SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
/ / Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
sec.240.14a-11(c) or sec.240.14a-12
WAVETECH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
WAVETECH, INC.
5210 East Williams Circle, Suite 200
Tucson, Arizona 85711
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1997
- --------------------------------------------------------------------------------
To the Stockholders of Wavetech, Inc.:
The Annual Meeting of the stockholders of Wavetech, Inc., a New Jersey
corporation (the "Company"), will be held at The Courtyard Marriott, 201 S.
Williams Blvd., Tucson, Arizona 85711 (520) 745-6000, on March 26, 1997, at 9:00
a.m. M.S.T. for the following purposes:
1. To elect six directors to serve a one-year term;
2. To amend the Company's Certificate of Incorporation to change its name
from Wavetech, Inc. to Telplex International, Inc.;
3. To change the Company's state of incorporation from New Jersey to
Nevada;
4. To ratify the adoption of the 1997 Stock Incentive Plan for employees
(including officers), consultants and directors; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on February 25, 1997 (the
"Record Date") are entitled to vote at the meeting and at any adjournment or
postponement thereof. Shares can be voted at the meeting only if the holder is
present or represented by proxy. A list of stockholders entitled to vote at the
meeting will be available for inspection at the Company's corporate headquarters
for any purpose germane to the Annual Meeting during ordinary business hours for
ten (10) days prior to the meeting.
A copy of the Company's 1996 Annual Report to Stockholders, which includes
audited financial statements, is enclosed. Management and the Board of Directors
cordially invite you to attend the Annual Meeting.
By Order of the Board of Directors,
/s/ Gerald I. Quinn
-----------------------------------
Gerald I. Quinn
President and Chief Executive Officer
Tucson, Arizona
February 14, 1997
- --------------------------------------------------------------------------------
IMPORTANT: It is important that your shareholdings be represented at this
meeting. Please complete, date, sign and promptly mail the enclosed proxy card
in the accompanying envelope, which requires no postage if mailed in the United
States.
- --------------------------------------------------------------------------------
<PAGE>
WAVETECH, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROXY STATEMENT............................................................................... 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................ 1
Voting and Revocation of Proxies............................................ 3
Solicitation of Proxies..................................................... 3
ELECTION OF DIRECTORS......................................................................... 3
Meetings and Committees of the Board of Directors........................... 6
EXECUTIVE COMPENSATION........................................................................ 7
SUMMARY COMPENSATION TABLE.................................................................... 7
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF AUGUST 31, 1996............................................................ 8
OPTION GRANTS IN LAST FISCAL YEAR............................................................. 8
Compensation of Directors................................................... 8
Employment Contracts........................................................ 9
1997 Stock Incentive Plan................................................... 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 9
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............................................. 10
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO
CHANGE NAME OF CORPORATION FROM WAVETECH TO TELPLEX
INTERNATIONAL, INC............................................................................ 10
PROPOSAL NO. 2 - REINCORPORATION FROM NEW JERSEY TO NEVADA................................... 10
General ................................................................... 10
Principal Reasons for the Reincorporation................................... 11
Certain Changes to the Company's Certificate of Incorporation............... 12
Certain Differences Between Nevada and New Jersey Corporation Law........... 13
Summary of Federal Income Tax Consequences of Reincorporation............... 14
Vote Required for Reincorporation and Board of Directors' Recommendation.... 15
PROPOSAL NO. 3 - RATIFICATION OF 1997 STOCK INCENTIVE PLAN.................................... 15
Stock Options............................................................... 15
Nonemployee Director Automatic Options...................................... 16
Restricted and Deferred Stock............................................... 17
Reasons For the 1997 Plan................................................... 18
Federal Income Tax Consequences............................................. 18
New Plan Benefits Table..................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................. 22
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING............................................. 22
OTHER BUSINESS................................................................................ 22
1996 ANNUAL REPORT ON FORM 10-KSB............................................................. 23
</TABLE>
iii
<PAGE>
WAVETECH, INC.
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
The accompanying proxy is solicited by the Board of Directors of
Wavetech, Inc., a New Jersey corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on March 26, 1997 (the "Annual Meeting"), or
any adjournment or postponement thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement and the accompanying form of proxy were mailed to all stockholders
entitled to vote at the Annual Meeting on or about February 25, 1997. The
corporate offices of the Company are located at 5210 East Williams Circle, Suite
200, Tucson, Arizona 85711 and its telephone number at that address is (502)
750-9093.
Only stockholders of record at the close of business on February 25,
1997 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof. On the Record Date,
14,964,442 shares of Common Stock, $.001 par value, were issued and outstanding.
Each holder of Common Stock is entitled to one vote, exercisable in person or by
proxy, for each share of the Company's Common Stock held of record on the Record
Date.
The presence of a majority of the holders of the Common Stock in person
or by proxy is required to constitute a quorum for the conduct of business at
the Annual Meeting. Votes withheld from any director are counted for purposes of
determining the presence of a quorum, but have no legal effect under New Jersey
law. Abstentions and broker non-votes will also be included in the determination
of the number of shares represented for a quorum. The proposals for which
stockholder approval is being sought cannot be approved without the affirmative
vote of the holders of a majority of the votes cast, in person or by proxy, at
the Annual Meeting. At the Annual Meeting, the Company will appoint an Inspector
of Election to count all votes and ballots and make a written report thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock of the Company on February 14, 1997 by (i) each director, (ii) each
director-nominee, (iii) each executive officer, (iv) all directors,
director-nominees and executive officers as a group and (v) all persons known by
the Company to be the beneficial owners of more than 5% of the Company's Common
Stock.
The percentage ownership information set forth in the right hand column
of the following table has been computed in accordance with Securities and
Exchange Commission ("SEC") guidelines.
<PAGE>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Held Ownership(1)
- ---------------- ----------------- ------------
Terence E. Belsham (2) 1,079,023 7.2%
Richard P. Freeman (2) 1,079,023 7.2%
Len B. Casebier (2) 979,023 6.5%
Gerald I. Quinn (2) 803,637(5) 5.4%
Richard Baillie (2) -0- 0%
Terry Cuthbertson (2)
Terrence H. Pocock (2) -0- 0%
Switch Telecommunications Pty 3,544,110(6) 23.7%
Limited
55 Mentmore Ave
Rosebery, New South Wales 2018
Australia
ALL OFFICERS AND DIRECTORS 3,450,844(3)(4)(5)(7) 23.1%
AS A GROUP (7 IN NUMBER)
- ----------
(1) The percentages shown include the shares of Common Stock actually owned as
of January 14, 1997 and the shares of Common Stock with respect to which
the person had the right to acquire beneficial ownership within 60 days of
such date pursuant to options. All shares of Common Stock that the
identified person had the right to acquire within 60 days of February 14,
1997 upon the exercise of options are deemed to be outstanding when
computing the percentage of the securities owned by such person, but are
not deemed to be outstanding when computing the percentage of the
securities owned by any other person.
(2) Each of these holders has an address at c/o the Company, 5210 E. Williams
Circle, Suite 200, Tucson, Arizona 85711.
(3) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(4) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(5) Includes 600,000 common shares issuable in connection with options to
purchase common stock.
