase at either the Exercise Price in effect
immediately prior to the date of such issuance or such current
market price per share of the Common Stock (as applicable),
and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall
be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record
date for the determination of shareholders entitled to receive
such rights or warrants; and to the extent that shares of
Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to
the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common
Stock) actually delivered.
4
<PAGE>
(3) In case the Company shall hereafter distribute to
the holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions and
dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case
the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as
defined in Subsection (8) below), less the fair market value
(as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of shareholders
entitled to receive such distribution.
(4) In case the Company shall issue shares of its
Common Stock (excluding shares issued (a) in any of the
transactions described in Subsection (1) above, (b) upon
exercise of options granted to the Company's employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise
be included in this Subsection (4), (but only to the extent
that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's
Common Stock outstanding at the time of any issuance), (c)
upon exercise of options and warrants outstanding at
____________, 1998, or conversion of the Notes or the
Warrants, (d) to shareholders of any corporation which merges
into the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such
merger, or (e) issued in a bona fide public offering pursuant
to a firm commitment underwriting, but only if no adjustment
is required pursuant to any other specific subsection of this
Section (f) (without regard to Subsection (9) below) with
respect to the transaction giving rise to such rights) for a
consideration per share (the "Offering Price") less than the
Exercise Price (if the Company is not Public) or less than the
current market price per share (as defined in Subsection (8)
below) on the date the Company fixes the offering price of
such additional shares (if the Company is Public), the
Exercise Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration
received (determined as provided in Subsection (7) below) for
the issuance of such additional shares would purchase at the
Exercise Price in effect immediately prior to the date of
issuance or such current market price per share of Common
Stock (as applicable), and the denominator of which shall be
the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment
shall be made successively whenever such an issuance is made.
5
<PAGE>
(5) In case the Company shall issue any securities
convertible into or exchangeable for its Common Stock
(excluding securities issued in transactions described in
Subsections (2) and (3) above) for a consideration per share
of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities (determined as
provided in Subsection (vii) below) less than the Exercise
Price (if the Company is not Public) or less than the current
market price per share (as defined in Subsection (8) below) in
effect immediately prior to the issuance of such securities
(if the Company is Public), the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
Subsection (7) below) for such securities would purchase at
the Exercise Price in effect immediately prior to the date of
issuance or such current market price per share of Common
Stock (as applicable), and the denominator of which shall be
the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance and the maximum number of
shares of Common Stock of the Company deliverable upon
conversion of or in exchange for such securities at the
initial conversion or exchange price or rate. Such adjustment
shall be made successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsections (1), (2),
(3), (4) and (5) above, the number of Shares purchasable upon
exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on
the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(7) For purposes of any computation respecting
consideration received pursuant to Subsections (4) and (5)
above, the following shall apply:
(A) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith;
6
<PAGE>
(B) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors
of the Company (irrespective of the accounting
treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of
securities convertible into or exchangeable for
shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Company for the
issuance of such securities plus the additional
minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of
this Subsection (7)).
(8) For the purpose of any computation under
Subsections (2), (3), (4) and (5) above, the current market
price per share of Common Stock at any date shall be
determined in the manner set forth in Section (c) hereof
except that the current market price per share shall be deemed
to be the higher of (i) the average of the prices for 30
consecutive business days before such date or (ii) the price
on the business day immediately preceding such date.
(9) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (9) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
7
<PAGE>
(10) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. In the event the Company
does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the
lowest Offering Price, Subscription Price or Conversion Price,
as applicable, since the date of this Warrant, and the number
of shares issuable upon exercise of this Warrant shall be
adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section
(f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (9), inclusive above.
(12) In the event that for any reason the Company
shall fail to repay the Notes in full on or prior to the
Maturity Date (as defined in the Notes), the Exercise Price
shall be reduced by 10% for each 14-day period following the
Maturity Date that such default continues (i.e. to $1.13 for
the first 14 days following the default, to $1.01 for the next
14 days, etc.); provided that in no event shall the Exercise
Price be reduced to less than $.75 as a result of this
Subsection (12).
(13) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
8
<PAGE>
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior to the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
9
<PAGE>
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holder will have
registration rights with respect to the Warrant Shares as more particularly set
forth in the subscription agreement executed in connection with the Private
Placement.
PICK COMMUNICATIONS CORP.
By:
----------------------------------
Raymond M. Brennan, Vice President
Dated: ______, 1998
Attest:
- ------------------------------------------
Robert S. Bingham, Chief Financial Officer
10
<PAGE>
PURCHASE FORM
Dated
-----------------
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _______shares of Common Stock and
hereby makes payment of _______in payment of the actual exercise price thereof.
----------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-----------------------------------------
(Please typewrite or print in block letters)
Address
---------------------------------------
Signature
-------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,___________________________________ hereby
sells, assigns and transfers unto
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
_______shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date
---------------------------
Signature
----------------------
<PAGE>
Exhibit 4.5
WARRANT TO PURCHASE COMMON STOCK
OF
PICK COMMUNICATIONS CORP.
This is to Certify That, FOR VALUE RECEIVED, ____________, or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from PICK Communications Corp., a Nevada corporation ("Company"), ___________
(________) fully paid, validly issued and nonassessable shares of common stock,
$.001 par value, of the Company ("Common Stock") at a price of $.50 per share at
any time or from time to time during the period from May __, 1999 until May __,
2004, subject to adjustment as set forth herein. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price". This Warrant, together with warrants of like tenor,
constituting in the aggregate warrants (the "Warrants") to purchase [7,500,000]
shares of Common Stock, was originally issued in connection with a private
offering of the Company's securities (the "1999 Bridge Loan") through
Commonwealth Associates ("Commonwealth") in consideration for loans evidenced by
8% senior subordinated secured promissory notes issued in the Private Placement
(the "Notes"). The Warrants were issued on the basis of 375,000 warrants for
each $250,000 principal amount of Notes.
