U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to _______________.
Commission File Number 0-15482
WAVETECH INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0916826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5210 E. WILLIAMS CIRCLE, SUITE 200
TUCSON, ARIZONA 85711
(Address of principal executive offices)
(520) 750-9093
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: July 14, 1998
-------------
Class No. Of Shares Outstanding
Common Stock, Par Value $.001 16,994,976
- ----------------------------- ----------
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
<PAGE>
INDEX
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
May 31, 1998 (unaudited) and August 31, 1997 3
Condensed Consolidated Statements of Operations -
Nine Months Ended May 31, 1998, and May 31, 1997
(unaudited) 4
Condensed Consolidated Statements of Operations -
Three Months Ended May 31, 1998 and May 31, 1997
(unaudited) 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended May 31, 1998 and May 31, 1997
(unaudited) 6
Notes to Condensed Consolidated Financial Statements -
May 31, 1998 and May 31, 1997
(unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 2. Change in Securities 12
ITEM 3. Defaults upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5 Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 31, 1998 (UNAUDITED) AND AUGUST 31, 1997
ASSETS
MAY 31 AUGUST 31
1998 1997
Current assets: ----------- ----------
Cash and cash equivalents $ 448,317 $ 13,329
Accounts receivable, net of allowance of $527 38,176 26,273
License fee receivable 150,000
Prepaid expenses and other assets 10,546 9,725
----------- ----------
Total current assets 647,039 199,327
Property and equipment, net 295,582 410,182
Other assets:
Investment in Switch Telecommunications
Pty Limited 2,316,165 2,316,165
Intangibles, net 26,439 29,489
Deposits and other assets 30,083 35,633
----------- ----------
Total other assets 2,372,687 2,381,287
----------- ----------
Total assets $ 3,315,308 $2,840,796
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 230,742 $ 395,222
Accrued interest payable 16,667 5,248
Dividends payable 3,900 ---
Unearned revenue 150,000 ---
Notes payable, current portion 393,000 172,071
Capital leases payable, current portion 44,455 56,119
----------- -----------
Total current liabilities 838,764 778,660
Other liabilities:
Capital leases payable 35,624 53,892
---------- -----------
Total other liabilities 35,624 53,892
---------- -----------
Total liabilities 874,388 832,552
Stockholders' equity:
Preferred Stock, par value
$.001 per share; 10,000,000 shares authorized,
600 shares issued and outstanding 1
Common Stock, par value
$.001 per share; 50,000,000 shares
authorized, 16,994,976 and 15,076,807 shares
issued and outstanding 16,995 15,077
Additional paid in capital 8,306,972 7,024,823
Retained earnings (accumulated deficit) (5,883,048) (4,881,656)
---------- ----------
Total stockholders' equity 2,440,920 2,158,244
---------- ----------
Total liabilities and stockholders' equity $3,315,308 $2,840,796
========== ==========
3
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1998 AND MAY 31, 1997 (UNAUDITED)
1998 1997
---------- ----------
Revenue $ 93,789 $ 797,626
Cost of sales:
Direct costs 82,144 599,474
----------- -----------
Gross profit (loss) 11,645 198,152
Other costs
Administrative expenses 884,917 1,398,985
----------- -----------
Net loss from operations (873,272) (1,200,833)
Other income (expense)
Interest income 2,008 8,497
Interest expense (33,332) (16,947)
Dividend expense (3,900) ----
Debt conversion expense (92,894) ----
----------- -----------
Total other income (expense) $ (128,118) $ (8,450)
----------- -----------
Net loss $(1,001,390) $(1,209,283)
=========== ===========
Per share data
Net loss per common share $ (0.06) $ (0.08)
Weighted average number of shares outstanding 15,674,910 14,364,769
=========== ===========
4
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1998 AND MAY 31, 1997 (UNAUDITED)
1998 1997
----------- -----------
Revenue $ 15,114 $ 274,987
Cost of sales:
Direct costs 6,955 84,060
----------- -----------
Gross profit (loss) 8,159 190,927
Other costs
Administrative expenses 365,666 493,752
----------- -----------
Net loss from operations (357,507) (302,825)
Other income (expense)
Interest income 1,956 391
Interest expense (14,401) (11,109)
Dividend expense (3,900) ---
----------- -----------
Total other income (expense) (16,345) (10,718)
----------- -----------
Net loss $ (373,852) $ (313,543)
=========== ===========
Per share data
Net loss per common share $ (0.02) $ (0.02)
Weighted average number of shares outstanding 16,503,928 14,640,260
=========== ===========
5
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MAY 31, 1998 AND 1997 (UNAUDITED)
1998 1997
----------- -----------
Cash flows from operating activities:
Net Loss $(1,001,390) $(1,209,283)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 117,650 146,915
Common stock issued for services
and accrued interest 166,810 57,500
Debt conversion expense 92,894 ----
Changes in assets and liabilities:
(Increase) in other current assets (2,178) (25,412)
Decrease in license fee receivable ---- 200,000
Decrease in inventory deposit ---- 241,037
(Increase) in intangibles due to
purchase of Telplex, Inc. ---- (25,000)
(Decrease) increase in accounts payable
and accrued expenses (164,480) 271,558
Increase in accrued interest payable 11,419 ----
Increase in dividends payable 3,900 ----
Decrease in unearned revenue ---- (499,985)
----------- -----------
Total Adjustments 226,015 366,613
----------- -----------
Net cash used in operating activities (775,375) (842,670)
Cash flows from investing activities:
Purchase of property and equipment ---- (25,238)
Increase in other assets (4,996) ----
----------- -----------
Net cash used in investing activities (4,996) (25,238)
Cash flows from financing activities:
Proceeds from notes payable 580,000 32,071
(Payments) on capital lease payable (29,932) (20,742)
Proceeds from sale of warrants ---- 20,000
Proceeds from exercise of warrants 135,448 ----
Proceeds from preferred stock issued (net) 527,925 ----
Proceeds from common stock issued 1,918 ----
----------- -----------
Net cash provided by financing activities 1,215,359 (742)
----------- -----------
Net (increase) decrease in cash 434,988 (836,579)
Cash and cash equivalents, beginning of period 13,329 857,488
----------- -----------
Cash and cash equivalents, end of period $ 448,317 $ 20,909
=========== ===========
6
<PAGE>
WAVETECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The balances as of August 31, 1997 were derived from
audited financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operation results for the three month and nine
month periods ended May 31, 1998 are not necessarily indicative of the results
that may be expected for the full fiscal year ending August 31, 1998. For
further information, refer to the Company's financial statements for the year
ended August 31, 1997 included in its Form 10-KSB, for such period on file with
the U.S. Securities and Exchange Commission.
The consolidated financial statements include the accounts of Wavetech
International, Inc. (the Company) and its wholly owned subsidiaries,
Interpretel, Inc., Interpretel (Canada) Inc., International Environment Services
Corporation (an inactive corporation), and Telplex International Communications,
Inc. All material intercompany balances and transactions have been eliminated.
NOTE 2 - CONVERTIBLE NOTE PAYABLE
On April 22, 1998, the Company sold 600 shares of Series A Convertible Preferred
Stock for $600,000 less issuance costs of $72,075. Dividends accumulate, with
respect to outstanding shares of the Preferred Stock, at the rate of 6% per
annum and are payable quarterly, and may be paid in cash or shares of 6%
Preferred valued at $1,000 per share, at the Company's option. The Company may,
at its option, cause all outstanding shares of the 6% Preferred to be converted
into Common Stock at any time beginning on January 1, 1999, with the following
conditions: prior to delivering a notice to convert, the Company's Common Stock
must trade at a price per share no less than $0.9632 for 20 consecutive days
prior thereto. The Company must give a ten-day advance notice of conversion.
Holders of Preferred Stock may elect at any time to convert each share into a
number of shares of the Company's Common Stock determined by dividing the amount
of $1,000 per share, plus accrued but unpaid dividends (the "Liquidation
Preference") of the Preferred Stock on the date of conversion by the applicable
"Conversion Price." The Conversion Price is defined as the lesser of $0.875, or
83 percent of the average of the closing bid prices of the Common Stock as
reported by Nasdaq during the five (5) consecutive trading days preceding the
conversion date.
The Preferred Stock must be registered no later than 120 days after issuance. If
registration is not made within this time period, then two percent of the total
Purchase Price on a pro-rated basis for each 30 day period until such
registration is effective. The Purchase Price is $1,000 per share.
If following the second anniversary of the issuance there are any outstanding
shares of Preferred Stock, then all such shares shall be automatically converted
into Common Stock at the Conversion Price specified above.
7
<PAGE>
NOTE 3 - COMMON STOCK
During the quarter ended May 31, 1998, the Company issued 222,761 shares of
Common Stock for consulting services pursuant to various agreements valued at
$89,712.
During the quarter ended May 31, 1998, the Company issued 188,840 shares of
Common Stock in satisfaction for service performed in the previous year valued
at $71,759. This amount was previously recorded as a payable, however, in lieu
of cash the amount was converted to equity. The value assigned to the Common
Stock was based on the fair market value of the Common Stock on the date the
agreement to convert was executed.
During the quarter ended May 31, 1998, the Company offered to all warrant
holders with warrants expiring May 31, 1998 and an exercise price of $1.00 per
share, the following option: for a specific eleven day period, the right to
exercise their warrants for $0.575 per Common Share. A total of 380,280 out of
784,781 warrants were exercised under this special offer and the balance of
404,501 warrants expired on May 31, 1998. The Company received $222,503 for the
warrants.
NOTE 4 - PER SHARE DATA
Per share data is based on the weighted average number of shares outstanding
throughout the periods. For the three months and nine months ended May 31, 1998,
earnings per share were calculated with a weighted average number of Common
Shares outstanding of 16,503,928 and 15,674,910 respectively. The assumed
exercise of stock options outstanding is anti-dilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OPERATIONS OVERVIEW
The Company is engaged in creating interactive communication systems through the
application of "intelligent" call processing technology and proprietary software
to reflect or target the needs of an identified audience. These systems are
marketed by the Company for use as privatized networks for organizations and
their members, companies and their suppliers and/or customers and special
purpose groups. During the three-month period ended May 31, 1998, the Company
continued to support its existing customer base and negotiate new distribution
agreements with other organizations. The Company intends to commence such new
relationships following the effective time of the Company's reorganization with
Imagitel, Inc. ("Imagitel") through the merger of Imagitel with and into the
Company's subsidiary, Wavetech Interim, Inc. (the "Merger"). There can be no
assurance when, if ever, the Merger shall become effective.
It is the Company's intention to significantly reduce its overhead expenditures
and operational activities until such time as the merger is complete, if ever.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO
THREE MONTHS ENDED MAY 31, 1997
REVENUES. Revenues decreased to $15,114 for the three months ended May 31, 1998
from $274,987 in the three months ended May 31, 1997. $200,000 of the decrease
was due to a payment of a licensing fee from Switch Telecommunications Pty Ltd
("Switch") in 1997 and $57,800 of the decrease was due to the resale of
international long distance minutes in 1997. Of the $15,114 revenue, $9,000 was
from a contractual obligation for development of a customized application.