(6) Includes an immediately exercisable warrant to purchase up to 2,000,000
common shares at $1.50 per share.
(7) Includes 800,000 common shares issuable in connection with options to
purchase common stock.
2
<PAGE>
VOTING AND REVOCATION OF PROXIES
All valid proxies received before the Annual Meeting and not revoked will
be exercised. All shares represented by proxy will be voted, and where a
stockholder specifies by means of his or her proxy a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the
specifications so made. If no choice is indicated on the proxy, the shares will
be voted in accordance with the recommendations of the Board of Directors as to
such matters. Proxies may be revoked at any time prior to the time they are
voted by: (a) delivering to the Secretary of the Company a written instrument of
revocation bearing a date later than the date of the proxy; or (b) duly
executing and delivering to the Secretary a subsequent proxy relating to the
same shares; or (c) attending the meeting and voting in person.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing and mailing
the Notice and Proxy Statement, will be paid by the Company. Solicitation will
be primarily by mailing this Proxy Statement to all stockholders entitled to
vote at the meeting. Proxies may be solicited by officers and directors of the
Company personally or by telephone or facsimile, without additional
compensation. The Company may reimburse brokers, banks and others holding shares
in their names for others for the cost of forwarding proxy materials and
obtaining proxies from beneficial owners.
ELECTION OF DIRECTORS
The Board of Directors currently consists of three members. Each Director
is elected each year to serve for a term of one year. Each Director serves until
his successor has been elected and qualified, or until his earlier resignation
or removal.
The Company has nominated its current Directors, Terence E. Belsham,
Richard P. Freeman and Gerald I. Quinn to be re-elected at the Annual Meeting.
In addition, the Company has also nominated Richard Baillie, Terry Cuthbertson
and Terrence H. Pocock for election at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for Messrs.
Belsham, Freeman, Quinn, Baillie, Cuthbertson and Pocock. In the event that any
of such persons is unable or declines to serve as Director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the Board of Directors to fill the vacancy. It is not expected
that any of such persons will be unable or will decline to serve as Director. If
elected, the term of office of each of the nominees will continue until the next
annual meeting of stockholders after election or until such Director's successor
has been duly elected and qualified.
The names of all current Directors, Director-nominees and executive
officers and certain information about them, are set forth on the following
page.
3
<PAGE>
Name Age Positions With Company
- ---- --- ----------------------
Terence E. Belsham 61 Chairman of the Company's Board of Directors
Gerald I. Quinn 53 President, Chief Executive Officer, and a
member of the Company's Board of Directors
Richard P. Freeman 40 Vice President, Investor Relations and Product
Development, and a member of the Company's
Board of Directors
Lydia M. Montoya 44 Chief Financial Officer and Treasurer
Donna S. Moore 42 Vice President, Operations
John G. Vogel 30 President and Chief Executive Officer of Telplex
International Communications, Inc.
Richard Baillie 51 Director-Nominee
Terry Cuthbertson 46 Director-Nominee
Terrence H. Pocock 63 Director-Nominee
TERENCE E. BELSHAM was a co-founder of Interpretel, Inc. ("Interpretel"), a
wholly owned subsidiary of the Company. Since it was founded in 1992 until May
1996, Mr. Belsham was the President and CEO of Interpretel. From March 1995
until May 1996, Mr. Belsham was the Company's President and CEO. Mr. Belsham has
also served as the Company's Chairman of the Board since March 1995. From 1989
until 1992, Mr. Belsham was President of Intran Systems, Inc. From 1983 to 1989,
Mr. Belsham owned Sinclair Associates, a real estate marketing and management
firm. From 1965 to 1983, Mr. Belsham was President and owner of Lackie
Manufacturing Company, Ltd., a jewelry manufacturing company in Canada. Mr.
Belsham graduated from the business school of the University of Western Ontario.
Mr. Belsham has been active in Rotary International, the Canadian Jeweler's
Association and the 24 Karat Club.
GERALD I. QUINN has been the President of Interpretel (Canada) Inc., a
subsidiary of the Company, since 1995. In May 1996, Mr. Quinn became the
President, Chief Executive Officer and a Director of the Company. From 1986 to
1994, Mr. Quinn was Vice President of University Affairs and Development at the
University of Guelph, which is one of Canada's leading teaching and research
universities. While at the University of Guelph, Mr. Quinn's responsibilities
included marketing, image development, constituent relations and media
relations, including systems development, telemarketing and the development of
affinity programs. From 1975 until 1986, Mr. Quinn held many senior
administrative positions with Canada's largest college of applied arts and
technology, including positions relating to the development and
commercialization of technology and multimedia based interactive learning
programs. Since 1984, Mr. Quinn has served as a consultant to Cableshare
Interactive Technology, Inc. ("Cableshare"), a Canadian TSE listed public
company that operates in the interactive television industry. Mr. Quinn has been
a director of Cableshare since 1993 and chairs its board committee on mergers
and acquisitions. Mr. Quinn is active in numerous civic and professional
organizations and has been recognized for his work in marketing, sales,
promotion and public relations by various trade organizations. Mr. Quinn has two
arts degrees with majors in English, Economics and Political Science. Mr.
Quinn's sister is married to Terrence H. Pocock.
4
<PAGE>
RICHARD P. FREEMAN was a co-founder of Interpretel and has served as
Interpretel's Vice President since 1993; and as a Director of the Company since
March 1995. Prior to joining Interpretel, Mr. Freeman was a principal in several
entrepreneurial companies located in Arizona, which were primarily involved in
the tourism and travel industries. Those companies included Desert Divers, a
scuba retail and boat chartercompany, and Vacation, Etc., a tour and travel
company which focused on corporate, leisure and adventure travel, wholesale tour
operations and escorted senior travel. Mr. Freeman has also served as a
consultant to several travel-related organizations, including the Business Radio
Network, a national radio network. Mr. Freeman holds a Bachelor of Arts degree
from the University of Arizona and is active in various civic and community
organizations.
DONNA S. MOORE joined the Company in May 1995 as Director of Client Services. In
May 1996, Ms. Moore was promoted to her current position as Vice President of
Operations. Prior to joining the Company, Ms. Moore founded and operated two
service-based businesses. From 1991 to 1995, Ms. Moore operated The Greeting
Connection, a wholesale greeting card distributorship in southern Arizona. From
1981 to 1990, Ms. Moore operated Simonsen Generator Service, an industrial
generator sales and service company in Tucson, Arizona. Ms. Moore has degrees in
Consumer Services and Journalism/Communications from Iowa State University.
LYDIA M. MONTOYA joined the Company in September 1996 as its Chief Financial
Officer. From May 1994 until September 1996, Ms. Montoya was self-employed as a
certified public accountant. Ms. Montoya was Controller of Ugly Duckling
Corporation, a publicly traded company ("Ugly Duckling") from November 1992 to
May 1994. Ugly Duckling is an operator of nine Buy Here-Pay Here used car
dealerships which also finances and services retail installment contracts
generated from the sale of used cars by its dealerships. From July 1987 to
October 1992, Ms. Montoya was Director of Partnership Accounting for Verde
Investments, Inc., a real estate development company that constructed, operated
and sold over 5,000 apartment units. Ms. Montoya began her career with Coopers &
Lybrand. Ms. Montoya has a B.S. in Accounting from the University of Arizona and
a B.S. in Sociology from Arizona State University.