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any
time or from time to time on or after May __, 1999 and until May ___, 2004 (the
"Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to May ___, 2004, the Holder shall have the right to exercise this Warrant
commencing at such time through May ___, 2004 into the kind and amount of shares
of stock and other securities and property (including cash) receivable by a
holder of the number of shares of Common Stock into which this Warrant might
have been exercisable immediately prior thereto. This Warrant may be exercised
by presentation and surrender hereof to the Company at its principal office, or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Warrant Shares specified in such form. As soon as practicable
after each such exercise of the warrants, but not later than seven (7) days from
the date of such exercise, the Company shall issue and deliver to the Holder a
<PAGE>
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this Section
(a)(2), by surrendering this Warrant at the principal office of the Company or
at the office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current market value shall be the
last reported sale price of the Common Stock on such exchange or market on the
last business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange or market; or
2
<PAGE>
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, but is traded on the Nasdaq SmallCap Market, the
current market value shall be the average of the closing bid and asked prices
for such day on such market and if the Common Stock is not so traded, the
current market value shall be the mean of the last reported bid and asked
prices reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the date
of the exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other warrants which carry the same rights upon presentation hereof at the
principal office of the Company or at the office of its stock transfer agent, if
any, together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of Section l
hereof, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Warrants shall be subject to
adjustment from time to time upon the happening of certain events as follows:
3
<PAGE>
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(2) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common
Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price
of the Common Stock (as defined in Subsection (8) below) on
the record date mentioned below, or less than the Exercise
Price on such record date, the Exercise Price shall be
adjusted so that the same shall equal the lower of (i) price
determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered)
would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in
the event the Subscription Price is equal to or higher than
the current market price but is less than the Exercise Price,
the price determined by multiplying the Exercise Price in
effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the
number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase
at the Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive such rights
or warrants; and to the extent that shares of Common Stock are
not delivered (or securities convertible into Common Stock are
not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock
(or securities convertible into Common Stock) actually
delivered.
4
<PAGE>
(3) In case the Company shall hereafter distribute to
the holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions and
dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case
the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as
defined in Subsection (8) below), less the fair market value
(as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of shareholders
entitled to receive such distribution.
(4) In case the Company shall issue shares of its
Common Stock (excluding shares issued (a) in any of the
transactions described in Subsection (1) above, (b) upon
exercise of options granted to the Company's employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise
be included in this Subsection (4), (but only to the extent
that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's
Common Stock outstanding at the time of any issuance), (c)
upon exercise of options and warrants outstanding at May __,
1999, and this Warrant, (d) to shareholders of any corporation
which merges into the Company in proportion to their stock
holdings of such corporation immediately prior to such merger,
upon such merger, or (e) issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to any other specific
subsection of this Section (f) (without regard to Subsection
(9) below) with respect to the transaction giving rise to such
rights) for a consideration per share (the "Offering Price")
less than the current market price per share (as defined in
Subsection (8) below) on the date the Company fixes the
offering price of such additional shares or less than the
Exercise Price shall be adjusted immediately thereafter so
that it shall equal the lower of (i) the price determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares
and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Section 7
below) for the issuance of such additional shares would
purchase at such current market price per share of Common
Stock, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the
issuance of such additional shares or (ii) in the event the
Offering Price is equal to or higher than the current market
price per share but less
5
<PAGE>
than the Exercise Price, the price determined by multiplying
the Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration
received (determined as provided in Subsection (7) below) for
the issuance of such additional shares would purchase at the
Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be
made successively whenever such an issuance is made.
(5) In case the Company shall issue any securities
convertible into or exchangeable for its Common Stock
(excluding securities issued in transactions described in
Subsections (2) and (3) above) for a consideration per share
of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities (determined as
provided in Subsection (7) below) less than the current market
price per share (as defined in Subsection (8) below) in effect
immediately prior to the issuance of such securities, or less
than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i)
the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
Subsection (7) below) for such securities would purchase at
such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance
and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate
or (ii) in the event the Conversion Price is equal to or
higher than the current market price per share but less than
the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding immediately prior to
the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received
(determined as provided in subsection (7) below) for such
securities would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common
Stock of the Company deliverable upon conversion of or in
exchange for such securities at the initial conversion, or
exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
6
<PAGE>
(6) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsections (1), (2),
(3), (4) and (5) above, the number of Shares purchasable upon
exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on
the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(7) For purposes of any computation respecting
consideration received pursuant to Subsections (4) and (5)
above, the following shall apply:
(A) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith;
(B) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors
of the Company (irrespective of the accounting
treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of
securities convertible into or exchangeable for
shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Company for the
issuance of such securities plus the additional
minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of
this Subsection (7)).
7
<PAGE>
(8) For the purpose of any computation under
Subsections (2), (3), (4) and (5) above, the current market
price per share of Common Stock at any date shall be
determined in the manner set forth in Section (c) hereof
except that the current market price per share shall be deemed
to be the higher of (i) the average of the prices for 30
consecutive business days before such date or (ii) the price
on the business day immediately preceding such date.
(9) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (9) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) The Company may retain a firm of independent
certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section (f),
and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (9), inclusive above.
(12) In the event that the Company defaults in the
payment of the Notes and fails to file a registration
statement to register the Warrant Shares within 30 days after
the date hereof, the Exercise Price shall be reduced by 10%
per month until such registration statement is filed.
8
<PAGE>
(13) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
9
<PAGE>
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company hereby agrees that no later than 30 days after
the date hereof, it will file a registration statement covering the
resale of the Warrant Shares on Form S-1 or such other form as the
Company desires, pursuant to the Securities Act of 1933 (the "Act"),
and the Company will use its best efforts to cause such registration to
become effective as promptly as practicable thereafter.
(2) The Company will, until such time as the Warrant Shares
may be sold under Rule 144 without volume limitation:
(a) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective;
(b) furnish to the Holders participating in such registration
and to the underwriters of the securities being registered
such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such
other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(c) use its best efforts to register or qualify the securities
covered by such registration statement under such state
securities or blue sky laws of such Jurisdictions as the
Holders may reasonably request in writing within twenty (20)
days following the original filing of such registration
statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
Jurisdiction wherein it is not so qualified;
(d) notify the Holders, promptly after it shall receive notice
thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a
part of such registration statement has been filed;
(e) notify the Holders promptly of any request by the SEC for
the amending or supplementing of such registration statement
or prospectus or for additional information;
(f) prepare and file with the SEC, promptly upon the request
of any Holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of
counsel for such Holders (and concurred in by counsel for the
Company), is required under the Act or the rules and
regulations thereunder in connection with the distribution of
Common Stock by such Holders;
10
<PAGE>
(g) prepare and promptly file with the SEC and promptly notify
such Holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which
they were made, not misleading; and
(h) advise the Holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued.
(3) All fees, costs and expenses of and incidental to such
registration, inclusion and public offering in connection therewith
shall be borne by the Company, provided, however, that the Holders
shall bear their pro rata share of the underwriting discount and
commissions and transfer taxes. The fees, costs and expenses of
registration to be borne by the Company as provided above shall
include, without limitation, all registration, filing, and NASD fees,
printing expenses, fees and disbursements of counsel and accountants
for the Company, and all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be
registered and qualified (except as provided above). Fees and
disbursements of counsel and accountants for the Holders and any other
expenses incurred by the Holders not expressly included above shall be
borne by the Holders.
