UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to_______
Commission file number 1-12835
WORLD CALLNET, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2468002
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Brecon House, Meridian Gate, 207 Marsh Wall, London E14 9YT
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code) 0171 335 8300
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12 (g) of the
Exchange Act:
Common Stock, Par Value $.001
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(Title of Class)
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
As of April 30, 1999 there were 7,933,833 shares of registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
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REGISTRANT'S DISCLAIMER STATEMENT RE: PRIVATE SECURITIES LITIGATION REFORM ACT
- --------------------------------------------------------------------------------
AND OTHER MATTERS
- -----------------
The statements in this Report on Form 10-QSB and Form 10-QSB for the
three months ended March 31, 1999, in the Company's Report on Form 10-KSB, or
press releases issued by the Company that are not based on historical
information are considered 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, as amended, including statements regarding the
Company's projections, hopes, expectations, intentions, beliefs or strategies
regarding the future. Forward-looking statements include, but expectations are
not limited to, plans in Description of Business regarding (i) its plans to
market products in Europe, North America, South America and Asia, (ii) its
belief that offering free Internet access will capture customers for CallNet
PLC, (iii) its belief that it may acquire other companies engaged in Internet
and telecommunications related businesses, (iv) its expectation that the
acquisition by the Company of the remaining 85% of CallNet Plc can be acquired
by the end of fiscal year 1999, (v) its belief that the majority of its future
revenues will be derived from its ownership of CallNet PLC, which earns a share
of telephone toll revenues from companies that provide telephone service to
their customers, (vi) its belief that CallNet Plc will meet the quarterly
telephone toll minute targets set forth in its agreement with Cable & Wireless
Communications, Plc ("Cable & Wireless Communications"), (vii) its belief that
its products and services will appeal to the many segments of the Internet
market, and (vii) statements in Management's Discussion and Analysis or Plan of
Operation regarding (a) the projection that its working capital will be adequate
until mid 1999, (b) the projection that additional capital from bridge notes
and/or sale of equity securities will be necessary, (c) the expectation that
product manufacturing and distribution costs will be borne by joint venture
partners, (d) the estimate of research / development and plant expenditures for
the next twelve months, (e) the expectation that telephone toll revenues derived
from ownership of CallNet PLC will be the primary source of internal liquidity
and product sales will be a secondary source of internal liquidity, and (f) the
belief that Year 2000 issues will not have a material impact on the Company.
It is possible that the Company's projections, hopes, expectations,
intentions, beliefs, plans or strategies regarding the future and hopes outlined
above may not be achieved due to factors and circumstances discussed elsewhere
in this Form 10-QSB. See Part 1, Item 2, "Management's Discussion and Analysis
or Plan of Operation."
World CallNet, Inc. is not affiliated with, sponsored by or endorsed by
any of the following companies who have similar trade names, trademarks or
service marks: Worldcall Communications International, Inc.; Computer Calling
Technologies, Inc.; AT&T Corp.; Worldnet Communications, Inc.; Luckman
Interactive, Inc.; Allnet Communications Services, Inc.; West Coast
Telecommunications, Inc.; and Worldnet Communications, Inc.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Financial information required by Item 301(b) of Regulation S-B can be
found on the page following Item 2 below. The financial information contained
herein for the three months and six months ended March 31, 1999 is unaudited but
includes all adjustments that the Company considers necessary for a fair
presentation of the results for such periods. The financial information should
be read in conjunction with the financial statements for the year ended
September 30, 1998 included in the Company's Annual Report on Form 10-KSB.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year ended
September 30, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operation.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company sold all of its interests in oil and gas
royalty properties for cash and, after repayment of debt and accounts payable,
became a publicly traded shell. In October 1998, the Company completed the
acquisition of World Wide Communication (Holdings) Ltd. ("WWCH") in a
transaction accounted for as a reverse acquisition. As a result, the Company
became the successor to the business and financial operations of WWCH, including
its fiscal yearend of September 30. WWCH was incorporated in January 1998 and
during the period from incorporation through March 31, 1999 had been involved
primarily in capital formation activities, refinement of its business strategy
and development of relationships with industry partners. In January 1999, the
Company changed its name to World CallNet, Inc.
Since its inception the Company has not generated any internal
liquidity from any source. The Company's principal external source of capital
for developing its products and services has been the placement of bridge notes
payable. In November and December 1998, the Company completed the private
placement of $1,150,000 in bridge notes that are due on December 1, 1999 or
earlier under certain circumstances, including the raising of $3.5 million or
more of additional capital. In April 1999, the Company completed the private
placement of $550,000 of bridge notes that are due on October 9, 1999 or earlier
under circumstances similar to the aforementioned placement. Additional
placements of bridge notes or the sale of equity securities to fund operating
expenses will be necessary until the Company's revenues from operations provide
sufficient cash flow.
The Company's plan of operation for the next twelve months includes the
ongoing operation of its Internet service and the continued development,
manufacturing and marketing of its Internet products such as Mail TV and its
proprietary keyboard. The Company will require substantial capital to implement
its business plan, which is discussed further in Note 2 to the Financial
Statements. While substantially all development costs will be borne by the
Company, it is expected that all of the costs of manufacturing and distribution
of these products will be borne by joint venture partners, such as Zilog, OEM
television manufacturers and other third parties seeking to acquire new
microchip technology developed by the Company.
With working capital on hand, the Company estimates it can satisfy its
obligations and cash requirements until mid 1999. To meet debt obligations due
during the balance of fiscal 1999 and 2000 and to meet other obligations, the
Company will have to raise additional capital in the next twelve months.
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The Company has estimated that MailTV research and development costs
will be approximately $250,000 during the next twelve months. Expenditures for
plant and/or significant capital equipment are estimated at $500,000 during the
next twelve months.
If deemed appropriate by the Board of Directors, the Company will issue
shares of its capital stock to acquire assets, customers and other entities that
appear to be viable business opportunities.
The Company expects that its primary source of internal liquidity in
the future will be revenues from net telephone toll charges earned under the
terms of agreements that CallNet Plc, an affiliated entity, has with Cable and
Wireless Communications ("CWC"). The agreement with CWC entitles CallNet Plc, a
provider of Internet access, to receive 35% of the telephone toll revenues
(after deducting certain payments made by CallNet Plc to telecommunications
providers (such as British Telecom) who provide the "last mile") CWC charges its
customers for calls to CallNet Plc. The Company owns fifteen percent (15%) of
the capital stock of CallNet Plc and plans to acquire the remaining eighty-five
percent (85%) of the capital stock of CallNet Plc.
The agreement with CWC provides that this revenue sharing arrangement
is based on CallNet Plc meeting quarterly targets commencing with the period
beginning March 1, 1999. The initial quarterly target is 10 million minutes with
the quarterly targets for the next three-month period increasing to 30 million
minutes. If a quarterly target is not met, Callnet Plc will be required to make
certain repayments to CWC based on the difference between the target minutes and
the actual minutes. The repayment requirement ranges from 10% of the quarterly
payment made to CallNet Plc for achieving 90% and above of the target revenues
to 100% of the quarterly payment made to CallNet Plc for achieving less than 50%
of the target revenues. CallNet Plc has thus far exceeded the target minutes for
the initial quarter.
The fundamental business strategy is to direct telephone usage to the
CallNet Plc telecommunications network from new Internet and existing customers.
The Company's products are designed to facilitate new Internet access. Sale of
these products is expected to be a secondary source of revenues for the Company.
The Year 2000 presents concerns for business and consumer computing.
Aside from the well-known problems with the use of certain 2-digit date formats
as the year changes from 1999 to 2000, the Year 2000 is a special case leap
year, and dates such as 9/9/99 were used by certain organizations for special
functions. This could result in system failures or miscalculations causing
disruption of operations, including among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities. The problem exists for many kinds of software and hardware,
including mainframes, mini-computers, PC's and embedded systems.
The Company is continuing to test its products and classify its tested
products into the following categories of compliance: "compliant," "compliant
with minor issues," and "not compliant." All of the Company's significant
products tested are either "compliant" or "compliant with minor issues," as
defined. The Company has purchased all of its information systems during the
later part of 1998 with a full awareness of Year 2000 issues. While the Company
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received no written assurance from such vendors that such systems were year 2000
compliant, computer system hardware and software were carefully reviewed by the
Company-employed computer technicians and software engineers before being
purchased and placed in service.
Software developed by the Company for Internet access relies on the
systems employed by CallNet Plc, an affiliated entity that provides Internet
service to the Company on an exclusive basis. CallNet Plc was incorporated in
1998 and under the direction and supervision of the Company's information
systems technicians has followed the same procedures and timetables for
purchasing and placing its information systems in service.
The Company believes that purchasing information technology from
vendors such as Intel and Microsoft basically eliminates remediation costs on
systems not fully Year 2000 compliant. World CallNet's policy is to make future
and current versions of its core products Year 2000 "compliant."
The Year 2000 issue also affects the Company's internal systems,
including information technology (IT) and non-IT systems. World CallNet is
assessing the readiness of its systems for handling the Year 2000, and has
started the remediation and certification process. Contingency plans are being
developed in parallel with the testing and remediation efforts.
As noted above, World CallNet has addressed the Year 2000 issue with
its largest suppliers of services, CallNet Plc, and is evaluating its
third-party distribution and supply chain to understand their ability to
continue providing services and products throughout the change to the year 2000.
World CallNet is monitoring key vendors, product manufacturers, distributors,
and direct resellers to avoid any business interruptions in the year 2000. For
critical third parties with known issues, contingency plans will be developed.
The Company is also reviewing its facilities and infrastructure. Remediation
efforts are under way and certain contingency plans are in development. In a
worst case scenario, these unknown third party variables could have a material
and adverse effect on the Company's ability to conduct its business.
The Company believes that the Internet as a whole is subject to overall
systems failure arising from Year 2000 matters due to the open and interactive
nature of the Internet. The Internet is a loose and open network that may have
many non-compliant participants who could corrupt the entire system. The Company
believes that this risk does not apply to the Company to any greater extent that
any other Internet Company.
While Year 2000 issues present a potential risk to World CallNet's
internal systems, distribution and supply chain, and facilities, the Company is
minimizing risk with a worldwide effort. World CallNet is performing an
extensive assessment and is in the process of testing and remediating mission
critical components. The current plan is to have the majority of these
components resolved by June 1999, with the remaining components resolved by
September 1999. Management currently believes that all critical systems will be
ready by the Year 2000. The level of expenditures for information systems, both
historically and budgeted for the next year, are basically unaffected by Year
2000 issues. Therefore, the Company believes that the cost to address the Year
2000 issues is not material. The impact of the Year 2000 on future World CallNet
revenue is difficult to discern but is a risk to be considered in evaluating
future growth of the Company.
5
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RESULTS OF OPERATIONS
The results of operations for purposes of this discussion include only
the financial results of WWCH, the surviving business operation in a transaction
that was treated as a reverse acquisition. The Company's financial statements
report only the business operations and assets of WWCH. Financial information
and related discussions contained in reports previously filed by the Company are
not comparable with the disclosures included herein.
Revenues of approximately $118,000 for the six months ended March 31,
1999 were derived from license fees related to the Company's MailTV software
chip.
For the three and six months ended March 31, 1998 the Company incurred
salaries and other administrative expenses related to capital formation and
development of its business plan. These expenses are reflected on the statement
of operations as charges to general and administrative expense.
Interest expense of $74,819 is related to $1,150,000 of notes payable
dated December 31 and November 30, 1998 that bear interest at 10% per annum. The
Company is obligated to make monthly interest payments to holders of these notes
and to holders of an additional $550,000 notes placed in April 1999.
CAUTIONARY FACTORS
The success of the Company's plan of operation may be adversely
affected by several principal factors.
NEED FOR ADDITIONAL CAPITAL
- ---------------------------
The Company needs a substantial amount of capital to achieve its
business plan. Conditions in financial markets influence investors' attitudes
and willingness to invest in a particular industry issuer or type of security.
If the Company is unable to obtain additional capital through private or public
placement of its debt or equity securities, asset-based or bank financing, or
through ventures with industry partners, its ability to achieve its business
objectives could be substantially impaired.
COMPETITION
- -----------
The online services and Internet markets are highly competitive. The
Company believes that existing competitors, which include, among others,
commercial online services such as America OnLine and Dixon's FreeServe,
Internet-based services, including, among others, the Microsoft Network, and
Internet service providers, including various national and local independent
Internet service providers as well as long distance and regional telephone
companies, including, among others, British Telecommunications and Cable &
Wireless Communications and various other regional telephone operating
companies, are likely to enhance their service offerings. In addition, new
competitors, including Internet directory services and various media and
telecommunications companies, have entered or announced plans to enter the
online services and Internet markets, resulting in greater competition for the
Company. Many of the direct competitors and possible future competitors referred
to above have significantly greater financial, technical, marketing and
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personnel resources than the Company. These factors may have a material adverse
effect on the Company's financial condition and operating results. In addition,
in response to increased competition, the Company may adopt additional
strategies designed to continue the growth in its subscriber base, such as new
marketing programs and promotional offers and implementation of new pricing
programs. Such strategies may result in an increase in costs as a percentage of
revenue.
The business of providing Internet access services is new, extremely
competitive, rapidly evolving and subject to rapid technological change. World
CallNet expects that such competition will intensify significantly in the near
future. A large number of companies are developing or have introduced devices
and technologies to facilitate access to the Internet via a television. Such
competitors include suppliers of low-cost Internet technologies. Set top boxes
and devices are proposed or under development, as well as video game devices
that provide Internet access. In addition, manufacturers of television sets have
announced plans to introduce Internet access and Web browsing capabilities into
their products through set-top boxes.
Personal computer manufacturers are introducing Personal Communications
Systems that offer full-fledged television viewing combined with Internet
access. Operators of cable television systems also plan to offer Internet access
in conjunction with cable service. World CallNet also competes with Internet
service providers and commercial online services. There can be no assurance that
World CallNet's competitors will not develop Internet access products and
services that are superior to, and priced competitively with those or World
CallNet, thereby achieving greater market acceptance than MailTV. Many of World
CallNet's competitors, as well as potential competitors, have longer operating
histories, greater name recognition, larger installed customer bases and
significantly greater financial, technical and marketing resources than World
CallNet.
SUBSCRIBER ATTRITION RATES
- --------------------------
World CallNet will devote considerable financial and human resources to
attract subscribers to its service; however, due to circumstances that may or
may not be beyond the control of the Company, these subscribers may discontinue
their affiliation with the Company. As a result of subscriber attrition, the
revenues generated from Internet usage may decline considerably, as may the
rates that the Company can charge from advertising on its service as well as the
revenues that the Company anticipates from e-commerce.
REPAYMENT OF OBLIGATION UNDER CABLE & WIRELESS AGREEMENT
- --------------------------------------------------------
The Company expects that its primary source of internal liquidity
will be revenues from telephone toll charges earned under the terms of the
agreement that CallNet Plc, an affiliated entity, has with Cable & Wireless
Communications. The agreement with Cable & Wireless Communications entitles
CallNet Plc, a provider of Internet access, to receive 35% of the net telephone
toll revenues (after deducting certain costs) Cable & Wireless charges its
customers for calls to CallNet Plc. The agreement requires CallNet Plc to refund
certain payments if such telephone toll minutes do not meet certain targets. See
Part 1, Item 2, "Management's Discussion and Analysis or Plan of Operation -
Liquidity and Capital Resources".
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NETWORK CAPACITY AND OPERATIONS
- -------------------------------
Rapid growth in subscriber demand may cause the Company and its data
communications access providers to experience difficulty at certain times in
providing adequate server and network capacity. As a result, subscribers may
from time to time encounter difficulty in accessing and using the CallNet
service. There can be no assurance that the Company will be able to expand
server and network capacity at a rate sufficient to satisfy increasing
subscriber demands, and the failure to do so could have a material adverse
effect on the Company's business. The Company currently relies on several
companies, particularly Cable & Wireless Communications, to provide data
communications access to its service. Any damage or failure that causes
interruptions in Cable & Wireless operations could have a material adverse
effect on the Company's business.
The Company's operations are dependent on its ability to protect its
computer equipment and the information stored in its data centers against damage
by fire, power loss, telecommunications failures, unauthorized intrusions and
other events. The Company believes it has taken prudent measures to reduce the
risk of interruption in its operations. However, there can be no assurance that
these measures are sufficient. Any damage or failure that causes interruptions
in the Company's operations could have a material adverse effect on its
business. While the Company carries property and business interruption insurance
to cover its computer operations, the coverage may not be adequate to compensate
for losses that may occur.
PRESSURES ON OPERATING MARGINS
- ------------------------------
One of the Company's goals is to increase market share by rapidly
growing its subscriber base. To achieve this goal, the Company has aggressively
promoted its service offerings and may implement other strategies designed to
facilitate subscriber growth. The costs associated with the rapid growth in its
subscriber base and investments in customer support have placed, and will
continue to place, pressures on the Company's operating margins.
The Company may adopt additional strategies designed to continue the
growth in its subscriber base, such as new marketing programs and promotional
offers. Such strategies may result in an increase in costs as a percentage of
revenues. In addition, an acceleration in the growth of its subscriber base,
changes in usage patterns among members or continuing investments in content may
also increase costs as a percentage of revenues. As a result, the Company does
not believe its operating margins have stabilized. There can be no assurance
that the Company's operating margins will not be adversely affected in the
future by such strategies or other conditions.
SEASONALITY
- -----------
Subscriber acquisition is expected to be highest in the second and
third fiscal quarters, when sales of new computers and computer software arc
highest due to the holiday season. Customer usage is expected to be lower in the
summer months due largely to extended day light hours and competing outdoor
leisure activities.
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MANAGING A RAPIDLY GROWING AND CHANGING BUSINESS
- ------------------------------------------------
The Company continues to experience major changes in its operations
resulting from rapid expansion of its business and other factors which have
placed significant demands on its administrative, operational and financial
resources. The Company's future performance will depend in part on its ability
to manage its growth and to adapt its administrative, operational and financial
control systems to the needs of the expanded entity. The failure of management
to anticipate, respond to and manage changing business conditions could have a
material adverse effect on the Company's business and results of operations.
ACCESS TO CONTENT PROVIDERS
- ---------------------------
As competition in the online services market intensifies, it may become
more difficult or expensive to secure and retain content and/ or content
providers. The Company generally pays royalties to its content providers under
short-term renewable agreements, and there can be no assurance that the loss of
a number of content providers or significantly increased costs to maintain
certain content providers would not have a material adverse effect on the
Company's business.
NEW BUSINESSES AND INTERNATIONAL VENTURES
- -----------------------------------------
The Company pursues new products and services to diversify its sources
of revenue and leverage its technological and other competencies. There can be
no assurance that the Company will be able to successfully develop, or achieve
commercial acceptance for, these new products and services. The Company intends
to offer online services internationally through either wholly owned operations
or through joint ventures with existing Internet service providers of
telecommunications companies. There can be no assurance that the Company or its
partners will be able to successfully market, sell and deliver its services in
these markets. In addition, there are certain significant risks inherent in
doing business on an international level, such as laws governing content that
differ greatly from country to country, unexpected changes in regulatory
requirements, political risks, export restrictions, export controls relating to
encryption technology, tariffs and other trade barriers, fluctuations in
currency exchange rates, issues regarding intellectual property and potentially
adverse tax consequences, any or all of which could impact the Company's
international operations.