JOHN G. VOGEL joined the Company in January 1997 as President and Chief
Executive Officer of Telplex International Communications, Inc., an Arizona
corporation ("Telplex"). Substantially all of the assets of Telplex were
acquired by the Company in January 1997 and transferred to the Company's
wholly-owned subsidiary, Telplex International Communications, Inc. which was
formed in contemplation of such acquisition. Telplex was thereafter dissolved.
From its inception in 1994 until April 1996, Mr. Vogel served as Vice President
and from April 1996 until its acquisition by the Company in January 1997, Mr.
Vogel served as President of Telplex, a privately-held international reseller of
international voice and data, which he also founded. From May 1993 until January
1994, Mr. Vogel was self-employed as a telecommunications consultant in the
United States and Mexico. From January 1992 to January 1994, Mr. Vogel was
employed as a Senior Associate by Sprint Communications, a publicly traded
telecommunications provider. Mr. Vogel holds a Bachelor of Arts degree in
Marketing from the University of Arizona.
RICHARD BAILLIE has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr. Baillie
is the Director responsible for marketing and sales at Tech Pacific Australia
Pty Ltd. ("Tech Pacific"). Tech Pacific is a private telecommunications company
with operations in Australia and the Pacific Rim. Tech Pacific is also the
parent company of a major shareholder of the Company, Switch Telecommunications
Pty Limited ("Switch"). Prior to joining Tech Pacific in 1990, Mr. Baillie held
5
<PAGE>
several senior positions with Telecom Australia (now Telstra), including that of
General Manager responsible for sales, marketing and network service delivery
for business customers in the Sydney region. During 1987 and 1988, Mr. Baillie
worked with AT&T under a Telstra staff development program. Mr. Baillie holds a
graduate Diploma of Business Administration and a Diploma in Industrial
Relations. Mr. Baillie is a member of the Australian Institute of Company
Directors, holds a Diploma of Company Directors and is a Director of the
Australian Mobile Telecommunications Association.
TERRY CUTHBERTSON has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr.
Cuthbertson is the Director of Finance of Tech Pacific Holdings, a wholly-owned
subsidiary of Tech Pacific, whose shares are publicly traded on the Hong Kong
Exchange. Prior to joining Tech Pacific Holdings, Mr. Cuthbertson worked for the
previous 25 years at KPMG Peat Marwick. While at KPMG Peat Marwick, Mr.
Cuthbertson was a partner in both Audit Services and KPMG Corporate Services.
Mr. Cuthbertson holds a Bachelor of Business from the University of Technology,
NSW and is an Associate of the Institute of Chartered Accountants in Australia.
TERRENCE H. POCOCK has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr. Pocock is
the Vice Chairman of Cableshare Interactive Technology Inc. ("Cableshare"), a
Canadian public company he founded in 1973 that operates in the interactive
television industry. Currently, Mr. Pocock is involved in technology oversight
for the board of directors at Cableshare. From its inception in 1973 until 1992,
Mr. Pocock was the CEO of Cableshare. While at Cableshare, Mr. Pocock was
involved in product development and was responsible for obtaining several
patents on interactive television technology. Mr. Pocock holds B.A., B Comm. and
MBA degrees from various Canadian universities and is a graduate of the Canadian
Royal Military College. Mr. Pocock is married to the sister of Gerald I. Quinn.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board of Directors met 12 times. Each Director
attended all of the meetings held during fiscal 1996. The Company's Board of
Directors has no committees.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's
President (the Chief Executive Officer of the Company) and to the Company's
other most highly compensated executive officer other than the President
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company during the fiscal years ended August 31, 1996, 1995
and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------
Awards
Annual Compensation ------
------------------- Restricted Securities
Name and Fiscal Stock Underlying
Principal Position Year Salary Bonus Award(s) Option(s)
------------------ ---- ------ ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Terence E. Belsham 1996 $85,000 $0 $979,023 200,000
Chairman of the Board (1)
1995 $60,000 $0 $0 0
1994 $45,000 $0 $0 0
Gerald I. Quinn 1996 $85,000 $0 $203,637 500,000
President and Chief Executive
Officer (1) 1995 $58,000 $0 $0 300,000
1994 $0 $0 $0 0
</TABLE>
- ----------
(1) Terence E. Belsham served as the Company's Chief Executive Officer until
February 1996, at which time Gerald I. Quinn became the Company's Chief
Executive Officer.
7
<PAGE>
The following table sets forth certain information concerning each exercise
of stock options during the year ended August 31, 1996 by each of the Named
Executive Officers and the aggregated fiscal year-end value of the unexercised
options of each such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options In-the-Money
at Fiscal Year End (#) Options at Fiscal Year End ($)
Shares Acquired Value Realized ----------------------------- ------------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------ --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence E. Belsham 0 $0 0 200,000 $0 $0
Gerald I. Quinn 0 $0 300,000 500,000 $0 $0
</TABLE>
The following table sets forth information concerning individual grants of
stock options made to the Named Executive Officers during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Options Granted
Options to Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Terence E. Belsham 200,000 18% $1.75(1) May 2006
Gerald I. Quinn 300,000 73% $1.3875(1) May 2006
500,000 $1.75(1) May 2006
</TABLE>
- ----------
(1) In January of 1997, the Company's stock price had decreased significantly
from the date these options were granted. In addition, the Company's Board
of Directors approved the Company's 1997 Stock Incentive Plan. The
Company's Board of Directors determined that these options were no longer
providing appropriate incentives to the officers of the Company due to the
significant decrease in market price of the Company's common stock.
Accordingly, in January of 1997, the Company agreed to cancel these options
and issue an equal number of options under the 1997 Stock Incentive Plan to
these officers at an exercise price per share equal to the closing bid
price of the Company's common stock on the date of grant. See "Proposal No.
3 - Ratification of 1997 Stock Incentive Plan New Benefits Table".
COMPENSATION OF DIRECTORS
All Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board meetings. Directors who are
employees of the Company do not receive compensation for service on the Board
8
<PAGE>
other than their compensation as employees. Each Director who is not an employee
of the Company will receive an option to purchase 10,000 shares of the Company's
Common Stock on the fifth day following the date that the Company publicly
announces its annual operating results, provided that such Director attended at
least 75% of the meetings of the Company's Board of Directors in the preceding
fiscal year.
EMPLOYMENT CONTRACTS
In May 1996, the Board of Directors approved a two-year employment
agreement with Gerald I. Quinn for services as President and Chief Executive
Officer. The agreement requires Mr. Quinn to devote his full time to the Company
and provides for a salary of $85,000 annually. Mr. Quinn is also entitled to
receive any fringe benefits extended to the employees of the Company, including
medical, disability and life insurance. Mr. Quinn also has the right to receive
certain sales commissions from the Company under the agreement.
In May 1996, the Board of Directors approved a one-year employment
agreement with Terence E. Belsham for services as Chairman. In September 1996,
the agreement was amended to eliminate Mr. Belsham's responsibilities as Chief
Financial Officer because the Company retained Lydia Montoya to serve as its
Chief Financial Officer. The agreement requires Mr. Belsham to devote his
full-time to the Company and provides for a salary of $85,000 annually. Mr.
