U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended August 31, 1999.
[ ] 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.
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(Name of small business issuer in its charter)
Nevada 86-0916826
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
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(Address of principal executive offices)
(520) 750-9093
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(Registrant's telephone number, including area code)
Securities registered under Section 12(g) of the Act:
Name of exchange on
Title of Each Class which registered
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None None
Securities registered under Section 12(b) of the Act:
Common Stock $.001 Par Value
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(Title of Class)
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.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended September 30, 1999: $13,580.
The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of November 8, 1999 was approximately $8,892,142.69 based on
the average bid and asked prices for such Common Stock as reported on the OTC
Bulletin Board.
The number of shares of Common Stock outstanding as of November 8, 1999 was
3,059,662.
Documents Incorporated by Reference - None.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN STATEMENTS WHICH WE
BELIEVE ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE SAFE HARBOR
PROVISIONS OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS RELATE
TO FUTURE EVENTS AND THE FUTURE FINANCIAL PERFORMANCE OF WAVETECH. IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES,"
"PREDICTS," "POTENTIAL," OR "CONTINUE" OR THE NEGATIVE OF SUCH TERMS AND OTHER
COMPARABLE TERMINOLOGY. THESE ONLY REFLECT MANAGEMENT'S EXPECTATIONS AND
ESTIMATES ON THE DATE OF THIS REPORT. ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY FROM THESE EXPECTATIONS. IN EVALUATING THOSE STATEMENTS, YOU SHOULD
SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE RISK INCLUDED IN THE
REPORTS FILED BY WAVETECH WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS. WAVETECH IS NOT UNDERTAKING ANY OBLIGATIONS TO UPDATE ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT.
BUSINESS DEVELOPMENT
COMPANY PROFILE
Wavetech International, Inc. (the "Company" or "Wavetech") was
incorporated in the State of New Jersey on July 10, 1986 under the name
"Wavetech, Inc." In February 1998, the Company reincorporated in the State of
Nevada. The Company became subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), by filing and
registering with the Securities and Exchange Commission (the "SEC") a Form S-18
under the Securities Act of 1933, as amended (the "1933 Act"), 400,000 units,
each unit consisting of three shares of Common Stock and one Class A and one
Class B redeemable Common Stock purchase warrant. Its Registration Statement
became effective on February 11, 1987. A total of 400,000 units were sold at an
offering price of $6.75 per unit for gross total proceeds of $2,700,000. The
Company's Common Stock is listed on the OTC Bulletin Board under the symbol
"ITEL."
WAVETECH SUBSIDIARIES
INTERNATIONAL ENVIRONMENTAL SERVICES CORPORATION. On June 6, 1991,
Wavetech acquired all of the outstanding capital stock of International
Environmental Services Corporation ("IES"), a privately held Delaware
corporation, in exchange for 8,000,000 shares (66,667 shares after giving effect
to the Company's reverse stock splits) of the Company's Common Stock and a $5
per cubic yard royalty payment on IES's future operations, if any. To date, IES
has not derived any revenue from its operations.
IES was incorporated in 1988 and at the time of its acquisition
reported as its sole asset approximately 1,000 acres of real property located in
Carroll County, Ohio. The property was acquired by IES for the purpose of
converting all, or a portion thereof, to a non-hazardous sanitary landfill
facility. In November 1995, Wavetech was advised that all of the land was sold
to satisfy real estate taxes in arrears by Carroll County, Ohio. This tax sale
was consummated in April 1994. The Company intends to pursue legal recourse to
recover the value of the land from responsible parties as soon as it has
sufficient funding that can be allocated exclusively for legal expenses related
to this matter.
Following the acquisition of IES, Wavetech was comprised of two
divisions: an Environmental Laboratory Testing and Engineering Division through
a wholly owned subsidiary, Applied Environmental Technology, Inc. ("Applied"),
and a Landfill Development & Management Division ("IES"). During the year ended
August 31, 1995, Wavetech, with the then President abstaining, voted to sell the
stock of Applied to the father of the then President. This divestiture occurred
before March 8, 1995, during the year ended August 31, 1995, resulting in
Wavetech having no further liabilities nor assets on its balance sheet
associated with Applied.
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INTERPRETEL, INC. On March 8, 1995, Wavetech entered into an agreement
with Interpretel, Inc. ("Interpretel") pursuant to which Wavetech agreed to
issue 6,000,000 shares of its Common Stock in exchange for 100% of the
outstanding 1,532,140 shares of Common Stock of Interpretel. The transaction
resulted in the former shareholders of Interpretel owning approximately 80% of
the outstanding shares of Wavetech. Following the acquisition of Interpretel by
Wavetech, the former principals of Interpretel were elected to serve as the
management for the newly-structured corporation.
Interpretel is a facilities-based telecommunication company using an
advanced computer telephony platform to deliver enhanced calling card services.
Incorporated in the State of Arizona in September of 1993, the Company was
formed to create a simple calling card product featuring direct access to
over-the-phone language interpreters with services provided by AT&T Language
Line. Employing a digital computer/telephony integrated platform (switch) as a
back-bone, the company's products and services evolved significantly to
capitalize on features and capabilities of the system. The Company focused on
highly customized and branded, enhanced calling cards, virtual office and
interactive marketing applications. Interpretel focused on creating an
infrastructure to support product development, administration, sales, marketing,
and customer support. In 1999, Interpretel discontinued all calling card
services as the costs to provide these services were greater than revenues and
the Company had recently shifted its focus into Internet-related products.
INTERPRETEL (CANADA) INC. On March 10, 1995, Interpretel (Canada) Inc.
("Interpretel (Canada)") was incorporated under the laws of the Province of
Ontario as a wholly owned subsidiary of Interpretel, Inc. It was formed to
secure a long distance reseller's registration and license in that country
through the Canadian Radio and Television Commission (CRTC), which is the
Canadian equivalent of the FCC. This reseller's license qualifies Interpretel
(Canada) to operate as a reseller of long distance services and secure contracts
with Canadian corporations and organizations as a Canadian entity. Interpretel
(Canada) is essentially a sales and customer service operation.
TELPLEX INTERNATIONAL COMMUNICATIONS, INC. On January 1, 1997, the
Company acquired certain intangible assets of Telplex, Inc., an Arizona
corporation, in exchange for $25,000 in cash. These assets, which consisted
primarily of goodwill, an international long distance wholesaler's license, a
few customer contracts for the resale of switchless international long distance
numbers, as well as a non-compete agreement from the owner of Telplex, Inc.,
were acquired by the Company through its new wholly owned subsidiary, Telplex
International Communications, Inc. ("Telplex"). The Company did not assume any
of the liabilities of Telplex, Inc. Subsequent to February 28, 1998, the Company
had no revenues from Telplex, as the Company no longer had the sales and billing
support staff to accommodate the international long distance wholesale business.
The remaining book value of the acquired assets was written off in 1999.
RECENT DEVELOPMENTS
Effective November 13, 1999, the Company acquired through its wholly
owned subsidiary, Interpretel (Canada), certain products and accounts, as well
as first-right-of-refusal on the sale of Softalk, Inc., an Ontario Canada
corporation ("Softalk"), its intellectual property, software code, and any
patents owned by Softalk (the "Acquisition"). The Acquisition was consummated in
accordance with the terms of a Purchase Agreement between the Company,
Interpretel (Canada), and Softalk, dated as of October 25, 1999.
The aggregate consideration paid by the Company in connection with the
Acquisition was $10,000,000, consisting of 4,329,004 shares of non-voting Class
A Preferred Stock of Interpretel (Canada) (the "Interpretel Preferred Shares").
Each Interpretel Preferred Share is exchangeable, at the option of Softalk, for
one share of Wavetech Common Stock. As of the date of this Report, such
Interpretel Preferred shares are convertible into approximately 58% of the
issued and outstanding shares of Wavetech Common Stock. The aggregate
consideration paid in the Acquisition was determined through arm's length
negotiations between representatives of the Company and Softalk. Neither the
Company nor, to the knowledge of the Company, any affiliate, director or officer
of the Company had any material relationship with Softalk, except for the
Amended and Restated License Agreement. See "Business of Issuer and
Subsidiaries" below.
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The Acquisition consisted principally of certain hardware and software
required by Interpretel (Canada) to operate their telecommunication services,
any existing or future Softalk contracts with customers, distributors and
suppliers, and the first-right-of-refusal to purchase Softalk, their
intellectual property, software code, and any patents owned by Softalk. The
value of the purchase was U.S. $10,000,000.
In a separate transaction, the Company and Softalk agreed to amend
their existing Amended and Restated License Agreement, effective October 25,
1999, to grant Wavetech and its subsidiaries a world-wide exclusive license to
distribute, market, service, sell and sublicense any and all of Softalk's
services and products (whether now existing or hereafter developed or acquired
by Softalk) to commercial accounts, and a world-wide nonexclusive license to
distribute, market, service, sale and sublicense any and all of Softalk's
services and products (whether now existing or hereafter developed or acquired
by Softalk) to individual customer accounts. In consideration of such Amendment,
the Company issued to Softalk five year warrants to purchase an aggregate of
5,246,753 shares of Common Stock, 3,246,753 of which have a per share exercise
price of $3.25, 1,000,000 have a per share exercise price of $5.00 and the
remaining 1,000,000 have a per share exercise price of $10.00.
Softalk has been given two seats on the Board of Directors of Wavetech,
the parent of Interpretel (Canada). Wavetech has been given one seat on the
Softalk Board of Directors. Softalk, as a private company, will continue to
develop software and, as required, provide technical support to Interpretel
(Canada) and Wavetech. Interpretel (Canada) and Wavetech will provide customer
support, billing services and marketing for the Softalk software products
globally on an exclusive basis to commercial accounts and on a non-exclusive
basis to individual consumer accounts.
BUSINESS OF ISSUER AND SUBSIDIARIES
OVERVIEW
From 1995 until the present, the Company created customized calling
card services through the application of "intelligent" call-processing
technology and proprietary software targeted to the business traveler. The
Company marketed these systems to large organizations or companies for their
membership base. With the wide scale deployment of cellular telephones with
messaging capability, the market for business related calling card services has
greatly diminished.
During fiscal 1999, the Company's efforts centered primarily on
completing a merger with DCI Telecommunications, Inc. ("DCI"), an international
telecommunications company. When it became apparent to the Company's Board of
Directors that the consummation of this merger would be delayed, combined with
the declining market for calling card services, the Company's management was
instructed to explore alternative industry segments in which to expand its
business ventures.
On April 23, 1999, the Company signed a licensing agreement with
Softalk (the "Softalk License Agreement"), a developer of proprietary Internet
Protocol-based ("IP-based") telecommunication technologies ("the Licensed
Technology"), based in Toronto, Ontario. Softalk's technology enables personal
computer users who access the World Wide Web to make long distance telephone
calls at substantially reduced rates from those offered over the Public Switched
Telephone Network ("PSTN"). The licensing agreement granted to the Company
non-exclusive rights to market and resell Softalk's patent-pending technology
and, in addition, granted the Company the exclusive right to provide billing and
customer support services for all accounts.
On May 3, 1999, the Company terminated its Merger Agreement with DCI
(the "Merger Agreement") pursuant to the terms of the Merger Agreement, as it
was not reasonably likely that the conditions to the merger would be satisfied
prior to the expiration of the Merger Agreement on August 31, 1999.
On June 18, 1999, Wavetech and DCI terminated the Share Exchange
Agreement that was previously executed on February 26, 1999. The companies
returned their respective shares of Common Stock that had been issued to each
other. The decision to terminate the Share Exchange Agreement followed the
previous termination of the Merger Agreement.
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On May 4, 1999, the Company received formal notification from the
Nasdaq Stock Market ("Nasdaq") that the conditional listing under which its
shares had been quoted had terminated and the Company's Common Stock was
delisted from the Nasdaq SmallCap Market effective at the close of business on
May 4, 1999. The Company subsequently applied for inclusion of its Common Stock
on the OTC Bulletin Board and on June 23, 1999 received notification of
acceptance for trading as OTC BB: ITEL. The Company's Common Stock began trading
on the OTC Bulletin Board on June 28, 1999.
The Company's business strategy is now focused exclusively on providing
the web-enabled long distance service it markets pursuant to the Softalk License
Agreement. Best Net Call is the Company's brand name for this service. The
Company has begun integrating the proprietary software licensed from Softalk
into its billing system. The Company has also begun development of its website
to launch its Best Net Call business. The Company anticipates an initial launch
of its service in January 2000.
FEATURES AND CAPABILITIES OF THE COMPANY'S SERVICE
Best Net Call allows companies and individuals to enter long distance
calling information on the Company's World Wide Website at www.bestnetcall.com
from anywhere in the world. The Company believes that the Licensed Technology
provides the platform for developing a distributed, intelligent IP-based global
network that manages voice, video and fax traffic for routing and transporting
over a combination of networks, including the Internet, frame relay, Integrated
Services Digital Network ("ISDN"), in addition to the traditional PSTN. The
Licensed Technology is based on Microsoft's NT operating platform, which the
Company believes will play an important role in redefining the next generation
of communication systems within the next five years.
The Company's Best Net Call service uses existing telephone equipment
and does not require the purchase of hardware or software by the customer; users
only need access to the Internet and an available phone line. Best Net Call
offers real-time billing to all users. Following completion of a telephone call,
the total cost for that call may be viewed on the caller's online account. Best
Net Call also offers convenient speed dialing, personalized directories and
client billing code capabilities.
STRATEGIES FOR THE FUTURE
The Company believes that Best Net Call provides customers with the
cost savings of data networks and the global reach of the Internet, while
providing the Company with a platform for delivering additional value-added
services. The Company intends to continue to distribute Best Net Call on a
global basis by taking advantage of the growth of the Internet.
To rapidly accelerate distribution of this service, the Company intends
to utilize its existing relationships with leading multi-national corporations.
The Company intends to expand its relationships with international professional
service firms, telecommunications carriers and other third-party intermediaries
to attract local, regional and national advertisers that seek to efficiently
target business customers.
The Company also intends to become a global provider of high quality
Internet-enabled voice and fax services. The Company believes that the planned
deployment of its network and proprietary software will allow its customers to
capitalize on the convergence of the traditional telephone network with both
private and public data networks, such as the Internet. The Company has
established facilities in Canada and has arrangements with affiliates in the
U.S. and outside of the U.S. to place and complete telephone calls on the PSTN.
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COMPETITION
The Company expects that information and telecommunication services
markets will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than the Company's technology. The Company does not have the right,
contractually or otherwise, to prevent its subscribers from using competing
products and the Company's subscribers may generally terminate their services
with the Company at any time. In addition, consumer demand for particular
telecommunications products may be adversely affected by the increasing number
of competitive products from which to choose, making it difficult to predict the
Company's future success in producing telecommunications products for the
marketplace.
Currently, the Company's primary competitors for Internet telephony
services include Net2Phone, Inc., ITXC, Inc., DeltaThree, Inc., and iBasis, Inc.
The Company also competes against traditional long distance carriers such as
AT&T, MCI WorldComm, Sprint, and Qwest Communications, Inc. The Company may also
compete with online services and other Web site operators, as well as
traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets. There can be no assurance that the
Company' s competitors will not develop services that are superior to those of
the Company or that may achieve greater market acceptance than the Company's
offerings. Certain of the Company's competitors have, and any new competitors
that enter the industry may have, access to significantly greater financial
resources than the Company.
RESEARCH AND DEVELOPMENT
The Company has not spent any capital during each of the last two
fiscal years on research and development activities.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its office and administrative space at 5210 E.
Williams Circle, Suite 200, Tucson, Arizona 85711. The lease expires November
30, 2001, and requires the Company to make payments thereunder in an average
amount of approximately $8,400 per month over the term of the lease. Effective
May 13, 1998, the Company began to sublet approximately 2,000 square feet of its
office space for $3,000 per month on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this report, the Company is aware of no pending
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was quoted on the Nasdaq SmallCap Market
until May 4, 1999, and then on the OTC:BB from June 28, 1999 to the present. The
high and low bid prices of the Company's Common Stock as reported from September
1, 1997 through August 31, 1999 by fiscal quarters (i.e., 1st Quarter =
September 1 through November 30) were as follows, as adjusted for a one-for-six
reverse split effective December 18, 1998:
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------------ ------------- ------------ ------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- --- ---- ---
1998
Common Stock $3 5/8 $2 1/4 $2 13/16 $2 7/16 $4 1/8 $3 3/8 $4 5/16 $1 5/16
1999
Common Stock 3 9/16 1 1/2 3 9/16 2 2 15/16 1/8 2 5/8 1/2
The bid and the asked price of the Company's Common Stock on November
8, 1999, were $2 7/8 and $3, respectively.
As of November 8, 1999, the Company had 332 shareholders of record of
its Common Stock. As of November 10, 1999, the Company had 1,734 shareholders
that beneficially own the stock in the name of various brokers.
The Company has never declared any cash dividends and currently plans
to retain future earnings, if any, for its business operations.
NASDAQ DELISTING. The Company's Common Stock was delisted from the
NASDAQ Small Cap Market on May 4, 1999, due to the fact that the Company was not
in compliance with Nasdaq's $1.00 minimum bid price requirement. Since June 28,
1999, the Company's Common Stock has been traded on the OTC Bulletin Board under
the symbol "ITEL."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATIONS OVERVIEW
REVENUES. Revenues decreased to $13,580 in fiscal 1999 from $157,838 in
1998. $60,151 of the decrease was attributable to the Company having zero
revenues from the resale of international long distance minutes in fiscal 1999.
As of February 28, 1998, the Company discontinued the business of reselling
international long distance minutes. At that time, the Company no longer had the
sales and billing support staff to accommodate that business. A decrease of
$59,523 was due to receipts of licensing fees from Switch Telecommunications Pty
Limited ("Switch") in fiscal 1998, which did not occur again in fiscal 1999. The
licensing agreement with Switch was terminated on June 30, 1998, therefore, no
such revenue was received in fiscal 1999. Revenues from calling card services
such as long distance, voice and fax mail services decreased by $26,256 in 1999,
as the Company was not able to obtain competitive rates for these services and
was not able to attract new customers.
COST OF SALES. Costs of sales decreased to $9,468 in fiscal 1999 from
$85,082 in fiscal 1998. A decrease of $49,129 was related to prior year costs
associated with the resale of international long distance minutes. Reduction in
the number of T-1 telephone lines and software maintenance resulted in an
additional decrease of $14,277. Costs associated with lower revenues from
calling card services decreased by $11,439.
GENERAL AND ADMINISTRATIVE EXPENSES. Operating expenses decreased to
$691,479 in fiscal 1999 from $794,004 in fiscal 1998. Renegotiation of the fees
paid by the Company for platform services and support resulted in a decrease of
$54,191 in fiscal 1999 as compared to fiscal 1998. Investor relations expenses
decreased by $49,659 in fiscal 1999, due to the Company handling investor
relations in-house. Legal and accounting fees decreased by $16,419. Fees to
NASDAQ decreased by $8,118 during fiscal 1999 as compared to the prior year.
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During fiscal 1999, the Company's office and equipment lease expenses increased
by $7,721 over the previous year, while travel expenses related to completing
due diligence on potential business opportunities increased by $17,650 over the
prior year.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses decreased to $146,977 for fiscal year 1999 from $156,965 for fiscal
year 1998, due to a reduction in amortization expense of capital lease
obligations.
INTEREST INCOME. Interest income increased to $70,519 in fiscal 1999
from $6,565 in fiscal 1998 due to an increase in the average balance in the
Company's money market fund during fiscal 1999 as compared to fiscal 1998.
RENTAL INCOME. The Company subleases approximately 2,000 square feet of
its office space to another company. This sublease is on a month-to-month basis
and earns the Company $3,000 per month. The Company intends to continue this
sublease until such time as the Company requires this additional space.
INTEREST EXPENSE. Interest expense decreased to $8,995 for fiscal year
1999 from $45,182 for fiscal year 1998. The decrease in interest expense related
to a line of credit that was repaid in 1998.
COSTS INCURRED IN CONNECTION WITH MERGER. The Company had expenses of
$118,450 directly related to the proposed, but terminated, merger with DCI.
These expenses included $62,079 in legal fees, $20,000 for fairness opinions and
$25,340 in registration fees to NASDAQ and the SEC and $8,632 in consulting
fees.
PREFERRED STOCK CONVERSION PENALTY. The Company incurred $144,000 in
costs relating to Series A Convertible Preferred Stock issued in April 1998
which requires the Company to pay a penalty of $12,000 for each 30-day period
until such time as a Registration Statement on Form S-3 covering the underlying
shares of common stock is declared effective. The purchaser of the Series A
Convertible Preferred Stock has agreed to accept payment for the penalties in
restricted common shares in lieu of cash. Such common shares are priced at fair
value on the date each penalty payment is due.
WRITE-OFF OF INTANGIBLES. The Company determined that $36,125 in
certain fixed and intangible assets were no longer of value to the Company and
were written off. These assets included $20,556 in intangibles related to the
original purchase of goodwill, a reseller's license and customer contracts for
Telplex. An additional amount of $12,369 for development costs for software
specifically for calling card services was written off, as that software is no
longer being used.
OTHER EXPENSES. The Company had a one-time expense of $15,000 during
fiscal 1999 to settle a previously reported lawsuit by Steven A. Ezell. The
details relating to this expense were reported in the Company's 10-QSB for the
period ending February 28, 1999.
INCOME TAXES. At August 31, 1999, the Company has federal net operating
loss carryforwards totaling approximately $11,000,000 and state net operating
loss carryforwards of approximately $7,100,000. The federal and state net
operating loss carryforwards expire in various amounts beginning in 2011 for
federal purposes and 2000 for state purposes. Additionally, the Company has
capital loss carryforwards of approximately $216,000 which will expire in 2004
unless offset by capital gains. No tax benefit has been recorded in the
financial statements since realization of these loss carryforwards does not
appear likely.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1999, the Company had working capital of $618,440 as
compared to a working capital of $1,863,442 at August 31, 1998.
The Company expects to incur operating losses until such time as the
Internet-based communication product is introduced and is operating. The Company
believes it has sufficient funds to meet its current operating expenses for the
next fiscal year.
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The Company as of November 13, 1999 has on a fully diluted basis
15,446,117 outstanding in stock, options, and warrants and is authorized to
issue 50 million common shares. The Company has 561 preferred shares outstanding
and is authorized to issue 10 million preferred shares. The Company believes it
can finance its global build-out and growth by issuing additional shares, either
through private placements, a secondary public offering or a combination of
both.
INFLATION
Although the Company's operations are influenced by general economic
trends and, specifically, technology advances in the telecommunications
industry, the Company does not believe that inflation has had or will have a
material impact on its limited operations.
RISK FACTORS
This annual report on Form 10-KSB contains "forward-looking statements"
that involve risks and uncertainties, which statements may be deemed to include,
but are not limited to, the Company's plans to grow its Internet-based
communications businesses, to expand the range of services offered by the
Company, to increase the number of customers and revenues using the Company's
services and the minutes of use and price per minute of use of the traffic
booked through the Company's websites and network, to otherwise expand its
business activities in new cities and foreign countries, to retain key personnel
or otherwise to implement its strategy as well as the Company's beliefs
regarding consumer acceptance of the Internet as a means of commerce and the use
of the Internet as a source of advertising. Such statements include statements
regarding the belief or current expectation of the Company's management and are
necessarily based on management's current understanding of the markets and
industries in which the Company operates. That understanding could change or
could prove to be inconsistent with actual developments. The Company's actual
results could differ materially from the results discussed in this Form 10-KSB,
including those anticipated in or implied by any forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Report.
THE QUALITY OF THE COMPANY'S SERVICES AND THE COMPANY'S CAPACITY TO TRANSMIT
INTERNATIONAL VOICE AND FAX CALLS DEPENDS LARGELY ON THIRD PARTIES.