(4) The Company will indemnify and hold harmless each Holder
of Warrant Shares which are included in a registration statement
pursuant to the provisions of Section (j)(1) hereof, its directors and
officers, and any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or such underwriter
within the meaning of the Act, from and against, and will reimburse
such Holder and each such underwriter and controlling person with
respect to, any and all loss, damage, liability, cost and expense to
which such Holder or any such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading,
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, damage, liability, cost or expenses
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such Holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof
11
<PAGE>
(5) Each Holder of Warrant Shares included in a registration
pursuant to the provisions of Section (j) (1) hereof will indemnify and
hold harmless the Company, its directors and officers, any controlling
person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any
underwriter with respect to, any and all loss, damage, liability, cost
or expense to which the Company or any controlling person and/or any
underwriter may become subject under the Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity
with written information furnished by or on behalf of such Holder
specifically for use in the preparation thereof.
(6) Promptly after receipt by an indemnified party pursuant to
the provisions of Sections (j) (4) or (5) of notice of the commencement
of any action involving the subject matter of the foregoing indemnity
provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said
Sections (j) (4) or (5), promptly notify the indemnifying party of the
commencement thereof, but the omission to so notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified
party, provided, however, if counsel for the indemnifying party
concludes that a single counsel cannot under applicable legal and
ethical considerations, represent both the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said Sections (j)(4) or (5) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the provisions of the preceding sentence,
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after the notice of the commencement of
the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
12
<PAGE>
PICK COMMUNICATIONS CORP.
By:
------------------------------------------
Thomas M. Malone, Chief Executive Officer
Dated: May ___, 1999
Attest:
- --------------------------------------
Elliot H. Lutzker, Assistant Secretary
13
<PAGE>
PURCHASE FORM
Dated
----------------
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing ___ shares of Common Stock and hereby
makes payment of __________ in payment of the actual exercise price thereof.
------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------
Signature
-----------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,_________________________ hereby sells,
assigns and transfers unto
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
________shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date
------------------------
Signature
-------------------
<PAGE>
EXHIBIT 4.6
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND OTHER DISTINGUISHING
CHARACTERISTICS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
PICK COMMUNICATIONS CORP.
It is hereby certified that:
1. The name of the company (hereinafter called the "Company") is PICK
Communications Corp., a Nevada company whose address is 155 Route 46 West, Wayne
Interchange Plaza II, Third Floor, Wayne, NJ 07470.
2. The articles of incorporation of the Company authorizes the issuance of ten
million (10,000,000) shares of Preferred Stock, of a par value of $.001 per
share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one or more
series and by resolution or resolutions to establish the designation, number,
full or limited voting powers, or the denial of voting powers, preferences and
relative, participation, optional, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
3. The Board of Directors of the Company authorized seventy thousand (70,000) of
the ten million (10,000,000) shares of Preferred Stock of the Company be
designated Series A Convertible Preferred Stock, $.001 par value per share, none
of which shares have been issued (the "Series A Convertible Preferred Stock").
4. The Board of Directors of the Company, pursuant to the authority expressly
vested in it as aforesaid, has adopted the following resolutions creating a
Series B issue of Convertible Preferred Stock:
RESOLVED, that two million (2,000,000) of the ten million (10,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series B
Convertible Preferred Stock, $.001 par value per share, and shall possess the
rights and privileges set forth below:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series B Convertible Preferred
Stock" (the "Series B Convertible Preferred Stock") and the number of shares
constituting the Series B Convertible Preferred Stock shall be two million
(2,000,000). Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series B Convertible Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series B Convertible Preferred Stock.
SECTION 2. RANK.
The Series B Convertible Preferred Stock shall rank: (i) prior to all of the
Company's Common Stock, par value $.001 per share ("Common Stock"); (ii) prior
to any class or series of capital stock of the Company including the Series A
Convertible Preferred Stock hereafter created specifically ranking by its terms
junior to any Series B Convertible Preferred Stock of whatever subdivision
(collectively, with the Common Stock, "Junior Securities"); (iii) on parity with
any class or series of capital stock of the Company hereafter created
specifically ranking by its terms on parity with the Series B Convertible
Preferred Stock ("Parity Securities") in each case as to distributions of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
SECTION 3. DIVIDENDS.
The holders of Series B Convertible Preferred Stock ("Holders") shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of the funds of the Company legally available therefor, dividends.
ratably with any declaration or payment of any dividend with holders of the
Common Stock or other junior securities of this Corporation, when, as and if
declared by the Board of Directors, based on the number of shares of Common
Stock into which each share of Series B Preferred Stock is then convertible.
<PAGE>
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the Holders of shares of Series B Convertible
Preferred Stock shall be entitled to receive, immediately after any
distributions to securities ("Senior Securities") required by the Company's
Certificate of Incorporation or any certificate of designation of preferences,
and prior and in preference to any distribution to Junior Securities, but in
parity with any distribution of Parity Securities, an amount per share equal to
the sum of $1.00 for each outstanding share of Series B Convertible Preferred
Stock (the "Original Series B Issue Price"). If upon the occurrence of such
event, the assets and funds thus distributed among the Holders of the Series B
Convertible Preferred Stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series B Convertible Preferred Stock and the Parity Securities,
respectively, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the Holders of the Series B
Convertible Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate of designation of
preferences.
(b) Upon the completion of the distribution required by subsection 4(a), if
assets remain in this Company, they shall be distributed to holders of Parity
Securities (unless holders of Parity Securities have received distributions
pursuant to subsection (a) above) and Junior Securities in accordance with the
Company's Certificate of Incorporation including any duly adopted certificate(s)
of designation of preferences.
(c) A consolidation or merger of the Company with or into any other corporation
or corporations, or a sale, conveyance or disposition of all or substantially
all of the assets of the Company or the effectuation by the Company of a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 4, but
shall instead be treated pursuant to Section 6 hereof.
SECTION 5. CONVERSION. THE RECORD HOLDERS OF THIS SERIES B CONVERTIBLE PREFERRED
STOCK SHALL HAVE CONVERSION RIGHTS AS FOLLOWS (THE "CONVERSION RIGHTS"):
Holder's Right to Convert.