Belsham is also entitled to receive any fringe benefits extended to the
employees of the Company, including medical, disability and life insurance.
In June 1996, the Board of Directors approved a one-year employment
agreement with Richard P. Freeman for services as Vice President. The agreement
provides for a base salary of $72,000 per year. The agreement requires Richard
P. Freeman to devote his full time to the Company.
After their initial terms, each of the above-described agreements continue
at will, terminable with/on ninety days written notice by either party to the
other. The agreements terminate upon the occurrence of any of the following
events: (i) if the employee voluntarily terminates; (ii) the death of the
employee; (iii) if the employee is unable to properly discharge his obligations
under his employment agreement due to illness, disability or accident for three
consecutive months or for a period aggregating six months in any continuous
twelve months; (iv) if the employee is convicted of a crime of moral turpitude
by a court of competent jurisdiction; (v) if the employee is convicted of a
felony, except to the extent that the charge arises from an act taken at the
board's direction; or (vi) if the employee is grossly negligent or guilty of
wilful misconduct in connection with the performance of his duties, which
negligence or misconduct, if curable, is not cured within fifteen days of a
notice of cure by the Board or the Chairman of the Board. Each of the
above-described agreements provides that the employee shall not compete with the
Company during the term of the agreement and for a period of one year
thereafter.
In January 1997, the Board of Directors of Telplex International
Communications, Inc., the Company's wholly owned subsidiary ("Telplex") approved
an employement agreement with John G. Vogel for services as President, Chief
Executive Officer and Administrator of Telplex. The agreement has an initial
term commencing January 22, 1997 and ending August 31, 2000. Thereafter, the
employement agreement automatically renews for one year periods, subject to two
weeks notice of termination by either party at any time. The agreement requires
John G. Vogel to devote his full time to Telplex and provides for an annual base
salary of $70,000, plus an option to purchase up to 400,000 shares of the
Company's Common Stock pursuant to the 1997 Stock Incentive Plan. Mr. Vogel is
also entitled to receive any fringe benefits generally provided to the employees
of Telplex. The agreement terminates upon the occurence of any of the following
events: (i) voluntary termination by Mr. Vogel, (ii) termination "without cause"
by Telplex, (iii) death of Mr. Vogel, (iv) if Mr. Vogel is convicted of any
felony, (v) if Mr. Vogel were to commit any act of fraud, dishonesty or breach
of a fiduciary duty against Teleplex or its affiliates, (vi) if Mr. Vogel
materially breached the agreement or (vii) upon liquidation of Telplex. Upon any
termination of the agreement by Telplex without cause, Mr. Vogel is entitled to
receive two weeks severance pay (which may include the two week notice period)
and all outstanding options are deemed immediately vested and exercisable for a
period of sixty days following notice to terminate. The agreement also provides
that Mr. Vogel shall not compete with Telplex or the Company during the term of
the agreement and for a period of two years thereafter.
9
<PAGE>
1997 STOCK INCENTIVE PLAN
In January 1997, the Board of Directors of the Company approved the
Company's 1997 Stock Incentive Plan. A description of the 1997 Stock Incentive
Plan is contained under the caption "Proposal No. 3 - Ratification of 1997 Stock
Incentive Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996, the Company entered into certain agreements with Switch,
pursuant to which Switch was issued 1,544,110 shares of Common Stock of the
Company in exchange for 5% of the outstanding common stock of Switch. In
addition, on January 21, 1997, the Company granted a warrant to Switch to
purchase up to 2,000,000 shares of the Company's Common Stock at a price of
$1.50 per share, in exchange for consideration of $20,000. The Company also
licensed Switch to use certain technology of the Company in Australia and
various other Asian countries.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, Directors and greater
than 10% stockholders are required by Exchange Act regulations to furnish the
Company with copies of all Section 16(a) forms they file.
In 1996, Messrs. Belsham, Freeman and Quinn failed to timely report the
grant of certain stock options on Form 4's, and Ms. Moore and Ms. Montoya failed
to timely report initial statements of beneficial ownership on Form 3. In
addition, Switch failed to timely report the acquisition of certain stock of the
Company on Form 3.
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO
CHANGE NAME OF CORPORATION FROM WAVETECH TO TELPLEX
INTERNATIONAL, INC.
At the Annual Meeting, the Company will seek stockholder approval of an
amendment to its Certificate of Incorporation to change its name to Telplex
International, Inc. (the "Name Change Amendment"). The Board of Directors
believes the proposed name will help the Company to establish an identity that
is consistent with its current products and services. In addition, the Company
believes that changing its name to Telplex International, Inc. will eliminate
certain confusion between the Company and an unrelated business entity that
operates under the name Wave Tech Int. Inc. and is traded on the Nasdaq Stock
Market under the symbol WAVT.
The Company's Board of Directors approved the Name Change Amendment in
January 1997 and has directed that the Name Change Amendment be submitted to the
stockholders of the Company for approval at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR
OF RATIFICATION OF THE NAME CHANGE AMENDMENT.
PROPOSAL NO. 2 - REINCORPORATION FROM NEW JERSEY TO NEVADA
General
The Board of Directors has approved a plan of reorganization (the
"Reincorporation") in which the Company's state of incorporation will be changed
from New Jersey to Nevada. In preparation for the submission of this Proposal to
10
<PAGE>
the stockholders, Wavetech has formed a wholly owned Nevada subsidiary named
Telplex International, Inc. If the stockholders approve the reincorporation,
Wavetech, Inc., will be merged into Telplex International, Inc. Each outstanding
share of stock of Wavetech, Inc., will be converted into one share of stock of
Telplex International, Inc. As a result, the existing stockholders of Wavetech
will become stockholders of Telplex International, Inc., and Wavetech will cease
to exist. The term "the Company" refers to Wavetech, Inc., or Telplex
International, Inc., or both, as the context requires. Telplex International,
Inc. will be governed by Nevada law and new Articles of Incorporation and
Bylaws, which will result in certain changes in the rights of stockholders.
STOCKHOLDERS ARE STRONGLY ADVISED TO REVIEW THE SUMMARY INFORMATION SET FORTH AT
"CERTAIN DIFFERENCES BETWEEN NEVADA AND NEW JERSEY CORPORATION LAW" AND
ELSEWHERE HEREIN RELATING TO CERTAIN DISADVANTAGES TO STOCKHOLDERS THAT MAY
RESULT FROM THE PROPOSED REINCORPORATION.
The Reincorporation will not result in any change in the business,
management, assets, liabilities or net worth of the Company. Wavetech's stock
certificates will be deemed to represent the same number of common shares as
were represented by such Wavetech certificates prior to the Reincorporation. IT
WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE THEIR WAVETECH STOCK
CERTIFICATES FOR TELPLEX INTERNATIONAL, INC. STOCK CERTIFICATES, ALTHOUGH
STOCKHOLDERS MAY EXCHANGE THEIR CERTIFICATES IF THEY WISH. Following the
Reincorporation, previously outstanding Wavetech stock certificates will
constitute "good delivery" in connection with a sale through a broker, or
otherwise of shares of Telplex International, Inc.