VENDORS THAT MAINTAIN PHONE AND DATA LINES. The Company's business
model depends on the availability of the Internet to transmit data packets for
voice and fax calls. The Company also relies on third parties who provide
traditional phone lines. Some of these third parties are national telephone
carriers. They may increase their charges for using these lines at any time and
decrease the Company's profitability. They may also fail to properly maintain
their lines and disrupt the Company's ability to provide service to the
Company's customers. Any failure by these third parties to maintain these lines
and networks that leads to a material disruption of the Company's ability to
complete calls over the Internet would have a material adverse effect on the
Company's business, financial condition and results of operations. No assurances
can be made that the Company will be able to continue purchasing such services
from these third parties on acceptable terms, if at all. If the Company is
unable to purchase the necessary services to maintain and expand the Company's
network as currently configured, the Company's business, financial condition and
results of operations would be materially adversely affected.
INTERNATIONAL COMMUNICATIONS SERVICE PROVIDERS. The Company intends to
develop relationships with local communications service providers in many
countries, some of whom own the equipment that translates voice to data in that
country. The Company relies upon these third parties to both provide lines over
which the Company completes calls and to increase their capacity when necessary
as the volume of the Company's traffic increases. There is a risk that these
third parties may be slow, or fail, to provide lines, which would affect the
Company's ability to complete calls to those destinations. There can be no
assurances that the Company will establish and/or continue relationships with
these local service providers on acceptable terms, if at all. Because the
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Company relies upon these relationships with local service providers to expand
into additional countries, there can be no assurances that they will be able to
increase the number of countries to which the Company provides service. The
Company may not be able to enter into enough relationships with local service
providers in foreign locations to handle the increase in the volume of calls
from the Company's customers. Finally, any technical difficulties that these
providers suffer would affect the Company's ability to transmit calls to those
locations.
STRATEGIC RELATIONSHIPS. The Company depends on strategic relationships
to continually develop the Licensed Technology and to expand the Company's
distribution channels. In particular, the Company depends in large part on the
Company's joint product development efforts with Softalk. Softalk or other
strategic relationship partners may choose not to renew existing arrangements on
commercially acceptable terms, if at all. The Company's loss of this key
strategic relationship, or the failure to develop new relationships in the
future, would have a material adverse effect on the Company's business,
financial condition and results of operations.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO DOMESTIC GOVERNMENTAL REGULATION
AND LEGAL UNCERTAINTIES WHICH COULD MATERIALLY ADVERSELY AFFECT THE COMPANY'S
BUSINESS.
While the Federal Communications Commission (the "FCC") has tentatively
decided that information service providers, including Internet telephony
providers, are not telecommunications carriers for regulatory purposes, various
companies have challenged that decision. Congress has indicated that it is
dissatisfied with the conclusions of the FCC and the FCC could impose greater or
lesser regulation on the Company's industry. The FCC is currently considering,
for example, whether to impose surcharges or other regulations upon certain
providers of Internet telephony, primarily those which provide Internet
telephony services to end-users located within the United States.
Aspects of the Company's operations may be, or become, subject to state
or federal regulations governing universal service funding, disclosure of
confidential communications, copyright and excise taxes. There can be no
assurance that government agencies will not increasingly regulate
Internet-related services. Increased regulation of the Internet may slow its
growth. Such regulation may also negatively impact the cost of doing business
over the Internet and materially adversely affect the Company's business,
financial condition and results of operations.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO INTERNATIONAL GOVERNMENTAL
REGULATION AND LEGAL UNCERTAINTIES WHICH COULD MATERIALLY ADVERSELY AFFECT THE
COMPANY'S BUSINESS.
The Company intends on marketing its service to international long
distance callers. Because it will be conducting business internationally, the
Company is subject to certain direct or indirect risks. These risks would
include unexpected changes is regulatory requirements for the Internet and/or
Internet telephony; foreign currency fluctuations, which could increase or
decrease operating expenses and increase or decrease revenue; foreign taxation;
and the burdens of complying with a variety of foreign laws, trade standards,
tariffs and trade barriers.
The Company may also be subject to general geopolitical risks, such as
political and economic instability and changes in diplomatic and trade
relationships. Adverse conditions internationally could materially adversely
affect the Company's business, financial condition and results of operations.
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LIMITED OPERATING HISTORY
The Company has operated at a loss for the last six years. The Best Net
Call service is a new product for the Company and therefore has no operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such as
those in which the Company competes. Such risks include, but are not limited to,
evolving and unpredictable business models, management of growth, the Company's
ability to anticipate and adapt to developing markets, acceptance by Internet
users, businesses and business customers of the Company's services and the
ability of the Company to establish relationships with additional strategic
partners. To address these risks, the Company must, among other things, attract
and retain an audience of frequent users of its services in its target markets,
maintain its business customer base, attract a significant number of new
Internet telephony business customers in target markets, expand its sales of
voice, fax and value-added telecom services through Best Net Call, respond to
competitive developments, continue to form and maintain relationships with
telecom carrier partners, continue to attract, retain and motivate qualified
personnel, provide superior customer service, and continue to develop and
upgrade its technologies and commercialize its services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks, and a failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
ANTICIPATED CONTINUED OPERATING LOSSES
At August 31, 1999, Wavetech had an accumulated deficit of $7,467,861.
Prior years' financial information has no particular bearing on future years'
results because the focus of the Company has changed from calling card services
to Internet telephony.
The Company believes that its future profitability and success will
depend in large part on its ability to generate sufficient revenues from Best
Net Call revenues and websites to businesses. Revenues are also anticipated from
the licensing of its technology and business systems to partners setting up
Internet telephony services in partner-led foreign markets. The profitability
and success of the Company will depend on its ability to maintain existing
relationships and enter into new relationships with Post Telephone & Telegraph
("PTT") administrations and other carriers for which it sells Internet telephony
services and to obtain or retain for Wavetech the right to sell Internet
telephony services and related value-added telecom services online, its ability
to effectively maintain existing relationships with its multinational partners,
its ability to successfully enter into new strategic relationships for
distribution and increased usage of the Best Net Call and Internet telephony
services and its ability to generate sufficient online traffic and sales volume.
Accordingly, the Company expects to expend significant financial and management
resources on the roll-out of the Internet telephony service, and on site and
content development on its Best Net Call websites, integration of the Internet
telephony and Best Net Call services, strategic relationships, technology and
operating infrastructure. As a result, the Company expects to incur significant
additional losses and continued negative cash flow from operations for the
foreseeable future. There can be no assurance that the Company's revenues will
increase or even continue at their current levels or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. In view of the rapidly evolving nature of the Company's business, the
limited operating history of both Internet telephony and Best Net Call and the
risks associated with integrating these businesses, the Company believes that
period-to-period comparisons of operating results are not meaningful and should
not be relied upon as an indication of future performance.
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POTENTIAL CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company, including Best Net
Call, on the one hand, and its affiliates, including Softalk, on the other hand,
in areas relating to past, ongoing and future relationships, including the Best
Net Call License Agreement, corporate opportunities, indemnity arrangements, tax
and intellectual property matters, potential acquisitions or financing
transactions, sales or other dispositions by Wavetech principals. These
conflicts also may include disagreements regarding the Best Net Call License
Agreement, including with respect to possible amendments to, or modifications or
waivers of provisions of such agreement. Such amendments, modifications or
waivers may adversely affect the Company's business, financial condition and
results of operations. Ownership interests of directors or officers in the
Company's Common Stock, or serving as both a director/officer of the Company and
a director/officer/employee of Softalk, could create or appear to create
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for the Company and Softalk.
Two of the members of the Company's Board of Directors are also directors,
officers or employees of Softalk.
DEPENDENCE ON INCREASED NETWORK BANDWIDTH AND CALL PROCESSING SERVICES
The Company's future success, and in particular its revenues and
operating results, depends in large part upon its ability to increase the dollar
volume of transactions through Best Net Call, either by generating significantly
higher levels of traffic to its Internet telephony and Best Net Call websites or
by increasing the percentage of visitors to its online sites who purchase
Internet telephony or value-added telecom services, or through some combination
thereof. The Company's ability to increase network bandwidth and call processing
services will also depend in part upon Softalk's ability to develop additional
products and enhance existing products. The Softalk License Agreement obligates
Softalk to continuing product development and to research and development of
improvements and modifications for the purpose of augmenting exploitations by
Wavetech in all markets for, and all uses of, the Softalk products. While the
Company believes that, due to the perpetual right of Best Net Call to serve as
Softalk agent for web-based call processing, Softalk has a substantial interest
in its relationship with Best Net Call, there can be no assurance that Softalk
will provide fulfillment services to Best Net Call in excess of the requirements
of the Best Net Call License Agreement and, in particular, after December 31,
2006. In addition, in order to generate sufficient revenues from sponsorship and
advertising on the Best Net Call websites, the Company must deliver a high level
of service and compelling pricing in order to attract users with demographic
characteristics valuable to sponsors and advertisers. There can be no assurance
that the Company will be able to increase the dollar volume of transactions
booked through its online sites, increase traffic to its online sites, increase
the percentage of visitors who purchase advertisers' products or the Company's
value-added telecom services, increase the number of repeat purchasers or
increase its sponsorship and advertising revenues. The failure to do one or more
of the foregoing would likely have a material adverse effect on the Company's
business, financial condition and results of operations.
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FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
Since inception, Internet telephony has experienced negative cash flow
from operations and the Company expects to continue to experience significant
negative cash flow from operations for the foreseeable future. There is no
current obligation or agreement to provide any future capital or other funding
to the Company. The Company currently believes that its existing capital
resources will be sufficient to meet its presently anticipated cash requirements
through August 31, 2000. Thereafter, the Company may be required to raise
additional funds. No assurance can be given that the Company will not be
required to raise additional financing prior to such time. If additional funds
are raised through the issuance of equity securities, stockholders of the
Company may experience significant dilution. Furthermore, there can be no
assurance that additional financing will be available when needed or that if
available, such financing will include terms favorable to the Company or its
stockholders. If such financing is not available when required or is not
available on acceptable terms, the Company may be unable to develop or enhance
its services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON CONTINUED GROWTH OF INTERNET TELEPHONY
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Web and online services
such as Internet telephony as an effective medium of commerce by businesses.
Rapid growth in the use of, and interest in, the Web, the Internet and
commercial online services is a recent phenomenon, and there can be no assurance
that acceptance and use will continue to develop or that a sufficiently broad
base of businesses will adopt, and continue to use, the Web and online services
as a medium of commerce, particularly for purchasing network bandwidth and
access and related value-added telecom services. Demand for recently introduced
services and products over the Web and online services is subject to a high
level of uncertainty, and there are relatively few proven services and products.
The development of the Web and online services as a viable commercial
marketplace is subject to a number of factors, including continued growth in the
number of Internet users and users of such services, concerns about transaction
security, continued development of the necessary technological infrastructure
and the development of complementary services and products. If the Web and
online services do not become a viable commercial marketplace, the Company's
business, financial condition and results of operations would be materially and
adversely affected.
DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET AND THE WEB
The usage of the Web for services such as those offered by the Company
will depend in significant part on continued rapid growth in the number of
households and commercial, educational and government institutions with access
to the Web, in the level of usage by individuals and in the number and quality
of products and services designed for use on the Web. Because usage of the Web
as a source for information, products and services is a relatively recent
phenomenon, it is difficult to predict whether the number of users drawn to the
Web will continue to increase and whether any significant market for usage of
the Web for such purposes will continue to develop and expand. There can be no
assurance that Internet usage patterns will not decline as the novelty of the
medium recedes or that the quality of products and services offered online will
improve sufficiently to continue to support user interest. Failure of the Web to
stimulate user interest and be accessible to a broad audience at moderate costs
would jeopardize the markets for the Company's services.
Moreover, the rapid rise in the number of Internet users and increased
transmission of audio, video, graphical and other multi-telecom carrier content
over the Web has placed increasing strains on the Internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Web and
could reduce the usage of the Web by businesses and individuals. In addition, to
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the extent that the Web continues to experience significant growth in the number
of users and level of use without corresponding increases and improvements in
the Internet infrastructure, there can be no assurance that the Internet will be
able to support the demands placed upon it by such continued growth. Any failure
of the Internet to support such increasing number of users due to inadequate
infrastructure or otherwise would seriously limit the development of the Web as
a viable alternative to the use of the Public Switched Telephone Network, which
could materially and adversely affect the acceptance of the Company's services,
which would, in turn, materially and adversely affect the Company's business,
financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends to a significant degree upon the
continued contributions of the Company's executive management team, including
Gerald Quinn, the Company's Chief Executive Officer and Richard Freeman, the
Company's Vice President. The loss of the services of Mr. Quinn or Mr. Freeman
or other members of the Company's management team could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Best Net Call technology was previously managed by Softalk. The
success of the Company will depend upon a successful transition of this
technology to the Company's senior management team. The Company's employees,
including its senior officers, may voluntarily terminate their employment with
the Company at any time, and competition for qualified employees is intense. The
Company's success also depends upon its ability to attract and retain additional
highly qualified management, technical and sales and marketing personnel. The
process of locating and hiring such personnel with the combination of skills and
attributes required to carry out the Company's strategy is often lengthy. The
loss of the services of key personnel or the inability to attract additional
qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The Company expects that information and telecommunication services
markets will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than the Company's technology. The Company does not have the right,
contractually or otherwise, to prevent its subscribers from using competing
products and the Company's subscribers may generally terminate their services
with the Company at will. In addition, consumer demand for particular
telecommunications products may be adversely affected by the increasing number
of competitive products from which to choose, making it difficult to predict the
Company's future success in producing telecommunications products for the
marketplace.
Currently, the Company's primary competitors for Internet telephony
services include Net2Phone, Inc., ITXC, Inc., DeltaThree, Inc., and iBasis, Inc.
The Company also competes against traditional long distance carriers such as
AT&T, MCI WorldComm, Sprint, and Qwest Communications, Inc. The Company may also
compete with online services and other Web site operators, as well as
traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets. There can be no assurance that the
Company' s competitors will not develop services that are superior to those of
the Company or that may achieve greater market acceptance than the Company's
offerings.
The Company believes that the principal competitive factors include
ease-of-use, real-time billing, transmission quality, distribution, web-linkage
and brand recognition. Many of the Company's competitors have greater financial
and marketing resources than the Company and may have significant competitive
advantages through other lines of business and existing business relationships.
There can be no assurance that the Company will be able to successfully compete
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, as a strategic response to changes in the
competitive environment, the Company may make certain pricing, servicing or
marketing decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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ONLINE COMMERCE AND DATABASE SECURITY RISKS
A fundamental requirement for online commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as businesses credit card
numbers. In addition, the Company maintains an extensive confidential database
of consumer profiles and transaction information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments will not result in a compromise or breach of the
methods used by the Company to protect consumer transaction and personal data
contained in the Company's database. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
reputation and on its business, operating results and financial condition. A
party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of transactions conducted on
the Internet and commercial online services and the privacy of users may also
inhibit the growth of the Web and online services as a means of conducting
commercial transactions. To the extent that activities of the Company or
third-party contractors involve the storage and transmission of proprietary
information, such as credit card numbers or other personal information, security
breaches could expose the Company to a risk of loss or litigation and possible
liability. In addition, the Company may suffer losses as a result of orders
placed with fraudulent credit card data, even though the consumer's payment for
such orders has been authorized by the associated financial institution. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions processed by the
Company, no cardholder signature is obtained. There can be no assurance that the
Company will not suffer significant losses as a result of fraudulent use of
credit card data in the future, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
The Internet and the online commerce industry are characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render the Company's existing online sites and proprietary technology and
systems obsolete. The emerging nature of these products and services and their
rapid evolution will require that the Company continually improve the
performance, features and reliability of its online services, particularly in
response to competitive offerings. The Company's success will depend, in part,
on its ability to enhance its existing services, to develop new services and
technology that address the increasingly sophisticated and varied needs of its
prospective customers and to respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of online sites and other proprietary technology entails significant
technical and business risks and requires substantial expenditures and lead
time. There can be no assurance that the Company will successfully use new
technologies effectively or adapt its online sites, proprietary technology and
transaction-processing systems to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, its business, operating results and financial
condition could be materially adversely affected.
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LIABILITY FOR ONLINE CONTENT
The Company may face potential liability for defamation, negligence,
copyright, patent or trademark infringement and other claims based on the nature
and content of the materials that appear on the Company's sites or on sites
operated by its respective partners. Such claims have been brought, and
sometimes successfully pressed, against online services providers and other
"non-common carrier status" providers. Although the Company intends to continue
its general liability insurance, the Company's insurance may not cover claims of
these types or may not be adequate to indemnify the Company for any liability
that may be imposed. Any imposition of liability, particularly liability that is
not covered by insurance or is in excess of insurance coverage, could have a
material adverse effect on the Company's reputation and its business, financial
condition and results of operations.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF THIRD PARTY LICENSES
The Company regards the Company's and Softalk's copyrights, service
marks, trademarks, trade dress, trade secrets, proprietary software and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with employees, customers, partners and others to protect its
proprietary rights. The Company pursues the registration of certain of its key
trademarks and service marks in the United States and internationally. Effective
trademark, service mark, copyright and trade secret protection may not be
available or sought by the Company in every country in which the Company's
products and services are made available online. The Company has licensed in the
past, and expects that it may license in the future, certain proprietary rights,
such as trademarks or copyrighted material, to and from third parties. While the
Company attempts to ensure that the quality of its brands is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect its proprietary
rights will be adequate or that third parties will not infringe or
misappropriate its copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
assert infringement claims, including patent infringement claims, against the
Company. In January 1996, Softalk filed an application entitled "Systems and
Methods for Establishing Long Distance Through the Internet" for United States
registration of their proprietary software and trademarks with the United States
Patent and Trademark Office ("USPTO"). There can be no assurance that the USPTO
will grant registration of this technology and trademarks or that an inability
to obtain such registration will not have an adverse effect on the ability of
such licenser or the Company to utilize such trademark in the future. The
Company may be subject to legal proceedings and claims of alleged infringement
of the trademarks and other intellectual property rights of third parties by the
Company and its licensees. Such claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources which could
result in a material adverse effect on the Company's business, financial
condition and results of operations licensed from Softalk. The Company is
dependent upon Softalk to maintain and assert its rights to the trademarks and
to defend infringement claims, if any.
RISKS ASSOCIATED WITH REGULATORY MATTERS
The Company is subject to regulations applicable to businesses
generally and laws or regulations directly applicable to accessing online
commerce. Although there are currently few laws and regulations directly
applicable to the Internet and commercial online services, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or
commercial online services covering issues such as user privacy, pricing,
content, taxation, copyrights, distribution, antitrust and characteristics and
quality of products and services. Furthermore, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies conducting
business online. The adoption of any additional laws or regulations may decrease
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the growth of the Internet or commercial online services, which could, in turn,
decrease the demand for the Company's products and services and increase the
Company's cost of doing business, or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
the applicability to the Internet and commercial online services of existing
laws in various jurisdictions governing issues such as property ownership, sales
and other taxes, libel and personal privacy is uncertain and may take years to
resolve. For example, tax authorities in a number of states are currently
reviewing the appropriate tax treatment of companies engaged in online commerce,
and new state tax regulations may subject the Company to additional state sales
and income taxes. Any such new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to the
Company's business, or the application of existing laws and regulations to the
Internet and commercial online services could have a material adverse effect on
the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
Many older computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, computer systems and/or software used by some companies may
need to be upgraded to comply with such "Year 2000" requirements.
As reported in previous 10-QSBs, the Company hired an independent
consultant to review the Company's main billing program. All assessments of
internal systems and minor modifications have been completed and the Company has
determined that it is compliant with Year 2000 requirements. Total costs for the
initial programming, fees for the outside consultant, associated testing and
modifications were $6,500. Additionally, all hardware and software to provide
the Best Net Call service has been verified to be Year 2000 compliant.
The Company is reliant on other third parties such as utilities,
vendors, telecommunication carriers whose non-compliance or non-readiness could
adversely impact operations. The Company is taking steps to assure third party
compliance, however, there can be no assurance that all such parties will be
Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Wavetech International, Inc.
Audited Financial Statements
Year ended August 31, 1999
CONTENTS
Report of Independent Auditors.......................................... F-1
Audited Financial Statements
Consolidated Balance Sheet.............................................. F-2
Consolidated Statements of Operations................................... F-3
Consolidated Statements of Changes in Stockholders' Equity.............. F-4
Consolidated Statements of Cash Flows................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
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Report of Independent Auditors
Board of Directors
Wavetech International, Inc.
We have audited the accompanying consolidated balance sheet of Wavetech
International, Inc. as of August 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Wavetech
International, Inc. for the year ended August 31, 1998 were audited by other
auditors whose report dated November 6, 1998, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wavetech
International, Inc. as of August 31, 1999, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Tucson, Arizona
October 18, 1999,
except for Note 11, as to which the date is
November 13, 1999
F-1
<PAGE>
Wavetech International, Inc.
Consolidated Balance Sheet
August 31, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 889,620
Prepaid expenses and other assets 8,529
-----------
Total current assets 898,149
Property and equipment, net 363,559
License fee, net of amortization of $9,524 190,476
Note receivable from affiliate 100,000
Deposits and other assets 22,211
===========
Total assets $ 1,574,395
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 243,029
Notes payable to officer 13,000
Capital lease obligations, current portion 23,680
-----------
Total current liabilities 279,709
Capital lease obligation, net of current portion 1,579
Commitments
Stockholders' equity:
Series A preferred stock, 6% cumulative, par value
$.001 per share; 10,000,000 shares authorized, 600
shares issued and outstanding (liquidation value $600,000) 1
Common stock, par value $.001 per share; 50,000,000
shares authorized, 3,021,288 shares issued and outstanding 3,021
Additional paid-in capital 8,757,946
Accumulated deficit (7,467,861)
-----------
Total stockholders' equity 1,293,107
-----------
Total liabilities and stockholders' equity $ 1,574,395
===========
See notes to consolidated financial statements.
F-2
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Operations
For the years ended August 31, 1999 and 1998
1999 1998
----------- -----------
Revenues $ 13,580 $ 157,838
Expenses:
Cost of sales (exclusive of depreciation
and amortization shown separately below) 9,468 85,082
General and administrative 691,479 794,004
Depreciation and amortization expense 146,977 156,965
----------- -----------
Total expenses 847,924 1,036,051
----------- -----------
Net loss from operations (834,344) (878,213)
Other income (expense):
Interest income 70,519 6,565
Rental income 36,000 8,833
Interest expense (8,995) (45,182)
License agreement termination income -- 236,906
Loss on sale of investment in Switch -- (216,165)
Debt conversion expense -- (92,894)
Costs incurred in connection with unconsummated
merger (118,450) (236,737)
Write-off of intangible and other assets (36,125) --
Preferred stock conversion penalty (144,000) --
Other expenses (15,000) --
----------- -----------
Total other income (expense) (216,051) (338,674)
Net loss before preferred dividends (1,050,395) (1,216,887)
Cumulative preferred dividends declared and
preferred stock conversion benefit 36,500 135,994
----------- -----------
Net loss available to common shareholders $(1,086,895) $(1,352,881)
=========== ===========
Net loss per common share, basic and diluted $ (.37) $ (.51)
Weighted average number of shares outstanding,
basic and diluted 2,904,693 2,663,257
See notes to consolidated financial statements.
F-3
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the years ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1997 -- $ - 15,076,807 $ 15,077 $7,024,823 $(5,028,085) $ 2,011,815
Common stock issued for
payroll and services -- - 476,069 476 155,754 -- 156,230
Warrants exercised -- - 380,280 380 222,123 -- 222,503
Conversion of debt into
common stock -- - 1,061,731 1,062 370,511 -- 371,573
Debt conversion expense -- - -- -- 92,894 -- 92,894
Sale of Series A Preferred
Stock 600 1 -- -- 527,923 -- 527,924
Preferred stock conversion
benefit -- - -- -- 122,894 -- 122,894
Preferred stock dividend -- - -- -- -- (135,994) (135,994)
Net loss -- - -- -- -- (1,216,887) (1,216,887)
--- ---- --------- -------- ---------- ----------- -----------
Balances, August 31, 1998 600 1 16,994,887 16,995 8,516,922 (6,380,966) 2,152,952
Net loss -- - -- -- -- (1,050,395) (1,050,395)
Conversion of debt into
common stock -- - 156,250 156 49,844 -- 50,000
Reverse 1-for-6 stock split -- - (14,292,473) (14,292) 14,292 -- --
Preferred stock dividends -- - 27,798 28 24,272 (36,500) (12,200)
Preferred stock conversion
penalty -- - 128,993 129 143,871 -- 144,000
Stock options exercised -- - 5,833 5 8,745 -- 8,750
--- ---- --------- -------- ---------- ----------- -----------
Balances, August 31, 1999 600 $ 1 3,021,288 $ 3,021 $8,757,946 $(7,467,861) $ 1,293,107
=== ==== ========= ======== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Wavetech International, Inc.
