SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under the Securities Act of 1933
UTG COMMUNICATIONS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
13-3895294
(I.R.S. Employer Identification Number)
17 Cattano Avenue
Morristown, New Jersey 07960
(973) 644-3161
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
UELI ERNST
Chairman and CEO
17 Cattano Avenue
Morristown, New Jersey 07960
(973) 644-3161
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------
COPIES TO:
Daniel A. Wuersch
Wuersch & Gering LLP
11 Hanover Square - 21st Floor
New York, NY 10005
(212) 509-5050
--------------------
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effective date of this Registration Statement
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box: |_|
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
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following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximium
Title of Each Offering Price Aggregate Amount of
Class of Securities Amount to per Share Offering Registration
to be Registered be Registered per Share(1) Price(1) Fee(2)
- ------------------- -------------- ----------- ----------- ------------
Common Stock,
par value,
$.00001 per share 1,005,355 $ 7.00 $7,037,485.00 $1,956.42
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) The registration fee with respect to the shares of common stock to be sold
by the selling stockholders has been computed pursuant to Rule 457(c)
using the bid and asked prices quoted on the NASDAQ Bulletin Board on
February 2, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell securities, and the selling stockholders are
not soliciting offers to buy these securities, in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION DATED FEBRUARY 3, 1999
1,005,355 SHARES
UTG COMMUNICATIONS INTERNATIONAL, INC.
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COMMON STOCK
The selling stockholders are offering 1,005,355 shares of common stock. We
will not receive any of the proceeds from sales of shares by the selling
stockholders.
Our common stock trades on the Nasdaq Bulletin Board under the symbol "UTGC" and
on the OTC market of the Berlin Stock Exchange. On January 28, 1999, the last
reported sale price of our common stock on the Nasdaq Bulletin Board was $8.50
per share.
The selling stockholders may sell these shares from time to time through brokers
or dealers or otherwise. They may sell the shares at prevailing market prices or
at prices negotiated with buyers. The selling stockholders will be responsible
for any commissions or discounts due to brokers or dealers. The amount of those
commissions or discounts will be negotiated before the sales. We will pay all of
the other offering expenses, which we estimate will total $16,000.
--------------------
INVESTING IN THESE SHARES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FEBRUARY 3, 1999
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER WE
NOR THE SELLING STOCKHOLDERS HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING
STOCKHOLDERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON
STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. IN THIS
PROSPECTUS, REFERENCES TO "WE," "US" AND "OUR" REFER TO UTG COMMUNICATIONS
INTERNATIONAL, INC. AND ITS SUBSIDIARIES.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Use of Proceeds
Selling Stockholders
Plan of Distribution
Legal Matters
Experts
Where You Can Find More Information
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information that
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may be important to you. You should read the entire prospectus, including "Risk
Factors" and the information incorporated by reference, before deciding to
invest in shares offered by this prospectus.
UTG COMMUNICATIONS INTERNATIONAL, INC.
THE COMPANY: We are a Delaware corporation, incorporated in
1996. We provide quality private voice, fax and
data telecommunication ("telecom") services in
Switzerland, Belgium and the United Kingdom,
primarily to businesses and business groups at
prices which are generally below those of major
telecom carriers. In addition, we have entered
into agreements with international telecom
carriers for the exchange of telecom traffic.
Under these agreements, we resell telecom minutes
at a profit. We also offer system design and
installation as well as digital compression, fax
transmission compression, digital data services
and wideband digital data services. In
Switzerland, we have entered into an
Interconnection Agreement with Swisscom, the
national Swiss telecom carrier. This gives us
access to Swisscom's network for our national and
international telecom traffic. In the United
Kingdom, we have recently entered into a joint
venture for the distribution of telecommunication
cards.
STRATEGY: Our objective is to grow our telecommunications
customer base in Switzerland, Belgium and the
United Kingdom and to establish ourselves in other
markets in the European Union ("EU"). We believe
that with our communication network, we are well
positioned to take advantage of telecommunications
deregulation in Switzerland, Belgium, the United
Kingdom and other countries of the EU. We are
positioning ourselves between the major
full-service and high price telecommunications
carriers and the no service (or limited service)
cut rate telecommunications minute resellers.
CUSTOMERS: We primarily target customers with between $5,000
and $50,000 of monthly usage. We believe that, in
addition to being price sensitive, these customers
tend to be focused on customer service and are
more likely to rely on one or two carriers for
their telecommunications needs. The diversity of
our targeted customer base enhances the
utilization of our network by combining
business-driven workday traffic with night and
weekend off-peak traffic. We strive to be more
cost-effective, flexible, innovative and
responsive to the needs of our customers than the
major carriers, while providing more services than
cut-rate resellers.
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ADDRESS: Our principal executive offices are located at 17
Cattano Avenue, Morristown, New Jersey 07960. Our
telephone number is (973) 644-3161.
THE OFFERING
COMMON STOCK OFFERED: All of the 1,005,335 shares offered by this
prospectus are sold by the selling stockholders.
USE OF PROCEEDS: We will not receive any of the proceeds from sales
of shares by the selling stockholders.
RISK FACTORS
An investment in shares of our common stock is risky. You should consider
carefully the following risk factors in addition to the remainder of this
prospectus, including information incorporated by reference, before purchasing
shares offered by this prospectus.
Some of the information in this prospectus contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," "continue" and similar words. You should
read statements that contain these words carefully because they (1) discuss our
future expectations, (2) contain projections of our future operating results or
financial condition or (3) state other "forward-looking" information. We believe
it is important to communicate certain of our expectations to our investors.
There may be events in the future, however, that we are not accurately able to
predict or over which we have no control. The risk factors listed in this
section, as well as any other cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of any of the events described in these risk factors and elsewhere in
this prospectus could have a material adverse effect on our business, financial
condition and results of operations. In such case, the trading price of our
common stock could decline and you could lose all or part of your investment.
LIMITED OPERATING HISTORY
We have a limited operating history. Our ability to successfully market our
existing products and to develop and market new products must be considered in
light of the risks, expenses and difficulties which companies in their early
stages of development frequently encounter in new and rapidly evolving markets,
including limited capital, possible delays, uncertain markets and competition.
We cannot guarantee that we will become profitable in the future. Because we
will focus on the expansion of our service offerings and geographic markets, our
cash flow and operating performance may be adversely affected. As each of the
telecommunications markets in Switzerland, Belgium, the United Kingdom and the
other countries of the EU continue to mature, our possible revenues and customer
base in each such market is likely to decrease over time.
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FLUCTUATIONS IN OPERATING RESULTS
Our operating results are difficult to predict and may fluctuate significantly
from quarter to quarter. If our operating results fall below the expectations of
investors or public market analysts, the price of our common stock could fall
dramatically.
Our operating results are difficult to predict for a number of reasons:
o The general economic conditions or the conditions in the
telecommunications industry may fluctuate in any national or regional
market in which we are active.
o New or existing governmental regulation may make it more difficult or
impossible to market our telecom products or services.
o The demand for our products or services can fluctuate.
o Capital expenditures and other costs which we incur because of our
expansion may depress our cash flow and operating results.
o New products or services which we are introducing may not be received as
favorably as we expected.
o New products or services which our competitors introduce may make it more
difficult for us to sell our products or services.
o Competition may force us to reduce the prices for our products and
services or to find a strong partner to increase our chances to be
successful in the market.
o Large telecom carriers whose networks we are using or from which we are
purchasing minutes may increase the prices they charge for access to
their network or for the telecom minutes we are buying from them.
NEED FOR ADDITIONAL CAPITAL
We need to continue to expand our operations in order to remain competitive. We
also may have to expand the services we are offering and enter new geographic
markets. We will have to meet increasing demands for quality service at
competitive prices. As a consequence, we may need to raise additional capital
from public or private sources in order to finance our anticipated growth and
working capital needs. In addition, we may need to raise additional funds in
order to take advantage of new opportunities for strategic alliances or to
develop new products or services. We may issue debt or common or preferred stock
to raise additional funds. If we issue preferred or common stock, the percentage
ownership in the Company of our existing stockholders would be reduced. There
can be no assurance that we will be able to raise new capital. If we incur debt,
we would likely become subject to restrictive financial covenants which could
restrict our ability to pay dividends, issue securities or incur additional
debt. In the event that we are unable to obtain additional capital or are unable
to obtain additional capital on acceptable terms, we may be required to reduce
the scope of our present or future activities, which could adversely affect our
business, results of operations, financial condition and ability to compete.
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DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS AND SUPPLIERS
Because we do not own any telecommunications lines, we depend on access to lines
owned or leased by large telecommunication carriers. We have entered into an
Interconnection Agreement with Swisscom, the national Swiss telecom carrier,
which provides us with access to its network in Switzerland. In addition, we
have several agreements with other large telecom carriers, which provide us with
access to their lines in Europe. If the Interconnection Agreement with Swisscom
was terminated, we would no longer be able to provide Swiss customers, which
account for most of our customer base, with telephone or telefax services in
Switzerland. Also, with respect to the lines that we lease from large telecom
carriers, we are vulnerable to changes in our lease arrangements, such as price
increases and service cancellations. We often receive volume discounts when
leasing our transmission lines. If our telecommunications volume is less than
anticipated, then we will not receive as great a discount. We purchase or lease
our transmission lines for our convenience, and we believe that we could obtain
transmission lines of comparable quality from several alternative suppliers.
However, this could result in delays which could reduce our revenues or result
in the loss of customers.
POTENTIAL ADVERSE EFFECTS OF REGULATION
We currently have to comply with the telecommunications laws in Switzerland, the
United Kingdom, Belgium and the EU. Each country in which we conduct our
business has a different regulatory scheme and requirements. We believe that we
are in substantial compliance with applicable laws and regulations. To the
extent that such laws and regulations are changed or new laws or regulations are
adopted, we may be required to obtain additional licenses or renew, modify or
replace existing licenses. If we failed to be in compliance with these laws, the
regulatory authorities in these jurisdictions could impose sanctions on us. This
could result in substantial costs to us and, in the worst case, we could be
forced to cease operations in one or all of these markets.