As part of the Reincorporation, Telplex International, Inc. will assume all
of the obligations of Wavetech under Wavetech's 1997 Stock Incentive Plan. If
the Reincorporation is approved, options outstanding under the 1997 Stock
Incentive Plan will be exercisable for shares of Telplex International, Inc.,
and employees participating in the 1997 Stock Incentive Plan will purchase
shares of Telplex International, Inc. All of the employee benefit plans and
arrangements are expected to be continued without change.
If approved by the stockholders, it is anticipated that the Reincorporation
will be effected as soon as practicable following the Annual Meeting. The Plan
and Merger provides that the Reincorporation may be abandoned by the Board of
Directors after approval by the stockholders of Wavetech. However, the Board of
Directors presently intends to proceed with the Reincorporation following
shareholder approval.
PRINCIPAL REASONS FOR THE REINCORPORATION
Advantages of Nevada Corporation Law. The State of Nevada maintains a
modern and flexible corporation law similar to Delaware's, which is frequently
revised to meet changing business conditions. As a result, Nevada has become a
preferred domicile for many major American corporations. Also, because of
Nevada's increasing significance as the state of incorporation for many
corporations, the Nevada judiciary has become particularly familiar with matters
of corporation law. Further, because Nevada's law is modeled on Delaware's,
Delaware's well-developed body of court decisions is expected to be influential
in Nevada courts.
No Tax on Share Dividends. New Jersey includes dividends in its definition
of gross income and thus are taxable to stockholders. Under Nevada law, however,
dividends paid by Nevada corporations are not taxed when the corporate stock is
owned by nonresidents or foreign corporations. Also, Nevada does not tax capital
gains.
11
<PAGE>
CERTAIN CHANGES TO THE COMPANY'S CERTIFICATE OF INCORPORATION
Upon effectiveness of the Reincorporation, the Company will be governed by
new Articles of Incorporation and Bylaws and the Certificate of Incorporation
for the Company in New Jersey will no longer govern the Company's affairs. The
Company's new Articles of Incorporation will contain provisions that differ from
the Company's existing New Jersey Certificate of Incorporation.
The new Articles of Incorporation authorize the Board of Directors of the
Company, without any vote or action of the stockholders, to issue up to
10,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, conversion and voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which the Company may designate and issue in the future. For
example, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company. Further, the
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including, without
limitation, potentially substantial dilution to existing stockholders and the
loss of voting control to others. The Company has no present plans to issue any
shares of preferred stock.
In addition to the issuance of preferred stock, the Company's new Articles
of Incorporation and Bylaws contain a number of provisions relating to corporate
governance and the rights of stockholders, which differ from the Company's
existing Certificate of Incorporation. These provisions: (i) permit the removal
of Directors only for cause and only by vote of stockholders owning two-thirds
of the voting power of the Company; (ii) impose conditions on the ability of
stockholders to nominate persons for the position of director; (iii) prohibit
stockholders from calling special meetings; and (vi) require the consent of the
Board of Directors or the "disinterested" members thereof and/or the affirmative
vote of two-thirds of the Company's voting stock, excluding stock owned by
interested stockholders, to effect certain business combinations with interested
stockholders. An interested stockholder for purposes of this provision means a
person who, together with affiliates or associates, beneficially owns or
beneficially owned within the preceding two-year period, 10% or more of the
Company's combined voting power. The provisions included in the Company's
Articles of Incorporation and certain provisions in the Bylaws may not be
amended or repealed without the affirmative vote of two-thirds of the Company's
voting stock, excluding, with respect to the business combination provision,
stock owned by interested stockholders.
The Company believes that these provisions will promote the stability and
continuity of the Board of Directors of the Company and assure that stockholders
will receive adequate notice of and an opportunity to consider actions by
stockholders that could materially affect the Company. However, these provisions
could have the effect of deterring unsolicited takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then-current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interest.
12
<PAGE>
CERTAIN DIFFERENCES BETWEEN NEVADA AND NEW JERSEY CORPORATION LAW
In addition to the matters discussed above, Nevada law differs in many
other respects from New Jersey law. Certain differences that could materially
affect the rights of stockholders are as follows:
Loans to Directors, Officers and Employees. Under Nevada law, a corporation
may make loans to or guarantee the obligations of its officers or other
employees and those of its subsidiaries when such action, in the judgment of the
directors, is fair to the corporation. Such loans and guarantees are also
permitted under New Jersey law, but only if it is in the best interest of the
corporation. The Board of Directors has no present intention of making loans or
guaranteeing obligations of its officers or employees.
Dissolution. Both New Jersey and Nevada law require approval by a majority
of the total voting power and approval by a majority of the Board of Directors,
or approval by all of the stockholders, to authorize dissolution of a
corporation. New Jersey law also allows a corporation to include in its
certificate of incorporation a provision which allows any shareholder or
stockholders to effect a dissolution at will or upon the occurrence of a
specified event. Both New Jersey and Nevada law allow a corporation to include
in its certificate or articles of incorporation a supermajority voting
requirement in connection with dissolutions. Neither Wavetech's Certificate of
Incorporation nor Telplex International, Inc.'s Articles of Incorporation
presently contains any supermajority voting requirement with respect to
dissolution.
Payment of Dividends and Repurchase of Shares of Common Stock. Under Nevada
and New Jersey law, a corporation may pay dividends only so long as such
distribution does not render the corporation insolvent. One key difference
between Nevada and New Jersey law is that in Nevada, a director is fully
protected in relying in good faith upon the books of account of the corporation
or statements prepared by any of its officials as to the value and amount of
assets, liabilities or net profits of the corporation or other facts pertinent
to the existence and amount of money from which distributions may properly be
declared. No similar provision exists in the New Jersey statutes.
Both Nevada and New Jersey law allow corporations to repurchase their
capital stock. Unlike Nevada, New Jersey allows a corporation to reacquire its
shares even though it causes net assets to become less than the liquidation
preferences of outstanding shares, unless the certificate of incorporation
contains a restriction. Also under New Jersey law, a corporation may repurchase
its own shares out of capital surplus and out of share capital in certain
instances. No such provisions are found in Nevada law.
Neither Wavetech nor Telplex International, Inc. currently intends to pay
dividends or repurchase its capital stock. Nevertheless, the differences between
New Jersey law and Nevada law could affect dividend payments or share
repurchases in the future.
Removal of Directors. Under the Nevada Code, any one or all of the
directors of a corporation may be removed without cause by the holders of not
less than two-thirds of the voting power of a corporation's stock. The Nevada
Code also permits articles of incorporation to require the concurrence of a
percentage greater than two-thirds of the voting stock in order to remove a
director. Telplex International, Inc.'s Articles of Incorporation will not
contain such a requirement.