Consolidated Statements of Cash Flows
For the years ended August 31, 1999 and 1998
1999 1998
----------- -----------
Operating activities:
Net loss $(1,050,395) $(1,216,887)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 146,977 156,965
Common stock issued for services and accrued
interest -- 168,732
Debt conversion expense -- 92,894
Loss on disposition of Switch shares -- 216,165
Bad debt provision 18,276 --
Write-off of intangible and other assets 36,125 --
Preferred stock conversion penalty 144,000 --
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses
and other current assets (1,983) 11,175
Decrease in deposits and other assets 7,872 --
Decrease in accounts payable and accrued
expenses (12,216) (151,426)
Decrease in unearned revenue -- (146,429)
----------- -----------
Net cash used in operating activities (711,344) (868,811)
Investing activities:
Purchase of property and equipment (252,445) (1,985)
Decrease in other assets -- 5,550
Issuance of notes receivable (100,000) --
Purchase of licensing agreements (200,000) --
Proceeds from sale of investment in Switch -- 2,100,000
----------- -----------
Net cash (used in) provided by investing
activities (552,445) 2,103,565
Financing activities:
Proceeds from notes payable -- 580,000
Payments on notes payable -- (330,000)
Payments on capital lease obligations (45,714) (39,037)
Proceeds from common stock issued 8,750 222,503
Proceeds from preferred stock issued -- 527,924
Dividends paid in cash on preferred stock (12,200) (6,900)
----------- -----------
Net cash (used in) provided by financing
activities (49,164) 954,490
Net (decrease) increase in cash and cash
equivalents (1,312,953) 2,189,244
Cash and cash equivalents, beginning of year 2,202,573 13,329
=========== ===========
Cash and cash equivalents, end of year $ 889,620 $ 2,202,573
=========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
Wavetech International, Inc.
Notes to Consolidated Financial Statements
August 31, 1999
1. ORGANIZATION
Wavetech International, Inc. (the Company) is currently conducting minimal
operations while actively pursuing to implement its business strategy of
providing Internet telephony services. The Company has recorded net operating
losses in each of the previous six years and does not anticipate realization of
full operations until its strategy is fully implemented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Interpretel, Inc. (Interpretel), Interpretel
Canada Inc. and Telplex International Communications, Inc. All significant
intercompany accounts and transactions have been eliminated.
On March 8, 1995, the Company entered into an agreement with Interpretel
pursuant to which the Company agreed to issue 6,000,000 (pre-split) shares of
its common stock in exchange for 100% of the outstanding 1,532,140 shares of
common stock of Interpretel. The transaction resulted in the former shareholders
of Interpretel owning approximately 80% of the outstanding shares of the
Company. In accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations," the acquisition was accounted for as a reverse acquisition with
Interpretel deemed to be the acquiring entity of the Company. The common shares
issued in connection with the acquisition were assigned no value because the
Company had no assets or liabilities at the date of the acquisition.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased (money market accounts and certificates of
deposit) to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated over the estimated
useful lives of the related assets, as follows:
Furniture and fixtures 7 years
Computer equipment 5 years
Software 5 years
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The costs of maintenance, repairs and minor renewals are charged to expense in
the year incurred. Expenditures that increase the useful lives of the asset are
capitalized. When items are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
income.
LICENSE FEES
Fees to license certain communications software are recorded at cost and
amortized over the seven year life of the underlying agreement.
INCOME TAXES
Income taxes are determined using the liability method. This method gives
consideration to the future tax consequences associated with temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes.
CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
At August 31, 1999, the Company maintained the majority of its cash balances in
bank accounts insured by the FDIC.
The carrying amounts for cash and cash equivalents, notes receivable, accounts
payable and notes payable approximate fair value because of the short maturity
of these instruments. The Company does not hold or issue financial instruments
for trading purposes.
REVENUE RECOGNITION
Revenue from the sale of licensing agreements is recognized over the term of the
agreement. Revenue from the installation of equipment is recognized when
delivered. Revenue from the resale of minutes is recorded when the minutes are
used by the customer. Cost of sales includes expenses directly related to the
operation and maintenance of the telephony platform. Depreciation and
amortization expense is separately stated.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation arrangements
under the provisions of APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Stock Options are granted to employees and directors under its Stock Option Plan
with an exercise price equal to fair value at the date of grant and accordingly
recognizes no compensation expense in connection with such grants.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Diluted loss per share is equal to basic loss per share for all periods
presented as the effect of all applicable securities (preferred stock, stock
options and warrants; see Note 6) is anti-dilutive (decrease the loss per share
amount). References to share and per share amounts have been restated to reflect
a one-for-six stock split effective December 18, 1998 unless otherwise noted.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
The 1998 financial statements have been reclassified to conform to the 1999
presentations.
3. PROPERTY AND EQUIPMENT
Property and equipment is composed of the following at August 31, 1999:
Furniture and fixtures $ 170,415
Computer equipment 618,807
Software 218,108
-----------
Total property and equipment, at cost 1,007,330
Less: accumulated depreciation and amortization (643,771)
-----------
$ 363,559
===========
Amortization expense related to assets held under capital leases was $23,847 and
$36,139 in 1999 and 1998 respectively.
4. NOTE PAYABLE
Note payable to officer at August 31, 1999 consists of an unsecured note payable
to an officer and shareholder of the Company, due on demand, interest payable at
15%.
On October 12, 1998, a note payable for $50,000, plus accrued interest, to an
unrelated entity was converted into 156,250 (pre-split) shares of Common Stock.
The conversion price was based on the average of the high and low price on the
date of the letter of agreement for repayment of this note payable. Interest
paid on notes payable and capital lease obligations amounted to $6,317 and
$30,282 in 1999 and 1998, respectively.
F-8
<PAGE>
5. LEASES
The Company has entered into capital lease arrangements for office furniture and
equipment and operating lease arrangements for office space.
Future lease commitments at August 31, 1999 are as follows:
CAPITAL OPERATING
LEASES LEASES
--------- ---------
2000 $ 24,874 $ 110,659
2001 1,615 116,262
2002 -- 29,416
--------- ---------
26,489 $ 256,337
=========
Less amounts representing interest 1,230
---------
Present value of net minimum lease payments $ 25,259
Less current portion (23,680)
---------
$ 1,579
=========
Total rent expense under operating leases in 1999 and 1998 was $128,270 and
$121,000, respectively.
6. STOCKHOLDERS EQUITY
PREFERRED STOCK: The Company issued 600 shares of Series A Convertible Preferred
Stock in 1998 at $1,000 per share. The 6% Preferred stockholders are entitled to
receive annual cumulative dividends 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 to any other class or
series of stock of the Corporation. In 1999, a portion of these dividends were
settled by the issuance of common shares. Series A Preferred stockholders do not
have any voting rights.
The Preferred Stock is convertible at the option of the Company at any time on
at least ten days advance notice once the shares issuable upon conversion are
registered for resale by an effective registration statement. The conversion
price is the lesser of five dollars and twenty-five cents ($5.25) or
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). However, all
outstanding shares of Preferred Stock shall be automatically converted into
common stock in April 2000 at the conversion price as set forth in the
subscription agreement. A beneficial conversion feature of $122,894 resulted in
a charge to retained earnings in 1998.
F-9
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
The Preferred stock is redeemable at the option of the Company after the date on
which a registration statement under the Securities Act has been declared
effective; provided the Company has given at least 5 days written notice. If any
conversion of preferred shares in aggregate cause the Company to issue in excess
of 20% of common shares outstanding and issued, the Company shall redeem such
number of preferred shares as is necessary to limit the issuance of the common
shares to 20% unless shareholder approval has been obtained to issue in excess
of 20% of the outstanding and issued common shares. If redemption occurs, the
Company must remit within 5 days of notice in the form of a cashiers check
$1,250 per preferred share plus all accrued and unpaid dividends.
The holder of Preferred Stock may elect to convert such shares into Common Stock
at the conversion price described above upon written notice to the Company. Such
common shares are to be converted pursuant to an effective registration
statement. Should the Company fail to register such common shares to allow for
conversion as noted above, the Company is required to pay monthly liquidated
damages to the Preferred Stock holder equal to 2% of the purchase price of the
Preferred Stock. The Company expensed $144,000 and issued 128,993 shares of
Common Stock in 1999 in liquidated damage payments, and will continue to incur
such costs until such time as the shares are registered.
COMMON STOCK: The Company issued in 1998 348,187 (pre-split) shares of common
stock for consulting services pursuant to various agreements valued at $130,477.
The value assigned to the common stock was based on the fair market value of the
common stock on the date that the liability was incurred. The value of the
consulting services was charged to expense during the period incurred.
The Company issued 54,557 (pre-split) deferred shares of common stock under the
1997 Stock Incentive Plan in 1998 to meet payroll expenses in the amount of
$25,753. The value assigned to the common stock was based on the fair market
value on the date of issue.
The Company issued 73,325 (pre-split) shares of common stock in 1998 in
satisfaction for services valued at $29,000 performed in 1997. The value
assigned to the common stock was charged to expense in 1997 based on the fair
market values of the common stock.
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
(pre-split) per share, the following option: for a specific eleven day period,
the right to exercise their warrants for $0.585 (pre-split) per common share
(the fair market value on the date of the warrant exchange offer). The warrants
were initially issued with convertible notes that matured during the year ended
August 31, 1996 and were converted into common shares at the face value of the
notes plus accrued interest. A total of 380,280 (pre-split) out of 784,781
(pre-split) warrants were exercised under this offer and the balance of 404,501
(pre-split) warrants expired on May 31, 1998. The Company received $222,503 for
the warrants. The Company recorded the exercise of the warrants as an increase
to additional paid-in-capital and common stock.
F-10
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
In October of 1997, the Company received proceeds of $250,000 from the issuance
of convertible notes payable. The notes were issued with attached warrants to
purchase an aggregate of 40,000 (pre-split) shares of the Company's common
stock. Each of the warrants is convertible at any time prior to October 24, 1999
by the holder thereof at an exercise price of $0.46 (pre-split) per share. The
warrants are granted at fair market value of the common stock on the date of the
grant. The warrants are valued at $18,400. These warrants remained outstanding
at August 31, 1998. The notes accrued interest at a rate of 12% per annum and
principal and accrued interest thereon were payable on or before April 24, 1998.
On November 30, 1997, $200,000 in notes payable along with accrued interest of
$2,067 were converted into 577,424 (pre-split) shares of common stock. A
beneficial conversion feature of $92,894 was charged to expense in the period of
the conversion. The balance of $50,000 payable at August 31, 1998 was converted
into 156,250 (pre-split) shares in 1999 (Note 4). An aggregate of $100,000 of
these notes payable was held by the wife and son of a director of the Company,
who received 288,096 (pre-split) shares of the Company's common stock upon
conversion.
On November 30, 1997, the Company converted $165,335 in existing notes payable
plus accrued interest of $4,171 to 484,307 (pre-split) shares of common stock.
The conversion price was based on the fair market value of the common stock on
the date of the conversion.
The following summarizes warrant activity in 1999:
EXERCISE
NUMBER PRICE
-------- --------------
Outstanding, September 1, 1998 382,500 $2.64 - $10.50
Expired (34,167) $2.64 - $10.50
-------- --------------
Outstanding, August 31, 1999 348,333 $2.76 - $ 9.00
======== ==============
STOCK INCENTIVE PLAN: The Company is authorized to issue up to 766,667 shares of
common stock under its 1997 Stock Incentive Plan. Shares may be issued as
incentive stock options, deferred shares or restricted shares. The options are
granted at the fair market value of the common stock on the date of the grant;
options have terms of up to ten years. The Company also grants non-statutory
options.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rate of 5.60%, dividend yield of 0%, volatility
factor of the expected market price of the Company's common stock of 2.334, and
a weighted-average expected life of the options of 2 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
F-11
<PAGE>
6. STOCKHOLDERS EQUITY (CONTINUED)
SFAS No. 123 requires the Company to present pro forma disclosure for options
granted subsequent to 1995. These disclosures are not indicative of future
amounts, as options granted prior to 1995 have not been included as provided by
SFAS No. 123. For purposes of pro forma disclosure, the estimated fair value of
stock options was amortized to expense over the vesting period. Pro forma net
loss and loss per share are as follows:
1999 1998
----------- -----------
Net loss available to common
stockholders, as reported $(1,086,895) $(1,352,881)
Pro forma compensation expense
for stock options (249,557) (17,000)
----------- -----------
Pro forma net loss available
to common stockholders (1,336,452) (1,369,881)
----------- -----------
Pro forma loss per share available
to common stockholders $ (.43) $ (.51)
=========== ===========
A summary of the Company's stock option activity (including Non-Statutory
options) is as follows:
WEIGHTED
OPTION EXERCISE
NUMBER OF PRICE PRICE
OPTIONS GRANTED PER SHARE PER SHARE
--------------- --------- ---------
Outstanding, September 1, 1997 375,000 $2.25 - 6.00 $4.17
Granted 11,667 2.40 2.40
Canceled (100,000) 3.96 3.96
---------- ------------ -----
Outstanding, August 31, 1998 286,667 $2.25 - 6.00 4.17
Granted 1,896,667 1.00 - 3.00 1.06
Exercised (5,833) 1.5 1.5
Canceled (133,333) 1.00 - 3.96 2.14
---------- ------------ -----
Outstanding, August 31, 1999 2,044,168 $1.00 - 6.00 1.43
========== ============ =====
The remaining contractual life of options outstanding at August 31, 1999 was 9.6
years. Options for the purchase of 266,667 and 360,833 shares were immediately
exercisable at August 31, 1999 and 1998 with a weighted-average price of $3.33
and $4.31 per share.
The weighted average fair values of stock options granted during 1999 and 1998
for which the exercise price was equal to the fair market value of the stock
were $.96 and $0.40 per share, respectively.
F-12
<PAGE>
7. INCOME TAXES
At August 31, 1999, the Company has federal net operating loss carryforwards
totaling approximately $11,000,000 and state net operating loss carryforwards of
approximately $7,100,000. The federal and state net operating loss carryforwards
expire in various amounts beginning in 2011 for federal purposes and 2000 for
state purposes. Certain of the Company's net operating loss carryforwards may be
subject to annual restrictions limiting their utilization in accordance with
Internal Revenue Code Section 382, which include limitations based on changes in
control. In addition, approximately $3,200,000 of net operating loss
carryforwards are further limited to activities in a trade or business in which
the Company is not presently involved. Additionally, the Company has capital
loss carryforwards of approximately $216,000 which will expire in 2004 unless
offset by capital gains. No tax benefit has been recorded in the financial
statements since realization of these loss carryforwards does not appear likely.
The income tax benefit for the years ended August 31 is comprised of the
following amounts:
1999 1998
--------- ---------
Current $ -- $ --
Deferred:
Federal (359,000) (453,000)
State (55,000) (19,000)
--------- ---------
(414,000) (472,000)
Valuation allowance 414,000 472,000
--------- ---------
$ -- $ --
========= =========
The Company's tax benefit differs from the benefit calculated using the federal
statutory income tax rate for the following reasons:
1999 1998
----- -----
Statutory tax rate 34.0% 35.0%
State income taxes 5.3% 9.0%
Amortization of organization costs -- (7.0)%
Change in valuation allowance (39.3)% (37.0)%
----- -----
Effective tax rate 0.0% 0.0%
===== =====
F-13
<PAGE>
7. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are as follows:
1999 1998
----------- -----------
Deferred tax asset:
Amortization of Intangibles $ 33,000 $ 70,000
Net Capital Loss 85,000 --
Net operating loss carryforward 3,756,000 3,390,000
----------- -----------
3,874,000 3,460,000
Valuation allowance (3,874,000) (3,460,000)
----------- -----------
$ -- $ --
=========== ===========
Income taxes of $50 and $200 were paid in 1999 and 1998, respectively.
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, requires a valuation allowance to reduce the deferred tax assets if,
based on the weight of the evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. After consideration of all the
evidence, both positive and negative, management has determined that a
$3,874,000 valuation allowance at August 31, 1999 is necessary to reduce the
deferred tax assets to the amount that will more likely than not be realized.
The change in the valuation allowance for the current year is $414,000.
8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED
During August 1996 the Company entered into an agreement with Switch
Telecommunications Pty Limited (Switch) to exchange an equity interest in the
Company for an equity interest in Switch. The equity interests consist of
outstanding common stock of the respective companies. The Company received five
shares of Switch common stock representing 5% of the issued and outstanding
common stock, in exchange for 257,352 shares of the Company's stock. On June 30,
1998, an agreement was reached between the Company and Switch which set forth
the terms and conditions of a one year put option for the shares of common stock
of Switch which are owned by the Company. On August 25, 1998, the Company
exercised the put option thereby selling its entire interest in Switch for
$2,100,000. The sale resulted in recognition of a net loss on the investment of
$216,165.
Switch purchased a three-year warrant to purchase up to 333,333 shares of the
Company's common stock at a price of $9 per share. The warrants expire January
17, 2000. Consideration of $20,000 was received for the warrants.
F-14
<PAGE>
8. INVESTMENT IN SWITCH TELECOMMUNICATIONS PTY LIMITED (CONTINUED)
The Company entered into an Equipment and Software Turnkey Agreement with Switch
during August, 1996. This agreement sets forth the terms of fees and services
between Interpretel and Switch. The agreement provides for the purchase of an
Interpretel system and licensing for its use in Australia, New Zealand, the
subcontinent of India and Asia (excluding Korea and Japan). The initial term of
the license was seven years. In the agreement, Switch contracted to purchase an
Interpretel System consisting of a computer platform and related software. The
agreement also provided for a licensing fee in the amount of $500,000 to be paid
to Interpretel over a three-year period. The Company received $200,000 of the
licensing fee during the year ended August 31, 1997. Effective June 30, 1998, an
agreement was reached between the Company and Switch terminating the license
agreement. Switch agreed to pay the Company $150,000 in consideration of the
termination of the agreement. The payment was received on July 10, 1998. In
consideration of the termination of the licensing agreement, the Company agreed
to release Switch from any other obligations including the gross revenue fee. In
connection with the termination of the licensing fee, the Company recognized
$86,906 in unamortized deferred revenue and $150,000 termination payment for a
total of $236,906 in license fee termination income.
9. RELATED PARTY TRANSACTIONS
The Company executed a loan agreement on August 6, 1999 with a company owned by
certain of the Company's board members. The agreement, under which $100,000 was
advanced at August 31, 1999 in the form of a note receivable, gives the borrower
the option to convert the outstanding principal into shares of such company in a
specified amount. Borrowings under the loan agreement bear interest at prime
plus 1%.
10. LOSS ON ASSET IMPAIRMENT
The Company determined in the fourth quarter of fiscal 1999 that certain fixed
and intangible assets no longer were of value to the Company. Accordingly, such
assets and the related accumulated depreciation and amortization (net book value
of $36,125) were written off.
11. SUBSEQUENT EVENTS
The Company amended its license agreement with Softalk, Inc. (Softalk) on
October 25, 1999. The amended agreement is a worldwide, exclusive license to
distribute, market, service, sell and sublicense any and all of Softalk's
services and products to commercial accounts and a worldwide non-exclusive
license for individual accounts. The Company issued five-year warrants to
purchase the Company's common stock in connection with this amendment as
follows: 3,246,753 exercisable at $3.25; 1,000,000 at $5.00; and 1,000,000 at
$10.00.
On November 13, 1999, the Company purchased certain assets (products and
accounts) from Softalk in exchange for 4,329,004 shares of Class A voting
preferred stock of Interpretel Canada Inc. (the Class A shares). The Class A
shares are exchangeable on a one-for-one basis into the Company's common shares
at any time. The Class A shares must at all times represent at least 15% of the
voting shares and 15% of the fair market value of Interpretel Canada.
F-15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Wavetech International, Inc.
We have audited the accompanying consolidated statements of operations, changes
in stocholders' equity and cash flows of Wavetech International, Inc. for the
year ended August 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Wavetech International, Inc. for the year ended August 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Addison, Roberts & Ludwig, P.C.
Tucson, Arizona
November 6, 1998
17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANT ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
On August 12, 1999, the Company filed a Form 8-K in which the Company
reported the declination for reelection notice from their independent auditors,
Addison, Roberts & Ludwig, P.C. ("AR&L"). AR&L declined to stand for reelection
as the Company's independent auditors for the year ending August 31, 1999, due
to the firm's cessation of audit and accounting services and the withdrawal of
all the firm's partners. AR&L had expressed an unqualified opinion on the
Company's financial statements in 1998. There were no disagreements with AR&L on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On August 16, 1999, the company filed a Form 8-K in which the Company
reported the appointment of Ernst & Young, LLP as their independent auditors,
replacing Addison, Roberts & Ludwig.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
All directors hold office until the next annual meeting of stockholders
of the Company and thereafter until their successors are chosen and qualified.
All officers hold office at the selection and pleasure of the Board of Directors
of the Company.
DIRECTORS AND OFFICERS
The current directors and executive officers of the Company are as
follows:
Name Age Position Held with Company
---- --- --------------------------
Gerald I. Quinn 55 President, Chief Executive Officer and a
member of the Company's Board of Directors
Richard P. Freeman 41 Vice President, Investor Relations and
Product Development and a member of the
Company's Board of Directors
John P. Clements 48 Director
Alexander C. Lang 46 Director
Rosnani Atan 34 Director
GERALD I. QUINN has been the President of Interpretel (Canada), a subsidiary of
the Company, since 1995. In May 1996, Mr. Quinn became the President, Chief
Executive Officer and a Director of the Company. From 1986 to 1994, Mr. Quinn
was Vice President of University Affairs and Development at the University of
Guelph, which is one of Canada's leading teaching and research universities.
While at the University of Guelph, Mr. Quinn's responsibilities included
marketing, image development, constituent relations and media relations,
including systems development, telemarketing and the development of affinity
programs. From 1975 until 1986, Mr. Quinn held many senior administrative
positions with Canada's largest college of applied arts and technology,
including positions relating to the development and commercialization of
technology and multimedia-based interactive learning programs. Since 1984, Mr.
Quinn has served as a consultant to Cableshare Interactive Technology, Inc., a
Canadian TSE listed public company that operates in the interactive television
industry ("Cableshare"). Mr. Quinn has been a director of Cableshare since 1993
and has chaired its board committee on mergers and acquisitions. In 1997 Mr.
Quinn negotiated a merger of Cableshare with Source Media, Inc. (NASDAQ:SRCM)
culminating in Source Media, Inc. owning 100% of Cableshare. Mr. Quinn is active
in numerous civic and professional organizations and has been recognized for his
work in marketing, sales, promotion and public relations by various trade
organizations. Mr. Quinn has two arts degrees with majors in English, Economics
and Political Science.
18
<PAGE>
RICHARD P. FREEMAN was a co-founder of Interpretel and has served as
Interpretel's Vice President since 1993 and as a Director of the Company since
March 1995. Prior to joining Interpretel, Mr. Freeman was a principal in several
entrepreneurial companies located in Arizona, which were primarily involved in
the tourism and travel industries. Those companies included Desert Divers, a
scuba retail and boat charter company, and Vacation, Etc., a tour and travel
company which focused on corporate, leisure and adventure travel, wholesale tour
operations and escorted senior travel. Mr. Freeman has also served as a
consultant to several travel-related organizations, including the Business Radio
Network, a national network. Mr. Freeman holds a Bachelor of Arts degree from
the University of Arizona and is active in various civic and community
organizations.