(i) The record Holder of this Series B Convertible Preferred Stock shall be
entitled (at the times and in the amounts set forth below), at the office of the
Company or any transfer agent for the Series B Convertible Preferred Stock, to
convert portions of the Series B Convertible Preferred Stock held by such Holder
(but only in multiples of $1,000) into that number of unrestricted, fully-paid
and non-assessable shares of Common Stock at the Conversion Rate as set forth
below. The number of shares of Common Stock into which this Series B Convertible
Preferred Stock may be converted is hereinafter referred to as the "Conversion
Number" for such Series B Convertible Preferred Stock. The record Holder of this
Series B Convertible Preferred Stock shall be entitled to convert the initial
number of shares of Series B Convertible Preferred Stock held by such Holder
beginning on the date of the closing (the "Closing") of a sale of such Series B
Convertible Preferred Stock that occurs pursuant to the offering (the
"Offering") of the Series B Convertible Preferred Stock by the Company. The
following formula sets forth the number of shares (Conversion Number) issued
upon conversion of one (1) share of Series B Convertible Preferred Stock:
Conversion Number = 1
---------------
Conversion Rate
where,
Conversion Rate = $.10 per share.
(ii) Mechanics of Conversion. In order to convert Series B Convertible
Preferred Stock into full shares of Common Stock, the Holder shall (i) transmit
facsimile copy of the fully executed notice of conversion in the form attached
hereto ("Notice of Conversion") to the Company at such office that he elects to
convert the same
-2-
<PAGE>
(Facsimile number (973) 812-4181), which notice shall specify the number of
shares of Series B Convertible Preferred Stock to be converted and shall contain
a calculation of the Conversion Rate (together with a copy of the first page of
each certificate to be converted) to the Company or its designated transfer
agent prior to midnight, New York City time (the "Conversion Notice Deadline")
on the date of conversion specified on the Notice of Conversion and (ii)
surrender the original certificate or certificates therefor, duly endorsed, and
deliver the original Notice of Conversion by either overnight courier or 2-day
courier, to the office of the Company or of any transfer agent for the Series B
Convertible Preferred Stock; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either the certificates evidencing such Series B
Convertible Preferred Stock are delivered to the Company or its transfer agent
as provided above, or the Holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of the
certificate or certificates ("Stock Certificates") representing shares of Series
B Convertible Preferred Stock, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of the Stock Certificate(s), if mutilated, the
Company shall execute and deliver new Stock Certificate(s) of like tenor and
date. No fractional shares of Common Stock shall be issued upon conversion of
this Series B Convertible Preferred Stock. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall pay cash to such
Holder in an amount equal to such fraction multiplied by the Conversion Rate
then in effect. In the case of a dispute as to the calculation of the Conversion
Rate, the Company's calculation shall be deemed conclusive absent manifest
error.
The Company shall use all reasonable efforts to issue and deliver within three
(3) business days after delivery to the Company of the stock certificates, or
after such agreement and indemnification, to such Holder of Series B Convertible
Preferred Stock at the address of the Holder on the books of the Company, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company before midnight, New York City time, on the
Date of Conversion, and (ii) that the original Stock Certificates representing
the shares of Series B Convertible Preferred Stock to be converted are received
by the transfer agent or the Company within five (5) business days thereafter.
The person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original Stock
Certificates representing the Series B Convertible Preferred Stock to be
converted are not received by the transfer agent or the Company within five (5)
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Company or its designated transfer agent prior
to the Conversion Notice Deadline, the Notice of Conversion, at the Company's
option, may be declared null and void.
Following conversion of shares of Series B Convertible Preferred Stock, such
shares of Series B Convertible Preferred Stock will no longer be outstanding.
(b) Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the Series B
Convertible Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series B Convertible Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series B Convertible Preferred
Stock, the Company will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
-3-
<PAGE>
(c) Adjustment to Conversion Rate.
(i) If, prior to the conversion of all Series B Convertible Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, then the Holders of Series B Convertible Preferred
Stock shall thereafter have the right to purchase and receive upon conversion of
Series B Convertible Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of Series B Convertible Preferred Stock held by
such Holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series B Convertible Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the number of shares issuable upon conversion of the Series B Convertible
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(c) unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Holders
of the Series B Convertible Preferred Stock such shares of stock and/or
securities as, in accordance with the foregoing provisions, the Holders of the
Series B Convertible Preferred Stock may be entitled to purchase.
(ii) If, prior to the conversion of all Series B Convertible Preferred Stock,
the Company issues or sells any shares of Common Stock or other equity
securities or securities convertible into or exercisable for equity securities,
other than the shares of Common Stock underlying options or warrants outstanding
as of the Closing, for a consideration per share less than the Conversion Rate
in effect immediately prior to such issuance or sale, then immediately after the
date the Holders receive written notice from the Company of such issuance or
sale, the Conversion Rate then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock in such issuance or sale.
(iii) If, any adjustment under this subsection 5(c) would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
SECTION 6. CORPORATE CHANGE.
The Conversion Rate shall be appropriately adjusted to reflect, as deemed
equitable and appropriate by the Company, any stock dividend, stock split or
share combination of the Common Stock. In the event of a merger, reorganization,
recapitalization or similar event of or with respect to the Company (a
"Corporate Change") (other than a Corporate Change in which or substantially all
of the consideration received by the holders of the Company's equity securities
upon such Corporate Change consists of cash or assets other than securities
issued by the acquiring entity or any affiliate thereof), this Series B
Convertible Preferred Stock shall be assumed by the acquiring entity and
thereafter this Series B Convertible Preferred Stock shall be convertible into
such class and type of securities as the Holder would have received had the
Holder converted this Series B Convertible Preferred Stock immediately prior to
such Corporate Change.
SECTION 7. VOTING RIGHTS.
-4-
<PAGE>
(a) In addition to any other rights provided for herein or by law, the
holders of Series B Preferred Stock shall be entitled to vote, together with the
holders of Common Stock as one class, on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such Common Stock holders. In any such vote each share of Series B
Preferred Stock shall entitle the holder thereof to the number of votes per
share that equals the number of whole shares of Common Stock into which each
such share of Series B Preferred Stock is then convertible, calculated to the
nearest share.
(b) So long as at least twenty percent (20%) of the Series B Preferred
Stock remains outstanding, the consent of the holders of two-thirds of the then
outstanding Series B Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to permit
effect or validate the creation and issuance of any series of preferred stock or
other security of the Company which is senior as to Distributions to the Series
B Preferred Stock.
(c) So long as at least twenty percent (20%) of the Series B Preferred
Stock remains outstanding, the consent of two-thirds of the holders of the then
outstanding Series B Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Certificate of Designation or the Articles of
Incorporation of the Company, as amended, in a manner which would alter or
change the powers, preferences, rights, privileges, restrictions and conditions
of the Series B Preferred Stock so as to adversely affect the Series B Preferred
Stock.
(d) Each share of the Series B Preferred Stock shall entitle the holder
thereof to one vote on all matters to be voted on by the holders of the Series B
Preferred Stock, as set forth above.
