AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------
WHAT A WORLD!, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 6799 59-3200879
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
P.O. BOX 20125
TAMPA, FLORIDA 33622
(813) 577-9366
(Address, including zip code, and telephone number, including
area code, of Registrant's principal place of business)
BRIAN S. LAPPIN
VICE PRESIDENT OF FINANCE
AND CHIEF FINANCIAL OFFICER
WHAT A WORLD!, INC.
P.O. BOX 20125
TAMPA, FLORIDA 33622
(813) 577-9366
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
COPIES TO:
JAMES MARTIN KAPLAN, ESQ. PAUL LABARGE, ESQ.
Tenzer Greenblatt LLP LaBarge Weinstein
405 Lexington Avenue Xerox Tower
New York, New York 10174 333 Preston Street
Telephone No.: (212) 885-5000 Ottawa, Ontario
Facsimile No.: (212) 885-5001 K1S 5N4
Telephone No.: (613) 231-3000
Facsimile No.: (613) 231-3900
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
AND CERTAIN OTHER CONDITIONS UNDER THE SHARE PURCHASE AGREEMENT
ARE MET OR WAIVED.
-----------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-----------
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<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 13,011,339 $.0809 $1,052,617.33 $310.52
$.01 per share
=============================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional indeterminate number
of shares of Common Stock as may become issuable by reason of stock splits,
stock dividends and similar adjustments in accordance with the
anti-dilution provisions of the Share Purchase Agreement.
(2) Calculated pursuant to Rule 457(f)(2) based upon the book value, as of
November 30, 1998, of the securities to be acquired by the Registrant in
the transaction described in this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
WHAT A WORLD!, INC.
---------------------
CROSS REFERENCE SHEET
Pursuant to Rule 404(a) Showing Location in
Proxy Statement/Prospectus of Information
Required by Items in S-4
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FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------- ----------------------
<S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.................................... Forepart of Registration Statement; Outside
Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus................................. Inside Front and Outside Back Cover Pages of
Proxy Statement/Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................. Summary; Risk Factors; The Special Meeting;
The Transaction; The Share Purchase
Agreement; The Proposed Amendment;
Capitalization; Selected Historical Financial
Data of WAW; Selected Historical Financial
Data of TeleHub; Pro Forma Condensed
Financial Data; Comparative Market Prices and
Dividends; Business of WAW; Business of
TeleHub; Management of WAW; Principal
Holders of WAW Securities
4. Terms of the Transaction......................... Summary; The Transaction; The Share Purchase
Agreement; Comparison of Stockholder Rights;
Description of WAW Capital Stock; Certain
Tax Consequences
5. Pro Forma Financial Information.................. Pro Forma Condensed Financial Data
6. Material Contracts with the Company
Being Acquired................................ *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters............................ *
8. Interests of Named Experts and Counsel........... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------- ----------------------
<S> <C>
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... *
B. Information About the Registrant
10. Information with Respect to S-3
Registrants................................... *
11. Incorporation of Certain Information by
Reference..................................... *
12. Information with Respect to S-2 or S-3
Registrants................................... *
13. Incorporation of Certain Information by
Reference..................................... *
14. Information with Respect to Registrants
Other Than S-2 or S-3 Registrants............. Summary; Risk Factors; Comparative Market
Prices and Dividends; Capitalization; Selected
Historical Financial Data of WAW;
Management's Discussion and Analysis or Plan
of Operation of WAW; Business of WAW;
Management of WAW; WAW Related Party
Transactions; Principal Holders of Securities of
WAW; Description of WAW Capital Stock
C. Information About the Company Being
Acquired
15. Information with Respect to S-3
Companies..................................... *
16. Information with Respect to S-2 or S-3
Companies..................................... *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies............... Summary; Risk Factors; Comparative Market
Prices and Dividends; Capitalization; Selected
Historical Financial Data of TeleHub; Pro
Forma Condensed Financial Data;
Management's Discussion and Analysis or Plan
of Operation of TeleHub; Business of TeleHub;
Management of TeleHub; Principal Holders of
Securities of TeleHub; Description of WAW
Capital Stock
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------- ----------------------
<S> <C>
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations Are to be Solicited............ Available Information; Summary; The Special
Meeting; The Transaction; The Share Purchase
Agreement; The Proposed Amendment; Certain
Tax Consequences; Management of WAW;
WAW Related Party Transactions; Principal
Holders of Securities of WAW; Business of
TeleHub; Management of TeleHub; Principal
Holders of Securities of TeleHub; Stockholder
Proposals
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited or
in an Exchange Offer.......................... *
</TABLE>
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* Not applicable or answer is negative
<PAGE>
PRELIMINARY COPY
WHAT A WORLD!, INC.
P.O. BOX 20125
TAMPA, FLORIDA 33622
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A Special Meeting of Stockholders of What A World!, Inc. ("WAW" or the
"Company") will be held at ________________________________________________, on
________________________, 1999 at 9:00 a.m. (local time) to consider and vote
upon the following proposals:
1. To approve the Share Purchase Agreement, dated as of December 21,
1998, between the Company, Tele Hub Link Corporation ("TeleHub") and the
shareholders of TeleHub, pursuant to which the Company will acquire from the
TeleHub shareholders all of the outstanding common stock of TeleHub, the Company
will issue to the TeleHub shareholders shares of the Company's common stock at a
rate of 4.124306 shares for each share of common stock of TeleHub and, as a
result, TeleHub will become a wholly-owned subsidiary of the Company (the
"Transaction");
2. To amend the Company's Certificate of Incorporation to increase to
50,000,000 the number of shares of the Company's common stock authorized for
issuance by the Company and to change the Company's name to TeleHubLink
Corporation;
3. To elect five directors to serve on the Company's Board of Directors
until the next annual meeting of stockholders and until their successors are
elected and qualified; and
4. To transact such other business as may properly come before the
Special Meeting.
If either the proposal relating to the Share Purchase Agreement or the
proposal regarding the amendment to the Company's Certificate of Incorporation
is not approved by the stockholders of the Company, then neither proposal will
be implemented and the Transaction will not occur. If the Transaction does not
occur, the current directors of the Company will continue to serve on the Board
of Directors of WAW. The Share Purchase Agreement has previously been approved
and adopted by the TeleHub shareholders.
The Board of Directors has set the close of business (5:00 p.m., New
York City time) on __________ __, 1999 as the record date for determining the
stockholders entitled to notice of and to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS
VOTE TO APPROVE THE SHARE PURCHASE AGREEMENT AND THE PROPOSED AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION.
By order of the Board of Directors,
DAVID B. CORNSTEIN DAVID F. MILLER
CHAIRMAN OF THE BOARD SECRETARY
Tampa, Florida
_______________, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO ITS EXERCISE BY SENDING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF THE COMPANY BEFORE THE SPECIAL MEETING OR BY ATTENDING THE
SPECIAL MEETING AND VOTING YOUR SHARES IN PERSON.
<PAGE>
The information in this Proxy Statement/Prospectus is not complete and may be
changed. We may not issue these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This Proxy
Statement/Prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
SUBJECT TO COMPLETION
PROXY STATEMENT/PROSPECTUS DATED DECEMBER 22, 1998
OF
WHAT A WORLD, INC.
Special Meeting of Stockholders
to be held on
_________________, 1999
-----------
13,011,339 Shares of Common Stock
Issuable in Connection with the Transaction
Involving Tele Hub Link Corporation
This Proxy Statement/Prospectus is being sent to the holders of common
stock of What A World!, Inc., (the "Company" or "WAW") in connection with the
Special Meeting of Stockholders of the Company to be held on _________________,
1999. At the Special Meeting, the Company's stockholders will be asked to vote
upon (i) a proposal to approve the Share Purchase Agreement, dated as of
December 21, 1998, between the Company, Tele Hub Link Corporation, a corporation
organized under the laws of the Province of Ontario, Canada ("TeleHub"), and the
shareholders of TeleHub pursuant to which the Company will acquire from the
TeleHub shareholders all of the outstanding capital stock of TeleHub, the
Company will issue to the TeleHub shareholders shares of the Company's common
stock at a rate of 4.124306 shares for each share of common stock of TeleHub
and, as a result, TeleHub will become a wholly-owned subsidiary of the Company
(the "Transaction"); (ii) a proposal to amend the Company's Certificate of
Incorporation to increase to 50,000,000 the number of shares of the Company's
common stock authorized for issuance by the Company and to change the name of
the Company to TeleHubLink Corporation; and (iii) the election of five directors
to serve on the Company's Board of Directors until the next annual meeting of
stockholders and until their successors are elected and qualified. If the
Transaction does not occur, the current directors of the Company will continue
as the directors of WAW.
Under Delaware law, the proposal to approve the Share Purchase Agreement
shall be determined by the affirmative vote of a majority of the voting power
present in person or represented by proxy at the Special Meeting, the proposal
to approve the amendment of the Company's Certificate of Incorporation shall be
determined by the affirmative vote of the holders of a majority of the shares of
the Company's common stock outstanding and the election of directors shall be
determined by a plurality of the voting power present in person or represented
by proxy at the Special Meeting. Of the five individuals nominated for election
to the WAW Board of Directors at the Special Meeting, four have been designated
by TeleHub and only one nominee, David B. Cornstein, the Chairman of the Board
of the Company, has been designated by WAW to serve after completion of the
Transaction. Mr. Cornstein and David F. Miller, each of whom is a member of the
Board of Directors of the Company, have agreed to vote their shares of the
Company's common stock in favor of the Share Purchase Agreement and the proposed
amendment to the Company's Certificate of Incorporation and in favor of the
election of the nominees named in this Proxy Statement/Prospectus as directors
of WAW. Messrs. Cornstein and Miller represent, in the aggregate, approximately
44.7% of the Company's outstanding common stock. Therefore, the affirmative vote
of other stockholders holding shares which represent only approximately
<PAGE>
6.3% of the outstanding shares of the Company's common stock will be sufficient
to approve the proposals and to elect the five nominees as directors.
This document also constitutes the Company's Prospectus with respect to
13,011,339 shares of common stock of the Company to be issued to the TeleHub
shareholders in the Transaction.
This Proxy Statement/Prospectus and the accompanying proxies are first
being mailed to the Company's stockholders on or about _________________, 1999.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF VARIOUS
RISKS THAT SHOULD BE CONSIDERED BY STOCKHOLDERS IN EVALUATING THE TRANSACTION
AND THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Proxy Statement/Prospectus. Any representation to
the contrary is a criminal offense.
The date of this Proxy Statement/Prospectus is ___________, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any reports, statements or other information
that the Company files at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. The Company's public
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the SEC at
"http://www.sec.gov."
The Company has filed a Registration Statement to register with the SEC
the shares of the Company's common stock to be issued to TeleHub's shareholders
in the Transaction. This Proxy Statement/Prospectus is a part of the
Registration Statement and constitutes a prospectus of the Company with respect
to such shares and a proxy statement of the Company for its Special Meeting. As
allowed by SEC rules, this Proxy Statement/Prospectus does not contain all the
information that stockholders can find in the Registration Statement or the
exhibits to the Registration Statement.
The Company has supplied all information contained in this Proxy
Statement/Prospectus relating to the Company, and TeleHub has supplied all such
information relating to TeleHub.
You should rely only on the information contained in this Proxy
Statement/Prospectus to vote your shares at the Special Meeting. The Company has
not authorized anyone to provide you with information that is different from
what is contained in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus is dated ___________, 1999. You should not assume that the
information contained in the Proxy Statement/Prospectus is accurate as of any
date other than that date, and neither the mailing of this Proxy
Statement/Prospectus to stockholders of the Company nor the issuance of the
Company's securities in the Transaction shall create any implication to the
contrary. This Proxy Statement/Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities, or the solicitation of a
proxy, in any jurisdiction in which, or to any person to whom, it is unlawful to
make any such offer or solicitation.
i
<PAGE>
CANADIAN/U.S. EXCHANGE RATES
In this Proxy Statement/Prospectus, dollar amounts are expressed either
in Canadian dollars ("Cdn $") or in United States dollars ("$").
According to Pacific Exchange Rate Service, for the Company's fiscal
years ended February 1, 1997 and January 31, 1998 and for the 39 weeks ended
October 31, 1998, the high and low exchange rates (which is the rate at which
Canadian dollars were sold for U.S. dollars), the average exchange rate (the
average of the exchange rates on the last day of each month during the period)
and the end-of-period exchange rates for one Canadian dollar expressed in U.S.
dollars for the periods indicated are set forth below:
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<CAPTION>
FISCAL YEAR ENDED
--------------------------------------- 39 WEEKS ENDED
FEBRUARY 1, 1997 JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
High for period $.7515 $.7445 $.7105
Low for period .7215 .6831 .6343
Average for period .7343 .7153 .6750
End of period .7422 .6867 .6483
</TABLE>
On _____________ __, 1999, the exchange rate for one Canadian dollar expressed
in U.S. dollars was $___.
ii
<PAGE>
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION......................................... i
CANADIAN/U.S. EXCHANGE RATES................................................ ii
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION................................. 1
SUMMARY..................................................................... 2
The Companies............................................................... 2
The Special Meeting......................................................... 3
The Transaction............................................................. 4
No Dissenters' Rights of Appraisal.......................................... 7
Certain Tax Consequences.................................................... 7
Risk Factors................................................................ 7
Comparative Per Share Market Price Information.............................. 7
Selected Historical Financial Data of WAW................................... 8
Selected Historical Financial Data of TeleHub............................... 9
RISK FACTORS................................................................ 10
Risks Related to WAW and the Transaction.....................................10
Risks Related to TeleHub.................................................... 13
FORWARD-LOOKING STATEMENTS.................................................. 17
THE SPECIAL MEETING......................................................... 18
Time, Place, and Purpose.................................................... 18
Record Date; Holders Entitled to Vote....................................... 18
Voting and Solicitation of Proxies.......................................... 18
Quorum; Required Vote....................................................... 19
Recommendation.............................................................. 20
THE TRANSACTION............................................................. 20
Background.................................................................. 20
Reasons for the Transaction................................................. 22
Opinion of Financial Advisor................................................ 23
Interests of Insiders in the Transaction.................................... 23
Conduct of Business Following the Transaction............................... 24
Accounting Treatment of the Transaction..................................... 24
Regulatory Matters.......................................................... 24
Resale of Shares of WAW Common Stock Issued in the Transaction.............. 24
No Dissenters' Rights of Appraisal.......................................... 25
THE SHARE PURCHASE AGREEMENT................................................ 26
Acquisition of TeleHub...................................................... 26
Certain Representations and Warranties...................................... 26
Conditions to Consummation of the Transaction............................... 27
No Solicitations............................................................ 27
iii
<PAGE>
Certain Other Covenants..................................................... 27
Termination of the Share Purchase Agreement................................. 28
CERTAIN TAX CONSEQUENCES.................................................... 29
U.S. Federal Income Tax Consequences to WAW Stockholders.................... 29
Canadian Federal Income Tax Consequences to TeleHub Stockholders............ 29
SELECTED HISTORICAL FINANCIAL DATA OF WAW................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION OF WAW............................................................ 33
SELECTED HISTORICAL FINANCIAL DATA OF TELEHUB............................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF TELEHUB........ 38
COMPARATIVE MARKET PRICES AND DIVIDENDS..................................... 41
CAPITALIZATION.............................................................. 43
BUSINESS OF WAW............................................................. 44
General......................................................................44
Business of Post-Sale WAW....................................................45
Business of Pre-Sale WAW.....................................................46
Service Mark.................................................................47
Properties...................................................................47
Legal Proceedings............................................................48
MANAGEMENT OF WAW........................................................... 49
PRINCIPAL HOLDERS OF SECURITIES OF WAW...................................... 54
WAW RELATED PARTY TRANSACTIONS.............................................. 55
BUSINESS OF TELEHUB......................................................... 56
Overview.................................................................... 56
Industry Background......................................................... 56
The TeleHub Approach........................................................ 57
Services.................................................................... 58
Strategy.................................................................... 60
Customers................................................................... 61
Competition................................................................. 62
Regulation.................................................................. 62
Employees................................................................... 63
Properties.................................................................. 64
Legal Proceedings........................................................... 64
MANAGEMENT OF TELEHUB....................................................... 65
PRINCIPAL HOLDERS OF SECURITIES OF TELEHUB.................................. 67
iv
<PAGE>
DESCRIPTION OF WAW CAPITAL STOCK............................................ 68
COMPARISON OF STOCKHOLDER RIGHTS............................................ 71
THE PROPOSED AMENDMENT TO WAW'S CERTIFICATE OF INCORPORATION................ 74
ELECTION OF DIRECTORS OF WAW................................................ 76
LEGAL MATTERS............................................................... 76
EXPERTS..................................................................... 76
STOCKHOLDER PROPOSALS....................................................... 77
OTHER ACTION AT MEETING AND VOTING OF PROXIES............................... 77
INDEX TO FINANCIAL STATEMENTS...............................................F-1
ANNEXES
Annex A -- Share Purchase Agreement
Annex B -- Form of Certificate of Amendment of the Certificate of
Incorporation of What A World!, Inc.
Annex C -- Opinion of Prospect Capital Advisors, LLC
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: Why is the Company proposing the Transaction?
A: Since the sale of substantially all of the Company's assets to Natural
Wonders, Inc. in May 1997, the Company has had no operating business and
has been seeking to complete an acquisition with an operating company
which the Company believes has significant growth potential. The Company
believes that the Transaction has the potential to achieve this business
objective, and that the Transaction will offer the Company and its
stockholders the opportunity to participate in TeleHub's potential
future growth and therefore build value for the Company's stockholders.
Q: When is the Special Meeting?
A: The Special Meeting will take place on _________________________, 1999.
At the Special Meeting, you will be asked to approve the Share Purchase
Agreement relating to the Transaction and the proposed amendment to the
Company's Certificate of Incorporation. You will also be asked to vote
for the election of five directors of the Company. TeleHub's
shareholders do not need to vote on the Transaction.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares of the Company's common stock will be
represented at the Special Meeting.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to the Company's Secretary
or transfer agent before the Special Meeting or attend the Special
Meeting in person and vote.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only of you provide instructions on
how to vote. Please tell your broker how you would like him or her to
vote your shares. If you do not tell your broker how to vote, your
shares will not be voted by your broker, which will have the effect of a
vote against the Transaction and against the proposed amendment to the
Company's Certificate of Incorporation.
Q: When do you expect the Transaction to be completed?
A: The Company currently anticipates that the Transaction will be completed
immediately following the Special Meeting.
Q: What are the tax consequences of the Transaction to the Company's
stockholders?
A: The Transaction will be tax-free to the Company's stockholders for U.S.
federal income tax purposes.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THE TRANSACTION AND A
MORE DETAILED DESCRIPTION OF THE LEGAL TERMS OF THE TRANSACTION, YOU SHOULD READ
THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE RISK FACTORS AND FINANCIAL
STATEMENTS. UNLESS OTHERWISE STATED, ALL DOLLAR AMOUNTS SET FORTH IN THIS
DOCUMENT ARE IN UNITED STATES DOLLARS.