JOHN P. CLEMENTS has been a Director of the Company since February 1998. Mr.
Clements is currently Vice President of Lovitt & Touche, an insurance brokerage
firm in Tucson, Arizona. The firm services a variety of industries, with a
specialty in real estate. Prior to joining Lovitt & Touche in 1989, Mr. Clements
served as Chief Operating Officer for Ashland Equities Company in Tucson where
he directed development of shopping centers and formed land investment
partnerships. Mr. Clements is also a Certified Public Accountant. For the first
14 years of his career he was with Coopers & Lybrand (subsequently named
PriceWaterhouseCoopers LLP) where he started in a staff position and moved up to
become a General Practice Partner in charge of Audit Practice for the Tucson
office, specializing in real estate and healthcare.
ALEXANDER C. (Chris) LANG was appointed to the Company's Board of Directors in
July 1999. Mr. Lang is president, principal shareholder, and a member of the
Board of Directors of Softalk in Toronto, Ontario. Mr. Lang has been in the
telecommunications business for 22 years, holding various technical positions
related to marketing and product design. From 1993 to the present, Mr. Lang has
served as President of Softalk, a private telecommunications & web-based
software development company, where he introduced products which have worldwide
reach through the use of the Internet for control and management. From 1988 to
1993, Mr. Lang provided consulting services to the telecom industry. He launched
a long distance reselling company, participated in the development of the Novell
Certification Program, and strategic partnerships program for voice recognition.
From 1985 to 1988, he worked for Rolm/IBM in the development of
telecommunication systems which included a posting at the strategic presentation
center in Santa Clara, CA. From 1981 to 1985, he was a marketing manager with
Rockwell International Switching Division. From 1978 to 1981, Mr. Lang worked
for Bell Canada in many different technical capacities. Mr. Lang received his BA
in Economics in 1977.
ROSNANI ATAN was appointed to the Company's Board of Directors in July 1999. Ms.
Atan is the Chief Executive Officer and a member of the Board of Directors of
Softalk. She has been with Softalk since January 1999. Ms. Atan served as
Telecom Analyst, Global Telecom Services with Arthur Andersen World-wide S.C.,
Asia Pacific Office, Singapore. Her responsibilities included data and voice
telecommunications activities for Arthur Andersen and Andersen Consulting in
Asia Pacific, Europe, the Middle East, Africa and India. She was responsible for
all project management related to telecommunications as well as sourcing new
communication technologies for global rollout by Andersen. Ms. Atan provided
advice to all IT Directors worldwide and participated in the implementation of
communication systems and technologies. From 1991 to 1995, she was with Keppel
Corporation Limited. Ms. Atan was responsible for data networking for Keppel and
its 11 subsidiaries. She set company-wide standards for Office Automation tools,
implemented a document imaging project and redesigned the company's LAN/WAN and
converted the networks OS from 3COM to Netware. From 1989 to 1991, she worked
with Nikko Electronics Toy Pty Ltd. as an EDP Officer designing, developing and
maintaining in-house applications including a Domestic Sales System and a
Warehouse Inventory System. She managed the day-to-day activities of the EDP
department including the co-ordination of programmers. Ms. Atan has a Bachelor
of Science degree in Information Technology from Monash University in Melbourne,
Australia and a Bachelor of Engineering (Electrical and Electronics) from
Nanyang Technical University, Singapore. Ms. Atan programs in four languages and
has won awards for her programming skills. She is fluent in English, Malay,
Bahasa Indonesia, Japanese and Mandarin.
19
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
The following table summarizes all compensation paid to the Company's
Chief Executive Officer (the "Named Executive Officer") for services rendered in
all capacities to the Company during each of the fiscal years ended August 31,
1999, 1998 and 1997. None of the Company's other employees received in excess of
$100,000 in compensation during the last completed fiscal year. Share figures
have been adjusted to reflect the one-for-six split effected in December 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------- -------------------------------------
NAME AND RESTRICTED SECURITIES
PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS COMPENSATION AWARDS($) AWARDS ($) AWARDS($)(#)
-------- ---- --------- ----- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald I. Quinn 1999 $85,000 $ -0- $ -0- $ -0- 500,000 $ -0-
President/CEO 1998 $85,000(2) $ -0- $ -0- $ -0- -0- $ -0-
1997 $85,000(1) $ -0- $ -0- $ -0- 133,333 $ -0-
</TABLE>
----------
(1) Includes the fair market value of 14,809 shares of Common Stock, for which
Mr. Quinn elected to receive deferred shares pursuant to the Company's 1997
Stock Incentive Plan in lieu of a portion of his annual base salary for
services rendered. The aggregate fair market value of these shares at the
expiration of the applicable deferral periods equaled $34,163.
(2) Includes the fair market value of 3,316 shares of Common Stock, for which
Mr. Quinn elected to receive deferred shares pursuant to the Company's 1997
Stock Incentive Plan in lieu of a portion of his annual base salary for
services rendered. The aggregate fair market value of these shares at the
expiration of the respective deferral periods equaled $8,734.
On July 19, 1999, the Named Executive Officer was granted 500,000 stock
options, with a vesting date of July 19, 2000, at an exercise price of $1.00.
This grant represented 26.4% of all grants made in 1999.
The following table sets forth certain information concerning the
aggregated value of the unexercised options of the Named Executive Officer as of
August 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
GERALD I. QUINN -0- $ 0 133,333(1) 500,000 $ 0 $500,000
</TABLE>
----------
(1) All of these options are immediately exercisable at any time prior to
January 2007 at a price of $3.96 per share.
20
<PAGE>
COMPENSATION PURSUANT TO PLANS
None.
COMPENSATION OF DIRECTORS
All Directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attendance at Board meetings. Directors who
are employees of the Company do not receive compensation for service on the
Board in addition to their compensation as employees. In March 1997, the Company
adopted the 1997 Stock Incentive Plan (the "Plan"). As originally adopted, the
Plan provided that each Director would receive options to purchase 1,667 shares
of Common Stock upon election to the Board, and annual automatic grants of 1,667
options for each year of service thereafter. In March 1998, the Board of
Directors amended and restated the 1997 Stock Incentive Plan to provide greater
flexibility in the methods by which the Board of Directors may provide
incentives and rewards. Under the Restated Plan, members of the Board of
Directors of the Company, who are not employees of the Company or its
subsidiaries, will receive an option to purchase 5,000 shares of the Company's
Common Stock upon their initial election to the Board and thereafter receive an
annual grant of an additional 5,000 options. Board members serving on the Audit
Committee receive an additional option to purchase 3,333 shares of the Company's
Common Stock upon their initial designation to the Audit Committee. All these
options vest one year from the respective date of grant and terminate upon the
earlier of 10 years from the date of grant or 24 months after the Director
ceases to be a member of the Board.
EMPLOYMENT CONTRACTS
In May 1996, the Board of Directors approved a two-year employment
agreement with Gerald I. Quinn for services as President and Chief Executive
Officer. The agreement requires Mr. Quinn to devote his full time to the Company
and provides for a base salary of $85,000 annually. Mr. Quinn is also entitled
to receive any fringe benefits generally extended to the employees of the
Company, including medical, disability and life insurance. Mr. Quinn also has
the right to receive certain sales commissions from the Company under his
agreement. In May 1998 and again in May 1999, Mr. Quinn's contract was renewed
for an additional one-year term.
In June 1996, the Board of Directors approved a one-year employment
agreement with Richard P. Freeman for services as Vice President. The agreement
provides for a base salary of $72,000 per year. The agreement requires Richard
P. Freeman to devote his full time to the Company. In May 1998 and again in May
1999, Mr. Freeman's contract was renewed under the same terms.
After their initial terms, each of the above-described agreements
continue at will, terminable with/on ninety days written notice by either party
to the other. The agreements terminate upon the occurrence of any of the
following events: (i) if the employee voluntarily terminates; (ii) if the
employee dies; (iii) if the employee is unable to properly discharge his
obligations under his employment agreement due to illness, disability or
accident for three consecutive months or for a period aggregating six months in
any continuous twelve months; (iv) if the employee is convicted of a crime of
moral turpitude by a court of competent jurisdiction; (v) if the employee is
convicted of a felony, except to the extent that the charge arises from an act
taken at the board's direction; or (vi) if the employee is grossly negligent or
guilty of willful misconduct in connection with the performance of his duties,
which negligence or misconduct, if curable, is not cured within fifteen days of
a notice of cure by the Board or the Chairman of the Board. Each of the
above-described agreements provides that the employee shall not compete with the
Company during the term of the agreement and for a period of one year
thereafter.
In the event of any Corporate Transaction or Change of Control of the
Company (each as defined in the Plan), the Common Stock at the time subject to
each outstanding option, but not otherwise vested, shall automatically vest in
full, so that each such option shall, immediately prior to the effective date of
such corporate transaction or change of control, become fully exercisable for
all of the Common Shares at the time subject to the option, and may be exercised
for all or any portion of those shares as fully vested Common Stock.
21
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors, and persons who own more than 10% of the Company's
outstanding Common Stock to file initial reports of ownership and changes in
ownership with the Commission. Officers, directors, and greater than 10%
stockholders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon a review of
copies of such filings or written representations that no forms were required
that were furnished to the Company, the Company believes that all of the
Company's executive officers, directors, and greater than 10% stockholders
complied during the fiscal year ended August 31, 1999 with the reporting
requirements of Section 16(a).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 8, 1999, certain
information with regard to the beneficial ownership of the Company's Common
Stock by (i) each shareholder known by the Company to beneficially own 5% or
more of the Company's outstanding Common Stock, (ii) each Director individually,
(iii) the Named Executive Officer and (iv) all Officers and Directors of the
Company as a group:
Name and Address of Amount and Nature of
Beneficial Owner(1) Beneficial Owner (2)(3) Percent of Class (3)
------------------- ----------------------- --------------------
Gerald I. Quinn(4) 222,872 7.0%
Richard P. Freeman(5) 196,093 6.3%
Terence E. Belsham(6) 191,504 6.2%
John P. Clements(7) 41,666 1.35%
ProFutures Special Equities
Fund, L.P.(8) 162,698 5.32%
Tech Pacific Holdings
Pty Limited(9) 333,333 9.8%
All Directors and executive
officers as a group (5 persons)(10) 620,230 19.1%
----------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise noted, the address of each holder is 5210 East Williams
Circle, Suite 200, Tucson, Arizona 85711.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from November 8, 1999 through the exercise of any
option, warrant or other right. Shares of Common Stock subject to options,
warrants or rights which are currently exercisable or exercisable within 60
days are deemed outstanding solely for computing the percentage of the
person holding such options, warrants or rights, but are not deemed
outstanding for computing the percentage of any other person.
(3) The amounts and percentages in the table are based upon 3,059,662 shares of
Common Stock outstanding as of November 8, 1999.
(4) Includes 133,333 shares subject to options granted pursuant to the
Company's Plan which are currently exercisable or become exercisable at
$3.96 within 60 days after November 8, 1999.
(5) Includes 33,334 shares subject to options granted pursuant to the Company's
Plan which are currently exercisable or become exercisable at $4.86 within
60 days after November 8, 1999.
(6) Includes 33,334 shares subject to options granted pursuant to the Company's
Plan which are currently exercisable or become exercisable at $4.86 within
60 days after November 8, 1999.
(7) Includes 41,666 shares subject to options granted pursuant to the Company's
Plan which are currently exercisable or become exercisable at $1.50 to
$3.00 within 60 days after November 8, 1999.
(8) This holder has an address at 11612 Bee Cave Road, Austin, Texas 78733.
(9) Based on a Form 3 filing, this holder has an address at Level 2, Epping
Road, Lane Cover, N.S.W. Australia 2066. This amount includes shares
underlying a warrant to purchase 333,333 Common Shares at $9.00 per share.
(10) Includes 241,667 shares subject to options granted pursuant to the
Company's Plan which are currently exercisable or become exercisable within
60 days after November 8, 1999.
22
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a)(1) the financial statements listed in the index set forth in Item 7
of this Form 10-KSB are filed as part of this report.
(a)(2) Exhibits
Number Description of Filing Method
------ --------------------- ------
10.1 Purchase Agreement by and among Softalk,
Inc., Interpretel (Canada) Inc. and Wavetech
International, Inc. dated October 25, 1999 *
10.2 Amendment No. 1 to Amended and Restated
License Agreement *
10.3 Amended and Restated License Agreement *
10.4 Share Exchange Agreement by and among
Wavetech International, Inc., Interpretel
(Canada) Inc. and Softalk, Inc. dated
November 13, 1999 *
21 Subsidiaries of the Registrant *
27 Financial Data Schedule *
----------
* Filed herewith.
(b) Reports on Form 8-K Filed During the Last Quarter of The Period
Covered by This Report are as Follows:
On August 12, 1999, the Company filed a Form 8-K in which the Company
reported the declination for reelection notice from their independent auditors,
Addison, Roberts & Ludwig, P.C. ("AR&L"). AR&L declined to stand for reelection
as the Company's independent auditors for the year ending August 31, 1999, due
to the firm's cessation of audit and accounting services and the withdrawal of
all the firm's partners. AR&L had expressed unqualified opinions on the
Company's financial statements in 1998. There were no disagreements with AR&L on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On August 16, 1999, the Company filed a Form 8-K in which the Company
reported the appointment of Ernst & Young, LLP as their independent auditors
replacing Addison, Roberts & Ludwig.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WAVETECH INTERNATIONAL, INC.
Date: November 29, 1999 By: /s/ Gerald I. Quinn
---------------------------------
Name: Gerald I. Quinn
Title: President & CEO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated: November 29, 1999 By: /s/ Gerald I. Quinn
-----------------------------------------
Gerald I. Quinn, President and
Chief Executive Officer, Director
(Principal Executive Officer)
Dated: November 29, 1999 By: /s/ Richard P. Freeman
-----------------------------------------
Richard P. Freeman, Director
Dated: November 29, 1999 By: /s/ John P. Clements
-----------------------------------------
John P. Clements, Director
Dated: November 29, 1999 By: /s/ Alexander C. Lang
-----------------------------------------
Alexander C. Lang, Director
Dated: November 29, 1999 By: /s/ Rosnani Atan
-----------------------------------------
Rosnani Atan, Director
24
PURCHASE AGREEMENT
BY AND AMONG
SOFTALK INC.
AS "SELLER,"
INTERPRETEL (CANADA) INC.
AS "BUYER",
AND
WAVETECH INTERNATIONAL, INC.
OCTOBER 25, 1999
<PAGE>
PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Defined Terms.........................................................1
1.2 Other Defined Terms...................................................3
ARTICLE II
PURCHASE AND SALE OF PRODUCTS AND ACCOUNTS
2.1 Transfer of Products and Accounts.....................................3
2.2 Assumption of Liabilities.............................................3
2.3 Excluded Liabilities..................................................3
2.4 Purchase Price........................................................5
2.5 Closing Costs; Transfer Taxes and Fees................................5
ARTICLE III
CLOSING
3.1 Closing...............................................................6
3.2 Conveyances at Closing................................................6
3.3 Elections.............................................................6
ARTICLE IV
REPRESENTATION AND WARRANTIES OF SELLER
4.1 Organization of Seller................................................7
4.2 Authorization.........................................................7
4.3 No Changes to the Products or Accounts................................7
4.4 Products or Accounts..................................................8
4.5 Contracts and Commitments.............................................8
4.6 Absence of Breaches or Defaults.......................................8
4.7 Permits and Consents..................................................8
4.8 No Conflict or Violation..............................................9
4.9 Litigation............................................................9
4.10 Compliance with Law...................................................9
4.11 Tax Matters..........................................................10
4.12 Liabilities..........................................................10
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND WAVETECH
5.1 Organization of Buyer................................................10
5.2 Authorization........................................................10
5.3 Capitalization.......................................................10
5.4 Consents and Approvals...............................................11
5.5 Permits and Consents.................................................11
ii
<PAGE>
5.6 No Conflict or Violation.............................................11
5.7 Litigation...........................................................12
5.8 Compliance with Law..................................................12
5.9 GST..................................................................12
ARTICLE VI
COVENANTS OF SELLER, BUYER AND WAVETECH
6.1 Further Assurances...................................................13
6.2 Notification of Certain Matters......................................13
6.3 Conduct of Business..................................................13
6.4 Joint Election.......................................................14
6.5 Right of First Refusal...............................................14
6.6 Registration Rights..................................................15
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
7.1 Consents.............................................................16
7.2 Opinion of Counsel...................................................16
7.3 Certificates.........................................................18
7.4 Corporate Documents..................................................18
7.5 Buyer Preferred Stock................................................18
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
8.1 Representations, Warranties and Covenants............................19
8.2 Consents.............................................................19
8.3 No Proceedings or Litigations........................................19
8.4 Opinion of Counsel...................................................19
8.5 Certificates.........................................................21
8.6 Conveyancing Documents; Release of Encumbrances......................21
8.7 Material Changes.....................................................21
8.8 Corporate Documents..................................................21
8.9 Due Diligence Review.................................................21
ARTICLE IX
RISK OF LOSS; CONSENTS TO ASSIGNMENT
9.1 Risk of Loss.........................................................22
9.2 Consents to Assignment...............................................22
ARTICLE X
ACTIONS BY SELLER, BUYER AND WAVETECH AFTER THE CLOSING
10.1 Books and Records; Payment of Liabilities............................23
10.2 Survival of Representations, Etc.....................................23
10.3 Indemnifications.....................................................23
10.4 Further Action.......................................................26
iii
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Termination..........................................................26
11.2 Assignment...........................................................28
11.3 Notices..............................................................28
11.4 Choice of Law........................................................29
11.5 Entire Agreement; Amendments and Waivers.............................29
11.6 Multiple Counterparts................................................29
11.7 Expenses.............................................................29
11.8 Invalidity...........................................................29
11.9 Titles...............................................................30
11.10 Publicity; Confidentiality...........................................30
11.11 Cumulative Remedies..................................................30
11.12 Arbitration..........................................................30
ARTICLE XII
BULK SALES
12.1 Bulk Sales...........................................................31
iv
<PAGE>
EXHIBITS
"A" Equipment
"B" Bill of Sale
"C" Assignment of Contract Rights
"D" Assumption of Certain Liabilities
SCHEDULES
Schedule 4.5.1 Assumed Contracts and Contracts
Schedule 5.3.1 - Wavetech Capital
Schedule 5.3.2 - Buyer Capital
v
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement, dated as of October 25, 1999, is by and among
Wavetech International, Inc., a Nevada corporation ("Wavetech"), Interpretel
(Canada) Inc. ("Buyer"), an Ontario, Canada corporation and a wholly owned
subsidiary of Wavetech, and Softalk Inc., an Ontario, Canada corporation
("Seller").
RECITALS
A. Seller owns certain Products and Accounts (as defined below) which it
sells or uses in its conduct of the Business (as defined below).
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, such Products and Accounts upon the terms and subject to the conditions
of this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the
reference.
"BOOKS AND RECORDS" shall mean all records and lists of Seller
pertaining to the Products or Accounts.
"BUSINESS" shall mean Seller's intellectual property for use in the
transmission of voice, data and fax services.
"BUYER PREFERRED STOCK" shall mean the Class A Preferred Stock, no
par value, of Buyer which shares are exchangeable for shares of
Wavetech Common Stock.
"CLOSING DATE" shall mean on or before October 29, 1999, or such
other date as Buyer and Seller shall mutually agree upon; provided
that either party may elect to defer the Closing Date to a date
which is reasonably satisfactory to both parties if necessary to
complete the Closing.
"CONTRACT" shall mean any agreement, contract, note, loan, evidence
of indebtedness, purchase order, letter of credit, franchise
agreement, undertaking, covenant not to compete, employment
agreement, license, instrument, obligation or commitment to which
Seller is a party or is bound and which relates to Products and
Accounts, whether oral or written.
1
<PAGE>
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales
agreement, encumbrance or other right of third parties, whether
voluntarily incurred or arising by operation of law, and includes,
without limitation, any agreement to give any of the foregoing in
the future, and any contingent sale or other little retention
agreement or lease in the nature thereof.
"EQUIPMENT" shall mean all of the computer equipment and related
spare parts, tools, supplies, equipment and other tangible personal
property owned by Seller related to the Products and Accounts.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean
with respect to the Business or the Products and Accounts any
significant and substantial adverse effect or change in the
condition (financial or other), business, results of operations,
prospects, assets, liabilities or operations of the Business and/or
the Products and Accounts or on the ability of Seller to consummate
the transactions contemplated hereby, or any event or condition
which would, with the passage of time, constitute a "Material
Adverse Effect" or "Material Adverse Change".
"PERMITS" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, provincial or
local, or any other person, necessary or desirable for the past,
present or anticipated conduct of, or relating to the operation of,
the business of such Person.
"PRODUCTS AND ACCOUNTS" shall mean all of the right, title and
interest of Seller in and to the following items:
1.1.1 all rights of Seller under the Assumed Contracts;
1.1.2 all Equipment related to the Products and Accounts listed on
Exhibit "A";
1.1.3 all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in
connection with the Products and Accounts furnished to
Seller, to the extent such warranties, representations and
guarantees (ii) are not required by Seller to fulfill its
obligations under this Agreement and (ii) are assignable;
1.1.4 all claims, causes of action, rights of recovery and rights
of set-off of any kind, against any person or entity,
including without limitation any liens, security interests,
pledges or other rights to payment or to enforce payment in
connection with Products and Accounts delivered by Seller on
or prior to the Closing Date;
"REPRESENTATIVE" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
2
<PAGE>
"Tax" shall mean any federal, provincial, local, foreign or other
tax, levy, impost, fee, assessment or other government or province
charge, including without limitation income, estimated income,
business, occupation, franchise, property, payroll, personal
property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium,
including without limitation interest, penalties and additions in
connection therewith.
"Wavetech Common Stock" shall mean the Common Stock, $0.01 par
value, of Wavetech.
1.2 Other Defined Terms. The following terms shall have the meanings
defined for such terms in the Sections set forth below:
TERM SECTION
---- -------
Action 4.9
Assumed Contracts 2.2
Assumed Liabilities 2.2
Assumption Document 3.2.1.4
Balance Sheet 4.12
Buyer Securities 5.3.2
Claim 10.3.4
Claim Notice 10.3.4
Closing 3.1
Damages 10.3.1
Excluded Liabilities 2.3
Purchase Price 2.4
Wavetech Securities 5.3.1
Share Exchange Agreement 7.5
ARTICLE II
PURCHASE AND SALE OF PRODUCTS AND ACCOUNTS
2.1 TRANSFER OF PRODUCTS AND ACCOUNTS. Upon the terms and subject to the
conditions contained herein, at the Closing, Seller will sell,
convey, transfer, assign and deliver to Buyer, and Buyer will
acquire from Seller, the Products and existing Accounts.
2.2 ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
conditions contained herein, at the Closing, Buyer shall assume all
obligations and liabilities (the "Assumed Liabilities") accruing,
arising out of, or relating to events or occurrences happening after
the Closing Date under the vendor contracts listed in Schedule
4.5.1(the "Assumed Contracts").
2.3 EXCLUDED LIABILITIES. Notwithstanding any other provision of this
Agreement, except for the Assumed Liabilities expressly specified in
Section 2.2, Buyer shall not assume, or otherwise be responsible
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for, any of Seller's liabilities or obligations, whether actual or
contingent, matured or unmatured, liquidated or unliquidated, known
or unknown, or related or unrelated to the Business or the Products
and Accounts, whether arising out of occurrences prior to, at or
after the date hereof (collectively, "Excluded Liabilities"), which
Excluded Liabilities include, without limitation, the liabilities
and obligations specified in Sections 2.3.1-2.3.6 below, inclusive.