Currently, since no calls by our customers originate in the United States, we do
not believe that we are subject to any telecommunications laws or regulations in
the United States. In the future, if our services expand, it is possible that we
may become subject to the telecommunications laws and regulations of the United
States. If this occurs, compliance with such laws would probably involve higher
costs than we currently have in Europe.
INTELLECTUAL PROPERTY
We have filed trademark applications for certain of our trade names. In general,
we rely on our own know-how and employ various methods to protect our concepts
and ideas. However, these methods may not afford complete protection and our
competitors may independently develop similar know-how, concepts or ideas or
obtain access to our know-how or ideas.
INCREASING COMPETITION
The telecommunications industry is highly competitive. The industry has
relatively insignificant barriers to entry. As a result, a large number of
competitors are competing for the same customers. Customers, on the other hand,
frequently change telecom providers in response to the offering of lower rates
or promotional incentives. As a result of the deregulation of the European
telecommunications markets, we believe that competition in Europe is
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likely to increase and become more similar to competition in the United States
markets, where prices in the long distance industry have declined in recent
years.
Many of our competitors are significantly larger, have substantially greater
financial, technical and marketing resources and larger networks than we do. Our
main competitor in Switzerland is Swisscom, which controls almost all of the
Swiss telecommunications market and had approximately $7.5 billion in revenue in
1997. In Belgium, our main competitor is Belgacom and in the United Kingdom,
British Telecom. In addition, there are several smaller competitors in each of
these countries. As we expand into other countries of the EU, there will be
additional competition from other telecommunications companies.
RISKS OF GROWTH AND EXPANSION
Since we commenced operations in 1996, we have expanded the services we offer in
Switzerland and have entered the telecommunications markets in Belgium and the
United Kingdom. In addition, we also intend to establish a presence in other
European markets when we believe that business and regulatory conditions permit
such expansion: our growth may place a significant strain on our administrative,
operational and financial resources and increase demands on our systems and
controls. As we increase our services and expand into new markets, there will be
additional demands on our customer support, sales and marketing and
administrative resources and network infrastructure. As a result, our
infrastructure may become inadequate to meet these demands and we may have to
expend significant funds to upgrade our infrastructure. If we are unable to
upgrade our infrastructure to meet these demands, we may not be able to maintain
the quality of our services. As a result, we may lose customers and our revenues
may decrease.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We currently operate in Switzerland, Belgium and the United Kingdom. In the
future, we hope to expand into other European countries. We anticipate that
revenues from international customers will continue to account for a significant
portion of our revenues for the foreseeable future. Our international operations
are subject to specific risks, including the following:
o fluctuations in exchange rates may reduce our earnings, particularly where
we denominate arrangements with international customers in the currency of
the country in which our services are provided. Any hedging techniques we
implement may be expensive and may not fully eliminate the impact of
exchange rate fluctuations on our operating results;
o tariffs and other barriers may reduce our ability to sell our services or
may reduce the profitability of those services;
o political and economic instability may lead to reduced demand for our
services or make it difficult for us to offer our services;
o unexpected changes in regulatory requirements may decrease our ability to
market our services and therefore reduce the demand for those services;
o we may experience difficulties in managing and staffing foreign subsidiary
operations;
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o we may suffer potentially adverse tax consequences from operations in
several countries; and
o the adoption and use of the Euro, the single European currency introduced
in January 1999, may adversely affect our business in ways we cannot
currently predict.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To complete our billing, we will have to record and process massive amounts of
data quickly and accurately. While we believe our management information systems
are currently adequate, we believe that the successful implementation and
integration of these information systems is important to our growth and to our
ability to monitor costs, to bill customers and to achieve operating
efficiencies. There can be no assurance that we will not encounter delays or
cost-overruns or suffer adverse consequences in implementing and upgrading these
systems. In addition, as our suppliers revise and upgrade their hardware,
software and equipment technology, there can be no assurance that we will not
encounter difficulties in integrating the new technology into our business or
that the new systems will be appropriate for our business.
DEPENDENCE UPON THIRD PARTIES
We are dependent upon third party carriers and suppliers to provide a large
portion of our services and maintenance in a timely and satisfactory manner. If
these third party carriers and suppliers fail to provide such services or
maintenance in a timely or satisfactory manner, this could have an adverse
effect on us.
RISKS ASSOCIATED WITH INVESTMENTS AND STRATEGIC ALLIANCES
As part of our business strategy, we have developed and we expect to continue to
develop strategic alliances and to make investments in companies that are
complementary to our current operations. Any such future strategic alliances or
investments would be accompanied by the risks commonly encountered in strategic
alliances with, or investments in, other companies. Such risks include, among
other things:
o the difficulty of assimilating the operations and personnel of the
companies;
o the potential disruption of our ongoing business;
o the inability of our management to successfully integrate the business of
such companies into our existing business;
o the maintenance of uniform standards, controls, procedures and policies;
and
o the impairment of relationships with employees and customers of such
companies as a result of our investment or such strategic alliances.
There can be no assurance that we will be successful in overcoming these risks
or any other problems encountered with strategic alliances or investments. In
addition, if the consideration payable by us consists of shares of our common
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stock, our stockholders could suffer a significant dilution of their interests.
The financial impact of investments and strategic alliances could have a
material adverse effect on us.
TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT COMPETITIVENESS AND FINANCIAL RESULTS
The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. There can be no assurance that we will be able to
maintain our products and services at a competitive level or that we will obtain
appropriate new technologies on a timely basis or on satisfactory terms.
DEPENDENCE ON KEY PERSONNEL
Competition for qualified employees and personnel in the telecommunications
industry is intense and, from time to time, only a limited number of persons
with experience in particular sectors of the telecommunications industry may be
available. Our success will depend on our ability to attract and retain
qualified management, marketing, technical and sales executives and personnel.
The process of locating such personnel with the combination of skills and
attributes required to carry out our strategies is often lengthy and costly. The
loss of the services of key personnel or the inability to attract additional
qualified personnel could have a material adverse effect on us.
OWNERSHIP OF SHARES BY MANAGEMENT
Companies controlled by our executive officers and directors own (directly or
indirectly) 313,041 shares of common stock, or approximately 19.6% of the
outstanding shares of common stock. Although these stockholders may or may not
agree on any particular matter that is the subject of a vote of the
stockholders, these stockholders may be effectively able to control the outcome
of any issues which may be subject to a vote of stockholders, including the
election of directors, proposals to increase the authorized capital stock, or
the approval of mergers, acquisitions, or the sale of all or substantially all
of our assets.
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DIVIDENDS
We are a holding company. Our principal assets are our current operating
subsidiaries in Switzerland, Belgium and the United Kingdom. As we expand, we
anticipate that we will operate through new subsidiaries located in European
countries. While there are no restrictions under Swiss law, operating
subsidiaries set up in the future in other European countries may be subject to
restrictions on their ability to pay dividends to us. There can be no assurance
that we will be able to cause our operating subsidiaries to declare and pay
dividends or make other payments to us when we request them to do so. The
failure to pay any such dividends or make any such other payments could have a
material adverse effect on us.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of our common stock following this offering may be highly
volatile. Factors such as variations in our revenue, earnings and cash flow, the
difference between our actual results and the results expected by investors and
analysts and announcements of new service offerings, marketing plans or
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price reductions by us or our competitors could cause the market price of the
common stock to fluctuate substantially. In addition, the stock markets recently
have experienced significant price and volume fluctuations that particularly
have affected telecommunications companies and resulted in changes in the market
prices of the stocks of many companies that have not been directly related to
the operating performance of those companies. These market fluctuations may have
a negative effect on the market price of the common stock.
Trading in our common stock will be conducted on the NASD Bulletin Board or on
the over-the-counter market. An investor may find it difficult to dispose of his
or her common stock or to obtain accurate quotations as to the price of the
common stock. News concerning us will most likely receive limited coverage. In
addition, our common stock may be subject to a rule that imposes additional
sales practice requirements on broker-dealers who sell our common stock to
persons other than established customers and accredited investors (accredited
investors are generally persons having net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with a spouse). For
transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale, as well as
disclosing certain information concerning the risks of purchasing low-priced
securities on the market for such securities. Consequently, if our stock is not
listed on a national securities market, broker-dealers are restricted in selling
our common stock. This may affect the ability of purchasers of our common stock
in this offering to sell their common stock in the secondary market and may make
subsequent financing difficult.
As of the date of this Prospectus, several brokerage firms are engaged in market
making activities with respect to our common stock. In the event that these
market makers do not function as such, public trading in our common stock will
be adversely affected or may cease entirely.
SHARES ELIGIBLE FOR FUTURE SALE
Of our 1,598,190 shares of common stock currently outstanding on the date of
this Prospectus, the 1,005,355 shares offered by this prospectus are "restricted
securities," as defined in Rule 144 of the Securities Act. With the registration
of these shares, they become freely tradeable. We cannot predict the effect, if
any, that market sales of common stock or the availability of our common stock
for sale will have on the market price prevailing from time to time. However,
sales of shares by the selling stockholders, or even the potential of such
sales, could have an adverse effect on the market price of the common stock.
NO DIVIDENDS
Since our inception, we have not paid any dividends on our common stock. We
intend to retain future earnings, if any, to provide funds for the operation of
our business and, accordingly, do not anticipate paying any cash dividends on
our common stock in the reasonably foreseeable future.