THE COMPANIES
WAW
WAW was incorporated under the laws of the State of Delaware in July
1993. Until May 1997, WAW operated as a mall-based specialty retailer of a wide
assortment of products which targeted customers having an active interest in
nature, the environment, education, wildlife, the outdoors and science. In May
1997, the Company sold substantially all of its assets to Natural Wonders, Inc.
for cash in the amount of $517,795 plus the assumption by Natural Wonders, Inc.
of specified liabilities (the "Sale"). The completion of the Sale terminated
WAW's specialty retail operations. Since May 1997, WAW has had no operating
business and has been seeking to serve as a vehicle to effect acquisitions,
whether by merger, exchange of capital stock, acquisition of assets or other
similar business combination. See "Business of WAW."
TELEHUB
TeleHub was formed in May 1998 under the Business Corporations Act
(Ontario) and is currently in the early development stage. Since its inception,
TeleHub has been exploring opportunities and has recently commenced operations
in the call center teleservices industry. Call centers facilitate the direct
communication of information by telephone to and from current and prospective
customers of the call center's clients. Generally, the teleservices provided by
call centers include performing call center-initiated ("outbound") telemarketing
services as well as responding to and managing customer-initiated ("inbound")
calls. Outbound telemarketing services consist primarily of direct marketing and
sales activities initiated on behalf of a call center's clients, and inbound
teleservices activities consist primarily of the processing of incoming phone
calls (often placed by customers using toll-free numbers) for product or service
orders, customer inquiries, processing of credit and other consumer applications
and customer and technical services.
Since its formation, TeleHub has been marketing its proposed services
and forming relationships with individuals and organizations in the teleservices
industry to develop and further TeleHub's call center business. To date, TeleHub
has entered into agreements with Access One Communications, Inc., a
telecommunications services provider, Call-Tell U.M.P.G., a telemarketing
company, Corporate Services Telecom, Inc., a long-distance telephone service
provider, and Shared Network Services, an Internet service and content provider,
for the provision by TeleHub of certain telemarketing activities. In addition,
in October 1998, TeleHub performed outbound telemarketing services on a limited
basis in connection with a fund raising campaign for the Universite de Montreal.
To date, TeleHub has generated limited revenues from its operations.
2
<PAGE>
THE SPECIAL MEETING
TIME, PLACE, AND PURPOSE
The Special Meeting of WAW's stockholders will be held at _____a.m.
(local time) on ________ __, 1999, at __________________________. At the Special
Meeting, WAW's stockholders will be asked to vote upon (i) a proposal to approve
the Share Purchase Agreement relating to the Transaction, (ii) a proposal to
amend WAW's Certificate of Incorporation to increase to 50,000,000 the number of
shares of WAW's common stock authorized for issuance by WAW and to change the
name of WAW to TeleHubLink Corporation, (iii) the election of five directors to
serve on WAW's Board of Directors until the next annual meeting of stockholders
and until their successors are elected and qualified and (iv) such other
business as may properly come before the Special Meeting.
A copy of the Share Purchase Agreement, which is the legal document
governing the Transaction, is attached to this Proxy Statement/Prospectus as
Annex A. The full text of the amendment is set forth in the Form of Certificate
of Amendment to the Certificate of Incorporation of WAW, which is attached to
this Proxy Statement/Prospectus as Annex B. The Company urges its stockholders
to read each of those documents carefully.
RECORD DATE; HOLDERS ENTITLED TO VOTE
If you are a stockholder of WAW, you are entitled to vote at the
Special Meeting if you owned shares of WAW's common stock as of the close of
business (5:00 p.m., New York City time) on __________________, 1999, the Record
Date. On the Record Date, there were 2,118,125 shares of WAW common stock
outstanding and entitled to vote at the Special Meeting. WAW stockholders will
be entitled to one vote for each share of WAW common stock held of record on the
Record Date.
QUORUM; REQUIRED VOTE
The presence, in person or by proxy, of holders of a majority of the
outstanding shares of the Company's common stock will constitute a quorum at the
Special Meeting. At the Special Meeting:
/bullet/ approval of the proposal regarding the Share Purchase
Agreement will require the affirmative vote of the holders of
a majority of the shares of the Company's common stock
present, in person or by proxy, at the Special Meeting;
/bullet/ approval of the proposal regarding the amendment to the
Company's Certificate of Incorporation will require the
affirmative vote of the holders of a majority of the
outstanding shares of the Company's common stock; and
/bullet/ directors will be elected by holders of a plurality of the
shares of the Company's common stock present, in person or by
proxy, at the Special Meeting.
See "The Special Meeting -- Quorum; Vote Required."
David B. Cornstein and David F. Miller, each of whom is a member of the
Board of Directors of the Company, have agreed to vote their shares of the
Company's common stock in favor of the Share Purchase Agreement and the proposed
amendment to the Company's Certificate of Incorporation and in favor of the
election of the nominees named in this document as directors of WAW. Messrs.
Cornstein and Miller represent in the aggregate approximately 44.7% of the
Company's common stock. Therefore, the affirmative vote of other stockholders
holding shares which represent only 6.3% of the outstanding shares of the
Company's common stock will be sufficient to approve such proposals and to elect
the five nominees as directors. If the Transaction is not approved at the
Special Meeting or, if approved, is not thereafter completed for any reason, the
current
3
<PAGE>
directors of the Company (including Mr. Cornstein) will continue as the
directors of WAW. See "The Special Meeting - Quorum; Vote Required."
THE SPECIAL COMMITTEE
As described below under "Interests of Insiders in the Transaction,"
Messrs. Cornstein and Miller, each of whom is a director of the Company,
currently own shares of TeleHub common stock and may therefore have interests in
the Transaction that are different from those of other stockholders of WAW.
Accordingly, the Board of Directors appointed a special committee comprised of
two disinterested outside directors of WAW (the "Special Committee") to review
and consider the purposes, terms and conditions of the proposed Transaction and
to make a recommendation to the Board of Directors. The Special Committee
determined that the Transaction is in the best interest of, and is fair to, WAW
and its stockholders and recommended to the full Board of Directors the approval
of the Share Purchase Agreement and the Transaction contemplated by the Share
Purchase Agreement.
RECOMMENDATION
Based upon the recommendation of the Special Committee, the Board of
Directors has determined that the Transaction is in the best interest of, and is
fair to, WAW and its stockholders. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS OF WAW VOTE FOR THE APPROVAL OF THE SHARE PURCHASE AGREEMENT AND
THE TRANSACTION CONTEMPLATED BY THE SHARE PURCHASE AGREEMENT AND FOR THE
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION. The Board of Directors also recommends that the stockholders of
WAW vote FOR the election of the nominees named in this document as directors of
WAW. See "The Special Meeting - Recommendation of the Board of Directors."
THE TRANSACTION
TERMS OF THE TRANSACTION
Pursuant to the terms of the Share Purchase Agreement, WAW has agreed
to acquire from the shareholders of TeleHub all of the outstanding capital stock
of TeleHub and to issue to the TeleHub shareholders an aggregate of 13,011,339
shares of WAW's common stock (or 4.124306 shares of WAW's common stock for each
outstanding share of TeleHub's common stock). As a result, TeleHub will become a
wholly-owned subsidiary of the Company. Following the Transaction, the former
TeleHub shareholders will hold approximately 86% of the outstanding shares of
WAW's common stock, and the pre-Transaction shareholders of WAW, who currently
hold 100% of the outstanding shares of WAW's common stock, will hold the
remaining 14% of the outstanding post-Transaction shares. The Transaction will
therefore result in a change of control of WAW and, following the Transaction,
the former TeleHub shareholders will be able to elect the members of the Board
of Directors of WAW and control the business, affairs and policies of WAW.
REASONS FOR THE TRANSACTION
Since the Sale, the Company has had no operating business and has been
seeking to complete an acquisition or other business combination with an
operating company which the Company believes has significant growth potential.
The Board of Directors of WAW believes that the Transaction has the potential to
achieve this business objective and that it offers an opportunity for the
Company to build value for its stockholders. Based upon the recommendation of
the Special Committee, the Board has determined that the Transaction is fair to,
and in the best interests of, its stockholders. In reaching this conclusion, the
Board considered a number of factors which had been carefully considered by the
Special Committee and presented to the full Board, including:
/bullet/ the current financial condition of WAW and the fact that WAW
currently has no ability to generate income to fund its
ongoing general and administrative expenses;
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<PAGE>
/bullet/ the potential of the Transaction to achieve WAW's business
objective of entering into a business combination with an
operating company which WAW believes has significant growth
potential, especially in light of the fact that, since the
Sale, WAW has neither located nor been approached by other
potential acquired businesses;
/bullet/ the Special Committee's and the Board of Directors' belief
that, given the current financial condition of WAW, WAW would
likely be forced to liquidate if it is not able to complete a
business combination with an operating business on a timely
basis, and the uncertainty of the liquidation value, if any,
of WAW's common stock following a liquidation of WAW;
/bullet/ the results of WAW's due diligence investigation of TeleHub,
including its review of information with respect to the
financial condition, operations, assets, liabilities and
prospects of TeleHub, as well as with respect to economic and
market conditions and conditions in the telecommunications
industry;
/bullet/ the Special Committee's and the Board of Directors' belief
that TeleHub demonstrates the potential for future revenues
and growth and that the Transaction offers the stockholders of
WAW the opportunity to participate in such growth;
/bullet/ the experience and capabilities of TeleHub's Board of
Directors and management;
/bullet/ the Special Committee's and the Board of Directors' belief
that the number of shares of WAW's common stock to be issued
to the TeleHub shareholders in the Transaction is fair to WAW
and its stockholders from a financial point of view and the
receipt by the Special Committee of an opinion to such effect
from Prospect Capital Advisors, LLC, its financial advisor;
and
/bullet/ the terms and conditions of the Share Purchase Agreement.
See "The Transaction - Reasons for the Transaction."
OPINION OF FINANCIAL ADVISOR
On December 14, 1998, Prospect Capital Advisors, LLC ("Prospect
Capital") provided a draft of its opinion to the Special Committee, opining
that, as of such date, based upon certain analyses performed by Prospect Capital
and subject to certain factors and assumptions, the number of shares of WAW
common stock to be paid by WAW in the Transaction for each share of TeleHub
common stock is fair, from a financial point of view, to the unaffiliated
stockholders of WAW. The opinion was reaffirmed in a written opinion dated as of
____________, 1999. The opinion was provided to the Special Committee for its
information and does not constitute a recommendation to any stockholder of WAW
as to how to vote with respect to the Transaction. The full text of the opinion,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with such opinion, is attached to this Proxy
Statement/Prospectus as Annex C. The Company urges its stockholders to read the
opinion in its entirety. See "The Transaction - Opinion of Financial Advisor."
INTERESTS OF INSIDERS IN THE TRANSACTION
When considering the recommendation of WAW's Board of Directors that
WAW stockholders vote in favor of the Share Purchase Agreement and the proposed
amendment to the Company's Certificate of Incorporation, stockholders should be
aware that Messrs. Cornstein and Miller currently own common stock of both WAW
and TeleHub, and owned such common stock at the time the Board made its
recommendation. Specifically, Mr. Cornstein currently owns approximately 31.7%
of the Company's common stock as well as approximately 2.1% of TeleHub's common
stock, and Mr. Miller currently owns approximately 27% of the
5
<PAGE>
Company's common stock and approximately .6% of TeleHub's common stock. In
addition, Mr. Cornstein's son owns approximately 8.9% of TeleHub's common stock
(as to which shares Mr. Cornstein disclaims beneficial ownership). Therefore,
Messrs. Cornstein and Miller may have interests in the Transaction that are
different from those of other stockholders of WAW.
Of the five individuals nominated for election to the WAW Board of
Directors at the Special Meeting, four have been designated by TeleHub and only
one nominee, Mr. Cornstein, has been designated by WAW to serve after completion
of the Transaction. If the Transaction is not completed, the current directors
of WAW (including Mr. Cornstein) will continue as the directors of WAW.
CONDITIONS TO THE TRANSACTION
The completion of the Transaction depends upon the satisfaction of a
number of conditions, including the following:
/bullet/ the stockholders of WAW having approved the Share Purchase
Agreement and the proposed amendment to WAW's Certificate of
Incorporation at the Special Meeting;
/bullet/ there being no law or regulation making the Transaction
illegal or order or injunction prohibiting the Transaction;
and
/bullet/ the Company being satisfied with its due diligence review of
TeleHub.
TERMINATION OF THE SHARE PURCHASE AGREEMENT
The Company and TeleHub can agree to terminate the Share Purchase
Agreement at any time before the Transaction is completed. In addition, either
the Company or TeleHub can terminate the Share Purchase Agreement under various
circumstances, including if:
/bullet/ the Transaction is not completed by May 1, 1999, provided that
neither party can terminate the Share Purchase Agreement if
its breach of any provision of the agreement is the reason the
Transaction has not been completed by such date;
/bullet/ a law or regulation makes the Transaction illegal or any order
or injunction permanently prohibits the Transaction; or
/bullet/ the other party (and, in the case of the Company, any TeleHub
shareholder) materially breaches any of its representations,
warranties or obligations under the Share Purchase Agreement.
CONDUCT OF BUSINESS AFTER THE TRANSACTION
As a result of the Transaction, the business of WAW will become
substantially the same as the business conducted by TeleHub prior to the
Transaction. WAW and TeleHub currently anticipate that, following the
Transaction, the current directors and officers of TeleHub will continue to
serve in such capacities, and the Board of Directors of WAW will consist of the
five nominees named in this Proxy Statement/Prospectus, only one of whom (Mr.
Cornstein) has been designated by WAW to serve after completion of the
Transaction. See "The Transaction - Conduct of Business Following the
Transaction."
ACCOUNTING TREATMENT OF THE TRANSACTION
For accounting and financial reporting purposes, the Transaction will
be accounted for as a recapitalization of TeleHub, with the issuance of shares
of TeleHub common stock for the net assets of WAW, consisting primarily of cash.
Since WAW has had no business operations since the Sale other than the search
for
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<PAGE>
a suitable target business, WAW's assets will be recorded in the balance sheet
of the combined company (I.E., the post-Transaction WAW) at book value.
NO DISSENTERS' RIGHTS OF APPRAISAL
The Company is organized under Delaware law. Under the corporation law
of Delaware, stockholders of the Company do not have any rights to receive the
appraised value of their shares of common stock in connection with the
Transaction. See "The Transaction - No Dissenters' Rights of Appraisal."
CERTAIN TAX CONSEQUENCES
Neither the Company nor its stockholders will recognize gain or loss
for U.S. federal income tax purposes as a result of the issuance by the Company
of shares of its common stock in exchange for all of the outstanding shares of
TeleHub common stock.
Under the current provisions of the Income Tax Act (Canada) and the
regulations promulgated thereunder, holders of TeleHub common stock will
generally be required to pay additional income tax on any capital gain resulting
from the receipt of shares of WAW Common Stock in the Transaction. Generally,
the amount of the additional tax that a TeleHub shareholder will be required to
pay will equal the amount of such shareholder's taxable capital gain (I.E., the
amount by which the proceeds from the disposition of such shareholder's TeleHub
common stock, net of any reasonable costs of disposition, exceed the adjusted
cost base of the common stock) multiplied by the applicable tax rate. Holders of
TeleHub common stock are urged to read the discussion under the heading "Certain
Tax Consequences" for more detailed information regarding the Canadian federal
income tax consequences of the Transaction.
RISK FACTORS
In deciding how to vote their shares of common stock at the Special
Meeting, stockholders of WAW should consider the risk factors relating to the
business and operations of WAW and TeleHub that are discussed in this Proxy
Statement/Prospectus under the heading "Risk Factors."
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
WAW
Shares of the Company's common stock trade under the symbol "WHAT" on
the bulletin board maintained by the National Association of Securities Dealers
("NASD") or in the over-the-counter "pink sheets." On December 18, 1998, the
last full trading day prior to the public announcement of the Transaction, the
last reported (closing) sale price of the common stock on the NASD bulletin
board or in the over-the-counter "pink sheets" was $0.3125 bid and $0.59375
asked per share. On ____________, 1999, the last reported (closing) sale price
of WAW common stock on the NASD bulletin board or in the over-the-counter "pink
sheets" was $_________ bid and $__________ asked per share.
TELEHUB
TeleHub is a private company under the laws of Ontario, Canada. The
capital stock of TeleHub is not traded on an established public trading market.
On November 30, 1998, the book value per share of TeleHub's common stock was
$0.0809.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WAW
The following selected historical financial data have been derived from
the financial statements of the Company. The data as of and for the fiscal year
ended January 31, 1998 are derived from the financial statements of the Company
audited by Kirkland, Russ, Murphy & Tapp, independent public accountants, whose
report with respect to the fiscal year ended January 31, 1998 is included
elsewhere in this Proxy Statement/Prospectus. The data for the fiscal year ended
February 1, 1997 are derived from the financial statements of the Company
audited by Arthur Andersen LLP, independent public accountants, whose report
with respect to the fiscal year ended February 1, 1997 is included elsewhere in
this Proxy Statement/Prospectus. The following data should be read in
conjunction with the Company's financial statements and related notes,
"Management's Discussion and Analysis or Plan of Operation of WAW," and the
other financial information included elsewhere in this Proxy
Statement/Prospectus. Results for the interim period are not necessarily
indicative of results for the full year.
<TABLE>
<CAPTION>
YEARS ENDED 39 WEEKS ENDED
-------------------------------- --------------------------------
JANUARY 31, FEBRUARY 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Loss from continuing
operations $(214,904) $(223,736) $(71,143) $(165,672)
Loss from discontinued
operations (508,186) (2,304,875) - 0 - (487,048)
Loss on disposal of assets and (393,741) - 0 - - 0 - (393,741)
adjustment to net realizable
value of accounts payable and
capital lease obligations
Net loss (1,116,831) (2,528,611) (71,143) (1,046,461)
Net loss per weighted average
common and common
equivalent share - basic and
diluted $(.53) $(1.19) $(.03) $(.49)
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 130,713 $ 13,178
Working capital 45,118 (26,749)
Property and equipment, net 2,500 1,375
Total assets 140,086 17,268
Capital lease obligations 1,849 -0-
Accumulated deficit (4,514,194) (4,585,337)
Total stockholders' equity 45,769 (25,374)
</TABLE>
- ----------
(1) As a result of the Sale in May 1997, the results of WAW for all years
presented are reported under discontinued operations. For purposes of
accounting for the Sale and the resulting presentation as discontinued
operations, WAW has treated all activity which related to the support
and operation of WAW's specialty retail operations as discontinued
operations, and has restated the Fiscal 1996 results to create
comparable periods. The primary components of discontinued operations
include net sales, cost of sales, selling expenses, general and
administrative expenses (i.e., expenses that ceased in conjunction with
the Sale which had related to the support and operation of WAW's
specialty retail business), loss on impairment, interest and other
income and interest expense.