2.3.1 Any liability or obligation to or in respect of any
employees or former employees of Seller, including without
limitation, (i) any liability for accrued vacation or sick
pay due employees of Seller; (ii) any employment agreement,
whether or not written, between Seller and any person; (iii)
any liability under any employee plan at any time
maintained, contributed to or required to be contributed to
by or with respect to Seller or under which Seller may incur
liability, or any contributions, benefits or liabilities
therefor, or any liability with respect to Seller's
withdrawal or partial withdrawal from or termination of any
employee plan; and (iv) any claim of an unfair labor
practice, or any claim under any provincial unemployment
compensation or worker's compensation law or regulation or
under any federal or provincial employment discrimination
law or regulation, which shall have been asserted on or
prior to the Closing Date or is based on acts or omissions
which occurred on or prior to the Closing Date;
2.3.2 Any liability or obligation of Seller in respect of any Tax,
excluding any provincial sales tax ("PST") arising under the
RETAIL SALES ACT (Ontario), as amended (the "Retail Sales
Act") as result of the transactions contemplated by this
Agreement, or goods and services tax ("GST") arising under
the EXCISE TAX ACT (Canada), as amended (the "Excise Tax
Act"), as a result of the transactions contemplated by this
Agreement, which, subject to Section 3.2.5, shall be payable
by Buyer;
2.3.3 Any liability or obligation of Seller arising out of or
related to any Action against Seller or any Action which
adversely affects the Products and Accounts and which shall
have been asserted on or prior to the Closing Date or to the
extent the basis of which shall have arisen on or prior to
the Closing Date;
2.3.4 Any liability or obligation of Seller resulting from
entering into, performing its obligations pursuant to or
consummating the transactions contemplated by, this
Agreement (including, without limitation, any liability or
obligation of Seller pursuant to Article X hereof);
2.3.5 Any accounts payable of Seller; and
2.3.6 Any obligation or liability for breach of any Contract
occurring on or prior to the Closing Date.
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2.4 PURCHASE PRICE. At the Closing, upon the terms and subject to the
conditions set forth herein, Buyer shall pay to Seller the aggregate
sum of U.S. $10 million in consideration for Seller conveying and
assigning the Products and Accounts to Buyer (the "Purchase Price").
The Purchase Price shall be payable on the Closing Date in the
following manner.
2.4.1 BUYER PREFERRED STOCK. By delivery to Seller upon Closing of
an aggregate of 4,329,004 duly authorized, validly issued,
fully paid and nonassessable shares of Buyer Preferred
Stock, which shall be exchangeable on a one for one basis
into shares of Wavetech Common Stock. Each share of Buyer
Preferred Stock shall be exchangeable for one duly
authorized, validly issued, fully paid and nonassessable
share of Wavetech Common Stock as of the Closing. In the
event Seller elects to exchange such shares of Buyer
Preferred Stock for shares of Wavetech Common Stock as of
the Closing, such shares of Wavetech Common Stock would
represent approximately 58% of the issued and outstanding
capital stock of Wavetech as of the Closing.
2.4.2 RESTRICTIVE LEGEND. Such shares of Buyer Preferred Stock
(and Wavetech Common Stock if Seller elects to exchange
Buyer Preferred Stock for Wavetech Common Stock prior to the
effective date of its registration under Section 6.6) shall
bear the following restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM
REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
2.5 CLOSING COSTS; Transfer Taxes and Fees. Seller shall be responsible
for any taxes imposed by reason of the transfer of Products or
Accounts provided hereunder and any deficiency, interest or penalty
asserted with respect thereto, excluding any PST or GST arising as a
result of the transactions contemplated by this Agreement which
shall be payable by Buyer. Seller shall pay the fees and costs of
recording or filing all applicable conveyancing instruments
described in Section 3.2.1 and shall pay the fees and costs of
recording or filing in the Province of Ontario PPSA Financing Change
Statements and other releases of Encumbrances.
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ARTICLE III
CLOSING
3.1 CLOSING. The Closing of the transactions contemplated herein (the
"Closing") shall be held on the Closing Date at a time and place as
the parties shall mutually agree.
3.2 CONVEYANCES AT CLOSING BY SELLER.
3.2.1 INSTRUMENTS AND POSSESSION. To effect the sale and transfer
referred to in Section 2.1 hereof, Seller will, at the
Closing, execute and deliver to Buyer:
3.2.1.1 one or more bills of sale, each in the form of
Exhibit "B" attached hereto, conveying in the
aggregate all of Seller's owned personal property
included in the Products and Accounts, free and
clear of all Encumbrances, except as otherwise
provided in Section 2.5.5; 3.2.1.2 subject to
Section 9.2, Assignments of Contract Rights, each
in the form of Exhibit "C" attached hereto, with
respect to the Assumed Contracts;
3.2.1.3 such other instruments as shall be requested by
Buyer to vest in Buyer title in and to the
Products and Accounts in accordance with the
provisions hereof;
3.2.1.4 the Assumption Agreement in the form of Exhibit
"D."
3.2.2 FORM OF INSTRUMENTS. To the extent that a form of any
document to be delivered hereunder is not attached as an
Exhibit hereto, such documents shall be in form and
substance, and shall be executed and delivered in a manner,
reasonably satisfactory to Buyer.
3.2.3 CERTIFICATES; OPINIONS. Seller shall deliver to Buyer the
certificates, opinion of counsel and other documents
described in Article VIII.
3.2.4 Consents. Subject to Section 9.2, Seller shall deliver all
third party consents, if any, required for the valid
transfer of the Products and Accounts as contemplated by
this Agreement.
3.3 CONVEYANCES AT CLOSING BY BUYER.
3.3.1 INSTRUMENTS AND POSSESSION. To effect the sale and transfer
referred to in Section 2.1 hereof, Buyer will, at the
Closing, execute and deliver to Buyer:
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3.3.1.1 Certificates representing the 4,329,004 shares of
Buyer Preferred Stock to be delivered pursuant to
Section 2.4.1.
3.3.1.2 The Share Exchange Agreement.
3.3.2 FORM OF INSTRUMENTS. To the extent that a form of any
document to be delivered hereunder is not attached as an
exhibit hereto, such documents shall be in form and
substance, and shall be executed and delivered in manner
reasonably satisfactory to the Seller.
3.3.3 CERTIFICATES: OPINIONS. Buyer shall deliver to Seller the
certificates, opinion of counsel and other documents
described in Article VII.
3.4 ELECTIONS. Buyer and Seller shall complete and file in the form
prescribed such elections under Section 167 of the Excise Tax Act to
obtain a GST exemption with respect the sale of the Products and
Accounts contemplated by this Agreement. The Buyer shall file such
form with the return for the Buyer's reporting period in which the
sale is made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows, which representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct:
4.1 ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the Province
of Ontario, Canada.
4.2 AUTHORIZATION. Seller has all requisite corporate power and
authority, and has taken all corporate action necessary, to own the
Products and Accounts, to conduct the Business as it is presently
being conducted, to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and
delivered by Seller and is a legal, valid and binding obligation of
Seller enforceable against it in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting creditors' rights or by
principles of equity.
4.3 NO CHANGES TO THE PRODUCTS OR ACCOUNTS. Since April 30, 1998:
4.3.1 there has been no actual or, to the best of Seller's
knowledge, threatened adverse change in the Products or
Accounts or any event, condition or state of facts, in
either case that is, or would result in a Material Adverse
Change in the Products or Accounts, including without
limitation, the loss of any material customers; and
4.3.2 there has not been any sale or other disposition, except in
the ordinary course of Seller's business, of any of the
Products or Accounts, or any Encumbrance placed on the
Products or Accounts.
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4.4 PRODUCTS OR ACCOUNTS. Seller has and will transfer good and
marketable fee simple title to the Products or Accounts and upon the
consummation of the transactions contemplated hereby, Buyer will
acquire good title to all of the Products or Accounts, free and
clear of any Encumbrances. The Products and Accounts represent all,
or substantially all, of Seller's assets and, therefore, such sale
shall be exempt from GST.
4.5 CONTRACTS AND COMMITMENTS.
4.5.1 CONTRACTS. Schedule 4.5.1 sets forth a complete and accurate
list of all Assumed Contracts and all Contracts of the
following categories that relate to the Products or
Accounts:
4.5.1.1 Contracts not made in the ordinary course of
Seller's conduct of the Business;
4.5.1.2 Distribution, franchise, license, sales or
commission contracts related to the Products or
Accounts;
4.5.1.3 Contracts involving expenditures or liabilities,
actual or potential, in excess of $1,000 or
otherwise material to the Products or Accounts,
and not cancelable (without liability) within 30
calendar days;
4.5.1.4 Promissory notes, loans, agreements, evidences of
indebtedness, letters of credit, guarantees, or
other instruments relating to an obligation to pay
money, whether Seller shall be the borrower,
lender or guarantor thereunder or whereby any
Products or Accounts are pledged;
4.6 ABSENCE OF BREACHES OR DEFAULTS. All of the Contracts are valid and
in full force and effect. Seller has duly performed all of its
obligations under the Contracts in all material respects to the
extent those obligations to perform have accrued, and no violation
of, or default or breach under any Contracts by Seller, to the best
of Seller's knowledge, or any other party has occurred and neither
Seller nor, or to the best of Seller's knowledge, any other party
has repudiated any provisions thereof.
4.7 PERMITS AND CONSENTS. Seller has all Permits required to conduct the
Business, except where the failure to obtain such Permits would not
have a Material Adverse Effect on the Products or Accounts or the
Business. All Permits of Seller related to the Business are valid
and in full force and effect. All such Permits are assignable and no
notice to, declaration, filing or registration with, or
authorization, or consent or approval of, or Permit from, any
governmental or regulatory body or authority, or any other person or
entity, is required to be made or obtained by Seller in connection
with the execution, delivery or performance of this Agreement and
the consummation of the transactions contemplated hereby. All of the
Assumed Contracts will be enforceable by Buyer after the Closing to
the same extent as if the transactions contemplated by this
Agreement had not been consummated, except as the enforceability of
such Contracts may be limited by applicable bankruptcy or
reorganization laws.
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4.8 NO CONFLICT OR VIOLATION. After giving effect to consents and lien
releases that have been obtained from third parties or will be so
obtained prior to the Closing Date, if any, neither the execution
and delivery of this Agreement by Seller nor the consummation of the
transactions contemplated hereby, nor compliance by Seller with any
of the provisions hereof, will (a) violate or conflict with any
provision of the organizational documents of Seller, (b) violate,
conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result
in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon any of the Products or Accounts
under, any of the terms, conditions or provisions of any Contract,
Permit, agreement, or other instrument or obligation (i) to which
Seller is a party or (ii) by which the Products or Accounts are
bound, (c) violate any statute, rule, regulation, ordinance, code,
order, judgment, ruling, writ, injunction, decree or award or (d)
impose any Encumbrance, restriction or charge on the Products or
Accounts or the Business.
4.9 LITIGATION. There is no action, order, writ, injunction, judgment or
decree outstanding or any claim, suit, litigation, proceeding, labor
dispute, arbitral action, governmental audit or investigation
(collectively, "Actions") pending, or to the best of Seller's
knowledge, threatened or anticipated (a) against, related to or
affecting Seller, the Business or the Products or Accounts or (b)
seeking to delay, limit or enjoin the transactions contemplated by
this Agreement. Seller is not in default with respect to or subject
to any judgment, order, writ, injunction or decree of any court or
governmental agency, and there are no unsatisfied judgments against
Seller, the Business or its Products or Accounts.
4.10 COMPLIANCE WITH LAW. The conduct of the Business has not violated
and is in compliance with all laws, statutes, ordinances,
regulations, rules and orders of any foreign, federal, provincial or
local government and any other governmental department or agency,
and any judgment, decision, decree or order of any court or
governmental agency, department or authority, including, without
limitation, environmental laws, relating to the Products or
Accounts, or Business or operations of Seller, except where the
violation or failure to comply, individually or in the aggregate,
would not have a Material Adverse Effect on the Products or Accounts
or the Business. Seller and the conduct of the Business is in
conformity with all energy, public utility, zoning, building and
health codes, regulations and ordinances, and environmental laws and
all other foreign, federal, provincial, and local governmental and
regulatory requirements, except where any nonconformity would not
have a Material Adverse Effect on the Products or Accounts or the
Business. Seller has not received any notice to the effect that, or
otherwise been advised that, it is not in compliance with any such
statutes, regulations, rules, judgments, decrees, orders, ordinances
or other laws, and Seller has no reason to anticipate that any
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existing circumstances are likely to result in violations of any of
the foregoing, which non-compliance or violation could, in any one
case or in the aggregate, have a Material Adverse Effect on the
Products or Accounts or the Business.
4.11 TAX MATTERS. There are no liens for Taxes (other than as could be
asserted for current Taxes not yet due and payable) on the Products
or Accounts.
4.12 LIABILITIES. Seller has no liabilities or obligations (absolute,
accrued, contingent or otherwise) except (i) liabilities which are
reflected on its balance sheet dated as of April 30, 1999 (the
"Balance Sheet"), or which are not required under generally accepted
accounting principles to be reflected on the Balance Sheet, (ii)
liabilities incurred in the ordinary course of the Business and
consistent with past practice since the date of the Balance Sheet,
and (iii) liabilities arising under Contracts identified in Schedule
4.5 to which Seller is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND WAVETECH
Buyer and Wavetech hereby represent and warrant to Seller as
follows, which representations and warranties are, as of the date hereof,
and will be, as of the Closing Date, true and correct:
5.1 ORGANIZATION OF BUYER. Each of Buyer and Wavetech is a corporation
duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Buyer is a wholly owned
subsidiary of Wavetech.
5.2 AUTHORIZATION. Each of Buyer and Wavetech has all requisite power
and authority, and has taken all action necessary under its
organizational documents, to execute and deliver this Agreement, to
consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and
delivered by Buyer and Wavetech and is a legal, valid and binding
obligation of such corporations, enforceable against each
corporation in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws
affecting creditor's rights or by principles of equity.
5.3 CAPITALIZATION.
5.3.1 WAVETECH. The authorized capital stock of Wavetech consists
of 50,000,000 shares of Common Stock, par value $.001 per
share, 3,059,662 of which are issued and outstanding as of
the Closing. All outstanding shares of capital stock of
Wavetech have been duly authorized, validly issued and are
fully paid and nonassessable. Except as set forth on
Schedule 5.3.1, there are outstanding (i) no shares of
capital stock or other voting securities of Wavetech or
capital appreciation rights, stock options, warrants, stock
appreciation rights or other phantom equity interests based
on the value of Wavetech's capital stock or other voting
securities, (ii) no securities of Wavetech convertible into
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or exchangeable for shares of capital stock or voting
securities of Wavetech, and (iii) no options or other rights
to acquire from Wavetech, and no obligation of Wavetech to
issue any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of Wavetech (collectively, "WAVETECH
SECURITIES"). There are no outstanding obligations of
Wavetech to repurchase, redeem or otherwise acquire Wavetech
Securities.
5.3.2 BUYER. The authorized capital stock of Buyer consists of an
unlimited number of no par value Class A Shares, none of
which are issued and outstanding, and an unlimited number of
no par value Common Shares, one of which is issued and
outstanding. All outstanding shares of capital stock of
Buyer have been duly authorized, validly issued and are
fully paid and nonassessable. Except as set forth on
Schedule 5.3.2, there are outstanding (i) no shares of
capital stock or other voting securities of Buyer or capital
appreciation rights, stock options, warrants, stock
appreciation rights or other phantom equity interests based
on the value of Buyer's capital stock or other voting
securities, (ii) no securities of Buyer convertible into or
exchangeable for shares of capital stock or voting
securities of Buyer, and (iii) no options or other rights to
acquire from Buyer, and no obligation of Buyer to issue any
capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities
of Buyer (collectively, "Buyer Securities"). There are no
outstanding obligations of Buyer to repurchase, redeem or
otherwise acquire Buyer Securities. Buyer is a wholly owned
subsidiary of Wavetech.
5.4 CONSENTS AND APPROVALS. No notice to, declaration, filing or
registration with, or authorization, consent or approval of, or
permit from, any governmental or regulatory body or authority, or
any other person or entity, is required to be made or obtained by
Buyer or Wavetech in connection with the execution, delivery and
performance of this Agreement, including the issuance of the shares
of Buyer Preferred Stock and Wavetech Common Stock exchangeable
therefor, and the consummation of the transactions contemplated
hereby, except (a) as has been obtained on or prior to the date
hereof.
5.5 PERMITS AND CONSENTS. Each of Buyer and Wavetech has all Permits
required to conduct their respective businesses, except where the
failure to obtain such Permits would not have a Material Adverse
Effect on such businesses. All Permits of Buyer and Wavetech related
to their respective businesses are valid and in full force and
effect. All such Permits are assignable and no notice to,
declaration, filing or registration with, or authorization, or
consent or approval of, or Permit from, any governmental or
regulatory body or authority, or any other person or entity, is
required to be made or obtained by either Buyer or Wavetech in
connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated
hereby.
5.6 NO CONFLICT OR VIOLATION. Neither the execution and delivery of this
Agreement by Buyer and Wavetech nor the consummation of the
transactions contemplated hereby, nor compliance by Buyer and
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Wavetech with any of the provisions hereof, will (a) violate or
conflict with any provision of the organizational documents of such
corporations, (b) violate, conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration
under, or result in the creation of any Encumbrance upon any of the
assets of any of the terms, conditions or provisions of any
contract, Permit, agreement, or other instrument or obligation (i)
to which either Buyer or Wavetech is a party or (c) violate any
statute, rule, regulation, ordinance, code, order, judgment, ruling,
writ, injunction, decree or award or (d) impose any Encumbrance,
restriction or charge on the respective businesses of Wavetech and
Buyer.
5.7 LITIGATION. There are no Actions pending, or to the best of Buyer's
and Wavetech's knowledge, threatened or anticipated (a) against,
related to or affecting Buyer or Wavetech or their respective
businesses or (b) seeking to delay, limit or enjoin the transactions
contemplated by this Agreement. Neither is not in default with
respect to or subject to any judgment, order, writ, injunction or
decree of any court or governmental agency, and there are no
unsatisfied judgments against Buyer, Wavetech or their respective
properties and assets.
5.8 COMPLIANCE WITH LAW. The conduct of the business of each of Buyer
and Wavetech has not violated and is in compliance with all laws,
statutes, ordinances, regulations, rules and orders of any foreign,
federal, provincial or local government and any other governmental
department or agency, and any judgment, decision, decree or order of
any court or governmental agency, department or authority,
including, without limitation, environmental laws, relating to the
business or operations of such corporation, except where the
violation or failure to comply, individually or in the aggregate,
would not have a Material Adverse Effect on the business of either
Buyer or Wavetech. The conduct of the business of Buyer and Wavetech
is in conformity with all energy, public utility, zoning, building
and health codes, regulations and ordinances, and environmental laws
and all other foreign, federal, provincial, and local governmental
and regulatory requirements, except where any nonconformity would
not have a Material Adverse Effect on their respective businesses.
Neither Buyer or Wavetech has received any notice to the effect
that, or otherwise been advised that, it is not in compliance with
any such statutes, regulations, rules, judgments, decrees, orders,
ordinances or other laws, and such corporations have no reason to
anticipate that any existing circumstances are likely to result in
violations of any of the foregoing, which non-compliance or
violation could, in any one case or in the aggregate, have a
Material Adverse Effect on their respective businesses.
5.9 GST. Buyer represents and warrants that it is a GST registrant for
the purpose of the Excise Tax Act. Buyer agrees to provide evidence
of the same on or before the Closing Date.
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ARTICLE VI
COVENANTS OF SELLER , BUYER AND WAVETECH
Buyer, Seller and Wavetech each covenant with the others as follows:
6.1 FURTHER ASSURANCES. Upon the terms and subject to the conditions
contained herein, each of the parties hereto agrees, both before and
after the Closing, (i) to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, (ii) to
execute any documents, instruments or conveyances of any kind which
may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with
each other in connection with the foregoing, including using their
respective best efforts (A) to obtain all necessary waivers,
consents and approvals from other parties to the Contracts to be
assumed by Buyer; provided, however, that Buyer shall not be
required to make any payments, commence litigation or agree to
modifications of the terms thereof in order to obtain any such
waivers, consents or approvals, (B) to obtain all necessary Permits
as are required to be obtained under any federal, provincial, local
or foreign law or regulations, (C) to effect all necessary
registrations and filings, including without limitation submissions
of information requested by governmental authorities, and (D) to
fulfill all conditions to this Agreement.
6.2 NOTIFICATION OF CERTAIN MATTERS. From the date hereof until the
Closing, each party hereto shall give prompt notice to the other
parties of (a) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement or in any
exhibit or schedule hereto to be untrue or inaccurate in any
material respect and (b) any failure of Seller, Wavetech or Buyer,
or any of their respective shareholders or Representatives, to
comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or any exhibit
or schedule hereto; provided, however, that such disclosure shall
not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition.
6.3 CONDUCT OF BUSINESS. From the date hereof until the Closing, each
party hereto shall, except as contemplated by this Agreement or as
consented to by either Buyer, Wavetech or Seller, as the case may
be, in writing, operate their respective businesses in the ordinary
course of the business and substantially in accordance with past
practice and will not take any action inconsistent with this
Agreement or with the consummation of the Closing.
6.3.1 Without limiting the generality of the foregoing, Seller
shall not, except as specifically contemplated by this
Agreement:
6.3.1.1 enter into, extend, materially modify, terminate
or renew any Contract, except in the ordinary
course of the business; or
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6.3.1.2 sell, assign, transfer, convey, lease, mortgage,
pledge or otherwise dispose of or encumber any of
the Products or Accounts, or any interests
therein, except in the ordinary course of the
business.
6.3.2 Without limiting the generality of the foregoing, neither
Buyer nor Wavetech shall, except as specifically
contemplated by this Agreement:
6.3.2.1 issue any additional shares of capital stock;
6.3.2.2 sell, assign, transfer, convey, lease, mortgage,
pledge or otherwise dispose of or encumber any of
the assets of such company, or any interest
therein, except in the ordinary cause of business;
or
6.3.2.3 amend any of its organizational documents, except
in the case of Buyer's organizational documents
which shall be amended to provide for the issuance
of the Buyer Preferred Stock.
6.4 JOINT ELECTION. The Buyer and Seller agree that:
6.4.1 in respect of the transfer of the Products and Accounts
contemplated by this agreement, they shall jointly elect, in
prescribed form and within the prescribed time therefor,
under subsection 85(1) of the Income Tax Act (Canada) (the
"Act");
6.4.2 subject to the immediately succeeding clause, the amount
agreed on in such election (the "Elected Amount") shall be
determined by the Seller in its sole and absolute
discretion;
6.4.3 the Elected Amount shall not be less than the minimum
amount, nor greater than the maximum amount, permitted for
such purpose under the rules in section 85 of the Act;
6.4.4 subject to subsection 85(7.1) of the Act, the Seller and
Purchaser shall, if requested by the Seller, execute and
file an amended election, in the prescribed form and within
the prescribed time therefor, under subsection 85(1) of the
Act, and the Seller shall pay any penalty or fee associated
with the filing of such amended election.
6.5 RIGHT OF FIRST REFUSAL. Seller hereby grants Wavetech the right of
first refusal with respect to any sale by Seller of any intellectual
property of Seller, including, without limitation, any copyrights,
trademarks, service marks, trade names, patents, patent
applications, trade secret and mask work rights and source code.
This right of first refusal shall also include any sale of all or
substantially all of Seller's business or the merger or
consolidation of Seller (whether or not Seller is the surviving
entity). Further, Seller hereby agrees to immediately provide
Wavetech with access to the source code of any of the intellectual
property in the event of the liquidation, dissolution or winding up
of Seller's business. Upon Wavetech receiving written notice from
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Seller of a proposed sale to a third party buyer, including a
certified true copy of the proposed Sale Contract, Wavetech shall
have thirty (30) calendar days in which to elect to submit to Seller
a matching contract upon the same terms and conditions as that set
out in the certified true copy of the Sale Contract provided by
Seller to Wavetech. If Wavetech shall fail or refrain from
submitting such a matching contract within the prescribed time
period, Seller shall be free to complete the Sale Contract with the
third party buyer.