During the quarter ended May 31, 1998, the Company had not received the
licensing fee of $150,000 which was due from Switch in May. Negotiations are
currently underway with Switch over the level of support service to be provided
by the Wavetech subsidiary Interpretel, Inc. to Switch regarding the ongoing
operation of the Interpretel system operated by Switch in Australia. It is
anticipated that the outstanding issues will be resolved within the next fiscal
quarter of Wavetech. The Company made a decision during the quarter to wind down
its wholesale business of reselling international long distance minutes in
contemplation of its merger with Imagitel, Inc. The Company's subsidiary,
Telplex International Communications, Inc., currently licensed to resell
international long distance service, intends to seek licenses so as to commence
the resale of domestic long distance service following the reorganization,
however, there can be no assurances in this regard. In addition, Telplex will
have to be certified for inter and intra state licenses in each state prior to
commencing the resale of domestic long distance services.
COSTS AND EXPENSES. Cost of sales decreased to $6,955 for the three months ended
May 31, 1998 from $84,060 for the three months ended May 31, 1997. $49,000 of
the decrease was due to the costs associated with the resale of international
minutes during 1997 and the $28,000 decrease was due to reduced promotional
costs associated with the Company's decision not to launch new calling card
programs until the completion of its merger, if ever.
9
<PAGE>
Expenses decreased to $365,666 for the three months ended May 31, 1998 from
$493,752 for the three months ended May 31, 1997. The decrease resulted from an
effort on the part of the Company to reduce cost and conserve cash. Most of the
expenses during the quarter have been directly or indirectly related to the cost
of the proposed merger with Imagitel, Inc.
NINE MONTHS ENDED MAY 31, 1998 COMPARED TO
NINE MONTHS ENDED MAY 31, 1997
REVENUES. Total revenues decreased to $93,789 for the nine months ended May 31,
1998 from $797,626 for the nine months ended May 31, 1997. The decrease was due
to $474,160 of revenues from installation services provided by the Company, a
payment of $200,000 as a licensing fee, and $92,840 for the resale of
international minutes during the nine months ended May 31, 1997.
COSTS AND EXPENSES. Total cost of sales decreased to $82,144 for the nine months
ended May 31, 1998 from $599,474 for the nine months ended May 31, 1997. The
largest decrease in cost of sales was due to the costs associated with the
installation of the Interpretel System and the costs associated with the resell
of international minutes during the nine months ended May 31, 1997.
Expenses decreased to $884,917 for the nine months ended May 31, 1998 from
$1,398,985. Cost reductions and the lack of new calling card programs being
launched were primarily responsible for the decrease in expenses. The Company
expects its costs and expenses to increase in the future when, if ever, it has
adequate resources to implement its business and growth strategy.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998, the Company had cash of $448,317. The Company has financed its
operations through private placements of equity, borrowings of debt and from
warrant holders who exercised their warrants. During the quarter ended May 31,
1998, the Company issued 600 shares of its Series A Convertible Preferred Stock
in a private placement. The net proceeds to the Company from the sale were
approximately $528,000, some of which the Company applied towards miscellaneous
trade payables. The Company received cash of $222,503 from the exercise of
warrants.
The Company has a $450,000 working line of credit from Imagitel, Inc., of which
$120,000 was available as of June 30, 1998. Borrowings under the line of credit
accrue interest at a rate of 12% per annum and repayment thereof is secured by a
first priority lien upon all of the assets of the Company and its subsidiary,
Interpretel, Inc. The line of credit was due July 1, 1998. The Company is
currently negotiating extending the line of credit with Imagitel until after the
Merger is approved. On July 14, 1998, the Company repaid $150,000 plus accrued
interest.
The Company expects to continue to incur operating losses until such time as the
Merger is completed. The Company anticipates that it will have additional
capital resources available to it upon consummation of the Merger. However,
there can be no assurances as to when the Merger will be closed, or that it will
provide capital to the Company sufficient to enable it to meet its future
expenses. The Company anticipates that it will have working capital available to
meet its needs over the next three months.
10
<PAGE>
As part of the strategy to preserve capital, the Company was aggressively
pursuing a number of financing opportunities. As part of the strategy to reduce
overhead costs, the Company sublet a portion of its office space and tenants
moved in in June, 1998.
INFLATION
Although the Company's operations are influenced by general economic trends and
technology advances in the telecommunications industry, the Company does not
believe that inflation has a material effect on its operations.
YEAR 2000 RISKS
As with other organizations, some of the Company's computer programs were
originally designed to recognize calendar years by their last two digits.
Calculations performed using these truncated fields would not work properly with
dates from the year 2000 and beyond. The Company has initiated efforts to remedy
this situation and expects all programs to be corrected and tested prior to the
year 2000. The incremental costs of this project are not expected to have a
material effect on the Company's consolidated financial statements or results of
operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1996
This Form 10-QSB may contain forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and pricing, product demand, the presence of competitors with greater financial
resources, product development risks, the results of financing efforts and other
risks identified from time to time in the Company's Securities and Exchange
Commission filings.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NOT APPLICABLE
ITEM 2. CHANGE IN SECURITIES
On April 22, 1998, the Company issued 600 shares of its Series A Convertible
Preferred Stock, $.001 par value per share (the "Preferred Stock") in exchange
for gross proceeds of $600,000. Dividends, with respect to each share of
Preferred Stock, accumulate at the rate of 6% per annum and are payable
quarterly, and may be paid, at the Company's option, in cash or shares of
Preferred Stock, valued for such purpose at $1,000 per share. Liquidation,
dissolution or winding up of the Company entitles the Preferred shareholders to
receive, prior and in preference to any distribution of any assets of the
Company to holders of any other class or series of shares, the amount of $1,000
per share, plus any accrued but unpaid dividends thereon (the "Liquidation
Preference"). The Company may, at its option, cause all outstanding shares of
the 6% Preferred to be converted into Common Stock at any time beginning on
January 1, 1999, with the following conditions: prior to delivering a notice to
convert, the Company's Common Stock must trade at a price per share no less than
$0.9632 for 20 consecutive days prior thereto. The Company must give a ten-day
advance notice of conversion. Holders of Preferred Stock may elect at any time
to convert each share into a number of shares of the Company's Common Stock
determined by dividing the Liquidation Preference of the Preferred Stock on the
date of conversion by the applicable "Conversion Price." The Conversion Price is
defined as the lesser of $0.875, or 83 percent of the average of the closing bid
prices of the Common Stock as reported by Nasdaq during the five (5) consecutive
trading days preceding the conversion date. All of the shares of Preferred Stock
were offered solely to "accredited investors" (as such term is defined in Rule
501 promulgated under the Securities Act of 1933, as amended (the "Act")), in a
private offering transaction exempt from registration in reliance upon
Regulation D adapted under the Act. Appropriate restrictions upon the resale of
the Preferred Stock and the underlying shares of Common Stock have been put in
place and noted upon certificates representing such shares. In connection with
such sale, the Company paid an aggregate of $61,000 in commissions, in
consideration for services as placement agents. (See Note 2 - Convertible Note
Payable in the Notes to Condensed Consolidated Financial Statements for details
on terms and conversion rates and conditions.)
In May 1998, a total of 380,280 outstanding warrants to purchase shares of the
Company's Common Stock were exercised at a price of $0.575 per share. 380,280
shares of Common Stock were issued and the Company received gross proceeds of
$222,503 upon payment of the applicable warrant exercise prices. All of these
warrants were exercised pursuant to an offer by the Company to exercise the
warrants at a reduced price of $0.575 per share. Prior to such offer, the
warrants had an exercise price of $1.00 per share. All of the warrants expired
as of the close of business on May 31, 1998. All of the warrants and the
underlying shares of Common Stock issued upon exercise thereof were sold to
"accredited investors" (as defined in Rule 501 under the Act) or other
sophisticated investors in a private offering without registration under the Act
in reliance upon Regulation D promulgated under the Act. All of the shares of
Common Stock issued upon exercise of the warrants are "restricted securities"
(as defined in Rule 144 under the Act).
12
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a Special Meeting of Stockholders on May 26, 1998.
(b) At the 1998 Special Meeting, the following matter was submitted to a vote
by the stockholders:
(i) to consider and act upon a proposal to amend the Company's Articles of
Incorporation to effect a one-for-six reverse stock split of the
Company's issued and outstanding shares of Common Stock.
The voting results as to the foregoing matter were as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Brokers
Proposal For Against Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C> <C>
Effect a one-for-six stock split 13,381,084 333,632 0 79,250 0
</TABLE>
ITEM 5. OTHER INFORMATION
On May 29, 1998, the Company received a letter from the Nasdaq Stock Market,
Inc. ("Nasdaq") stating that the Company was not in compliance with the
requirement that its Common Stock maintain a minimum bid price of $1.00 as a
condition to its continued listing on the Nasdaq SmallCap Market. The Company
was notified that, as a result of such non-compliance, formal delisting
proceedings would begin. The Company is currently appealing Nasdaq's decision to
delist the Common Stock. Delisting of the Common Stock from the Nasdaq SmallCap
Market has been stayed pending the final outcome of the Company's appeal. As of
this date, the Company has not yet received a response from Nasdaq regarding the
Company's appeal.
On January 6, 1998, the Company executed a Reorganization Agreement with
Imagitel, Inc., (the "Reorganization Agreement"), pursuant to which the former
shareholders of Imagitel, Inc. will be issued a number of shares of the
Company's authorized Common Stock representing a majority of the Common Stock to
be outstanding following the reorganization (the "Merger Shares") in
consideration of all of the outstanding shares of Imagitel, Inc. being
transferred to the Company. On June 15, 1998, the Company and Imagitel amended
the Reorganization Agreement to require the Company to issue 32.99 shares of its
Common Stock in exchange for each share of Imagitel, Inc. common stock
outstanding immediately prior to the reorganization and to limit the maximum
number of Merger Shares issuable to no more than 7,922,861. The Company intends
to solicit approval of the issuance of the Merger Shares by its shareholders at
the 1998 Annual Meeting, presently anticipated to occur in August 1998.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description Method of Filing
------ ----------- ----------------
3 Certificate of Designation, dated *
April 22, 1998, setting forth the
rights, preferences and privileges of
the Series A Preferred Convertible
Stock.
10.1 Addendum No. 1 dated as of June 15, 1998, *
Reorganization Agreement, dated
January 6, 1998, among the registrant,
Imagitel, Inc. and Wavetech Interim,
Inc.
10.2 Form of Subscription Agreement for the *
sales of shares of Series A Convertible
Preferred Stock by the registrant
10.3 Promissory Note and Loan Agreement *
dated February 9, 1998, between the
registrant, Interpretel, Inc. and
Imagitel, Inc.
27 Financial Data Schedule *
* Filed herewith
(b) Reports on Form 8-K
Not Applicable.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 14, 1998 WAVETECH INTERNATIONAL, INC.