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF TELEHUB
The following selected historical financial data have been derived from
the financial statements of the Company. The data as of and for the three-month
period ended October 31, 1998 are derived from the unaudited financial
statements of the Company reviewed by Giroux, Menard et Associes, independent
chartered accountants. The following data should be read in conjunction with
TeleHub's financial statements and notes, "Management's Discussion and Analysis
or Plan of Operation of TeleHub," and the other financial information included
elsewhere in this Proxy Statement/Prospectus. Results for the three-month period
ended October 31, 1998 are not necessarily indicative of results for the full
year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 1998
-------------------
($US; UNAUDITED)
<S> <C>
Net sales $ 82,729
Cost of sales 42,559
Income from operations 40,170
Selling, general and administrative expenses 86,345
Net loss (46,175)
Net loss per share $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
JULY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
($US) ($US; UNAUDITED)
<S> <C> <C>
Cash $ 94,979 $ 5,304
Working capital 115,213 51,235
Property and equipment, net -0- 186,663
Total assets 115,213 299,686
Long-term debt, less current portion -0- 164,434
Accumulated deficit -0- (46,175)
Total stockholders' equity 115,213 84,038
</TABLE>
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, THE MATTERS DESCRIBED BELOW SHOULD BE CAREFULLY CONSIDERED
IN EVALUATING THE TRANSACTION.
RISKS RELATED TO WAW AND THE TRANSACTION
LIMITED OPERATING HISTORY OF WAW; HISTORY OF LOSSES. WAW was
incorporated in July 1993 and, until May 1997, operated as a mall-based
specialty retailer of a wide assortment of products which targeted customers
having an active interest in nature, the environment, education, wildlife, the
outdoors and science. Pursuant to the Sale in May 1997, the Company sold
substantially all of its assets to Natural Wonders, Inc. The Sale resulted in a
loss from disposal of assets of $673,411 which, after giving effect to a
one-time non-recurring gain from disposal of assets of $279,670 in the second
quarter of the 1997 fiscal year ended January 31, 1998, resulted in a loss from
disposal of assets of $393,741. In fiscal 1997 and fiscal 1996, WAW incurred
losses from discontinued operations of $508,186 and $2,304,875, losses from
continuing operations of $214,904 and $223,736, and net losses of $1,116,831 and
$2,528,611. For the thirty-nine weeks ended October 31, 1998, WAW incurred a
loss from discontinued operations of $0, a loss from continuing operations of
$71,143 and a net loss of $71,143. See "Management's Discussion and Analysis or
Plan of Operation of WAW."
As a result of the Sale in May 1997, WAW has had no operating business
and has been seeking to serve as a vehicle to effect acquisitions, whether by
merger, exchange of capital stock, acquisition of assets or other similar
business combination. To date, WAW has not entered into any agreement (other
than the Share Purchase Agreement) with respect to any such transaction with, or
acquisition of, any entity. WAW therefore has had a limited operating history
since the Sale upon which an evaluation of its performance and prospects can be
made. WAW may not be successful in identifying and evaluating suitable merger or
acquisition candidates or in concluding a merger or acquisition transaction on
terms favorable to WAW. Even if WAW completes such a transaction (including the
Transaction), that transaction may not result in a financial return to WAW's
stockholders.
POSSIBLE NEED FOR ADDITIONAL FINANCING. Until the Sale, WAW financed
its capital and operating requirements primarily from sales of equity securities
to Messrs. Cornstein, Miller and Munley (each of whom is a director and founder
of WAW), cash proceeds received from loans made by certain members of the Board
of Directors and by third parties, and cash proceeds from WAW's November 1994
initial public offering. Subsequent to the Sale, WAW has used, and expects to
continue to use, to the extent available, any remaining cash generated from
operations and the Sale to finance losses from its remaining limited operations.
Since the Sale, WAW has not generated any cash flow to support its current
corporate overhead expenses and, as a result, WAW operated at a loss for fiscal
1997. If the Transaction occurs, TeleHub may not be able to generate enough
revenue to fund WAW's and TeleHub's ongoing operating expenses and capital
requirements. WAW has no current arrangements regarding additional financing and
may not be able to obtain financing in the future on commercially reasonable
terms, or at all. WAW does not anticipate that any of its officers, directors or
stockholders or any of the directors or officers of TeleHub will provide any
portion of WAW's future financing requirements. Any inability to obtain
additional financing when needed will have a material adverse effect on WAW, and
may require WAW and TeleHub to curtail, or even cease, their activities.
LACK OF DIVERSIFICATION; HOLDING COMPANY RELIANCE ON SUBSIDIARY FUNDS.
Upon completion of the Transaction, WAW will be a holding company, the sole
asset of which will be the shares of TeleHub common stock. The prospects for
WAW's performance and the market prices for WAW's securities will then be
entirely
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<PAGE>
dependent upon the future performance of TeleHub. After the Transaction occurs,
WAW may not have the resources to diversify its operations in order to benefit
from the possible spreading of risks and/or offsetting of liabilities. WAW's
failure to diversify its activities into a number of areas may subject it to
economic fluctuations within a particular business or industry and, therefore,
increase the risks associated with WAW's operations.
As a holding company, WAW will rely upon dividends and other payments
from its subsidiary to generate the funds necessary to meet its obligations. The
success of WAW will depend to a great extent on the operations, financial
condition and management of TeleHub and/or any other companies with which WAW
may merge or which WAW may acquire. It is possible that the Company may not
complete any such acquisitions (including the Transaction), and that even if
accomplished, the acquired entity or entities (including TeleHub) may not have
funds available for the payment of dividends or to effect other cash payments
for the benefit of WAW.
CONCENTRATION OF OWNERSHIP FOLLOWING THE TRANSACTION. Following the
Transaction and the issuance of shares of WAW common stock to the current
TeleHub shareholders, the current TeleHub shareholders will own approximately
86% of the outstanding shares of WAW common stock (without giving effect to the
exercise of any outstanding options or warrants of WAW). The Transaction will
therefore result in a change of control of WAW and, following the Transaction,
the current TeleHub shareholders will be able to elect the members of the Board
of Directors of WAW and control the business, affairs and policies of WAW. In
addition, of the five individuals nominated for election to WAW's Board of
Directors at the Special Meeting, four have been designated by TeleHub and only
one, Mr. Cornstein, has been designated by WAW to serve after the Transaction.
IMMEDIATE SUBSTANTIAL DILUTION; POSSIBLE FUTURE DILUTION RESULTING FROM
ADDITIONAL ISSUANCES OF SECURITIES. Upon the issuance of shares of WAW's common
stock to the TeleHub shareholders in the Transaction, the current stockholders
of WAW will suffer an immediate and substantial dilution of their ownership
interests in WAW. In addition, the current stockholders of WAW will suffer
further dilution of such ownership interests in the event of future issuances of
WAW's common stock. Following the Transaction and the amendment to WAW's
Certificate of Incorporation, WAW's Certificate of Incorporation will authorize
the issuance of 50,000,000 shares of common stock. It is anticipated that, at
such time, there will be outstanding 15,279,464 shares of WAW common stock
(assuming the issuance of 13,011,339 shares of WAW common stock in the
Transaction and the issuance of 150,000 shares of WAW common stock to Prospect
Capital upon consummation of the Transaction in accordance with the terms of
Prospect Capital's engagement letter with WAW, and assuming no exercise prior to
the Transaction of any outstanding options or warrants), with 2,150,000 shares
reserved for issuance upon exercise of options or warrants either then granted
or authorized to be granted. Accordingly, following the Transaction and the
amendment of WAW's Certificate of Incorporation, there will be 32,570,536 shares
of WAW's common stock available for other issuances. The Board of Directors of
WAW may, without stockholder approval, issue any or all of the authorized but
unissued (and unreserved) shares of WAW's common stock, including for purposes
of financing its obligations or acquiring additional businesses. In the event of
any additional issuances of equity securities, the then existing holders of
WAW's common stock would suffer dilution of their ownership interest. In
addition, any such issuances may adversely affect the market price of shares of
WAW's common stock and may adversely affect the net tangible book value per
share attributable to WAW's common stock.
DELISTING OF SECURITIES FROM NASDAQ SMALLCAP MARKET; "PENNY STOCK"
RESTRICTIONS. During 1996, WAW experienced a substantial decline in the price of
its common stock. The market price fell to a point that precluded WAW from
continuing its listing on the Nasdaq SmallCap Market. As the Company was unable
to demonstrate, by the date specified by The Nasdaq Stock Market, Inc.
("Nasdaq"), compliance with Nasdaq's listing requirements, Nasdaq issued a
formal notice of deficiency for WAW's securities in January 1997. Since
11
<PAGE>
such delisting, shares of the Company's common stock, to the extent traded, have
traded on the NASD bulletin board and in the over-the-counter "pink sheets." An
investor may therefore find it more difficult to dispose of, or obtain accurate
quotations as to the market value of, WAW's securities. Delisting of the
Company's securities may also result in lower prices for WAW's securities than
might otherwise prevail.
In addition, once the Company's common stock was delisted from trading
on Nasdaq and the trading price of the Company's common stock remained below
$5.00 per share, trading in the Company's common stock also became subject to
Rule 15g-9 under the Exchange Act. That rule requires additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock" (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). The rule requires
the delivery, prior to any penny stock market transaction, of a disclosure
schedule explaining the penny stock market and its associated risks, and imposes
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally,
institutions). For these types of transactions, the broker-dealers must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burden imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in WAW's securities, which could
materially adversely affect the market price and severely limit liquidity of the
Company's securities and the ability of securityholders to sell the Company's
securities in the secondary market as well as WAW's ability to obtain additional
financing.
LIMITED TRADING MARKET FOR WAW COMMON STOCK; POSSIBLE VOLATILITY OF
MARKET PRICE OF COMMON STOCK. Shares of the Company's common stock currently
trade on the NASD bulletin board or in the over-the-counter "pink sheets" and,
as a result, there is currently only a limited trading market for the Company's
common stock. If an active or regular trading market for the Company's common
stock does not develop, the holders of the Company's common stock may not be
able to sell their shares at any particular time or at prices that reflect the
actual value of the Company's common stock. In addition, the market price for
the Company's common stock following the Transaction may be highly volatile, as
has been the case with the securities of other companies in emerging businesses.
Factors such as WAW's financial results, the success of TeleHub's business
following the Transaction and various factors affecting the telecommunications
industry and the general economy may have a significant impact on the market
price of the Company's common stock. Additionally, in recent years, the stock
market has experienced a high level of price and volume volatility and market
prices for the stock of many companies (particularly of small and emerging
growth companies, the common stock of which typically trades in the
over-the-counter market) have experienced wide price fluctuations which have not
necessarily been related to the operating performance of such companies.
NO DIVIDENDS CONTEMPLATED. To date, WAW has not paid any cash
dividends, and any determination to pay dividends in the future will be at the
discretion of WAW's Board of Directors. The Board's determination whether to pay
dividends will depend upon WAW's earnings, if any, financial condition and
capital requirements, as well as on other relevant factors. The Board of
Directors does not intend to declare dividends in the foreseeable future, but
instead intends to retain earnings, if any, for future use in the Company's
business operations. See "Comparative Market Prices and Dividends" and
"Description of WAW Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon the completion of the Transaction
and the issuance of 13,011,339 shares of WAW common stock to the TeleHub
shareholders and the issuance of 150,000 shares of WAW common stock to Prospect
Capital pursuant to its engagement letter with WAW, WAW will have 15,279,464
shares of common stock outstanding (assuming no exercise of outstanding options
or warrants). Of these shares, 14,011,339 shares will be freely tradeable
without restriction or further registration under the Securities Act. All of the
remaining 1,268,125 shares of the Company's common stock outstanding will be
"restricted securities," as that term is defined under Rule 144 of the
Securities Act, and in the future may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 or
12
<PAGE>
pursuant to another exemption under the Securities Act. WAW has granted Messrs.
Cornstein, Miller and Munley and some of their family members "piggyback"
registration rights with respect to restricted shares of the Company's common
stock held by them. WAW has also granted to Whale Securities Co., L.P., the
underwriter engaged by WAW in connection with the Company's November 1994
initial public offering, demand and "piggyback" registration rights with respect
to restricted securities granted to the underwriter. The Company is not able to
predict the effect, if any, that sales of shares of the Company's common stock
or even the availability of such shares for sale will have on the market prices
prevailing from time to time. See "Description of WAW Capital Stock - The
Underwriter's Warrant and Underlying Warrants" and "- Registration Rights."
RISKS RELATED TO TELEHUB
NO OPERATING HISTORY. TeleHub was incorporated in May 1998 and is
currently in an early development stage. Prior to October 1998, TeleHub did not
actively carry on business. To date, TeleHub has generated limited revenues and
expects to incur substantial up-front capital expenditures and operating costs
in establishing and operating its call center, which may result in significant
losses for the foreseeable future. The Transaction should be regarded as highly
speculative due to the nature of, and the very early stage of development of,
TeleHub's business.
START UP RISKS. TeleHub believes that its success will be dependent on
many factors, including its ability to: (i) install and implement the equipment
and technologies necessary to operate a call center at favorable rates; (ii)
secure teleservices contracts with clients and generate revenues under such
contracts; (iii) attract, recruit, train and motivate qualified personnel on a
timely and economical basis to perform and sell TeleHub's proposed service
offerings; (iv) successfully implement marketing and sales methods or channels
for its proposed teleservices; and (v) provide and maintain quality services to
clients. In addition to the foregoing factors, the likelihood of success must
also be considered in light of the problems, expenses, difficulties,
complications and delays that are frequently encountered by a company in
connection with the establishment of any new business and/or service offerings,
such as competition from third parties, market acceptance of its service
offerings and the development of market expertise. TeleHub may not be able to
secure teleservices contracts, or hire call center representatives to perform
under such contracts, in a timely manner. If TeleHub encounters significant
delays in securing teleservices contracts or is otherwise unable to commence
significant operations, its business, results of operations or financial
condition would be materially adversely affected.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. At December
1, 1998, TeleHub had cash and cash equivalents of Cdn $150,000, which will be
used primarily for the development of its Montreal call center and employee
compensation. TeleHub has recently begun to generate a limited cash flow from
its operations. If TeleHub is unable to generate sufficient revenue from its
existing contracts or secure additional revenue-generating teleservices
contracts prior to the end of February 1999, TeleHub will need to raise money in
order to fund its future operations and to take advantage of growth
opportunities. These opportunities may require a rapid expansion or acquisitions
of complementary businesses or technologies, the development of new service
offerings and other responses to competitive pressures. Additional financing may
not be available to TeleHub when needed, on commercially reasonable terms, or at
all. Any inability to promptly obtain additional financing when and if required
would have a material adverse effect on TeleHub, requiring it to curtail and
possibly cease its operations.
ACHIEVING AND MANAGING GROWTH. In addition to the start-up risks
identified above, any growth of TeleHub will depend in significant part on its
ability to successfully develop and utilize its acquired infrastructure and
developed databases to perform teleservices for its clients. TeleHub's future
growth will also depend upon TeleHub's ability to develop and successfully
implement marketing and sales methods or channels for new services and expand
into new areas, either internally or through mergers and acquisitions, in a
timely and economic fashion. TeleHub's growth will also require TeleHub's
implementing enhanced operational and
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financial systems, hiring additional management and increasing its operational
and financial resources, all of which could strain TeleHub's existing operations
and resources. TeleHub may not be able to manage expanding operations
effectively or achieve or maintain growth. If TeleHub is unable to achieve or
manage growth effectively, its business, results of operations or financial
condition could be materially adversely affected.
RELIANCE ON THIRD PARTY TECHNOLOGY. TeleHub's business is highly
dependent on computer and telecommunications equipment and software systems
acquired and/or licensed from third parties. TeleHub has invested and plans to
continue to invest significantly in specialized telecommunications and computer
technology to provide customized solutions for its prospective clients' needs.
In addition, TeleHub has invested and plans to continue to invest significantly
in sophisticated end-user databases and software to market its prospective
clients' products to diverse markets. All of such technology has been or will be
acquired and/or licensed from third parties and, as a result, TeleHub is and
will continue to be highly dependent on such third party suppliers. Any
temporary or permanent loss of these telecommunications, computer and software
systems, through casualty or operating malfunction, could have a material
adverse effect on TeleHub's business, results of operations and financial
condition. TeleHub recognizes the need to ensure that its operations will not be
adversely impacted by software failures caused by the advent of the Year 2000.
While TeleHub intends to obtain assurances from its program suppliers and
independently assess acquired computer programs regarding Year 2000 computer
risks, the systems on which TeleHub relies may be adversely impacted by software
failures caused by the advent of the Year 2000. TeleHub may also experience
delays in the receipt and implementation of such technology and be unable to
promptly acquire and/or license such technology at favorable rates. TeleHub may
not be able to select or have the necessary financial resources to acquire
and/or license adequate technology to meet its business needs. TeleHub's failure
to acquire and implement quality telecommunications and computer technology and
end user database and software products could materially adversely affect
TeleHub's business, results of operations and financial condition.
RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY. TeleHub's future
success will also depend on its ongoing ability to respond to changing
technological developments and to acquire and implement new equipment and
systems to meet changing customer needs on a timely and cost-effective basis.
TeleHub may not be able to acquire, implement and use such new technologies.
TeleHub may also not be able to successfully develop and bring to market any new
services in a timely manner, such services may not be commercially successful
and competitors' technologies or services could render TeleHub's services
noncompetitive or obsolete. TeleHub's failure to obtain new equipment and
systems with sufficient technological capabilities or to respond effectively to
technological changes or successfully develop and bring to market any new
services in a timely manner would have a material adverse effect on TeleHub's
business, results of operations and financial condition.
RISK OF BUSINESS INTERRUPTION. TeleHub believes that its operations
depend on its ability to protect its call centers, computer and
telecommunications equipment and software systems against damage from fire,
power loss, telecommunications failure, natural disaster and other similar
events. If TeleHub were to experience a temporary or permanent interruption at
its call center, TeleHub's business could be materially adversely affected and
TeleHub may be required to pay damages to some clients or allow some clients to
terminate or renegotiate their contracts with TeleHub. While TeleHub has
obtained property and business interruption insurance, such insurance may not
adequately compensate TeleHub for all losses that it may incur.
DEPENDENCE ON TELEPHONE SERVICE. TeleHub's business will be materially
dependent upon services provided by local and long distance telephone companies.
Any interruption in service or any inability of TeleHub's local or long distance
carrier to provide services to meet TeleHub's needs, or any rate increases
imposed by these telephone companies, could materially adversely affect
TeleHub's business, results of operations and financial condition.
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DEPENDENCE ON CURRENT CONTRACTS. To date, TeleHub has secured four
contracts for the provision of telemarketing services by TeleHub. Each of these
agreements is terminable by the other party thereto on short notice. The
termination of any of these agreements would have a material adverse effect on
TeleHub's business, results of operations and financial condition in its first
year of operations if TeleHub cannot secure other clients or develop other
relationships to generate revenues in this period. See "Business of TeleHub -
Customers."
INTERACTIVE ELECTRONIC COMMERCE. Telephone-based call centers compete
with other forms of direct marketing activities. In recent years there have been
significant advances in new forms of direct marketing, such as the development
of electronic interactive shopping and information exchange through the Internet
or television. Increased and widespread use of such interactive electronic
commerce could have a material adverse effect on the demand for call center
teleservices. Any decrease in demand for call center teleservices could
materially and adversely affect the number and profitability of outsourced
teleservices opportunities for TeleHub.