(e) In the event that the holders of the Series B Preferred Stock are
required to vote as a class on any other matter, the affirmative vote of holders
of not less than fifty percent (50%) of the outstanding shares of Series B
Preferred Stock shall be required to approve each such matter to be voted upon,
and if any matter is approved by such requisite percentage of holders of Series
B Preferred Stock, such matter shall bind all holders of Series B Preferred
Stock.
SECTION 8. STATUS OF CONVERTED STOCK.
In the event any shares of Series B Convertible Preferred Stock shall be
converted pursuant to Section 5 hereof, the shares so converted shall be
canceled, shall return to the status of authorized, but unissued Convertible
Preferred Stock of no designated series, and shall not be issuable by the
Company as Series B Convertible Preferred Stock.
SECTION 9. MISCELLANEOUS.
(a) There is no sinking fund with respect to the Series B Preferred
Stock.
(b) The shares of the Series B Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Certificate of
Designation, and in the Articles of Incorporation of the Company, as amended.
-5-
<PAGE>
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series B Convertible Preferred
Stock and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics thereof shall, upon the
effective date of said series, be deemed to be included in and be a part of the
certificate of incorporation of the Company pursuant to the provisions of
Chapter 78 of the Nevada Revised Statutes.
Signed on March ____, 1999
-------------------------------
Diego Leiva, President
Attest: _________________________
Raymond Brennan, Secretary
STATE OF NEW JERSEY )
) ss.
COUNTY OF PASSAIC )
The foregoing instrument was subscribed before me, a notary public for
the State of New Jersey, this ____ day of March 1999, by Diego Leiva and Raymond
Brennan, who are personally known to me.
------------------------
Notary Public
My commission expires:
-6-
<PAGE>
NOTICE OF CONVERSION
(To be executed by the Registered Holder
in order to Convert the Series B Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert __________ shares
of Series B Convertible Preferred Stock, represented by stock certificate No(s).
________ (the "Convertible Preferred Stock Certificates") into shares of common
stock ("Common Stock") of PICK Communications Corp., (the "Company") according
to the conditions of the Certificate of Designation of Series B Convertible
Preferred Stock, as of the date written below. If shares are to be issued in the
name of a person other than undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates.
No fee will be charged to the Holder for any conversion, except for transfer
taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series B Convertible Preferred Stock shall be made pursuant to
registration of the Common Stock under the Act or pursuant to an exemption from
registration under the Act.
Conversion Calculations:
Date of Conversion
Applicable Conversion Rate
Signature
Name
Address
- --------------------------------------------------------------------------------
No shares of Common Stock shall be issued until the original Convertible
Preferred Stock Certificate(s) to be converted and the Notice of Conversion are
received by the Company's Attorney or Transfer Agent. The original Stock
Certificates representing the Series B Convertible Preferred Stock to be
converted and the Notice of Conversion must be received by the Company's
Attorney or Transfer Agent by the fifth business day following the Date of
Conversion, or the Notice of Conversion, at the Company's option, may be
declared null and void.
- --------------------------------------------------------------------------------
-7-
<PAGE>
EXHIBIT 4.7
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
PICK COMMUNICATIONS CORP.
It is hereby certified that:
1. The name of the company (hereinafter called the "Company") is PICK
Communications Corp., a Nevada company whose address is 155 Route 46 West, Wayne
Interchange Plaza II, Third Floor, Wayne, NJ 07470.
2. The articles of incorporation of the Company authorizes the issuance of ten
million (10,000,000) shares of Preferred Stock, of a par value of $.001 per
share, and expressly vests in the Board of Directors of the Company the
authority provided therein to issue any or all of said shares in one or more
series and by resolution or resolutions to establish the designation, number,
full or limited voting powers, or the denial of voting powers, preferences and
relative, participation, optional, and other special rights and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
3. The Board of Directors of the Company authorized seventy thousand (70,000) of
the ten million (10,000,000) shares of Preferred Stock of the Company be
designated Series A Convertible Preferred Stock, $.001 par value per share, none
of which shares have been issued (the "Series A Convertible Preferred Stock").
4. The Board of Directors of the Company authorized two million (2,000,000) of
the ten million (10,000,000) shares of Preferred Stock of the Company be
designated Series B Convertible Preferred Stock, $.001 par value per share, of
which two million (2,000,000) shares have been issued (the "Series B Convertible
Preferred Stock").
5. The Board of Directors of the Company authorized one hundred thousand
(100,000) of the ten million (10,000,000) shares of Preferred Stock of the
Company be designated Series C Convertible Preferred Stock, $.001 par value per
share, none of which shares have been issued (the "Series C Convertible
Preferred Stock").
6. The Board of Directors of the Company, pursuant to the authority expressly
vested in it as aforesaid, has adopted the following resolutions creating a
Series D issue of Convertible Preferred Stock:
RESOLVED, that five hundred thousand (500,000) of the ten million (10,000,000)
authorized shares of Preferred Stock of the Company shall be designated Series D
Convertible Preferred Stock, $.001 par value per share, and shall possess the
rights and privileges set forth below:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series D Convertible Preferred
Stock" (the "Series D Convertible Preferred Stock") and the number of shares
constituting the Series D Convertible Preferred Stock shall be five hundred
thousand (500,000). Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, however, that no decrease shall
reduce the number of shares of Series D Convertible Preferred Stock to a number
less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Company convertible into Series D Convertible Preferred Stock.
SECTION 2. RANK.
The Series D Convertible Preferred Stock shall rank: (i) prior to all of the
Company's Common Stock, par value $.001 per share ("Common Stock"); (ii) prior
to any class or series of capital stock of the Company specifically ranking by
its terms junior to any Series D Convertible Preferred Stock of whatever
subdivision (collectively, with the Common Stock, "Junior Securities"); (iii) on
parity with the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock and (iv) on parity with any class or series of
capital stock of the Company hereafter created specifically ranking by its terms
on parity with the Series D Convertible Preferred Stock ("Parity Securities") in
each case as to distributions of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as "Distributions").
<PAGE>
SECTION 3. DIVIDENDS.
The holders of Series D Convertible Preferred Stock ("Holders") shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of the funds of the Company legally available therefor, dividends
ratably with any declaration or payment of any dividend with holders of the
Common Stock or other Junior Securities of this Corporation, when, as and if
declared by the Board of Directors, based on the number of shares of Common
Stock into which each share of Series D Preferred Stock is then convertible.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the Holders of shares of Series D Convertible
Preferred Stock shall be entitled to receive, immediately after any
distributions to securities ("Senior Securities") required by the Company's
Certificate of Incorporation or any certificate of designation of preferences,
and prior and in preference to any distribution to Junior Securities, but in
parity with any distribution of Parity Securities, an amount per share equal to
the sum of $10.00 for each outstanding share of Series D Convertible Preferred
Stock (the "Original Series D Issue Price"). If upon the occurrence of such
event, the assets and funds thus distributed among the Holders of the Series D
Convertible Preferred Stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series D Convertible Preferred Stock and the Parity Securities,
respectively, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the Holders of the Series D
Convertible Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate of designation of
preferences.