By: /s/ Gerald I. Quinn
-------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
By: /s/ Lydia M. Montoya
-------------------------------------
Lydia M. Montoya
Chief Financial Officer
15
EXHIBIT 3
WAVETECH INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATION
(SERIES A CONVERTIBLE PREFERRED STOCK)
The undersigned, Gerald I. Quinn and Richard Freeman, hereby certify that:
1. They are the duly elected President and Secretary, respectively, of
Wavetech International, Inc., a Nevada corporation (the "Corporation").
2. Pursuant to authority conferred by the Corporation's Articles of
Incorporation, the Board of Directors of the Corporation (the "Board of
Directors") has duly adopted the following resolutions:
WHEREAS, the Articles of Incorporation of the Corporation, as amended,
authorize a class of preferred stock ("Preferred Stock") comprised of 10,000,000
shares, par value $.001 per share, issuable from time to time in one or more
series; and
WHEREAS, the Board of Directors of the Corporation is authorized to fix the
number of shares of any series of Preferred Stock and to determine the
designation of any such series and to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and, within the limits and restrictions
stated in any resolution of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
such series subsequent to the issuance of shares of that series; and
NOW, THEREFORE, BE IT RESOLVED that the Corporation does hereby provide for
the issuance of a series of such Preferred Stock to be denominated as Series A
Convertible Preferred Stock, $.001 par value; and
FURTHER RESOLVED, that the Board of Directors does hereby fix and determine
the designation of, the number of shares constituting and the rights,
preferences, privileges, restrictions, and other matters relating to said Series
A Convertible Preferred Stock of the Corporation, par value $.001 per share, as
follows:
Section 1. DESIGNATION AND NUMBER OF SHARES. A minimum of six hundred (600)
and a maximum of six hundred fifty (650) shares of the Preferred Stock shall be
designated and known as "Series A Convertible Preferred Stock" ("Series A
Preferred Stock").
Section 2. DIVIDEND RIGHTS.
(a) The holders of Series A Preferred Stock shall be entitled
to receive out of any assets legally available therefore cumulative dividends
at the rate of $60 per share per annum, accrued daily and payable
quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, in preference and priority to any payment of any dividend on the
<PAGE>
Common Stock or any other class or series of stock of the corporation. Such
dividends shall accrue on any given share from the day of original issuance of
such share and shall accrue from day to day whether or not earned or declared.
If at any time dividends on the outstanding Series A Preferred Stock at the rate
set forth above shall not have been paid or declared and set apart for payment
with respect to all preceding periods, the amount of the deficiency shall be
fully paid or declared and set apart for payment, but without interest, before
any distribution, whether by way of dividend or otherwise, shall be declared or
paid upon or set apart for the shares of any other class or series of stock of
the Corporation.
(b) Any dividend payable on a dividend payment date may be paid, at
the option of the Corporation, either (i) in cash or (ii) in shares of Series A
Preferred Stock valued at $1,000 per share, if the Common Stock issuable upon
conversion of such shares has been registered for resale under the Securities
Act of 1933, as amended (the "Act"), and the registration statement including a
current prospectus with respect thereto remains in effect at the date of
delivery of such shares, and if the Corporation shall have given written notice
of its intention to pay such dividend in stock to all holders of the Series A
Preferred Stock at least ten (10) days before the record date for such dividend.
Section 3. LIQUIDATION PREFERENCE; REDEMPTION.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of any other class
or series of shares, the amount of $1,000 per share plus any accrued but unpaid
dividends (the "Liquidation Preference").
(b) The Corporation may at its option cause all shares of the Series A
Preferred Stock to be redeemed after the date on which a registration statement
under the Act ("Registration Statement") has been declared effective (the
effective date) provided the Corporation has given notice of its intention to
redeem to holders of the Series A Preferred Stock at least five days prior to
the redemption date. In addition, if any conversion of Series A Preferred Stock,
when aggregated with all prior conversions, will cause the Company to issue a
number of shares of Common Stock which exceeds twenty percent (20%) of the
shares of Common Stock then issued and outstanding, the Company shall redeem
such number of shares of Series A Preferred Stock as is necessary to limit such
issuance of Common Stock to twenty percent (20%) of the shares of Common Stock
then issued and outstanding, unless the Company has previously obtained
stockholder approval to issue in excess of twenty percent (20%) of the shares of
Common Stock then issued and outstanding. If a redemption will occur under
either of the preceding sentences, on the redemption date, the Corporation shall
within five (5) business days pay such holders by cashier's check or wire
transfer in immediately available funds the amount of $1,250 per share of Series
A Preferred Stock plus all accrued but unpaid dividends. Promptly thereafter,
the holders shall surrender the certificate or certificates representing the
Series A Preferred Stock, duly endorsed, at the office of the Corporation or of
any transfer agent for such shares, or at such other place designated by the
Corporation.
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<PAGE>
Section 4. FORCED CONVERSION.
(a) The Corporation may, at its option, cause all outstanding shares
of the Series A Preferred Stock to be converted into Common Stock at anytime
beginning on January 1, 1999, on at least twenty (20) days' advance notice, at a
conversion price determined as set forth in Section 5 hereof (the "Conversion
Price") as of the date specified in such notice (the "Conversion Date") and
otherwise on the terms set forth in Section 5 hereof; provided, that the
Corporation may not exercise such right of conversion unless (i) the Closing
Price (last trade price) of the Common Stock as reported by NASDAQ for the ten
(10) consecutive trading days prior to the date the Conversion Notice is mailed
has not on any day been less than one hundred forty percent (140%) of the last
trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares issuable upon conversion of the Series A Preferred Stock are
registered for resale by an effective Registration Statement which became
effective not more than one hundred twenty (120) days after the date of issuance
of the Series A Preferred Stock, and a current prospectus meeting the
requirements of Section 10 of the Act is available for delivery at the
Conversion Date.
(b) At least twenty (20) days prior to the Conversion Date, written
notice (the "Conversion Notice") shall be mailed, first class postage prepaid,
by the Corporation to each holder of record of the Series A Preferred Stock, at
the address last shown on the records of the Corporation for such holder,
notifying such holder of the conversion which is to be effected, specifying the
Conversion Date and calling upon each such holder to surrender to the
Corporation, in the manner and at the place designated, a certificate or
certificates representing the number of shares of Series A Preferred Stock held
by such holder. Subject to the provisions of the following subsection (c), on or
after the Conversion Date, each holder of Series A Preferred Stock shall
surrender to the Corporation the certificate or certificates representing the
shares of Series A Preferred Stock owned by such holder as of the Conversion
Date, in the manner and at the place designated in the Conversion Notice, and
thereupon the shares issuable upon such conversion shall be delivered as
provided in Section 5 hereof.
(c) If on the Conversion Date, the registration condition specified in
clause (ii) of subsection (a) shall not be satisfied, then no shares shall be
converted and the Conversion Notice shall be deemed to be withdrawn. In such
event, any certificates for Series A Preferred Stock which have been surrendered
for conversion shall be returned to the persons surrendering the same; provided,
however, that if a holder has received shares of Common Stock upon conversion of
Series A Preferred Stock after the Conversion Notice was given but before the
Conversion Date, such holder may elect either to retain such Common Stock or
rescind such conversion by tendering such shares of Common Stock to the
Corporation.
(d) On the second anniversary of the issuance of the Series A
Preferred Stock, all then outstanding shares of Series A Preferred Stock shall
be automatically converted into Common Stock at the Conversion Price and
otherwise pursuant to the applicable provision set forth in Section 5 hereof.
Section 5. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have optional conversion rights as follows:
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<PAGE>
(a) RIGHT TO CONVERT. Shares of Series A Preferred Stock shall become
convertible, at the option of the holder thereof, into such number of fully paid
and non-assessable shares of Common Stock as is determined by dividing (A) the
Liquidation Preference of the Series A Preferred Stock determined pursuant to
Section 3 hereof on the date the notice of conversion is given, by (b) the
Conversion Price determined as hereinafter provided in effect on the applicable
conversion date.
(b) MECHANICS OF CONVERSION. To convert shares of Series A Preferred
Stock into shares of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the shares and shall state therein the date of the
conversion, the number of shares to be converted and the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. Promptly thereafter, the holder shall surrender the certificate or
certificates representing the shares to be converted, duly endorsed, at the
office of the Corporation or of any transfer agent for such shares, or at such
other place designated by the Corporation; PROVIDED, that the holder shall not
be required to deliver the certificates representing such shares if the holder
is waiting to receive all or part of such certificates from the Corporation. The
Corporation shall, immediately upon receipt of such notice, issue and deliver to
or upon the order of such holder, against delivery of the certificates
representing the shares which have been converted, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be entitled
and such certificate or certificates shall not bear any restrictive legend;
provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Corporation with an opinion of counsel reasonably acceptable to the Corporation
to the effect that a public sale of such shares may be made without registration
under the Act, or (C) such holder provides the Corporation with reasonable
assurance that such shares can be sold free of any limitations imposed by Rule
144, promulgated under the Act. The Corporation shall use its best efforts to
cause such issuance and delivery to be effected within five (5) business days
and shall transmit the certificates by messenger or overnight delivery service
to reach the address designated by such holder within five (5) business days
after the receipt of such notice. The notice of conversion may be given by a
holder at any time during the day up to 5:00 p.m. Phoenix, Arizona time and such
conversion shall be deemed to have been made immediately prior to the close of
business on the date such notice of conversion is given (the "conversion date").
The person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock at the close of business on such date.
(c) CONVERSION AND REDEMPTION REQUIRED. The Corporation acknowledges
and understands that a delay in the issuance of the Common Stock upon conversion
or pursuant to a redemption according to the provisions hereof, could result in
economic loss to the holders of the Series A Preferred Stock. As compensation to
any holder when the Corporation has failed with respect to such holder to comply
with the Corporation's obligations hereunder, and not as a penalty, the
Corporation shall pay to such holder liquidated damages of an amount equal to
(i) two percent (2%) of the total Purchase Price of shares of such holder for
the first thirty (30) day period after the date on which the Common Stock should
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<PAGE>
have been issued by the Corporation (i.e., the end of the five (5) business day
period described in subsection (b) of this section, and/or shares of Series A
Preferred Stock redeemed by the Corporation (i.e., the end of the five (5)
business day period described in subsection 3(b) hereof), as applicable; plus
(ii) an amount equal to three percent (3%) of the total Purchase Price of Shares
for each subsequent thirty (30) day period thereafter. Amounts payable shall be
pro-rated daily as to a period of less than thirty (30) days. Such amounts shall
be paid to the holder at the end of each month in which such amounts have
accrued. Payment shall be made immediately by cashier's check or wire transfer
in immediately available funds to such account as shall be designated in writing
by the holder. Each holder shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions hereof and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which a holder may be entitled by law or equity.
(d) DETERMINATION OF CONVERSION PRICE.
(i) The "Conversion Price" for purposes hereof shall be equal to
the lesser of : (A) eighty seven and one-half cents ($.875); or (B) eighty three
percent (83%) of the average of the closing bid prices of the Common Stock as
reported by NASDAQ during the five (5) consecutive trading days preceding the
conversion date (but NOT including such date).