DELAWARE ANTI-TAKEOVER LAW
We are governed by the provisions of Section 203 of the General Corporation law
of the State of Delaware. In general, this law prohibits a public Delaware
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corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination" is
defined to include mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is defined as
a person who, together with affiliates and associates, owns (or, within the
prior three years, did own) 15 percent or more of the corporation's voting
stock.
These provisions could have the effect of delaying, deferring or preventing a
change of control of UTG which could prevent our stockholders from realizing a
premium through a non-negotiated change in control. Our stockholders, by
adopting an amendment to our Certificate of Incorporation or By-Laws, may elect
not to be governed by Section 203, effective twelve months after adoption.
Neither our Certificate of Incorporation nor our By-Laws currently excludes us
from the restrictions imposed by Section 203.
OUR SERVICES AND SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
We are in the process of reviewing our computer systems to insure they will not
suffer catastrophic failures in connection with the change in the calendar on
January 1, 2000, but have not expended material amounts in this respect. We do
not believe that we have material exposure with respect to the year 2000 issue
concerning our computer applications and equipment. We license most of the
software we use. Although this practice has minimized our efforts and cost
needed to make us year 2000 compliant, it does place greater reliance on the
outside firms that provide the software. Because most of our software is
licensed, our main internal compliance tasks are auditing hardware and software,
reviewing internal and external applications, prioritizing applications by risk,
creating a communications program to raise awareness levels and enable
correction of all existing application solutions, and installation of
vendor-provided year 2000 software fixes. At this time, our assessment of
potential year 2000 problems is not complete. Currently, we are not aware of any
material year 2000 issues. In the event that year 2000 issues were to disrupt
our operations, such disruption may have a material impact on us and our results
of operations. Since to date we have not become aware of any material year 2000
issues, we do not have a contingency plan to address any such issues. Such
contingency plan, if required, will be developed immediately upon completion of
our year 2000 risk assessment.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling stockholders. For information about the selling
stockholders, see "Selling Stockholders." We will not receive any proceeds from
sales of these shares.
SELLING STOCKHOLDERS
The following table sets forth as of January 22, 1999, certain information
with respect to the selling stockholders, including the maximum number of shares
that may be offered by them. The number of shares which may actually be sold by
the selling stockholders will be determined from time to time by them and will
depend upon a number of factors, including the price of our common stock from
time to time. Because the selling stockholders may offer all or
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none of the common stock that they hold and because the offering contemplated by
this prospectus is not being underwritten, no estimate can be given as to the
number of shares of common stock that selling stockholders will hold upon
termination of this offering. See "Plan of Distribution."
Number of shares of
Common Stock owned by
Selling Stockholders
Name of Selling Stockholder Shares % of Class
- --------------------------- ------ ----------
Interfinance Inv. Co. Ltd. 197,656 shares 12.36% of 1,598,190 shares
Postbox 13 outstanding on January 22,
CH - 8954 Geroldswil 1999
Switzerland
Fritz Wolff 7,693 shares 0.48%
Escher Wyssstr. 23
CH - 8001 Zurich
Switzerland
Dowel Management Corp. 7,693 shares 0.48%
c/o Guyerzeller Bank AG
Genferstr.
CH - 8027 Zurich
Switzerland
Tele Invest Ltd. 30,770 shares 1.93%
c/o Jessup & Co.
2 Mount Pleasant
Douglas
Isle of Man IMI 2PU
Andrea Egger 7,693 shares 0.48%
5 Chemin des Chavanus
CH - 1297 Founex
Switzerland
Alain Dettling 3,847 shares 0.24%
Winzerhalde 36A
CH - 8049 Zurich
Switzerland
Medfield Investment SA 550,000 shares 34.41%
Sonnenbergweg 12
CH - 5608 Stetten
Switzerland
VCM Investment SA 38,462 shares 2.41%
c/o UTG Communications Int. Inc.
18 Cattano Avenue
Morristown, NJ 07960, USA
Andreas Popovici 34,617 shares 2.17%
Alte Landstr. 104
CH - 8803 Ruschlikon
Switzerland
14
<PAGE>
Jean-Pierre Conrad 11,539 shares 0.72%
Chateau Perigord II
MC - 98000 Monte Carlo
Monaco
Prozal Investments S.A. 115,385 shares 7.22%
c/o Am Milchbrunnen 4
D - 56566 Neuwied
Germany
TOTAL 1,005,355 shares to be registered
- --------------------------------------------------------
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by selling
stockholders, who consist of the persons named under "Selling Stockholders"
above and those persons' pledgees, donees, transferees or other successors in
interest. The selling shareholders may sell the shares on the NASD Bulletin
Board or otherwise, at market prices or at negotiated prices. They may sell
shares by one or a combination of the following:
- a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from the selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If any selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file, a prospectus supplement, if required
pursuant to Rule 424(c) under the Securities Act of 1933, setting forth:
- the name of each of the participating broker-dealers,
- the number of shares involved,
- the price at which the shares were sold,
- the commissions paid or discounts or concessions allowed to the
15
<PAGE>
broker-dealers, where applicable,
- a statement to the effect that the broker-dealers did not conduct
any investigation to verify the information set out or incorporated
by reference in this prospectus, and
- any other facts material to the transaction.
LEGAL MATTERS
The law firm of Wuersch & Gering LLP, New York, New York, has advised us
with respect to the validity of the shares of common stock offered by this
prospectus.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from our Annual Report on Form
10-KSB for the year ended March 31, 1998 have been audited by Merdinger,
Fruchter, Rosen & Corso, P.C., independent auditors, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the authority of Merdinger, Fruchter, Rosen & Corso, P.C. as
experts in giving those reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual reports, quarterly reports, current reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy our SEC filings at the SEC's public reference room at 450
Fifth Street, N.W., Washington D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information about the public reference room. Our SEC
filings also are available on the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information from certain of our
other SEC filings. This means that we can disclose information to you by
referring you to those other filings, and the information incorporated by
reference is considered to be part of this prospectus. In addition, certain
information that we file with the SEC after the date of this prospectus will
automatically update, and in some cases supersede, the information contained or
otherwise incorporated by reference in this prospectus. We are incorporating by
reference the information contained in the following SEC filings:
UTG's Annual Report on Form 10-KSB, for the fiscal year ended March
31, 1998, (filed with the SEC on July 14,1998); and
UTG's Quarterly Reports on Form 10-QSB, for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998, as amended by Form
10-QSB/A filed with the SEC on January 20, 1999.
You may request copies of these filings, at no cost, by contacting Ueli Ernst,
UTG Communications International, Inc., 17 Cattano Avenue, Morristown, New
Jersey 07960 (Telephone: 973-644-3161).
This prospectus is part of a Registration Statement on Form S-3 we filed with
the SEC under the Securities Act of 1933. This prospectus does not contain all
16
<PAGE>
of the information contained in the Registration Statement.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Filing Fee -- Securities and Exchange Commission $ 1,956.42
Accounting Fees and Expenses $ 1,000.00
Legal Fees and Expenses $10,000.00
Printing, EDGAR formatting and mailing expenses $ 2,000.00
Miscellaneous Expenses $ 1,043.58
----------
Total $16,000.00
==========
All expenses other than the Securities and Exchange Commission filing fee are
estimated. We will bear all expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-Laws of the Registrant provide that
the Registrant shall indemnify its officers, directors and certain others to the
fullest extent permitted by the Delaware General Corporation Law. Section 145 of
the Delaware General Corporation Law (the "DGCL") provides in pertinent part as
follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the
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request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other Court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsection (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expense provided by, or granted
pursuant to, the subsections of this section shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors of otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
18
<PAGE>
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporations as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans' references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
reference to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation, which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
In accordance with Section 102(b)(7) of the DGCL, Article Seven of the
Certificate of Incorporation of the Registrant eliminates the personal liability
of the Company's directors to the Company or its stockholders for monetary
damages for breach of their fiduciary duties as a director, with certain
exceptions set forth in said Section 102(b)(7).
ITEM 16. EXHIBITS.
Exhibit No. Description
5 * Opinion of Wuersch & Gering LLP, counsel for UTG.
10.1 * Shareholders Agreement, dated as of November 16, 1998.
23.1 * Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
19
<PAGE>
23.2 * Consent of Wuersch & Gering LLP (included as part of Exhibit
5).
- --------------------
* Filed Herewith
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) To file during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement.
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represents no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is continued in periodic reports filed
with or furnished to the SEC by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
20
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(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be
a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Zurich, Country of Switzerland on the 3rd day of
February, 1999.
UTG COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Ueli Ernst
Dated: February 3, 1999 -------------------------------------------
Ueli Ernst, Chairman, CEO and a Director
Principal Executive Officer
By: /s/ Klaus Brenner
Dated: February 3, 1999 -------------------------------------------
Klaus Brenner, Director
21
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UTG COMMUNICATIONS INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
5* Opinion of Wuersch & Gering LLP, counsel for UTG.
10.1* Shareholders Agreement, dated as of November 16, 1998.
23.1* Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
23.2* Consent of Wuersch & Gering LLP (included as part of Exhibit 5).
- --------------------
* Filed Herewith
22
Exhibit 5
Board of Directors
UTG Communications International, Inc.
17 Cattano Avenue
Morristown, NJ 07960
February 3, 1999
Gentlemen:
In our capacity as legal counsel to UTG Communications International, Inc., a
Delaware corporation ("UTG"), we hereby deliver to you the legal opinion of the
law firm of Wuersch & Gering LLP for the purpose of filing with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended, a
Registration Statement on Form S-3 ("Registration Statement"), which
Registration Statement relates to 1,005,335 shares of common stock, par value
$.00001 per share, of UTG, which are owned by the persons listed under the
heading "Selling Stockholders" in the Registration Statement (the "Shares").
We have examined and relied on originals or copies, certified or otherwise
identified to our satisfaction as being true copies, of all such records of UTG,
all such agreements, certificates of officers of UTG and others, and such other
documents, certificates and corporate or other records as we have deemed
necessary as a basis for this opinion.