CHANGING TECHNOLOGIES
- ---------------------
As online services evolve, the Company will be required to offer
technological advances such as improved data compression and delivery of voice
and full-motion video. Currently, online services are accessed primarily by
personal computers via modem. As online services become accessible by
screen-based telephones, television or other consumer electronic devices, and
become commercially deliverable over other wired conduits such as coaxial and
fiber optic cable, the Company may have to develop new technology or modify its
existing technology to keep pace with these developments. Pursuit of these
technological advances will require substantial expenditures, and there call be
no assurance that the Company will succeed in adapting its online service
business to alternate access devices and conduits.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
- ---------------------------------------------
Changes in the regulatory environment relating to the
telecommunications and media industry could have an adverse effect on the
Company's business. The Company cannot predict the likelihood that any such
legislation will pass, or the financial impact, if any, the resulting regulation
may have. Moreover, the applicability to online service and Internet access
providers of existing laws governing issues such as intellectual property
ownership, libel and personal privacy is uncertain. The law relating to the
liability of online service companies and Internet access providers for
information carried on or disseminated through their systems is currently
unsettled and has been the subject of several recent private lawsuits. If
similar actions were to be initiated against the Company, costs incurred as a
result of such actions could have a material adverse effect on the Company's
business.
RELIANCE ON KEY PERSONNEL
- -------------------------
The Company's success depends in part upon the performance of its
executive officers and other key employees. The loss of the services of one or
more of its key personnel could have a material adverse effect on the Company.
The Company depends on its continued ability to attract and retain highly
skilled and qualified personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel.
RELIANCE ON THIRD PARTIES
- -------------------------
The Company depends substantially upon third parties for several
critical elements of its business, including, among others, CallNet Plc's
revenue sharing and Internet routing agreement with Cable & Wireless
Communications and the Company's agreement with Zilog, Inc. pursuant to which
Zilog, Inc. has agreed to manufacture and supply MailTV chips to television
manufacturers. The Company will outsource the manufacture of its MAILTV retrofit
keyboards from an outside manufacturer pursuant to purchase orders placed from
time to time, will not carry significant inventories of these keyboards and will
have no guaranteed supply arrangements. The Company relies on local telephone
companies and other companies to provide data communications capacity via local
telecommunications lines and leased long distance lines. In addition, the
Company relies on CallNet PLC as an Internet service provider, which the Company
plans to acquire.
INTELLECTUAL PROPERTY ISSUES
- ----------------------------
The Company regards its patents, trademarks, trade dress, trade secrets
and similar intellectual property as critical to its success, and the Company
will rely upon patent law, trademark law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. There can be no assurance
that the steps taken by the Company to protect any of its proprietary rights
will be adequate or that third parties will not infringe or misappropriate the
Company's patents, trademarks, trade dress and similar proprietary rights. In
addition, there can be no assurance that other parties will not assert
infringement claims against the Company.
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VOLATILITY OF SHARE PRICE
- -------------------------
The market price of the Company's Common Stock has a history of
volatility. Factors such as quarterly variations in financial results and
membership growth and usage, new pricing strategies, the announcement of
technological innovations, mergers, acquisitions, strategic partnerships or new
product offerings by the Company or its competitors, the entrance of new
competitors into the online services market and changes in content providers may
have a significant impact on the market price of the Common Stock. Moreover, the
Common Stock could experience price volatility based on market conditions. In
particular, a substantial short interest exists in the Company's Common Stock
which may tend to exacerbate volatility.
SALES OF COMMON STOCK
- ---------------------
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices of the Common Stock. The warrants that
have been issued by the Company since the reverse acquisition of WWCH have
provided for demand and piggyback registration rights. Exercise of such
registration rights could increase the number of shares of Common Stock sold in
the public markets.
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<TABLE>
<CAPTION>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
BALANCE SHEET
(Expressed in U.S. Dollars)
AS OF MARCH 31, 1999 AND SEPTEMBER 30, 1998
<S> <C> <C>
(Unaudited)
ASSETS March 31, September 30,
1999 1998
CURRENT ASSETS: $ 88,575 $ 1,995
Cash 502,107 -
------------ -----------
Receivable from affiliated entity 590,682 1,995
------------ -----------
OTHER ASSETS:
Furniture and fixtures 66,053 -
Investments 500,000 203,772
Intangible asset, net of $1,900 and $0
accumulated amortization 16,673 19,500
----------- -----------
Total other assets 582,726 223,272
Total assets $ 1,173,408 $ 225,267
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable, net of unamortized discount
of $107,922 and $0 $ 1,042,078 $ -
Accounts payable and accrued expenses 253,265 43,041
Accrued compensation due officers 157,170 165,565
Deferred Revenue - 193,583
Due to affiliate - 10,486
------------ ----------
Total current liabilities 1,452,513 412,675
------------ ----------
COMMITMENT AND CONTINGENCY (Notes 3 and 7)
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; 30,000,000
shares authorized, 7,989,333 and 5,500,000
shares issues and outstanding 7,989 5,500
Additional paid-in capital 964,662 190,660
Accumulated deficit (1,264,658) (378,285)
Foreign currency translation adjustment 12,902 (5,283)
------------ ----------
Total stockholders' deficit $ (279,105) $ (187,408)
------------ ----------
Total liabilities and stockholders' deficit $ 1,173,408 $ 225,267
============ ==========
</TABLE>
See accompanying notes to these financial statements.
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<TABLE>
<CAPTION>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
STATEMENT OF OPERATIONS
(Expressed in U.S. Dollars)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
<S> <C> <C>
Three Months Six Months
Ended Ended
-------------------------------------------------
March 31, 1999
-------------------
REVENUES $ 83,204 $ 118,477
COSTS AND EXPENSES:
General and administrative expenses 457,447 918,459
Interest expense 69,153 74,819
Amortization expense 1,575 1,900
Impairment of marketable securities 9,672 9,672
----------- -----------
537,847 1,004,850
----------- -----------
NET LOSS (454,357) (886,373)
OTHER COMPREHENSIVE INCOME - Foreign currency translation
adjustment 11,353 18,185
----------- -----------
COMPREHENSIVE LOSS $ (443,004) $ (868,188)
=========== ===========
NET LOSS PER SHARE (basic and diluted $ (.06) $ (.12)
=========== ===========
WEIGHTED AVERAGE SHARES 7,325,377 7,245,043
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
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<TABLE>
<CAPTION>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Expressed in U.S. Dollars)
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
Foreign
Common Stock Additional Currency
----------------- Paid-In Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1998 5,500,000 $5,500 $ 190,660 $ (378,285) $(5,283) $ (187,408)
Issuance of shares of common stock on October 9,
1998 in connection with acquisition of 100% of
the Company's common stock by General
American Royalty 1,829,333 1,829 13,043 - - 14,872
Issuance of 160,000 shares on November 19,
1998 for cash 160,000 160 167,400 - - 167,560
Issuance of common stock purchase warrants 94,059 94,059
Issuance of 500,000 to acquire 15% of CallNet Plc 500,000 500 499,500 500,000
Net loss for the period - - - (886,373) - (886,373)
Foreign currency translation adjustment - - - - 18,185 18,185
--------- ------ --------- ----------- ------- ----------
7,489,333 $7,989 $ 964,662 $(1,264,658) $12,902 $ (279,105)
========= ====== ========= =========== ======= ==========
</TABLE>
See accompanying notes to these financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Expressed in U.S. Dollars)
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(Unaudited)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (868,188)
Amortization expense 1,900
Impairment of marketable securities 9,672
Accretion of discount on notes payable 43,637
Increase in accounts payable and accrued expenses, net of
foreign currency translation adjustments 201,829
Increase in amount due from affiliate (512,593)
Other 16,314
--------------
Net cash used by operating activities (1,107,427)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase furniture and fixtures (66,053)
(66,053)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term indebtedness, net of financing costs 1,092,500
Cash received in common stock issuances 167,560
1,260,060
NET INCREASE IN CASH 86,580
CASH, beginning of period 1,995
CASH, end of period $ 88,575
==============
NON CASH TRANSACTIONS:
Purchase of net assets in reverse acquisition for common stock $ 14,872
Acquisition of CallNet Plc shares for common stock 500,000
--------------
$ 514,872
==============
</TABLE>
See accompanying notes to these financial statements.
15
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------
Organization
------------
World CallNet, Inc. (the "Company") (formerly Worldwide Communications
(Holdings) Limited) is a development stage company incorporated in the
United Kingdom on January 23, 1998. The Company's business plan is to
develop and sell certain consumer internet software and operate as a
pay-as-you-go internet service provider. The accompanying financial
statements include the accounts of the Company, its wholly owned subsidiary
World CallNet Ltd., a British telecommunications electronics design and
licensing company, and Overleaf Systems, Limited ("Overleaf"). Overleaf has
been inactive to date.
Investments
-----------
The Company's investments at March 31, 1999 consist solely of shares
of CallNet Plc, an affiliated company, as described in Note 4.
Foreign Currency Translation
----------------------------
The Company conducts its operations and maintains its accounts in British
pounds. Financial statements prepared in U.S. dollars are translated based
on the exchange rate at the balance sheet date for assets and liabilities
and a weighted average rate for revenues and expenses. Translation
adjustments are accumulated in a separate component of stockholders'
deficit entitled foreign currency translation adjustment.
Loss Per Share
--------------
Basic loss per share is computed based on the weighted average number of
shares outstanding during the period. Diluted loss per share takes common
stock equivalent shares (such as options, warrants and convertible
securities) into consideration. However, common stock equivalent shares are
not considered when their effect would be anti-dilutive.
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
Income Taxes
------------
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
16
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
and liabilities are determined based on the difference between the
financial statements and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. The Company has a tax loss carryforward at September 30, 1998 of
approximately $200,000 and a deferred tax asset, which is fully reserved,
of approximately $50,000. The Company has accrued approximately $77,000 in
payroll taxes due to United Kingdom taxing authorities.
Intangible Asset
----------------
Intangible asset consists of intellectual property, which is being
amortized by the straight-line method over five years.
Statement of Cash Flows
-----------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
2. CONTINUED OPERATIONS
--------------------
The Company is in the development stage and has had $118,191 in revenues through
March 31, 1999. In addition, the Company will require substantial capital to
implement its business plan. These factors raise substantial doubt about the
Company's ability to continue as a going concern. In December 1998 and April
1999, the Company completed bridge note offerings, in which it raised proceeds
(net of consulting and finders fees), of approximately $1,100,000 and $530,000,
respectively. The Company has also negotiated a development and marketing
agreement with a much larger company that management believes will facilitate
market penetration. Management also intends to attempt to raise additional
capital in the near term. Management believes these actions will permit the
Company to achieve its objectives and attain profitable operations to allow the
Company to continue as a going concern.
17
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
3. INVESTMENT AND DEFERRED REVENUE
-------------------------------
In September 1998, the Company acquired 2,000,000 shares in Cherokee Leisure Plc
("Cherokee"), a publicly traded company in the United Kingdom, from another
company in exchange for payment of $10,189 and assumption of the other company's
obligations to Cherokee. The obligations are to design, install and support a
website for Cherokee. The Company had valued the Cherokee shares based on their
estimated market value of $203,772 at the time of acquisition. The Company has
recorded a deferred revenue liability of $193,583, which represents the
estimated value of the shares less the cash payment. The cash payment was made
by CallNet Plc, an affiliate of the Company with directors in common with the
Company, and is included in "Receivable from affiliated entity" in the
accompanying balance sheet.
The Company is entitled to receive 40% of any revenue generated from the
website. No revenue was generated from the website through April 30, 1999.
Management of the Company does not believe that the website project will be
completed or generate any significant future revenues. Accordingly, as of March
31, 1999, the entire investment of $203,772 less the offsetting deferred revenue
of $193,583 have been taken as an impairment loss.
4. ACQUISITIONS
------------
In October 1998, 100% of the Company's common stock was acquired by General
American Royalty, Inc. ("GAR"). The Company's stockholders obtained
approximately 75% of the outstanding common stock of GAR and three of the
Company's directors were appointed to the board of GAR. For financial reporting
purposes, the Company has accounted for the transaction as a reverse acquisition
of GAR. As a result of the transaction, the Company's stockholders' deficit
section reflects the GAR capital structure in the accompanying balance sheet. As
of the closing date of the acquisition, the following amounts were recorded to
reflect the accounts of GAR :
Total assets $ 20,537
Total liabilities 5,665
----------
Stockholder's equity $ 14,872
==========
18
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
In February 1999, the Company completed the acquisition of fifteen percent (15%)
of the stock of CallNet Plc by issuing 500,000 shares of the Company's common
stock. The CallNet Plc shares were valued at $500,000 and are included in
Investments in the accompanying balance sheet. The transaction was valued based
on such factors as the market price of the Company's common stock, the
historical volitility of stock prices, the number of shares held by public
shareholders that have no trading restrictions and the relatively large number
of shares issued.
5. NOTES PAYABLE
-------------
In December 1998, the Company completed a private placement of notes payable
totaling $1,150,000. The notes bear interest at 10% and are collateralized by
the Company's shares of Cherokee Leisure Plc. Interest is due monthly and
principal is due in full on December 1, 1999 or earlier under certain
circumstances, including the raising by the Company of $3.5 million or more of
additional capital. The holders of the notes were also issued stock purchase
warrants entitling them to purchase an aggregate of 575,000 shares of the
Company's common stock between March 1, 1999 and December 1, 2000 at $1.00 per
share. The Company paid a $57,500 consulting fee and issued stock purchase
warrants, on the same terms described above, to purchase 182,500 shares of
common stock in connection with the offering. The holders of these warrants have
certain demand and piggyback registration rights. The Company has valued the
aforementioned stock purchase warrants at $94,059 using a discount factor of 8%.
Both the value of the stock purchase warrants and the referral fee of $57,500
have been treated as a discount to notes payable. Amortization of discount
related to the discount was $43,637 for the six months ended March 31, 1999 and
is included in interest expense. Remaining discount is being amortized based on
the maturity date of December 1, 1999.
6. STOCKHOLDERS' EQUITY
--------------------
In January 1999, the Company's stockholders approved (1) a change in the
corporate name of GAR and its subsidiary, the Company, to World CallNet, Inc.,
(2) an increase in the authorized shares to 30,000,000 shares of common stock
and 10,000,000 shares of preferred stock, and (3) a stock option plan that had
been adopted by the board of directors in November 1998. Under the stock option
plan, the Company's board of directors may grant options to acquire up to a
total of 1,000,000 shares of stock to officers, directors, employees, advisors
or consultants of the Company.
Effective November 1998, the Company granted options pursuant to the terms of
the Stock Option Plan to purchase an aggregate of 600,000 shares as follows:
19
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
Grantee Options
------- -------
Each of three officers who are also directors 150,000
One outside director 100,000
One advisory director 50,000
Each option entitles the grantee to purchase one share of the Company's common
stock at an exercise price of $1.50 per share and expires in November 2001.
In March 1999, the Company granted an option pursuant to the terms of the Stock
Option Plan to an officer of the Company to purchase 100,000 shares of Common
Stock at an exercise price of $3.50 per share, which option expires in March
2002.
7. RELATED PARTY TRANSACTIONS
--------------------------
Certain directors and stockholders of the Company are directors and/or
stockholders in other companies with which the Company had the transactions
set forth below:
o Certain intellectual property rights related to e-mail functionality were
assigned to the Company by Telemail Europe (via the Company's newly formed
subsidiary, Overleaf) in exchange for 100 shares of stock. The parties that
received the stock also paid the Company a total of $166 for the shares.
o The Company entered into an agreement with CallNet Plc in which the Company
will license its system for the business of internet service provider and
CallNet Plc will sub-license such system to other parties.
o The Company has made cash advances to CallNet Plc, an 15% owned affiliated
entity, that equaled $502,107 at March 31, 1999.
20
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
8. COMMITMENTS
-----------
The Company has employment agreements with three officers who are also
directors. Each of these employment agreements requires an annual salary through
September 2001 of approximately $110,000 each, and provides that if such
agreement is terminated by either party during the term of the agreement, the
full salary and benefits are required to be paid to the executive officer until
the end of the term of the agreement. Each of these offers have identical
employment agreement with Callnet, Plc. During February and March 1999, these
executive officers deferred approximately 23% of their salaries from the Company
in the aggregate. Commencing with the quarter ended June 30, 1999, each
executive officer has agreed to defer one-half of his salary from the Company
until a substantial amount of additional capital has been raised by the Company,
as determined in the reasonable discretion of the Board of Directors, at which
time the Company will be obligated to pay to these executive officers the
deferred portion of their salary. The Company's obligation to pay the deferred
portion of the salary, without interest, is an unsecured obligation of the
Company that is subordinated to the claims of certain other unsecured creditors
of the Company.
9. SUBSEQUENT EVENTS
-----------------
In April 1999, the Company completed the private placement of $550,000 of bridge
notes payable due on October 9, 1999, or earlier under certain circumstances,
including the raising by the Company of $3.5 million or more of additional
capital. The notes bear interest of 10% per annum which is payable monthly. The
holders of the notes were also issued stock purchase warrants entitling them to
purchase an aggregate of 1,100,000 shares of the Company's common stock between
March 1, 1999 and December 1, 2000 at prices varying from $4.50 to $10 per
share.
In connection with this transaction, the Company paid a $12,500 finders fee and
issued stock purchase warrants to purchase 37,500 shares of Company common stock
at an exercise price of $3.60 per share, on substantially the same terms as the
1998 bridge warrants (described in Note 5). The holders of these warrants have
the right to exercise these warrants in cash or pursuant to a "net exercise"
provision whereby the holder of a warrant can use shares subject to such warrant
21
<PAGE>
WORLD CALLNET, INC.
(Formerly Worldwide Communications (Holdings) Limited)
(A Development Stage Company)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
at their then fair market value as consideration for the exercise of such
warrant. In addition, the exercise price with respect to these warrants are
subject to standard anti-dilution provisions. In addition, the warrants with a
$4.00 exercise price are subject to "ratchet" anti-dilution provisions whereby,
subject to certain exceptions, the exercise price of such warrants will be
subsequently reduced if during the term of the warrant the Company issues shares
of Company common stock at a price below $3.60 per share or grants options or
warrants with an exercise price or conversion price, respectively, below $3.60
per share. The exercise price with respect to such warrants will be reduced to
the lowest issuance price or exercise or conversion price. The holders of these
warrants have certain demand and piggyback registration rights.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
In March 1999, the Company issued warrants exercisable until March 26,
2001 to purchase 100,000 shares of Company common stock at an exercise
price of $5.00 per share in consideration of an agreement to provide
certain financial public relations and investor relations services. The
holder of the warrant has certain demand and piggyback registration
rights. In March 1999, the Company granted an option exercisable until
March 2002 to the Company's chief financial officer to purchase 100,000
shares of Company common stock at an exercise price of $3.50 per share.
The securities referenced in this item 2 were issued in transactions
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the private placement exemption set forth in Section 4(2).
Item 3. Defaults on Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On January 5, 1999, the Company held a special meeting of its
stockholders. All proposals submitted to the Company's stockholders
were approved as follows:
o To amend the Certificate of Incorporation of the Company to change the name
of the Company to "World CallNet, Inc."
o To amend the Certificate of Incorporation of the Company to increase its
authorized capital (i) from 20 million shares of common stock (par value
$0.0001) to 30 million shares of common stock (par value $0.001) and (ii)
from 5 million shares of preferred stock (par value $0.01) to 10 million
shares of preferred stock (par value $0.001).
o To approve the Company's 1998 Stock Option Plan.
The results of the vote of the stockholders with respect to these matters were
as follows:
23
<PAGE>
<TABLE>
<CAPTION>
Abstain/ Broker
For Against Withheld No-Votes
--- ------- -------- --------
<S> <C> <C> <C> <C>
o Change of Name 6,442,700 0 0 0
o Increase of Authorized 6,405,700 37,000 0 0
o 1998 Stock Option Plan 6,415,700 27,000 0 0
</TABLE>
Item 5. Other Information.
As of May 18, 1999, James Christodoulou ceased to be employed by the
Company. Aaron Goodman-Simpson will serve as the Chief Financial
Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
a. Certificate of Amendment to the Certificate of Incorporation of
the Company, which is incorporated by reference herein from
Exhibit 3.1 to the Company's Form 8-K, dated January 5, 1999.
b. Securities Purchase Agreement dated as of April 9, 1999 by and
among the Company and the Purchasers (as defined therein).