GROWTH THROUGH ACQUISITIONS. In addition to expanding the scope and
breadth of its initially proposed services, TeleHub anticipates that it may be
necessary to expand its business through acquisitions. Although TeleHub is not
currently a party to any arrangement, agreement or understanding with respect to
the acquisition of any entity other than the Transaction, TeleHub is considering
several acquisitions and expects to continue to consider growth opportunities
through additional acquisitions. These acquisitions may include payments in cash
or the issuance of additional TeleHub shares, although there are currently no
definitive agreements or arrangements to do so. TeleHub may not have sufficient
capital resources to pursue its growth strategy. Additionally, TeleHub may not
be able to successfully identify or complete acquisitions and any such entities
acquired by TeleHub either may not perform as expected or may not contribute
significant revenues or profits to TeleHub. TeleHub may also, in the future,
face increased competition for acquisition opportunities, which may inhibit
TeleHub's ability to complete suitable acquisitions on terms favorable to
TeleHub.
INTEGRATION OF ACQUISITIONS INTO EXISTING MANAGEMENT AND OPERATIONS.
The services provided by acquired assets or companies, although complementary,
may differ from those initially contemplated by TeleHub. Any anticipated
benefits with respect to the markets of these acquisitions may not be achieved.
Moreover, TeleHub has no experience in acquiring businesses and assets and has
not yet demonstrated the long-term ability to successfully manage any acquired
businesses or assets. TeleHub may not be able to successfully manage any new
service areas, the employees of such service areas or the client base supported
by such service areas.
ADVERSE EFFECT OF FOREIGN EXCHANGE RATES ON RESULTS OF OPERATIONS. A
significant portion of TeleHub's sales in 1998 will be paid for in Canadian
dollars. The U.S. dollar value of TeleHub's net sales may, therefore, vary with
currency exchange rate fluctuations. Significant changes in the value of the
U.S. dollar relative to the Canadian dollar could have a material adverse effect
on TeleHub's results of operations. Currently, TeleHub has no facilities to
hedge such currency risk.
DEPENDENCE ON TELESERVICES OUTSOURCING. TeleHub's anticipated business
and growth will depend in large part on the market for outsourced teleservices.
Such outsourcing may not continue, as companies may elect to perform such
services internally. A significant reduction in outsourcing opportunities or a
trend in the telecommunications industry not to use, or to reduce the use of,
outsourced teleservices would have a material adverse effect on TeleHub.
COMPETITIVE AND FRAGMENTED INDUSTRY. The telemarketing industry is
intensely competitive and highly fragmented. TeleHub competes with many other
teleservices companies ranging in size from very small companies offering
special applications or short-term projects to very large publicly listed
companies. Currently, TeleHub's Canadian competitors include Vox Data Inc.,
Media Express Telemarketing Corp., the Equinox Group and Sodema,
Transcontinental Technologie Inc. Large U.S. independent telemarketing companies
such as APAC TeleServices Inc., Electronic Data Systems, MATRIXX Marketing Inc.,
SITEL Corporation, Stream International
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Holdings Inc., Sykes Enterprises Inc. and West TeleServices Corporation also
exert intense competitive pressure on TeleHub in the U.S. market. In addition,
some of these large U.S. telemarketing companies have recently opened call
centers in Canada and may offer increasing competition as their Canadian
presence grows. Providers of other forms of advertising and marketing media,
such as direct mail, television, radio and other advertising media will also
offer TeleHub varying degrees of competition. Furthermore, TeleHub competes with
the internal marketing capabilities of many of its own prospective clients, many
of whom have significant internal teleservices, marketing and sales capabilities
and also contract for these services from competitors of TeleHub. Much
outsourced telemarketing work is contracted on an individual project basis, with
many projects being allocated among various teleservice providers from time to
time. This may force TeleHub to compete frequently with other call centers as
individual projects are initiated or reallocated. Furthermore, the relatively
low barriers to entry to this industry and the rapid growth of the teleservices
industry may attract many new competitors, some of whom may be substantially
larger and better capitalized than TeleHub. Entry into the Canadian market may
be especially heavy as a result of the Canadian dollar's current low exchange
rate against the U.S. dollar. TeleHub may not be able to compete effectively
against its current competitors or such additional competitors. To the extent
that TeleHub is unable to compete successfully against its competitors,
TeleHub's business, results of operations and financial condition would be
materially adversely affected.
ABILITY TO HIRE PERSONNEL; DEPENDENCE ON LABOR FORCE. Many aspects of
TeleHub's business will be labor intensive and, due to the nature of such
services, it is and will continue to be necessary for TeleHub to hire a
significant number of employees and contractors in the first few months of
operations. TeleHub may not be able to procure, hire and train a sufficient
labor force of qualified employees or independent contractors. TeleHub may also
experience high personnel turnover. Many of TeleHub's employees will receive
hourly wages plus commissions, if earned. A significant number of these
employees, including some or all of TeleHub's call center representatives, will
be employed on a part-time or temporary basis. A higher turnover rate among
TeleHub's employees would increase TeleHub's recruiting and training costs and
decrease operating efficiencies and productivity. TeleHub anticipates that its
operations will require specially trained employees, such as those employees who
market services and products in languages other than English. Any increase in
TeleHub's volume of business will require it to recruit and train qualified
personnel at an accelerated rate from time to time. TeleHub may not be able to
hire or continue to hire, train and retain a sufficient labor force of qualified
employees, particularly bilingual employees. TeleHub anticipates that a
significant portion of its costs will consist of wages to hourly workers.
Although TeleHub compensates all of its workforce above the statutory minimum
wage and, therefore, may not be directly impacted by any increases in such
minimum wage (currently Cdn $7.00 per hour), any such legislated increases may
have the effect of inflating wages among hourly workers generally in the
marketplace and, in turn, the prevailing wage of employees performing services
for TeleHub. An increase in hourly wages, costs of employee benefits, employment
taxes or commission rates could have a material adverse effect on TeleHub's
business, results of operations and financial condition. See "Business of
TeleHub - Employees."
DEPENDENCE ON KEY PERSONNEL. The success of TeleHub will depend in
large part upon the abilities and continued service of its key employees,
particularly Mr. Stanley Young, President and Chief Executive Officer, Mr.
Patrick Thomas, Chief Operating Officer and Secretary, and Mr. John De Luca,
Vice President, Sales and Marketing. While these officers and other key
personnel hold a significant number of shares of TeleHub's common stock, TeleHub
may not be able to retain the services of such officers and employees. The
failure of TeleHub to retain the services of Messrs. Young, Thomas or De Luca or
of other key personnel could have a material adverse effect on TeleHub. In order
to support its planned growth, TeleHub may have to recruit, hire, train and
retain additional qualified management personnel. The inability of TeleHub to
attract and retain the necessary personnel could have a material adverse effect
on TeleHub's business, results of operations and financial condition.
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GOVERNMENT REGULATION. TeleHub's business is subject to various
Canadian and U.S. federal, provincial and state laws and regulations. In Canada
and the U.S., certain portions of TeleHub's industry have become subject to an
increasing amount of federal and provincial laws and regulations in the past
five years. TeleHub has established and will continue to maintain operating
procedures to comply with all applicable laws and regulations. TeleHub does not
anticipate that such compliance will require it to incur significant additional
expense. However, additional Canadian or U.S. federal, provincial or state
legislation, or changes in regulatory implementation, could limit the activities
of TeleHub or its prospective clients in the future or significantly increase
the cost of regulatory compliance.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. TeleHub could
experience quarterly variations in revenues and operating income as a result of
many factors, including (i) the timing of TeleHub's commencement of operations,
(ii) the timing of clients' marketing/sales campaigns, (iii) the securing of
necessary financing; (iv) the implementation of new services, (v) the timing of
additional selling efforts, (vi) the general and administrative expenses to
acquire and support such new business and (vii) changes in TeleHub's revenue mix
among its various service offerings. In addition, in connection with certain
contracts, TeleHub could incur costs in periods prior to recognizing revenue
under those contracts. Furthermore, TeleHub must plan its operating expenditures
based on revenue forecasts, and a revenue shortfall below such forecast in any
quarter would be likely to affect adversely TeleHub's operating results for that
quarter.
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus are
"forward-looking statements" within the meaning of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties. In particular, any statements
contained in this document regarding the consummation and benefits of the
Transaction or regarding expectations with respect to the future growth and
results of operations of WAW and/or TeleHub, and any statements preceded by,
followed by or that otherwise include the words "believes," "expects,"
"anticipates," "intends," "estimates" or similar expressions, are subject to
known and unknown risks, uncertainties and contingencies, many of which are
beyond the control of WAW and/or TeleHub. Such risks, uncertainties and
contingencies may cause actual results, performance or achievements to differ
materially from anticipated results, performance and achievements. Factors that
might affect such forward-looking statements include, among other things, the
risk factors described above in the section captioned "Risk Factors," as well as
overall economic and business conditions, factors affecting the demand for
TeleHub's proposed services, competitive factors in the marketplace in which
TeleHub proposes to compete and changes in U.S. or Canadian regulations
governing TeleHub's proposed business activities.
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THE SPECIAL MEETING
TIME, PLACE, AND PURPOSE
This Proxy Statement/Prospectus is being sent to the stockholders of
WAW in connection with the Special Meeting of Stockholders of the Company to be
held on _____________, 1999. At the Special Meeting, WAW's stockholders will be
asked to vote upon (i) a proposal to approve the Share Purchase Agreement
relating to the Transaction, (ii) a proposal to amend the Company's Certificate
of Incorporation to increase to 50,000,000 the number of shares of the Company's
common stock authorized for issuance by the Company and to change the name of
the Company to TeleHubLink Corporation, (iii) the election of five directors to
serve on WAW's Board of Directors until the next annual meeting of stockholders
and until their successors are elected and qualified and (iv) such other
business as may properly come before the Special Meeting or any adjournment
thereof. A copy of the Share Purchase Agreement is attached to this Proxy
Statement/Prospectus as Annex A, and the proposed amendment is set forth in the
Form of Certificate of Amendment to the Certificate of Incorporation of WAW
attached to this Proxy Statement/Prospectus as Annex B. The Company urges its
stockholders to read each of those documents carefully.
RECORD DATE; HOLDERS ENTITLED TO VOTE
The Board of Directors has fixed the close of business (5:00 p.m., New
York City time) on _____________________ __, 1999, as the Record Date for the
determination of the stockholders of WAW entitled to notice of, and to vote at,
the Special Meeting or any adjournment or postponement thereof. Only
stockholders of record at the close of business on the Record Date are entitled
to notice of and to vote at the Special Meeting. As of the date of the Record
Date, there were 2,118,125 shares of WAW common stock outstanding and entitled
to vote at the Special Meeting. Holders of record of WAW common stock as of the
Record Date will be entitled to one vote for each share of WAW common stock held
on that date.
VOTING AND SOLICITATION OF PROXIES
Proxies in the form enclosed are being solicited by the Board of
Directors of WAW. Shares of WAW common stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
in accordance with instructions indicated on the proxies. Any holder of WAW
common stock who returns a signed proxy but fails to provide instructions as to
the manner in which such holder's shares are to be voted will be deemed to have
voted FOR the approval and adoption of the Share Purchase Agreement, FOR the
approval of the amendment to the Company's Certificate of Incorporation, FOR
election of the nominees named in this Proxy Statement/Prospectus as directors
of WAW and as determined by a majority of the Board of Directors as to any other
matters that may properly come before the Special Meeting or any adjournment
thereof.
A stockholder of WAW who has given a proxy may revoke it at any time
prior to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of WAW, (ii) properly submitting to WAW a duly
executed proxy bearing a later date or (iii) voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed to WAW as follows: What A World!,
Inc., P.O. Box 20125, Tampa, Florida, 33622, Attention: Secretary.
Officers and employees of WAW may solicit proxies by personal
interview, mail, telegraph or telephone. WAW may also retain third parties to
solicit proxies from stockholders. Brokers, bankers and other nominees will be
reimbursed for out-of-pocket and other reasonable clerical expenses incurred in
obtaining instructions
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from beneficial owners of WAW common stock. The cost of preparing this Proxy
Statement/Prospectus and all other costs in connection with solicitation of
proxies for the Special Meeting are being borne by WAW.
EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY. IF YOU ATTEND THE SPECIAL MEETING,
YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. A POSTAGE-PAID, RETURN-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. YOUR COOPERATION IN GIVING THIS
MATTER YOUR IMMEDIATE ATTENTION AND IN RETURNING YOUR PROXY WILL BE APPRECIATED.
QUORUM; REQUIRED VOTE
The presence, in person or by proxy, at the Special Meeting of the
holders of a majority of the shares of WAW common stock outstanding and entitled
to vote at the Special Meeting is necessary to constitute a quorum at the
Special Meeting. Abstentions and broker non-votes are considered present for
purposes of determining whether the quorum requirement is met. A broker non-vote
occurs when a nominee holds shares for a beneficial owner but cannot vote on a
proposal because the nominee does not have discretionary voting power and has
not received instructions from the beneficial owner as to how to vote the
shares.
With respect to the matters to come before the stockholders at the
Special Meeting, (i) the proposal to approve the Share Purchase Agreement shall
be determined by the affirmative vote of a majority of the voting power present
in person or represented by proxy at the Special Meeting and entitled to vote
thereon, (ii) the proposal to approve the amendment to the Company's Certificate
of Incorporation shall be determined by the affirmative vote of the holders of a
majority of the shares of WAW common stock outstanding and entitled to vote
thereon and (iii) the election of directors shall be determined by a plurality
of the voting power present in person or represented by proxy at the Special
Meeting and entitled to vote thereon. In the case of the proposal to approve the
Share Purchase Agreement and the proposal to approve the amendment, if a
stockholder abstains from voting or directs his or her proxy to abstain from
voting, the shares are considered present at the Special Meeting for such matter
but, since they are not affirmative votes for the matter, will have the same
effect as votes against the matter. With respect to broker non-votes on the
proposal to approve the Share Purchase Agreement, the shares are not considered
present at the Special Meeting for such matter and are, therefore, not counted
in respect of such matter. Broker non-votes have the practical effect of
reducing the number of affirmative votes required to achieve a majority for such
matter by reducing the total number of shares from which the majority is
calculated. With respect to the election of directors, only shares that are
voted in favor of a particular nominee will be counted towards such nominee's
achievement of a plurality. Shares present at the Special Meeting that are not
voted for a particular nominee, shares present by proxy where the stockholder
properly withholds authority to vote for such nominee, and broker non-votes will
not be counted towards such nominee's achievement of a plurality.
David B. Cornstein and David F. Miller, each of whom is a member of the
Board of Directors of WAW, have agreed to vote their shares of WAW common stock
in favor of the approval of the Share Purchase Agreement and the proposed
amendment to WAW's Certificate of Incorporation and in favor of the election of
the five nominees named in this Proxy Statement/Prospectus as directors of WAW.
Messrs. Cornstein and Miller represent in the aggregate approximately 44.7% of
the issued and outstanding shares of WAW common stock. Accordingly, the
affirmative vote of other stockholders holding shares which represent only
approximately 6.3% of the outstanding shares of the Company's common stock will
be sufficient to approve such proposals and to elect the five nominees as
directors.
Of the five individuals nominated for election to the WAW Board of
Directors at the Special Meeting, four have been designated by TeleHub and only
one nominee, Mr. Cornstein, has been designated by WAW to serve after completion
of the Transaction. If the Transaction is not approved at the Special Meeting
or, if approved, is
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not consummated for any reason, the current directors of the Company (including
Mr. Cornstein) will continue as the directors of WAW.
RECOMMENDATION
The Board of Directors believes that the Transaction is in the best
interest of, and is fair to, WAW and its stockholders. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE APPROVAL OF THE
SHARE PURCHASE AGREEMENT AND THE TRANSACTION CONTEMPLATED BY THE SHARE PURCHASE
AGREEMENT AND FOR THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION. The Board of Directors also recommends that the stockholders of
the Company vote FOR the election of the nominees named in the Proxy
Statement/Prospectus as directors of the Company. See "The Transaction -
Recommendation of the Board of Directors," and "Election of Directors -
Recommendation of the Board of Directors."
THE TRANSACTION
BACKGROUND
The terms of the Share Purchase Agreement are the result of
arm's-length negotiations between representatives of WAW and TeleHub. The
following is a brief discussion of the negotiations leading to the execution of
the Share Purchase Agreement.
As described elsewhere in this Proxy Statement/Prospectus, WAW was
incorporated in July 1993 and, until the Sale in May 1997, operated as a
mall-based specialty retailer. Since the consummation of the Sale, which
terminated WAW's specialty retail operations, WAW has been seeking to serve as a
vehicle to effect acquisitions, whether by merger, exchange of capital stock,
acquisition of assets or other similar business combination with an operating
business which WAW believes has growth potential. Accordingly, following the
Sale, management of WAW commenced a search for a prospective Acquired Business.
In September 1997, David Cornstein, Chairman of the Board of WAW, was
contacted by Stanley Young, the President and Chief Executive Officer of TeleHub
who was then serving as a member of the Board of Directors of 3218341 Canada
Inc., a privately-held Canadian company doing business under the name Societe
Nationale des Telecommunications de Quebec ("SNTQ") and which was engaged in the
business of providing telecommunications services to business customers. Messrs.
Cornstein and Young had previously been introduced by mutual business
colleagues. Mr. Young discussed with Mr. Cornstein whether WAW might be
interested in a transaction with SNTQ pursuant to which WAW would acquire all of
the outstanding capital stock of SNTQ from SNTQ's shareholders in exchange for
shares of WAW Common Stock. Mr. Cornstein thereafter advised WAW's Board of
Directors of his discussions with Mr. Young, and the Board of Directors
authorized management of WAW to engage in negotiations with SNTQ regarding a
proposed business combination.
Between September 25, 1997 and March 2, 1998, Mr. Cornstein acquired an
aggregate of 66,929 shares of SNTQ common stock (representing approximately 3.7%
of the SNTQ common stock outstanding at March 31, 1998) and, on September 25,
1997, David F. Miller, a member of the Board of Directors and former President
of WAW, acquired 18,461 shares of SNTQ common stock (representing approximately
1.0% of the SNTQ common stock outstanding at March 31, 1998). In exchange for
such shares, Mr. Cornstein paid an aggregate of $115,000 to SNTQ and Mr. Miller
paid $50,000 to SNTQ.
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From September 1997 through March 1998, management of each of WAW and
SNTQ and their respective representatives engaged in negotiations regarding the
proposed transaction. During such period, there were numerous telephone
conversations between Mr. Cornstein and Mr. Young regarding various aspects of
the proposed business combination, including conversations regarding the status
of SNTQ's business, and the companies exchanged financial and other information
and engaged in ongoing due diligence investigations concerning each other.
However, the parties did not reach any understandings with respect to definitive
terms of a business combination.
In early May 1998, Mr. Young advised Mr. Cornstein that, due to
developments with respect to the business of SNTQ, the board of directors of
SNTQ had decided to cease SNTQ's operations and liquidate the company. On May
11, 1998, SNTQ filed a notice of intention to make a proposal under the
Bankruptcy and Insolvency Act (Canada). A formal proposal was never adopted and,
in accordance with the Bankruptcy and Insolvency Act (Canada), SNTQ was deemed
to have made an assignment in bankruptcy to Le Group Boudreau Richard Inc.,
trustees in bankruptcy, on June 11, 1998. SNTQ's assets were distributed to
secured creditors as of July 7, 1998.