(b) Upon the completion of the distribution required by subsection 4(a), if
assets remain in this Company, they shall be distributed to holders of Parity
Securities (unless holders of Parity Securities have received distributions
pursuant to subsection (a) above) and Junior Securities in accordance with the
Company's Certificate of Incorporation including any duly adopted certificate(s)
of designation of preferences.
(c) A consolidation or merger of the Company with or into any other corporation
or corporations, or a sale, conveyance or disposition of all or substantially
all of the assets of the Company or the effectuation by the Company of a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is disposed of, shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 4, but
shall instead be treated pursuant to Section 6 hereof.
SECTION 5. CONVERSION. THE RECORD HOLDERS OF THIS SERIES D CONVERTIBLE PREFERRED
STOCK SHALL HAVE CONVERSION RIGHTS AS FOLLOWS (THE "CONVERSION RIGHTS"):
Holder's Right to Convert.
(i) The record Holder of this Series D Convertible Preferred Stock shall be
entitled (at the times and in the amounts set forth below), at the office of the
Company or any transfer agent for the Series D Convertible Preferred Stock, to
convert portions of the Series D Convertible Preferred Stock held by such Holder
(but only in multiples of $1,000) into that number of unrestricted, fully-paid
and non-assessable shares of Common Stock at the Conversion Rate as set forth
below. The number of shares of Common Stock into which this Series D Convertible
Preferred Stock may be converted is hereinafter referred to as the "Conversion
Number" for such Series D Convertible Preferred Stock. The record Holder of this
Series D Convertible Preferred Stock shall be entitled to convert the initial
number of shares of Series D Convertible Preferred Stock held by such Holder
beginning on the date of the closing (the "Closing") of a sale of such Series D
Convertible Preferred Stock that occurs pursuant to the offering (the
"Offering") of the Series D Convertible Preferred Stock by the Company. The
following formula sets forth the number of shares (Conversion Number) issued
upon conversion of one (1) share of Series D Convertible Preferred Stock as an
amount equal to 23.81 shares of Common Stock:
Conversion Number = 10
---------------
Conversion Rate
-2-
<PAGE>
where,
Conversion Rate = $.42 per share.
Notwithstanding the foregoing, if the Company has not issued Series D
Convertible Preferred Stock aggregating $2,500,000 and if more than 75% of the
outstanding obligations to the holders of the 18% Senior Secured Notes (the
"Notes") of the Company convert their Notes into Common Stock at $.25 per share,
the Holders of the Series D Convertible Preferred Stock may convert their shares
of Series D Convertible Preferred Stock at a Conversion Rate of $.25 per share.
(ii) Mechanics of Conversion. In order to convert Series D Convertible Preferred
Stock into full shares of Common Stock, the Holder shall (i) transmit facsimile
copy of the fully executed notice of conversion in the form attached hereto
("Notice of Conversion") to the Company at such office that he elects to convert
the same (Facsimile number (973) 812-4181), which notice shall specify the
number of shares of Series D Convertible Preferred Stock to be converted and
shall contain a calculation of the Conversion Rate (together with a copy of the
first page of each certificate to be converted) to the Company or its designated
transfer agent prior to midnight, New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion and
(ii) surrender the original certificate or certificates therefor, duly endorsed,
and deliver the original Notice of Conversion by either overnight courier or
2-day courier, to the office of the Company or of any transfer agent for the
Series D Convertible Preferred Stock; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless either the certificates evidencing such
Series D Convertible Preferred Stock are delivered to the Company or its
transfer agent as provided above, or the Holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed. Upon
receipt by the Company of evidence of the loss, theft, destruction or mutilation
of the certificate or certificates ("Stock Certificates") representing shares of
Series D Convertible Preferred Stock, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the Stock Certificate(s), if mutilated,
the Company shall execute and deliver new Stock Certificate(s) of like tenor and
date. No fractional shares of Common Stock shall be issued upon conversion of
this Series D Convertible Preferred Stock. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall pay cash to such
Holder in an amount equal to such fraction multiplied by the Conversion Rate
then in effect. In the case of a dispute as to the calculation of the Conversion
Rate, the Company's calculation shall be deemed conclusive absent manifest
error.
The Company shall use all reasonable efforts to issue and deliver within three
(3) business days after delivery to the Company of the stock certificates, or
after such agreement and indemnification, to such Holder of Series D Convertible
Preferred Stock at the address of the Holder on the books of the Company, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company before midnight, New York City time, on the
Date of Conversion, and (ii) that the original Stock Certificates representing
the shares of Series D Convertible Preferred Stock to be converted are received
by the transfer agent or the Company within five (5) business days thereafter.
The person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original Stock
Certificates representing the Series D Convertible Preferred Stock to be
converted are not received by the transfer agent or the Company within five (5)
business days after the Date of Conversion or if the facsimile of the Notice of
Conversion is not received by the Company or its designated transfer agent prior
to the Conversion Notice Deadline, the Notice of Conversion, at the Company's
option, may be declared null and void.
-3-
<PAGE>
Following conversion of shares of Series D Convertible Preferred Stock, such
shares of Series D Convertible Preferred Stock will no longer be outstanding.
(b) Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the Series D
Convertible Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series D Convertible Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series D Convertible Preferred
Stock, the Company will take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(c) Adjustment to Conversion Rate.
(i) If, prior to the conversion of all Series D Convertible Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, then the Holders of Series D Convertible Preferred
Stock shall thereafter have the right to purchase and receive upon conversion of
Series D Convertible Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of Series D Convertible Preferred Stock held by
such Holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series D Convertible Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the number of shares issuable upon conversion of the Series D Convertible
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any shares of stock or securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(c) unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Holders
of the Series D Convertible Preferred Stock such shares of stock and/or
securities as, in accordance with the foregoing provisions, the Holders of the
Series D Convertible Preferred Stock may be entitled to purchase.
(ii) If, prior to the conversion of all Series D Convertible Preferred Stock,
the Company issues or sells any shares of Common Stock or other equity
securities or securities convertible into or exercisable for equity securities,
other than the shares of Common Stock underlying options or warrants outstanding
as of the Closing, for a consideration per share less than the Conversion Rate
in effect immediately prior to such issuance or sale, then immediately after the
date the Holders receive written notice from the Company of such issuance or
sale, the Conversion Rate then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock in such issuance or sale.