(ii) The "closing bid price" of the Common Stock on a trading day
shall be the closing bid price of the Common Stock on the NASDAQ Small Cap
Market or any other principal securities price quotation system or market on
which prices of the Common Stock are reported. The term "trading day" means a
day on which trading is reported on the principal quotation system or market on
which prices of the Common Stock are reported.
(iii) If the Corporation shall declare or pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire Common Stock, or
shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, the Conversion Price
shall be proportionately decreased or increased, as appropriate, to give effect
to such event. Any certificates for Common Stock replacing those held by a
holder as a result of one of the foregoing events shall be issued promptly, but
no later than five (5) business days.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of any
adjustment or readjustment of the Conversion Price, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and cause the independent public accountants regularly
employed to audit the financial statements of the Corporation to verify such
computation and prepare and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
prepared by the Corporation setting forth (i) such adjustments and
readjustments, and (ii) the number of other securities and the amount, if any,
of other property which at the time would be received upon the conversion of
Series A Preferred Stock with respect to each share of Common Stock received
upon such conversion.
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<PAGE>
(f) NOTICE OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of Series
A Preferred Stock at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the amount and
character of such dividend, distribution, security or right.
(g) ISSUE TAXES. The Corporation shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series A Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain any requisite shareholder
approval.
(i) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors of the Corporation or an authorized Committee
thereof).
(j) NOTICES. Any notice required by the provisions of this Section to
be given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at its address appearing on the books of the Corporation.
(k) REORGANIZATION OR MERGER. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation or
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<PAGE>
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person (other than a sale or transfer to a wholly-owned subsidiary of the
Corporation), then, as part of such reorganization, consolidation, merger or
sale, provision shall be made so that each share of Series A Preferred Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Series A
Preferred Stock would have been entitled upon the record date of (or date of, if
no record date is fixed) such event and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of the Series A Preferred Stock, to the end that the provisions
set forth herein shall thereafter be applicable, as nearly as equivalent as is
practicable, in relation to any shares of stock or the securities or property
(including cash) thereafter deliverable upon the conversion of the shares of
Series A Preferred Stock.
Section 6. RE-ISSUANCE OF CERTIFICATES. In the event of a conversion (or,
if applicable, redemption) of Series A Preferred Stock in which less than all of
the shares of Series A Preferred Stock of a particular certificate are converted
or redeemed, as the case may be, the Corporation shall promptly without delay
cause to be issued and delivered to the holder of such certificate, a
certificate representing the remaining shares of Series A Preferred Stock which
have not been so converted or redeemed.
Section 7. OTHER PROVISIONS. For all purposes of this Certificate, the term
"date of issuance" and the terms "Closing" or "Closing Date" shall mean the day
on which shares of the Series A Preferred Stock are first issued by the
Corporation. Any provision herein which conflicts with or violates any
applicable usury law shall be deemed modified to the extent necessary to avoid
such conflict or violation. The term "NASDAQ" herein refers to the principal
market on which the Common Stock of the Corporation is traded. If the Common
Stock is listed on a securities exchange, or if another market becomes the
principal market on which the Common Stock is traded or through which price
quotations for the Common Stock are reported, the term "NASDAQ" shall be deemed
to refer to such exchange or other principal market.
Section 8. RESTRICTIONS AND LIMITATIONS. The Corporation shall not
undertake the following actions without the consent of the holders of a majority
of the Series A Preferred Stock: (i) modify its Articles of Incorporation or
Bylaws so as to amend or change any of the rights, preferences, or privileges of
the Series A Preferred Stock, or (ii) purchase or otherwise acquire for value
any Common Stock or other equity security of the Corporation either junior or
senior to or on a parity with the Series A Preferred Stock while there exists
any arrearage in the payment of cumulative dividends hereunder other than
redemptions of stock from terminating employees pursuant to contractual rights
in favor of the Corporation.
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<PAGE>
Section 9. VOTING RIGHTS. Except as provided herein or as provided for by
law, the Series A Preferred Stock shall have no voting rights.
Section 10. ATTORNEYS' FEES. Any holder of Series A Preferred Stock shall
be entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with enforcement by such holder
of any obligation of the Corporation hereunder if the Corporation fails with
reason to comply therewith after notice of such failure has been delivered by
the holder to the Corporation.
Section 11. NO ADVERSE ACTIONS. Except with respect to certain matters to
be placed before shareholders as set forth in the Company's preliminary proxy
statement dated April 8, 1998, the Corporation shall not in any manner, whether
by amendment of the Articles of Incorporation (including, without limitation,
any vote establishing a class or series of stock), merger, reorganization,
re-capitalization, consolidation, sales of assets, sale of stock, tender offer,
dissolution or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce the value or
security of the Series A Preferred Stock.
Section 12. EXCLUSION OF OTHER RIGHTS. Except as otherwise may be required
by law, the shares of Series A Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this Certificate of Designation (as it may be amended
from time to time) and in the Corporation's Articles of Incorporation.
Section 13. HEADINGS OF SUBDIVISIONS. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
Section 14. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Series A Preferred Stock set forth in this Certificate (as
such Certificate may be amended from time to time) is invalid, unlawful or
incapable of being enforced by any reason of any rule of law or public policy,
all other rights, preferences and limitations set forth in this Certificate (as
so amended) which can be given effect with the invalid, unlawful or
unenforceable right, preference or limitation, shall nevertheless remain in full
force and effect and no right, preference or limitation herein set forth shall
be deemed dependent upon any other such right, preference or limitation unless
so expressed herein.
Section 15. STATUS OF REACQUIRED SHARES. Shares of Series A Preferred Stock
which have been issued and reacquired in any manner shall (upon compliance with
any applicable provisions of the laws of the State of Nevada) be cancelled and
revert to authorized and unissued shares of Preferred Stock, undesignated as to
series and may be redesignated and reissued.
The undersigned, Gerald I. Quinn and Richard Freeman, the President and
Secretary, respectively, of Wavetech International, Inc., declare under penalty
of perjury that the matters set out in the foregoing Certificate are true of
their own knowledge.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate on
April 22, 1998.
/s/ Gerald I. Quinn
----------------------------------------
Gerald I. Quinn, President
/s/ Richard Freeman
----------------------------------------
Richard Freeman, Secretary
State of Arizona )
) ss.
County of Pima )
On April 22, 1998 personally appeared before me Gerald I. Quinn and Richard
Freeman, personally known (or proved) to me to be the persons whose names are
subscribed to the above instrument and who acknowledged that they executed the
above instrument.
/s/ Susan B. Callahan
----------------------------------------
Notary Public
My Commission Expires:
6/29/99
- ---------------------
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EXHIBIT 10.1
ADDENDUM NO. 1
WHEREAS, Wavetech, Inc., which was subsequently renamed Wavetech
International, Inc. ("Wavetech"), Wavetech Interim, Inc. ("Interim") and
Imagitel, Inc. ("Imagitel") entered into that certain Reorganization Agreement,
dated as of January 5, 1998 (the "Agreement") and Plan of Merger attached
thereto (the "Plan of Merger") pursuant to which Wavetech will acquire Imagitel
through the merger of Interim with and into Imagitel;
WHEREAS, Section 11.8 permits the parties to amend the Agreement in
writing;
WHEREAS, the parties did execute that certain Addendum as of June 15, 1998
in order to amend the terms and conditions on which the Merger shall occur;
WHEREAS, such Addendum unintentionally contained certain errors; and
WHEREAS, the parties to the Agreement desire to herein correct such errors
and properly amend the terms and conditions on which the Merger shall occur.
NOW THEREFORE, the parties to the Agreement do agree to the following
provisions, which shall be deemed incorporated into the Agreement as if fully
set forth herein.
1. AMENDMENTS TO AGREEMENT. In order to reflect the changes to the
Agreement intended to be effectuated by this Addendum, the parties do hereby
amend Sections 2.2, 3.4 (previously misnumbered Section "3.1 CAPITALIZATION OF
IMAGITEL"), 4.4, 5.2 and 8.2 by deleting them in their entirety and replacing
them with the following, respectively:
2.2 THE CLOSING. The Closing of the transaction contemplated
herein shall be held as soon as reasonably practicable after
fulfillment of all conditions set forth in Article 7 and Article
8 hereof (the "Closing Date"), at the offices of Imagitel located
at 5120 Woodway Drive, Suite 7007, Houston, Texas 77056, or at
such other place and time as the parties hereto may mutually
agree; provided, however, that in the event that Closing has not
occurred by August 31, 1998, either party hereto shall have the
right to terminate this Reorganization Agreement.
3.4 CAPITALIZATION OF IMAGITEL. The authorized capital stock
of Imagitel consists solely of (i) 1,000,000 authorized shares of
common stock (no par value), of which 200,000 shares are issued
and outstanding. All of the issued and outstanding shares of
Imagitel are validly issued and fully paid and nonassessable.
Except for the items set forth on Schedule 3.4 attached hereto or
expressly referenced elsewhere herein, there are no outstanding
obligations, options, warrants or commitments of any kind or
nature or any outstanding securities or other instruments
convertible into shares of any class of capital stock of
Imagitel, or pursuant to which Imagitel is or may become
obligated to issue any shares of its capital stock. None of the
<PAGE>
shares of the Imagitel Common Stock is subject to any
restrictions as to the transfer thereof, except as set forth in
Imagitel's Certificate of Incorporation or Bylaws and except for
restrictions on account of applicable federal or state securities
laws. Imagitel does not hold any equity securities of any other
company or legal entity except for shares of RRV Enterprises,
Inc., a Texas corporation, and DDD Calling, Inc., a Texas
corporation, Zapcom International, Inc., a Nevada corporation and
Comac Interim, Inc., a Delaware corporation. Imagitel, Inc. owns
100% of the outstanding shares of capital stock of such
subsidiaries and there are no outstanding obligations, options,
warrants or commitments of any kind or nature or any outstanding
securities or other instruments convertible into shares of any
class of capital stock of such subsidiaries.
4.4 CAPITALIZATION OF WAVETECH. The authorized capital stock
of Wavetech consists solely of (i) 50,000,000 authorized shares
of common stock ($0.001 par value), of which 16,994,976 are
issued and outstanding as of June 15, 1998, and (ii) 10,000,000
shares of preferred stock, of which 600 shares of Series A
Preferred Stock were issued and outstanding as of June 15, 1998.