In May 1998, TeleHub management invited former SNTQ shareholders,
including Mr. Cornstein and Mr. Miller, to invest in TeleHub, a start-up company
which would provide telecommunications services similar to those previously
provided by SNTQ, in the same proportion of shares as was previously held in
SNTQ. TeleHub shares were issued to former SNTQ shareholders (including Messrs.
Cornstein and Miller) at $0.0001 per share. Following the liquidation of SNTQ,
Mr. Young spoke to Mr. Cornstein to inquire as to whether WAW would be
interested in pursuing a business combination with TeleHub.
On June 18, 1998, the Board of Directors of WAW held a special meeting
at which Mr. Cornstein reported the developments regarding SNTQ and the fact
that Mr. Young had offered WAW the opportunity to engage in a transaction with
TeleHub. The Board of Directors authorized management of WAW to engage in
further discussions with TeleHub regarding a proposed acquisition of TeleHub and
to perform due diligence with respect to the business and prospects of TeleHub.
The Board of Directors also determined that, because of Mr. Cornstein's and Mr.
Miller's ownership of TeleHub common stock, as well as Mr. Cornstein's son's
ownership of TeleHub common stock, it would be advisable for the Board to
appoint a special committee to review any such proposed transaction, and
thereupon appointed Hugh H. Jones and James Martin Kaplan, each of whom is an
outside director of WAW, to constitute the Special Committee.
By letter dated June 30, 1998, TeleHub made an offer to purchase from
WAW, for $20,000, an option (the "TeleHub Option") pursuant to which, during the
120-day period commencing June 30, 1998, TeleHub would have the exclusive right
to negotiate a transaction in which TeleHub would be acquired by WAW on mutually
agreeable terms. The offer was accepted by WAW on June 30, 1998 and expired on
October 28, 1998. By letter dated November 17, 1998, TeleHub made an offer to
renew the TeleHub Option for an additional 120-day period commencing November
17, 1998, in consideration for which TeleHub would pay WAW an additional
$20,000. The renewal offer was accepted by WAW on such date.
From early July 1998 through early December 1998, management of WAW and
TeleHub and their respective representatives engaged in negotiations regarding a
proposed acquisition by WAW of all of the outstanding capital stock of TeleHub
in exchange for shares of WAW common stock. During such period, management of
WAW continued to review the status of TeleHub's start-up business, and
representatives of each of the companies engaged in ongoing due diligence as to
financial, legal and other matters. In addition, during such period, legal
counsel for each of the companies engaged in negotiations regarding the terms of
a definitive Share Purchase Agreement.
On December 14, 1998, the Special Committee held a meeting at which it
reviewed the terms of the Share Purchase Agreement as well as other factors
relating to the proposed transaction. In addition, the Special
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Committee also reviewed the draft opinion of Prospect Capital that, from a
financial point of view, the proposed transaction was fair to WAW and its
stockholders. Based on its review, the Special Committee determined that the
Transaction is fair to, and in the best interest of, WAW and its stockholders
and therefore recommended that WAW enter into the Share Purchase Agreement.
On December 14, 1998, following the meeting of the Special Committee,
the Board of Directors of WAW held a special meeting, with legal counsel
present, at which the Board was advised of the Special Committee's
recommendation. The Board then reviewed the terms of the proposed transaction
(including the terms of the then current draft of the Share Purchase Agreement)
and the business, financial results and prospects of TeleHub. Based upon the
Special Committee's recommendation, the Board determined that the Transaction is
fair to, and in the best interest of, WAW's stockholders and voted to approve
the Share Purchase Agreement and to recommend to the stockholders of WAW that
they approve and adopt the Share Purchase Agreement and the Transaction
contemplated by the Share Purchase Agreement. Because of their interest in the
Transaction, Messrs. Cornstein and Miller did not participate in deliberations
concerning the fairness of the Transaction and, accordingly, in so voting relied
solely on the recommendation of the Special Committee.
On December 21, 1998, WAW, TeleHub and the TeleHub shareholders
executed the definitive Share Purchase Agreement. Later on December 21, 1998,
WAW issued a press release announcing the proposed Transaction.
REASONS FOR THE TRANSACTION
At its December 14, 1998 meeting, the Board of Directors of WAW
determined that the Share Purchase Agreement and the Transaction contemplated by
the Share Purchase Agreement are fair to, and in the best interests of, WAW and
its stockholders. The Board of Directors believes that the Transaction offers
WAW the opportunity to achieve its objective of engaging in a business
combination with an operating business which the Board believes has growth
potential and provides the WAW stockholders with the opportunity to participate
in such possible future growth, although no assurance can be given that TeleHub
will achieve significant growth or become profitable.
In determining to approve the Share Purchase Agreement, the Special
Committee and the Board of Directors of WAW considered several factors,
including: (i) the current financial condition of WAW and the fact that WAW
currently has no ability to generate income to fund its ongoing general and
administrative expenses (including, without limitation, insurance expenses,
transfer agent and printing fees, professional fees and wages); (ii) the
potential of the Transaction to achieve WAW's business objective of entering
into a business combination with an operating company, especially in light of
the fact that, since the Sale, WAW had neither located nor been approached by
other potential acquired businesses; (iii) the Special Committee's and the Board
of Directors' belief that, given the current financial condition of WAW, WAW
would be forced to liquidate if it is not able to effect a business combination
with an operating business on a timely basis, and the uncertainty of the
liquidation value, if any, of the WAW common stock following any such
liquidation of WAW; (iv) the results of WAW's due diligence investigation of
TeleHub, including its review of information with respect to the financial
condition, operations, assets, liabilities and prospects of TeleHub, as well as
with respect to economic and market conditions and conditions in the
telecommunications industry; (v) the Special Committee's and the Board of
Directors' belief that TeleHub demonstrates the potential for future revenues
and growth and that the Transaction offers the stockholders of WAW the
opportunity to participate in such growth; (vi) the experience and capabilities
of TeleHub's Board of Directors and management; (vii) the Special Committee's
and the Board of Directors' belief that the consideration to be paid to the
TeleHub shareholders in the Transaction is fair to WAW and its stockholders from
a financial point of view and the receipt by the Special Committee of the
Prospect Capital Opinion to such effect; and (viii) the terms and conditions of
the Share Purchase Agreement.
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In considering the Transaction, the Special Committee and the Board of
Directors of WAW also considered the fact that (i) given that TeleHub is a
start-up company, there was no assurance that TeleHub would be able to achieve
significant growth or generate significant revenues so as to be profitable and
(ii) as a result of the Transaction, the former TeleHub shareholders will hold
approximately 86% of the WAW common stock and the pre-Transaction stockholders
of WAW, who currently hold 100% of the outstanding WAW common stock, will hold
the remaining 14% of the post-Transaction WAW Common Stock. In addition, the
Special Committee and the Board also considered the conflict of interest that
existed with respect to Mr. Cornstein, who beneficially owns approximately 2.1%
of the TeleHub common stock and whose son beneficially owns approximately 8.9%
of the TeleHub common stock (as to which shares Mr. Cornstein disclaims
beneficial ownership), and Mr. Miller, who beneficially owns approximately .6%
of the TeleHub common stock. The Special Committee and the Board each concluded,
however, that notwithstanding these negative considerations, a business
combination with TeleHub would satisfy WAW's business objective of effecting a
business combination with an operating business possessing growth potential.
In view of the many factors considered by the Special Committee and the
Board of Directors of WAW in determining to approve the Share Purchase Agreement
and the Transaction, neither the Special Committee nor the Board found it
practicable to assign relative weights to the specific factors considered in
making its decision.
OPINION OF FINANCIAL ADVISOR
On December 14, 1998, Prospect Capital provided a draft of its opinion
to the Special Committee of the Company's Board of Directors, opining that, as
of such date, based upon certain analyses performed by Prospect Capital and
subject to certain factors and assumptions, the number of shares of WAW common
stock to be paid by WAW in the Transaction for each share of TeleHub common
stock is fair, from a financial point of view, to the unaffiliated stockholders
of WAW. The draft opinion was reaffirmed in a written opinion dated as of
___________, 1999 (the "Prospect Capital Opinion"). The Prospect Capital Opinion
was provided to the Special Committee for its information and is directed only
to the fairness, from a financial point of view, of such consideration to WAW
and does not constitute a recommendation to any stockholder of WAW as to how
such stockholder should vote on the Share Purchase Agreement or the proposed
amendment to the Company's Certificate of Incorporation. The full text of the
Prospect Capital Opinion, which sets forth assumptions made, matters considered
and limitations on the review undertaken in connection with such opinion, is
attached to this Proxy Statement/Prospectus as Annex C and is incorporated
herein by reference. The Company urges its stockholders to read the Prospect
Capital Opinion in its entirety.
Pursuant to the terms of its engagement letter with Prospect Capital,
the Company has agreed to pay to Prospect Capital, contingent on the
consummation of the Transaction, a fee in the amount of $40,000, consisting of
(i) a note in the amount of $25,000, which shall be repaid in five consecutive
monthly installments of $5,000 commencing on the tenth day following the closing
of the Transaction, and which shall bear interest at the rate of 18% to the
extent any such payments are in arrears and (ii) 150,000 shares of WAW common
stock. The Company has also agreed to reimburse Prospect Capital for all of the
reasonable out-of-pocket expenses (including, without limitation, asset
appraisal fees and fees and disbursements of counsel) incurred by Prospect
Capital in connection with preparing the Prospect Capital Opinion and performing
other services pursuant to the engagement letter.
INTERESTS OF INSIDERS IN THE TRANSACTION
When considering the recommendation of WAW's Board of Directors that
WAW stockholders vote in favor of the Share Purchase Agreement and the proposed
amendment to WAW's Certificate of Incorporation, stockholders should be aware
that Messrs. Cornstein and Miller currently own common stock of both WAW and
TeleHub, and owned such common stock at the time the Board made its
recommendation. Specifically, Mr.
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Cornstein currently beneficially owns approximately 31.7% of the WAW common
stock as well as approximately 2.1% of the TeleHub common stock, and Mr. Miller
currently beneficially owns approximately 27% of the WAW common stock and
approximately .6% of the TeleHub common stock. In addition, Mr. Cornstein's son
beneficially owns approximately 8.9% of the TeleHub common stock (as to which
shares Mr. Cornstein disclaims beneficial ownership). Accordingly, Messrs.
Cornstein and Miller may have interests in the Transaction that are different
from those of other stockholders of WAW.
Of the five individuals nominated for election to the WAW Board of
Directors at the Special Meeting, four have been designated by TeleHub and only
one nominee, Mr. Cornstein, has been designated by WAW to serve after completion
of the Transaction. If the Transaction is not completed, the current directors
of the Company (including Mr. Cornstein) will continue as the directors of WAW.
CONDUCT OF BUSINESS FOLLOWING THE TRANSACTION
As a result of the Transaction, the business of WAW will become
substantially the same as the business conducted by TeleHub prior to the
Transaction. The Company and TeleHub currently anticipate that, following the
Transaction, the current directors and officers of TeleHub will continue to
serve in such capacities, and the Board of Directors of WAW will be comprised of
five individuals only one of which, Mr. Cornstein, has been designated by WAW to
serve after completion of the Transaction.
ACCOUNTING TREATMENT OF THE TRANSACTION
For accounting and financial reporting purposes, the Transaction will
be accounted for as a recapitalization of TeleHub, with the issuance of shares
of TeleHub common stock for the net assets of WAW, consisting primarily of cash.
Since WAW has had no business operations since the Sale other than the search
for a suitable target business, WAW's assets will be recorded in the balance
sheet of the combined company (I.E., the post-Transaction WAW) at book value.
REGULATORY MATTERS
WAW has undertaken to comply with applicable state securities laws in
connection with the issuance of the shares of WAW common stock in the
Transaction.
RESALE OF SHARES OF WAW COMMON STOCK ISSUED IN THE TRANSACTION
The shares of WAW common stock issued to TeleHub shareholders in
connection with the Transaction will be freely transferable under U.S. federal
securities laws without further registration under the Securities Act, except
that shares of WAW common stock issued in connection with the Transaction to
persons who are or become "affiliates" (as such term is defined under Rule 144
promulgated under the Securities Act) of WAW may be resold by them only in
transactions permitted by the resale provisions of Rule 144, pursuant to an
effective registration statement under the Securities Act or in a transaction
exempt from registration under the Securities Act. Rule 144 generally provides
that "affiliates" of an issuer may not sell securities of such issuer unless
such sale is effected pursuant to the volume, current public information, manner
of sale and timing limitations of Rule 144. These limitations generally require
that any sales made by an affiliate in any three-month period shall not exceed
the greater of 1% of the outstanding shares of the securities being sold or the
average weekly trading volume over the four calendar weeks preceding the
placement of the sell order and that such sales be made in unsolicited, open
market "brokers transactions." Persons who may be deemed to be affiliates of an
issuer generally include individuals or entities that control, are controlled by
or are under common control with such issuer and may include officers and
directors of such issuer as well as principal stockholders of such issuer.
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NO DISSENTERS' RIGHTS OF APPRAISAL
Under the General Corporation Law of the State of Delaware,
stockholders of the Company do not have any rights to receive the appraised
value of their shares of the Company's common stock in connection with the
Transaction.
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THE SHARE PURCHASE AGREEMENT
THE FOLLOWING DESCRIPTION OF THE MATERIAL TERMS AND PROVISIONS OF THE
SHARE PURCHASE AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE SHARE PURCHASE AGREEMENT, A COPY
OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY URGES ITS STOCKHOLDERS TO READ THE
SHARE PURCHASE AGREEMENT CAREFULLY AND IN ITS ENTIRETY.
ACQUISITION OF TELEHUB
On December 21, 1998, WAW and TeleHub entered into the Share Purchase
Agreement which provides that, subject to the terms and conditions thereof, WAW
will acquire from the TeleHub shareholders all of the issued and outstanding
shares of TeleHub common stock in exchange for an aggregate of 13,011,339 shares
of WAW common stock (or a per share exchange ratio of 4.124306 shares of WAW
common stock for each share of TeleHub common stock), and as a result thereof,
TeleHub will become a wholly-owned subsidiary of WAW. The closing of the
purchase and sale of the TeleHub common stock (the "Closing") is scheduled to
occur on March 16, 1998, or such other date as may be agreed upon by the parties
to the Share Purchase Agreement (such date on which the Closing occurs being
referred to herein as the "Closing Date").
CERTAIN REPRESENTATIONS AND WARRANTIES
The Share Purchase Agreement contains customary representations and
warranties of WAW and TeleHub relating to, among other things: (i) the
organization, existence and good standing of, and similar corporate matters with
respect to, each of the companies, (ii) the capital structure of each company,
(iii) the authorization, execution and delivery of the Share Purchase Agreement
and the performance of each company's obligations, (iv) the enforceability of
the Share Purchase Agreement against each of the companies, (v) each of the
companies having obtained all required consents, approvals and waivers in
connection with the execution, delivery and performance of the Share Purchase
Agreement, (vi) the absence of any conflict with the certificate of
incorporation (or other similar governing instrument) or by-laws of each
company, (vii) the absence of any breaches or violations of any instrument,
contract or other agreement by which either company or either company's assets
is bound, and there not being any mortgages, pledges, charges, security
interests or other encumbrances being created on any of the assets or properties
of either company, in each case as a result of the execution, delivery or
performance of the Share Purchase Agreement, (viii) the accuracy of each
company's financial statements and the absence of undisclosed liabilities, (ix)
compliance with applicable laws, (x) the conduct of business in the ordinary
course and the absence of certain changes or events having a material adverse
effect, (xi) the absence of any actions, suits or other proceedings against
either company or their respective officers and directors, (xii) required
governmental or regulatory authorizations, consents or approvals, (xiii) certain
tax matters, the filing of tax reports and the payment of taxes, (xiv) documents
filed or to be filed with applicable regulatory authorities and the accuracy of
the information contained therein, (xv) compliance by TeleHub with applicable
environmental laws, (xvi) intellectual property rights and (xvii) the absence of
any broker's or finder's fees.
In addition, the TeleHub shareholders have represented and warranted to
the Company that, among other things, each such TeleHub shareholder (i) is the
record owner of all of the shares of TeleHub common stock tendered to the
Company by such shareholder in the Transaction, and that the shares so tendered
are free and clear of any and all liens, (ii) has the requisite authority to
execute and deliver the Share Purchase Agreement and perform the obligations
arising thereunder, (iii) has not paid any broker or finder's fees in connection
with the Transaction and (iv) has consulted with such person's tax advisor
concerning the tax consequences of the Transaction.
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CONDITIONS TO CONSUMMATION OF THE TRANSACTION
The obligation of WAW to consummate the Transaction is subject to the
satisfaction or waiver, prior to the Closing Date, of various conditions,
including (i) the stockholders of the Company having approved the Share Purchase
Agreement and the amendment of the Company's Certificate of Incorporation at the
Special Meeting, (ii) the representations and warranties of TeleHub and the
TeleHub shareholders set forth in the Share Purchase Agreement being true and
correct in all material respects on and as of the Closing Date, (iii) TeleHub
and the TeleHub shareholders having complied with or performed all terms,
covenants, obligations and agreements required by the Share Purchase Agreement
to be complied with or performed on or prior to the Closing Date, (iv) there
being no material adverse change in TeleHub's consolidated financial condition
as of the Closing Date, (v) TeleHub's having conducted its business in the
ordinary course and consistent with past practice, (vi) TeleHub and the TeleHub
shareholders having received all consents and approvals required to obtained by
them in connection with the Transaction, (vii) there being no litigation or
other proceeding pending or threatened against any of the parties to the Share
Purchase Agreement or any of their respective affiliates which either seeks to
enjoin, prevent or restrain the completion of the Transaction, would adversely
affect the right of WAW to acquire the TeleHub common stock or would, in the
judgment of WAW, render the completion of the Transaction inadvisable, (viii)
WAW's being satisfied with its due diligence review of TeleHub and TeleHub's
financial condition, business, assets, operations, sales, development, market
and prospects and (ix) the delivery by the TeleHub shareholders of certificates
representing all of the issued and outstanding shares of TeleHub common stock,
free and clear of any liens.
The obligations of the TeleHub shareholders to consummate the
Transaction are subject to the satisfaction or waiver, prior to the Closing
Date, of various conditions, including (i) the representations and warranties of
WAW set forth in the Share Purchase Agreement being true and correct in all
material respects on and as of the Closing Date and (ii) WAW having complied
with or performed all terms, covenants, obligations and agreements required by
the Share Purchase Agreement to be complied with or performed prior to the
Closing Date.
NO SOLICITATIONS
Pursuant to the Share Purchase Agreement, each of WAW, TeleHub and each
of the TeleHub shareholders has agreed that it or he shall not, and shall not
permit any of its officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other representative retained by it
or him to initiate, solicit or encourage any discussions, negotiations,
inquiries or proposals for the acquisition of all or substantially all of WAW's
or TeleHub's assets or business or for a merger, consolidation, liquidation, or
dissolution of WAW or TeleHub, as the case may be (an "Acquisition
Transaction"); provided, however, that WAW and TeleHub and their respective
directors and officers may participate in any discussions or negotiations
regarding, or furnish any information with respect to, any unsolicited
Acquisition Transaction if WAW's or TeleHub's Board of Directors, as the case
may be, is advised by WAW's or TeleHub's outside legal counsel that, in its
opinion, the failure to take such action would be likely to constitute a breach
of fiduciary duty by such Board of Directors to its stockholders.