(Schedules and certain Exhibits have been omitted).
c. Form of Promissory Note issued to the Purchasers pursuant to the
Securities Purchase Agreement.
d. Form of Warrant with an exercise price of $4.00 per share issued
to the Purchasers pursuant to the Securities Purchase Agreement.
e. Form of Warrant with an exercise price of $10.00 per share issued
to the Purchasers pursuant to the Securities Purchase Agreement.
f. Registration Rights Agreement by and between the Company and the
Purchasers pursuant to the Securities Purchase Agreement.
10.6 Warrant issued to Thomas Price, Jr. to purchase 100,000 shares of
Company common stock.
24
<PAGE>
10.7 Company's 1998 Stock Option Plan (incorporated by reference from
Exhibit 99 to the Company's Form 8-K, dated January 5, 1999).
27 Financial Data Schedule filed herewith.
Reports on Form 8-K.
One report on Form 8-K dated January 5, 1999 was filed during the period
covered by this report. The registrant reported the approval by the stockholders
to the (i) change of name of the Company to World CallNet, Inc.; (ii) the
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Company common stock and preferred stock; and (iii) the
Company's 1998 Stock Option Plan.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WORLD CALLNET, INC.
(Registrant)
/s/ Paul Goodman-Simpson
--------------------------------
Paul Goodman-Simpson, Director,
President and Chief Executive
Officer
Date: May 19, 1999
-------------
/s/Aaron Goodman-Simpson
--------------------------------
Aaron Goodman-Simpson, Vice
President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: May 19, 1999
--------------
26
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of
April 9, 1999 between World Callnet, Inc., a Delaware corporation (the
"Company"), and the parties listed on Exhibit A hereto, as it may be amended
from time to time, each of whom has executed this Agreement (each a "Purchaser"
and collectively the "Purchasers").
WHEREAS, the Company desires to sell to the Purchasers $500,000 of its
10% Unsecured Notes (the "Notes") and warrants (the "Warrants") to purchase up
to 1,000,000 shares of the Company's common stock, par value $.001 per share
(the "Common Stock"), and
WHEREAS, the Purchasers have agreed to purchase the Notes and the
Warrants.
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, the parties hereto agree as follows:
1. Authorization. The Company has authorized the issuance to the
Purchasers of the Notes under the terms and conditions set forth herein and
substantially in the manner set forth as Exhibit B hereto and the Warrants on
the terms and conditions set forth in Section 7 hereof.
2. Purchase and Sale of Notes. On the Closing Dates (as defined below),
the Company will sell to the Purchasers and, subject to the terms and conditions
herein set forth, such Purchasers will purchase from the Company, an aggregate
of $500,000 principal amount of the Notes and the Warrants for a purchase price
equal to 100% of the principal amount of the Notes purchased (the "Purchase
Price") on such Closing Date. The Company will make delivery of the Notes and
the Warrants by delivering to each such Purchaser a Note in the principal amount
being purchased by such Purchaser and a certificate representing the Warrants
being purchased by such Purchaser, against payment in each case of the Purchase
Price by valid check. Exhibit A shall be amended from time to time until Notes
evidencing the entire amount authorized by the Company have been sold.
3. Closing. The closings of the transactions contemplated hereby (each
a "Closing") shall take place on one or more dates (each a "Closing Date" and
collectively the "Closing Dates") at the offices of Eagle Equity, Inc., Two
Lincoln Centre, Suite 1280, 5420 LBJ Freeway, LB 56, Dallas, Texas 75240 at such
dates and times as shall be determined by the Company and as reasonably
acceptable to Purchasers.
4. Representations and Warranties of the Company. The Company and its
existing subsidiaries, jointly and severally, hereby separately represents and
warrants to each Purchaser as follows:
4.1 Organization; Standing and Power. Each of the Company and
its existing subsidiaries (a) is a corporation duly organized, existing
and in good standing under the laws of its respective jurisdiction (b)
has all requisite corporate power and authority to own its properties
and to carry on its businesses as now conducted and as proposed
hereafter to be conducted, (c) is duly qualified to do business as a
foreign corporation in each and
<PAGE>
every jurisdiction where such qualification is necessary except where
the failure to so qualify would not have a material adverse effect on
the financial condition, business, operations, assets or prospects of
the Company or any of such subsidiaries (a "Material Adverse Effect"),
and (d) has all requisite corporate power and authority to execute and
deliver, and perform all of their respective obligations under this
Agreement, the Notes, and the Warrants, (collectively and together with
the Registration Rights Agreement in the form annexed hereto as Exhibit
C, the "Transaction Documents").
4.2 Capitalization. The capitalization of the Company is set
forth in Schedule 4.2.
4.3 Authorization. The execution, delivery and performance by
the Company of its obligations under the Transaction Documents has been
duly authorized by all requisite corporate action and will not, either
prior to or as, a result of the consummation of the transactions
contemplated by this Agreement: (a) violate any law, any order of any
court or other agency of government, any provision of the Certificate
of Incorporation or Bylaws of the Company or any subsidiary, or any
contract, indenture, agreement or other instrument to which the Company
or any subsidiary is a party, or by which the Company or any such
subsidiary or any of their respective assets or properties are bound,
or (b) be in conflict with, result in a breach of, or constitute (after
the giving of notice of lapse of time or both) a default under, or
result in the creation or imposition of any lien of any nature
whatsoever upon any of the property or assets of any Company or any
such subsidiary pursuant to any such contract, indenture, agreement or
other instrument. Neither the Company nor any of its subsidiaries is
required to obtain any government approval, consent or authorization
from, or to file any declaration or statement with, any governmental,
instrumentality or agency in connection with or as a condition to the
execution, delivery or performance of any of the Transaction Documents
other than the filing of Form D and any applicable state securities law
filings.
4.4 Non-contravention. Neither the Company nor any of its
subsidiaries, to the Company's knowledge, is in violation or breach of
or in default with respect to, complying with any material provision of
any contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company or such subsidiary is a party, and
each such contract, agreement, instrument, lease, license, arrangement
and understanding is in full force and effect and is the legal, valid
and binding obligation of the Company or such subsidiary enforceable as
to the Company or such subsidiary, as the case may be, in accordance
with its terms (subject to applicable bankruptcy, insolvency and other
laws affecting the enforceability of creditors' rights generally and to
general equitable principals). The Company and its subsidiaries enjoy
peaceful and undisturbed possession under all real property leases
under which they are operating,
4.5 Litigation. Except as set forth in Schedule 4.5, there is
no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened in writing against
2
<PAGE>
the Company, any of its subsidiaries or any of their respective assets,
which, if adversely determined, would have a Material Adverse Effect.
4.6 Financial Statements.
(a) The financial statements of the Company set forth
in the Company's reports filed with the Securities and Exchange
Commission (the "Commission") (the "Financial Statements") have been
prepared in accordance with United States generally accepted accounting
principle ("GAAP") on a consistent basis for all periods and fairly
present in all material respects the consolidated financial condition
of the Company and its consolidated subsidiaries as at said dates, and
the results of operations for the periods stated. The books of account
and other financial records of the Company and each of its subsidiaries
have been maintained in accordance with GAAP, consistently applied.
(b) Neither the Company nor any Subsidiary has any
liabilities, obligations or commitments of any kind or nature
whatsoever, whether absolute, accrued, contingent or otherwise
(collectively "Liabilities and Contingencies") except: (i) Liabilities
and Contingencies disclosed in the Financial Statements or footnotes
thereto, (ii) Liabilities and Contingencies incurred in the ordinary
course of business and consistent with past practice since the date of
the most recent Financial Statements, or (iii) those Liabilities and
Contingencies which are not required to be disclosed under GAAP.
(c) Except as set forth in Schedule 4.5, since the
date of the most recent Financial Statements, there have been no
changes which would have a Material Adverse Effect.
4.7 Securities Law Exemption. Assuming the accuracy of each
Purchaser's representations and warranties set forth herein, the sale
of the Notes and Warrants pursuant to this Agreement has been made in
accordance with the provisions and requirements of Regulation D
("Regulation D") under the Securities Act of 1933, as amended (the
"Securities Act"), and any applicable state law.
4.8 Use of Proceeds. The net proceeds from the sale of the
Notes shall be used for working capital and general corporate purposes
of the Company and its existing subsidiaries.
4.9 Solvency. Neither the Company nor any of its subsidiaries
is contemplating either the filing of a petition under any state or
federal bankruptcy or insolvency law, or the liquidation or sale of the
Company or any of its subsidiaries or any substantial portion of their
respective assets or property; and the Company has no knowledge of any
person contemplating the filing of any such petition against the
Company or any of its subsidiaries.
4.10 Tax Returns. Except as otherwise set forth in footnotes
to the consolidated balance sheet of the Company, which the Company
shall furnish to the Purchasers at their
3
<PAGE>
request, and except for any returns currently on extension pursuant to
properly and timely filed extensions, the Company and its subsidiaries
have each filed all federal, state and local tax returns required to be
filed by any of them and have paid or made adequate provision (as
reflected in the Financial Statements) for the payment of all federal,
state and local taxes, charges and assessments as set forth on such
returns.
4.11 ERISA. Neither the Company nor any of its subsidiaries
maintains or has any obligation to make any contributions to any
pension, profit sharing or other similar plan providing for deferred
compensation to any employee.
4.12 Compliance with Laws. The Company and its subsidiaries
are in compliance in all material respects with all occupational
safety, health, wage and hour, employment discrimination,
environmental, flammability, labeling, usury and other applicable laws
which are material to their respective businesses, and the Company is
not aware of any state of facts, events, conditions or occurrences
which may now or hereafter constitute or result in a violation of any
of such applicable laws, or which may give rise to the assertion of any
such violation, the effect of which could have a Material Adverse
Effect.
4.13 Licenses and Permits. The Company and its subsidiaries
have all federal, state and local licenses and permits required to be
maintained in connection with and material to their respective
operations, and all such licenses and permits are valid and in full
force and effect.
4.14 Environmental Laws. To the best of the Company's
knowledge, the land and improvements owned or leased by the Company or
any of its subsidiaries for use in their respective business operations
are free of dangerous levels of contaminates, oils, asbestos, radon,
PCB's, hazardous substances or waste as defined by federal, state or
local environmental laws, regulations or administrative orders or other
materials, the removal of which is required or the maintenance of which
is prohibited, regulated or penalized by any federal, state or local
governmental authority.
5. Representations and Warranties of the Purchasers. Each Purchaser,
for himself and not for any other Purchaser, hereby represents and warrants to
the Company with respect to this Agreement and to the issuance of the Notes and
Warrants as follows:
5.1 Authorization of Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action on the part of such person, does not violate any laws or
regulations applicable to such person and is the valid binding and
enforceable obligation of such person in accordance with its terms.
5.2 Experience; Accredited Investor. The Purchaser is
experienced in evaluating and investing in the type of companies such
as the Company, The Purchaser is an "accredited investor" as that term
is defined in Rule 501(a) of the Securities Act, and the rules
promulgated thereunder.
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5.3 Investment. The Purchaser is acquiring the Notes, the
Warrants and the shares of Common Stock issuable upon exercise of the
Warrants for investment for such Purchaser's own account and not with
the view to, or for resale in connection with, any distribution
thereof. The Purchaser understands that none of the Notes, Warrants and
shares of Common Stock issuable upon exercise of the Warrants have been
registered under the Securities Act by reason of a specific exemption
from the registration provisions of the Securities Act which depends
upon, among other things, the bona ride nature of the investment intent
as expressed herein.
5.4 Nature of Securities. The Purchaser understands that the
Notes are unsecured, unguaranteed obligations of Company.
5.5 Access to Data. The Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs,
including the business, management and financial affairs, of its
subsidiaries, with the Company's management and the opportunity to
review the Company's facilities. The Purchaser understands that such
discussions, as well as any written information issued or provided by
the Company, were intended to describe the aspects of the Company's
business and prospects which the Company believes to be material but
were not necessarily a thorough or exhaustive description thereof. The
Purchaser has received from the Company all materials and information
it deems necessary for it to make its investment decision with respect
to the securities offered hereby.
6. Legends. The Company will cause each Note to be endorsed with the
following legends:
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 "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 ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER
NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS
LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS
NOTE.
7. Warrants.
7.1 Terms of Warrants.
(a) The Warrants shall have the following terms:
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(i) for each $ 100,000 principal amount of
Notes purchased, the Company shall issue a Warrant to
purchase 200,000 shares of Common Stock. (In the
event Purchaser purchases a Note having a principal
amount less than $100,000 or a Note the principal
amount of which is not a whole multiple of $100,000,
the number of shares of Common Stock issuable upon
exercise of a Warrant shall be adjusted pro rata);
and
(ii) The Warrants issued to a Purchaser (or
affiliated parties) with respect to the first 350,000
shares of Common Stock underlying the Warrants shall
have an exercise price of $4.00 per share of Common
Stock and shall have the other terms as set forth in
a warrant agreement, the form of which is annexed
hereto as Exhibit C.
(iii) The Warrants issued to a Purchaser (or
affiliated parties) with respect to the remaining
150,000 share of Common Stock underlying the Warrants
shall have an exercise price of $10.00 per share of
Common Stock and have the other terms as set forth in
a warrant agreement, the form of which is annexed
hereto as Exhibit D.
(b) The Warrant Agreements shall be issued to the
Purchasers at the Closing.
7.2 Registration Under the Securities Act. The Company and the
Purchasers shall enter into a Registration Rights Agreement with
respect to the shares of Common Stock issuable upon exercise of the
Warrants substantially in the form annexed hereto as Exhibit E.
---------
8. Covenants.
8.1 Affirmative Covenants of the Company. The Company and its
subsidiaries hereby jointly and severally covenant and agree that, from
the date hereof and until the Notes have been paid in full, they shall:
(a) Corporate and Insurance. Do or cause to be done
all things necessary to at all times (a) other than mergers
solely among the Company and any of its subsidiaries,
preserve, renew and keep in full force and effect their
corporate existence, rights, licenses, permits and franchises,
(b) comply with this Agreement, (c) maintain and preserve all
of their material property used or useful in the conduct of
their respective businesses, (d) keep, under the coverage of
an "umbrella policy or other, form of coverage, its insurable
properties adequately insured at all times, by financially
sound and reputable insurers, to such extent and against such
risks, including fire and other risks and casualty insured
against by extended coverage, and maintain, as part of such
coverage, liability and such other insurance, as is
customarily maintained by companies engaged in similar
businesses (including, without limitation, products liability
insurance), and (e) comply with
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all applicable laws material to their respective businesses,
whether now in effect or hereafter enacted, promulgated or
issued.
(b) Payment of Taxes. File, pay and discharge, or
cause to be paid and discharged, all taxes, Assessments and
governmental charges or levies imposed upon them or upon their
income and profits or upon any of their property (real,
personal or mixed) or upon any part thereof, before the same
shall become in default, as well as all lawful claims for
labor, materials, supplies and otherwise, which, if unpaid
when due, might become a lien or charge upon such property or
any part thereof; provide , however, that they shall not be
required to pay and discharge or cause to be paid and
discharged any such tax, assessment, charge, levy or claim
(other than taxes and/or assessments relating to real property
or the use thereof) so long as, (a) the validity thereof shall
be contested in good faith by appropriate proceedings and they
shall have set aside on their books adequate reserves with
respect to any such tax, assessment, charge, levy or claim so
contested, and (b) payment with respect to any such tax,
assessment, charge, levy or claim shall be made before any of
their property shall be seized or sold in satisfaction
thereof.
(c) Notice of Proceedings. Give prompt written notice
to the Purchasers of any proceeding instituted against any of
them in any federal or state court or before any commission or
other regulatory body, whether federal, state or local, which,
if adversely determined, could have a material adverse effect
upon their business, operations, properties, assets or
condition, financial or otherwise when taken as a whole.
(d) Periodic Reports. Furnish to the Purchasers:
(i) Within ninety (90) calendar days after
the end of each fiscal year, consolidated balance
sheets, statements of income, statements of
stockholders" equity, and statements of cash flows,
together with footnotes and supporting schedules
thereto, all reported on without qualification as to
scope of audit by independent certified public
accountants of their choosing, showing their
financial condition at the close of such fiscal year
and the results of operations during such fiscal
year;
(ii) Within ninety (90) calendar days after
the end of each fiscal quarter, unaudited
consolidated balance sheets and statements of income
certified by the Company's Chairman, President or
Chief Financial Officer, such balance sheets to be as
of the close of such fiscal quarter and such
statements of income to be for the period from the
beginning of the then-current fiscal year to the end
of such fiscal quarter, together with comparative
statements of income for the corresponding fiscal
period in the immediately preceding fiscal year, in
each case subject to normal audit and year-end
adjustments;
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(iii) Concurrently with the delivery of each
of the financial statements required above, a
certificate (the "Compliance Certificate"), signed by
the Company's Chairman or President or Chief
Financial Officer, certifying that he has examined
the provisions of this Agreement and that no Event of
Default (as defined below) has occurred and/or is
continuing;
(iv) Promptly, from time to time, provide
such other information regarding their operations,
assets, business, affairs and financial condition, as
those Purchasers holding notes which, in the
aggregate, represent more than 50% of the then
outstanding principal amount of all of the Notes
issued pursuant to this Agreement (the "Requisite
Majority") shall reasonably request.
(e) Books and Records; Inspection. Maintain books and
records respecting all of their business operations, and
permit agents or representatives of the Purchasers to inspect,
at any time during normal business hours, Upon reasonable
notice, and without undue material disruption of their
business operations, all of such books and records.
(f) Notice of Default or Material Adverse Change.
Promptly advise the Purchasers of: (a) any Material Adverse
Effect; and (b) of the existence or occurrence of any Event of
Default:
(g) Accounting. Maintain a standard system of
accounting in order to permit the preparation of consolidated
financial statements in accordance with GAAP.
(h) Environmental Response. In the event of any
discharge, spill, injunction, escape, emission, disposal, leak
or other release of hazardous substances on any real property
owned or leased by the Company or any of its subsidiaries,
which is not authorized by a permit or other approval issued
by the appropriate governmental agencies, and which requires
notification to or the filing of any report with any Federal
or sate governmental agency, the Company shall promptly: (i)
notify the Purchasers; and (ii) comply with the notice
requirements of the Environmental Protection Agency and
applicable state agencies, and take all steps necessary to
promptly clean up such discharge, spill, injection, escape,
emission, disposal, leak or other release in accordance with
all applicable environmental laws and the Federal National
Contingency Plan, and, if required, receive a certification
from all applicable state agencies or the Environmental
Protection Agency, that such real property has been cleaned up
to the satisfaction of such agency(ies).
(i) Consultation. The Company will consult with
Purchasers prior to execution of any agreements with
investment bankers, brokers, intermediaries or finders with
respect to the raising of additional capital and agrees to use
reasonable
8
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efforts to enter into such agreements only on terms that are
reasonable and in the best interests of the Company.
8.2 Negative Covenants of the Company. The Company and each of
its subsidiaries jointly and severally covenant and agree that, until
the Notes have been paid in full, unless the Requisite Majority shall
otherwise consent in writing, neither the Company nor such subsidiary
shall, directly or indirectly:
(a) Change of Business. Directly or indirectly: (a)
engage in a business materially, different from the general
nature of the business operations as now being conducted or as
same may hereafter be reasonably expanded from time to time in
like areas of business, or (b) wind up its business operations
or cease substantially all of its normal business operations
for a period in excess of thirty (30) consecutive days.
(b) Dividends. Declare and/or pay any dividends on
the outstanding shares of the capital stock of the Company
(other than dividends payable solely in shares of stock of the
Company).