6.6 REGISTRATION UNDERTAKING. Wavetech hereby agrees to promptly file
after Closing a registration statement on Form S-3 (or any
appropriate successor form) for the purpose of registering the
shares of Wavetech Common Stock to be issued in exchange for the
Buyer Preferred Stock. Wavetech agrees to use such efforts as are
reasonably necessary to obtain the effectiveness of such
registration statement with the Securities and Exchange Commission.
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ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to consummate the transactions provided for
hereby are subject, in the discretion of Seller, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Seller:
7.1 CONSENTS. All Permits and waivers necessary to the consummation of
the transactions contemplated hereby and for the operation of the
business by Buyer and Wavetech (including, without limitation, (a)
all required third party consents; (b) all required approvals of
Buyer's and Wavetech's lenders, if any; and (c) the approval of
Buyer's and Wavetech's Board of Directors) shall have been obtained.
7.2 OPINION OF COUNSEL. Buyer shall have delivered to Seller an opinion
of counsel to Buyer, dated as of the Closing Date, in form and
substance reasonably satisfactory to Seller, to the effect that:
7.2.1 INCORPORATION. Each of Buyer and Wavetech has been duly
incorporated and is validly existing and in good standing
under the laws of its jurisdiction of incorporation. The
capitalization of each of Buyer and Wavetech is as set forth
in Section 5.3.1 or 5.3.2 of this Agreement;
7.2.2 CORPORATE POWER AND AUTHORITY. Each of Buyer and Wavetech
have the necessary corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby;
7.2.3 CORPORATE ACTION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary
corporate action of Buyer and Wavetech, and this Agreement
has been duly executed and delivered by Buyer and Wavetech.
Buyer shall have amended its organizational documents to
provide for the issuance of the Buyer Preferred Stock. The
shares of Wavetech Common Stock upon Closing shall be
immediately exchangeable for the Buyer Preferred Stock,
subject to the terms of this Agreement, the Share Exchange
Agreement and compliance with applicable securities laws;
7.2.4 OBLIGATION OF BUYER AND WAVETECH. This Agreement constitutes
a legally valid and binding obligation of Buyer and
Wavetech, enforceable against Buyer and Wavetech in
accordance with its terms, except as limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally or by
equitable principles (whether considered in an action at law
or in equity), (ii) limitations imposed by federal or
applicable provincial law or equitable principles upon the
availability of specific performance, injunctive relief or
other equitable remedies, or (iii) other customary
limitations reasonably satisfactory to Seller's counsel;
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7.2.5 NO BREACH. Neither the execution and delivery of this
Agreement by Buyer and Wavetech, nor the consummation of the
transactions contemplated hereby will (i) violate or
conflict with any provision of the organizational documents
of Buyer or Wavetech, (ii) breach, or cause a default under,
any term or provision of any material contract listed on a
schedule to such opinion to which contract Buyer or Wavetech
is a party or by which their respective assets are bound, or
(iii) violate any judgment, decree, injunction, writ or
order applicable to Buyer or Wavetech;
7.2.6 NO PERMITS REQUIRED. No Permit of, or filing with, any
governmental authority or, to the best knowledge of such
counsel, any other person, is required for the execution and
delivery of this Agreement by Buyer or Wavetech, or the
consummation by Buyer or Wavetech of the transactions
contemplated hereby, except as set forth in this Agreement
or the schedules or exhibits hereto;
7.2.7 NO ACTIONS PENDING. Except as set forth in this Agreement or
the schedules hereto, to the best knowledge of such counsel,
no Action is pending or threatened (i) against Buyer or
Wavetech, (ii) against any of the officers or directors of
Buyer or Wavetech as such, (iii) in which Buyer or Wavetech
is a plaintiff, or (iv) which questions the validity or
legality of the transactions contemplated hereby;
7.2.8 NO VIOLATION OF LAW. Neither the execution and delivery of
this Agreement by Buyer or Wavetech, nor the consummation of
the transactions contemplated hereby will violate or result
in a failure to comply with any statute, law, ordinance,
regulation, rule or order of any federal, provincial or
local government or any other governmental department or
agency, or any judgment, decree or order of any court,
applicable to Buyer or Wavetech;
7.2.9 SHARE EXCHANGE AGREEMENT. The Share Exchange Agreement to be
delivered by Buyer and Wavetech has been duly authorized by
all necessary corporate action of Buyer and Wavetech and the
shares of Buyer Preferred Stock are immediately exchangeable
for shares of Wavetech Common Stock subject to the terms of
this Agreement and compliance with applicable securities
laws.
7.2.10 ELIGIBILITY TO FILE REGISTRATION STATEMENT. Wavetech Common
Stock is registered under the Securities Exchange Act of
1934 and all periodic reports required thereunder have been
filed; such Common Stock is currently qualified for trading
on the National Association of Securities Dealers (NASD) OTC
Bulletin Board; and such Common Stock is eligible for
registration on Form S-3 (on a resale basis and not as a
primary issuer) pursuant to the provisions of Section 6.6 of
the Agreement.
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In rendering such opinions, such counsel may rely as to factual
matters upon certificates and assurances of public officials and officers
of Buyer and Wavetech. In addition, such opinions may be subject to such
additional qualifications and exceptions as are reasonably acceptable to
counsel to Seller.
7.3 CERTIFICATES. Buyer and Wavetech shall furnish Seller with such
certificates of its officers and others to evidence compliance with
the conditions set forth in this Article VII as may be reasonably
requested by Seller.
7.4 CORPORATE DOCUMENTS. Seller shall have received from each of Buyer
and Wavetech certified copies of resolutions adopted by its board of
directors approving this Agreement and the transactions contemplated
hereby.
7.5 BUYER PREFERRED STOCK. As of the Closing Date each share of the
Buyer Preferred Stock shall be exchangeable for one share of
Wavetech Common Stock. As of the Closing Date, Buyer, Wavetech and
Seller shall have entered into a Share Exchange Agreement with
respect to the Buyer Preferred Stock in the form of Exhibit "E".
Buyer shall have paid the Purchase Price to Seller in the manner
prescribed by Section 2.4.1 and the Share Exchange Agreement shall
have been executed and delivered by the parties thereto confirming
Seller's unqualified right to immediately exchange if, as and when
determined by Seller, in its sole discretion, the Buyer Preferred
Stock received by Seller in payment of the Purchase Price for an
equal number of duly authorized, validly issued and fully paid and
non-assessable Wavetech Common Shares.
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ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
THE OBLIGATIONS OF BUYER TO CONSUMMATE THE TRANSACTIONS PROVIDED FOR HEREBY
ARE SUBJECT TO THE SELLER'S FULFILLMENT OF THE FOLLOWING CONDITIONS, TO THE
SATISFACTION OF BUYER, ON OR PRIOR TO THE CLOSING DATE, ANY OF WHICH MAY BE
WAIVED BY BUYER:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations and
warranties of Seller contained in this Agreement shall be true and
correct in all material respects at and as of the date of this
Agreement and at and as of the Closing Date, except as and to the
extent that the facts and conditions upon which such representations
and warranties are based are expressly required or permitted to be
changed by the terms hereof, and Seller shall have performed and
satisfied all agreements and covenants required hereby to be
performed by it prior to or on the Closing Date.
8.2 CONSENTS. All Permits and waivers necessary to the consummation of
the transactions contemplated hereby and for the operation of the
Business by Buyer (including, without limitation, (a) all required
third party consents to the assignment of the Assumed Contracts to
be assumed by Buyer; (b) all required approvals of Buyer's lenders,
if any; and (c) the approval of Seller's Board of Directors) shall
have been obtained.
8.3 NO PROCEEDINGS OR LITIGATION. No Action by any governmental
authority or other person shall have been instituted or threatened
which questions the validity or legality of the transactions
contemplated hereby and which could reasonably be expected to damage
Buyer materially if the transactions contemplated hereby are
consummated, including without limitation any Material Adverse
Effect on the right or ability of Buyer to own, operate, possess or
transfer the Products or Accounts after the Closing. There shall not
be any statute, rule or regulation that makes the purchase and sale
of the Products or Accounts contemplated hereby illegal or otherwise
prohibited.
8.4 OPINION OF COUNSEL. Seller shall have delivered to Buyer an opinion
of counsel to Seller, dated as of the Closing Date, in form and
substance reasonably satisfactory to Buyer, to the effect that:
8.4.1 INCORPORATION. Seller has been duly incorporated and is
validly existing and in good standing under the laws of the
Province of Ontario, Canada;
8.4.2 CORPORATE POWER AND AUTHORITY. The Seller has the necessary
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby and
to own, lease and operate the Products or Accounts and its
other properties and to conduct the Business as presently
conducted;
8.4.3 CORPORATE ACTION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary
corporate action of Seller, and this Agreement has been duly
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executed and delivered by Seller; the approval of this
Agreement by the stockholders of Seller has been duly
obtained in accordance with the provisions of Seller's
organizational documents and applicable law;
8.4.4 OBLIGATION OF SELLER. This Agreement constitutes a legally
valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, except as limited by
(i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights generally
or by equitable principles (whether considered in an action
at law or in equity), (ii) limitations imposed by federal or
applicable provincial law or equitable principles upon the
availability of specific performance, injunctive relief or
other equitable remedies, or (iii) other customary
limitations reasonably satisfactory to Buyer's counsel;
8.4.5 NO BREACH. Neither the execution and delivery of this
Agreement by Seller, nor the consummation of the
transactions contemplated hereby will (i) violate or
conflict with any provision of the organizational documents
of Seller, (ii) breach, or cause a default under, any term
or provision of any material contract listed on a schedule
to such opinion to which contract Seller is a party or by
which the Products or Accounts are bound, or (iii) violate
any judgment, decree, injunction, writ or order applicable
to Seller;
8.4.6 NO PERMITS REQUIRED. No Permit of, or filing with, any
governmental authority or, to the best knowledge of such
counsel, any other person, is required for the execution and
delivery of this Agreement by Seller, or the consummation by
Seller of the transactions contemplated hereby, except as
set forth in this Agreement or the schedules or exhibits
hereto;
8.4.7 NO ACTIONS PENDING. Except as set forth in this Agreement or
the schedules hereto, to the best knowledge of such counsel,
no Action is pending or threatened (i) against Seller or the
Products or Accounts or the Business, (ii) against any of
the officers or directors of Seller as such, (iii) in which
Seller is a plaintiff, or (iv) which questions the validity
or legality of the transactions contemplated hereby;
8.4.8 NO VIOLATION OF LAW. Neither the execution and delivery of
this Agreement by Seller, nor the consummation of the
transactions contemplated hereby will violate or result in a
failure to comply with any statute, law, ordinance,
regulation, rule or order of any federal, provincial or
local government or any other governmental department or
agency, or any judgment, decree or order of any court,
applicable to Seller or the Business; and, to the best
knowledge of such counsel, Seller has all licenses,
franchises and other authority required to conduct the
Business as it is now being conducted;
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8.4.9 TRANSFER AND ASSIGNMENT. The documents to be delivered by
Seller at the Closing to effect the transfer and assignment
to Buyer of all right, title and interest in and to the
Products or Accounts are effective to do so, subject to (i)
the effects of bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors'
rights generally and equitable principles (whether
considered in an action at law or in equity), (ii)
limitations imposed by federal or provincial law or
equitable principles upon the availability of specific
performance, injunctive relief or other equitable remedies,
or (iii) other customary limitations reasonably satisfactory
to Buyer's counsel;
In rendering such opinions, such counsel may rely as to factual matters
upon certificates and assurances of public officials and officers of Seller. In
addition, such opinions may be subject to such additional qualifications and
exceptions as are reasonably acceptable to counsel to Buyer.
8.5 CERTIFICATES. Seller shall furnish Buyer with such certificates of
its officers and others to evidence compliance with the conditions
set forth in this Article VIII as may be reasonably requested by
Buyer.
8.6 CONVEYANCING DOCUMENTS; RELEASE OF ENCUMBRANCES. Seller shall have
executed and delivered each of documents described in Section 3.2
hereof so as to effect the transfer and assignment to Buyer of all
right, title and interest in and to the Products or Accounts and
Seller shall have filed (where necessary) and delivered to Buyer all
documents necessary to release the Products or Accounts from all
Encumbrances, which documents shall be in a form reasonably
satisfactory to Buyer's counsel.
8.7 MATERIAL CHANGES. Since the date of the Balance Sheet, there shall
not have been any Material Adverse Change with respect to the
Business or the Products or Accounts.
8.8 CORPORATE DOCUMENTS. Buyer shall have received from Seller
resolutions adopted by its board of directors and shareholders
approving this Agreement and the transactions contemplated hereby.
8.9 DUE DILIGENCE REVIEW. Buyer and its Representatives shall have the
right to conduct a due diligence review of Seller's Books and
Records, Financial Statements, and other records and accounts of the
Business, operations, equipment, properties and in the sole
discretion of Buyer, Buyer shall be satisfied on the basis of such
review that there has been no breach of the representations and
warranties or the pre-closing covenants of Seller made pursuant to
this Agreement. Such review shall have no effect whatsoever on the
liability of Seller to Buyer under this Agreement or otherwise for
breach of any representations, warranties, or covenants of Seller or
hereunder.
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ARTICLE IX
RISK OF LOSS; CONSENTS TO ASSIGNMENT
9.1 RISK OF LOSS. From the date hereof through the Closing, all risk of
loss or damage to the property included in the Products or Accounts
shall be borne by Seller, and thereafter shall be borne by Buyer. If
any portion of the Products or Accounts is destroyed or damaged by
fire or any other cause on or prior to the Closing, other than use,
wear or loss in the ordinary course of the Business, Seller shall
give written notice to Buyer as soon as practicable after discovery
of such damage or destruction, the amount of insurance, if any,
covering such Products or Accounts and the amount, if any, which
Seller is otherwise entitled to receive as a consequence. Prior to
the Closing, Buyer shall have the option, which shall be exercised
by written notice to Seller within ten (10) calendar days after
receipt of Seller's notice or if there is not ten (10) calendar days
prior to the Closing, as soon as practicable prior to the Closing,
of (a) accepting such Products or Accounts in their destroyed or
damaged condition in which event Buyer shall be entitled to the
proceeds of any insurance or other proceeds payable with respect to
such loss and to such indemnification for any uninsured portion of
such loss pursuant to Section 10.3, and the full Purchase Price
shall be paid for such Products or Accounts, (b) excluding such
Products or Accounts from this Agreement, in which event the
Purchase Price shall be reduced by the amount allocated to such
Products or Accounts, as mutually agreed between the parties or (c)
terminating this Agreement in accordance with Section 11.1. If Buyer
accepts such Products or Accounts, then after the Closing, any
insurance or other proceeds shall belong, and shall be assigned to,
Buyer without any reduction in the Purchase Price; otherwise, such
insurance proceeds shall belong to Seller.
9.2 CONSENTS TO ASSIGNMENT. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to
assign any Contract, lease, license, sales order, purchase order or
any claim or right or any benefit arising thereunder or resulting
therefrom if an attempted assignment thereof, without the consent of
a third party thereto, would constitute a breach thereof or in any
way adversely affect the rights of Buyer thereunder. If such consent
is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights thereunder so that Buyer
would not receive all such rights, Seller will cooperate with Buyer,
in all reasonable respects, to provide to Buyer the benefits under
any such Contract, lease, license, sales order, purchase order,
claim or right including without limitation enforcement for the
benefit of Buyer of any and all rights of Seller against a third
party thereto arising out of the breach or cancellation by such
third party or otherwise.
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ARTICLE IX
ACTIONS BY SELLER, BUYER AND WAVETECH
AFTER THE CLOSING
10.1 BOOKS AND RECORDS; PAYMENT OF LIABILITIES.
10.1.1 COOPERATION AND RECORDS RETENTION. Seller, Buyer and
Wavetech shall (i) each provide the other with such
assistance as may reasonably be requested by any of them in
connection with the preparation of any return, audit, or
other examination by any taxing authority or judicial or
administrative proceedings relating to liability for Taxes,
(ii) each retain and provide the other with any records or
other information that may be relevant to such return, audit
or examination, proceeding or determination, and (iii) each
provide the other with any final determination of any such
audit or examination, proceeding, or determination that
affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of
the foregoing, Buyer, Seller and Wavetech shall each retain,
until the applicable statutes of limitations (including any
extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information
that may be relevant to such returns for all tax periods or
portions thereof ending on or before the Closing Date and
shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable
opportunity to review and copy the same.
10.2 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained in any
certificate, schedule, exhibit, instrument or conveyance delivered
by or on behalf of the parties pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed
to be representations and warranties by the parties hereunder. The
representations, warranties, covenants and agreements of Seller,
Buyer and Wavetech contained herein shall survive the consummation
of the transactions contemplated hereby and the Closing Date,
without regard to any investigation made by any of the parties
hereto. Except as provided in this sentence, all such
representations and warranties and all claims and causes of action
with respect thereto (other than the provisions of Section 4.11 and
this Section 10.2, and all claims and causes of action with respect
thereto) shall terminate upon expiration of two years after the
Closing Date. The representations and warranties in Section 4.11
shall survive until the expiration of the applicable statute of
limitations (with extensions) with respect to the matters addressed
in such section. The termination of the representations and
warranties provided herein shall not affect the rights of a party in
respect of any Claim made by such party in a writing received by the
other party prior to the expiration of the applicable survival
period provided herein.
10.3 INDEMNIFICATIONS.
10.3.1 BY SELLER. Regardless of Seller's knowledge of the existence
of an indemnifiable event, Seller shall indemnify, defend,
save and hold harmless Buyer, its Affiliates and
subsidiaries, and its respective Representatives, from and
against any and all claims, damages, costs, losses
(including without limitation diminution in value), Taxes,
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liabilities, judgments, penalties, fines, obligations,
lawsuits, deficiencies, demands and expenses (whether or not
arising out of third-party claims), including without
limitation interest, lost profits and other losses resulting
from any shutdown or curtailment of operations, damages to
the environment, attorneys' fees, experts' fees and all
amounts paid in investigation, defense or settlement of any
of the foregoing (herein, "Damages"), incurred in connection
with, arising out of, resulting from or incident to (i) any
breach of any representation or warranty in any material
respect, or the inaccuracy of any representation or
warranty, made by Seller in or pursuant to this Agreement;
(ii) any breach of any covenant or agreement made by Seller
in or pursuant to this Agreement; (iii) any Excluded
Liability; or (iv) any liability imposed upon Buyer by
reason of Buyer's status as transferee of the Products or
Accounts.
10.3.2 BUYER AND WAVETECH. Regardless of Buyer's or Wavetech's
knowledge of the existence of an indemnifiable event, each
of Buyer and Wavetech shall indemnify, defend, save and hold
harmless Seller, its subsidiaries, and its respective
Representatives, from and against any and all Damages,
incurred in connection with, arising out of, resulting from
or incident to (i) any breach of any representation or
warranty in any material respect, or the inaccuracy of any
representation or warranty, made by Buyer or Wavetech in or
pursuant to this Agreement; or (ii) any breach of any
covenant or agreement made by Buyer or Wavetech in or
pursuant to this Agreement; or (iii) the failure or
inability of Wavetech to effectively register the Wavetech
Common Shares to be issued to Buyer in exchange for the
Buyer Preferred Stock pursuant to this Agreement and the
Share Exchange Agreement.
10.3.3 COOPERATION. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such
attorneys in the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom;
provided, however, that the indemnified party may, at its
own cost, participate in the investigation, trial and
defense of such lawsuit or action and any appeal arising
therefrom. The parties shall cooperate with each other in
any notifications to insurers.
10.3.4 DEFENSE OF CLAIMS. If a claim for Damages (a "Claim") is to
be made by a party entitled to indemnification hereunder
against the indemnifying party, the party claiming such
indemnification shall, subject to Section 10.2, give written
notice (a "Claim Notice") to the indemnifying party as soon
as practicable after the party entitled to indemnification
becomes aware of any fact, condition or event which may give
rise to Damages for which indemnification may be sought
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under this Section 10.3. If any lawsuit or enforcement
action is filed against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given
to the indemnifying party as promptly as practicable (and in
any event within fifteen (15) calendar days after the
service of the citation or summons). The failure of any
indemnified party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the
extent that the indemnifying party demonstrates actual
damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be
obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i)
to take control of the defense and investigation of such
lawsuit or action, (ii) to employ and engage attorneys of
its own choice (which shall be reasonably acceptable to the
indemnified party) to handle and defend the same, at the
indemnifying party's cost, risk and expense unless the named
parties to such action or proceeding include both the
indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel
that there may be one or more legal defenses available to
such indemnified party that are different from or additional
to those available to the indemnifying party, and (iii) to
compromise or settle such claim, which compromise or
settlement shall be made only with the written consent of
the indemnified party, such consent not to be unreasonably
withheld; provided, however, if the remediation or
resolution of any such Claim will occur on or at any
Facility or is reasonably expected to have a Material
Adverse Effect on the indemnified party's business
operations, then, notwithstanding the foregoing, the
indemnified party shall be entitled to control such
remediation or resolution, including without limitation to
take control of the defense and investigation of such
lawsuit or action, to employ and engage attorneys of its own
choice to handle and defend the same, at the indemnifying
party's cost, risk and expense, and to compromise or settle
such Claim. If the indemnifying party fails to assume the
defense of such claim within fifteen (15) calendar days
after receipt of the Claim Notice, the indemnified party
against which such claim has been asserted will (upon
delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's
cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the
indemnifying party. In the event the indemnified party
assumes the defense of the claim, the indemnified party will
keep the indemnifying party reasonably informed of the
progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this
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Section 10.3 and for any final judgment (subject to any
right of appeal), and the indemnifying party agrees to
indemnify and hold harmless an indemnified party from and
against any Damages by reason of such settlement or
judgment.
10.3.5 LIABILITY AND REMEDIES, ETC. Except as set forth below, no
individual Representative of any party shall be personally
liable for any Damages under the provisions contained in
this Section 10.3. Nothing herein shall relieve either party
of any liability to make any payment expressly required to
be made by such party pursuant to this Agreement. The term
"Damages" as used in this Section 10.3 is not limited to
matters asserted by third parties against Seller or Buyer,
but includes Damages incurred or sustained by Seller or
Buyer in the absence of third party claims. Payments by
Buyer of amounts for which Buyer is indemnified hereunder,
and payments by Seller of amounts for which Seller is
indemnified, shall not be a condition precedent to recovery.
Seller's obligation to indemnify Buyer, and Buyer's
obligation to indemnify Seller, shall not limit any other
rights, including without limitation rights of contribution
which either party may have under statute or common law.
10.4 FURTHER ACTION. After the Closing, Seller shall take all actions
reasonably necessary to effect the conveyance of the Products or
Accounts to Buyer free and clear of all Encumbrances and otherwise
required by Buyer's lenders.
ARTICLE XI
MISCELLANEOUS
11.1 TERMINATION.
11.1.1 This Agreement may be terminated at any time prior to
Closing:
11.1.1.1 By mutual written consent of Buyer and Seller;
11.1.1.2 By Buyer or Seller if the Closing shall not have
occurred on or before October 29, 1999; PROVIDED,
HOWEVER, that this provision shall not be
available to Buyer if Seller has the right to
terminate this Agreement under Section 11.1.1.4,
and this provision shall not be available to
Seller if Buyer has the right to terminate this
Agreement under Section 11.1.1.3;
11.1.1.3 By Buyer if there is a material breach of any
representation or warranty set forth in Article IV
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hereof or any covenant or agreement to be complied
with or performed by Seller pursuant to the terms
of this Agreement or the failure of a condition
set forth in Article VIII to be satisfied (and
such condition is not waived in writing by Buyer)
on or prior to the Closing Date, or the occurrence
of any event which results or would result in the
failure of a condition set forth in Article VIII
to be satisfied on or prior to the Closing Date,
provided that Buyer may not terminate this
Agreement prior to the Closing if Seller has not
had an adequate opportunity to cure such failure;
or
11.1.1.4 By Seller if there is a material breach of any
representation or warranty set forth in Article V
hereof or of any covenant or agreement to be
complied with or performed by Buyer pursuant to
the terms of this Agreement or the failure of a
condition set forth in Article VII to be satisfied
(and such condition is not waived in writing by
Seller) on or prior to the Closing Date, or the
occurrence of any event which results or would
result in the failure of a condition set forth in
Article VII to be satisfied on or prior to the
Closing Date; PROVIDED that Seller may not
terminate this Agreement prior to the Closing Date
if Buyer has not had an adequate opportunity to
cure such failure.