CERTAIN OTHER COVENANTS
Pursuant to the Share Purchase Agreement, TeleHub has agreed that,
prior to the Closing Date, it shall operate its business in the ordinary course
and in the normal, usual and customary manner, consistent with past practice.
Without limiting the generality of the foregoing, prior to the Closing Date
TeleHub shall not, without the prior written consent of WAW, (a) adopt a plan of
completion or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization; (b) either (i) incur or
assume any long-term or short-term debt other than in the ordinary course of
business consistent with past practice, or issue any debt securities, (ii)
assume, guarantee, endorse or otherwise become liable or responsible for the
obligations of any
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other person, (iii) make any loans, advances or capital contributions to, or
investments in, any other person other than in the ordinary course of business
consistent with past practice, (iv) pledge or encumber any shares of TeleHub
common stock or (v) mortgage or pledge any of its material assets or create or
suffer to exist any material lien thereupon (other than liens in the ordinary
course of business consistent with past practice); (c) either (i) increase or
agree to increase the compensation payable to its officers or employees, (ii)
grant any severance or termination pay to, or enter into any employment or
severance agreements with, any officers or employees, (iii) enter into any
collective bargaining agreement or (iv) establish, adopt, enter into or amend in
any material respect any bonus, profit sharing, thrift, compensation, stock
options, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees; (d) acquire
or agree to acquire by merger or consolidation with, or by purchase of a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division, or otherwise acquire or agree to acquire any material assets not in
the ordinary course of business consistent with past practice; (e) sell, lease,
license or otherwise dispose of any of its properties or assets which are
material, individually or in the aggregate, to the business of TeleHub; (f)
enter into any contract or agreement which would be material to TeleHub or make
or authorize any capital expenditure which, individually, is in excess of
$100,000 or, together with all such other expenditures, is in excess of
$100,000; or (g) take, or agree in writing or otherwise to take, any of the
actions described in clauses (a) through (f) above, or any other action which is
reasonably likely to make any of TeleHub's representations or warranties
contained in the Share Purchase Agreement or in any schedule or other document
delivered pursuant thereto untrue or incorrect in any material respect.
In addition to the foregoing, each of WAW and TeleHub have also agreed
in the Share Purchase Agreement that, prior to the Closing Date, it shall not
(a) change or amend its certificate or articles of incorporation or by-laws or
other similar governing instrument, (b) issue or sell any shares of its capital
stock (except upon exercise or conversion of currently outstanding options,
warrants or convertible securities) or any securities convertible or exercisable
into or exchangeable for any shares of its capital stock, or enter into any
arrangement or agreement with respect thereto, (c) make any other changes to its
capital structure or (d) declare, pay or set aside for payment any dividend or
make any distributions, including a distribution of rights, in respect of its
capital stock or redeem, purchase or otherwise acquire any shares of its capital
stock, or make any commitment for any such action. Pursuant to the Share
Purchase Agreement, WAW, TeleHub and each of the TeleHub shareholders have
agreed to use their respective best efforts to consummate the Transaction and
the other transactions contemplated by the Share Purchase Agreement. Each of WAW
and TeleHub have further agreed to afford to the other party, as well as such
other party's directors, officers, counsel, accountants and other authorized
representatives, full access to its offices, properties, books and records, and
each such party has agreed to cause its officers, accountants and solicitors to
furnish such additional financial and operating data and other information as
the other shall from time to time reasonably request. The Share Purchase
Agreement further provides that, until the Closing Date, or, in the event of the
earlier termination of the Share Purchase Agreement in accordance with the terms
thereof, for a period of two years after such termination, TeleHub and the
TeleHub shareholders, on the one hand, and WAW, on the other, shall hold in
confidence and not divulge or use any confidential or proprietary information of
the other obtained from any investigation of the other or given to them by the
other or by other performing services for the other or in a confidential
relationship with the other, except to the extent required by law, otherwise
available from third parties or previously known to it.
TERMINATION OF THE SHARE PURCHASE AGREEMENT
The Share Purchase Agreement may be terminated and the transactions
contemplated by the Share Purchase Agreement may be abandoned at any time prior
to the Closing Date, as follows:
(a) by mutual written consent of the parties to the Share Purchase
Agreement;
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(b) by any of the parties to the Share Purchase Agreement if (i)
without the fault of the terminating party, the transactions
contemplated by the Share Purchase Agreement have not been
consummated by May 1, 1999 or (ii) there shall be any statute, rule
or regulation which makes consummation of the transactions
contemplated by the Share Purchase Agreement illegal or otherwise
prohibited, or any order, decree, injunction or judgment enjoining
any of the parties to the Share Purchase Agreement from
consummating the transactions contemplated by the Share Purchase
Agreement and such order, decree, injunction or judgment shall have
become final and non-appealable;
(c) by WAW (i) if there shall have been a material breach of any
representation, warranty, covenant or agreement of TeleHub or any
of the TeleHub shareholders contained in the Share Purchase
Agreement or in any other instrument or document delivered pursuant
thereto, which breach shall not have been cured within ten business
days of receipt by TeleHub or such TeleHub shareholder, as the case
may be, of written notice of such breach from WAW or (ii) upon the
occurrence of any event that would result in a failure of any of
the conditions described above in the first paragraph under " --
Conditions to Consummation of the Transaction," and such event
shall not be capable of being remedied within 30 days after the
occurrence thereof; or
(d) by TeleHub (i) if there shall have been a material breach of any
representation, warranty, covenant or agreement of WAW contained in
the Share Purchase Agreement or in any other instrument or document
delivered pursuant thereto, which breach shall not have been cured
within ten business days of receipt by WAW of written notice of
such breach from TeleHub or (ii) upon the occurrence of any event
that would result in a failure of any of the conditions described
above in the second paragraph under " -- Conditions to Consummation
of the Transaction," and such event is not capable of being
remedied within 30 days after the occurrence thereof.
CERTAIN TAX CONSEQUENCES
U.S. FEDERAL INCOME TAX CONSEQUENCES TO WAW STOCKHOLDERS
Neither the Company nor its stockholders will recognize gain or loss
for federal income tax purposes as a result of the issuance by the Company of
shares of its common stock in exchange for all of the outstanding shares of
TeleHub common stock.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO TELEHUB STOCKHOLDERS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to TeleHub shareholders who, for purposes of
the Income Tax Act (Canada) (the "ITA"), hold their shares of TeleHub common
stock and will hold their shares of WAW common stock as capital property, and
deal at arm's length with TeleHub and WAW. This summary does not apply to a
holder with respect to whom WAW is a foreign affiliate within the meaning of the
ITA.
Shares of TeleHub common stock will generally be considered to be
capital property to a holder unless the holder holds them in the course of
carrying on a business or acquired them in a transaction or transactions
considered to be an adventure in the nature of trade. Certain holders resident
in Canada whose shares might not otherwise qualify as capital property may be
able to qualify them as such by making the irrevocable election permitted by
subsection 39(4) of the ITA.
This summary is based upon the current provisions of the ITA, the
regulations thereunder, the Canada-United States Income Tax Convention (1980)
(the "Convention"), the third Protocol amending the Convention signed March
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17, 1995 (the "Protocol") and TeleHub's counsel's understanding of the current
published administrative and assessing practices of Revenue Canada. This summary
also takes into account all specific proposals to amend the ITA and regulations
publicly announced by the Department of Finance of Canada prior to the date
hereof (the "Proposed Amendments"). No assurance can be given that the Proposed
Amendments will be enacted or will be enacted as tabled or announced. This
summary does not otherwise take into account or anticipate any changes in law,
whether by judicial, governmental or legislative decision or action, nor does it
take into account provincial, territorial or foreign tax legislation or
considerations which may differ significantly from those discussed herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR TELEHUB
SHAREHOLDER. ACCORDINGLY, TELEHUB SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS FOR ADVICE WITH RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES. IN
PARTICULAR, HOLDERS THAT ARE SUBJECT TO THE "MARK-TO-MARKET" RULES ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS IN RESPECT OF THE INCOME TAX CONSEQUENCES TO THEM
OF THE TRANSACTION, AS THE FOLLOWING DISCUSSION DOES NOT APPLY TO SUCH HOLDERS.
NO ADVANCE TAX RULING HAS BEEN OBTAINED FROM REVENUE CANADA TO CONFIRM THE TAX
CONSEQUENCES OF ANY OF THE TRANSACTIONS DESCRIBED HEREIN.
For purposes of the ITA, all amounts relating to the acquisition of
shares of WAW common stock must be converted into Canadian dollars based on the
prevailing United States dollar exchange rate at the time such amounts arise.
The following discussion assumes that the shares of WAW common stock received by
holders of TeleHub common stock will have a fair market value at least equal to
that of their shares of TeleHub common stock. The disposition of a share of
TeleHub common stock by a holder will result in a capital gain equal to the
amount by which the proceeds of disposition, net of any reasonable costs of
disposition, exceed the adjusted cost base to the holder of the share of TeleHub
common stock.
RESIDENTS OF CANADA. A holder of TeleHub common stock who is a resident
of Canada will be required to include three-quarters of the amount of the
capital gain (a "taxable capital gain") resulting from the disposition of shares
of TeleHub common stock in the Transaction in his or her income for the taxation
year in which the taxable capital gain arises. Where the holder is an
individual, a capital gain may give rise to alternative minimum tax under the
ITA. Where the holder is a "Canadian-controlled private corporation" (as defined
in the ITA) throughout the relevant taxation year, such holder may be liable to
pay an additional refundable tax of 6-2/3% on its "aggregate investment income"
for the year, which is defined to include an amount in respect of taxable
capital gains.
RESIDENTS OF THE UNITED STATES. Generally, shares of TeleHub common
stock held by a shareholder who is a non-resident or is deemed to be a
non-resident of Canada, has never been a resident of Canada for the purposes of
the ITA and is a resident of the United States for purposes of the Convention
will be taxable Canadian property. Such holders will be subject to tax under the
ITA on the disposition of their shares of TeleHub common stock in the
Transaction to the extent of the resulting capital gain. The applicable tax may
be eliminated by the Convention.
NON-CANADIAN AND NON-U.S. RESIDENTS. For holders of TeleHub common
stock who are not residents of either Canada or the United States, the Canadian
tax consequences may be materially different from those described above. Such
holders should consult their own tax advisors.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF WAW
The following selected historical financial data have been derived from
the financial statements of the Company. The data as of and for the fiscal year
ended January 31, 1998 are derived from the financial statements of the Company
audited by Kirkland, Russ, Murphy & Tapp, independent public accountants, whose
report with respect to the fiscal year ended January 31, 1998 is included
elsewhere in this Proxy Statement/Prospectus. The data as of and for the fiscal
year ended February 1, 1997 are derived from the financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants, whose
report with respect to the fiscal year ended February 1, 1997 is included
elsewhere in this Proxy Statement/Prospectus. The following data should be read
in conjunction with the Company's financial statements and related notes,
"Management's Discussion and Analysis or Plan of Operation of WAW," and the
other financial information included elsewhere in this Proxy
Statement/Prospectus. Results for the interim period are not necessarily
indicative of results for the full year.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
----------------------------- ---------------------------
JANUARY 31, FEBRUARY 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Continuing operations:
Loss from continuing operations $ (214,904) $ (223,736) $ (71,143) $ (165,672)
Discontinued operations:
Loss from discontinued operations (508,186) (2,304,875) - 0 - (487,048)
Loss on disposal of assets and adjustment
to net realizable value of accounts
payable and capital lease obligations (393,741) - 0 - - 0 - (393,741)
----------- ----------- --------- -----------
Net loss $(1,116,831) $(2,528,611) $ (71,143) $(1,046,461)
=========== =========== ========= ===========
Net loss from continuing operations per weighted
average common and common equivalent share -
basic and diluted $ (.10) $ (.10) $ (.03) $ (.08)
Net loss from discontinued operations per
weighted average common and common equivalent
share - basic and diluted (.24) (1.09) N/A (.23)
Net loss on disposal of assets and adjustment to net
realizable value of accounts payable and capital
lease obligations per weighted average common
and common equivalent share - basic and diluted (.19) -- N/A (.19)
----------- ----------- --------- -----------
Net loss per weighted average common and
common equivalent share - basic and diluted $ (.53) $ (1.19) $ (.03) $ (.49)
=========== =========== ========= ===========
Weighted average common and common equivalent
shares outstanding - basic and diluted 2,118,125 2,118,125 2,118,125 2,118,125
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $45,118 $(26,749)
Property and equipment, net............... 2,500 1,375
Total assets.............................. 140,086 17,268
Capital lease obligations................. 1,849 - 0 -
Accumulated deficit....................... (4,514,194) (4,585,337)
Total stockholder's equity................ 45,769 (25,374)
</TABLE>
- ----------
(1) As a result of the Sale in May 1997, the results of WAW for all years
presented are reported under discontinued operations. For purposes of
accounting for the Sale and the resulting presentation as discontinued
operations, WAW has treated all activity which related to the support and
operation of WAW's specialty retail operations as discontinued operations,
and has restated the Fiscal 1996 results to create comparable periods. The
primary components of discontinued operations include net sales, cost of
sales, selling expenses, general and administrative expenses (i.e.,
expenses that ceased in conjunction with the Sale which had related to the
support and operation of WAW's specialty retail business), loss on
impairment, interest and other income and interest expense.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION OF WAW
GENERAL
The following discussion and analysis should be read in conjunction
with WAW's financial statements and the notes thereto included elsewhere in this
Proxy Statement/Prospectus. References in this Proxy Statement/Prospectus to
fiscal 1996, fiscal 1997 and fiscal 1998 relate to the fiscal years ended
February 1, 1997, January 31, 1998 and January 30, 1999.
The Company was incorporated in Delaware in July 1993 and, until the
Sale in May 1997, operated as a mall-based specialty retailer of a wide
assortment of products which targeted customers having an active interest in
nature, the environment, education, wildlife, the outdoors and science. The
merchandise offered by the Company included outdoor and garden merchandise,
recorded nature music, videotapes, statuary, telescopes, books, games and
puzzles and apparel, all of which emphasized nature, environmental, scientific
and/or educational themes. The Company opened its first permanent store in
August 1993 and, until the Sale, operated twelve permanent stores. All of the
Company's permanent stores were in operation for over one year. The Company also
operated thirteen temporary holiday stores in Florida, Georgia and South
Carolina during the 1996 Christmas selling season.
However, due to significant losses, continuing working capital deficits
and the inability of WAW to meet ongoing capital requirements, the Board of
Directors of the Company determined that it would be in the best interest of the
Company and its stockholders to sell substantially all of the Company's assets.
At a special meeting of the Company's stockholders held on May 22, 1997, the
Company's stockholders approved the Sale, providing for the sale of
substantially all of the operating assets of the Company to Natural Wonders,
Inc. Pursuant to the terms of the Asset Purchase Agreement, dated as of March 7,
1997, between the Company and Natural Wonders, Natural Wonders purchased all of
the Company's operating assets for a purchase price of $517,795 and assumed
specified liabilities of the Company, including, among others, liabilities
relating to all of the Company's store leases. In conjunction with the asset
purchase agreement with Natural Wonders and in order to immediately implement
the benefits of such agreement (and to reduce operating losses which were
continuing to be incurred by the Company), the Company and Natural Wonders
entered into an agreement, effective March 10, 1997 through the closing of the
asset purchase agreement, pursuant to which Natural Wonders began to operate the
Company's specialty retail gift business.
The consummation of the Sale terminated the Company's specialty retail
operations; therefore, the Company presently has no operating business. If the
Transaction is not consummated, the Company intends to look for acquisition
candidates for a new business for the Company. Accordingly, the Company has a
limited operating history upon which an evaluation of its performance and
prospects can be made.
The Company used part of the net cash proceeds from the Sale to repay
certain debt, to fund transactional expenses incurred in connection with the
Sale and to pay ongoing general and administrative costs. The Company has also
used some of the net proceeds, together with funds received for the TeleHub
Option, for general corporate purposes and for costs related to the Transaction.
As a result of the Sale and subsequent disposal of assets in conjunction with
the Sale, for accounting purposes, during the thirteen weeks ended May 2, 1997
(the "First Quarter of Fiscal 1997"), the Company recognized $517,795 in cash
and wrote down inventory by $1,009,000, fixed assets by $853,348, store supplies
(other current assets) by $47,516 and organizational costs (other assets) by
$12,994. The Company also reversed $731,652 of deferred rent liability that
related to the leases that were assigned pursuant to the terms of the Sale
Agreement. The Sale resulted in a loss from disposal of assets of $673,411.
Subsequently, during the second quarter of fiscal 1997, the Company recorded a
change in the estimate of its accounts payable balance to better reflect the
realizable value related to the
33
<PAGE>
disposal of assets as a result of the Company's having negotiated debt
concessions with substantially all of its vendors and a lessor, resulting in a
gain on disposal of assets for the second quarter of fiscal 1997 of $279,670.
The gain on disposal of assets for the second quarter of fiscal 1997 was a
one-time, non-recurring revaluation and similar results and adjustments can not
be expected to recur. The total loss on disposal of assets for the twenty-six
weeks ended August 2, 1997 was $393,741. There was no additional activity
regarding discontinued operations for the third or fourth quarters of fiscal
1997. Under the accounting rules governing discontinued operations, which
considers all operations as discontinued operations following the decision of
the Company's Board of Directors to discontinue the Company's specialty retail
operation, the Company incurred a loss on discontinued operations, including the
aforementioned loss on disposal of assets and adjustment to net realizable value
of accounts payable and capital lease obligations, for the year ended January
31, 1998 of $901,927.
Each of fiscal 1997 and fiscal 1996 included 52 weeks of operations.
The Company did not operate any stores at January 31, 1998 due to the Sale, but
operated twelve stores for the period February 2, 1997 through May 23, 1997, the
date of the Sale. The stores were operated under the Company's management
agreement with Natural Wonders for the period of March 10, 1997 through May 23,
1997. The Company operated twelve stores at February 1, 1997 and throughout
fiscal 1996.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
CONTINUING OPERATIONS. General and administrative expenses ("G&A")
decreased to approximately $215,000 for the 52 weeks of fiscal 1997 from
approximately $224,000 for the 52 weeks of fiscal 1996 (as restated). The
primary components of G&A are miscellaneous corporate overhead expenses,
including insurance, transfer agent and printing fees, professional fees and
wages (including fringe). The decrease in G&A for fiscal 1997 as compared to the
restated amounts for fiscal 1996 was, for the most part, the result of the
reduction of expenses following the Sale.
DISCONTINUED OPERATIONS. For purposes of accounting for the Sale and
the resulting presentation as discontinued operations, the Company has treated
all activity which related to the support and operation of the Company's
specialty retail operation as discontinued operations, including restating the
fiscal 1996 results to create comparable periods. The loss from discontinued
operations was approximately $508,000 for the 52 weeks of fiscal 1997 as
compared to approximately $2,305,000 for the restated 52 weeks of fiscal 1996.