9. Defaults & Remedies.
9.1 Events of Default. Each of the following events is herein
referred to as an Event of Default:
(a) if any representation or warranty made herein, or
in the Transaction Documents, or in any report, certificate,
financial statement or other instrument furnished in
connection with this Agreement, shall be false, inaccurate or
misleading in any material respect when made or when deemed
made hereunder;
(b) any default in the payment of any principal or
interest under any of the Notes when the same shall be due and
payable, whether at the due date thereof or by acceleration or
otherwise;
(c) any default in the payment of any principal or
interest under any material indebtedness of the Company when
the same shall be due and payable, whether at the due date
thereof or by acceleration or otherwise;
(d) any material default in the due observance or
performance of any other covenant, condition or agreement to
be observed or performed under Section 8 hereof, the
Registration Rights Agreement or otherwise pursuant to the
terms hereof, and the continuance of such default unremedied
for a period of twenty (20) days after written notice thereof
to the Company setting forth in reasonable detail the
circumstances of such Event of Default;
9
<PAGE>
(e) if the Company or any of its subsidiaries shall:
(i) apply for or consent to the appointment of a receiver,
trustee, custodian or liquidator of it or any of its
properties, (i) admit in writing its inability to pay its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or
insolvent or be the subject of an order for relief under Title
11 of the United States Code, or (v) file a voluntary petition
in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take
advantage or any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation, law or
statute, or an answer admitting the material allegations of a
petition filed against him or it in any proceeding under any
such law, or (vi) take or permit to be taken any action in
furtherance of or for the purpose of effecting any of the
foregoing;
(f) if any order, judgment or decree shall be
entered, without the application, approval or consent of the
Company or any of its subsidiaries, by any court of competent
jurisdiction, approving a petition seeking reorganization of
the Company or any of its subsidiaries, or appointing a
receiver, trustee, custodian or liquidator of any of the
Company or any of its subsidiaries, or of all or any
substantial part of their respective assets, and such order,
judgment or decree shall continue unstayed and in effect for
any period of sixty (60) days; or
(g) if final judgment(s) for the payment of money in
excess of $50,000 individually or $100,000 in the aggregate
shall be rendered against the Company or any of its
subsidiaries, and the same shall remain undischarged or
unbonded for a period of thirty (30) consecutive days, during
which execution shall not be effectively stayed.
9.2 Remedies. Upon the occurrence of any Event of Default, and
at all times thereafter during the continuance thereof: (i) the Notes
shall, at the option of the Requisite Majority (except in the case of
Sections 9.1(d) and (e) hereof, the occurrence of which shall
automatically effect acceleration, regardless of any action or
forbearance in respect of any prior or ongoing Event of Default which
may be inconsistent with such automatic acceleration), become
immediately due and payable, as to principal, interest and premium (if
any), without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived, anything contained herein or in
the Notes to the contrary notwithstanding, (ii) all outstanding
obligations under the Notes, and all other outstanding obligations on
which the applicable interest rate is determined by reference to the
interest rate under any of the Notes, shall bear interest at the
default rate of interest provided in the Notes, (iii) the Purchasers
may file suit against the Company on the Notes and/or seek specific
performance or injunctive relief thereunder (whether or not a remedy
exists at law or is adequate), and (iv) the Purchasers shall have the
right in accordance with this Agreement and the Notes to exercise any
and all remedies as the Requisite Majority may determine in their
discretion.
10
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10. Conditions Precedent to the Obligations of the Company. The
obligations of the Company pursuant to this Agreement are subject to the
satisfaction at the Closing of each of the following conditions; provided,
however, that the Company may, in its sole discretion, waive any of such
conditions and proceed with the transactions contemplated hereby.
10.1 Accuracy of Representations and Warranties. The
representations and warranties of the Purchasers contained in the
Transaction Documents shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of the
Closing Date.
10.2 Performance of Agreements. Each Purchaser shall have duty
executed and delivered to the Company the Transaction Documents which
they are required to sign and shall, have performed and complied in all
material respects with all covenants, obligations and agreements to be
performed or complied with by any of them on or before the Closing Date
pursuant to the Transaction Documents.
11. Conditions Precedent to the Obligations of the Purchasers. The
obligations of the Purchasers under this Agreement are subject to the
satisfaction at the Closing of each of the following conditions; provided,
however, that the Purchasers may, in their sole discretion, waive any of such
conditions and proceed with the transactions contemplated hereby.
11.1 Accuracy of Representations and Warranties. The
representations and warranties of the Company contained in the
Transaction Documents shall be true and correct in all material
respects on and as of the Closing Date, as if made on and as of the
Closing Date.
11.2 Performance of Agreements. The Company shall have duly
executed and delivered the Transaction Documents and shall have
performed and complied in all material respects with all covenants,
obligations and agreements to be performed or complied with by it on or
before the Closing Date pursuant to the Transaction Documents.
11.3 Litigation, etc. No claim, action, suit, proceeding,
arbitration or hearing or notice of hearing shall be pending (and no
action or investigation by any governmental authority shall be
threatened) which seeks to enjoin or prevent the consummation of the
transactions contemplated by this Agreement.
11.4 Officers, Certificate. The Purchasers shall have received
a certificate of the chief executive officer of the Company, dated the
Closing Date, certifying as to the fulfillment of the conditions set
forth in Sections 11.1, 11.2 and 11.3.
11.5 Good Standing Certificate. The Purchasers shall have
received a "good standing" certificate with respect to the Company from
the Secretary of State of its state of incorporation stating that the
Company is duly incorporated and in good standing in its state of
incorporation.
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11.6 Callnet Plan. The Purchasers shall receive by April 26,
1999 documentation relating to the establishment of the Callnet Plc
stock option plan (referenced in Schedule 4.2 hereof), as of February
3, 1999.
12. Indemnification.
12.1 Indemnification by the Company. The Company hereby
covenants and agrees with the Purchasers that it shall reimburse and
indemnify the Purchasers and their respective officers, directors,
employees, agents, successors and assigns (individually an "Indemnified
Party") and hold each of them harmless from, against and in respect of,
any claims, costs, losses, damages, liabilities, fines, penalties,
damages and expenses (including interest which may be imposed in
connection therewith and court costs and reasonable fees and
disbursements of counsel) incurred by any such Indemnified Party due
to, arising out of, or in connection with, a breach of any of the
representations, warranties, covenants or agreements made by the
Company in the Transaction Documents (a "Claim").
12.2 Indemnification by the Purchasers. Each Purchaser hereby
covenants and agrees with the Company that it shall reimburse and
indemnify the Company and its officers, directors, employees, agents,
successors and assigns (also individually an "Indemnified Party") and
hold each of them harmless from, against and in respect of, any and all
costs, losses, damages, liabilities, fines, penalties, damages and
expenses (including interest which may be imposed in connection
therewith and court costs and reasonable fees and disbursements of
counsel) incurred by any such Indemnified Party due to, arising out of,
or in connection with, a breach of any of the representations,
warranties, covenants or agreements made by such Purchaser in the
Transaction Documents (also a "Claim"); provided however, the
obligation of a Purchaser under this Section 12.2 shall not exceed the
principal amount of the Notes held by such Purchaser,
12.3 Right to Defend. If the facts giving rise to any such
indemnification shall involve any actual Claim or demand by any third
party against an Indemnified Party, the indemnifying party shall be
entitled to notice of, and entitled to defend or prosecute, such Claim
at its expense and through counsel of its own choosing if it advises
the Indemnified Party in writing of its intention to do so within
thirty (30) days after notice of such Claim has been given to the
indemnifying party (without prejudice to the right of any Indemnified
Party to participate at its expense through counsel of its own
choosing). Such Indemnified Party shall cooperate in the defense and/or
settlement of such Claim, but shall be entitled to be reimbursed for
costs and expenses incurred by it in connection therewith. No
settlement of any Claim may be made without the consent of the
indemnifying party, which consent may not be unreasonably withheld;:
provided, however, that if such indemnifying party has been offered the
opportunity to defend such Claim and has elected not to do so then
settlement may be made without the consent of the indemnifying Party.
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13. General Provisions.
13.1 Survival Of Representations, Warranties, Covenants, and
Agreements. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the execution of this
Agreement.
13.2 Notices. All notices, requests, demands and other
communications which are required to be or may be given under this
Agreement to any party to any of the other parties shall be in writing
and shall be deemed to have been duly given when (a) delivered in
person, the day following dispatch by an overnight courier service
(such as Federal Express or UPS, etc.) or (c) five (5) days after
dispatch by certified or registered first class mad, postage prepaid,
return receipt requested, to the party to whom the same is so given or
made:
If to the Company addressed to: World Callnet, Inc.
Brecon House
Meridian Gate
207 Marsh Wall
London
E149YT
with a copy to: Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attn: Mark D. Wigder, Esq.
If to a Purchaser: at the address of such Purchaser as
set forth on Exhibit A.
13.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
13.5 Headings. All headings are inserted for convenience of
reference only and shall not affect the meaning or interpretation of
any such provisions or of this Agreement, taken as an entirety.
13.6 Severability. If and to the extent that any court of
competent jurisdiction holds any provision (or any part thereof) of
this Agreement to be invalid or unenforceable, such holding shall in no
way affect the validity of the remainder of this Agreement.
13.7 Waivers and Amendments. With the written consent of the
Requisite Majority, obligations of the Company under this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), and with the same consent the Company
may enter into a supplementary agreement for the purpose of
13
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adding any provisions to this Agreement or to any supplemental
agreement modifying in any manner the rights and obligations of the
Purchasers and of the Company; provided, however, that no such waiver
or supplemental agreement shall reduce the percentage of the Requisite
Majority without the written consent of Purchasers then holding at
least 80% of the aggregate principal amount of the, Notes (the "80%
Majority). Notwithstanding anything to the contrary above, the payment
of interest, time of payment of interest, the interest rate payable,
payment of principal and time of payment of principal on the Notes may
not be changed without the written consent of the 80% Majority, and
this provision may not be waived or amended without the written consent
of the 80% Majority. Written notice of any such waiver, consent or
agreement of amendment. modification or supplement shall be given by
the Company to the Purchasers who have not previously consented thereto
in writing,
13.8 Changes, Waivers, Etc. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated
orally, but rather may only be changed by a statement in writing signed
by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in Section 13.7
hereof.
13.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
13.10 Binding Effects. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors, legal representatives and assigns.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WORLD CALLNET, INC.
By:
-------------------------------
Paul Goodman-Simpson, President
PURCHASER:
For Purchasers who are not a corporation,
partnership, LLC, LP or trust
-------------------------------------
Print Exact Name of Purchaser
(If a joint purchaser, print both names)
-------------------------------------
Signature
For Purchasers who are a corporation,
partnership, LLC, LP or trust
-------------------------------------
Legal Name of Purchaser
By:
--------------------------------
Name:
Title:
15
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Exhibit A
Name Principal Amount of Note
Eagle Equity I, L.P. $250,000
c/o Eagle Equity, Inc.
Two Lincoln Center, Suite 1280
5420 LBJ Freeway, L.B. 56
Dallas, Texas
Attn: Lawrence E. Steinberg
David R. Weinreb $250,000
1412 Main Street
26th Floor
Dallas, Texas 75202
16
Exhibit 10.2
Promissory Note
$250,000.00 April 9, 1999
FOR VALUE RECEIVED the undersigned World CallNet Inc., a Delaware:
corporation, hereinafter whether one or more, called "Maker") promises to pay to
the order of Eagle Equity I, L.P. (hereinafter, whether one or more called
"Payee"), the sum of Two Hundred Fifty Thousand and no/100 Dollars,
($250,000.00) principal and interest, if any, under this Note is payable at Two
Lincoln Centre, Suite 1280, LB 56, Dallas, Texas 75240, or at such other place
as Payee may, from time to time designate in writing
The unpaid principal of this note ("Note") shall bear interest at the
rate of ten percent (10%) per annum from the date hereof until the principal
hereof is paid. Any payments of principal and any other amount payable by Payee
to Maker under this Note that is not paid in full when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest at the lesser of (i)
eighteen percent (18%) per annum or (ii) the highest lawful rate.
This Note shall be payable on or before the earlier of (i) October 9,
1999 or (ii) five (5) days after Maker has received the aggregate of $3,500,000
through the sales of securities in either a private or public transaction after
the date hereof. Interest shall be payable monthly in arrears, beginning on
April 30, 1999. Unless otherwise provided herein, all payments shall first be
applied to payments of accrued and unpaid interest, if any, and the balance of
each such payment shall be applied to reduction of principal.
All payments hereunder shall be payable in lawful money of the United
States of America which shall be legal tender for public and private debts at
the time of payment.
1. Prepayments. Maker shall have the right to prepay the unpaid
principal balance hereof in part or in its entirety. In the event of a
prepayment, there shall be no penalty or premium due. Any prepayment, whether in
whole or in part, shall be applied first to accrued interest, if any, and then
to principal, and interest shall immediately cease to run on any amount of the
principal so prepaid. Partial prepayments of principal shall be applied to the
payments of principal due hereon in inverse order of maturity.
2. Default remedies. The entire unpaid principal balance of and all
accrued interest on, this Note shall immediately be due and payable at the
option of the holder hereof upon the occurrence of any one or more of the
following events of default ("Event of Default"). For purpose of this Paragraph
2, the term "Event of Default" shall mean an Event of Default as defined in the
Securities Purchase Agreement, dated of even date herewith, between the Maker
and the Purchasers, including the Payee.
3. Cumulative Rights. No delay on the part of the holder of this Note
in the exercise of any power or right under this Note or under any other
instrument executed pursuant hereto shall operate as a waiver thereof, nor shall
a single or partial exercise of any power or right preclude other
1
<PAGE>
or further exercise thereof or the exercise of any other power or right.
Enforcement by the holder of this Note of any security for the payment hereof
shall not constitute any election by it of remedies so as to preclude the
exercise of any other remedy available to it. This Note shall not be subject to
offset by Maker.
4. Waiver. Maker and all endorsers, sureties and guarantors of this
Note waive, demand, presentment, protest, notice of dishonor, notice of
nonpayment, notice of intention to accelerate, notice of acceleration, notice of
protest and any and all lack of diligence or delay in collection or the filing
of suit hereon which may occur, and agree to all extensions and partial
payments, before or after maturity, without prejudice to the holder hereof.
5. Attorneys' Fees And Costs. In the event that one or more Events of
Default shall occur, and in the event that thereafter this Note is placed in the
hands of an attorney for collection, or the event that this Note is collected in
whole or in part through legal proceedings of any nature, then and in any such
case, there shall be added to the unpaid principal balance hereof all reasonable
costs of collection whether or not suit is filed.
6. Governing Law. This Note shall be governed by and construed in
accordance with, the laws of the State of Texas and of the United States of
America.
7. Headings. The headings of the Sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part hereof.
8. Usury. All agreements between Maker and the holder of this Note,
whether now existing or hereafter arising and whether written or oral, are
expressly limited so that in no contingency or event whatsoever, whether by
acceleration of the maturity of this Note or otherwise shall the amount paid, or
agreed to be paid, to the holder hereof for the use, forbearance or detention of
the money to be loaned hereunder or otherwise, exceed the maximum amount
permissible under applicable law. If from any circumstances whatsoever
fulfillment of any provisions of this Note or of any other document evidencing,
securing or pertaining to the indebtedness evidenced hereby, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit such validity and if from any such circumstances
the holder of this Note shall ever receive anything of value as interest or
deemed interest by applicable law under this Note or any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby or
otherwise an amount that would exceed the highest lawful rate, such amount that
would be excessive interest shall be applied to the reduction of the principal
amount owing under this Note or on account any other indebtedness of Maker to
the holder hereof relating to this Note, and not to the payment of interest or
if such excessive interest exceeds the unpaid balance of principal of this Note
and such other indebtedness, such excess shall be refunded to Maker. In
determining whether or not the interest paid or payable with respect to any
Indebtedness of Maker to the holder hereof, under any specific contingency,
exceeds the highest lawful rate, Maker and the holder hereof shall, to the
maximum extent permitted by applicable law, (a) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, (c) amortize, prorate, allocate
and spread the total amount of interest throughout the full term of such
indebtedness so that the actual rate of interest on account of such indebtedness
is uniform throughout the term thereof,
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<PAGE>
and/or (d) allocate interest between portions of such indebtedness, to the end
that no such portion shall bear interest at a rate greater than that permitted
by law. The terms and provisions of this paragraph shall control and supersede
every other conflicting provision of all agreements between Maker and the holder
hereof.
9. Successors and Assigns. All of the stipulations, promises and
agreements in this Note contained by or on behalf of Maker shall bind the
successors and assigns of Maker, whether so expressed or not, and inure to the
benefit of the successors and assigns of Maker and Payee.
10. Severability. In the event any one or more of the provisions
contained in this Note shall for any reason be held to be invalid, illegal or in
any respect such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Note shall be construed as if such invalid,
illegal un unenforceable provision had now been contained herein.
[Remainder of Page Intentionally Blank]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note a of the day
and year first above written.
World CallNet, Inc.
By:
--------------------
Paul Goodman-Simpson
President
4
Exhibit 10.3
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED ("SECURITIES
ACT"), AND MAY NOT BE SOLD TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS M THE
SHARES ARE REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF
ANY STATE APPLICABLE TO SUCH SALE, OR (ii) THE PROPOSED SELLER PROVIDES THE
COMPANY WITH AN OPINION OF COUNSEL THAT THE SECURITIES ARE BEING SOLD IN A
TRANSACTION WHICH IS EXCEPT FROM THE REGISTRATION REQUIREMENT OF THE SECURITIES
ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS AND THE COMPANY IS
SATISFIED THAT NO REGISTRATION STATEMENT IS THEN REQUIRED AND THAT THIS WARRANT
AND THE UNDERLYING SECURITIES MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE MANNER CONTEMPLATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES ACT.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
NO. 1
Warrant to Purchase
VOID AFTER 5:00 P.M.
April 9, 2002
FOR VALUE RECEIVED, World CallNet, Inc., a corporation organized under
the laws of Delaware (the "Company"), promises to issue in the name of, and sell
and deliver to Eagle Equity I, L.P., Two Lincoln Centre, Suite 1280, LB 56,
Dallas, Texas 75240, (the "Holder"), a certificate or certificates for an
aggregate of 350,000 shares ("Shares") of common stock of the Company ("Common
Stock") par value $.001 per share, at any time on or after May 9, 1999, and
prior to 5:00 P.M., London, England Time on April 9, 2002 (the "Expiration
Date"), upon payment therefor of $4.00 per Share in lawful funds of the United
States of America, such amount (the "Basic Exercise Price") being subject to
adjustment in the circumstances set forth hereinbelow. This applicable Basic
Exercise Price, until such adjustment is made and thereafter as adjusted from
time to time, is called the "Exercise Price."
THIS WARRANT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, OR OTHERWISE ENCUMBERED OR OTHERWISE DISPOSED OF (EXCEPT FOR
ASSIGNMENT TO AFFILIATES OF HOLDER), IT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF BY THE HOLDER,
EXCEPT BY THE HOLDER'S EXERCISE HEREOF AS SET FORTH HEREIN FOLLOWING DUE
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS, OR IN
TRANSACTIONS EXEMPT FROM SUCH REGISTRATION.
1. Exercise of Warrant. In case the Holder of this Warrant shall desire
to exercise this Warrant in whole or in part, the Holder shall surrender this
Warrant, with the form of exercise notice
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<PAGE>
on the last page hereof duly executed by the Holder, to the Company accompanied
by payment of the Exercise Price of $4.00 per Share, subject to adjustment as
noted herein.
At the option of the Holder, the Holder may exercise this Warrant,
without a cash payment of the Exercise Price by designating that the number of
shares of Common Stock issuable to Holder upon such exercise shall be reduced by
the number of shares having a fair market value equal to the amount of the total
exercise price for such exercise. In such instance, no cash or other
consideration will be paid by Holder in connection with such exercise other than
the surrender of the Warrant itself, and no commission or other remuneration
will be paid or given by Holder or the Company in connection with such exercise.