In our examination of relevant documents, we have assumed the legal capacity of
all natural persons executing such documents, the genuineness of all signatures,
the authenticity of original and certified documents and the conformity to
original or certified copies of all copies submitted to us as conformed or
reproduction copies. As to various questions of fact relevant to the opinion
expressed herein, we have relied upon, and assume the accuracy of,
representations and warranties contained in the documents and certificates and
oral or written statements and assume compliance on the part of all parties to
the documents with their covenants and agreements contained therein without
independent verification thereof.
To the extent it may be relevant to the opinion expressed herein, we have
assumed that the parties to the documents have the power to enter into and
perform such documents and to consummate the transactions contemplated thereby
and that such documents have been duly authorized, executed and delivered by,
and constitute legal, valid and binding obligations of such parties.
We have investigated such questions of law for the purpose of rendering this
opinion as we have deemed necessary. We express no opinion concerning any law
other than the Delaware General Corporation Law.
On the basis of the foregoing, we are of the opinion that the Shares have been
validly issued and are fully paid and nonassessable.
We are members of the Bar of the State of New York. This opinion is limited to
the federal securities laws of the United States. This opinion is provided only
for the Referenced Shares as qualified by the conditions set forth above, and
solely for you, in connection with the matters set forth herein. This opinion
may not be relied upon by anyone else or for any other purpose, nor may it be
quoted from or referred to, nor may copies hereof be delivered to any
23
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person without my prior written consent. In particular, and without limiting the
generality of the foregoing, we express no opinion on whether any transfer of
Shares may be restricted by reason of any private agreements made by UTG or any
owner of Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Sincerely yours,
/s/ WUERSCH & GERING LLP
-------------------------------
WUERSCH & GERING LLP
24
Exhibit 10.1
(1) UTG COMMUNICATIONS INC
(2) PETER DAVID GALLIFLENT HOLMES
(3) CITY COMMUNICATIONS (SE) LIMITED
(4) ADRIAN RICHARD COLEMAN,
JOHN ALBERT HORSMAN,
ADRIAN PAUL DUNNING
and CRAIG MORGAN DAVIES
(5) SHAALA KARIM and JAIMINKUMAR PATEL
(6) STARPOINT TECHNOLOGIES LIMITED
CONFORMED COPY
SHAREHOLDERS AGREEMENT
---------------------------------------------
Mundays
Crown House
Church Road
Claygate, Esher
Surrey KT10 0LP
Telephone: 01372 809000
Ref: RAP/RAF/P14831
DATE: 16th November 1998
PARTIES
1. UTG COMMUNICATIONS, INC ("UTG"), a Delaware corporation having its
principal place of business at Dachslernstr. 67, CH 8048 Zurich,
Switzerland.
2. PETER DAVID GALLIFLENT-HOLMES of 12 Woodend, Esher, Surrey, KT10 8DA ("Mr.
Holmes")
3. CITY COMMUNICATIONS (SE) LIMITED ("CCL") (registered number 2979724) whose
registered office is at Beaumont House, Lambton Road, London SW20 0LW
25
<PAGE>
4. ADRIAN RICHARD COLEMAN of 30 Dodford Road, Bournheath, Bromsgrove, Worcs
B61 9JR, JOHN ALBERT HORSMAN of 35 Rocky Lane, Perry Barr, Birmingham,
West Midlands B42 1PB, ADRIAN PAUL DUNNING of 287 Queslett Road, Great
Barr, Birmingham, West Midlands B43 7HB and CRAIG MORGAN DAVIES of 3
Grazewood Close, Willenhall, West Midlands WV12 5UX (together "the
Midlands Group")
5. SHAALA KARIM of Greenacre, 48 Russell Road, Moor Park, Northwood,
Middlesex HA6 2LR and JAIMINKUMAR PATEL of 74 Knox Road, Forest Gate,
London E7 9JS (together "CCD")
6. STARPOINT TECHNOLOGIES LIMITED (registered number 3617342) whose
registered office is at Crown House, Church Road, Claygate, Esher, Surrey,
KT10 0LP ("the Company")
RECITALS
A. The Company is a private company limited by shares. Further particulars
relating to the Company are set out in Schedule 1.
B. CCL has agreed to subscribe for certain shares in the capital of the
Company on the terms and subject to the conditions set out herein and to
apply to have 2,000 of such shares allotted to Mr Jaiminkumar Patel.
C. The Midlands Group and the Company have entered into a Business Sale and
Transfer Agreement in the Agreed Form under which the Midlands Group are
entitled to have allotted to them certain shares in the capital of the
Company on the terms and subject to the conditions thereof.
D. Miss Shaala Karim, Call Cards Direct Limited and the Company have entered
into a Business Sale and Transfer Agreement in the Agreed Form under which
Miss Shaala Karim is entitled to have allotted to her certain shares in
the capital of the Company on the terms and subject to the conditions
thereof and in respect of which 5,000 of such shares shall be issued to Mr
Jaiminkumar Patel at her request by way of gift.
E. After completion of this Agreement and the said Business Sale and Transfer
Agreements, CCL, the Midlands Group, CCD and UTG will own the entire
issued share capital of the Company.
F. The Parties have entered into this Agreement in order to regulate the
relationship between them as shareholders in the Company.
AGREEMENT
1. Definitions
1.1 The Recitals and Schedules form part of this Agreement and shall have the
same force and effect as if set out in the body of this Agreement. Any
reference to this Agreement shall include the Recitals and Schedules.
1.2 In this Agreement the following words and expressions shall have the
following meanings:
"the Agreed Form" the form agreed between and signed by or
on behalf of the Parties;
"the Articles" the Articles of Association of the
Company to be adopted at or immediately
prior to
26
<PAGE>
Completion (being in the Agreed Form
marked "A") and thereafter as amended in
accordance with this Agreement;
"the Board" the Board of Directors of the Company
for the time being;
"Business Day" any day (other than Saturday) on which
banks are open for the transaction of
normal banking business in London;
"the First Call Options" the options granted by the Individual
Shareholders pursuant to Clause 7;
"the Companies Acts" the Companies Act 1985, the Companies
Consolidation (Consequential Provisions)
Act 1985 and the Companies Act 1989;
"Completion" completion of the Subscription Agreement
in accordance with its terms;
"the Completion Date" the date of this Agreement;
"Director" any director for the time being of the
Company including, where applicable, any
alternate director;
"Family Members" means in relation to an Individual
Shareholder, his spouse and/or children;
"Family Trust" means in relation an Individual
Shareholder trusts (whether arising
under a settlement, declaration of trust
or other instrument wheresoever made or
under a testamentary disposition or on
an intestacy) under which an immediate
beneficial interest in any of the Shares
in question is for the time being vested
in any Individual Shareholder and/or
Family Members of that person. For these
purposes a person shall be deemed to be
beneficially interested in a Share if
that Share or the income derived from it
is or may become liable to be
transferred or paid or applied or
appointed to or for the benefit of that
person;
"First Call Options" the options granted by the Individual
Shareholders pursuant to Clause 7.1
"First Call Option Periods" 1 July 2001 until
31 July 2001, 1 July 2002 until 31 July
2002 and 1 July 2003 until 31 July 2003;
"First Call Option Price" the value of each share based on the
Valuation divided by the number of
Shares issued and allotted;
"Group Company" in relation to any company, a subsidiary
of that company, a holding company of
that
27
<PAGE>
company or a subsidiary of a holding
company of that company;
"Individual Shareholders" each of the Shareholders, other than UTG
or, in respect of each of them, any
person to whom shares in the Company
have been transferred by them in
accordance with the provisions of this
Agreement;
"Issue Price" the closing price per share of common
stock of UTG quoted on the NASDAQ
National Market on the trading day
preceding an Option Completion converted
into pounds sterling at the US$
:(pound)exchange rate quoted in the Wall
Street Journal Western Edition on the
same date as the closing price falls to
be determined;
"Option" either the First Call Option or the
Second Call Option;
"Option Completion" completion of any purchase and sale of
the Option Shares or UTG's shareholding
pursuant to an exercise of either the
First Call Option or the Second Call
Option;
"the Option Shares" all the Shares held by the Individual
Shareholders on the date of the exercise
of each of the First Call Options;
"the Parties" the parties to this Agreement (except
the Company);
"the Second Call Option Price" the lesser of the First Call Option
Price reduced by 25% or the value of the
lowest First Call Option Price at which
UTG previously exercised any of its
First Call Options.
"the Second Call Options" the options granted by UTG pursuant to
Clause 8.1;
"the Shareholders" the Parties or, in respect of each of
them, any person to whom shares in the
Company have been transferred by them in
accordance with the provisions of this
Agreement or the Articles;
"the Shares" the 100,000 Ordinary Shares of(pound)1
each in the capital of the Company;
"Subsidiary and Holding a subsidiary or holding company as those
Company" expressions are defined in Section 736
of the Companies Act of 1985;
"UTG Director" a Director of the Company appointed
under Clause 3.1;
"UTG Group" UTG and its Group Companies;
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<PAGE>
"UTG Shares" the ordinary shares in the common stock
of UTG credited as fully paid to be
allotted to the Individual Shareholders
pursuant to Clause 9;
"Valuation" the value of the Company shall be
calculated using 8 x latest annual
audited pre-tax profits ("P") + final 3
months' turnover for that year ("T") /2.
In formulaic terms this is represented
by 8P + T/2.