11.1.2 IN THE EVENT OF TERMINATION. In the event of termination of
this Agreement:
11.1.2.1 Each party will redeliver all documents, work
papers and other material of any other party
relating to the transactions contemplated hereby,
whether so obtained before or after the execution
hereof, to the party furnishing the same; and
11.1.2.2 No party hereto shall have any liability or
further obligation to any other party to this
Agreement, except as stated in Sections 11.7,
11.10, 11.1.2.1 or this Section 11.1.2.2, and
except for any willful breach of this Agreement
occurring prior to the proper termination of this
Agreement. The foregoing provisions shall not
limit or restrict the availability of specific
performance or other injunctive relief to the
extent that specific performance or such other
relief would otherwise be available to a party
hereunder.
27
<PAGE>
11.2 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior
written consent of the other parties. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns, and no other person shall have any right, benefit or
obligation under this Agreement as a third party beneficiary or
otherwise.
11.3 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in
writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy,
electronic or digital transmission method; the day after it is sent,
if sent for next day delivery to a domestic address by recognized
overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt
requested. In each case notice shall be sent to:
If to Seller or the Seller Stockholders, addressed to:
Ms. Rosnani Atani
Chief Executive Officer
Softalk, Inc.
415 Yonge St.
Toronto, Ontario M5B2E7
Fax: (416) 597-2785
With a copy to:
Shibley Righton
Barristers & Solicitors
401 Bay Street, Suite 1900
Toronto, Ontario M5H 2Z1
Attn: L. S. Mason
Fax: (416) 214-5438
If to Buyer, addressed to:
Interpretel (Canada) Inc.
c/o Wavetech International, Inc.
5210 East Williams Circle
Suite 200
Tucson, Arizona 85711
Attn: Gerald I. Quinn
Fax: (520) 750-9194
28
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With a copy to:
Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Attention: Gregory R. Hall, Esq.
Fax: (602) 253-8129
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 CHOICE LAW. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the
Province of Ontario (without reference to the choice of law
provisions thereof), except with respect to matters of law
concerning the internal corporate affairs of any corporate entity
which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties. This
Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. No amendment,
supplement, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether
or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
11.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.7 EXPENSES. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting, out-of-pocket and
other expenses incident to this Agreement and to any action taken by
such party in preparation for carrying this Agreement into effect.
11.8 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, then to the maximum extent permitted
by law, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such
instrument.
29
<PAGE>
11.9 TITLES. The titles, captions or headings of the Articles, Sections
and subsections herein are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
11.10 PUBLICITY; CONFIDENTIALITY. Neither Buyer nor Seller shall issue any
press release or make any public statement regarding, or disclose to
any third party (except as required by law or legal process, and
except to each party's lenders if such lenders so require) any of
the terms of, the transactions contemplated hereby, without prior
written approval of the other party, provided that Buyer and Seller
may, if they mutually agree, issue or make an appropriate press
release or public announcement after the Closing Date. In the event
that this Agreement is terminated prior to Closing, Buyer agrees to
return to Seller all correspondence and documents furnished by
Seller or its Representatives, and agrees not to disclose or use for
its own purposes any confidential or proprietary information of
Seller that has been furnished to it by Seller or its
Representatives.
11.11 CUMULATIVE REMEDIES. All rights and remedies of either party hereto
are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of
one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies.
11.12 ARBITRATION. Any controversy arising after the Closing out of or
relating to this Agreement (including, without limitation, pursuant
to Section 2.5 or 10.3), or relating to the breach hereof, shall be
settled by arbitration conducted in Toronto, Ontario in accordance
with the Arbitrations Act (Ontario), as amended. The award rendered
by the arbitrator(s) shall be final and judgment upon the award
rendered by the arbitrator(s) may be entered upon it in any court
having jurisdiction thereof. The arbitrator(s) shall possess the
powers to issue mandatory orders and restraining orders in
connection with such arbitration. The expenses of the arbitration
shall be borne by the losing party unless otherwise allocated by the
arbitrator(s). The agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law. During the
continuance of any arbitration proceedings, the parties shall
continue to perform their respective obligations under this
Agreement.
30
<PAGE>
ARTICLE XII
BULK SALES
12.1 BULK SALES
12.1.1 BULK SALES. The parties acknowledge that this transaction
may be subject to the BULK SALES ACT R.S.O. 1990, C.B. 14
(herein the "BULK SALES ACT"). It is agreed that:
12.1.1.1 Seller shall not be required to apply to a judge
pursuant to section 3(1) of the BULK SALES ACT for
an order exempting this transaction from the
application of the BULK SALES ACT;
12.1.1.2 Seller shall deliver to Buyer, at or prior to the
Closing, a statement verified by the affidavit of
a senior officer of Seller in Form 1 to the BULK
SALES ACT containing the information required by
section 4(2) of the BULK SALES ACT (the "BSA
STATEMENT");
12.1.1.3 Buyer waives compliance by Seller with the
requirements of the BULK SALES ACT notwithstanding
that the BSA Statement may disclose that the
claims of the unsecured trade creditors of Seller
exceed $2,500.00 but only if the claims of the
secured trade creditors of Seller do not exceed a
total of $2,500.00;
12.1.1.4 Seller shall defend, indemnify and save harmless
Buyer from all claims of the secured and unsecured
trade creditors of Seller and covenants to and
agrees with Buyer that Seller, in the ordinary
course of Seller's business, fully pay and satisfy
the claims of all such creditors owing at the
Closing Date. The foregoing notwithstanding, Buyer
hereby agrees to cooperate with Seller with
respect to defending any claims made by third
parties with respect to the Bulk Sales Act arising
as a result of this Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed on their respective behalf, by their respective
officers hereunto duly authorized, all as of the day and year first above
written.
INTERPRETEL (CANADA) INC.
By /s/ Gerald I. Quinn
---------------------------
Name: Gerald I. Quinn
Its: President
SOFTALK INC.
By /s/ A. Chris Lang
---------------------------
Name: A. Chris Lang
Its: President
WAVETECH INTERNATIONAL, INC.
By /s/ Gerald I. Quinn
---------------------------
Name: Gerald I. Quinn
Its: President
32
<PAGE>
Exhibits are intentionally omitted
33
AMENDMENT NO. 1
TO
AMENDED AND RESTATED LICENSE AGREEMENT
This Amendment No. 1 to Amended and Restated License Agreement (this
"Amendment") is entered into this 25th day of October, 1999 (the "Effective
Date"), by and between Softalk, Inc., an Ontario corporation whose principal
offices are located at 415 Yonge Street, Suite 1701, Toronto, Ontario
("Softalk"), and Wavetech International, Inc., a Nevada corporation whose
principal offices are located at 5210 E. Williams Circle, Suite 200, Tucson,
Arizona 85711 ("Wavetech"). Capitalized terms used but not defined herein shall
have the meaning assigned to such terms in that certain Amended and Restated
License Agreement, dated as of July 30, 1999, between Wavetech and Softalk (the
"Original Agreement").
RECITALS
A. Wavetech and Softalk previously entered into the Original Agreement.
B. The parties desire to further amend the Original Agreement to grant
Wavetech and its subsidiaries a world-wide exclusive license to distribute,
market, service, sell and sublicense any and all of Softalk's services and
products (whether now existing or hereafter developed or acquired by Softalk) to
Commercial Accounts (as hereinafter defined), and (ii) a world-wide nonexclusive
license to distribute, market, service, sell and sublicense any and all of
Softalk's services and products (whether now existing or hereafter developed or
acquired by Softalk) to individual accounts.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The first sentence of Section 1.1 of the Original Agreement shall be
deleted and replaced in its entirety by the following sentence:
"Subject to the terms and conditions of this License Agreement, Softalk
hereby grants to Wavetech and each of its subsidiaries (whether now existing or
hereafter acquired or formed), for the term of this License Agreement, an
exclusive, non-transferable worldwide license, to the current and future
communications software developed by Softalk commonly referred to as ICALL,
IBILL and IFAX (collectively, the "Softalk Products") for use by Wavetech and
its subsidiaries in connection with the distribution, marketing, service, sale
and sublicense of the Softalk Products to Commercial Accounts."
<PAGE>
2. The following new sentence shall be added to the end of Section 1.1 of
the Original Agreement:
"Subject to the terms and conditions of this License Agreement, Softalk
hereby grants to Wavetech and each of its subsidiaries (whether now existing or
hereafter acquired or formed), for the term of this License Agreement, a
non-exclusive, non-transferable worldwide license, to the Softalk Products for
use by Wavetech and its subsidiaries in connection with the distribution,
marketing, service, sale and sublicense of the Softalk Products to individual
accounts."
3. All references in the Original Agreement to "Wavetech" shall be deemed
to include Wavetech and each of its subsidiaries, whether now existing or
hereafter acquired or formed.
4. The term "Commercial Accounts" shall mean any corporation (with one or
more shareholders), limited liability company, partnership, association or other
entity or organization, provided, however, that this definition shall not
include any charitable gifts made by Softalk.
5. In consideration for this Amendment, Wavetech shall issue to Softalk the
following warrants, which shall contain a cashless exercise provision:
a. a five-year warrants to purchase an aggregate of 3,246,753 shares
of Wavetech Common Stock at a per share exercise price of U.S. $3.25;
b. a five-year warrants to purchase an aggregate of 1,000,000 shares
of Wavetech Common Stock at a per share exercise price of U.S. $5.00; and
c. a five-year warrants to purchase an aggregate of 1,000,000 shares
of Wavetech Common Stock at a per share exercise price of U.S. $10.00.
Wavetech hereby agrees to promptly prepare and file an appropriate registration
statement with the U.S Securities and Exchange Commission, on a best effort
basis, to register for resale the shares of Wavetech Common Stock issuable upon
exercise of the aforementioned warrants.
6. Except as set forth in this Amendment, all other terms of the Original
Agreement shall remain in full force and effect.
7. This Amendment shall be governed by the law set forth in Section 14 of
the Original Agreement.
<PAGE>
SOFTALK, INC.
BY: /s/ A. Chris Lang
-------------------------------
NAME: A. Chris Lang
-----------------------------
TITLE: President
----------------------------
DATE: 10/25/99
-----------------------------
WAVETECH INTERNATIONAL, INC.
BY: /s/ Gerald I. Quinn
-------------------------------
NAME: Gerald I. Quinn
-----------------------------
TITLE: President & CEO
----------------------------
DATE: 10/25/99
-----------------------------
AMENDED AND RESTATED LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT (the "LICENSE AGREEMENT") is
entered into this 30th day of July, 1999 (the "EFFECTIVE DATE"), by and between
Softalk Inc., an Ontario corporation whose principal offices are located at 415
Yonge Street, Suite 1701, Toronto, Ontario ("SOFTALK"), and Wavetech
International, Inc., a Nevada corporation whose principal offices are located at
5210 E. Williams Circle, Suite 200, Tucson, Arizona 85711 ("WAVETECH").
WHEREAS, Softalk is the owner of certain unique intellectual property for
use in the transmission of voice, data and fax services using Voice over
Internet Protocol ("VOIP") and Voice over Frame ("VOF") technology; and
WHEREAS, Wavetech possesses the resources to sell, market and conduct
billing, collection and customer services with respect to Softalk's intellectual
property;
WHEREAS, on April 23, 1999, Softalk and Wavetech entered into an agreement
pursuant to which Softalk granted a license to Wavetech to market Softalk's
intellectual property and transfer to Wavetech certain customers then in
existence.
WHEREAS, the parties now desire to expand and clarify the terms of the
rights and obligations provided in the original license agreement.
NOW THEREFORE, in consideration of the covenants and agreements contained
in this License Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree to
amend and restate the License Agreement as follows:
1. LICENSE GRANTS.
1.1 Subject to the terms and conditions of this License Agreement, Softalk
hereby grants to Wavetech, for the term of this License Agreement, a
non-exclusive, non-transferable worldwide license, to the current and
future communications software developed by Softalk commonly referred
to as ICALL, IBILL, CCALL and IFAX (collectively referred to as the
"SOFTALK PRODUCTS") for use by Wavetech solely in connection with the
sale, marketing, and provision of customer support services of the
Softalk Products. For purposes of clarification, the Softalk Products
include the technology covered by Canadian Patent Application No.
2,198,024 and U.S. Patent Application No. 08/811,099 and the
trademarks, tradenames and service marks associated therewith which
are listed on Schedule A hereto, copyright in the Softalk Products,
ownership of proprietary Confidential Information (as hereinafter
defined) and ownership of certain trade-marks.
1.2 Wavetech does not have the right to sub-license this License
Agreement.
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<PAGE>
2. TECHNOLOGY TRANSFER.
2.1 Technical Information. Within 6 months following execution of this
License Agreement, Softalk will make available to Wavetech all
necessary technical information relating to the Softalk Property then
in its possession.
2.2 Technical Assistance. Softalk shall render technical training on the
Softalk's Products, and assistance to Wavetech's engineers or
technical personnel, in connection with the initial installation and
for a period of 3 months thereafter. Any further technical assistance
will be rendered at a charge to be determined by Softalk at the time
of request.
3. FURTHER RESEARCH AND DEVELOPMENT.
3.1 Softalk shall, during the term of this License Agreement, devote
resources to continuing product development and to research and
development of improvements and modifications for the purpose of
augmenting exploitation by Wavetech in all markets for, and all uses
of, the Softalk Products (collectively, referred to as the
"IMPROVEMENTS").
3.2 Softalk shall, during the term of this License Agreement, as
appropriate, promptly communicate to Wavetech all Improvements that
relate in any manner to the Softalk Products.
4. TRANSFER OF CUSTOMERS. In addition to the license granted under this
License Agreement, Softalk shall transfer to Wavetech the customers listed
in Schedule B (the "SOFTALK ACCOUNTS"). Wavetech shall have the exclusive,
non-transferable right to conduct all billing, collection and customer
support activities related to the Softalk Accounts. If Softalk shall
determine in its reasonable discretion that Wavetech's billing activities
with respect to the Softalk Accounts would be more effectively facilitated
offshore, Softalk shall have the right to cause Wavetech to conduct such
activities through an offshore entity. For purposes of clarification, the
Softalk Accounts currently in existence are set forth on Schedule B
attached hereto. In addition, the customer support services to be provided
by Wavetech hereunder shall consist of those also described on Schedule B.
All customer support services provided by Wavetech with respect to the
Softalk Products shall be delivered in a manner reasonably consistent with
the methods and standards of quality as are delivered to Wavetech's
employees pursuant to Section 2.2 of this License Agreement.
5. COMMISSIONS. Wavetech shall pay to Softalk an amount equal to (1) 100% of
Softalk's actual direct expenses incurred in connection with the sale,
license and delivery of Softalk Products plus (ii) five percent (5%) markup
of the total traffic on the wholesale long distance per minute line costs
on a monthly basis.
6. LICENSE FEE. In consideration of the license granted in Section 1 hereof,
Wavetech shall pay to Softalk, the amount of Two Hundred Thousand Dollars
(US$200,000). This fee shall be payable in cash upon execution of this
License Agreement (the "LICENSE FEE").
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<PAGE>
7. STANDARDS, QUALITY CONTROL, PROMOTION.
7.1 Softalk must approve all promotional, advertising and product literature
prepared by Wavetech in connection with the actions to be taken by Wavetech
pursuant to this License Agreement. Neither Softalk nor Wavetech shall take
any action or make any omission that would tend to impair or damage the
goodwill associated with the Softalk Products. Wavetech shall maintain high
standards of quality and service with respect to all Softalk Products made
and/or sold hereunder, and all related advertising and promotional material
including, without limitation, the quality of physical material utilized.
All Softalk Products will be sold, and distributed in accordance with all
applicable federal, state, local and foreign laws and regulations. None of
the content of the Softalk Products; packaging, advertising, and
promotional material related thereto; the exploitation of the Softalk
Products; or the manner in which any or all rights granted to Wavetech
hereunder are exercised or exploited, shall violate or infringe any right
of privacy or publicity, copyright, or trademark or constitute defamatory,
obscene, or unlawful matter. Softalk is familiar with the standards and
practices of Wavetech, and acknowledges that Wavetech presently maintains
high standards of quality, style, and appearance with respect to its
products and services.
7.2 If Softalk reasonably determines that Wavetech has failed to maintain such
quality of service described in Section 7.1 above as to the Softalk
Products, Softalk shall promptly notify Wavetech in writing and shall
specify with reasonable detail the nature of the alleged deficiency.
Wavetech will have sixty (60) days from the date of the notice in which to
remedy the failure to Softalk's satisfaction.
7.3 Patent Infringement
In the event Wavetech becomes aware of any information indicating that a
third party may be infringing (or may have infringed) any of the Softalk
Products, Wavetech shall give notice of such alleged infringement,
identifying the country or countries in which the alleged infringing
product or service is sold and describing the alleged infringing product or
service in sufficient detail to enable Softalk to determine whether such
product or service infringes any of the Softalk Products. To the extent
possible, Softalk shall assert the Softalk Products against the infringer
within three (3) months of such notice, unless (a) Wavetech and Softalk
determine not to assert such claim, or (b) Softalk has received an opinion
from patent counsel acceptable to Wavetech that the allegedly infringing
product does not infringe the Softalk Products.
All reasonable litigation expenses and costs, including reasonable
attorneys' fees, incurred by Wavetech in the course of any litigation
pursuant to the immediately preceding paragraph shall be promptly
reimbursed by Softalk. In such event, all recoveries including, but not
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<PAGE>
limited to, awards of damages, statutory damages, and awards of attorneys'
fees, expenses and/or costs, obtained by Wavetech in the course of any
litigation arising out of any notification of Softalk by Wavetech pursuant
to this Section shall be paid to Softalk, provided, however, that Wavetech
shall be entitled to offset such payments by amounts previously incurred by
Wavetech in connection with the defense of the Softalk Products pursuant to
this section and not previously reimbursed by Softalk.
8. CONFIDENTIALITY.
8.1 Wavetech acknowledges that Softalk's Confidential Information is unique and
valuable and was developed or otherwise acquired by Softalk at great
expense, and that any unauthorized disclosure or use of Softalk's
Confidential Information may cause Softalk irreparable injury or loss for
which damages would be an inadequate remedy. Wavetech agrees to hold such
Confidential Information in strictest confidence, to use all efforts
reasonable under the circumstances to maintain the secrecy thereof, and not
to make use thereof other than in accordance with this License Agreement,
and not to release or disclose Confidential Information to any third party
without Softalk's prior written consent. Softalk hereby acknowledges and
consents to the disclosure of Softalk's Confidential Information to those
employees of Wavetech and any permitted sub-licensees, that must have
access to such Confidential Information in order to perform services for
Wavetech pursuant to this License Agreement, but only after each employee
of Wavetech and its sub-licensees agrees to maintain Softalk's Confidential
Information in strictest confidence, to use all efforts reasonable under
the circumstances to maintain the secrecy thereof, not to make use thereof
other than in accordance with this License Agreement, and not to release or
disclose Confidential Information to any third party without Softalk's
prior written consent.
8.2 Softalk acknowledges that various information regarding the business plans
and product concepts of Wavetech may comprise Confidential Information.
Softalk agrees to hold Wavetech's Confidential Information in strictest
confidence, not to make use thereof other than in accordance with this
License Agreement, to use all efforts reasonable under the circumstances to
maintain the secrecy thereof, and not to release or disclose Confidential
Information to any third party without Wavetech's prior written consent.
Wavetech hereby acknowledges and consents to Softalk's disclosure of
Wavetech's Confidential Information to Softalk employees and agents, but
only after such employees and agents having access to Wavetech Confidential
Information agree, in writing, to maintain Wavetech's Confidential
Information in strictest confidence, to use all efforts reasonable under
the circumstances to maintain the secrecy thereof, not to make use thereof
other than in accordance with this License Agreement, and not to release or
disclose Confidential Information to any third party without Wavetech's
prior written consent.
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<PAGE>
8.3 The parties acknowledge that any violation of this Section 8 shall
constitute a material breach of this License Agreement resulting in
irreparable injury to the non-breaching party and agree that, in addition
to any and all other rights available to the non-breaching party by law or
by this License Agreement, the non-breaching party shall have the night to
have an injunction entered against the breaching party to enjoin any
further violations of this License Agreement.
8.4 For purposes of this Section 8, "Confidential Information" shall mean any
and all technology, information and/or data which is not readily
ascertainable by proper means and which derives economic value, actual or
potential, from not being generally known, and which has been the subject
of efforts that are reasonable under the circumstances to maintain its
secrecy. All know-how and technical information and/or information relating
to the products or operations of Wavetech or Softalk, as the case may be
(in either case the "DISCLOSING PARTY"), which is provided to the other
party (the "RECEIVING PARTY"), or to which the Receiving Party otherwise
obtains access, pursuant to, or as a result of, this License Agreement
shall be considered Confidential Information; except such information which
the Receiving Party can clearly show: (a) as of the Effective Date of this
License Agreement is publicly and openly known; (b) after the Effective
Date of this License Agreement becomes publicly and openly known through no
fault of the Receiving Party; (c) comes into the Receiving Party's
possession and lawfully obtained by the Receiving Party from a source other
than from the Disclosing Party or a source deriving from the Disclosing
Party, and not subject to any obligation of confidentiality or restrictions
on use; or (d) is approved for release by written authorization of the
Disclosing Party.
8.5 Any press release or other public statement by either Softalk or Wavetech
that relates to the other party, this License Agreement or the transactions
contemplated hereby shall be approved by both parties prior to its release.
9. WARRANTIES.
9.1 Softalk makes no representation, promise or warranty whatsoever that
the Softalk Products will ultimately be protected by issued patents or
that the Softalk Products and their use do not or will not infringe
the intellectual property rights of others.
9.2 Softalk has the full right, power and authority to grant the licenses
contemplated by this License Agreement.
9.3 Softalk hereby represents and warrants that the Softalk Products shall
perform in the manner intended without interruption. Notwithstanding
the prior sentence, Wavetech acknowledges and agrees that its sole
indemnification rights with respect to hardware purchased by Softalk
directly from third parties will be limited to warranties provided by
such third parties if any.
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<PAGE>
10. INDEMNITIES.
10.1 The parties shall each indemnify and hold the other harmless from and
against any and all claims, liabilities, loss, expense (including
reasonable attorneys' fees) or damages arising out of any breach of
this License Agreement, provided that the indemnified party shall,
with reasonable promptness, notify the indemnifying party of any such
claim, demand, or suit and shall fully cooperate in the defense
thereof. The indemnifying party shall have the right to designate
counsel to defend against such claims and suits; however, at the
indemnified party's option, the indemnified party shall have the right
to participate in the defense with its own counsel at its own expense.
In no event shall any such claims or suits affecting the rights of a
party be settled without the prior written consent of that party.
10.2 Wavetech agrees that any liability on the part of Softalk hereunder
for breach of warranties contained herein or any other breach giving
rise to liability, including a breach of a condition or fundamental
term or fundamental breach or breaches or in any other way arising out
of or related to this License Agreement for any cause of action
whatsoever and regardless of the form of action (including breach of
contract, strict liability, tort including negligence or any other
legal or equitable theory) shall be limited to Wavetech's actual,
direct, provable damages in an amount not to exceed the License Fee
payable hereunder.
10.3 Wavetech agrees that in no event will Softalk be liable for damages in
respect of incidental, ordinary, punitive, exemplary, indirect,
special or consequential damages even if Softalk has been advised of
the possibility of such damages including, but not limited to, lost
business revenue, lost profits, failure to realize expected savings,
loss of data, loss of business opportunity or any claim against
Wavetech by any other party.