The primary components of discontinued operations include net sales, cost of
sales, selling expenses, general and administrative expenses (I.E., expenses
that ceased in conjunction with the Sale which had related to the support and
operation of the Company's specialty retail business), loss on impairment,
interest and other income and interest expense. The reductions in discontinued
operations for the comparable fiscal years were, for the most part, the result
of the reduction of activity as a result of the Sale of the Company, which had
resulted in losses throughout fiscal 1996 and fiscal 1997.
The Company also recorded a loss on the Sale transaction and writedown
to the net realizable value of certain accounts payable and capital lease
obligations of approximately $394,000 for fiscal 1997 as compared to $0 for
fiscal 1996.
Net loss of approximately $1,117,000 was recorded for fiscal 1997 as
compared to a net loss of approximately $2,529,000 recorded for fiscal 1996. The
decrease in net loss is primarily a result of the Company's discontinuing its
specialty retail operations.
34
<PAGE>
THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 COMPARED TO THE THIRTEEN
AND THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997
CONTINUING OPERATIONS. G&A expenses decreased to approximately $34,000
for the third quarter of fiscal 1998 from approximately $45,000 for the third
quarter of fiscal 1997. The Company's G&A expenses decreased to approximately
$71,000 for the thirty-nine weeks ended October 31, 1998 from approximately
$166,000 for the thirty-nine weeks ended November 1, 1997. The decrease in G&A
is the result of the reduction of expenses following the Sale.
DISCONTINUED OPERATIONS. For purposes of accounting for the Sale and
the resulting presentation as discontinued operations, including restating the
prior comparable periods, the Company is treating all activity which related to
the support and operation of the Company's specialty retail operation as
discontinued operations. The loss from discontinued operations was $0 in the
third quarter of fiscal 1998 and $0 in the thirty-nine weeks ended October 31,
1998 as compared to $0 for the third quarter of fiscal 1997 and $487,000 for the
thirty-nine weeks ended November 1, 1997. The primary components of discontinued
operations include net sales, cost of sales, selling expenses, certain general
and administrative expenses (expenses that ceased in conjunction with the Sale
which had related to the support and operation of the Company's specialty retail
business), interest and other income, and interest expense. Consummation of the
Sale terminated the Company's specialty retail operations. The Company presently
has no operating business.
The Company had no activity in regard to the disposal of assets and
adjustment to net realizable value of accounts payable and capital lease
obligations in the third quarter of fiscal 1998 and the thirty-nine weeks ended
October 31, 1998. The Company also had no activity in regard of the disposal of
assets and adjustment to net realizable value of accounts payable and capital
lease obligations in the third quarter of fiscal 1997 but incurred a loss for
the thirty-nine weeks ended November 1, 1997 of approximately ($394,000).
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary ongoing capital
requirements are anticipated to be for funding its limited operations and, in
the event the Transaction is not consummated, exploring any opportunities to
effect an acquisition, whether by merger, exchange of capital stock or other
business combination. There can be no assurance that any such transaction will
be effected. In view of the limited resources of the Company, consideration may
be given to additional equity or debt placement to fund merger and acquisition
activities as well as to fund working capital for general corporate purposes
that might be required to effectuate the Company's business objective.
The Company had working capital of approximately $(27,000) and $45,000
at October 31, 1998 and January 31, 1998. In order to fund its capital and
operating requirements, the Company had in the past been primarily dependent (i)
on cash proceeds received from loans from certain members of the Board of
Directors, from the Company's initial public offering in November 1994 and
before that from sales of equity securities to David B. Cornstein, the Company's
Chairman of the Board of Directors, David F. Miller, a former President of the
Company, and Edward J. Munley, also a former President of the Company, each of
whom is a director and founder of the Company, and (ii) on loans from others.
The Company has used cash proceeds from the Sale to repay debt and, together
with funds received for the TeleHub Option, to fund transactional expenses and
pay ongoing general and administrative costs. The Company will use the remainder
of such proceeds to finance its losses from its remaining limited operations.
During the first thirty-nine weeks of fiscal 1998, cash decreased by
approximately $118,000 to approximately $13,000. The overall decrease in cash
resulted primarily from the Company's paying ongoing general and administrative
costs, repayment of debt, and the loss of the Company's main source of cash flow
as a result of the Company's discontinuing its retail operations. The Company
repaid approximately $1,000 in indebtedness during the period.
35
<PAGE>
During the first thirty-nine weeks of fiscal 1997, cash decreased by
approximately $1,294,000 to approximately $62,000. The overall decrease in cash
resulted primarily from the Company's repayment of debt and its satisfaction of
a majority of its liabilities following the receipt of the proceeds of the Sale.
The Company repaid approximately $156,000 in indebtedness during the period.
The Company currently does not maintain any lines of credit or cash
borrowings to finance its reduced capital requirements. Upon payment of
primarily all the Company's capital lease obligations, the Company terminated,
in November 1997, its $100,000 letter-of-credit which had served as collateral
for said obligations.
During the first thirty-nine weeks of fiscal 1998, the Company did not
maintain any inventories as a result of the Company's having discontinued its
retail operations in the second quarter of 1997.
During the first thirty-nine weeks of fiscal 1997, the Company's
inventories decreased to $0 from approximately $1,207,000 at February 1, 1997.
The decrease was primarily a result of the Company's discontinuing its retail
operations in the second quarter of fiscal 1997.
The Company has used and expects to continue to use, to the extent
available, any remaining cash to finance its losses from its remaining limited
operations. The Company is not presently generating any cash flow to support its
current corporate overhead expense and anticipates operating at a loss for
fiscal 1998.
The Company has no current arrangements with respect to, or sources of,
additional financing, and it cannot be anticipated that any of the officers,
directors or stockholders of the Company will provide any portion of the
Company's future financing requirements. Additional financing may not be
available to the Company on commercially reasonable terms, or at all. Any
inability to obtain additional financing could have a materially adverse effect
on the Company, including possibly requiring the Company to significantly
curtail, and possibly causing the Company to cease, its operations. Any equity
financing may involve substantial dilution to the interests of the Company's
then-existing stockholders. Further, even if the Company effectuates a business
combination, the Company may not achieve profitability or positive cash flow.
YEAR 2000 COMPLIANCE. Following the Sale, the Company has utilized only
a small number of computer programs in its limited continued operations. The
Company is working to resolve the potential impact of the year 2000 on the
ability of the Company's computerized information system to accurately process
information that may be date-sensitive. Any of the Company's programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. The Company has not completed its
assessment, but given the limited operations and resources of the Company, the
Company believes that in its current state the costs of addressing this issue
will not have a material adverse effect on the Company's financial position.
However, if the Company and third parties upon which it may rely (or any
acquisition candidate as to which the Company engages in a merger, exchange of
capital stock or other business combination) are unable to address this issue in
a timely manner, it could result in a material financial risk to the Company. In
order to assure that this does not occur, the Company plans to address in a
timely manner any significant year 2000 issues which may arise.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF TELEHUB
The following selected historical financial data have been derived from
the financial statements of the Company. The data as of and for the three-month
period ended October 31, 1998 are derived from the unaudited financial
statements of the Company reviewed by Giroux, Menard et Associes, independent
chartered accountants. The following data should be read in conjunction with
TeleHub's financial statements and notes, "Management's Discussion and Analysis
or Plan of Operation of TeleHub," and the other financial information included
elsewhere in this Proxy Statement/Prospectus. Results for the three-month period
ended October 31, 1998 are not necessarily indicative of results for the full
year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 1998
------------------
($US; UNAUDITED)
<S> <C>
Net sales $ 82,729
Cost of sales 42,559
Income from operations 40,170
Selling, general and administrative expenses 86,345
Net loss (46,175)
Net loss per share $(0.02)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
JULY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
($US) ($US; UNAUDITED)
<S> <C> <C>
Cash $ 94,979 $ 5,304
Working capital 115,213 51,235
Property and equipment, net -0- 186,663
Total assets 115,213 299,686
Long-term debt, less current portion -0- 164,434
Accumulated deficit -0- (46,175)
Total stockholders' equity 115,213 84,038
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION OF TELEHUB
OVERVIEW
TeleHub was incorporated in May 1998 and is currently in the
development stage. Since its inception, TeleHub has been exploring opportunities
in the call center teleservices industry. TeleHub has been marketing its
services and forming relationships with individuals and organizations in the
teleservices industry to develop TeleHub's call center business. While TeleHub
is currently negotiating with several such individuals and organizations, to
date TeleHub has entered into teleservices agreements with only four customers,
including Access One Communication, Inc. ("Access One"), Call Tell U.M.P.G.
("Call Tell"), Corporate Services Telecom, Inc. ("CSTI") and Shared Network
Services ("SNS"). In addition, in October 1998, TeleHub provided teleservices on
a limited basis in connection with a fund raising campaign for Universite de
Montreal; however, no revenues were received by TeleHub in connection with this
campaign. To date, TeleHub has generated revenues of approximately Cdn $185,000
from its operations. TeleHub has also recently secured a lease of premises in
Montreal, Quebec and has acquired furniture and telecommunications and computer
equipment to be used in its call center operations. See "Business of TeleHub -
Customers."
Typical among call center businesses, TeleHub expects that its revenues
from operations will be derived primarily from service fees charged to clients
on an per-call or hourly basis and commissions charged on a per result basis.
TeleHub believes that future revenues from operations will be dependent upon its
ability to: install and effectively implement its recently acquired
telecommunications and computer equipment; begin work on and successfully
perform under its existing agreements and any other commitments; develop or
enter into further arrangements for the provision by TeleHub of teleservices and
successfully perform under such arrangements; hire necessary call center
representatives to perform teleservices under these contracts and achieve full
scale operation of its call center in Montreal. To date, TeleHub has generated
revenues of approximately Cdn $185,000 from its operations.
TeleHub expects that its cost of services will consist primarily of
employee compensation and telephone charges and that TeleHub's selling, general
and administrative expenses will primarily consist of expenses that directly
support the operation of a call center, including management fees, facilities
costs, equipment depreciation and maintenance expenses, sales and marketing
expenses, expenses associated with accounting, finance, human resources and
information services, and outside accounting and legal fees and expenses.
TeleHub has incurred substantial up-front capital expenditures and will
incur significant operating costs in connection with the initial launch and
development of its call center business, which TeleHub anticipates will result
in significant losses at least until the end of January 1999.
RESULTS OF OPERATIONS
For the period from TeleHub's incorporation in May 1998 to September
30, 1998, TeleHub did not actively carry on business as a call center. During
this period, TeleHub had no revenues and had a net loss of Cdn $37,300. Expenses
consisted primarily of consulting fees and salaries paid to TeleHub management.
Since September 30, 1998, TeleHub has earned revenues of approximately Cdn
$185,000 and, as described below, has applied approximately Cdn $236,000 of a
Cdn $308,213 loan from AT&T Canada Long Distance Services Company to acquire
furniture and telecommunications and computer equipment to be used in its call
center operations.
38
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
TeleHub has financed its initial working capital and capital
expenditure requirements from private sales of its securities and from loans
from third parties. In May 1998, TeleHub issued an aggregate of 2,134,795 shares
of TeleHub common stock to the former shareholders of SNTQ, each of whom was
offered the opportunity to purchase one share of TeleHub common stock at a price
per share equal to $0.0001 for each share of common stock such person had
previously held in SNTQ. The May 1998 issuance resulted in total proceeds to
TeleHub of $213.48. In connection with this initial issuance of its common
stock, TeleHub issued 66,929 shares of common stock to David Cornstein, the
Chairman of the Board of WAW, and 18,461 shares of common stock to David F.
Miller, a director and the former President of WAW. During the period from May
15 through August 1, 1998, TeleHub issued an additional 460,000 shares of common
stock at a price per share of $0.25 for proceeds of $115,000, including 180,000
shares of common stock issued to Mr. Cornstein's son. In September 1998, TeleHub
issued 60,000 shares of common stock at a price per share of $0.25 per share for
proceeds of $15,000. In November 1998, TeleHub issued 500,000 shares of common
stock at a price per share of $0.25 for proceeds of $125,000, including 100,000
shares issued to Mr. Cornstein's son. See "The Transaction--Background."
In November 1998, TeleHub secured a loan of Cdn $308,213 from AT&T
Canada Long Distance Services Company ("AT&T"). This loan is to be repaid by
TeleHub through a surcharge of Cdn $0.0345 per minute placed on the long
distance services it obtains from AT&T. The amount of the surcharge is based on
a minimum of approximately 226,537 minutes of long distance usage per month. Of
the total principal amount of the AT&T loan, approximately Cdn $236,000 was paid
by AT&T directly to third party suppliers for telecommunications and computer
equipment for use at TeleHub's call center in Montreal, including a predictive
dialer, a telephone switch for automated call distribution, a local area network
server, 30 personal computers, furniture and call center stations. The balance
of the principal amount of the loan was advanced to TeleHub. In connection with
this small business loan, TeleHub has granted to AT&T a security interest in the
furniture and telecommunications and computer equipment purchased through the
AT&T loan.
TeleHub is currently negotiating with a Canadian chartered bank for an
additional small business loan of Cdn $50,000; however the terms of this loan
have yet to be finalized and such loan may not be secured on a timely basis or
at all. TeleHub has also filed for federal and provincial sales tax refunds
totaling approximately Cdn $58,000, and currently anticipates that it will
receive Cdn $35,000 of such amount in January 1999 and the balance in March
1999.
In July 1998, TeleHub entered into a memorandum of understanding with
the Societe de Developpement Industriel de Quebec (the "Industrial Development
Corporation"), a division of the government of the Province of Quebec. Pursuant
to this memorandum of understanding, the Industrial Development Corporation will
provide TeleHub with a grant of Cdn $3,000 for each full-time employee hired by
TeleHub, such amounts to be paid between 1999 and 2002 and not to exceed a
maximum of Cdn $480,000. The memorandum of understanding provides that Cdn
$2,400 will be deducted from the first grant thereunder, representing payment in
the amount of 0.5% of the maximum amount payable under the memorandum of
understanding for federal and provincial taxes. This government program does not
provide compensation with respect to temporary or part-time employees.
TeleHub anticipates that over the next 12 months it will need to hire a
significant number of call center representatives to perform inbound and
outbound teleservices under contracts TeleHub may secure. The number of these
call center representatives actually hired by TeleHub will vary depending on the
business TeleHub is able to generate. In November 1998, TeleHub hired 19
temporary call center representatives to perform services under its current
teleservices contracts. In addition, TeleHub also hired three full-time
administrative personnel in November 1998. Unless and until any long term
teleservices arrangements or consistent levels of
39
<PAGE>
business are secured by TeleHub, TeleHub plans to continue to hire its call
center representatives as temporary employees who will be contracted as required
by TeleHub's volume of business.
At December 1, 1998, TeleHub had cash and cash equivalents of Cdn
$150,000. Given TeleHub's current financial condition, it will be necessary for
TeleHub to generate further revenues from operations prior to the end of
February 1999. TeleHub is actively pursuing outsourced teleservices
opportunities and believes that there is a reasonable likelihood that it will be
able to capitalize on certain of these opportunities, enabling it to generate
additional revenues prior to such time. If, however, TeleHub is unable to secure
and perform under teleservices contracts during this time, it would be required
to obtain additional financing. Such additional financing may not be available
to TeleHub when needed, on commercially reasonable terms or at all. Any
inability to promptly obtain additional financing if required would have a
material adverse effect on TeleHub, requiring it to curtail and possibly cease
its operations.
TeleHub recognizes the need to ensure its operations will not be
adversely impacted by software failures caused by the advent of the Year 2000.
TeleHub management has assessed the predictive dialer technology and switches
acquired to date and expects that the Year 2000 issue does not apply to such
equipment due to the absence of date fields or that the advent of the Year 2000
will have a minimal if any effect on such equipment. Further TeleHub intends to
use standard desktop applications for word processing and other general purposes
as well as "off the shelf" computer programs for accounting purposes and does
not anticipate that these programs will be significantly affected by the advent
of the Year 2000. TeleHub intends to seek assurances from it program suppliers
and independently assess acquired computer programs regarding the Year 2000
computer risks. Notwithstanding such activities, there can be no assurance that
such systems of other companies on which TeleHub relies will not be adversely
impacted by software failure caused by the advent of the Year 2000.
40
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
WAW
The following table sets forth, for the periods indicated, the range of
high and low closing bid and asked prices for WAW common stock. Through January
31, 1997, the shares of WAW common stock traded on the Nasdaq SmallCap Market
under the symbol "WHAT". Thereafter, the Company's common stock traded under the
same symbol on the bulletin board system maintained by the National Association
of Securities Dealers ("NASD") or in the over-the-counter "pink sheets".
<TABLE>
<CAPTION>
CLOSING BID CLOSING ASK
---------------------- ----------------------
FISCAL YEAR ENDED FEBRUARY 1, 1997 HIGH LOW HIGH LOW
- ---------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (February 4 through May 4, 1996) $1.625 $0.75 $1.75 $1.25
Second Quarter (May 5 through August 3, 1996) $1.625 $0.50 $2.00 $0.75
Third Quarter (August 4 through November 2, 1996) $1.00 $1.00 $1.125 $1.00
Fourth Quarter (November 3, 1996 through February 1, 1997) $1.4375 $0.6875 $1.4375 $0.6875
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1998 HIGH LOW HIGH LOW
- ---------------------------------- ---- --- ---- ---
First Quarter (February 2 through May 2, 1997) $0.2188 $0.0625 $0.5313 $0.4375
Second Quarter (May 3 through August 2, 1997) $0.18 $0.0156 $0.50 $0.0938
Third Quarter (August 3 through November 1, 1997) $1.125 $0.18 $1.50 $0.375
Fourth Quarter (November 2, 1997 through January 31, 1998) $0.75 0 $0.25 $1.25 $0.4375
<CAPTION>
FISCAL YEAR ENDED JANUARY 30, 1999 HIGH LOW HIGH LOW
- ---------------------------------- --- --- ---- ---
First Quarter (February 1 through May 2, 1998) $0.375 $0.25 $0.625 $0.375
Second Quarter (May 3 through August 1, 1998) $0.3125 $0.25 $0.50 $0.375
Third Quarter (August 2 through November 1, 1998) $0.3125 $0.1563 $0.4063 $0.2813
Fourth Quarter (November 2, 1997 through December 1, 1998) $0.25 $0.1563 $0.50 $0.2813
</TABLE>
On December 18, 1998, the last full trading day prior to the public
announcement of the Transaction, the last reported (closing) sale price of WAW
common stock on the NASD bulletin board or in the over-the-counter "pink sheets"
was $0.3125 bid and $0.59375 asked per share. On _________, 1999, the last
reported (closing) sale price of WAW Common Stock on the NASD bulletin board or
in the over-the-counter "pink sheets" was $______ bid and $______ asked per
share. The prices set forth above reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions and were provided by consultation with the NASD composite feed or
other qualified quotation medium.