1.3 In this Agreement (unless the context requires otherwise):
1.3.1 words and expressions which are defined in the Companies Acts shall have
the same meanings as are ascribed to them in the Companies Acts;
1.3.2 any question as to whether a person is connected (or, as the case may be,
unconnected) with or controlled by any other person shall be determined in
accordance with the provisions of Section 839 ICTA 1988 (excluding
sub-section (7) thereof) and Section 840 ICTA 1988 respectively;
1.3.3 any reference to any statute or statutory provision includes a reference
to any subordinate legislation made under that statute or statutory
provision before the date of this Agreement, to any modification,
re-enactment or extension of such statute or statutory provision made
before that date and to any former statute or statutory provision which it
consolidated or re-enacted before that date;
1.3.4 any gender includes a reference to other genders;
1.3.5 the singular includes a reference to the plural and vice versa;
1.3.6 any reference to a Recital, Clause or Schedule is to a recital, clause or
schedule (as the case may be) of or to this Agreement; and
1.3.7 "directly or indirectly" means (without limitation) either alone or
jointly with any other person, firm or body corporate and whether on his
own account or in partnership with another or others or as the holder of
any interest in or as officer, employee or agent of or consultant to any
other person, firm or body corporate.
1.4 The headings contained in this Agreement are for the purposes of
convenience only and do not form part of and shall not affect the
construction of this Agreement or any part of it.
1.5 Terms used but not defined in this Agreement shall have the same meaning
as in the Subscription Agreement.
2. Subscription of Shares and Commercial Principles
2.1 Forthwith upon the execution hereof CCL shall transfer to the Company the
benefit and burden of the contract it has with LDC Direct Limited for a
consideration of (pound)23,000 which it shall invoice to the Company. The
Company shall then satisfy the sums due under the said invoice by
allotting to CCL 21,000 Ordinary Shares of (pound)1 each credited as fully
paid and to Mr Jaiminkumar Patel, 2,000 Ordinary Shares of (pound)1 each
credited as fully paid.
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2.2 CCL shall be free to transfer all or any of the said 21,0000 Shares to Mr
Holmes or to such persons as Mr Holmes may nominate free of any restraints
or any rights of pre-emption set out herein or in the Articles.
2.3 Forthwith upon the execution hereof the Business Sale and Transfer
Agreements with the Midlands Group and CCD shall be completed and the
Consideration Shares (as therein defined) shall be allotted to the
Midlands Group and CCD respectively.
2.4 The Parties record that the Company's object is to maximise value for the
Shareholders of the Company. Accordingly the business of the Company will
be conducted with sound commercial profit-making principles with the aim
of generating maximum value and dividends for the Shareholders.
2.5 The Directors and the Shareholders shall procure that the whole of the
profits of the Company available for distribution are distributed by the
Company to the Shareholders by way of dividend.
2.6 The Directors and Shareholders shall procure that the Company shall as
soon as reasonably practicable after Completion re-register as a public
limited company.
3. Board of Directors and Proceedings of Directors
3.1 UTG shall whilst a Shareholder have the right to appoint two Directors of
the Company and named alternates and the following provisions shall have
effect:-
3.1.1 Any such appointment shall be effected by notice in writing to the Company
by UTG and UTG may in like manner at any time and from time to time remove
(but not more than once in any twelve (12) month period) from office any
director appointed by it pursuant to this Clause and appoint any person in
place of any director so removed or dying or otherwise vacating office.
3.1.2 Any notice of appointment or removal shall take effect on the date
specified in the notice or, if none, on the date of receipt of the notice.
3.2 Immediately following execution of this Agreement a meeting of the Board
shall be held at which Mr. U. Ernst and Mr. K. Brenner, having consented
to act, shall be appointed as the UTG Directors and Mr. Holmes shall be
appointed as Managing Director. The Chairman shall always be a UTG
Director.
3.3 In order for a Board meeting to be duly convened all Directors must be
given at least ten (10) Business Days' written notice of such meeting and
be supplied with a detailed agenda and supporting documents relating to
that meeting. The Parties hereby agree that failure to give such notice
and written information shall render all resolutions passed at that Board
meeting invalid unless subsequently ratified by the UTG Directors.
Directors may attend Board meetings by means of conference telephone and
physical attendance shall not be necessary.
3.4 The quorum necessary for the transaction of business at a Board meeting
shall be any two Directors of whom one shall be a UTG Director.
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3.5 Board meetings shall be held at regular intervals at least once in every
quarter.
3.6 Subject only to the provisions of Clause 4 and to the Articles, matters of
business arising at any meeting of the Board shall be decided by a
majority of votes.
3.7 Each Director shall be entitled to one vote each and the Chairman shall be
entitled to a second or casting vote.
3.8 In addition to his right under Clause 3.2 above, Mr Holmes (whilst he
remains a Shareholder or whilst a company controlled by him remains a
Shareholder) shall have the right to appoint one Director and a named
alternate and the provisions set out in Clauses 3.1.1 and 3.1.2 shall
apply to such Director. This Director shall be appointed as Operations
Manager and may be Mr Holmes himself.
3.9 The Midlands Group and CCD (whilst each remain Shareholders) shall each
jointly have the right to appoint one Director and a named alternate and
the provisions set out in Clauses 3.1.1 and 3.1.2 shall apply to such
Director.
4. Conduct of the Company's Affairs
4.1 The Shareholders shall exercise all rights available to them in relation
to the Company and the Company shall do everything necessary to procure
(so far as they are able to do so) that during the term of this Agreement:
4.1.1 the business of the Company consists exclusively of the business of
distribution of pre-paid services in the telecommunication and other
industries;
4.1.2 the Shareholders are given full opportunity to examine the books and
accounts kept by the Company and are supplied with all relative
information, including monthly and quarterly management accounts,
operating statistics and statements and such other trading and financial
information in such form as they reasonably require to keep each of them
properly informed about the business of the Company and generally to
protect their interests. Such accounts and statements shall be issued
within 15 days of the end of the relevant month or quarter, as the case
the may be;
4.1.3 the auditors of the Company are such firm of chartered accountants as UTG
shall agree in writing;
4.1.4 the bankers of the Company are Barclays Bank Plc, Clapham Common Branch,
or such other bankers as the Shareholders agree in writing;
4.1.5 the registered office of the Company is at Crown House, Church Road,
Claygate, Esher, Surrey, KT10 0LP or at such other place as the
Shareholders agree in writing;
4.1.6 the Company complies with the provisions of its Memorandum and Articles;
4.1.7 the Accounting Reference Date for the Company shall be the 31st March and
the first financial statements shall be for the period from the
incorporation of the Company and ending 31 March 1999. The Directors shall
procure that the financial statements of the Company are audited
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and approved prior to the 31st March in the year following the 31st
December;
4.1.8 other than to register the Company as a public limited company the
Memorandum and new Articles of Association of the Company are not altered
and no further articles or resolutions inconsistent with them are adopted
or passed unless the Shareholders agree in writing;
4.1.9 any company which becomes a Subsidiary of the Company adopts new Articles
of Association in a form approved by the Shareholders in writing;
4.1.10 all cheques drawn by the Company in excess of (pound)10,000 are signed by
two Directors;
4.1.11 the Board determines the general policy of the Company (subject to the
express provisions of this Agreement), including the scope of their
respective activities and operations and that the Board reserves to itself
all matters involving major or unusual decisions.
4.2 The Shareholders shall exercise all rights available to them in relation
to the Company so as to procure (so far as they are able) that the Company
does not without the prior written consent of the Shareholders holding at
least the percentage of Shares set out below do any of the matters
contained in Schedule 2.
Period Percentage Shareholding Required
First year from the date of this Agreement 70%
Second year from the date of this Agreement 70%
Third year from the date of this Agreement 80%
Fourth year from the date of this Agreement 90%
Subsequent years 90%
4.3 If a transaction involving any matter in paragraphs 13 or 20 of Schedule 2
is agreed by the requisite majority of Shareholders, any Shareholder who
does not wish to participate in an issue of new Shares shall have the
right exercisable forthwith upon such issue occurring to require the other
Shareholders to acquire all his Shares at market value. This right shall
be exercisable in writing and the provisions of Clause 9 shall apply to
the completion of such sale mutatis mutandis. Any dispute as to market
value shall be referred to the auditors for resolution acting as experts.
5. Transfer of Shares
5.1 Each Shareholder agrees with the other Shareholders that (save as
otherwise provided herein) it or he will not sell, transfer, mortgage,
charge or dispose of or agree to sell, transfer, mortgage, charge or
dispose of in whole or in part any interest (and whether separately,
together, in part or in whole) in any Share save pursuant to the
provisions of this Agreement.
5.2 UTG shall not be entitled to transfer Shares save to other members of the
UTG Group and any of the Individual Shareholders shall be entitled to
transfer Shares to (i) a Family Trust (ii) a Family Member or (iii) each
other provided that:-
5.2.1 CCL shall be entitled to transfer its shareholding to Mr Holmes or
nominees of Mr Holmes without the consent of the other Shareholders;
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5.2.2 the transferee enters into a Deed of Adherence in the agreed form marked
"B" agreeing to be bound by the terms of this Agreement (including this
Clause) in all respects as if it had been a Party in the capacity of the
transferor of such Shares and (in the case of a transfer from UTG)
agreeing furthermore to transfer such Shares back to such transferor on it
ceasing to be a Group Company of such transferor; and
5.2.3 the transferor shall remain bound by the terms of this Agreement as if
still a Shareholder and shall enter into a guarantee in such form as the
other Shareholders may reasonably require guaranteeing the obligations of
the transferee under this Agreement.
5.3 The Parties shall execute all such consents as are required pursuant to
the Articles to permit a transfer pursuant to the provisions of this
Agreement.
6. Conflict with Articles
6.1 In the event of any conflict between the terms of this Agreement and any
provision of the Articles this Agreement shall prevail.