If such exercise results in only a partial exercise of this Warrant, then the
Company shall deliver to Holder a new Warrant evidencing the remaining rights
under this Warrant, as provided below. This election is available to the Holder
only if immediately prior to the exercise date Shares of Common Stock trade on
any stock exchange, the NASDAQ Stock Market or the OTC Bulletin Board. For this
purpose, the fair market value of shares of Common Stock shall be determined as
of the last business day preceding the exercise date and shall be deemed to be
the average of the closing bid and ask prices of the Common Stock; provided,
however, if shares of the Common Stock are then listed on a national securities
exchange or the NASDAQ Stock Market, the fair market value of shares of Common
Stock shall be deemed to be the closing price on the relevant date.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company will
deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of Shares as to which this Warrant
has not been exercised. This Warrant, at any time prior to the exercise hereof,
upon presentation and surrender to the Company may be exchanged, along or with
other Warrants of like tenor registered in the name of the same Holder, for
another Warrant or other Warrants of like tenor in the name of such Holder
exercisable for the same aggregate number of Shares as the Warrant or Warrants
surrendered.
2. Registration Rights. Holder shall have the registration rights set
forth in the Registration Rights Agreement executed by the Company in connection
with the issuance of this Warrant.
3. Stock Dividends a Reclassification Reorganizations Anti-Dilution
Provisions. This Warrant is subject to the following further provisions:
a. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall issue any shares of its
Common Stock as a stock dividend or subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then in such
case, the number of shares of Common Stock issuable upon exercise of
this Warrant shall be proportionately increased and the Exercise Price
shall be proportionately decreased, and conversely, in the event the
Company shall contract the number of outstanding shares of Common Stock
by combining such shares of Common Stock into a smaller number of
shares of Common Stock then, in such case the number of shares of
Common Stock issuable upon exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be
proportionately increased. If the Company shall, at any time during the
life of this Warrant,
2
<PAGE>
declare a dividend payable in cash on its Common Stock and shall at
substantially the same time offer to its stockholders generally a right
to purchase new shares of Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all
shares of Common Stock so issued shall for the purpose of this Warrant.
be deemed to have been issued as a stock dividend. Any dividend paid or
distributed upon the Common stock in shares of any other class of
securities convertible into shares of Common Stock or any other
securities shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon the conversion
thereof.
b. In case prior to the expiration of this Warrant by exercise
or by its terms, the Company shall be recapitalized by reclassifying
its outstanding Common Stock into shares with a different par value or
shall thereafter reclassify any such shares in a like manner, or the
Company or a successor corporation shall consolidate, or merge with or
convey all or substantially all of its, or all or substantially all of
any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within
the meaning of the term "successor corporation" hereinbefore used in
the event of any consolidation or merger of any such corporation with,
or the sale of all or substantially all of the property of any such
corporation to another corporation or corporations), the Holder shall
thereafter have the right to purchase, pursuant to and under the terms
and conditions and during the time specified in this Warrant, in lieu
of the shares of Common Stock issuable upon exercise of this Warrant,
such shares of Common Stock, securities or assets as may be issued upon
exercise of this Warrant pursuant to such recapitalization,
consolidation, merger or conveyance; and, in any such event, the rights
of the Holder to an adjustment in the number of shares of Common Stock
that are purchasable upon the exercise of this Warrant and the Exercise
Price as herein provided, shall continue and be preserved in respect to
any shares, securities or assets which the Holder of this Warrant
becomes entitled to purchase.
c. The Exercise Price shall also be subject to adjustment from
time to time as follows:
(1)(A) If the Company shall issue any Additional
Stock without consideration or for a consideration per share
less than U.S. $3.50 (the "Threshold Price"), then the
Exercise Price in effect immediately prior to the issuance of
such Additional Stock shall forthwith be reduced to the per
share consideration received for such Additional Stock.
(B) If the Company shall issue options to purchase
or rights to subscribe for Additional Stock (or securities
exercisable for or convertible into options to purchase or
rights to subscribe for Additional Stock), the following
provisions shall apply:
(I) The options to purchase or rights to
subscribe for Additional Stock shall be deemed to
have been issued for a consideration equal to the
consideration (determined in the manner provided in
paragraphs (c)(2) and (c)(3) of this Section 3), if
any, received by the Company upon the issuance
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<PAGE>
of such options or rights plus the purchase price
provided in such options or rights for the Additional
Stock covered thereby.
(II) The aggregate number of shares of
Additional Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued for a consideration equal to the
consideration, if any, received by the Company for
any such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company
upon the conversion or exchange of such securities or
the exercise of any related options or rights (the
consideration in each case to be determined in the
manner provided in paragraphs (c)(2) and (c)(3) of
this Section 3);
(III) In the event of any change in the number
of shares of Additional Stock deliverable upon
exercise of such options or rights or upon conversion
of or in exchange for such convertible or
exchangeable securities, including, but not limited
to, a change resulting from the antidilution
provision thereof, the Exercise Price in effect at
the time shall forthwith be readjusted to such
Exercise Price as would have been obtained, had the
adjustment that was made upon the issuance of such
options, rights or securities not converted prior to
such change been made upon the basis of such change;
and
(IV) No further adjustment of the applicable
Exercise Price shall be made for the actual issuance
of Additional Stock (or the issuance of securities
convertible into Additional Stock upon the exercise
of any such options or rights) upon the exercise of
any such options or rights or the conversion or
exchange of such securities after the adjustments
have been made under this paragraph (c)(1)(B) of this
Section 3.
(2) In the case of the issuance of Additional Stock
for cash, the consideration shall be deemed to be the amount
of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or
incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(3) In the case of the issuance of Additional Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined in good faith by Borrower's Board
of Directors.
(4) Additional Stock means any shares of the
Company's capital stock or securities convertible, exercisable
or exchangeable into the Company's capital stock
4
<PAGE>
issued after the date hereof, other than shares of Excluded
Stock. Excluded Stock means shares of Common Stock, securities
convertible, exercisable or exchangeable into the Company's
capital stock, or other securities (i) issued or to be issued
by the Company for which adjustment is made under Section 3(a)
or (b), (ii) issued or to be issued by the Company with
respect to outstanding options, warrants, or rights to acquire
any shares of capital stock referenced on Schedule 4.2 to the
Securities Purchases Agreement executed in connection
herewith, (iii) shares of Common Stock or options or warrants
to purchase shares of Common Stock to be issued to
shareholders and/or option holders of Callnet Plc in
connection with the acquisition by the Company of all the
shares of capital stock of Callnet Plc not owned by the
Company, or (iv) issued with the consent of the Purchasers (as
described in the Securities Purchase Agreement).
d. Upon the occurrence of each event
requiring an adjustment of the Exercise Price or of
the number of shares of Common Stock issuable upon
exercise of this Warrant in accordance with, and as
required by, the terms of Subsection (a) of this
Section 3, the Company shall use its best efforts to
forthwith cause either a firm of independent
certified public accountants (who may be the regular
accountants for the Company) or the Chief Financial
Officer of the Company to compute the adjusted
Exercise Price or the adjusted number of shares of
Common Stock issuable upon exercise of this Warrant
by reason of such event in accordance with the
provisions of Subsection (a), (b) or (c) of this
Section 3. The Company shall forthwith mail to the
Holder of this Warrant a copy of such computation,
which shall be conclusive and shall be binding upon
such Holder unless contested by such Holder by
written notice to the Company within 14 days after
the mailing thereof by the Company.
e. In case
(1) the Company shall make a record
of the holders of its Common Stock for the
purpose of entitling them to receive, a
dividend payable (whether payable in cash,
securities, property or in any other form);
or
(2) the Company shall make a record
of the holders of its Common Stock for the
purpose of entitling them to subscribe for
or purchase any shares of any class or to
receive any other rights; or
(3) the Company shall set a date for
any reclassification other reorganization of
the capital stock of the Company,
consolidation or merger of the Company with
or into another corporation, or conveyance
of all or substantially all of the assets of
the Company, or
5
<PAGE>
(4) the Company shall set a date for
the voluntary or involuntary dissolution,
liquidation or winding upon of the Company:
then, in any such case, the Company shall mail to the
Holder of this Warrant at least 30 days prior to such
record date or the date set for any actions described
in subparagraphs (d)(1) through (d)(3) above, a
notice advising such Holder of the date or expected
date on which a record is to be taken for the purpose
of such dividend, distribution of rights or the date
on which such reclassification, reorganization,
consolidation, merger, conveyance, dissolution,
liquidation or winding up is to take place, as the
case may be. Such notice shall also specify the date
or expected date, if any is to be fixed, as of which
holders of Common Stock of record shall be entitled
to participate in said dividend, distribution of
rights, or shall be entitled to exchange their shares
of Common Stock for securities or other property
deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance
dissolution, liquidation or winding up, as the case
may be. Each such written notice shall be given by
certified mail, postage prepaid, return receipt
requested, addressed to the holder of the Warrant at
the address of such holder as shown on the books of
the Company.
f. In case the Company, at any time while
this Warrant shall remain valid and unexercised,
shall sell more than one-half of its property, or
dissolve, liquidate or wind up its affairs or sell or
dispose of all or any part of the assets, securities
or property of any wholly-owned subsidiary, the
Holder of this Warrant shall thereafter be entitled
to receive upon exercise hereof (in lieu of such
shares of Common Stock underlying this Warrant) and
the same kind and amount of any securities or assets
a may be issuable, distributable or payable upon any
such sole, dissolution, liquidation or winding up
with respect to such number of shares of Common Stock
of the Company as would otherwise have been issuable
upon exercise of this Warrant. The Company shall mail
notice thereof by registered mail to the Holder and
shall make no distribution to the stockholders of the
Company until the expiration of thirty (30) days from
the date of such mailing: provided, however, that in
any such event if the Holder shall not exercise this
Warrant within thirty (30) days from the date of
mailing such notice, all rights herein granted not so
exercised within such thirty (30) day period shall
thereafter become null and void. The Company shall
not, however, be prevented from consummating any such
sale without awaiting the expiration of such thirty
(30) day period, it being the intent and purposes
hereof to enable the Holder upon exercise of this
Warrant to participate in the distribution of the
consideration to be received by the Company upon any
such sale or in the distribution of assets upon any
dissolution or liquidation of the Company.
g. In the event the Company, at any time
while this Warrant shall remain valid and
unexercised, shall propose to declare any partial
liquidating
6
<PAGE>
dividend, it shall notify the Holder of this Warrant
as set forth in Subsection (d) of this Section 3. The
term "partial liquidating dividend" shall, include a
dividend in cash or other property of an amount that,
together with all other dividends in cash or other
property paid or declared and set aside for payment,
is equal to or greater then 40% of the cumulative
consolidated net income of the Company subsequent to
one year from the date hereof.
h. The provisions of this Section 3 are for
the purpose of, and shall be to the effect that upon
any exercise of this Warrant the Holder shall be
entitled to receive the same amount and, kind of
securities and other property that it would have been
entitled to receive as the owner at all times
subsequent to the date hereof the number of shares of
Common Stock issuable upon exercise of the Warrant.
4. Covenants of the Company. The Company hereby
covenants and agrees that prior to the expiration of this
Warrant by exercise or by its terms:
a. The Company will not by amendment of its
Certificate of Incorporation, as they may currently
exist, or through reorganization, consolidation,
merger, dissolution, or see of assets, or by any
other voluntary act or deed, avoid or seek to avoid
the observance or performance of any of the
covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will at
all times in good faith assist, insofar as it is
able, in the carrying out of all provisions of this
Warrant and in the taking of all other actions that
may be necessary in order to protect the rights of
the Holder against dilution.
b. If at any time or from time to time, the
Company shall, by subdivision, consolidation or
reclassification of shares, or otherwise, change as a
whole the outstanding shares of Common Stock into a
different number or class of shares, the number and
class of shares as so changed shall, for the purpose
of each Warrant and the terms and conditions hereof,
replace the shares outstanding immediately prior to
such change, and the Exercise Price in effect, and
the number of Shares purchasable under each Warrant,
immediately prior to the date on which such change
becomes effective, shall be proportionately adjusted.
c. Irrespective of any adjustment or change
in the Warrant Exercise Price, the number of shares
of Common Stock issuable upon conversion of the
Shares actually purchasable under each Warrant of
like tenor, the Warrants theretofore and thereafter
issued may continue to express the Warrant Exercise
Price per Share and the number of Shares purchasable
thereunder as the Warrant Exercise Price per Share
and the number of Shares purchasable were expressed
on the Warrants when initially issued.
7
<PAGE>
d. If at any time while any Warrant is
outstanding the Company consolidates with or merges
into another corporation, firm or entity, or
otherwise enters into a form of business combination,
the Holder, upon exercise hereof, shall be entitled
to purchase, with respect to each share of Common
Stock issuable upon exercise of the Warrant, that
number of Shares to which a holder of one (1) share
of Common Stock would have been entitled upon the
occurrence of such business combination without any
change in, or payment in addition to, the Warrant
Exercise Price in effect immediately prior to such
merger or consolidation, and the Company shall take
such steps in connection with such consolidation or
merger as may be necessary to assure that all the
provisions of each Warrant shall thereafter be
applicable, as nearly as reasonably may be, in
relation to any securities or property thereafter
deliverable upon the exercise of each Warrant. The
Company shall not effect any such consolidation,
merger or other form of business combination unless,
prior to the consummation thereof, the successor
corporation (if other than the Company) resulting
therefrom shall assume, by written instrument
executed and mailed to the registered holder of each
Warrant at the address of such holder shown on the
books of the Company, the obligation to deliver to
such holder such securities, or property such holder
shall be entitled to purchase in accordance with the
foregoing provisions.
e. Upon the happening of any event requiring
an adjustment of the Warrant Exercise Price
hereunder, the Company shall forthwith give written
notice thereof to the registered Holder of each
Warrant, stating the adjusted Warrant Exercise Price
and the adjusted number of shares of Common Stock
issuable upon the exercise thereof resulting from
such event, and setting forth in reasonable detail
the method of calculation. The certificate of either
the Company's independent certified public
accountants or Chief Financial Officer shall be
conclusive evidence of the correctness of any
computation made hereunder unless contested by a
Holder by written notice to the Company within 14
days after the mailing thereof by the Company. Notice
pursuant to this paragraph shall be given by
certified mail, postage prepaid, return receipt
requested, addressed to the registered holder of each
Warrant at the address of such holder appearing in
the records of the Company.
f. The Company shall at all times reserve
and keep available, out of its authorized and
unissued capital stock, solely for the purpose of
providing for the exercise, forthwith upon the
request of the Holder of the Warrant(s) then
outstanding and in effect, such numbers of shares of
Common Stock as shall, from time to time, be
sufficient for the Shares upon such exercise of the
Warrants. The Company shall, from time to time, in
accordance with the laws of the State of Delaware,
increase the authorized amount of its capital stock,
if at any time the number of shares of Common Stock
remaining unissued and unreserved for other purposes
shall not be
8
<PAGE>
sufficient to permit the exercise of all Warrants
then outstanding and in effect.
g. The Company covenants and agrees that all
Shares that may be issued upon the exercise of the
rights represented by this Warrant will, upon
issuance be validly issued, fully paid and
non-assessable, and free from all taxes, liens and
charges with respect to the issue thereof (other than
taxes in respect of any transfer occurring with such
issue). The Company further covenants and agrees
that, during the period within which the rights
represented by this Warrant may be exercised, the
Company will at all times have authorized and
reserved a sufficient number of shares of its Common
Stock to provide for the exercise of the rights
represented by this Warrant.
5. Loss, Theft, Destruction or Mutilation. In case
this Warrant shall become mutilated or defaced or be
destroyed, lost or stolen, the Company shall execute and
deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu
of and substitution of such Warrant so destroyed, lost or
stolen, upon the Holder of such Warrant filing the Company
such evidence satisfactory to it that such Warrant has been so
mutilated, defaced, destroyed, lost or stolen and of the
ownership thereof by the Holder; provided, however, that the
Company shall be entitled, as a condition to the execution and
delivery of such new Warrant, to demand indemnity satisfactory
to it and payment of expenses and charges incurred in
connection with the delivery of such new Warrant, except that
no bond shall be required from the Holder. All Warrants so
surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this
Warrant, together with the form of subscription properly
executed and payment of the Exercise Price, the person
exercising this Warrant shall be deemed to be the Holder of
record of the shares of Common Stock deliverable upon such
exercise, in whole, or in part, notwithstanding that the stock
transfer of the Company shall then be closed or that
certificates representing such shares of Common Stock shall
not then be actually delivered to such person. The Company
will pay all costs with respect to the issuance of this
Warrant or the shares of Common Stock issuable upon exercise
hereof, or thereof
7. Fractional Shares. No fractional Shares,
fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon the exercise of this
Warrant. With respect to any fraction of a. Share called for
on such exercise, the Holder may elect to receive, and the
Company shall pay to the Holder, an amount in cash equal to
such fraction multiplied by the Exercise Price. In the
alternative, the Holder may elect to remit to the Company an
amount in cash equal to the difference between such fraction
and one, multiplied by the Exercise Price, and the Company
will issue the Holder one share of Common Stock in addition to
the number of whole shares required by the exercise of the
Warrant; provided, however, that the Company shall not be
obligated by the operation of this Section 7 to issue Shares
in the
9
<PAGE>
aggregate exceeding the number of shares duty registered in
accordance with the applicable federal and state securities
laws or as to which an exemption from registration has been
determined to be available.
8. Mandatory Exercise Provision. The Company may
require the Warrants represented hereby be exercised prior to
the Expiration Date, or expire, provided that the average
closing price of the underlying Shares of Common Stock, as
adjusted herein, on any stock exchange, public bulletin board
or other market place for any twenty market days equals or
exceeds U.S. $25.00 per share. Such prices may be any
combination of such markets and must not be from only one
source. Such mandatory exercise right must be exercised by the
Company giving ten days prior written notice to the Holder
hereof. After receipt of such notice, the Holder may exercise
the Warrant as provided herein up until the expiration of the
notice period; provided, however, if the Holder requests prior
to the expiration of such notice period registration under the
Securities Act of 1933 as amended, (the "Securities Act"), of
the underlying Shares pursuant to the Registration Rights
Agreement entered into by the Company in connection with the
issuance of the Warrant, the exercise of the Warrant may be
deferred at the election of the Holder until such registration
is effective under the Securities Act or until the Company's
obligations to register such shares pursuant to the
Registration Rights Agreement has terminated. If the Warrant
is not exercised prior to the expiration of the notice period
referred to above, the Warrant shall cease to exist.
9. Original Issue Taxes. The Company will pay all
United States, state and local (but not foreign) original
issue taxes, if any, upon the issuance of this Warrant or the
Shares deliverable upon exercise hereof.
10. Mailing of notices, etc. All notices, and other
communications from the Company to the Holder of this Warrant
shall be mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, to the Holder, at
the address set forth in the records of the Company, or to
such other address furnished to the Company in writing from
time to time by the Holder of this Warrant. All notices from
the Holder of this Warrant to the Company shall be mailed to
the Company at World CallNet, Inc., Brecon House Meridian
Gate, 207 Marsh Wall, London, E149YT, United Kingdom,
Attention: Paul Goodman-Simpson, President.
11. Registration Under the Securities Act of 1933.
This Warrant and the Shares issuable upon exercise of this
Warrant have not been registered under the Securities Act or
the securities acts of any state or foreign country by virtue
of the Registration Statement. This Warrant and all
replacement Warrants and all Shares issued upon exercise of
the Warrant shall bear the following legend:
This Warrant, and the securities issuable
upon the exercise of this Warrant, have not
been registered under the Securities Act of
1933, as amended ("Securities Act") and may
not be sold, transferred or
10
<PAGE>
otherwise disposed of unless (i) the Shares
are registered under the Securities Act of
1933 and the securities act of any state
applicable to such sale, or (ii) the
proposed seller provides the Company with an
opinion of counsel that the securities are
being sold in a transaction which is except
from the registration requirements of the
Securities Act of 1933 and any applicable
state securities acts and the Company is
satisfied that no registration statement is
then required and that this Warrant and the
underlying securities may be sold,
transferred or otherwise disposed of in the
manner contemplated without registration
under the Securities Act of 1933 or any
state securities act.