13
<PAGE>
Indemnification of Officers and Directors and Advancement of Expenses. New
Jersey and Nevada have nearly identical provisions regarding indemnification by
a corporation of its officers, directors, employees, and agents for claims
against such persons as a result of their position. New Jersey and Nevada law
differ slightly in their provisions for advancement of expenses incurred by an
officer or director in defending a civil or criminal action, suit, or
proceeding. New Jersey law provides that expenses 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 the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined that he is not entitled to be indemnified by the
corporation. Thus, a corporation has the discretion to decide whether or not to
advance expenses. Nevada law provides for similar advancement of expenses. In
addition, however, the articles of incorporation, bylaws, or an agreement made
by the corporation may provide that the corporation must pay advancements of
expenses as they are incurred in advance of the final disposition of the action,
suit, or proceeding upon receipt by the Company of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
The Company's current bylaws provide that the Company may advance such expenses
if authorized by the Board of Directors and upon receipt of an undertaking to
repay any such amounts unless it is ultimately determined that such indemnified
party is entitled to be indemnified by the Company. The bylaws of Telplex
International, Inc. would require the Company to advance such expenses upon
receipt of an undertaking to repay the amount of such advances if it is
ultimately determined that such indemnified party is not entitled to be
indemnified by the Company.
Limitation on Personal Liability of Directors. New Jersey corporations are
permitted to adopt charter provisions limiting, or even eliminating, the
liability of a director of a company and its stockholder from monetary damages
for breach of fiduciary duty as a director, provided that such liability does
not arise from certain proscribed conduct, including breach of the duty of
loyalty, acts or omissions not in good faith or that involve a knowing violation
of the law or liability of the corporation based on unlawful dividends or
distributions or improper personal benefit. Nevada law permits the adoption of
provisions in the articles of incorporation limiting personal liability but
differs from New Jersey's provision in one respect. While the New Jersey
provision excepts from limitation of liability a breach of the duty of loyalty,
the Nevada counterpart does not contain this exception.
Under the laws of either state, the charter provision will not have any
effect on the availability of equitable remedies such as an injunction or
recision based upon a breach of the duty of care, or on liabilities that arise
under certain federal statutes such as the securities laws.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF REINCORPORATION
The Company has been advised by Addison, Roberts & Ludwig, P.C., that, for
federal income tax purposes, no gain or loss will be recognized by the holders
of Wavetech shares as a result of the consummation of the Reincorporation and no
gain or loss will be recognized by Wavetech or Telplex International, Inc. In
addition, Addison, Roberts & Ludwig, P.C. has advised that each former holder of
Wavetech shares will have the same basis in the Telplex International, Inc.
stock received by him pursuant to the Reincorporation as he has in the Wavetech
shares held by him at the time of consummation of the Reincorporation, and his
holding period with respect to such Telplex International, Inc. stock will
include the period during which he held the corresponding Wavetech shares,
provided the latter were held by him as capital assets at the time of
consummation of the Reincorporation.
14
<PAGE>
VOTE REQUIRED FOR REINCORPORATION AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of the Plan of Merger and the Reincorporation provided for therein
will require the affirmative vote of a majority of the outstanding shares of
Wavetech common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PLAN OF MERGER AND THE REINCORPORATION FROM NEW JERSEY TO NEVADA.
PROPOSAL NO. 3 - RATIFICATION OF 1997 STOCK INCENTIVE PLAN
The Board of Directors has approved a 1997 Stock Incentive Plan (the "1997
Plan") and recommends that such Plan be approved by the stockholders. Employees
(including officers), Directors and consultants are eligible to receive grants
of options, Restricted Stock or Deferred Stock under the 1997 Plan, under which
an aggregate of 4,600,000 shares of Common Stock are authorized for issuance.
Usually, the only consideration received by the Company for the grant of an
award will be past services and/or the expectation of future services. No
options, Restricted Stock or Deferred Stock may be granted under the 1997 Plan
after January 30, 2007. As of February 14, 1997, options to purchase
approximately 2,900,000 of such shares have been granted; such options have
terms of up to ten years, with exercise prices of $0.66 and $0.81 per share,
which is the fair market value of the underlying shares as of the respective
dates of grant. As of February 14, 1997, the Common Stock underlying the
outstanding options had an aggregate market value of approximately $2,025,000.
As of February 14, 1997, grants of 16,903 shares of Restricted Stock and no
grants of Deferred Stock have been made.
STOCK OPTIONS
The 1997 Plan provides for the granting to employees of either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options.
Directors, officers, employees and consultants of the Company who, in the
opinion of the Board of Directors, are responsible for the continued growth and
development and financial success of the Company are eligible to be granted
options under the 1997 Plan. Generally, the exercise price of incentive stock
options granted under the 1997 Plan must be not less than the fair market value
of the underlying shares on the date of grant, and the term of each option may
not exceed ten years. Options are generally subject to a five-year vesting
schedule. Incentive stock options granted to persons who have voting control
over 10% or more of the Company's capital stock are granted at 110% of the fair
market value of the underlying shares on the date of grant and expire five years
after the date of grant.
The 1997 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder shall become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1997 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
The Board, in its sole discretion, may accelerate the benefits of any award
under the 1997 Plan in the event of a Corporate Transaction or Change of
Control, with such acceleration rights being granted in connection with an award
pursuant to an agreement evidencing the same or at any time after an award has
been granted to a Participant. "Corporate Transaction" means (i) a merger
15
<PAGE>
or consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the
Company is incorporated, (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or (iii) any reverse merger in which the Company is
the surviving entity but in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger. "Change of Control" means a change
in ownership or control of the Company either by (i) the direct or indirect
acquisition by any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within the meaning of
Rules 13d-3 of the Exchange Act) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's shareholders or other
transaction; or (ii) a change in the composition of the Company's Board of
Directors over a period of 36 consecutive months or less such that a majority of
the Board members (rounded up to the next whole number) ceases, by reason of one
or more contested elections for Board membership, to be comprised of individuals
who either have been Board members continuously since the beginning of such
period or have been elected or nominated for election as Board members during
such period by at least a majority of the Board members continuously serving at
the beginning of such period who were still in office at the time such election
or nomination was approved by the Board.
NONEMPLOYEE DIRECTOR AUTOMATIC OPTIONS
The 1997 Plan contains an Automatic Option Grant Program limited to those
persons who serve as nonemployee members of the Board, including any nonemployee
Chairman of the Board ("Eligible Directors"). Each individual who first becomes
an Eligible Director after the date of approval of the 1997 Plan by the
shareholders, shall automatically be granted a Non-Statutory Option to purchase
10,000 shares of Common Stock. On the date which is five days after the Company
publicly announces its annual operating results, beginning with the fiscal year
1998 annual operating results, each person who is at that time serving as an
Eligible Director will automatically be granted a Non-Statutory Option to
purchase 10,000 shares of Common Stock, provided that such person has attended
at least 75% of all meetings of the Board of Directors held during the most
recently completed fiscal year. The following table sets forth the options to be
granted on March 26, 1997, to each of the Company's Eligible Directors if the
1997 Plan is approved by the shareholders:
Director Number of Options Dollar Value ($)1
-------- ----------------- -----------------
Richard Baillie 10,000 $0
Terry Cuthbertson 10,000 0
Terence H. Pocock 10,000 0
----------
1 All of these options will be granted with an exercise price equal to the
"fair market value" (as defined in the 1997 Plan) of the underlying shares
as of the date of the grant. As a result, the value of such options to the
grantee will be determined by the difference between the respective
exercise price and the fair market value on the date of exercise.