7. The First Call Options
7.1 Upon and subject to the terms of this Agreement:-
7.1.1 Each of the Individual Shareholders hereby grants to UTG upon and subject
to the terms and conditions of this Agreement the option to purchase at
the First Call Option Price in each of the First Call Option Periods the
following proportion of his remaining Option Shares:
End of Year 2 - the financial year of the Company ending 31 March
2001: 33%
End of Year 3 - the financial year of the Company ending 31 March
2002: 50%
End of Year 4 - the financial year of the Company ending 31 March
2003: 100%
7.1.2 The First Call Options shall be exercisable by notice in writing given by
UTG to the Individual Shareholders between the 1st July and the 30th July
in each of the years 2001, 2002 and 2003 and notice of the First Call
Options, once given, shall be binding on UTG and shall be irrevocable
except with the written consent of all the Individual Shareholders.
7.1.3 In the event that the Individual Shareholders do not receive written
notice of exercise of the First Call Options within the relevant First
Call Option Period then the First Call Options shall lapse and be of no
further force or effect.
7.1.4 Completion of the First Call Options shall take place in accordance with
the provisions of Clause 9.
8. The Second Call Options
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8.1 Upon and subject to the terms of this Agreement:-
8.1.1 If UTG has not exercised any of the First Call Options within any of the
prescribed periods set out in Clause 7 UTG hereby grants to the Individual
Shareholders the option to purchase from UTG at the Second Call Option
Price all the Shares then held by UTG.
8.1.2.1 Notice of the Second Call Options shall be exercisable in writing given
by any of the Individual Shareholders at any time within six months of
UTG failing to exercise or complete any of the First Call Options.
Notice of the Second Call Options, once given, shall be binding on the
relevant Individual Shareholders and shall be irrevocable except with
the written consent of UTG.
8.1.2.2 If more than one Individual Shareholder wishes to exercise the Second
Call Option, they shall do so pro rata to their existing holdings of
Ordinary Shares.
8.1.3.1 Completion of the Second Call Options shall take place in accordance
with the provisions of Clause 9.
8.1.3.2 It shall be a term of the Completion of the Second Call Option that all
sums owed by the Company to UTG or any of its Shareholders or any
Company controlled by any Shareholders on any account whatsoever shall
be repaid in full on such completion.
9. Option Completion
9.1.1 An Option Completion shall take place at such time during normal business
hours and at such place in the UK as the Party exercising the Option may
specify by written notice to the other, provided that the date fixed for
the Option Completion shall not be later than thirty (30) days after
notice of exercise is given.
9.1.2 In the event that more than one Party exercises an Option and the Parties
are unable to agree the time and place for Option Completion, it is hereby
agreed that Option Completion shall take place at 2.00 pm at the Company's
registered office on the thirtieth (30th) day after receipt of the last
Option notice by the receiving Party.
9.2 An Option Completion shall take place as follows:-
9.2.1 When UTG have acquired all the Option Shares each of the Individual
Shareholders shall (if requested by UTG) procure the resignation of the
Director nominated by him, such director or member confirming that he has
no claim against the Company for compensation for loss of office or
otherwise save in relation to any Director's fees or expenses which has
been agreed to be paid and which is outstanding.
9.2.2 The Parties shall procure that all requisite resolutions are validly
passed at duly convened and quorate meetings of the Board of Directors and
Shareholders of the Company and that all provisions of the Companies Acts
and all other statutory requirements are fully complied with.
9.2.3 Each of the Individual Shareholders shall deliver to UTG duly executed
stock transfer forms in respect of the relevant Option Shares together
with all share certificates relating to the relevant Option Shares.
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9.2.4 The Parties shall procure that the Board approves the transfers of the
relevant Option Shares for registration (subject, if applicable, to such
transfers being duly stamped).
9.2.5 UTG shall deliver to each of the relevant Individual Shareholders :-
in respect of Year 2, cash by way of bankers draft;
in respect of Year 3, 50% in cash by way of bankers draft and the
remaining 50% by the issue of UTG Shares at the Issue Price;
in respect of Year 4, by the issue of UTG Shares at the Issue Price
Provided however that if UTG Shares are not at the relevant time quoted on
NASDAQ the Individual Shareholders may at their sole discretion be
entitled to receive the whole or part of the First Call Option Price in
cash by way of bankers draft.
9.2.6 Subject to the due performance by UTG of its obligations, if any
Shareholder shall fail or refuse to transfer any Option Shares in
accordance with his obligations hereunder, or fails to take any action
required of him in order to ensure completion of the First Call Options
("Defaulting Shareholder"), the Company may authorise any person to
execute and deliver as attorney on behalf of the Defaulting Shareholder or
to undertake any action required on the part of the Defaulting Shareholder
to complete the First Call Options and such authorised person may give a
good receipt for the First Call Option Price and the Company may register
the transfer of the Option Shares to UTG and issue to it certificates for
the same. The Defaulting Shareholder shall in such case be bound to
deliver up his certificate for the Option Shares to the Company whereupon
the Defaulting Shareholder shall be entitled to receive the First Call
Option Price which shall in the meantime be held by the authorised person
on trust for the Defaulting Shareholder but without interest. After the
name of the transferee has been entered in the register in purported
exercise of these powers, the validity of the proceedings shall not be
questioned by any person.
9.2.7 Subject to the due performance by the Individual Shareholders of their
respective obligations, if UTG shall fail or refuse to transfer any of its
shares in accordance with its obligations hereunder, or fails to take any
action required of it in order to ensure completion of any of the Second
Call Options, any of the Individual Shareholders may authorise any person
to execute and deliver as attorney on behalf of UTG or to undertake any
act required on the part of UTG to complete any of the Second Call Options
and such authorised person may give a good receipt for the Second Call
Option Price and the Company may register the transfer of the Second Call
Option Shares to the relevant Individual Shareholders and issue to them
certificates for the same. UTG shall in such case be bound to deliver up
its certificate for the Second Call Option shares to the Company whereupon
UTG shall be entitled to receive the Second Call Option Price which shall
in the meantime be held by the authorised person on trust for UTG but
without interest. After the name of the transferee has been entered on the
register in purported exercise of these powers the validity of the
proceedings shall not be questioned by any person.
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10. Finance
10.1 UTG will provide within three (3) months of the Completion Date the sum of
(pound)150,000 to the Company to be used as working capital which will be
unsecured and bear no interest.
10.2.1 UTG will provide further funding to the Company in cash or by letter of
credit or the provision of bank guarantees to allow the Company to expand
by purchasing new terminals as more particularly detailed in Schedule 3.
10.2.2 The Company will serve notice on UTG when the objectives under columns A
and B of Schedule 3 have been achieved and UTG shall forward the funds or
put in place the letters of credit or bank guarantees shown under column
C to the Company within the time period specified under column D of
Schedule 3.
10.2.3 Any dispute arising over the attainment of the objectives contained in
columns A and B of Schedule 3 shall (subject to Clause 10.2.4) entitle
any Party or the Company to instruct an Expert pursuant to Clause 20 to
determine the dispute.
10.2.4 Funds transferred to the Company pursuant to this Clause 10.2 shall
remain with the Company even when a dispute arises as described in Clause
10.2.3 whereupon any determination by an Expert shall resolve the
disputed levels of the objectives and shall require the Company to reach
the next objectives following the disputed objectives before further
funds are remitted by UTG pursuant to this Clause.
10.2.5 If UTG provides funding by way of guarantees for a bank which then lends
money to the Company, UTG shall pay to the Company as a capital
contribution the amount of interest payable by the Company to the bank
and the Company shall not be obliged to repay the bank until UTG acquires
all the Shares of the Company it does not already own and UTG will
procure that the bank accepts these terms.
10.3 UTG's compliance with this Clause 10 is vital to the successful
development of the Company and unless UTG can show reasonable cause why it
has not complied herewith failure to comply within 20 working days of
receipt of a written default notice from the Company to comply with this
Clause 10 will entitle the remaining Parties and or the Company (to the
extent that it is legally able to do so) and or any third party nominated
by the remaining Parties to purchase within the period of 60 days after
the expiry of such notice all of UTG's Shares at par and the relevant
provisions of Clause 9 above shall apply to such purchase.
Provided that it shall be a condition of such purchase that all sums lent
by UTG (or by a bank relying on UTG's guarantee) to the Company or any of
its Shareholders or any company controlled by any Shareholder shall be
repaid upon completion of the sale of UTG's Shares.
11. Restrictive Covenant
11.1 Each of the Individual Shareholders undertakes to and covenants with the
Company and as a constituent part of this Agreement that, save with the
prior written consent of the other Parties:-
11.1.1 he will not except in the proper performance of his duties under his
service contract, directly or indirectly on his own behalf or jointly
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with or on behalf of any other person, concern, undertaking, firm or body
corporate:
11.1.1.1 whilst he is a shareholder of the Company and for the period of
6 months after ceasing to be a shareholder, deal with, seek
employment or engagement with, be employed or engaged by or
engage in business with or be in any way interested in or
connected with any person, concern, undertaking, firm or body
corporate which engages in or carries on within any part of the
United Kingdom the business of the distribution of debit
telephone cards;
11.1.1.2 whilst he is a shareholder of the Company and for the period of
6 months after ceasing to be a shareholder, deal with, seek
employment or engagement with, be employed or engaged by any
person, undertaking or body corporate or division within such
entity which is, or which has at any time during the period of
twelve (12) months preceding that event been, a customer or
client of the Company and on or for whose account or business
he personally worked or was responsible or in relation to whom
he obtained Confidential Information (as defined in Clause
11.1.2 below) during the same period ("a Client") or offer or
agree to provide goods of a like description to those
previously supplied to such Client by the Company or solicit
the custom of a Client in respect of any such goods;
11.1.1.3 whilst he is a shareholder of the Company and for the period of
6 months after ceasing to be a shareholder, interfere or seek
to interfere with the relations between the Company and any
person who has within the previous twelve (12) months been one
of its suppliers (or an introducer of prospective customers)
and with which he was involved personally in dealings or
negotiations on behalf of the Company at any time during that
period ("a Supplier");
11.1.1.4 whilst he is a shareholder of the Company and for the period of
6 months after ceasing to be a shareholder, solicit or
endeavour to entice away from the Company any person who is a
senior or managerial employee or director of the Company known
personally to him (whether or not such person would commit a
breach of the terms of his contract of employment by leaving
the service of the company concerned) or knowingly employ or
assist in or procure the employment by any other person, firm
or company of any such person;
11.1.1.5 at any time, use for any purpose (other than in connection with
his employment with the Company) any trade or business name
used by the Company (including in particular (but without
limitation) the name Starpoint (whether alone or in conjunction
with other names)) or any name similar to those names or likely
to be confused with them;
11.1.2 except in so far as is required for the proper performance of his duties,
he will not at any time hereafter divulge to any person or otherwise make
use of any secrets, trade secrets or confidential knowledge or
information not in the public domain concerning the business and/or
finances of the Company or of any of its suppliers or clients
("Confidential Information") and will use his reasonable endeavours
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without cost to himself to prevent the publication or disclosure of any
such secrets, knowledge or information by any third party.