12. Laws of the of Delaware. This Warrant shall be
governed by, interpreted under and construed in all respects
in accordance with the laws of the State of Delaware,
irrespective of the place of domicile or residence of any
party. In the event of a controversy arising out of the
interpretation, construction, performance or breach of this
Warrant, the parties hereby agree and consent to the
jurisdiction and venue of any State or Federal court of
competent jurisdiction.
13. Entire Agreement and Modification. The Company
and the Holder of this Warrant hereby represent and warrant
that this Warrant is intended to and does, contain and embody
all of the understandings and agreements, both written and
oral, of the parties hereto with respect to the subject matter
of this Warrant, and that there exists no oral, agreement or
understanding express or implied, whereby the absolute, final
and unconditional character nature of this Warrant be in any
way invalidated, empowered or affected. A modification or
waiver of any of the terms, conditions or provisions of this
Warrant shall be effective only if made in writing and
executed with the same formality as this Warrant.
This Warrant will become wholly void and of no effect
and the rights evidenced hereby will terminate unless
exercised in accordance with the terms and provision hereof at
or before 5:00 P.M., London Time, on the Expiration Date.
[Remainder of Page Intentionally Blank]
11
<PAGE>
IN WITNESS WHEREOF, the Company by its duty
authorized officer has executed this Warrant on this 9th day
of April, 1999.
Attest: World CallNet, Inc
____________________ By: _______________________
Paul Goodman-Simpson,
President
12
<PAGE>
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise
the purchase rights represented by this Warrant for, and to
purchase thereunder, ___________ Shares of World CallNet,
Inc., a Delaware corporation, and herewith makes payment of
$4.00 per share, or at total of $__________ therefor, and
requests that such Shares be issued to:
---------------------------------
(Print Name)
---------------------------------
(Address)
---------------------------------
(Taxpayer Identification Number)
Dated:
--------------------------- --------------------------
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant)
13
Exhibit 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED ("SECURITIES
ACT"), AND MAY NOT BE SOLD TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS M THE
SHARES ARE REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES ACT OF
ANY STATE APPLICABLE TO SUCH SALE, OR (ii) THE PROPOSED SELLER PROVIDES THE
COMPANY WITH AN OPINION OF COUNSEL THAT THE SECURITIES ARE BEING SOLD IN A
TRANSACTION WHICH IS EXCEPT FROM THE REGISTRATION REQUIREMENT OF THE SECURITIES
ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS AND THE COMPANY IS
SATISFIED THAT NO REGISTRATION STATEMENT IS THEN REQUIRED AND THAT THIS WARRANT
AND THE UNDERLYING SECURITIES MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE MANNER CONTEMPLATED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES ACT.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
NO. 3
Warrant to Purchase
VOID AFTER 5:00 P.M.
April 9, 2003
FOR VALUE RECEIVED, World CallNet, Inc., a corporation organized under
the laws of Delaware (the "Company"), promises to issue in the name of, and sell
and deliver to Eagle Equity I, L.P., Two Lincoln Centre, Suite 1280, LB 56,
Dallas, Texas 75240, (the "Holder"), a certificate or certificates for an
aggregate of 150,000 shares ("Shares") of common stock of the Company ("Common
Stock") par value $.001 per share, at any time on or after May 9, 1999, and
prior to 5:00 P.M., London, England Time on April 9, 2003 (the "Expiration
Date"), upon payment therefor of $10.00 per Share in lawful funds of the United
States of America, such amount (the "Basic Exercise Price") being subject to
adjustment in the circumstances set forth hereinbelow. This applicable Basic
Exercise Price, until such adjustment is made and thereafter as adjusted from
time to time, is called the "Exercise Price."
THIS WARRANT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, OR OTHERWISE ENCUMBERED OR OTHERWISE DISPOSED OF (EXCEPT FOR
ASSIGNMENT TO AFFILIATES OF HOLDER), IT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF BY THE HOLDER,
EXCEPT BY THE HOLDER'S EXERCISE HEREOF AS SET FORTH HEREIN FOLLOWING DUE
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS, OR IN
TRANSACTIONS EXEMPT FROM SUCH REGISTRATION.
1. Exercise of Warrant. In case the Holder of this Warrant shall desire
to exercise this Warrant in whole or in part, the Holder shall surrender this
Warrant, with the form of exercise notice
1
<PAGE>
on the last page hereof duly executed by the Holder, to the Company accompanied
by payment of the Exercise Price of $10.00 per Share, subject to adjustment as
noted herein.
At the option of the Holder, the Holder may exercise this Warrant,
without a cash payment of the Exercise Price by designating that the number of
shares of Common Stock issuable to Holder upon such exercise shall be reduced by
the number of shares having a fair market value equal to the amount of the total
exercise price for such exercise. In such instance, no cash or other
consideration will be paid by Holder in connection with such exercise other than
the surrender of the Warrant itself, and no commission or other remuneration
will be paid or given by Holder or the Company in connection with such exercise.
If such exercise results in only a partial exercise of this Warrant, then the
Company shall deliver to Holder a new Warrant evidencing the remaining rights
under this Warrant, as provided below. This election is available to the Holder
only if immediately prior to the exercise date Shares of Common Stock trade on
any stock exchange, the NASDAQ Stock Market or the OTC Bulletin Board. For this
purpose, the fair market value of shares of Common Stock shall be determined as
of the last business day preceding the exercise date and shall be deemed to be
the average of the closing bid and ask prices of the Common Stock; provided,
however, if shares of the Common Stock are then listed on a national securities
exchange or the NASDAQ Stock Market, the fair market value of shares of Common
Stock shall be deemed to be the closing price on the relevant date.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company will
deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of Shares as to which this Warrant
has not been exercised. This Warrant, at any time prior to the exercise hereof,
upon presentation and surrender to the Company may be exchanged, along or with
other Warrants of like tenor registered in the name of the same Holder, for
another Warrant or other Warrants of like tenor in the name of such Holder
exercisable for the same aggregate number of Shares as the Warrant or Warrants
surrendered.
2. Registration Rights. Holder shall have the registration rights set
forth in the Registration Rights Agreement executed by the Company in connection
with the issuance of this Warrant.
3. Stock Dividends a Reclassification Reorganizations Anti-Dilution
Provisions. This Warrant is subject to the following further provisions:
a. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall issue any shares of its
Common Stock as a stock dividend or subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then in such
case, the number of shares of Common Stock issuable upon exercise of
this Warrant shall be proportionately increased and the Exercise Price
shall be proportionately decreased, and conversely, in the event the
Company shall contract the number of outstanding shares of Common Stock
by combining such shares of Common Stock into a smaller number of
shares of Common Stock then, in such case the number of shares of
Common Stock issuable upon exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be
proportionately increased. If the Company shall, at any time during the
life of this Warrant,
2
<PAGE>
declare a dividend payable in cash on its Common Stock and shall at
substantially the same time offer to its stockholders generally a right
to purchase new shares of Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all
shares of Common Stock so issued shall for the purpose of this Warrant.
be deemed to have been issued as a stock dividend. Any dividend paid or
distributed upon the Common stock in shares of any other class of
securities convertible into shares of Common Stock or any other
securities shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon the conversion
thereof.
b. In case prior to the expiration of this Warrant by exercise
or by its terms, the Company shall be recapitalized by reclassifying
its outstanding Common Stock into shares with a different par value or
shall thereafter reclassify any such shares in a like manner, or the
Company or a successor corporation shall consolidate, or merge with or
convey all or substantially all of its, or all or substantially all of
any successor corporation's property and assets to any other
corporation or corporations (any such corporation being included within
the meaning of the term "successor corporation" hereinbefore used in
the event of any consolidation or merger of any such corporation with,
or the sale of all or substantially all of the property of any such
corporation to another corporation or corporations), the Holder shall
thereafter have the right to purchase, pursuant to and under the terms
and conditions and during the time specified in this Warrant, in lieu
of the shares of Common Stock issuable upon exercise of this Warrant,
such shares of Common Stock, securities or assets as may be issued upon
exercise of this Warrant pursuant to such recapitalization,
consolidation, merger or conveyance; and, in any such event, the rights
of the Holder to an adjustment in the number of shares of Common Stock
that are purchasable upon the exercise of this Warrant and the Exercise
Price as herein provided, shall continue and be preserved in respect to
any shares, securities or assets which the Holder of this Warrant
becomes entitled to purchase.
c. Upon the occurrence of each event requiring an adjustment
of the Exercise Price or of the number of shares of Common Stock
issuable upon exercise of this Warrant in accordance with, and as
required by, the terms of Subsection (a) of this Section 3, the Company
shall use its best efforts to forthwith cause either a firm of
independent certified public accountants (who may be the regular
accountants for the Company) or the Chief Financial Officer of the
Company to compute the adjusted Exercise Price or the adjusted number
of shares of Common Stock issuable upon exercise of this Warrant by
reason of such event in accordance with the provisions of Subsection
(a) or (b) of this Section 3. The Company shall forthwith mail to the
Holder of this Warrant a copy of such computation, which shall be
conclusive and shall be binding upon such Holder unless contested by
such Holder by written notice to the Company within 14 days after the
mailing thereof by the Company.
d. In case.
(1) the Company shall make a record of the holders of
its Common Stock for the purpose of entitling them to receive,
a dividend payable (whether payable in cash, securities,
property or in any other form); or
3
<PAGE>
(2) the Company shall make a record of the holders of
its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of any class or to
receive any other rights; or
(3) the Company shall set a date for any
reclassification other reorganization of the capital stock of
the Company, consolidation or merger of the Company with or
into another corporation, or conveyance of all or
substantially all of the assets of the Company, or
(4) the Company shall set a date for the voluntary or
involuntary dissolution, liquidation or winding upon of the
Company:
then, in any such case, the Company shall mail to the Holder of this
Warrant at least 30 days prior to such record date or the date set for
any actions described in subparagraphs (d)(1) through (d)(3) above, a
notice advising such Holder of the date or expected date on which a
record is to be taken for the purpose of such dividend, distribution of
rights or the date on which such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding
up is to take place, as the case may be. Such notice shall also specify
the date or expected date, if any is to be fixed, as of which holders
of Common Stock of record shall be entitled to participate in said
dividend, distribution of rights, or shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance dissolution, liquidation or winding up, as the case
may be. Each such written notice shall be given by certified mail,
postage prepaid, return receipt requested, addressed to the holder of
the Warrant at the address of such holder as shown on the books of the
Company.
e. In case the Company, at any time while this Warrant shall
remain valid and unexercised, shall sell more than one-half of its
property, or dissolve, liquidate or wind up its affairs or sell or
dispose of all or any part of the assets, securities or property of any
wholly-owned subsidiary, the Holder of this Warrant shall thereafter be
entitled to receive upon exercise hereof (in lieu of such shares of
Common Stock underlying this Warrant) and the same kind and amount of
any securities or assets a may be issuable, distributable or payable
upon any such sole, dissolution, liquidation or winding up with respect
to such number of shares of Common Stock of the Company as would
otherwise have been issuable upon exercise of this Warrant. The Company
shall mail notice thereof by registered mail to the Holder and shall
make no distribution to the stockholders of the Company until the
expiration of thirty (30) days from the date of such mailing: provided,
however, that in any such event if the Holder shall not exercise this
Warrant within thirty (30) days from the date of mailing such notice,
all rights herein granted not so exercised within such thirty (30) day
period shall thereafter become null and void. The Company shall not,
however, be prevented from consummating any such sale without awaiting
the expiration of such thirty (30) day period, it being the intent and
purposes hereof to enable the Holder upon exercise of this Warrant to
participate in the distribution of the consideration to be received by
the Company upon any such sale or in the distribution of assets upon
any dissolution or liquidation of the Company.
4
<PAGE>
f. In the event the Company, at any time while this Warrant
shall remain valid and unexercised, shall propose to declare any
partial liquidating dividend, it shall notify the Holder of this
Warrant as set forth in Subsection (d) of this Section 3. The term
"partial liquidating dividend" shall, include a dividend in cash or
other property of an amount that, together with all other dividends in
cash or other property paid or declared and set aside for payment, is
equal to or greater then 40% of the cumulative consolidated net income
of the Company subsequent to one year from the date hereof.
g. The provisions of this Section 3 are for the purpose of,
and shall be to the effect that upon any exercise of this Warrant the
Holder shall be entitled to receive the same amount and, kind of
securities and other property that it would have been entitled to
receive as the owner at all times subsequent to the date hereof the
number of shares of Common Stock issuable upon exercise of the Warrant.
4. Covenants of the Company. The Company hereby covenants and agrees
that prior to the expiration of this Warrant by exercise or by its terms:
a. The Company will not by amendment of its Certificate of
Incorporation, as they may currently exist, or through reorganization,
consolidation, merger, dissolution, or see of assets, or by any other
voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will at all times
in good faith assist, insofar as it is able, in the carrying out of all
provisions of this Warrant and in the taking of all other actions that
may be necessary in order to protect the rights of the Holder against
dilution.
b. If at any time or from time to time, the Company shall, by
subdivision, consolidation or reclassification of shares, or otherwise,
change as a whole the outstanding shares of Common Stock into a
different number or class of shares, the number and class of shares as
so changed shall, for the purpose of each Warrant and the terms and
conditions hereof, replace the shares outstanding immediately prior to
such change, and the Exercise Price in effect, and the number of Shares
purchasable under each Warrant, immediately prior to the date on which
such change becomes effective, shall be proportionately adjusted.
c. Irrespective of any adjustment or change in the Warrant
Exercise Price, the number of shares of Common Stock issuable upon
conversion of the Shares actually purchasable under each Warrant of
like tenor, the Warrants theretofore and thereafter issued may continue
to express the Warrant Exercise Price per Share and the number of
Shares purchasable thereunder as the Warrant Exercise Price per Share
and the number of Shares purchasable were expressed on the Warrants
when initially issued.
d. If at any time while any Warrant is outstanding the Company
consolidates with or merges into another corporation, firm or entity,
or otherwise enters into a form of business combination, the Holder,
upon exercise hereof, shall be entitled to purchase, with respect to
each share of Common Stock issuable upon exercise of the Warrant, that
number of Shares to which a holder of one (1) share of Common Stock
would have been entitled upon the occurrence of such business
combination without any change in, or payment in
5
<PAGE>
addition to, the Warrant Exercise Price in effect immediately prior to
such merger or consolidation, and the Company shall take such steps in
connection with such consolidation or merger as may be necessary to
assure that all the provisions of each Warrant shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of each
Warrant. The Company shall not effect any such consolidation, merger or
other form of business combination unless, prior to the consummation
thereof, the successor corporation (if other than the Company)
resulting therefrom shall assume, by written instrument executed and
mailed to the registered holder of each Warrant at the address of such
holder shown on the books of the Company, the obligation to deliver to
such holder such securities, or property such holder shall be entitled
to purchase in accordance with the foregoing provisions.
e. Upon the happening of any event requiring an adjustment of
the Warrant Exercise Price hereunder, the Company shall forthwith give
written notice thereof to the registered Holder of each Warrant,
stating the adjusted Warrant Exercise Price and the adjusted number of
shares of Common Stock issuable upon the exercise thereof resulting
from such event, and setting forth in reasonable detail the method of
calculation. The certificate of either the Company's independent
certified public accountants or Chief Financial Officer shall be
conclusive evidence of the correctness of any computation made
hereunder unless contested by a Holder by written notice to the Company
within 14 days after the mailing thereof by the Company. Notice
pursuant to this paragraph shall be given by certified mail, postage
prepaid, return receipt requested, addressed to the registered holder
of each Warrant at the address of such holder appearing in the records
of the Company.
f. The Company shall at all times reserve and keep available,
out of its authorized and unissued capital stock, solely for the
purpose of providing for the exercise, forthwith upon the request of
the Holder of the Warrant(s) then outstanding and in effect, such
numbers of shares of Common Stock as shall, from time to time, be
sufficient for the Shares upon such exercise of the Warrants. The
Company shall, from time to time, in accordance with the laws of the
State of Delaware, increase the authorized amount of its capital stock,
if at any time the number of shares of Common Stock remaining unissued
and unreserved for other purposes shall not be sufficient to permit the
exercise of all Warrants then outstanding and in effect.
g. The Company covenants and agrees that all Shares that may
be issued upon the exercise of the rights represented by this Warrant
will, upon issuance be validly issued, fully paid and non-assessable,
and free from all taxes, liens and charges with respect to the issue
thereof (other than taxes in respect of any transfer occurring with
such issue). The Company further covenants and agrees that, during the
period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu
6
<PAGE>
of and substitution of such Warrant so destroyed, lost or stolen, upon the
Holder of such Warrant filing the Company such evidence satisfactory to it that
such Warrant has been so mutilated, defaced, destroyed, lost or stolen and of
the ownership thereof by the Holder; provided, however, that the Company shall
be entitled, as a condition to the execution and delivery of such new Warrant,
to demand indemnity satisfactory to it and payment of expenses and charges
incurred in connection with the delivery of such new Warrant, except that no
bond shall be required from the Holder. All Warrants so surrendered to the
Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant, together
with the form of subscription properly executed and payment of the Exercise
Price, the person exercising this Warrant shall be deemed to be the Holder of
record of the shares of Common Stock deliverable upon such exercise, in whole,
or in part, notwithstanding that the stock transfer of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to such person. The Company will pay all costs with
respect to the issuance of this Warrant or the shares of Common Stock issuable
upon exercise hereof, or thereof
7. Fractional Shares. No fractional Shares, fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon the exercise
of this Warrant. With respect to any fraction of a. Share called for on such
exercise, the Holder may elect to receive, and the Company shall pay to the
Holder, an amount in cash equal to such fraction multiplied by the Exercise
Price. In the alternative, the Holder may elect to remit to the Company an
amount in cash equal to the difference between such fraction and one, multiplied
by the Exercise Price, and the Company will issue the Holder one share of Common
Stock in addition to the number of whole shares required by the exercise of the
Warrant; provided, however, that the Company shall not be obligated by the
operation of this Section 7 to issue Shares in the aggregate exceeding the
number of shares duty registered in accordance with the applicable federal and
state securities laws or as to which an exemption from registration has been
determined to be available.
8. Mandatory Exercise Provision. The Company may require that the
Warrants represented hereby be exercised prior to the Exercise Date, provided
that the average closing price of the underlying Shares of Common Stock as
adjusted herein, on any stock exchange, public bulletin board or other market
place for any twenty market days equals or exceeds U.S. $25.00 per share. Such
prices may be any combination of such markets and must not be from only one
source. Such Mandatory Exercise right must be exercised by the Company giving
ten days prior written notice to the Holder hereof. After receipt of such
notice, the Holder may exercise the Warrant as provided herein up until the
expiration of the notice period; provided, however, if the Holder requests prior
to the expiration of such notice period registration under the Securities Act of
1933 as amended, (the "Securities Act") of the underlying Shares pursuant to the
Registration Rights Agreement entered into by the Company in connection with the
issuance of the Warrant, the exercise of the Warrant may be deferred at the
election of the Holder until such registration is effective under the Securities
Act or until the Company's obligations to register such shares pursuant to the
Registration Rights Agreement has terminated. If the Warrant is not exercised
prior to the expiration of the notice period referred to above, the Warrant
shall cease to exist.
7
<PAGE>
9. Original Issue Taxes. The Company will pay all United States, state
and local (but not foreign) original issue taxes, if any, upon the issuance of
this Warrant or the Shares deliverable upon exercise hereof.
10. Mailing of notices, etc. All notices, and other communications from
the Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, return receipt requested, postage prepaid, to the
Holder, at the address set forth in the records of the Company, or to such other
address furnished to the Company in writing from time to time by the Holder of
this Warrant. All notices from the Holder of this Warrant to the Company shall
be mailed to the Company at World CallNet, Inc., Brecon House Meridian Gate, 207
Marsh Wall, London, E149YT, United Kingdom, Attention: Paul Goodman-Simpson,
President.