(iii) If, any adjustment under this subsection 5(c) would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
SECTION 6. CORPORATE CHANGE.
-4-
<PAGE>
The Conversion Rate shall be appropriately adjusted to reflect, as deemed
equitable and appropriate by the Company, any stock dividend, stock split or
share combination of the Common Stock. In the event of a merger, reorganization,
recapitalization or similar event of or with respect to the Company (a
"Corporate Change") (other than a Corporate Change in which or substantially all
of the consideration received by the holders of the Company's equity securities
upon such Corporate Change consists of cash or assets other than securities
issued by the acquiring entity or any affiliate thereof), this Series D
Convertible Preferred Stock shall be assumed by the acquiring entity and
thereafter this Series D Convertible Preferred Stock shall be convertible into
such class and type of securities as the Holder would have received had the
Holder converted this Series D Convertible Preferred Stock immediately prior to
such Corporate Change.
SECTION 7. VOTING RIGHTS.
(a) In addition to any other rights provided for herein or by law, the
holders of Series D Preferred Stock shall be entitled to vote, together with the
holders of Common Stock as one class, on all matters as to which holders of
Common Stock shall be entitled to vote, in the same manner and with the same
effect as such Common Stock holders. In any such vote each share of Series D
Preferred Stock shall entitle the holder thereof to the number of votes per
share that equals the number of whole shares of Common Stock into which each
such share of Series D Preferred Stock is then convertible, calculated to the
nearest share.
(b) So long as at least twenty percent (20%) of the Series D Preferred
Stock remains outstanding, the consent of the holders of two-thirds of the then
outstanding Series D Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to permit
effect or validate the creation and issuance of any series of preferred stock or
other security of the Company which is senior as to Distributions to the Series
D Preferred Stock.
(c) So long as at least twenty percent (20%) of the Series D Preferred
Stock remains outstanding, the consent of two-thirds of the holders of the then
outstanding Series D Preferred Stock, voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change this Certificate of Designation or the Articles of
Incorporation of the Company, as amended, in a manner which would alter or
change the powers, preferences, rights, privileges, restrictions and conditions
of the Series D Preferred Stock so as to adversely affect the Series D Preferred
Stock.
(d) Each share of the Series D Preferred Stock shall entitle the holder
thereof to one vote on all matters to be voted on by the holders of the Series D
Preferred Stock, as set forth above.
(e) In the event that the holders of the Series D Preferred Stock are
required to vote as a class on any other matter, the affirmative vote of holders
of not less than fifty percent (50%) of the outstanding shares of Series D
Preferred Stock shall be required to approve each such matter to be voted upon,
and if any matter is approved by such requisite percentage of holders of Series
D Preferred Stock, such matter shall bind all holders of Series D Preferred
Stock.
SECTION 8. STATUS OF CONVERTED STOCK.
In the event any shares of Series D Convertible Preferred Stock shall be
converted pursuant to Section 5 hereof, the shares so converted shall be
canceled, shall return to the status of authorized, but unissued Convertible
Preferred Stock of no designated series, and shall not be issuable by the
Company as Series D Convertible Preferred Stock.
-5-
<PAGE>
SECTION 9. MISCELLANEOUS.
(a) There is no sinking fund with respect to the Series D Preferred
Stock.
(b) The shares of the Series D Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Certificate of
Designation, and in the Articles of Incorporation of the Company, as amended.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series D Convertible Preferred
Stock and fixing the number, powers, preferences and relative, optional,
participating, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics thereof shall, upon the
effective date of said series, be deemed to be included in and be a part of the
certificate of incorporation of the Company pursuant to the provisions of
Chapter 78 of the Nevada Revised Statutes.
Signed on April 14, 1999
/s/ Diego Leiva
-------------------------------
Diego Leiva, President
Attest: /s/ Elliot H. Lutzker
-----------------------------------------
Elliot H. Lutzker, Assistant Secretary
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was subscribed before me, a notary public for
the State of New York, this 14th day of April 1999, by Diego Leiva and Elliot H.
Lutzker, who are personally known to me.
/s/ Michael P. Buck
------------------------------
Notary Public
My commission expires: 12/6/99
-6-
<PAGE>
NOTICE OF CONVERSION
(To be executed by the Registered Holder
in order to Convert the Series D Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert __________ shares
of Series D Convertible Preferred Stock, represented by stock certificate No(s).
________ (the "Convertible Preferred Stock Certificates") into shares of common
stock ("Common Stock") of PICK Communications Corp., (the "Company") according
to the conditions of the Certificate of Designation of Series D Convertible
Preferred Stock, as of the date written below. If shares are to be issued in the
name of a person other than undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates.
No fee will be charged to the Holder for any conversion, except for transfer
taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series D Convertible Preferred Stock shall be made pursuant to
registration of the Common Stock under the Act or pursuant to an exemption from
registration under the Act.
Conversion Calculations:
Date of Conversion
Applicable Conversion Rate
Signature
Name
Address
- --------------------------------------------------------------------------------
No shares of Common Stock shall be issued until the original Convertible
Preferred Stock Certificate(s) to be converted and the Notice of Conversion are
received by the Company's Attorney or Transfer Agent. The original Stock
Certificates representing the Series D Convertible Preferred Stock to be
converted and the Notice of Conversion must be received by the Company's
Attorney or Transfer Agent by the fifth business day following the Date of
Conversion, or the Notice of Conversion, at the Company's option, may be
declared null and void.
- --------------------------------------------------------------------------------
-7-
<PAGE>
Exhibit 4.8
WARRANT TO PURCHASE COMMON STOCK
OF
PICK COMMUNICATIONS CORP.
This is to Certify That, FOR VALUE RECEIVED,
_______________________, or assigns ("Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from PICK Communications Corp., a Nevada
corporation ("Company"), ___________ (________) fully paid, validly issued and
nonassessable shares of Common Stock of the Company ("Common Stock") at a price
equal to $.63 per share at any time or from time to time during the period from
the date of issuance of this Warrant until March 31, 2001, subject to adjustment
as set forth herein. This Warrant was originally issued by the Company in
connection with the issuance of Series D Convertible Preferred Stock, on the
basis of 200,00 warrants for every $1,000,000 of Series D Preferred Stock. The
number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT; CANCELLATION OF WARRANT.