11.2 The restrictions contained in each sub-clause of this Clause shall be
construed as separate and individual restrictions and shall each be
capable of being severed without prejudice to the other restrictions or to
the remaining provisions of this Agreement.
12. Announcements
12.1 No announcement (other than if and to the extent required by law or by any
governmental or regulatory body) shall be made by or on behalf of the
Parties concerning the subject matter of this Agreement without the prior
written consent of the other Parties.
13. Termination
13.1 This Agreement shall remain in full force and effect unless and until
terminated in accordance with the provisions of this Clause 13.
13.2 Subject to the provisions of Clause 13.3 this Agreement shall terminate
forthwith upon:-
13.2.1 all the Individual Shareholders ceasing to hold any of the Shares;
13.2.2 the making of an order or the passing of an effective resolution for the
winding-up of the Company (otherwise than for the purpose of a
reconstruction pursuant to a scheme previously approved by the
Shareholders); or
13.2.3 the execution of an instrument in writing between all of the Shareholders
terminating this Agreement.
13.3 The termination of this Agreement (howsoever arising):-
13.3.1 shall be without prejudice to the rights of any Party accrued hereunder
as at the date of termination or to any claim which any Party may have
for damages against or otherwise arising from any antecedent breach
thereof by any other Party; and
13.3.2 shall not operate to affect such of the provisions hereof as in
accordance with their terms are expressed to operate or have effect
thereafter.
14. Confidentiality
14.1 Each of the Parties agrees not to make public or reveal to any third party
any commercial, organisational or other information of a confidential
nature concerning the other Parties obtained as a result of such Party's
participation in this Agreement save insofar as the information in
question:-
14.1.1 is proven to have been known to such Party prior to Completion;
14.1.2 is proven to have become known to such Party during the term of this
Agreement through the lawful act of a third party;
14.1.3 comes into the public domain otherwise than as a result of breach of this
Clause or of law;
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14.1.4 is required to be given, made or published by law or under the rules and
regulations of NASDAQ or any other recognised investment exchange (as
defined in Section 207 of the Financial Services Act 1986);
14.1.5 is made public or revealed with the prior written approval of the other
Parties to the contents thereof and the manner of its presentation and
publication; or
14.1.6 is made available by a Party to a customer or potential customer of the
Company on a confidential basis and such information relates to the
product or service being supplied or to be supplied to the recipient of
the confidential information and is necessary or requisite for the proper
supply of such product of service.
14.2 The Parties shall use their respective best endeavours to agree the form
and manner of presentation and publication of information regarding the
Company which shall be given to relevant customers and prospective
customers.
14.3 The Parties agree to make known to such of its executives and employees to
whom the information described in this Clause 14 is disclosed, the
conditions of this Clause and to ensure they are under obligation to be
bound thereof.
15. General
15.1.1 This Agreement shall be binding on and enure for the benefit of the
successors of the Parties and the successors in title to the Shares held
by the Individual Shareholders..
15.1.2 Subject to the provisions of this Agreement, this Agreement is personal
to the Parties, their heirs, estates, executors and assigns.
15.2 The Parties (but without imposing any additional financial obligations on
the Parties) shall and shall use their best endeavours to procure that any
necessary third party shall do all such further acts and things and
execute all such further deeds, documents and assurances as any of them
may reasonably require by notice in writing to give effect to the terms of
this Agreement.
15.3 This Agreement shall not constitute a partnership between the Parties or
any of them.
15.4 Each Shareholder shall exercise all voting rights and powers of control
available to it in relation to the Company so as to give full effect to
the terms of this Agreement.
16. Severability
16.1 In the event that any provision of this Agreement or any part thereof
shall for any reason be held by any judicial determination to be invalid
or unenforceable the valid and enforceable parts of this Agreement shall
continue in full force and effect and the Parties shall negotiate in good
faith a substitute provision for the provision of this Agreement held to
be invalid or unenforceable as aforesaid to reflect the purpose or intent
(as closely as may be possible) of such provision.
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17. Waiver and Remedies
17.1 The failure of any Party at any time or times to require performance of
any provision of this Agreement shall not affect its right to enforce such
provision at a later time and all express rights granted to any Party
hereunder shall be in addition to any rights that such Party may have
under the general law in respect of a breach of this Agreement.
17.2 No waiver by a Party of any condition or of the breach of any term,
covenant, representation, warranty or undertaking contained in this
Agreement, whether by conduct or otherwise, in any one or more instances
shall be deemed to be or construed as a further or continuing waiver of
any such condition or breach or a waiver of any other condition or deemed
to be or construed as the waiver of the breach of any other term,
covenant, representation, warranty or undertaking in this Agreement.
17.3 Any liability to any Party under this Agreement may in whole or in part be
released, compounded or compromised or time or indulgence given by that
Party in its absolute discretion as regards any other Party under such
liability without in any way prejudicing or affecting its rights against
any further Party under the same or a like liability, whether joint and
several or otherwise.
17.4 This Agreement may be amended, modified, superseded or cancelled and any
of its terms, covenants, representations, warranties, undertakings or
conditions may be waived only by an instrument in writing signed by (or by
some person duly authorised by) all of the Parties or, in the case of a
waiver, by the Party waiving compliance.
17.5 If any Shareholder ceases to be a shareholder in the Company then, subject
to compliance with Clause 5.2, as from the date of such cessation this
Agreement may be varied or cancelled without reference to or the need for
signature of such Shareholder on any relevant document provided that (for
the avoidance of doubt) such variation or cancellation will not give rise
to any new or increased liability of any former Shareholder or Shareholder
not consenting to the variations in question.
18. Costs
18.1 Each party shall bear its own costs and expenses in relation to the
preparation, negotiation and implementation of this Agreement and the
agreements and arrangements of which it forms part.
19. Restrictive Trade Practices Act 1976
19.1 No party to this Agreement which carries on business within the United
Kingdom shall give effect to, or enforce or purport to enforce any
provision of this Agreement (including any provision in any Schedules or
Recitals), or any provision of any document which may be executed pursuant
to this Agreement, or in connection with it, which is/are or may be
registrable under the Restrictive Trade Practices Act 1976 (as amended)
("the RTPA") until the day after particulars of this Agreement or the
arrangements have been furnished to the Director General of Fair Trading
in accordance with the requirements of the RTPA.
20. Valuation Procedure
40
<PAGE>
20.1 The Company shall be valued in accordance with the defined formula
"Valuation " set out in Clause 1.2 above as and when appropriate.
20.2 Where any doubt or dispute arises as to the Valuation of the Company, the
First Call Option Price or the Second Call Option Price, any Party hereto
may refer the determination of the Valuation or price to an independent
firm of chartered accountants, to be appointed in the absence of agreement
between the Parties by the President of the Institute of Chartered
Accountants in England and Wales ("the Experts").
20.3 Each Party shall give the Experts access to all books or records in their
possession in relation to the matter in dispute and shall instruct their
advisers to make available to the Experts such accounts or records or
notes held by those advisers relating to the matter in dispute as the
Experts may require and generally shall provide the Experts with such
other information and assistance as the Experts may require.
20.4 Each Party shall be entitled to make representations to the Experts, but
if they do so the Experts shall be obliged to disclose the same to the
other Parties and invite those Parties' comments on any information or
material so supplied.
20.5.1 For the avoidance of doubt, the Experts shall refer to the Company's
appropriate management accounts to determine the turnover figures (where
such values are not obvious by reference to the latest annual audited
accounts of the Company) required to calculate the Valuation.
20.5.2 The figures for operating profits will be those derived from the audited
profit and loss account for the last accounting period completed.
20.6 In making their determination of the Valuation or price the Experts shall
act as experts and not as arbitrators and their decision shall, in the
absence of manifest material error, be final and binding on all Parties.
The Experts' fees and costs shall be borne by the Parties in such
proportions as the Experts may determine or, failing any determination,
equally. Any determination shall be in writing and copies thereof shall be
given to each of the Parties hereto.
20.7 The Experts have power to award interest and for such interest to run on a
day by day basis as determined by the Experts.
21. Entire Agreement and Variation
21.1 This Agreement (together with the documents referred to in it) constitutes
the entire legally binding agreement between the Parties in respect of the
subject matter of this Agreement and may only be varied by a written
agreement signed on behalf of each of the Parties.
21.2 Each of the Parties acknowledges and agrees that in entering into this
Agreement, and the documents referred to in it, it or he does not rely,
and has not relied, upon any statement, representation, warranty or
understanding (whether negligently or innocently made) of any person
(whether party to this Agreement or not) other than as expressly set out
or referred to in this Agreement or the documents referred to in it and
the only remedy available to it in respect of any misrepresentation or
untrue statement made to it or him shall be a claim for breach of contract
under this Agreement. Nothing in this sub-clause shall however operate to
limit or exclude any liability for fraud.