11. Registration Under the Securities Act of 1933. This Warrant and the
Shares issuable upon exercise of this Warrant have not been registered under the
Securities Act or the securities acts of any state or foreign country by virtue
of the Registration Statement. This Warrant and all replacement Warrants and all
Shares issued upon exercise of the Warrant shall bear the following legend:
This Warrant, and the securities issuable upon the exercise of
this Warrant, have not been registered under the Securities
Act of 1933, as amended ("Securities Act") and may not be
sold, transferred or otherwise disposed of unless (i) the
Shares are registered under the Securities Act of 1933 and the
securities act of any state applicable to such sale, or (ii)
the proposed seller provides the Company with an opinion of
counsel that the securities are being sold in a transaction
which is except from the registration requirements of the
Securities Act of 1933 and any applicable state securities
acts and the Company is satisfied that no registration
statement is then required and that this Warrant and the
underlying securities may be sold, transferred or otherwise
disposed of in the manner contemplated without registration
under the Securities Act of 1933 or any state securities act.
12. Laws of the of Delaware. This Warrant shall be governed by,
interpreted under and construed in all respects in accordance with the laws of
the State of Delaware, irrespective of the place of domicile or residence of any
party. In the event of a controversy arising out of the interpretation,
construction, performance or breach of this Warrant, the parties hereby agree
and consent to the jurisdiction and venue of any State or Federal court of
competent jurisdiction.
13. Entire Agreement and Modification. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does, contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral, agreement or understanding express or
implied, whereby the absolute, final and unconditional character nature of this
Warrant be in any way invalidated, empowered or affected. A modification or
waiver of any of the terms, conditions or
8
<PAGE>
provisions of this Warrant shall be effective only if made in writing and
executed with the same formality as this Warrant.
This Warrant will become wholly void and of no effect and the rights
evidenced hereby will terminate unless exercised in accordance with the terms
and provision hereof at or before 5:00 P.M., London Time, on the Expiration
Date.
[Remainder of Page Intentionally Blank]
9
<PAGE>
IN WITNESS WHEREOF, the Company by its duty authorized officer has
executed this Warrant on this 9th day of April, 1999.
Attest: World CallNet, Inc
____________________ By: _______________________________
Paul Goodman-Simpson, President
10
<PAGE>
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise the purchase
rights represented by this Warrant for, and to purchase thereunder, ___________
Shares of World CallNet, Inc., a Delaware corporation, and herewith makes
payment of $10.00 per share, or at total of $__________ therefor, and requests
that such Shares be issued to:
- ------------------------------
(Print Name)
- ------------------------------
(Address)
- ------------------------------
(Taxpayer Identification Number)
Dated:
----------------------- ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
11
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT ("Agreement") made as of the 9th day of
April, 1999, by and between World Callnet, Inc., a Delaware corporation (the
"Company") and Eagle Equity I, L.P. and David R. Weinreb (each a "Purchaser"
and, collectively, the "Purchasers").
WITNESSETH
WHEREAS, the Company and the Purchasers have, simultaneously herewith,
entered into the Securities Purchase Agreement pursuant to which the Purchasers
are purchasing up to $500,000 principal amount of the Company's Unsecured Notes
and warrants to purchase up to 1,000,000 shares of the Company's common stock,
par value $.001 per share; and
WHEREAS, the Company has agreed to grant Purchasers certain "demand"
and "piggyback" registration rights with respect to the shares of the Company's
Common Stock (as defined below) issuable upon exercise of the Warrants (as
defined below).
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
"Securities Act" (as defined herein).
"Common Stock" shall mean the Common Stock, $.001 par value per share,
of the Company, as constituted as of the date of this Agreement.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended or any similar federal statue, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Measuring Date" shall be the date which is six months after the date
of this Agreement.
"Notes" shall mean the Company's 10% Unsecured Note issued pursuant to
the Securities Purchase Agreement.
"Requesting Purchaser" shall mean any Purchaser, or permitted assignee,
for whom Warrant Shares are being registered pursuant to Section 2 or 3
hereunder.
"Securities Purchase Agreement" shall mean the Securities Agreement
dated as of the date hereof between the Company and the Purchaser, a copy of
which is annexed hereto.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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"Warrants" shall mean the warrants to purchase up to 1,000,000 shares
of the Company's Common Stock issuable pursuant to the Securities Purchase
Agreement.
"Warrants Exercise Period" shall have the meaning ascribed thereto in
the Warrants.
"Warrants Shares" shall means the shares of Stock of the Company
issuable upon exercise of the Warrants and, to the extent issued, the Additional
Warrants.
2. Demand Registration.
(a) As soon as practicable following the Measuring Date and during the
Warrant Exercise Period, upon the Written request of Purchasers holding and/or
having the right to acquire 50% or more of the Warrant Shares, the Company
agrees, on one occasion, to use its best reasonable efforts to register the
Warrant Shares under the Securities Act and applicable state securities laws.
(b) Purchasers shall have an additional demand registration right in
the event that the Company exercises its "mandatory exercise rights" pursuant to
Section 8 of the Warrants.
(c) If, after a written request has been made pursuant to this
Agreement to register the Warrant Shares under the Securities Act and applicable
state securities laws, the Company fails to file the required registration
statement or if a registration statement is filed, but fails to become
effective, the Company agrees to extend the expiration period for the exercise
period for the Warrants until thirty (30) days following the registration of the
Warrant Shares or until the termination of the Company's obligations hereunder.
The extension of such expiration period shall not affect or diminish Purchaser's
other remedies at law or equity, if any, with respect to such failure to file
the registration statement or failure to have the registration statement
declared effective.
3. "Piggy-Back Registration"
(a) If within the Warrant Exercise Period, the Company at any time
proposes to file a registration statement to register any of its securities
under the Securities Act (except for a registration filed in connection with an
employee benefit plan, a transaction relating to a merger or business
combination, a transaction relating to an exchange offer, a transaction relating
with an acquisition of assets or securities, or a transaction otherwise
described in Rule 145 of the Securities Act), whether or not for sale for its
own account, it will each such time give written notice to the Purchaser of its
intention to do so. Upon the written request of a Purchaser (the "Requesting
Purchaser"), which request shall specify the number and manner of disposition of
the Warrant Shares intended to be disposed of by the Requesting Purchaser and
which request shall be given to the Company as promptly as practicable and in
any event within ten (10) days after the receipt of any such notice, the Company
will use reasonable efforts to effect the registration under the Securities Act
of all the Warrant Shares which the Company has been so requested to register by
the Requesting Purchaser (a "Piggy-Back Registration"). No registration effected
under this Section 3 shall relieve the Company of its obligation to effect any
registration upon request under Section 2 of this Agreement.
(b) If the managing underwriter of any underwritten offering shall
deliver a written statement to the Requesting Purchaser that in such
underwriter's opinion the total amount of Warrant Shares requested to be
included in such registration would have a material adverse effect on such
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<PAGE>
offering, then the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in (or during the time
of) such offering, first, all securities proposed by the Company to be sold for
its own account and for the account of other persons and entities other than the
Company who are exercising their demand registration rights, and second, the
Warrant Shares requested to be included in such registration by the Requesting
Purchaser pursuant to this Agreement; provided, that if securities are being
offered for the account of other persons or entities who are not exercising
demand registration rights, such reduction in the number of Warrant Shares being
registered shall not represent a greater fraction of similar reductions imposed
on such other person or entities over the amount of securities they intended to
offer. Any Warrant Shares not registered pursuant to the provisions that this
Section 3(b) shall be subject to the provisions of Section 2(a) of this
Agreement.
(c) The Company shall not be obligated to include any Warrant Shares in
any registration statement filed for the benefit of any person or entity other
than the Company or the Purchasers wherein rights granted by the Company prior
to the date hereof prohibit such inclusion.
4. Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its reasonable best efforts to effect
the registration of any Warrant Shares under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities (on such applicable form as the Company may in its
sole discretion elect to use) and use its reasonable best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby, determined as hereinafter provided.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in subsection (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all the Warrant Shares
covered by such registration statement in accordance with the Requesting
Purchaser's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Requesting Purchaser such number of copies of the
registration statement and the prospectus included therein, including each
preliminary prospectus, as the Requesting Purchaser reasonably may request in
order to facilitate the public sale or other disposition of the Warrant Shares
covered by such registration statement;
(d) use its reasonable best efforts to register or qualify the Warrant
Shares covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the Requesting Purchaser reasonably request and
keep such registration or qualification in effect for so long as such
registration statement remains in effect; and take any other action which may be
reasonably necessary or advisable to enable the Requesting Purchaser to
consummate the disposition in such jurisdictions of the Warrant Shares to be
sold by such Requesting Purchaser; provided, however, that the Company shall not
for any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
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<PAGE>
(e) immediately notify the Requesting Purchaser at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statement
therein not misleading in light of the circumstances then existing; and at the
request of the Requesting Purchaser promptly prepare and furnish to him a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Warrant Shares, such prospectus shall not include an untrue
statement of a material fact or omit to states a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(f) otherwise comply with all, applicable rules and regulations of the
Commission, and, if required, make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and promptly furnish to the
Requesting Purchaser a copy of any amendment or supplement to such registration
statement or prospectus;
(g) keep the Requesting Purchaser advised in writing as to the
initiation and progress of any registration statement covering the Warrant
Shares referred to in Section 2 or 3 hereunder;
(h) use its reasonable best efforts to include or list, as the case may
be, the Warrant Shares being registered on the automated quotation system of the
National Association of Securities Dealers, Inc. or the principal securities
exchange on which Common Stock of the Company is then quoted or listed;
(i) afford to the Requesting Purchaser an opportunity to make such
examination and inquiry into the financial position, business and affairs of the
Company and its subsidiaries as the Requesting Purchaser and his counsel as to
accuracy and completeness of the registration statement;
(j) deliver promptly to the Requesting Purchaser copies of all corres-
pondence between the Commission and the Company relating to the registration
statement; and
(k) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement (which in no event
shall require the Company to commence any judicial proceeding.)
For purposes of Sections 3(a) and 3(b) hereof, the period of
distribution of Warrant Shares shall be deemed to extend until the earlier of
the sale of all Warrant Shares covered by the Registration Statement or six
months after the effective date thereof.
In connection with registration hereunder, the Requesting Purchaser
shall furnish to the Company in writing such information with respect to himself
and the proposed distribution by him as shall be reasonably necessary in order
to assure compliance with federal and applicable state securities laws.
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<PAGE>
5. Expenses. All expenses incurred by the Company in complying with
Sections 2, 3 and 4 hereof, including without limitation, all printing expenses,
fees and disbursement of counsel for the Company and independent public
accountants for the Company, fees and expenses, including counsel fees, incurred
in connection with complying with Sections 4(a) and (b) above, and all state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, fees and
disbursements of any special counsel to the Requesting Purchasers, and costs of
insurance are called "Registration Expenses." All selling commissions, and only
to the extent payment by the Company is specifically prohibited by applicable
federal or state law, and filing fees under the Securities Act or "blue sky"
laws applicable to the Warrant Shares, are called "Selling Expenses."
Notwithstanding the foregoing, the Company shall not be obligated to pay more
than $10,000 of the fees and disbursements of counsel to the Requesting
Purchasers in connection with the registration of the Warrant Shares. The
Company will pay all Registration Expenses in connection with each registration
statement hereunder. All Selling Expenses in connection with a registration
statement hereunder shall be borne by the Requesting Purchaser.
6. Underwritten Offerings. If the Company proposes to register any of
its securities under the Securities Act as contemplated by Section 3 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by the Requesting Purchaser, subject to the provision
of Section 3(b) hereof, use their reasonable efforts to arrange for such
underwriters to include all the Warrant Shares to be offered and sold by such
Requesting Purchaser among the securities of the Company to be distributed by
such underwriters. In such event, the Requesting Purchaser shall be a party to
the underwriting agreement between the Company and such underwriters and may, at
his option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of the Requesting
Purchaser and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement be condition precedent to
the obligations of the Requesting Purchaser. The Requesting Purchaser shall not
be required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding the Requesting Purchaser, his Warrant Shares and his intended method
of distribution or any representations required by applicable law.
7. Rule 144 Reporting. With a view to making available to the
Purchasers the benefits of certain rules and regulations of the Commission which
may permit the sale of the Warrant Shares without registration, the Company
agrees to:
(a) make and keep public information available, as those terms
are used and defined in Commission Rule 144;
(b) use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents required by the
Company under the Exchange Act.
8. Indemnification and Contribution.
(a) In the event of a registration of any Warrant Shares under
the Securities Act pursuant to this Agreement, the Company will indemnify and
hold harmless the Requesting
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Purchaser, and each other person, if any, who controls such Requesting Purchaser
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Requesting Purchaser or such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities, or actions in respect
thereof, arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Warrant Shares was registered under the Securities Act pursuant to
this Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, 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 not misleading,
and will reimburse the Requesting Purchaser and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability 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 the
Requesting Purchaser, or any such controlling person in writing specifically for
use in such registration statement or prospectus.
(b) In the event of a registration of any of the Warrant Shares under
the Securities Act pursuant to this Agreement, the Requesting Purchaser will
indemnify and hold harmless the Company, each person, if any, who control the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement and each director of the Company, against
all losses, claims, damages, or liabilities, joint or several, to which the
Company or such officer, director, or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities, or actions in respect thereof, arise out of or are based upon
any untrue statement or allege untrue statement of any material fact contained
in the registration statement under which such Warrant Shares were registered
under the Securities Act pursuant to this Agreement, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof ,
or arise out of or are based upon the omission or allege omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Requesting Purchaser will be liable hereunder in any such case if any only to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon an in conformity with information
pertaining to the Requesting Purchaser specifically for use in such registration
statement or prospectus; and provided further, however, that the liability of
the Requesting Purchaser shall be limited to the proportion of any such loss,
claim, damage, liability or expense which is equal to the proportion that the
public offering price of the shares sold by the Requesting Purchaser under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the proceeds received
by the Requesting Purchaser from the sale of the Warrant Shares covered by such
registration statement.
(c) Promptly after receipt by a party indemnified hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but
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<PAGE>
the omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 8 and shall only receive it from any liability which it may have to such
indemnified party under this Section 8 if an to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 8 for any legal expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) If the indemnification provided for in this Section 8 shall for any
reason be held by a court to be unavailable to an indemnified party under
subparagraph (a) or (b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, then in lieu of the amount paid or
payable under subparagraph (a) or (b) hereof, shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same), (i) in such
proportion as is appropriate to reflect the relative fault of the Company and
the Requesting Purchaser which resulted in such equitable considerations or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Requesting Purchaser from the offering of the
securities covered by such registration statement; provided, however, that in
any such case, (x) the Requesting Purchaser will not be required to contribute
any amount in excess of the public offering price of all such Warrant Shares
offered by such Requesting Purchaser pursuant to such registration statement;
and (y) no person or entity guilty of fraudulent misrepresentation, within the
meaning of Section 11(f) of the Securities Act, will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
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9. Miscellaneous.
(a) The rights granted to the Purchaser hereunder may not be
assigned to any other person except in connection with an assignment of the
Warrants held by the Purchaser.
(b) All notices, requests, demands and other communications
which are required to be or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when (a) delivered in
person, (b) the day following dispatch by an overnight courier service (such as
Federal Express or UPS, etc.) or (c) five (5) days after dispatch by certified
or registered first class mail, postage prepaid, return receipt requested, to
the party to whom the same is so given or made:
if to the Company or to a Purchaser, at the address of such
party set forth in the Securities Purchase Agreement, dated of
even date herewith.
(c) All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of Texas.
(d) This Agreement may not be amended or modified or otherwise
altered except pursuant to an instrument, in writing, signed by each of the
parties.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) The provisions of Sections 2 and 3 hereof to the contrary
notwithstanding, the Company's obligation to file a registration statement, or
cause such registration statement to become and remain effective, shall (i) not
apply if all of the Warrant Shares proposed to be sold by a Requesting Purchaser
can be sold pursuant to Rule 144 and (ii) shall be suspended for a period not to
exceed 90 days in any 12-month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of counsel to the Company, should not be disclosed.
(g) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(h) Each and every controversy or claim arising out of or
relating to this Agreement and/or any document executed or delivered in
connection herewith shall be settled by arbitration in accordance with the
commercial rules of the American Arbitration Association, in Dallas, Texas and
judgment upon the award rendered in such arbitration shall be final and binding
upon the parties and may be entered in any court having jurisdiction thereof.
Notice of the demand for arbitration shall be filed in writing with the other
party to this Agreement, which such demand
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shall set forth the claims to be submitted to arbitration. Notwithstanding the
foregoing, this Agreement to arbitrate shall not bar any party from seeking
injunctive relief or other temporary relief in any court of competent
jurisdiction. This Agreement to arbitrate may be specifically enforced by a
court of competent jurisdiction under the applicable law of the State of Texas
pertaining to arbitrations. The rules of the American Arbitration Association
concerning commercial disputes shall be applicable to any such arbitration
proceeding except as they may be modified by the terms of this Agreement. The
arbitrators shall have the authority and jurisdiction to enter any preliminary
award that would aid and assist the conduct of the arbitration or preserve the
parties' rights with respect to the arbitration as the arbitrators shall deem
appropriate in their discretion. The award of the arbitrators shall be in
writing and it shall specify in detail the issues submitted to arbitration and
the award of the arbitrators with respect to each of the issues so submitted.
The prevailing party as determined by the arbitrators shall be entitled to
recover from the losing party reasonable expenses, attorneys' fees and costs
incurred in connection therewith and in the enforcement or collection of any
judgment or award rendered therein. The prevailing party means the party
determined by the arbitrators to have most nearly prevailed, even if such party
does not prevail in all matters, or is not the party in whose favor an award is
rendered. Included within the cost recoverable pursuant to the terms of this
Section shall be included service of process costs, filing fees, arbitration
fees, arbitrators' fees, court and reporter costs, investigative costs, and
expert witness fees. The award pursuant to such arbitration will be final,
binding and conclusive. Upon final determination of the award, the party
determined obligated to pay will pay to the party determined entitled thereto,
within thirty (30) days of such final determination, the full amount, in cash,
of such award (which shall include such fees and costs as awarded by the
arbitrators). Counsel to the parties in connection with the negotiation of and
consummation of the transactions under this Agreement shall be entitled to
represent their respective party in any and all proceedings under this Section
or in any other proceeding (collectively, "Proceedings"). The parties hereto
waive the right and agree they shall not seek to disqualify any such counsel in
such proceedings for any reason, including but not limited to the fact that such
counsel or any member thereof may be a witness in any such Proceedings or
possess or have learned of information of a confidential or financial nature of
the party whose interests are adverse to the party represented by such counsel
in any such Proceedings.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer, and each Purchaser has duly executed
this Agreement, as of the date first written above.
WORLD CALLNET, INC.
By:
---------------------
Paul Goodman-Simpson
EAGLE EQUITY I, L.P.
By: Eagle Equity, Inc.
General Partner
By:
---------------------
Lawrence E. Steinberg
Chairman/CEO
---------------------
David Weinreb
10
Exhibit 10.6
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
GENERAL AMERICAN ROYALTY, INC. D.B.A. WORLD CALLNET, INC.
NO. _____
Warrant to Purchase
VOID AFTER 5:00 P.M., CENTRAL TIME
March 26, 2001
FOR VALUE RECEIVED, General American Royalty, Inc. d.b.a. World
CallNet, Inc., a corporation organized under the laws of Delaware (the
"Company"), promises to issue in the name of, and sell and deliver to Tom Price,
Jr. , P.O. Box 18496, Oklahoma City, Oklahoma 73154-0496 (the "Holder"), a
certificate or certificates for an aggregate of 100,000 shares ("Shares") of
common stock of the Company ("Common Stock"), at any time on or after April 26,
1999, and prior to 5:00 P.M., Central Time on March 26, 2001 (the "Expiration
Date"), upon payment therefor of $5.00 per Share in lawful funds of the United
States of America, such amount (the "Basic Exercise Price") being subject to
adjustment in the circumstances set forth hereinbelow. This applicable Basic
Exercise Price, until such adjustment is made and thereafter as adjusted from
time to time, is called the "Exercise Price."