All of the issued and outstanding shares of Wavetech are validly
issued and fully paid and nonassessable. Except for the items set
forth on Schedule 4.4 hereto, there are no outstanding
obligations, options, warrants or commitments of any kind or
nature or any outstanding securities or other instruments
convertible into shares of any class of capital stock of
Wavetech, or pursuant to which Wavetech is or may become
obligated to issue any shares of its capital stock. None of the
shares of the Wavetech Common Stock is subject to any
restrictions as to the transfer thereof, except as set forth in
Wavetech's Certificate of Incorporation or Bylaws and except for
restrictions on account of applicable federal or state securities
laws. Except for Interim (which is wholly-owned by Wavetech),
Wavetech does not hold 10% or more of any class of equity
securities of any other company or legal entity, except for those
wholly-owned subsidiaries disclosed in Wavetech's public SEC
filings. The authorized capital stock of Interim consists solely
of (i) 10,000 authorized shares of common stock ($1.00 par
value), of which 100 shares are issued and outstanding. All of
the issued and outstanding shares of Interim are validly issued
and fully paid and nonassessable. Except for the items set forth
on Schedule 4.4 hereto, there are no outstanding obligations,
options, warrants or commitments of any kind or nature or any
outstanding securities or other instruments convertible into
shares of any class of capital stock of Interim, or pursuant to
which Interim is or may become obligated to issue any shares of
its capital stock.
5.2 CONDUCT OF WAVETECH PENDING CLOSING. During the period
commencing on the date hereof and continuing until the Closing
Date, Wavetech covenants and agrees to the following (except to
the extent that Imagitel shall otherwise expressly consent in
2
<PAGE>
writing); provided, however, that any breach of any of the
covenants given in this Section 5.2 must be material in the
aggregate with respect to the business of Wavetech before such
breach shall be actionable or shall constitute grounds for
termination or failure to perform under this Reorganization
Agreement.
(a) Wavetech will carry on its business only in the ordinary
course in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its business organization,
maintain the services of its present officers and employees and
preserve its relationships with customers, suppliers and others
having business dealings with it so that its goodwill and going
business shall be unimpaired at the Closing Date.
(b) Wavetech will not amend its Certificate of Incorporation
or Bylaws as in effect on the date hereof.
(c) Except for:
(i) the issuance of capital stock in connection with
items set forth on Schedule 4.4 hereto, and
(ii) the issuance of shares in connection with capital
raising transactions which are otherwise acceptable to Imagitel.
Wavetech will not issue, grant, pledge or sell, or authorize the
issuance of, reclassify or redeem, purchase or otherwise acquire,
any shares of its capital stock of any class or any securities
convertible into shares of any class, or any rights, warrants or
options to acquire any such shares (except for employee stock
options in the ordinary course in accordance with past practice
and only upon prior notice to Wavetech); nor will it enter into
any arrangement or contract with respect to the issuance of any
such shares or other convertible securities; nor will it declare,
set aside or pay any dividends (of any type) or make any other
change in its equity capital structure.
(d) Wavetech will promptly advise Imagitel orally and in
writing of any change in the businesses of Wavetech that is or
may reasonably be expected to be materially adverse to the
business of Wavetech.
(e) Wavetech will not take, agree to take, or knowingly
permit to be taken any action or do or knowingly permit to be
done anything in the conduct of the business of Wavetech, or
otherwise, which would be contrary to or in breach of any of the
terms or provisions of this Reorganization Agreement, or which
would cause any of the representations of Wavetech contained
herein to be or become untrue in any material respect.
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(f) Wavetech will not incur any indebtedness for borrowed
money, issue or sell any debt securities, or assume or otherwise
become liable, whether directly, contingently or otherwise, for
the obligation of any other party, other than in the ordinary
course of business.
(g) Except for expenses attendant to the Merger and current
contractual obligations, Wavetech will not incur any expense in
an amount in excess of $25,000 after the execution of this
Reorganization Agreement without the prior written consent of
Imagitel.
(h) Wavetech will not grant any executive officers any
increase in compensation (except in the ordinary course in
accordance with past practice and only upon prior notice to
Imagitel), or enter into any employment agreement with any
executive officer without the consent of Imagitel except as may
be required under employment or termination agreements in effect
on the date hereof which have been previously disclosed to
Imagitel in writing.
(i) Wavetech will not acquire or agree to acquire by merging
or consolidating with, purchasing substantially all of the assets
of or otherwise, any business or any corporation, partnership,
association or other business organization or division thereof.
8.2 INTENTIONALLY OMITTED.
2. AMENDMENTS TO PLAN OF MERGER. In order to reflect the changes to
the Plan of Merger intended to be effectuated by this Addendum, the parties do
hereby amend Sections 3.1 and 5.1 by deleting them in their entirety and
replacing them with the following, respectively:
3.1 MERGER CONSIDERATION. (a) In connection with the Merger,
each Imagitel shareholder shall, by virtue of the Merger and
without any action on his part, be entitled to receive 32.99
shares of Wavetech Common Stock for each share of Imagitel Common
Stock issued and outstanding immediately prior to the Effective
Time (the "Conversion Ratio"); provided, however, that in no
event shall Wavetech issue more than an aggregate of 7,922,861
shares of Wavetech Common Stock in connection with the Merger
(including shares issuable upon the exercise of Imagitel Options
which shall be converted into options, warrants or other rights
to acquire Wavetech Common Stock pursuant to Section 5.1 hereof).
The Conversion Ratio already gives effect to the one-for-six
reverse split approved by the Wavetech stockholders at a special
meeting held on May 26, 1998.
(b) neither the Conversion Ratio, nor the Conversion Value
of Imagitel nor the maximum aggregate number of shares of
Wavetech Common Stock issuable in connection with the Merger (as
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<PAGE>
set forth in (a) above) shall change if Imagitel acquires
Accommodation Services, Inc. prior to the Effective Time,
although the number of outstanding shares of Imagitel will
increase.
5.1 OPTIONS AND WARRANTS. At the Effective Time, all
options, warrants and other rights to purchase or acquire shares
of Imagitel Common Stock (collectively "Imagitel Options") shall
represent options, warrants or such other rights to purchase or
acquire a number of shares of Wavetech Common Stock, determined
in accordance with the Conversion Ratio. All other terms and
conditions of such Imagitel Options shall be unaffected by such
change.
3. INCORPORATION. Except as otherwise provided in this Addendum, the
parties hereto hereby confirm their intent to be bound by the terms and
conditions of the Agreement. This Addendum shall supersede that certain
Addendum, executed as of June 15, 1998, and shall be construed in accordance
with the purposes and intents of the Agreement.
4. DEFINED TERMS. All capitalized terms used in this Addendum shall have
the respective meanings ascribed to them in the Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have evidenced their agreement
to the terms set forth herein by their signature below, as of this 15th day of
June, 1998.
ATTEST: WAVETECH INTERNATIONAL, INC.
/s/ Richard P. Freeman By: /s/ Gerald I. Quinn
- -------------------------------- -----------------------------------
Secretary Title: President
--------------------------------
ATTEST: WAVETECH INTERIM, INC.
/s/ Richard P. Freeman By: /s/ Gerald I. Quinn
- -------------------------------- -----------------------------------
Secretary Title: President
--------------------------------
ATTEST: IMAGITEL, INC.
/s/ Richard P. Freeman By: /s/ James B. Gambrell IV
- -------------------------------- -----------------------------------
Secretary Title: President
--------------------------------
6
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
WAVETECH INTERNATIONAL, INC.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE "AGREEMENT') HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF
WAVETECH INTERNATIONAL, INC.'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND
4(6) OF THE SECURITIES ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND
SIMILAR EXEMPTIONS UNDER STATE LAW. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION ("SEC"), ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The undersigned purchaser (hereafter, the "Purchaser") hereby offers to
purchase certain Series A Convertible Preferred Stock (referred to herein as a
"Share" or collectively as "Shares") of Wavetech International, Inc. (the
"Company"), a publicly-held corporation formed under the laws of the State of
Nevada. This offer to purchase may, for any reason whatsoever, be revoked by the
Purchaser or rejected by the Company prior to acceptance of this offer by the
Company.
Section 1.1 PURCHASE AND SALE OF SHARES. Upon the following terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, the number of Shares indicated on the signature
page to this Agreement, which Shares shall have the rights, designations and
preferences set forth in SCHEDULE I hereto.
Section 1.2 PURCHASE PRICE. The purchase price for the Shares (the
"Purchase Price") shall be $1,000 per Share.
Section 1.3 THE CLOSING.
(a) The closing of the purchase and sale of the Shares (the "Closing"),
shall take place at the law offices of Fishman, Jones, Walsh & Marsh, P.C., 1310
Highway 620 South --Suite 200, Austin, Texas 78734 at 10:00 a.m., local time, on
the later of the following: (i) the date on which the last to be fulfilled or
waived of the conditions set forth in Section 4.1 and 4.2 hereof and applicable
to the Closing shall be fulfilled or waived in accordance herewith, or (ii) such
other time and place and/or on such other date as the Purchaser and the Company
may agree. The date on which the Closing occurs is referred to herein as the
"Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser a
certificate representing the Shares registered in the name of the Purchaser or
deposit such Shares into accounts designated by the Purchaser. The Purchaser
shall on the Closing Date deliver to the Company the Purchase Price for all the
Shares by cashier's check or wire transfer in immediately available funds to
such account as shall be designated in writing by the Company. In addition, each
<PAGE>
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
Section 1.4 COVENANT TO REGISTER.
(a) For purposes of this Section, the following definitions shall apply:
(i) The terms "register," "registered," and "registration" refer
to a registration under the Securities Act, effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), issuable
upon conversion of shares of the Shares or upon conversion of any other stock
issued in payment of dividends on the Shares or otherwise issuable pursuant to
this Agreement or the provisions of Schedule I hereto, and any securities of the
Company or securities of any successor corporation issued as, or issuable upon
the conversion or exercise of any warrant, right or other security that is
issued as a dividend or other distribution with respect to, or in exchange for,
or in replacement of, the Shares.
(iii) The term "holder of Registrable Securities" means the Purchaser
and any permitted assignee of registration rights pursuant to Section 1.4(h).
(b) (i) The Company shall as soon as possible file a registration
statement on Form SB-2 or Form S-3 covering at least 200% of the number of
Registrable Securities which would then be issuable upon conversion of the
Shares at the conversion price then in effect, and shall use its best efforts to
cause such registration statement to become effective on or before one hundred
and twenty (120) days after the Closing Date (the "Initial Registration"). In
the event such Initial Registration is not so declared effective or does not
include all Registrable Securities, a holder of Registrable Securities shall
have the right to require by notice in writing that the Company register all or
any part of the Registrable Securities held by such holder (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith (which may include adding such shares to an existing shelf
registration). The parties agree that if the holder of Registrable Securities
demands registration of less than all of the Registrable Securities, the
Company, at its option, may nevertheless file a registration statement covering
all of the Registrable Securities. If the Initial Registration statement or a
Demand Registration statement is declared effective with respect to all
Registrable Securities and the Company is in compliance with its obligations
under Subsection (d) of this Section 1.4, the Demand Registration rights granted
pursuant to this Subsection (b)(i) shall cease. If such Initial Registration
statement is not declared effective with respect to all Registrable Securities
or if the Company is not in compliance with such obligations, the Demand
Registration rights described herein shall remain in effect.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above: (A) if all of the Registrable
Securities held by the holder of Registrable Securities which are demanded to be
covered by the Demand Registration are, at the time of such demand, included in
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<PAGE>
an effective registration statement and the Company is in compliance with its
obligations under Subsection (d) of this Section 1.4; (B) if all of the
Registrable Securities may be sold under Rule 144(k) of the Securities Act and
the Company's transfer agent has accepted an instruction from the Company to
such effect; or (C) at any time after one (1) year from the Closing Date.