(1) This Warrant may be exercised in whole or in part
at any time or from time to time on or after the date of issuance of this
Warrant until March 31, 2001 (the "Exercise Period"); provided, however, that if
such day is a day on which banking institutions in the State of New York are
authorized by law to close, then this Warrant may be exercised on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. As soon as practicable after
each such exercise of the Warrants, but not later than seven (7) days from the
date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
<PAGE>
(2) At any time during the Exercise Period, the
Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Warrant Shares determined in accordance
with this Section (a)(2), by surrendering this Warrant at the principal office
of the Company or at the office of its stock transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Warrant Shares to be exchanged and the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for and acquire the number of Warrant Shares (rounded to the next
highest integer) equal to (i) the number of Warrant Shares specified by the
Holder in its Notice of Exchange (the "Total Number") less (ii) the number of
Warrant Shares equal to the quotient obtained by dividing (A) the product of the
Total Number and the existing Exercise Price by (B) the current market value of
a share of Common Stock. Current market value shall have the meaning set forth
Section (c) below, except that for purposes hereof, the date of exercise, as
used in such Section (c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market, the current market value shall be the last reported
sale price of the Common Stock on such exchange or market on
the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or
market; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, but is traded on the Nasdaq
SmallCap Market, the current market value shall be the average
of the closing bid and asked prices for such day on such
market and if the Common Stock is not so traded, the current
market value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of
this Warrant; or
2
<PAGE>
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax, the Company shall, without charge, execute and deliver
a new Warrant in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be canceled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. Subject to the provisions of
Section l hereof, the Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrants shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be
3
<PAGE>
the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(2) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common
Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price
of the Common Stock (as defined in Subsection (5) below) on
the record date mentioned below, or less than the Exercise
Price on such record date the Exercise Price shall be adjusted
so that the same shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered)
would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in
the event the Subscription Price is equal to or higher than
the current market price but is less than the Exercise Price,
the price determined by multiplying the Exercise Price in
effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the
number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase
at the Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive such rights
or warrants; and to the extent that shares of Common Stock are
not delivered (or securities convertible into Common Stock are
not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price
4
<PAGE>
which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock
(or securities convertible into Common Stock) actually
delivered.
(3) In case the Company shall hereafter distribute to
the holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions and
dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case
the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as
defined in Subsection (5) below), less the fair market value
(as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of shareholders
entitled to receive such distribution.
(4) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsections (1), (2),
and (3) above, the number of Shares purchasable upon exercise
of this Warrant shall simultaneously be adjusted by
multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on
the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(5) For the purpose of any computation under
Subsections (2) and (3) above, the current market price per
share of Common Stock at any date shall be determined in the
manner set forth in Section (c) hereof except that the current
market price per share shall be deemed to be the higher of (i)
the average of the prices for 30 consecutive business days
before such date or (ii) the price on the business day
immediately preceding such date.
(6) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (6) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required
5
<PAGE>
by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(7) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. In the event the Company
does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the
lowest Offering Price, Subscription Price or Conversion Price,
as applicable, since the date of this Warrant, and the number
of shares issuable upon exercise of this Warrant shall be
adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section
(f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(8) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (6), inclusive above.
(9) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as
6
<PAGE>
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
7
<PAGE>
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holder
will have registration rights with respect to the Warrant Shares as more
particularly set forth in the subscription agreement executed in connection with
the Private Placement.
PICK COMMUNICATIONS CORP.
By:
-------------------------------------
Diego Leiva, Chief Executive Officer
Dated: March __, 1999
Attest:
- --------------------------
8
<PAGE>
PURCHASE FORM
-------------
Dated __________
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing __________ shares of Common Stock and
hereby makes payment of ______ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name
---------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------
Signature
----------------------------------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto
Name
---------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
___ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ____________ Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
Date
--------------------------
Signature
--------------------
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
PICK Communications Corp.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of our report dated March 5, 1999, except for
portion of Notes 13 and 17, as to which the date is March 26, 1999; Notes 6 and
16, as to which the date is April 28, 1999; and the last paragraph of Note 17,
as to which the date is July 23, 1999 on the financial statements of PICK
Communications, Inc. as of December 31, 1998, which appear in such Prospectus.
We also consent to the reference to our Firm under the captions "Experts" and
"Selected Financial Data" in such Prospectus.
GOLDSTEN GOLUB KESSLER LLP
New York, New York
August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006282
<NAME> PICK COMMUNICATIONS CORP.
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 42,493
<SECURITIES> 0
<RECEIVABLES> 1,110,508
<ALLOWANCES> 387,366
<INVENTORY> 0
<CURRENT-ASSETS> 1,393,308
<PP&E> 5,890,752
<DEPRECIATION> 536,972
<TOTAL-ASSETS> 7,487,754
<CURRENT-LIABILITIES> 18,199,195
<BONDS> 0
1,050,000
0
<COMMON> 42,062
<OTHER-SE> (22,812,237)
<TOTAL-LIABILITY-AND-EQUITY> 7,487,754
<SALES> 3,995,568
<TOTAL-REVENUES> 3,995,568
<CGS> 5,213,324
<TOTAL-COSTS> 6,680,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 631,404
<INCOME-PRETAX> (3,316,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,316,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,316,244)
<EPS-BASIC> (1.65)<F1>
<EPS-DILUTED> 0.0
<FN>
<F1>During July of 1999, the Company's Board of Directors authorized a one for
ten reverse split of its common stock effective July 23, 1999. All EPS in the
Financial Data Schedules have been restated to give effect to the reverse stock
split. Prior Financial Data Schedules have not been restated for the
recapitalization.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006282
<NAME> PICK COMMUNICATIONS CORP.
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 248,551
<SECURITIES> 0
<RECEIVABLES> 1,092,724
<ALLOWANCES> 351,838
<INVENTORY> 0
<CURRENT-ASSETS> 1,564,459
<PP&E> 5,476,750
<DEPRECIATION> 428,199
<TOTAL-ASSETS> 6,791,156
<CURRENT-LIABILITIES> 16,241,801
<BONDS> 0
0
0
<COMMON> 38,202
<OTHER-SE> (20,390,081)
<TOTAL-LIABILITY-AND-EQUITY> 6,791,156
<SALES> 9,822,903
<TOTAL-REVENUES> 9,822,903
<CGS> 16,392,544
<TOTAL-COSTS> 20,758,095
<OTHER-EXPENSES> 2,938,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,191,869
<INCOME-PRETAX> (17,065,371)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,065,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,063,309)
<EPS-BASIC> (4.62)<F1>
<EPS-DILUTED> 0.0
<FN>
<F1>During July of 1999, the Company's Board of Directors authorized a one for
ten reverse split of its common stock effective July 23, 1999. All EPS in the
accompanying Financial Data Schedules have been restated to give effect to the
reverse stock split. Prior Financial Data Schedules have not been restated for
the capitalization.
</FN>
</TABLE>