THIS WARRANT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, OR OTHERWISE ENCUMBERED OR OTHERWISE DISPOSED OF (EXCEPT FOR
ASSIGNMENT TO AFFILIATES OF HOLDER), IT MAY NOT BE ASSIGNED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF BY THE HOLDER,
EXCEPT BY THE HOLDER'S EXERCISE HEREOF AS SET FORTH HEREIN FOLLOWING DUE
REGISTRATION UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS, OR IN TWO
TRANSACTIONS EXEMPT FROM SUCH REGISTRATION.
1. Exercise of Warrant. In case the Holder of this Warrant shall desire
to exercise this Warrant in whole or in part, the Holder shall surrender this
Warrant, with the form of exercise notice on the last page hereof duly executed
by the Holder, to the Company accompanied by payment of the Exercise Price of
$5.00 per Share, subject to adjustment as noted herein.
This Warrant may be exercised in whole or in part but not for
fractional Shares. In case of the exercise in part only, the Company will
deliver to the Holder a new Warrant of like tenor In the name of the Holder
evidencing the right to purchase the number of Shares as to which this Warrant
has not been exercised. This Warrant, at any time prior to the exercise hereof,
upon presentation and surrender to the Company may be exchanged, along or with
other Warrants of like tenor registered in the name of the same Holder, for
another Warrant or other Warrants of like tenor in the name of such Holder
exercisable for the same aggregate number of Shares as the Warrant or Warrants
surrendered.
2. Registration Rights. Upon written notice of purchasers holding the
right to acquire 51% or more of the shares underlying the Warrants, the Company
agrees to register, at the
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Company's expense the Shares under the Securities Act and applicable state
securities laws. Also, in the event the Company files a registration for the
registration or sale of any Shares with the United States Securities and
Exchange Commission or under the laws of any State, the Company agrees, at the
Company's expense to register this Warrant and the underlying shares.
3. Stock Dividends a Reclassification Reorganizations Anti-Dilution
Provisions. This Warrant is subject to the following further provisions:
a. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall issue any shares of its
Common Stock as a stock dividend or subdivide the number of outstanding
shares of Common Stock into a greater number of shares, then in such
case, the number of shares of Common Stock issuable upon conversion of
the Shares underlying this Warrant shall be proportionately increased
and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares of Common
Stock into a smaller number of shares of Common Stock then, in such
case the number of shares of Common Stock issuable upon conversion of
the Shares underlying this Warrant shall be proportionately decreased.
If the Company shall, at any time during the life of this Warrant,
declare a dividend payable in cash on its Common Stock and shall at
substantially the some time offer to its stockholders generally a right
to purchase new shares of Common Stock from the proceeds of such
dividend or for an amount substantially equal to the dividend, all
shares of Common stock so issued shall for the purpose of this Warrant.
be deemed to have been issued as a stock dividend. Any dividend paid or
distributed upon the Common stock in shares of any other class of
securities convertible into shares of Common Stock or any other
securities shall be treated as a dividend paid in Common Stock to the
extent that shares of Common Stock are issuable upon the conversion
thereof.
b. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall be recapitalized by
reclassifying its outstanding Common Stock into shares with a different
par value or shall thereafter reclassify any such shares in a like
manner, or the Company or a successor corporation shall consolidate, or
merge with or convey all or substantially all of its, or all or
substantially all of any successor corporation's property and assets to
any other corporation or corporations (any such corporation being
included within the meaning of the term 01 successor corporation"
hereinbefore used in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the
property of any such corporation to another corporation or
corporations), the Holder shall thereafter have the right to purchase,
pursuant to and under the terms and conditions and during the time
specified in this Warrant, in lieu of the shares of Common Stock
issuable upon conversion of the Shares underlying this Warrant and that
are purchasable upon the exercise of this Warrant, such shares of
Common Stock, securities or assets as may be issued upon conversion of
the Shares theretofore underlying this Warrant, upon the exercise of
this Warrant had such recapitalization, consolidation, merger or
conveyance not taken place; and, in any such event, the rights of the
Holder to an adjustment in the number of shares of Common Stock
underlying the Shares underlying this Warrant and that purchasable upon
the
2
<PAGE>
exercise of this Warrant as herein provided, shall continue and be
preserved in respect to any shares, securities or assets which the
Holder of this Warrant becomes entitled to purchase.
c. Upon the occurrence of each event requiring an adjustment
of the Exercise Price or of the number of shares of Common Stock
issuable upon conversion of the Shares underlying this Warrant that are
purchasable pursuant to this Warrant in accordance with, and as
required by, the terms of Subsection (a) of this Section 3, the Company
shall use its best efforts to forthwith cause either a firm of
independent certified public accountants (who may be the regular
accountants for the Company) or the Chief Financial Officer of the
Company to compute the adjusted Exercise Price or the adjusted number
of shares of Common Stock issuable upon conversion of the Shares
issuable upon exercise of this Warrant by reason of such event in
accordance with the provisions of Subsection (a) or (b). The Company
shall forthwith mail to do Holder of this Warrant a copy of such
computation, which shall be conclusive and shall be binding upon such
Holder unless contested by such Holder by written notice to the Company
within 14 days after the mailing thereof by the Company.
d. In case.
(1) the Company shall make a record of the holders of
its Common Stock for the purpose of entitling them to receive,
a dividend payable (whether payable in cash, securities,
property or in any other form); or
(2) the Company shall make a record of the holders of
its Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of any class or to
receive any other rights; or
(3) the Company shall set a date for any
reclassification other reorganization of the capital stock of
the Company, consolidation or merger of the Company with or
into another corporation, or conveyance of all or
substantially all of the assets of the Company, or
(4) the Company shall set a date for the voluntary or
involuntary dissolution, liquidation or winding upon of the
Company:
then, in any such case, the Company shall mail to the Holder of this
Warrant at least 30 days prior to such record date or the date set for
any actions described In subparagraphs (d)(1) through (d)(3) above, a
notice advising such Holder of the date or expected date on which a
record is to be taken for the purpose of such dividend, distribution of
rights or the date on which such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding
up is to take place, as the case may be. Such notice shall also specify
the date or expected date, if any is to be fixed, as of which holders
of Common Stock of record shall be entitled to participate in said
dividend, distribution of rights, or shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation,
merger, conveyance dissolution, liquidation or winding up, as the case
nay be. Each such written notice shall be given by
3
<PAGE>
certified mail, postage prepaid, return receipt requested, addressed to
the holder of the Warrant at the address of such holder as shown on the
books of the Company.
e. In case the Company, at any time while this Warrant shall
remain valid and unexercised, shall sell more than one-half of its
property, or dissolve, liquidate or wind up its affairs or sell or
dispose of all or any part of the assets, securities or property of any
wholly-owned subsidiary, the Holder of this Warrant shall thereafter be
entitled to receive upon exercise hereof (in lieu of such shares of
Common Stock underlying the Shares underlying this Warrant) and the
same kind and amount of any securities or assets a may be issuable,
distributable or payable upon any such sole, dissolution, liquidation
or winding up with respect to such number of shares of Common Stock of
the Company as would otherwise have been issuable upon conversion of
the Shares underlying this Warrant. The Company shall mail notice
thereof by registered mail to the Holder and shall make no distribution
to the shareholders of the Company until the expiration of thirty (30)
days from the date of such mailing: provided, however, that in any such
event if the Holder shall not exercise this Warrant within thirty (30)
days from the date of mailing such notice, all rights herein granted
not so exercised within such thirty (30) day period shall thereafter
become null and void. The Company shall not, however, be prevented from
consummating any such sale without awaiting the expiration of such
thirty (30) day period, it being the intent and purposes hereof to
enable the Holder upon exercise of this Warrant to participate in the
distribution of the consideration to be received by the Company upon
any such sale or in the distribution of assets upon any dissolution or
liquidation of the Company.
f. In the event the Company, at any time while this Warrant
shall remain valid and unexercised, shall propose to declare any
partial liquidating dividend, it shall notify the Holder of this
Warrant as set forth in Subsection (d) of this Section 3. The term
"partial liquidating dividend" shall, include a dividend in cash or
other property of an amount that, together with all other dividends in
cash or other property paid or declared and set aside for payment, is
equal to or greater then 40% of the cumulative consolidated net income
of the Company subsequent to one year form the due hereof.
g. The provisions of this Section 3 are for the purpose of,
and shall be to the effect that upon any exercise of this Warrant the
Holder shall be entitled to receive the same amount and, kind of
securities and other property that it would have been entitled to
receive as the owner at all times subsequent to the date hereof of to
number of shares of Common Stock issuable upon conversion of the Shares
purchased upon any such exercise.
4. Covenants of the Company. The Company hereby covenants and agrees
that prior to the expiration of this Warrant by exercise or by its terms:
a. The Company will not by amendment of its Articles of
Incorporation, as they may currently exist, or through reorganization,
consolidation, merger, dissolution, or see of assets, or by any other
voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will at all times
in good faith assist, insofar as it is able, in the
4
<PAGE>
carrying out of all provisions of this Warrant and in the taking of all
other actions that may be necessary in order to protect the rights of
the Holder against dilution.
b. if at any time or from time to time, the Company shall, by
subdivision, consolidation or reclassification of shares, or otherwise,
change as a whole the outstanding shares of Common Stock into a
different number or class of shares, the number and class of shares as
so changed shall, for the purpose of each Warrant and the terms and
conditions hereof, replace the shares outstanding immediately prior to
such change, and the Warrant purchase price in effect, and the number
of Shares purchasable under each Warrant, immediately prior to the date
on which such change is to become effective, shall be proportionately
adjusted.
c. Irrespective of any adjustment or change in the Warrant
purchase price, the number of shares of Common Stock issuable upon
conversion of the Shares actually purchasable under each Warrant of
like tenor, the Warrants theretofore and thereafter issued may continue
to express the Warrant purchase price per Share and the number of
Shares purchasable thereunder as the Warrant purchase price per Share
and the number of Shares purchasable were expressed on the Warrants
when initially issued.
d. If at any time while any Warrant is outstanding the Company
consolidates with or merges into another corporation, firm or entity,
or otherwise enters into a form of business combination, the Holder,
upon exercise hereof, shall be entitled to purchase, with respect to
each share of Common Stock issuable upon conversion of Shares
purchasable hereunder, that number of Shares to which a holder of one
(1) share of Common Stock would have been entitled upon the occurrence
of such business combination without any change in, or payment in
addition to, the Warrant purchase price in effect immediately prior to
such merger or consolidation, and the Company shall take such steps in
connection with such consolidation or merger as may be necessary to
assure that all the provisions of each Warrant shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of each
Warrant. The Company shall not effect any such consolidation, merger or
other form of business combination unless, prior to the consummation
thereof, the successor corporation (if other than the Company)
resulting therefrom shall assume, by written instrument executed and
mailed to the registered holder of each Warrant at the address of such
holder shown on the books of the Company, the obligation to deliver to
such holder such securities, or property such holder shall be entitled
to purchase in accordance with the foregoing provisions.
e. Upon the happening of any event requiring an adjustment of
the Warrant purchase price hereunder, the Company shall forthwith give
written notice thereof to the registered Holder of each Warrant,
stating the adjusted Warrant purchase price and the adjusted number of
shares of Common Stock issuable upon conversion of shares purchasable
upon the exercise thereof resulting from such event, and setting forth
in reasonable detail the method of calculation. The certificate of
either the Company's independent certified public accountants or Chief
Financial Officer shall be conclusive evidence of the correctness of
any computation made hereunder unless contested by a Holder by written
notice to the Company within 14 days after the mailing thereof by the
Company. Notice pursuant to this paragraph
5
<PAGE>
shall be given by certified mail, postage prepaid, return receipt
requested, addressed to the registered holder of each Warrant at the
address of such holder appearing in the records of the Company.
f. The Company shall at all times reserve and keep available,
out of its authorized and unissued capital stock, solely for the
purpose of providing for the exercise, forthwith upon the request of
the Holder of the Warrant(s) then outstanding and in effect, such
numbers of shares of Common Stock as shall, from time to time, be
sufficient for the conversion of Shares upon such exercise of the
Warrants. The Company shall, from time to time, in accordance with the
laws of the State of Delaware, increase the authorized amount of its
capital stock, if at any time the number of shares of Common Stock
remaining unissued and unreserved for other purposes shall not be
sufficient to permit the exercise of do Warrants then outstanding and
in effect.
g. The Company covenants and agrees that all Shares that may
be issued upon the exercise of the rights represented by this Warrant
will, upon issuance be validly issued, fully paid and non-assessable,
and free from all taxes, liens and charges with respect to the issue
thereof (other than taxes in respect of any transfer occurring with
such issue). The Company further covenants and agrees that, during the
period within which the rights represented by this Warrant may be
exercise, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the
conversion and exercise of the rights represented by this Warrant.
5. Loss, Theft, Destruction or Mutilation. In case this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and substitution
of such Warrant so destroyed, lost or stolen, upon the Holder of such Warrant
filing the Company such evidence satisfactory to it that such Warrant has been
so mutilated, defaced, destroyed, lost or stolen and of the ownership thereof by
the Holder; provided, however, that the Company shall be entitled, as a
condition to the execution and delivery of such new Warrant, to demand indemnity
satisfactory to it and payment of expenses and charges incurred in connection
with the delivery of such new Warrant, except that no bond shall be required
from the Holder. All Warrants so surrendered to the Company shall be canceled.
6. Record Owner. At the time of the surrender of this Warrant, together
with the form of subscription properly executed and payment of the Exercise
Price, the person exercising this Warrant shall be deemed to be the Holder of
record of the shares of Common Stock deliverable upon such exercise, in whole,
or in part, notwithstanding that the stock transfer of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to such person. The Company will pay all costs with
respect to the issuance of this Warrant or the shares of Common Stock issuable
upon exercise hereof, or thereof
7. Fractional Shares. No fractional Shares, fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon the exercise
of this Warrant or conversion of the Shares. With respect to any fraction of a.
Share called for on such exercise, the Holder may elect to receive, and the
Company shall pay to the Holder, an amount in cash equal to such fraction
6
<PAGE>
multiplied by the Exercise Price. In the alternative, the Holder may elect to
remit to the company an amount in cash equal to the difference between such
fraction and one, multiplied by the Exercise Price, and the Company will issue
the Holder one share of Common Stock in addition to the number of whole shares
required by the exercise of the Warrant; provided, however, that the Company
shall not be obligated by the operation of this Section 8 to issue Shares in the
aggregate exceeding the number of shares duty registered in accordance with the
applicable federal and state securities laws or as to which an exemption from
registration has been determined to be available.
8. Call-Provision. The Company may call the warrants represented hereby
in the event that prior to the Exercise Date, provided the Company has
registered the underlying Shares, and the average closing price of the
underlying common stock as adjusted herein, on any stock exchange, public
bulletin board or other market place for any twenty market days equals or
exceeds $6.00 per share (US). Such prices may be any combination of such markets
and must not be from only one source. Such call must be exercised by the Company
giving ten days prior written notice of the call to the holder hereof. After
receipt of notice of call, the holder may exercise the warrant as provided
herein up until the expiration of the notice period. The call price shall be
$5.00 per share of underlying shares and shall be tendered to holder upon
expiration of the notice period. After tender of the call price, if the warrant
is not exercised prior thereto, the warrant shall cease to exist.
9. Original Issue Taxes. The Company will pay all United States, state
and local (but not foreign) original issue taxes, if any, upon the issuance of
this Warrant or the Shares deliverable upon exercise hereof or the shares of
Common Stock upon conversion of the Shares.
10. Mailing of notices, etc. All notices, and other communications from
the Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, return receipt requested, postage prepaid, to the
Holder, at the address set forth in the records of the Company, or to such other
address furnished to the Company in writing from time to time by the Holder of
this Warrant. All notices from the Holder of this Warrant to the Company shall
be mailed to the Company at General American Royalty, Inc. d.b.a. World CallNet,
Inc., Beacon House Meridian Gate, 207 Marsh Wall, London, E149YT, United
Kingdom, Attention: Paul Goodman-Simpson, President.
11. Registration Under the Securities Act of 1933. This Warrant and the
Shares issuable upon exercise of this Warrant have not been registered under the
Securities Act or the securities acts of any state or foreign country by virtue
of the Registration Statement. This Warrant and all replacement Warrants and all
Shares issued upon exercise of the Warrant shall bear the following legend
(unless a current registration statement for such shares is in effect):
This Warrant, and the securities issuable upon the exercise of
this Warrant, have not been registered under the Securities
Act of 1933, as amended ("Securities Act") and may not be
sold, transferred or otherwise disposed of unless (i) the
Shares are registered under the Securities Act of 1933 and the
securities act of any state applicable to such sale, or (ii)
the proposed seller provides the Company with an opinion of
counsel that the securities are being sold in a transaction
which is except from the registration requirements of the
Securities Act of 1933 and any applicable state securities
acts and the Company
7
<PAGE>
is satisfied that no registration statement is then required
and that this Warrant and the underlying securities may be
sold, transferred or otherwise disposed of in the manner
contemplated without registration under the Securities Act of
1933 or any state securities act.
12. Laws of the of Delaware. This Warrant shall be governed by,
interpreted under and construed in all respects in accordance with the laws of
the State of Delaware, irrespective of the place of domicile or residence of any
party. In the event of a controversy arising out of the interpretation,
construction, performance or breach of this Warrant, the parties hereby agree
and consent to the jurisdiction and venue of any State or Federal court of
competent jurisdiction.
13. Entire Agreement and Modification. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does, contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral, agreement or understanding express or
implied, whereby the absolute, final and unconditional character nature of this
Warrant be in any way invalidated, empowered or affected. A modification or
waiver of any of the terms, conditions or provisions of this Warrant shall be
effective only if made in writing and executed with the same formality as this
Warrant.
This Warrant will become wholly void and of no effect and the rights
evidenced hereby Will terminate unless exercised in accordance with the terms
and provision hereof at or before 5:00 P.M., London Time, on the Expiration
Date.
IN WITNESS WHEREOF, the Company by its duty authorized officer has
executed this Warrant on this 26th day of March, 1999.
Attest: General American Royalty, Inc,
d.b.a World CallNet, Inc
____________________ By:
-------------------------------
Paul Goodman-Simpson, President
8
<PAGE>
FORM OF EXERCISE
The undersigned hereby irremovably elects to exercise the purchase
rights represented by this Warrant for, and to purchase thereunder, ___________
Shares of General American Royalty, Inc. d.b.a. World CallNet, Inc., a
corporation, and herewith makes payment of $5.00 per share, or at total of
$__________ therefor, and requests that such Shares be issued to:
- ---------------------------------
(Print Name)
- ---------------------------------
(Address)
- ---------------------------------
(Taxpayer Identification Number)
Dated:
-------------------------- ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from World
Callnet, Inc. Report on form 10-QSB for the six months ended March 31,
1999, and is qualified in its entirety by reference to the financial
statements
</LEGEND>
<CIK> 0001014491
<NAME> World Callnet, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 89
<SECURITIES> 500
<RECEIVABLES> 502
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 591
<PP&E> 66
<DEPRECIATION> 0
<TOTAL-ASSETS> 1173
<CURRENT-LIABILITIES> 1453
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> (287)
<TOTAL-LIABILITY-AND-EQUITY> 1173
<SALES> 83
<TOTAL-REVENUES> 83
<CGS> 0
<TOTAL-COSTS> 469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (868,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (868,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (868,188)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