(iii) Subject to Subsection (iv)(B) hereof, the Company may suspend
the effectiveness of any such registration effected pursuant to this Subsection
(b) in the event and for such period of time as, such a suspension is required
by the rules and regulations of the Securities and Exchange Commission ("SEC").
The Company will use its best efforts to cause such suspension to terminate at
the earliest possible date.
(iv) (A) If the Company is advised by the SEC that a registration
statement filed hereunder is subject to a "no-review" and such registration
statement is not declared effective within five (5) business days thereafter (an
"Acceleration Date") or, irrespective of the SEC review, a registration
statement is not declared effective by the one hundred twenty first (121st) day
after the Closing Date (the "Target Date"), the Company shall pay Purchaser as
liquidated damages an amount equal to two percent (2%) of the total Purchase
Price of the Shares for each thirty (30) day period following the earlier of the
Acceleration Date or Target Date, as applicable, until such time as the
registration statement is declared effective; provided, however, that such
damages shall not be payable if the failure to meet the Acceleration Date or
Target Date, as applicable, is due to action or inaction by Purchaser with
respect to providing information for the registration statement or if the
Registrable Securities are freely transferable pursuant to Rule 144(k)
promulgated under the Securities Act or any successor rule. The payment set
forth above shall be pro-rated daily as to any period of less than thirty (30)
days. Such payment shall be made to the Purchaser by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Purchaser. The foregoing amount shall be paid irrespective of
the amount of Registrable Securities then held by Purchaser.
(B) If, following effectiveness of a registration, either the
effectiveness of the registration statement is suspended or a current prospectus
meeting the requirements of Section 10 of the Securities Act is not available
for delivery by the Purchaser for any reason (either referred to herein as a
"suspension"), the Company shall thereupon pay to Purchaser as liquidated
damages an amount equal to two percent (2%) of the Purchase Price of the Shares
for each thirty (30) day period of the suspension. The payment set forth above
shall be pro-rated daily as to periods of less than thirty (30) days. Such
payment shall be made to the Purchaser by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the Purchaser, and shall be paid irrespective of the amount of Registrable
Securities held by Purchaser on or after the date following the suspension.
(C) Any amount payable pursuant to the foregoing provisions
of this Subsection (iv) shall be delivered on or before the fifth (5th) day
following the end of the calendar month in which such payment obligation arose.
The "Purchase Price" of Registrable Securities shall be (1) if derived from
conversion or substitution of Shares, the Purchase Price of the Shares, and (2)
if received in satisfaction of a Company obligation, the dollar amount of such
obligation.
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<PAGE>
(D) This Subsection (b) is in addition to the provisions of
Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Purchaser)
any of its stock or other securities under the Securities Act in connection with
a public offering of such securities (other than a registration on Form S-4,
Form S-8 or other limited purpose form) and all Registrable Securities have not
theretofore been included in a registration statement under Subsection (b) of
this Section 1.4 which remains effective, the Company shall, at such time,
promptly give all holders of Registrable Securities written notice of such
registration. Upon the written request of any holder of Registrable Securities
given within twenty (20) days after receipt of such notice by the holder of
Registrable Securities, the Company shall use its best efforts to cause to be
registered under the Securities Act all Registrable Securities that such holder
of Registrable Securities requests to be registered. However, the Company shall
have no obligation under this Subsection (c) if (i) the Registrable Securities
may be sold without registration under Rule 144(k) and the Company's transfer
agent has accepted an instruction from the Company to such effect, (ii) the
Registration Statement is filed more than two (2) years after the Closing Date,
or (iii) to the extent that, with respect to any underwritten offering initiated
by the Company later than one calendar year following the Closing, the managing
underwriter of such offering reasonably notifies such holder(s) in writing of
its determination that the Registrable Securities or a portion thereof shall be
excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the registration of
any Registrable Securities including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration to become effective as provided in Section 1.4(b)(i), and keep such
registration statement effective for so long as any holder of Registrable
Securities desires to dispose of the securities covered by such registration
statement; PROVIDED, HOWEVER, that in no event shall the Company be required to
keep the Registration Statement effective for a period greater than two (2)
years from the Closing Date;
(ii) Respond to comments made by the SEC with respect to a
registration statement filed pursuant to this Agreement promptly, but no later
than ten (10) days after the date of the comment letter, and prepare and file
with the SEC such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement
(provided, that the Company may not amend the registration statement for the
purpose of registering securities of selling shareholders other than holders of
Shares) and immediately notify the holders of the Shares of the filing and
effectiveness of such Registration Statement and any amendments or supplements;
(iii) Furnish to each holder of Registrable Securities such numbers
of copies of a current prospectus, including a preliminary prospectus,
conforming with the requirements of the Securities Act, copies of the
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<PAGE>
registration statement any amendment or supplement to any thereof and any
documents incorporated by reference therein and such other documents, all free
of charge, as such holder of Registrable Securities may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities;
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably requested by the holder of
Registrable Securities;
(v) Notify each holder of Registrable Securities immediately of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus;
(vi) Furnish, at the request of any holder of Registrable Securities
in connection with any underwritten public offering, (A) an opinion of counsel
of the Company, dated the effective date of the registration statement, in form
and substance reasonably satisfactory to the holder and its counsel and
covering, without limitation, such matters as the due authorization and issuance
of the securities being registered and certain matters pertaining to disclosure
under and compliance with securities laws by the Company in connection with the
registration thereof and/or (B) a "comfort" letter or letters of the Company's
independent public accountants provided at the Company's expense in form and
substance reasonably satisfactory to the holder and its counsel;
(vii) Use its best efforts to list the Registrable Securities covered
by such registration statement with any national market or securities exchange
on which the Registrable Securities are then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement; and
(ix) Furnish to each holder of Registrable Securities prompt notice of
the commencement of any stop-order proceedings under the Securities Act,
together with copies of all documents in connection therewith, and use its best
efforts to obtain withdrawal of any such stop order as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities
will furnish to the Company in connection with any registration under this
Section such information regarding itself, the Registrable Securities and other
securities of the Company held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
the Registrable Securities held by such holder of Registrable Securities. The
intended method of disposition (Plan of Distribution) of such securities as so
provided by Purchaser shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
the prior written consent of the Purchaser.
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(f) (i) The Company shall indemnify, defend and hold harmless each holder
of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) hereof and each of its
officers, directors, employees, agents, partners or controlling persons (within
the meaning of the Securities Act) (each, an "indemnified party") from and
against, and shall reimburse such indemnified party with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such indemnified party may become subject
under the Securities Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or (B) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such Liability arises out of or is based upon an
untrue statement or omission so made in strict conformity with information
furnished by such indemnified party in writing specifically for use in a
registration statement.
(ii) In the event of any registration under the Securities Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of such
Registrable Securities hereby severally agrees to indemnity, defend and hold
harmless the Company, and its officers, directors, employees, agents, partners,
or controlling persons (within the meaning of the Securities Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all Liabilities to which such indemnified party
may become subject under the Securities Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that (X) such holders will be liable in
any such case to the extent and only to the extent, that any such Liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, prospectus
or amendment or supplement thereto in reliance upon and in conformity with
written information furnished by such holder specifically for use in the
preparation thereof and (Y) the indemnification obligation of any holder shall
not exceed the purchase price of the Shares.
(iii) Promptly after receipt by any indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against another party (the "indemnifying party")
hereunder, notify such party in writing thereof, but the omission so to notify
such party shall not relieve such party from any Liability which it may have to
the indemnified party other than under this Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an indemnifying party is materially prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and such indemnified party shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
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<PAGE>
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to the indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the indemnified party under this section for any legal expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; PROVIDED, HOWEVER, that if the defendants in any such action
include both parties and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to them which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of one such separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; PROVIDED, HOWEVER, that any securityholders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, if any, incurred by them in connection
with such registration.
(ii) The fees, costs and expenses of registration to be borne by the
Company as provided in this Subsection (g) shall include, without limitation,
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
laws of any jurisdiction or jurisdictions in which securities to be offered are
to be registered and qualified. Subject to appropriate agreements as to
confidentiality, the Company shall make available to the holders of Registrable
Securities and their counsel its documents and personnel for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and accountants for the selling security holders and discounts and commissions,
if any, payable in connection with any such sales shall be borne by the
respective selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section l.4 may be assigned by Purchaser
to a transferee or assignee. Within a reasonable time after such transfer, the
Purchaser shall notify the Company of the name and address of such transferee or
assignee, and the securities with respect to which such registration rights are
being assigned. Such assignment shall be effective only if, immediately
following such transfer, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act. Any transferee
asserting registration rights hereunder shall be bound by the applicable
provisions of this Agreement.
(i) The Company shall not agree to allow the holders of any securities of
the Company to include any of their securities in any registration statement
filed by the Company pursuant to Subsection (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.
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Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
makes the following representations and warranties to the Company.
(a) ACCREDITED INVESTOR. The Purchaser is an "accredited investor" under
the definition set forth in Rule 501(a)(3) of Regulation D, promulgated under
the Securities Act.
(b) SPECULATIVE INVESTMENT. The Purchaser is aware that an investment in
the Shares is highly speculative and subject to substantial risks, including
such risks and uncertainties described in the SEC Documents. The Purchaser is
capable of bearing the high degree of economic risk and the burden of this
venture, including, but not limited to, the possibility of complete loss of the
Purchaser's investment in the Shares and underlying Common Stock which make
liquidation of this investment impossible for the indefinite future.
(c) DISPOSITION. The Purchaser understands that (i) except as provided for
in Section 1.4, the Shares and underlying Common Stock of the Company (the
"Securities"), have not been and are not being registered under the Securities
Act or any applicable state securities laws, and may not be transferred unless
(A) subsequently registered thereunder, or (B) the Securities may be sold or
transferred pursuant to an exemption from securities registration under the
Securities Act and any applicable state securities laws or (C) sold pursuant to
Rule 144, promulgated under the Securities Act (or any successor Rule), or (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of such Rule and further, if such Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with another exemption under the Securities Act or the rules of the
SEC thereunder. Notwithstanding any provision to the contrary contained herein,
a holder may pledge such Securities as collateral for a revolving credit note
pursuant to a loan and security agreement with a lending institution.
(d) PRIVATELY OFFERED. The offer to acquire the Shares was directly
communicated to the Purchaser in such manner that the Purchaser was able to ask
questions of and receive answers concerning the terms and conditions of this
transaction. At no time was the Purchaser presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement, or
any other form of general advertising.