41
<PAGE>
22. Notices
22.1 Any notice to be served in connection with this Agreement shall be in
writing (which, for the avoidance of doubt, shall include facsimile
transmission) and any notice or other correspondence under or in
connection with this Agreement shall be delivered or transmitted by
facsimile transmission or by registered mail:-
22.1.1 in the case of a company, to its registered office for the time being
marked "For the Urgent Attention of the Secretary"; or
22.1.2 in the case of individuals, to the addresses set opposite their
respective names at the head of this Agreement or to such other address
as may be notified in writing for the purposes of this Agreement to the
Party serving the document
22.2 Any such notice or correspondence shall be deemed to have been served as
follows:-
22.2.1 in the case of delivery by hand, on delivery if delivered between 9.00 am
and 5.00 pm on a business day and, if delivered outside such hours, at
the time when such hours re-commence on the first business day following
delivery;
22.2.2 in the case of service by registered mail, on the third business day
after the day on which it was posted;
22.2.3 in the case of facsimile transmission, on the day it is transmitted
provided that if that day is not a business day or, being a business day,
transmission takes place after 5.00 pm, then at 9.00 am on the first
business day following transmission of the notice.
22.3 Subject as provided in Clause 22.2, in proving such service it shall be
sufficient to prove that the notice or correspondence was properly
addressed and left at or posted by registered mail to or transmitted by
facsimile transmission to the place to which it was so addressed.
22.4 In this Clause "business day" shall mean any day other than Saturday,
Sunday or any other day which is a public holiday in the place at or to
which the notice or correspondence is left or despatched.
23. Governing Law and Jurisdiction
23.1 This Agreement is to be read and construed in accordance with and governed
by the laws of England.
23.2 Each of the Parties hereby agrees to submit to the non-exclusive
jurisdiction of the English Courts as regards any claim or matter or
dispute arising from or in connection with this Agreement.
EXECUTED as a deed and delivered on the date set out at the head of this
Agreement.
42
<PAGE>
SCHEDULE 1
The Company
Company number : 3617342
Date of incorporation : 18 August 1998
Share capital
authorised : (pound)100,000 divided into 100,000
Ordinary Shares of (pound)1 each,
issued : (pound)51,000 divided into 51,000
Ordinary Shares of(pound)1 each to UTG
Registered office : Crown House, Church Road, Claygate, Esher,
Surrey KT10 OLP
Directors : Peter David Galliflent-Holmes (to be
appointed at end of completion meeting)
Ueli Ernst
Secretary : Mundays Company Secretaries Limited
SCHEDULE 2
Matters requiring consent of the specified percentage of Shareholders in Clause
4.2
1. Create any fixed or floating charge, lien (other than a lien arising by
operation of law) or other encumbrance over the whole or any part of its
undertaking, property or assets, except for the purpose of securing
indebtedness to its bankers for sums borrowed in the ordinary and proper
course of business.
2. Borrow (except from the Company's bankers in the ordinary and proper
course of business) in excess of a maximum aggregate sum outstanding at
any time of (pound)500,000.
3. Make a loan or advance of any amount or give credit (other than normal
trade credit) or repay any loan made by UTG pursuant to Clause 10 of this
Agreement.
4. Give a guarantee or indemnity to secure the liabilities or obligations of
any person (other than a wholly-owned subsidiary of the Company).
5. Sell, transfer, lease, assign, or otherwise dispose of a material part of
its undertaking, property or assets (or any interest in them), or contract
to do so otherwise than in the ordinary and proper course of business.
6. Enter into a contract, arrangement or commitment involving expenditure on
capital account or the realisation of capital assets.
43
<PAGE>
7. Engage a new employee, consultant or any other person at a remuneration
which could exceed a rate of (pound)40,000 per annum unless such person is
on a short term contract which means a contract of no more than one
month's duration.
8. Engage or dismiss the Managing Director as an employee or consultant.
9. Increase the remuneration of an employee, consultant or any other person
to a rate which could exceed (pound)40,000 per annum or increase the
remuneration of an employee, consultant or any other person whose existing
remuneration could exceed that rate.
10. Appoint or remove from office a Director except in accordance with the
rights conferred on the Shareholders under Clause 3 to appoint and remove
Directors.
11. Appoint a committee of the Directors or a local board or delegates any of
the powers of the Directors to a committee or local board.
12. Take or agree to take a leasehold interest in or licence over land.
13. Issue any shares or create any new shares, except as expressly permitted
by the Company's Articles.
14. Alter the rights attaching to any class of Shares.
15. Consolidate, sub-divide or convert any of the Company's share capital.
16. Issue renounceable allotment letters or permit any person entitled to
receive an allotment of shares to nominate another person to receive the
allotment except on terms that no renunciation or nomination shall be
registered unless the renounced or person nominated is approved by the
Board.
17. Create or acquire a subsidiary or dispose of any shares in a subsidiary.
18. Enter into a partnership or profit sharing agreement.
19. Do or permit to be done any act or thing whereby the Company may be wound
up (whether voluntarily or compulsorily), in accordance with the terms of
this Agreement.
20. Issue securities convertible into shares or debentures, or share warrants
or options in respect of shares.
21. Enter into a contract or transaction except in the ordinary and proper
course of business on arm's length terms.
22. Acquire, purchase or subscribe for shares, debentures, mortgages or
securities (or any interest in any of them) in any person.
23. Create a contract or obligation or renew or vary the terms of an existing
contract or obligation, to pay money or money's worth to any member of the
Company.
24. Hold a meeting of Shareholders or purport to transact any business at a
meeting unless there are present duly authorised representatives or
proxies for each of the Shareholders.
44
<PAGE>
25. Introduce products to the Company which are produced by UTG where the
margin for the Company is less than the average margin on equivalent
products distributed by the Company.
45
<PAGE>
SCHEDULE 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Objectives Funding
- ------------------------------------------------------------------------------------------
B. With average
monthly spend or RGP
A. Deployed terminals (respectively) C. Amount D. Payable within
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
250 (pound)300.00 or(pound)21.00 US$94,500 7 days
- ------------------------------------------------------------------------------------------
400 (pound)350.00 or(pound)28.00 US$157,500 7 days
- ------------------------------------------------------------------------------------------
900 (pound)375.00 or(pound)33.75 US$157,500 7 days
- ------------------------------------------------------------------------------------------
1400 (pound)400.00 or(pound)35.00 US$157,500 7 days
- ------------------------------------------------------------------------------------------
14 days, and for every
subsequent 500 terminals
until 10,000 terminals
have been purchased, if
Every subsequent 500 the Company's cash
terminals (pound)400.00 or(pound)38.00 US$157,500 position requires.
- ------------------------------------------------------------------------------------------
</TABLE>
Notes:-
A. Total number must have been deployed for a week or more.
B. Could be the average of any one or more weeks rounded up to represent a
month.
C. Payable by bank transfer or by the putting in place of the appropriate
letters of credit or bank guarantees to clear within allotted days from
fax notification from the Company of the attainment of the appropriate
objectives.
46
<PAGE>
EXECUTED as a Deed by
UTG COMMUNICATIONS, INC
acting by its Chairman and
Chief Executive Officer Ueli Ernst
Director
EXECUTED as a Deed by
PETER DAVID
GALLIFLENT-HOLMES Peter G Holmes
in the presence of:
Witness sign: R.A. Powell
Richard Andrew Powell
Address: Crown House, Church Road, Claygate,
Esher, Surrey
Occupation: Solicitor
EXECUTED as a Deed by
CITY COMMUNICATIONS (SE) LIMITED Peter G Holmes
acting by two directors or Director
one director and its secretary Ben Syrett
Director/Secretary
EXECUTED as a Deed by
ADRIAN RICHARD COLEMAN Adrian Coleman
in the presence of:
Witness sign: N. Fieldhouse
Name: (As below)
47
<PAGE>
Address:
Occupation:
EXECUTED as a Deed by
JOHN ALBERT HORSMAN John Horsman
in the presence of:
Witness sign: N. Fieldhouse
Name: (As below)
Address:
Occupation:
EXECUTED as a Deed by
ADRIAN PAUL DUNNING Adrian P. Dunning
in the presence of:
Witness sign: A. Huggett
Name: A.G. Huggett
Address: 30 Rocky Lane,
Birmingham, B42
Occupation: Retailer
EXECUTED as a Deed by
CRAIG MORGAN DAVIES Craig Davies
in the presence of:
Witness sign: N. Fieldhouse
Name: (As below)
Address:
Occupation:
EXECUTED as a Deed by
SHAALA KARIM Shaala Karim
in the presence of:
48
<PAGE>
Witness sign: N. Fieldhouse
Name: N. J. Fieldhouse
Address: 18 Furzefield Road,
Reigate, Surrey
Occupation: Solicitor
EXECUTED as a Deed by
JAIMINKUMAR PATEL Jaiminkumar Patel
in the presence of:
Witness sign: N. Fieldhouse
Name: (As above)
Address:
Occupation:
EXECUTED as a Deed by
STARPOINT TECHNOLOGIES LIMITED
acting by two directors or one
director and its secretary Ueli Ernst
Director
R.A. Powell (Authorised signatory of
Mundays Company Secretaries Limited)
Secretary
49
Exhibit 23.1
CONSENT OF MERDINGER, FRUCHTER, ROSEN & CORSO, P.C., INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and related prospectus of UTG
Communications International, Inc. for the registration of 1,005,355 shares of
its common stock and to the incorporation by reference therein of our report
dated June 22, 1998, with respect to the consolidated financial statements of
UTG Communications International, Inc. included in its Annual Report on Form
10-KSB for the year ended March 31, 1998, filed with the Securities and Exchange
Commission.
/s/ MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
--------------------------------------------------------
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
February 3, 1999