There is no limit on the number of automatic option grants that any one
Eligible Director may receive. All grants to an Eligible Director under the 1997
Plan will have a maximum term of 10 years from the automatic grant date. Each
16
<PAGE>
automatic grant will vest one year from the date of grant, provided that the
Director continues to serve until the next annual meeting of shareholders
following such grant. If an Eligible Director ceases to serve as a Board member
for any reason other than Death or permanent disability while holding one or
more automatic option grants, then the option grants exercisable at the time
such person ceased to be a Board member shall be exercisable for up to six
months following cessation of Board service. In the event an Eligible Director
dies during such six-month period, then the options otherwise exercisable by the
Eligible Director may be exercised by the Eligible Director's legatees, personal
representative or distributees for up to 12 months following the date of the
Eligible Director's death. The exercise price of all options shall be equal to
the fair market value of the Common Stock on the automatic grant date.
In the event an Eligible Director becomes permanently disabled or dies
while serving as a Board member, then all shares of Common Stock subject to
automatic option grants shall immediately vest in full, and the Eligible
Director, or the legatees, personal representatives or distributees in the case
of the Eligible Director's death, may exercise the options for up to 12 months
following the date of the permanent disability or death of the Eligible
Director.
In the event of any Corporate Transaction or Change of Control, all
outstanding director options shall automatically vest and become fully
exercisable and remain exercisable following the Corporate Transaction or Change
of Control until the expiration or sooner termination of the option term.
Immediately following the Corporate Transaction or Change of Control, all
automatic option grants to Eligible Directors shall terminate.
Director options are generally not transferrable, and are exercisable
during the Eligible Director's lifetime only by the Eligible Director. An
Eligible Director has no rights as a shareholder with respect to any shares
covered by an option until the option has been validly exercised.
RESTRICTED AND DEFERRED STOCK
The 1997 Plan permits the Board to grant or sell shares of Common Stock to
participants with a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code for a period to be determined by the Board as of the date
of the award. Each grant or sale of Restricted Stock will constitute an
immediate transfer of the ownership of Common Stock to the participant in
consideration of the performance of services, permitting such participant to
dividend, voting and other ownership rights, subject to the substantial risk of
forfeiture and restrictions on transfer adopted at the date of the award. The
Common Stock subject to the restrictions may not be sold, assigned, transferred,
pledged or otherwise encumbered, and any dividends or other distributions paid
on the Restricted Stock will be sequestered and reinvested on an immediate or
deferred basis. At the expiration of the restriction period, the Company will
deliver to the participant unlegended stock certificates in exchange for
cancellation of the legended stock certificates.
The Board may also authorize grants or sales of Deferred Shares to
participants. Each grant or sale of Deferred Stock will constitute an agreement
by the Company to issue or transfer Common Stock to a participant in the future
in consideration of the performance of services, subject to the fulfillment
during the Deferral Period for such conditions as the Board may specify. Each
grant or sale may be made without additional consideration from the participant
or in consideration of a payment that is less than the fair market value on the
date of grant. During the Deferral Period, the participant will not have any
rights of ownership in the Deferred Stock and will not have the right to vote
the Deferred Stock. The Board may, at its sole discretion, authorize the payment
of dividend equivalents on the Deferred Stock in cash or additional shares of
Common Stock on a current, deferred or contingent basis.
17
<PAGE>
No more than 500,000 shares of Common Stock may be issued as Restricted
Stock and Deferred Stock.
REASONS FOR THE 1997 PLAN
The purpose of the 1997 Plan is to attract, retain and motivate officers,
other key employees, nonemployee directors and certain consultants and advisors
of the Company, including its subsidiaries and affiliates. The Company believes
that the 1997 Plan will more closely align the interests of its participants
with the interests of the Company and its stockholders and will provide more
appropriate compensation to participants thereunder than currently available
solely through cash compensation. The Company is in a start-up phase and, as a
result, has been unable to provide cash compensation in amounts comparable to
those which may be available at other companies engaged in similar lines of
business. Previously, the Company has made awards of non-statutory options to
certain key employees and consultants on a case-by-case basis. However, the
Company believes that replacing this practice with the implementation of the
1997 Plan will enable grantees of "incentive stock options" to take advantage of
certain potentially favorable tax treatment provisions under the Code, result in
reduced costs of administration to the Company with respect to grants
outstanding from time to time and an increased ability of the Company to attract
highly qualified personnel in the future. Shareholder approval of the Plan is
also sought so that "incentive stock options" granted under the Plan will
qualify for treatment as such under the Code.
The grant of stock options and awards which have been individually approved
by stockholders and meet certain conditions are exempt from the "short-swing
profits" liability provisions of Section 16(b) of the Securities and Exchange
Act of 1934, as amended (the "Act"). Section 16(b) provides that upon the
purchase and sale (or sale and purchase) of the Company's Common Stock within
any six month period by a principal officer, director or beneficial owner of
more than 10 percent of the Company's Common Stock, any "profit' realized by
such person is recoverable by the Company. Thus, shareholder approval of the
Plan is sought in order to exempt from the liability provisions of Section 16(b)
the grant of those options to principal officers and directors set forth under
"New Plan Benefits Table".
No person who acquires shares of Common Stock under the 1997 Plan, may
during any period of time that such person is an "affiliate" of the Company
within the meaning of the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended ("Securities Act"),
offer to sell such shares of Common Stock unless such offer and sale is made (i)
pursuant to an effective registration statement under the Securities Act or (ii)
pursuant to an appropriate exemption from the registration requirements of the
Securities Act, such as that set forth in Rule 144 promulgated thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The discussion that follows is a summary, based upon current law, of some
of the significant federal income tax considerations relating to awards under
the 1997 Plan. The following discussion does not address state, local or foreign
tax consequences.
The Plan is not a "qualified plan" as defined in Section 401(a) of the
Code, nor is it subject to the Employee Retirement Income Security Act of 1974,
as amended.
18
<PAGE>
With respect to incentive stock options, neither the grant of the option
nor the exercise of the option by an optionee will result in income to the
optionee. The ultimate sale or other disposition by the optionee of the shares
of Common Stock obtained upon exercise of the incentive stock options will
result in capital gain or loss equal to the difference between the fair market
value on the date of sale and the exercise price. A disposition of shares
acquired pursuant to an option which results in a net capital gain will be taxed
at the ordinary income rate (but not more than 28%). If the stock is disposed of
at a price less than the exercise price, the loss will be capital loss. In 1996,
capital losses are deductible for individuals to the extent of capital gains
plus an amount not exceeding $3,000 ($1,500 for married individuals filing
separately).
The Company will not be allowed a deduction with regard to the incentive
stock options at the time of its grant, its exercise or the ultimate sale of the
Common Stock. However, if an optionee sells or disposes of the Common Stock
prior to two years after the date of the grant of the incentive stock options or
one year after the date of the exercise, the optionee will recognize
compensation income on the sale to the extent the value of the Common Stock on
the date of exercise exceeds the exercise price. The excess of the amount
received on the sale over the value on the date of exercise (if any) will be
capital gain. In the case of such a premature disposition of the Common Stock,
the Company may deduct the amount of income recognized as compensation income. A
person entitled to exercise an incentive stock option after the death of an
optionee may sell the Common Stock obtained on the exercise of the option at any
time without regard to the foregoing holding period requirements.