(e) PURCHASE FOR INVESTMENT. The Securities are being acquired solely for
the Purchaser's own account, for investment, and are not being purchased with
view to the resale, distribution, subdivision or fractionalization thereof
without proper registration with applicable securities administrators
(f) ACCESS TO INFORMATION. Purchaser or Purchaser's professional advisor
has been granted the opportunity to ask questions or and receive answers from
representative of the Company, its officers, directors, employees and agents
concerning the terms and conditions of the offering of Shares, the Company, its
business and prospects, and to obtain any additional information which Purchaser
or Purchaser's professional advisor deems necessary to verify the accuracy and
completeness of the information received.
(g) RELIANCE ON OWN ADVISORS. Purchaser has relied completely on the advice
of, or has consulted with, Purchaser's own personal tax, investment, legal or
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<PAGE>
other advisors and has not relied on the Company or any of it affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any thereof, within the meaning of
Section 15 of the Securities Act for any tax or legal advice (other than
reliance on information in the SEC Documents). The foregoing, however, does not
limit or modify Purchaser's right to rely upon representations and warranties of
the Company in Section 2.2 of this Agreement.
(h) CAPABILITY TO EVALUATE. Purchaser has such knowledge and experience in
financial and business matters so as to enable such Purchaser to utilize the
information made available to it in connection with the offer of Shares in order
to evaluate the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the SEC Documents
(as defined herein).
(i) DISCLOSURE DOCUMENTS. Purchaser, in making Purchaser's investment
decision to subscribe for the Shares hereunder, represents that Purchaser has
received and had an opportunity to review the SEC Documents.
(j) AUTHORITY. Purchaser, if executing this agreement in a representative
or fiduciary capacity, has full power and authority to execute and deliver this
Agreement and each other document included herein for which a signature is
required in suck capacity and on behalf of the subscribing individual,
partnership, trust, estate, corporation or other entity for whom or which
Purchaser is executing this Agreement.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of Nevada
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company does not have any subsidiaries
except as listed in EXHIBIT A, attached hereto and incorporated herein by
reference. The Company and each such subsidiary, if any, is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect", for
purposes of this Agreement, means any adverse effect on the business,
operations, properties, prospects, or financial condition of the entity with
respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.
(b) AUTHORIZATION; ENFORCEMENT.(i) The Company has the requisite corporate
power and authority to enter into and perform this Agreement and to issue the
Shares and Registrable Securities in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, (iv) this
Agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
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liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application) and (v) prior to the Closing Date, any necessary amendment to the
Company's Articles of Incorporation authorizing Company to issue all of the
Shares and Registerable Securities, in accordance with Schedule I, will have
been filed with the Nevada Secretary of State and will be in full force and
effect, enforceable against the Company in accordance with the terms of such
amended Articles of Incorporation.
(c) AUTHORIZED CAPITAL; RIGHTS OR COMMITMENTS TO STOCK. The authorized
capital stock of the Company consists of 50 million shares of Common Stock and
10 million shares of Preferred Stock; there are 16,203,095 shares of Common
Stock and; there are no shares of such Preferred Stock issued and outstanding;
and, upon issuance of the Shares in accordance with the terms hereof, there will
be 16,203,095 shares of Common Stock and 600 shares of Series A Preferred Stock
issued and outstanding.
All of the outstanding shares of the Company's Common Stock have been
validly issued and are fully paid and non-assessable. Except as set forth in
EXHIBIT A hereto, no shares of Common Stock are entitled to registration rights
or preemptive rights, and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company, or contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of the Company. EXHIBIT A shall
specifically indicate registration rights associated with any such securities
and whether the Company intends to register such securities or capital stock
underlying such securities within one (1) year after the Closing Date. The
Company has furnished or made available to the Purchaser true and correct copies
of the Company's Articles of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's By-Laws, as in effect on the date hereof (the
"By-Laws").
(d) ISSUANCE OF SHARES. The issuance of the Shares has been duly authorized
and, when paid for and issued in accordance with the terms hereof, the Shares
shall be validly issued, fully paid and non-assessable and entitled to the
rights and preferences set forth in Schedule I hereto. The Common Stock issuable
upon conversion of the Shares will be duly authorized and reserved for issuance
and, upon conversion, will be validly issued, FULLY paid and non-assessable and
the holders shall be entitled to all rights and preferences accorded to a holder
of Common Stock.
(e) NO CONFLICTS. The Company has furnished or made available to the
Purchaser true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's By-Laws, as in
effect on the date hereof (the "By-Laws"). The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Articles or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
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instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or assets of the Company or any of its subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Purchaser and not to the Company. The business of the Company is
not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation in the United
States to obtain any consent, authorization or order of, or make any filing
(other than any filing of a vote establishing a class or series of stock with
the Nevada Secretary of State) or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Shares in accordance with the terms
hereof (other than any SEC, NASD, NASDAQ SmallCap Market or state securities
filings which may be required to be made by the Company subsequent to the
Closing, and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the Company
is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and, except as set forth in EXHIBIT A, the
Company has, during the two (2) year period immediately preceding the date
hereof, filed on a timely basis all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by the Company with the SEC under the
Securities Act (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC Documents"). The Company directly
or through its agent has delivered to the Purchaser true and complete copies of
the SEC Documents except for the exhibits and incorporated documents. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement.
Except as set forth in EXHIBIT A, as of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act as the case may be and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except as set forth in EXHIBIT A, the financial statements
of the Company included in the SEC Documents comply as to form in all material
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respects with applicable accounting requirements and the published rules and
regulations of the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) NO MATERIAL ADVERSE CHANGE. Since the date through which the most
recent quarterly report of the Company on Form 10-QSB has been prepared and
filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to the Company or
any of its subsidiaries.
(h) NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have no
material liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or any of its
subsidiaries' respective businesses since the date of the most recently filed
SEC Documents which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.
(i) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to the Company or any of its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Shares.
(k) NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any of the Company's securities or solicited any offers
to buy any of such securities, under circumstances that would require
registration of the Shares under the Securities Act.
Section 3.1 SECURITIES COMPLIANCE. The Company shall notify the SEC, NASD
and NASDAQ SmallCap Market, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares, and the Common
Stock issuable upon conversion thereof, to the Purchaser.
Section 3.2 REGISTRATION AND LISTING. Until at least two (2) years after
all Shares have been converted into Registrable Securities, the Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
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filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts, except as permitted herein. Until at least two (2)
years after all Shares have been converted into Common Stock, the Company will
take all action within its power to continue the listing or trading of its
Common Stock on the NASDAQ Small Cap Market (or other principal market) and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and NASDAQ. The covenants set
forth in this Section 3.2 shall not be deemed to prohibit a merger, sale of all
assets or other corporate reorganization if the entity surviving or succeeding
to the Company is bound by this Agreement with respect to its securities issued
in exchange for or in replacement of the Shares or Common Stock or the
consideration received for or in replacement of the Shares or Common Stock is
cash.
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL
THE SHARES. The obligation hereunder of the Company to issue and/or sell the
Shares to the Purchaser is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions may be
waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) LEGAL ACTION. No legal action, suit or proceeding shall be pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement.
(e) EXECUTION. The Purchaser shall have executed this Agreement, and
delivered such Agreement to the Company.
(f) PURCHASE PRICE. The Purchaser shall have delivered the Purchase Price
in accordance with Section 1.3(b) above.
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
PURCHASE THE SHARES. The obligation hereunder of the Purchaser to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions may be waived by the
Purchaser at any time in its sole discretion.
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(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company pursuant to this Agreement at or prior to the Closing, unless any
such agreement or condition is waived by the Purchaser in writing at or prior to
Closing.
(c) TRADING AND LISTING. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the SEC or a
national securities exchange (currently the NASDAQ Small Cap Market) (except for
any suspension of trading of limited duration agreed to between the Company and
the principal exchange on which the Common Stock is traded solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by such exchange shall not have been suspended
or limited or minimum prices shall not have been established on securities whose
trades are reported by such exchange.
(d) NO INJUNCTION. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) OPINION OF COUNSEL, ETC. The Purchaser shall have received before or
at the Closing an opinion of counsel to the Company (covering, without
limitation, such of the matters set forth in Section 2.2(a) through (e)), as are
in form and substance reasonably satisfactory to the Purchaser and its counsel,
and such other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing.
(f) EXECUTION. The Company shall have executed this Agreement, and
delivered such Agreement to the Purchaser.
Section 5.1 LEGEND ON STOCK. Each certificate representing the Shares and,
if necessary, Common Stock issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form:
THESE SECURITIES [AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION HEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 , AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF
COUNSEL, REGISTRATION UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW IS
NOT REQUIRED IN CONNECTION WITH SUCH SALE OR OFFER, AND SUCH OPINION IS
REASONABLY SATISFACTORY TO THE COMPANY.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the Common Stock issued upon conversion thereof, without the legend
set forth above at such time as (a) the holder thereof is permitted to dispose
of such Shares (or securities issued upon conversion thereof) pursuant to Rule
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144(k) under the Securities Act, as determined by counsel to the Company (b) the
securities are sold to a purchaser or purchasers who (in the opinion of counsel
to such holders, in form and substance reasonably satisfactory to the Company
and its counsel) are able to dispose of such securities publicly without
registration under the Securities Act, or (iii) such securities are registered
under the Securities Act.
Section 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Purchaser.
Section 6.2 OTHER TERMINATION. This Agreement may be terminated by action
of the respective Board of Directors or other governing body of the Purchaser or
the Company at any time if the Closing shall not have been consummated by the
fifth (5th) business day following the date of this Agreement, provided that the
party seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh (7th) business day following the date of this
Agreement, PROVIDED, HOWEVER, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
Section 7.1 FEES AND EXPENSES. Except as otherwise set forth in Section 1.4
hereof with respect to the registration of Registrable Securities, the Company
shall pay the fees, commissions and expenses of its advisers, brokers, finders,
counsel, accountants and other experts, if any, and all other expenses
associated therewith. The Company shall, on the Closing Date, reimburse
ProFutures Special Equities Fund, L.P. up to $5,000 for fees and expenses of its
counsel in connection with the preparation, negotiation and coordination of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Shares and Common Stock pursuant hereto.
Section 7.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) The Company and the Purchaser each (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and the
Purchaser each consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
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good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 ENTIRE AGREEMENT: AMENDMENT. This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.
Section 7.4 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
to the Company: Gerald I. Quinn, President
Wavetech International, Inc.
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
to the Purchaser: At the address set forth at the foot of this
Agreement or as specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 WAIVERS. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section 7.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 7.7 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the present state
of incorporation of the Company without regard to such state's principles of
conflict of laws.
Section 7.8 SURVIVAL. The representations and warranties of the Company and
the Purchaser contained in herein and the agreements and covenants set forth in
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Sections 1.1 through 1.4, 3.2 through 3.3 and 7.1 through 7.16 shall survive the
Closing for a period of two (2) years.
Section 7.9 PUBLICITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.10 NASDAQ. The term "NASDAQ" or "NASDAQ Small Cap Market" herein
refers to the principal market on which the Common Stock of the Company is
traded. If the Common Stock is listed on a securities exchange, or if another
market becomes the principal market on which the Common Stock is traded or
through which price quotations for the Common Stock are reported, the term
"NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.11 ACCEPTANCE. Execution and delivery of this Agreement shall
constitute an offer to purchase the Shares, which offer, unless previously
revoked by the Purchaser, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing as
indicated on the signature page hereof.