11. TERM. This License Agreement shall commence on the Effective Date and shall
continue for 7 years with automatic renewals, unless sooner terminated
pursuant to Section 12 hereof.
12. DEFAULT AND TERMINATION.
12.1 Either party shall have the right to terminate this License Agreement
upon thirty (30) days written notice to the other party, if such other
party falls to comply in any material respect with any term or
condition of this License Agreement and such failure to comply is not
corrected within the foregoing thirty (30) day notice period.
12.2 Either party shall have the right to terminate this License Agreement
in the event the other party becomes bankrupt or insolvent, suffers a
receiver to be appointed, or makes an assignment for the benefit of
its creditors.
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<PAGE>
12.3 Softalk shall have the right to terminate this License Agreement upon
sixty (60) days written notice following a change of control of
Wavetech. For purposes of this Section 11.3, a "change of control"
shall be deemed to have occurred:
(a) When, after the date of this License Agreement, any person (as
such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the beneficial owner (as defined in Rule l3d-3 of
the Exchange Act), directly or indirectly, of securities of
Wavetech representing fifty-one percent (51%) or more of the
combined voting power of Wavetech's then outstanding securities,
other than (i) an employee benefit plan established or maintained
by Wavetech or a subsidiary of Wavetech, or (ii) any person who
presently owns such quantity of securities as of the date hereof,
or
(b) Upon the approval by Wavetech's stockholders of (1) a merger or
consolidation of Wavetech with or into another corporation (other
than a merger or consolidation the definitive agreement for which
provides that at least a majority of the directors of the
surviving or resulting corporation immediately after the
transaction are Continuing Directors (as hereinafter defined),
(ii) a sale or disposition of all or substantially all of
Wavetech's assets, or (iii) a plan of liquidation or dissolution
of Wavetech.
(c) Individuals who, as of the date hereof, constitute the Board of
Directors of Wavetech (the "INCUMBENT BOARD") cease for any
reason to constitute at least 80% of the Board; provided,
however, that any person becoming a member of the Board
subsequent to the date hereof whose election, or nomination for
election by Wavetech's stockholders, was approved by a vote of at
least 80% of the members then comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of directors
of Wavetech, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act or any successor provision
thereto) shall be, for purposes of this License Agreement,
considered as though such person were a member of the Incumbent
Board.
12.4 Sections 10, 12, 14 and 15 hereof shall survive termination (for any
reason) of this License Agreement.
12.5 Upon the termination of this License Agreement for any reason
whatsoever, Wavetech shall be permitted to continue using the Softalk
intellectual property in providing services to all its existing (at
the point of termination) clients.
-7-
<PAGE>
13. ASSIGNMENT. Neither party may assign or otherwise transfer this License
Agreement, or any rights under it, without the prior written consent of the
other party, which consent shall not be unreasonably withheld. Any
attempted assignment in violation of this Section 12 shall be null and
void.
14. CHOICE OF LAW, ARBITRATION. This License Agreement is made under, and shall
be governed by and construed in accordance with the internal laws of
Ontario, Canada, without reference to principles of conflicts of law. Any
disputes arising under this License Agreement shall be settled by binding
arbitration conducted in Toronto in accordance with the Rules of Procedure
for the Conduct of Arbitration and Mediation Antitrust of Ontario Inc.
15. GENERAL.
15.1 This License Agreement, including all Schedules, constitutes the
entire agreement between the parties and supersedes all prior
proposals, representation, negotiations and communications, oral or
written, between the parties with respect to its subject matter. No
variation from these provisions shall be binding unless in writing and
signed by both parties.
15.2 Each party shall be responsible for, and shall pay, all sales, value
added and similar taxes, if any, which may be imposed on any sales of
the Softalk Products hereunder by such party, as well as any other tax
based upon such party's use, sale, or possession of the Softalk
Products.
15.3 All rights and remedies conferred under this License Agreement or by
any other instrument or law shall be cumulative, and may be exercised
singularly or concurrently. Either party's failure or forbearance to
enforce any right or claim against the other arising under this
License Agreement shall not be deemed a waiver of future enforcement
of that or any other provision. In the event that any portion of this
License Agreement shall be held to be unenforceable by a court of
competent jurisdiction, the remaining portions of this License
Agreement shall remain in full force and effect.
15.4 In the event any provision of this License Agreement or the
application of any provision shall be held by a tribunal of competent
jurisdiction to be contrary to law, then the remaining provisions of
this License Agreement shall be unimpaired, and the illegal, invalid
or unenforceable provision shall be replaced by a provision, which,
being legal, valid and enforceable, comes closest to the intent of the
parties underlying the illegal, invalid or unenforceable provision.
15.5 If a party commences any action at law or in equity, or for
declaratory relief, or in appellate proceedings, to secure or protect
any rights under, or to enforce any provision of, this License
Agreement, then, in addition to any judgment, order, or other relief
obtained in such proceedings, the prevailing party shall be entitled
to recover from the losing party all reasonable costs, expenses, and
attorneys' fees incurred by the party in connection with such
proceedings, including, attorneys' fees incurred for consultation and
other legal services performed prior to the filing of such proceeding.
-8-
<PAGE>
15.6 All terms and conditions of this License Agreement shall be binding
upon and shall inure to the benefit of the parties to this License
Agreement and their respective permitted successors, permitted
assigns, and legal representatives.
15.7 All notices required or permitted under this License Agreement shall
be in writing and shall be deemed to have been given upon personal
delivery or upon deposit in the U.S. mail, first-class, postage
prepaid. The addresses of the parties (until written notice of change
shall have been given) shall be as follows:
SOFTALK: Softalk Inc.
415 Yonge Street, Suite 1701
Toronto, Ontario
Canada M5B 2E7
Attn: Chris Lang
Facsimile: 416-597-2785
WITH A COPY TO: Gowling, Strathy & Henderson
Suite 4900 Commerce CT W
Toronto, Ontario M5L IJ3
Attn: David Aylen and Karyn Bradley
Facsimile: 416-862-7661
WAVETECH: Wavetech International, Inc.
5210 E. Williams Circle, Suite 200
Tucson, Arizona 85711
Attn: Gerald I. Quinn
ATTN: Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Attn: Christopher D. Johnson, Esq.
Facsimile: (602) 253-8129
15.8 Nothing in this License Agreement shall constitute, or be deemed to
constitute, either party as an employee, agent, partner or joint
venture of the other.
15.9 Further Assurances. The parties shall from time to time execute and
deliver all such further documents and do all acts and things as the
other party may reasonably require to effectively carry out or better
evidence or perfect the fall intent and meaning of this License
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed by their duly authorized representatives.
SOFTALK, INC. WAVETECH INTERNATIONAL, INC.
BY: /s/ A. Chris Lang BY: /s/ Gerald I. Quinn
------------------------------- -------------------------------
NAME: A. Chris Lang NAME: Gerald I. Quinn
----------------------------- -----------------------------
TITLE: President TITLE: President & CEO
---------------------------- ----------------------------
DATE: 10/25/99 DATE: 10/25/99
----------------------------- -----------------------------
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<PAGE>
Schedules have been intentionally omitted.
SHARE EXCHANGE AGREEMENT
BY AND AMONG
WAVETECH INTERNATIONAL, INC.,
INTERPRETEL (CANADA) INC.
AND
SOFTALK INC.
DATED AS OF
NOVEMBER 13, 1999
<PAGE>
Share Exchange Agreement
by and among
Wavetech International, Inc.,
Interpretel (Canada) Inc.
and
Softalk Inc.
dated as of
November 13, 1999
TABLE OF CONTENTS
PAGE
----
1. Certain Definitions 1
2. Right to Exchange 2
3. Covenants and Representations 2
4. Restrictive Legend 7
5. Company Registration 8
6. Expenses of Registration 8
7. Indemnification 8
8. Further Obligations of the Company 11
9. Rule 144 Requirements 11
10. Amendment 12
11. Notices, etc. 12
12. Entire Agreement; Severability 13
13. Governing Law 13
14. Counterparts 13
<PAGE>
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement ("Agreement") is entered into as of November 13,
1999 by and among WAVETECH INTERNATIONAL, INC., a Nevada corporation ("Wavetech"
or the "Company"), INTERPRETEL (CANADA) INC. ("Buyer"), an Ontario, Canada
corporation and a wholly-owned subsidiary of WAVETECH and SOFTALK INC., an
Ontario, Canada corporation ("Seller") with reference to certain shares of no
par value Class A Voting Preferred Stock of Buyer ("Buyer Preferred Stock") and
certain shares of Common Stock, par value $.001 per share (the "Common Stock")
of Wavetech.
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"EXCHANGE ACT" shall mean the United States Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time and any successor thereto.
"HOLDER" shall mean Softalk Inc., an Ontario, Canada corporation.
"REGISTRABLE SHARES" shall mean the Shares; PROVIDED, HOWEVER, that
Shares shall be treated as Registrable Shares only if and so long as they have
not been (i) sold in a public distribution or a public securities transaction;
or (ii) sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act as a result of which all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all registration, qualification and
filing fees, fees and disbursements of counsel for Wavetech, accounting fees
incident to any such registration, state securities or blue sky fees and
expenses, transfer agent and registrar fees, reasonable fees and expenses of any
special experts retained by Wavetech in connection with any such registration,
any listing fees and any out-of-pocket expenses of the Holder incurred in
connection with the registration of Shares, including, without limitation, fees
and disbursements of counsel for the Holder if such counsel is not also counsel
for the Company, and printing expenses.
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<PAGE>
"RESTRICTED SHARES" shall mean the shares of Wavetech required to bear
the legend set forth in paragraph (a) of Section 3 hereof.
"RULE 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule shall be in effect at the time, and any successor thereto.
"SECURITIES ACT" shall mean the United States Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time.
"SELLING AND DISTRIBUTING EXPENSES" shall mean all underwriting
discounts, selling commissions and stock transfer taxes attributable to the sale
of Shares by the Holder.
"SHARES" shall mean the 4,329,004 shares of Wavetech Common Stock
issuable on a one-for-one basis upon exchange for Buyer Preferred Stock pursuant
to the Purchase Agreement, and any shares of Common Stock in respect thereof in
connection with stock splits, stock dividends or distributions, or combinations
or similar recapitalizations, on or after the date hereof.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
October 25, 1999 by and among the parties hereto.
2. RIGHT TO EXCHANGE. Each share of Buyer Preferred Stock may be exchanged
on a one-for-one basis into a share of Wavetech Common Stock at any time or
times subsequent to the date of this Agreement in the sole discretion of Seller
upon written notice to the Company. Upon receipt of such written notice the
Company shall exchange the number of shares of Buyer Preferred Stock so tendered
for Common Stock of the Company. Such shares of Common Stock of the Company
shall at all times be registered with the Securities and Exchange Commission and
Wavetech will at all times provide to Seller a current prospectus which shall at
all times meet the requirements of Section 10 of the Securities Act.
3. COVENANTS AND REPRESENTATIONS. As further consideration for the
acceptance by Seller of Buyer Preferred Stock in consideration for the assets
being sold by Seller under the Purchase Agreement, Buyer, Seller and Wavetech
each covenant with and warrant and represent to the others as follows:
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<PAGE>
(a) Wavetech consents to an amendment to the Articles of Buyer to the
effect that the Buyer Preferred Stock to be delivered to Seller shall be
non-cumulative, voting shares (Class A Preferred Shares).
(b) Seller consents to the issuance by Buyer of additional Common
Shares to Wavetech, with the proviso that (i) at no time will the shares which
may be voted by the Holder of Buyer Preferred Stock at any shareholder meeting
on any issue be less than fifteen percent (15%) of the total shares eligible to
vote on such matter, and (ii) the Buyer Preferred Stock must at all times
represent not less than fifteen percent (15%) of the fair market value of the
total shares of Buyer issued and outstanding.
(c) Wavetech agrees that it (i) will not declare or pay dividends on
its Common Stock without the prior approval of the holders of the Buyer
Preferred Stock then outstanding, provided that such approval shall not be
required if Alexander Christopher Lang no longer directly or indirectly owns all
of the issued and outstanding voting shares of Seller, and (ii) will not
exercise its vote as a shareholder of Buyer to initiate the voluntary
liquidation, dissolution or winding up of Buyer nor take any action or omit to
take any action that is designed to result in the liquidation, dissolution or
winding up of Buyer.
(d) Wavetech agrees that it has irrevocably reserved for issuance and
will at all times keep available, out of its authorized and unissued capital
stock, such number of shares of Wavetech Common Stock (or other shares or
securities into which the Wavetech Common Stock may be reclassified or changed
to the extent permitted under this Agreement) equal to the sum of the number of
shares of Wavetech Common Stock which are now or may hereafter be required to
enable and permit Buyer and Wavetech to meet their obligations hereunder.
3
<PAGE>
(e) Buyer agrees to give Seller and Wavetech notice of each of the
following events at the time set forth:
(i) in the event of any determination by the Board of Directors
of Buyer to institute voluntary liquidation, dissolution or
winding up proceedings with respect to Buyer or to effect
any other distribution of the assets of Buyer among its
shareholders for the purpose of winding up its affairs, at
least thirty (30) days prior to the proposed effective date
of such liquidation, dissolution, winding up or other
distribution;
(ii) immediately, upon the earlier of receipt by Buyer of notice
of or the Buyer otherwise becoming aware of any threatened
instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or
winding up of Buyer or to effect any other distribution of
the assets of Buyer among its shareholders for the purpose
of winding up its affairs.
(f) Wavetech agrees that the number of shares of Wavetech Common Stock
to be delivered upon exchange for Buyer Preferred Stock will be adjusted to
reflect any reorganization of Wavetech or reclassification of its securities,
any consolidation or merger, stock dividend, stock split or subdivision, reverse
stock split or combination of the Common Stock of Wavetech.
(g) If a negotiated tender offer, share exchange offer, issuer bid,
takeover bid or similar transaction with respect to Wavetech Common Stock (an
"Offer") is proposed by Wavetech or is proposed to Wavetech or its shareholders
4
<PAGE>
and is recommended by the Board of Directors of Wavetech, or is otherwise
effected or to be effected with the consent or approval of the Board of
Directors of Wavetech, Wavetech will use its best efforts and good faith to take
all such actions and do all such things as are necessary or desirable to enable
and permit holders of Buyer Preferred Stock to participate in such Offer to the
same extent and on an economically equivalent basis as the holders of Wavetech
Common Stock, without discrimination. Without limiting the generality of the
foregoing, Wavetech may participate in all such offers without being required to
redeem Buyer Preferred Stock and without requiring that Buyer Preferred Stock be
exchanged for Wavetech Common Stock (or, if so required, to ensure that any such
redemption or exchange shall be effective only upon and shall be conditional
upon the closing of the Offer and to the extent necessary to tender or deposit
to the Offer).
(h) Wavetech agrees that if any shares of Wavetech Common Stock (or
other shares or securities into which the Wavetech Common Stock may be
reclassified or changed) to be issued and delivered hereunder require
registration or qualification with or approval of or the filing of any document,
or the taking of any proceeding with or the obtaining of any order, ruling, or
consent from, any governmental or regulatory authority under any Canadian or
United States federal, provincial or state laws or regulation or pursuant to the
rules and regulations of any regulatory authority or the fulfillment of any
other legal requirement (in addition to registration of the Wavetech Common
Stock with the United States Securities and Exchange Commission as contemplated
under Section 5 above) (collectively, the "Applicable Laws") before such shares
(or other shares or securities into which the Wavetech Common Stock may be
reclassified or changed) may be issued or delivered by Wavetech to the initial
holder thereof as contemplated hereunder or in order that such shares may be
freely traded thereafter Wavetech will use its best efforts in good faith to
5
<PAGE>
take all such actions and to do all such things as are reasonably necessary or
advisable to cause the Wavetech Common Stock (or other shares or securities into
which the Wavetech Common Stock may be reclassified or changed) to be and remain
so registered, qualified or approved. Wavetech represents and warrants that it
has in good faith taken all actions and done all things as are necessary as of
this date under the Applicable Laws as they exist on the date hereof to cause
the Wavetech Common Stock (or other shares or securities into which the Wavetech
Common Stock may be reclassified or changed) to be issued and deliverable
hereunder. Wavetech will, in good faith, use its best efforts to take all such
actions and do all such things as are reasonably necessary or advisable to cause
the Wavetech Common Stock (or other shares or securities into which the Wavetech
Common Stock may be reclassified or changed) to be issued and delivered
hereunder, including for greater certainty, pursuant to the provisions of
Section 2 and Section 5 of this Agreement, so as to be quoted or posted for
trading on all stock exchanges and quotation systems on which such shares are
listed, quoted or posted for trading at such time.
(i) Buyer and Wavetech agree that without the prior approval of the
holders of the Buyer Preferred Stock then outstanding (i) until such time as all
of the Buyer Preferred Stock has been exchanged for Wavetech Common Stock, Buyer
will not issue any additional shares of common stock of Buyer (other than to
Wavetech under subparagraph (b) above) or issue any additional shares of Buyer
Preferred Stock and (ii) Wavetech will not transfer, assign or encumber the
shares of Buyer which it now holds or may acquire.
(j) Nothing herein will otherwise restrict the ability of Wavetech to
issue additional shares of its Common Stock from time to time.
6
<PAGE>
(k) Seller warrants and represents to Buyer and Wavetech that as of
the date hereof, all of the issued and outstanding voting shares of Seller are
owned directly or indirectly by Alexander Christopher Lang, who is the President
and a director of Seller.
4. RESTRICTIVE LEGEND.
(a) Each certificate representing Shares shall (unless otherwise
permitted by subsection (b) of this Section 3) be stamped with the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT.
(b) Each Holder consents to the Company's making a notation on its
records and giving instructions to any transfer agent of the Company in order to
implement the restrictions on transfer established in this Agreement. The legend
placed on any certificate pursuant to Section 3(a) and any notations or
instructions with respect to the Restricted Shares represented by such
certificate will be promptly removed, and the Company will promptly issue a
certificate without such legend to the Holder of such Restricted Shares (i) if
such Restricted Shares are registered under the Securities Act and a prospectus
meeting the requirements of Section 10 of the Securities Act is available or
(ii) if the Holder thereof satisfies the requirements of Rule 144 and, where
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<PAGE>
reasonably determined necessary by the Company, provides the Company with an
opinion of counsel for the Holder of the shares, both such counsel and such
opinion being reasonably satisfactory to the Company, to the effect that (A) the
Holder meets the requirements of Rule 144 or (B) a public sale, transfer or
assignment of the Shares may be made without registration.
5. COMPANY REGISTRATION.
As soon as reasonably practicable after the date of this Agreement the
Company shall register on Form S-3 (or any appropriate successor form) all
shares of Company Common Stock issuable in exchange for the Buyer Preferred
Stock under the Purchase Agreement. The Company shall advise Holder when such
registration is effective and shall provide to Holder as required copies of a
prospectus meeting the requirements of Section 10 of the Securities Act and
shall extend to Holder full cooperation and assistance in the event Holder
wishes to sell any such Shares.
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Section 4 shall be borne by the
Company. All Selling and Distribution Expenses attributable to the Registrable
Shares registered on behalf of Holder shall be borne by Holder.
7. INDEMNIFICATION.
(a) The Company will indemnify the Holder, each of its officers,
directors, employees and agents and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
8
<PAGE>
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act or any other federal, state or
common law rule or regulation applicable to the Company in connection with any
such registration, qualification or compliance, and the Company will reimburse
the Holder, each of its officers, directors, employees and agents and each
person controlling the Holder for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with any written information furnished to the Company pursuant to an
instrument duly executed by the Holder or controlling person and stated to be
specifically for use therein.
(b) The Holder will indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
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<PAGE>
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only if and to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with any written information furnished to the Company pursuant to
an instrument duly executed by the Holder and stated to be specifically for use
therein.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give written notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless, but only to the extent that, the
failure to give such notice is actually prejudicial to an Indemnifying Party's
ability to defend such action. No indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
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8. FURTHER OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Shares, the Company
shall, as expeditiously as reasonably possible furnish to the Holder such
numbers of copies of the registration statement and all amendments thereto, any
prospectus included in such registration statement, including any preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Shares owned by them.
9. RULE 144 REQUIREMENTS. The Company agrees to:
(a) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act;
(b) furnish to any Holder upon request (i) a written statement by the
Company as to its compliance with the requirements of Rule 144(c), and the
reporting requirements of the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company, and (iii) such
other reports and documents of the Company as such Holder may reasonably request
to avail itself of any similar rule or regulation of the Commission allowing
itself to sell any such securities without registration; and
(c) cooperate with the Holder in such manner as the Holder may
reasonably request so as to enable sales made in compliance with the
requirements of Rule 144 to be made in compliance with the requirements of any
transfer agent, registrar or the broker through whom any sales are to be
executed.
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<PAGE>
10. AMENDMENT. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only by the written consent of the
Company and the Holder. Any amendment or waiver effected in accordance with this
Section 8 shall be binding upon the Holder then outstanding, each future holder
of any Shares who is a party to this Agreement, and the Company.
11. NOTICES, ETC.. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, courier service, United States mail (return receipt
requested) or by facsimile, addressed as follows:
If to Seller or the Seller Stockholders, addressed to:
Ms. Rosnani Atani
Chief Executive Officer
Softalk Inc.
415 Yonge Street
Toronto, Ontario M5B 2E7
Fax: (416) 597-2785
With a copy to:
Shibley Righton
Barristers & Solicitors
401 Bay Street, suite 1900
Toronto, Ontario M5H 2Z1
Attn: L.S. Mason
Fax: (416) 214-5438
If to Buyer or Wavetech, addressed to:
Wavetech International, Inc.
5210 East Williams Circle
Suite 200
Tucson, Arizona 85711
Attn: Gerald I. Quinn
Fax: (520) 750-9194
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With a copy to:
Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Attn: Gregory R. Hall, Esq.
Fax: (602) 253-8129
12. ENTIRE AGREEMENT; SEVERABILITY. This Agreement and the Purchase
Agreement together with the Schedules and Exhibits thereto set forth all of the
provisions, covenants, agreements, conditions and undertakings among the parties
hereto with respect to the subject matter hereof. The provisions of this
Agreement are severable, and in the event that any one or more provisions are
deemed illegal or unenforceable, the remaining provisions shall remain in full
force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws (other than those with respect to choice law) of the
State of Nevada. Each of the parties hereto agree that all claims in any action
or proceeding arising out of or related to this Agreement shall be determined by
arbitration pursuant to Section 11.12 of the Purchase Agreement.
14. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
WAVETECH INTERNATIONAL, INC.
By: /s/ Gerald I. Quinn
------------------------------------
Its: President, Gerald I. Quinn
INTERPRETEL (CANADA), INC.
By: /s/ Gerald I. Quinn
------------------------------------
Its: President, Gerald I. Quinn
SOFTALK INC.
By: /s/ A. Chris Lang
------------------------------------
Its: President, Alexander
Christopher Lang
13
EXHIBIT 21
SUBSIDIARIES OF WAVETECH INTERNATIONAL, INC.
Subsidiaries of Registrant
State of Incorporation Percent of Ownership
Subsidiary or Jurisdiction by Wavetech
---------- ---------------------- --------------------
International Environment
Services Corporation Delaware 100%
Interpretel (Canada) Inc. Province of Ontario 100%
Interpretel, Inc. Arizona 100%
Telplex International
Communications, Inc. Arizona 100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS, ENDED
AUGUST 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 889,620
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 898,149
<PP&E> 1,007,330
<DEPRECIATION> (643,771)
<TOTAL-ASSETS> 1,574,395
<CURRENT-LIABILITIES> 279,709
<BONDS> 0
0
1
<COMMON> 3,021
<OTHER-SE> 1,290,085
<TOTAL-LIABILITY-AND-EQUITY> 1,574,395
<SALES> 13,580
<TOTAL-REVENUES> 13,580
<CGS> 9,468
<TOTAL-COSTS> 9,468
<OTHER-EXPENSES> 838,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,995
<INCOME-PRETAX> (1,086,895)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,086,895)
<EPS-BASIC> (.37)
<EPS-DILUTED> (.37)
</TABLE>