While the exercise of an incentive stock option will not generate
compensation income at the time of exercise, the excess of the fair market value
of the stock on the date of exercise over the exercise price is treated as a tax
preference item for purposes of the alternative minimum tax. The impact of the
alternative minimum tax rules will depend upon the individual circumstances of
each employee.
In the event the Company permits incentive stock options to be exercised
with Common Stock of the Company acquired by the exercise of an incentive stock
option, the use of such stock to exercise an incentive stock option prior to
completion of the minimum holding periods applicable to such stock will be
treated as a premature disposition resulting in ordinary income to the employee.
With respect to non-statutory stock options, since such options are not
readily marketable, an optionee does not realize any compensation income upon
the grant. Additionally, the Company may not take a tax deduction at the time of
the grant. Upon exercise of a non-statutory stock option, an optionee realizes
and must report as compensation income an amount equal to the difference between
the fair market value of the shares on the date of exercise and the exercise
price. The Company is entitled to take a deduction at the same time and in the
same amount, provided the Company withholds federal income tax in accordance
with the Code and the applicable Treasury regulations.
Subject to the approval of the Board, an optionee may make an irrevocable
election to have the Company withhold from those shares that would otherwise be
received upon the exercise of the option, a number of shares having a fair
market value equal to the minimum amount necessary to satisfy the Company's
federal, state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such option by the optionee. The
Company shall be entitled if necessary or desirable to pay or withhold the
amount of any tax attributable to the delivery of Common Stock under the Plan
from other amounts payable to the optionee after giving the person entitled to
receive such Common Stock notice as far in advance as practical, and the Company
may defer making delivery of such Common Stock if any such tax may be pending
unless and until indemnified to its satisfaction.
19
<PAGE>
With regard to Restricted Stock, neither the Company nor the participant
receiving a Restricted Stock award will realize any federal tax consequences at
the time the award is granted. If, however, the participant makes a Section
83(b) election under the Code within 30 days of the date of the grant, then
special rules will apply. A participant who is granted Restricted Stock may make
a Section 83(b) election, within 30 days of the grant, to have the grant taxed
as compensation income at the date of receipt, with the result that any future
appreciation or depreciation in the value of the shares of Common Stock granted
shall be taxed as a capital gain or loss upon a subsequent sale of the Common
Stock. The Company will be entitled to deduct as a compensation expense the same
amount as the participant is required to recognize as ordinary income in the
same year as the participant includes the amount of income for federal tax
purposes, subject to the limitations for section 162(m) of the Code. If a
participant does not make a Section 83(b) election, then the grant will be taxed
as compensation income at the fair market value on the date the restrictions
lapse. If a Section 83(b) election is made and the Common Stock is subsequently
forfeited, a loss is not allowed.
With regard to Deferred Shares, no taxable income is recognized by the
participant at the time of the grant. The participant must recognize as ordinary
income the difference between the fair market value of any shares of Common
Stock actually delivered in accordance with the terms of the Deferred Shares
grant and the purchase price, if any, paid by the participant for such shares.
In the disposition by the participant of any Common Stock received under a
Deferred Shares grant, any additional gain or any loss recognized will be a
capital gain or loss, and will be a long-term gain or loss if the shares are
held for more than one year. The Company will be entitled to a deduction equal
to the amount of ordinary income recognized by the participant, subject to the
limitations of Section 162(m) of the Code.
In addition to the foregoing federal tax consequences, the exercise,
ultimate sale or other disposition of awards by participants will in most cases
be subject to state income taxation.
20
<PAGE>
NEW PLAN BENEFITS TABLE
1997 STOCK INCENTIVE PLAN
The following table summarizes all options granted to (i) the Company's
President, (ii) each Named Executive Officer (iii) all executive officers as a
group (the "Executive Group"), (iv) all non- executive officer directors as a
group (the "Non-Executive Director Group") and (v) all non- executive officer
employees as a group (the "Non-Executive Employee Group"), as of February 14,
1997. No awards of Restricted Stock or Deferred Stock were made to any of such
persons as of February, 1997.
Number of Shares
Name and Position Dollar Value ($)(1) Uderlying Options
----------------- ------------------- ----------------
Terence E. Belsham
Chairman of the Board $0 200,000
Gerald I. Quinn
President and Chief
Executive Officer $0 800,000
Richard Baillie $0 0(3)
Director-Nominee
Terry Cuthbertson $0 0(3)
Director-Nominee
Terrence H. Pocock $0 0(3)
Director - Nominee
Executive Group $0 2,200,000(2)
Non-executive Director $0 0(3)
Group
Non-executive Officer
Employee Group $0 400,000
- ----------
(1) All of these options were granted with an exercise price equal to the "fair
market value" (as defined in the 1997 Plan) of the underlying shares as of
the date of grant. As a result, the value of such options to the grantee
will be determined by the difference between the respective exercise price
and the fair market value on the date of exercise.
(2) Includes options to purchase 200,000 and 800,000 common shares granted to
Messrs. Belsham and Quinn, respectively.
(3) Excludes options to purchase up to 10,000 common shares which the Company
intends to grant to each non-employee director upon their election to the
Board of Directors.
21
<PAGE>
The Company is currently in its start-up phase and, as a result, has been
unable to provide cash compensation to its employees in amounts comparable to
those which may be available at other companies engaged in similar lines of
business. Therefore, the Company has decided to grant options, Restricted Stock
and Deferred Stock to its Directors, officers, employees and consultants whose
services the Company deems important to the day-to-day management and strategic
planning for the Company. The Company believes that such options, Restricted
Stock and Deferred Stock provide appropriate incentives to the grantees by more
closely aligning their respective interests with those of the Company and its
stockholders. The terms of the options, Restricted Stock and Deferred Stock
granted by the Company are set by the Company's Board of Directors, based upon
its determination of the value of the services provided by the grantees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1997 STOCK INCENTIVE PLAN.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Addison, Roberts & Ludwig, P.C.,
independent public accountants, to audit the consolidated financial statements
of the Company for fiscal 1997. Addison, Roberts & Ludwig, P.C. representatives
are expected to be present at the Annual Meeting and will have the opportunity
to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company no later than
October 24, 1997, to be evaluated by the Board for inclusion in the proxy
statement for that meeting.
OTHER BUSINESS
The Board of Directors is not aware of any other business to be considered
or acted upon at the Annual Meeting. If any other business properly comes before
the Annual Meeting, it is the intention of the persons named in the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
22
<PAGE>
1996 ANNUAL REPORT ON FORM 10-KSB
The Company files annual reports on Form 10-KSB with the SEC. A copy of the
annual report for the fiscal year ended August 31, 1996 (except for certain
exhibits thereto) may be obtained, free of charge, upon written request by any
stockholder to Wavetech, Inc., 5210 East Williams Circle, Suite 200, Tucson,
Arizona 85711, Attention: Stockholder Relations. Copies of all exhibits to the
annual report are available upon a similar request, subject to payment of a
$0.20 per page charge to reimburse the Company for its expenses in supplying any
exhibit.
By Order of the Board of Directors,
/s/ Gerald I. Quinn
------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
Tucson, Arizona
February 14, 1997
23