Section 7.12 BINDING AGREEMENT. Upon acceptance of this Agreement by the
Company, the Purchaser agrees that he may not cancel, terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or disability of the Purchaser and shall be binding upon heirs,
successors, assigns, executors, administrators, guardians, conservators or
personal representatives of the Purchaser.
Section 7.13 INCORPORATION BY REFERENCE. All information set forth on the
signature page is incorporated as integral terms of this Agreement.
Section 7.14 COUNTERPARTS. This Agreement may be signed in multiple
counterparts, which counterparts shall constitute one and the same original
instrument.
Section 7.15 SEVERABILITY. If any portion of this Agreement shall be held
illegal, unenforceable, void or voidable by any court, each of the remaining
terms hereof shall nevertheless remain in full force and effect as a separate
contract.
Section 7.16 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
[This space has been left blank intentionally. The signature page follows.]
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IN WITNESS WHEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share, the Purchaser tenders herewith the
full purchase price of:
$ 600,000
---------------------------------------
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
ProFutures Special Equities Fund, L.P.
---------------------------------------
Address of Purchaser:
1310 Highway 620 South - Suite 200
---------------------------------------
Austin, Texas 78734
---------------------------------------
Social Security or IRS Employer Identification Number(s):
74-2786952
---------------------------------------
SIGNATURE OF PURCHASER: Dated: April 22, 1998
----------------
IF PURCHASER IS AN INDIVIDUAL OR JOINT PURCHASE:
- --------------------------------------------
(Signature)
- --------------------------------------------
(Signature of Joint Owner, if any)
IF PURCHASER IS AN ENTITY:
Name of Entity: ProFutures Special Equities Fund, L.P.
--------------------------------------
By ProFutures Fund Management, Inc., a General Partner
By: /s/ Gary D. Halbert
---------------------------------------------------
(Signature)
Name: Gary D. Halbert
------------------------------------------------
Title: President
------------------------------------------------
ACCEPTED BY:
WAVETECH INTERNATIONAL, INC., a Nevada corporation
By: /s/ Gerald I. Quinn
---------------------------------------------------
(Signature)
Name: Gerald I. Quinn
------------------------------------------------
Title: President & CEO
------------------------------------------------
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EXHIBIT 10.3
PROMISSORY NOTE AND LOAN AGREEMENT
Honolulu, Hawaii
$450,000.00 February 9th, 1998
FOR VALUE RECEIVED, WAVETECH, INC., a New Jersey corporation, and
INTERPRETEL, INC., an Arizona corporation (singularly and collectively, the
"Maker"), jointly and severally promise to pay to the order of IMAGITEL, INC., a
Nevada corporation, at 1132 Bishop Street, Penthouse, Honolulu, Hawaii 96813, or
at such other place as the holder of this Note (the "Holder") may from time to
time designate, the lesser of the principal sum of FOUR HUNDRED FIFTY AND NO/100
DOLLARS ($450,000.00) or the principal balance remaining from time to time
unpaid (the "Loan Funds"), plus interest from the date that such principal sum
is first disbursed to Maker pursuant hereto at the interest rate specified
below.
INTEREST. The interest rate payable under this Note shall be twelve percent
(12%) per annum from the date hereof until maturity. Interest shall be computed
on the basis of a 360-day year of twelve 30-day months.
DISBURSEMENTS. The Loan Funds shall be disbursed the Holder to the Maker in
installments on the dates, in the amounts and for the purposes set forth in
Exhibit A attached hereto.
USE OF THE LOAN FUNDS. As a material part of the consideration given to the
Holder by the Maker for the disbursement of the Loan Funds, the Maker covenants
and agrees to use the Loan Funds only for the purposes and in the amounts set
forth in the budget attached hereto and made a part hereof as Exhibit A. The
Maker agrees to provide the Holder, upon the Holder's request, with written
evidence of the Maker's compliance with this covenant.
PAYMENTS; MATURITY DATE. All unpaid principal and accrued but unpaid
interest shall be due and payable on July 1, 1998, unless sooner due as
hereinafter provided.
APPLICATION OF PAYMENTS. Except in the case of an election to the contrary
by the Holder in the event of a default, and to the extent permitted by law, all
payments will be applied first to charges, then interest, and then principal.
PREPAYMENTS. The Maker may make prepayments of principal in whole or in
part without a prepayment charge. Any prepayment shall be applied against the
principal sum outstanding.
<PAGE>
DEFAULT. If the Maker shall default in the payment of principal, interest
or other fees or charges when due under this Note, or if the Maker shall default
in the performance of or compliance with any material term, covenant, condition
or provision required to be performed or complied with by the Maker under this
Note, that certain Pledge and Security Agreement (the "Pledge"), that certain
Security Agreement (the "Security Agreement") or those certain financing
statements (the "Financing Statements") all executed concurrently herewith by
the Maker for the security of the Holder, or in any other agreement or security
instrument referred to therein (this Note, the Pledge, the Security Agreement,
and the Financing Statements, and such other agreements or instruments being
hereinafter called the "Loan Documents") and such default shall not have been
remedied during the period the Maker is required to remedy such default, then,
and in any such event, the Holder shall have the option to declare the unpaid
principal sum of this Note together with all charges and interest accrued
thereon to be immediately due and payable, and such principal sum, charges, and
interest shall thereupon become and be due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and, upon such maturity by acceleration or otherwise, the unpaid principal
balance shall thereafter bear interest until fully paid at a rate per annum
equal to four (4) percentage points higher than the fixed rate specified in this
Note.
Failure to exercise this option shall not constitute a waiver of the right
to exercise the same in the event of the same or any subsequent default.
LATE CHARGES. If the Maker fails to pay all sums due at maturity (whether
or not resulting from acceleration due to an event of default under the Loan
Documents), the Holder, in addition to its other remedies, may collect, and the
Maker shall pay on demand, a late charge equal to five percent (5%) of the
amount overdue.
REASONABLENESS OF DEFAULT CHARGES. The Maker acknowledges that nonpayment
at maturity (whether or not resulting from acceleration due to an event
of default under the Loan Documents) will result in damages to the Holder
by reason of the additional expenses incurred in servicing the indebtedness
evidenced by this Note and by reason of the loss to the Holder of the use of
the money due and frustration to the Holder in meeting its other commitments.
The Maker also acknowledges and agrees that the occurrence of any other
event of default under the Loan Documents will result in damages to the
Holder by reason of the detriment caused thereby. The Maker further
acknowledges that it is and will be extremely difficult and impracticable to
ascertain the extent of such damages caused by nonpayment of any sums when
due or resulting from any other event of default under the Loan Documents. The
2
<PAGE>
Maker by its execution and delivery hereof and the Holder hereof by the
acceptance of this Note agree that a reasonable estimate of such damages must be
based in part upon the duration of the default and that the late charge
specified above with respect to a delinquent payment and the rate of interest
prescribed above with respect to the amount due and payable after maturity or
acceleration would not unreasonably compensate the Holder for such damages.
U. S. MONEY. Principal and interest shall be payable in lawful money of the
United States of America in immediately available funds.
ATTORNEYS' FEES. The Maker promises to pay the Holder's reasonable
attorneys' fees and such expenses as are incurred to induce or compel the
payment of this Note or any portion of the indebtedness evidenced hereby,
whether suit is brought hereon or not.
WAIVER. The Maker and all others who may become liable for any part of this
obligation severally waive presentment, protest, demand and notice of protest,
demand, dishonor and nonpayment of this Note and consent to any number of
renewals or extensions of the time of payment hereof and to any release of
parties obligated hereunder or forbearance in the enforcement hereof.
NO ORAL WAIVER, MODIFICATION OR CANCELLATION. No provision in this Note may
be waived, modified or cancelled orally, but only by an agreement in writing and
signed by the party against whom enforcement of any waiver, modification,
discharge or cancellation is sought.
GOVERNING LAW. This Note shall be governed by and construed according to
the laws of the State of Hawaii.
LIMITATIONS ON INTEREST. Notwithstanding any provision to the contrary
contained in the Loan Documents, the rate and amount of interest which the Maker
shall be required to pay to the Holder shall in no event, contingency or
circumstance exceed the maximum rate or amount limitation, if any, imposed by
applicable law. If, from any circumstance whatsoever, performance by the Maker
of any obligation under the Loan Documents at the time performance shall be due
(including, without limiting the generality of the foregoing, the payment of any
fee, charge or expense paid or incurred by the Maker which shall be held to be
interest), shall involve transcending the limits of validity prescribed by law,
if any, then, automatically, such obligation to be performed shall be reduced to
the limit of such validity prescribed by applicable law. If, notwithstanding the
foregoing limitations, any excess interest shall at the maturity of the Note be
determined to have been received, the same shall be deemed to have been held
3
<PAGE>
as additional security. The foregoing provisions shall never be superseded or
waived and shall control every other provision of all agreements between the
Holder and the Maker.
OBLIGATIONS OF MAKER. The obligations of the undersigned hereunder shall be
joint and several.
IN WITNESS WHEREOF, the Makers have caused this Note to be duly executed.
MAKER: WAVETECH, INC.
By /s/ Gerald I. Quinn
------------------------------------
Its President
By /s/ Richard Freemen
------------------------------------
Its Secretary
INTERPRETEL, INC.
By /s/ Gerald I. Quinn
------------------------------------
Its President
By /s/ Richard Freemen
------------------------------------
Its Secretary
WITNESSED:
/s/ Donna Jean Davis
- -------------------------------------
- -------------------------------------
4
<PAGE>
EXHIBIT A
AMOUNT OF DATE OF
DISBURSEMENT DISBURSEMENT PURPOSE OF DISBURSEMENT
$210,000 February 17, 1998 $50,000 to legal counsel
Balance to payees approved by Imagitel
$ 60,000 March 1, 1998 Current operating expenses
$ 60,000 April 1, 1998 Current operating expenses
$ 60,000 May 1, 1998 Current operating expenses
$ 60,000 shall be paid upon request from Wavetech
- --------- for purposes approved by Imagitel in the
$450,000 sole discretion of Imagitel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Consolidated Statements of Operations, ended May
31, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 448,317
<SECURITIES> 0
<RECEIVABLES> 188,176
<INVENTORY> 0
<ALLOWANCES> 0
<CURRENT-ASSETS> 647,039
<PP&E> 788,110
<DEPRECIATION> (492,528)
<TOTAL-ASSETS> 3,315,308
<CURRENT-LIABILITIES> 838,764
<BONDS> 0
0
1
<COMMON> 16,995
<OTHER-SE> 2,423,924
<TOTAL-LIABILITY-AND-EQUITY> 3,315,308
<SALES> 93,789
<TOTAL-REVENUES> 95,797
<CGS> 82,144
<TOTAL-COSTS> 82,144
<OTHER-EXPENSES> 981,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,332
<INCOME-PRETAX> (1,001,390)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,001,390)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