The Company experienced during 1996 a substantial decline in the price
of the WAW common stock. The market price fell to a point that precluded the
Company from continuing its listing on Nasdaq. As the Company was unable to
demonstrate, by the date specified by Nasdaq, compliance with Nasdaq's listing
requirements, Nasdaq issued a formal notice of deficiency for the Company's
securities in January 1997. Since such delisting, shares of WAW common stock, to
the extent traded, have traded on the NASD bulletin board and in the
over-the-counter "pink sheets." Accordingly, as a result of such delisting, an
investor may find it more difficult to dispose of, or obtain accurate quotations
as to the market value of, the Company's securities. Delisting of the Company's
securities may also result in lower prices for the Company's securities than
might otherwise prevail.
41
<PAGE>
In addition, once the WAW common stock was delisted from trading on
Nasdaq and the trading price of WAW common stock remained below $5.00 per share,
trading in WAW common stock also became subject to certain rules promulgated
under the Exchange Act which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a "penny stock"
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock market transaction, of a disclosure schedule
explaining the penny stock market and its associated risks, and impose various
sales practice requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealers must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burden imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Company's securities, which
could materially adversely affect the market price and liquidity of the
Company's securities and the ability of securityholders to sell the Company's
securities in the secondary market as well as the Company's ability to obtain
additional financing.
To date, the Company has not paid any cash dividends. Any determination
to pay dividends in the future will be at the discretion of the Company's Board
of Directors. The Board's determination whether to pay dividends will depend
upon the Company's earnings, if any, financial condition and capital
requirements as well as other relevant factors. The Board of Directors does not
intend to declare dividends in the foreseeable future, but instead intends to
retain earnings, if any, for use in the Company's business operations. See
"Description of WAW Capital Stock."
As of December 15, 1998, as reported by the Company's transfer agent,
shares were held by approximately fifteen persons based on the number of record
holders, including at least one of which is a nominee for an undetermined number
of beneficial owners.
TELEHUB
TeleHub is a private company under the laws of the Province of Ontario,
Canada and, accordingly, the capital stock of TeleHub is not traded on an
established public trading market. As of November 30, 1998, there were 3,154,795
shares of TeleHub common stock issued and outstanding held by 54 holders of
record and, as of such date, the book value per share of TeleHub common stock
was $0.0809. TeleHub has not paid or declared any cash dividends on TeleHub
common stock since its formation.
42
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1998, as adjusted to give effect to the Transaction and the proposed
amendment to the Company's Certificate of Incorporation. This table should be
read in conjunction with the other financial information appearing elsewhere in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1998
-----------------------------
PRO
ACTUAL FORMA
----------- -----------
<S> <C> <C>
Short-term debt $ -0- $ -0-
=========== ===========
Long-term debt $ 2,242 $ 202,005
----------- -----------
Stockholders' equity:
Common stock, $.01 par value, 10,000,000
shares authorized, 2,118,125 shares issued
and outstanding at October 31, 1998;
50,000,000 shares authorized, 15,129,464
shares issued and outstanding after the
consummation of the Transaction (1)(2) 21,181 151,295(1)(2)
Additional paid-in capital 4,538,782 78,544(1)(2)
Deficit (4,585,337) (46,175)
----------- -----------
Total stockholders' equity (deficit) (25,374) 183,664
----------- -----------
Total capitalization $ (23,132) $ 385,669
=========== ===========
</TABLE>
- ----------
(1) Gives effect to the issuance of 500,000 shares of TeleHub common stock at
$0.25 per share in November 1998.
(2) Gives effect to the issuance of 13,011,339 shares of the Company's common
stock in the Transaction in exchange for all of the issued and outstanding
shares of TeleHub common stock.
43
<PAGE>
BUSINESS OF WAW
GENERAL
WAW was incorporated in Delaware in July 1993 and, until the Sale in
May 1997, operated as a mall-based specialty retailer of a wide assortment of
products which targeted customers having an active interest in nature, the
environment, education, wildlife, the outdoors and science. Under the terms of
the Sale, Natural Wonders, Inc. paid the Company $500,000, subject to specified
adjustments, in return for substantially all the operating assets of the Company
and assumed specified liabilities of the Company, including liabilities relating
to all the store leases. As a result of the Sale and the subsequent disposal of
assets in conjunction with the Sale, for accounting purposes, during the first
quarter of fiscal 1997, the Company recognized $517,795 in cash and wrote down
inventory by $1,009,000, fixed assets by $853,348, store supplies (other current
assets) by $47,516, and organizational costs (other assets) by $12,994. The
Company also reversed $731,652 of deferred rent liability that related to the
leases that were assigned to Natural Wonders. The Sale resulted in a loss from
disposal of assets of $673,411. Subsequently, during the second quarter of
fiscal 1997, the Company recorded a change in the estimate of its accounts
payable balance to better reflect the realizable value related to discontinued
operations as a result of the Company's having negotiated debt concessions with
substantially all of its vendors and a lessor, resulting in a gain on disposal
of assets for the second quarter of fiscal 1997 of $279,670. The gain on
disposal of assets for the second quarter of fiscal 1997 was a one time,
non-recurring revaluation and similar results and adjustments are not expected
to recur. The total loss on disposal of assets for the twenty-six weeks ended
August 2, 1997 was $393,741. There was no additional activity regarding disposal
of assets and adjustment to net realizable value of accounts payable and capital
lease obligations for the third or fourth quarters of fiscal 1997. Under the
accounting rules governing discontinued operations, which considers all
operations as discontinued operations following the decision of the Company's
Board of Directors to discontinue the Company's specialty retail operation, the
Company incurred a loss on discontinued operations, including the aforementioned
loss on disposal of assets and adjustment to net realizable value of accounts
payable and capital lease obligations for the year ended January 31, 1998 of
$901,927.
The assets transferred to Natural Wonders included all good and salable
inventory of the Company, fixed assets and tangible personal property located at
each of the Company's retail store locations and the Company's warehouse
(including store fixtures, furniture, lighting fixtures, and all store
supplies), intangible personal property (including deposits and prepaid
expenses, vendor lists, customer lists, customer files, customer records,
licenses and permits which could be transferred under regulatory agency rules)
and contract rights relating to the operation and maintenance of retail store
locations. Assets not included in the sale to Natural Wonders were cash, a
certificate of deposit, a portion of the Company's inventory and other
miscellaneous property, including its corporate office and distribution center.
Liabilities assumed by Natural Wonders included certain obligations of the
Company under its store leases, including all liabilities under the store leases
arising on or after the sale closing date, regardless of whether or not the
Company was able to obtain the requisite consent to assignment of any one or
more of the store leases. Liabilities not assumed by Natural Wonders included,
among other liabilities, accounts payable accrued prior to (but unpaid as of)
March 10, 1997, expenses, long term debt, computer equipment lease, specified
severance obligations and other minor liabilities.
The asset purchase agreement between the Company and Natural Wonders
contained various representations and warranties of the Company including, among
others, representations and warranties related to organization and similar
corporate matters; authorization, performance, enforceability and related
matters; requisite consents; the accuracy of financial statements and other
financial information provided to Natural Wonders; undisclosed liabilities;
taxes; litigation; ownership, condition and title to assets and properties;
inventories; personal property; contracts; real property; warranties and
guarantees; personnel; employee benefit
44
<PAGE>
plans; absence of certain changes; compliance with applicable laws and
environmental matters; licenses and permits; insurance; absence of brokers;
employee and labor relations; corporate names and proprietary rights; and the
disclosure in the agreement regarding representations and warranties of the
Company. The asset purchase agreement also contained various representations and
warranties of Natural Wonders including, among others, representations and
warranties related to organization and similar corporate matters; authorization,
performance, enforceability and related matters; requisite consents and absence
of brokers. The representations and warranties survive the Sale closing for a
period of two years from the Sale closing date or until expiration of the
applicable statutes of limitations in respect of tax matters and litigation.
With respect to Natural Wonders' assumption of the liabilities, such obligations
survive for so long as there remain outstanding obligations under any of the
assumed liabilities.
Pursuant to the asset purchase agreement, the Company agreed to
indemnify Natural Wonders from and against damages arising out of or based upon
(i) the breach by the Company of any representation or warranty made by the
Company pursuant to the Sale Agreement; (ii) the non-performance of any covenant
made by it pursuant to the agreement; (iii) any activities of the Company prior
to the Sale closing; (iv) liabilities under any employee benefit plans of the
Company; (v) any claims for brokers' fees; (v) any liabilities arising from the
failure to comply with applicable bulk transfer laws; and (vii) any other
liabilities of the Company not assumed by Natural Wonders. In addition, Natural
Wonders agreed to indemnify the Company from and against damages arising out of
or based upon (i) the breach by Natural Wonders of any representation or
warranty made by Natural Wonders pursuant to the agreement; (ii) any claims for
brokers' fees; (iii) the non-performance of any covenant made by it pursuant to
the agreement; or (iv) the failure to satisfy any of the assumed liabilities.
Pursuant to the agreement, neither party shall be obligated to indemnify the
other thereunder unless and until the aggregate amount of the other party's
damages exceeds $10,000.
The description contained in this Proxy Statement/Prospectus of the
Sale transaction is qualified by reference to the agreements included as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
forms a part.
Consummation of the Sale terminated the Company's specialty retail
operations. The Company presently has no operating business and has been seeking
acquisition candidates for a new business for the Company. Accordingly, the
Company has a limited operating history upon which an evaluation of its
performance and prospects can be made.
The Company has used cash proceeds from the Sale to repay debt, fund
transactional expenses, and pay ongoing general and administrative costs. The
Company intends to use the remainder of the net proceeds for general corporate
purposes.
BUSINESS OF POST-SALE WAW
Since the Sale, the Company has been seeking to serve as a vehicle to
effect acquisition of an operating business, whether by merger, exchange of
capital stock, acquisition of assets or other similar business combination. The
objective of the Company since the Sale has been to effect a business
combination with an operating business which the Company believes has
significant growth potential. The Company currently intends to seek to utilize
cash, equity, debt or a combination thereof in effecting a business combination.
While the Company may, under certain circumstances, explore possible business
combinations with more than one prospective target business, in all likelihood,
until other financing provides additional funds, or the Company matures, the
Company may be able to effect only a single business combination, such as the
Transaction, in accordance with its business objectives, although no such
transaction may ever be completed.
45
<PAGE>
Other than the Share Purchase Agreement, the Company has not, since the
Sale, entered into any agreements with any potential businesses regarding a
business combination. It is possible that the Transaction may never be
consummated or that future discussions with other potential acquired businesses
may not result in definitive agreements, although it is the Company's intention
to proceed diligently with its business plan.
BUSINESS OF PRE-SALE WAW
Until May 1997, the Company operated as a mall-based specialty retailer
of a wide assortment of products which targeted customers having an active
interest in nature, the environment, education, wildlife, the outdoors and
science. The merchandise offered by the Company included outdoor and garden
merchandise, recorded nature music, videotapes, statuary, telescopes, books,
games and puzzles and apparel, all of which emphasized nature, environmental,
scientific and/or educational themes. In May 1997, pursuant to the Sale
Agreement between the Company and Natural Wonders, the Company sold
substantially all of its assets to Natural Wonders for an aggregate cash
consideration of $517,795 plus the assumption by Natural Wonders of specified
liabilities. In conjunction with the asset purchase agreement with Natural
Wonders and in order to immediately implement the benefits of such agreement
(and to reduce operating losses which were continuing to be incurred by the
Company), the Company and Natural Wonders entered into a management agreement,
effective March 10, 1997 through the closing of the Sale Agreement, pursuant to
which the Buyer operated the Company's specialty retail gift business.
The Company opened its first store in August 1993 and, until the Sale,
operated twelve stores, which were located in major regional malls in Florida
(Bradenton, Clearwater, Jacksonville, Jensen Beach, Miami (two), Ocala, Orlando,
Tallahassee and Tampa), New York (Staten Island) and New Jersey (Eatontown). In
addition, the Company operated thirteen temporary holiday outlets in Florida,
Georgia and South Carolina during the 1996 Christmas selling season.
BUSINESS STRATEGY. Prior to the Sale, the Company's strategy had been
to provide an interactive, unique gift store environment which generated a sense
of discovery for its customers. All of the Company's stores operated for the
period February 2, 1997 through May 22, 1997 (the date of the Sale to Natural
Wonders). Each store typically stocked over 3,000 different items and offered
products at prices generally ranging from $3 to $500. All categories of
merchandise sold by the Company emphasized nature, environmental, scientific
and/or educational themes.
STORE OPERATIONS. The Company's stores generally ranged in size from
approximately 2,200 to 3,300 square feet of space, and were open seven days a
week during mall operating hours. Stores were typically staffed with a manager,
an assistant manager and several full-time and part-time sales associates, the
number of which varied depending on store volume. Store management received
compensation in the form of salaries and performance-based bonuses, while sales
associates were paid on an hourly basis plus performance incentives.
PURCHASING AND INVENTORY. The Company purchased merchandise for its
stores from over 250 suppliers, including manufacturers, distributors, craftsmen
and importers. Although particular suppliers may have provided a majority or all
of the Company's requirements for a particular product or category during fiscal
1997, no supplier accounted for more than 5.0% of the Company's total
merchandise purchases during such period. In fiscal 1997, 100% of the Company's
merchandise was purchased from domestic vendors. The Company currently maintains
no working relationship with any of its inventory vendors as all debts of the
Company to these vendors have been satisfied.
PROMOTIONAL ACTIVITIES. Prior to the Sale, the Company did not rely on
advertising to generate sales but, rather, was dependent upon mall traffic to
attract new customers.
46
<PAGE>
COMPETITION. The specialty retail business is characterized by intense
competition. The Company believes that, in the course of conducting its
specialty retail operations prior to the Sale, it competed with various
retailers, including Natural Wonders, The Nature Company, a subsidiary of CML
Group, Inc., and World of Science, Inc., each of which operates numerous nature
and science specialty stores.
PERSONNEL. Pursuant to the asset purchase agreement and the management
agreement with Natural Wonders, a number of employees of the Company were
retained by Natural Wonders and evaluated by Natural Wonders in accordance with
its requirements. A significant portion of employee benefits that had accrued
prior to March 9, 1997 to then-current employees were paid by the Company. Prior
to the Sale, the Company had approximately 39 full-time employees and 50
part-time sales associates. Store management received compensation in the form
of salaries and performance-based bonuses. Sales associates typically were paid
on an hourly basis plus performance incentives. A number of programs were
offered as incentives to both management and sales associates to increase sales,
including various sales contests. None of the Company's employees were covered
by any collective bargaining agreement. The Company currently has one employee,
its Vice President of Finance, who renders his services on a part-time basis to
the Company.
SERVICE MARK
The Company intends to retain its federal service mark registration for
the What A World(R) name and the Company's design and logo. The Company believes
that its service marks have value. However, the Company's marks may not be
upheld if challenged and the Company may be prevented by third parties (other
than Natural Wonders) form using its mark, which could have an adverse effect on
the Company. In addition, the Company is prevented by the asset purchase
agreement with Natural Wonders from using its marks in a retail segment in
competition with Natural Wonders. The Company may not have the financial
resources necessary to enforce or defend its service marks. The Company is not
aware of any claims of infringement or other challenges to the Company's right
to use its marks in the United States.
PROPERTIES
All leases for the twelve permanent stores of the Company have been
assigned to, and assumed by, Natural Wonders in accordance with the asset
purchase agreement, and Natural Wonders agreed as part of such assignment and
assumption to secure necessary consents or modifications from interested parties
and has indemnified the Company with regard to specified matters relating to the
leases. Currently, the Company has received landlord consents with respect to
eleven of the assignments.One landlord does not require consent as long as
financial conditions are met by the assignee, all of which the Company believes
were met by Natural Wonders. Although the Company has received the requisite
landlord consents, the Company remains primarily liable for specified
obligations with respect to the assigned leases in all but one instance
(Monmouth Mall). The store leases, which expire at various times from 2003
through 2005, provide for specified minimum rental payments and contingent
payments based on gross sales exceeding certain levels. The leases also required
the Company to pay the cost of common area maintenance, insurance, taxes and
other expenses.
Prior to the Sale, the Company had leased approximately 4,000 square
feet for its corporate office and distribution center in St. Petersburg, Florida
under a lease which would have expired in 1998; however, the Sale eliminated the
need for this facility and the Company reached an agreement to terminate this
lease and did so at minimal cost to the Company.
47
<PAGE>
LEGAL PROCEEDINGS
The Company is not a party or subject to any legal proceedings, other
than claims and lawsuits arising in the ordinary course of its business. The
Company does not believe that any such claims or lawsuits will have a material
adverse effect on its financial condition or results of operations.
48
<PAGE>
MANAGEMENT OF WAW
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
individuals who are the directors and executive officers of the Company.
NAME AGE POSITION
---- --- --------
David B. Cornstein 60 Chairman of the Board and Director
David F. Miller 68 Secretary and Director
Brian S. Lappin 30 Vice President of Finance and
Chief Financial Officer
Edward J. Munley 66 Director
James Martin Kaplan 53 Director
Hugh H. Jones, Jr. 66 Director
DAVID B. CORNSTEIN, a co-founder of the Company, has been a director of
the Company since its inception and has served as Chairman of the Board since
September 1994. Since May 1993, Mr. Cornstein has served as Chairman of the
Board of Finlay Enterprises, Inc. and has served as a director of Finlay
Enterprises and its wholly-owned subsidiary, Finlay Fine Jewelry Corporation,
since their inception in December 1988. From December 1988 to January 1996, Mr.
Cornstein served as President and Chief Executive Officer of Finlay Enterprises,
and from December 1985 to December 1988, he served as President, Chief Executive
Officer and a director of a predecessor of Finlay Enterprises. Finlay
Enterprises, through its subsidiary Finlay Fine Jewelry, operates over 1,100
leased fine jewelry departments in major department stores throughout the United
States and France.
DAVID F. MILLER, a co-founder of the Company, has been Secretary and a
director of the Company since its inception and was President of the Company
from March 1996 until September 1998. Since April 1990, Mr. Miller has served as
Chairman of the Board of PureIce of the South, Inc., a corporation principally
owned by Mr. Miller, which is the major supplier of packaged ice for Northeast
Florida. Mr. Miller also serves as Chairman of the Board of Quality Food
Equipment Distributors, Inc., a provider of equipment for the food and
restaurant industry. From 1983 to 1987, Mr. Miller served as President of
JCPenney Stores and Catalog and as a director of The JCPenney Company, Inc., and
from 1987 to April 1990, he served as Vice Chairman of the Board of JCPenney
Company and Chief Operating Officer of JCPenney Stores and Catalog, retiring
from JCPenney Company in 1990 after 37 years of service. Mr. Miller is also a
director of Winn-Dixie Stores, Inc. and is President of Amelia Service Center, a
real estate management company in Fernandina Beach, Florida.
BRIAN S. LAPPIN, who currently serves on a part-time basis as Vice
President of Finance and Chief Financial Officer of the Company, was appointed
to such position in August 1996 and served as Accounting Manager of the Company
from September 1993 through August 1996. From January 1993 through September
1993, Mr. Lappin was an Accounting Assistant for Padgett Business Services, an
accounting and financial services firm in Gainesville, Georgia. From June 1991
to December 1993, he was a staff accountant at Halls Tampa Wholesale Florist,
handling the daily reporting and accounting operations.
49
<PAGE>
EDWARD J. MUNLEY, a co-founder of the Company, has been a director of
the Company since its inception and served as President of the Company from July
1993 until his resignation in March 1996. Since December 1990, Mr. Munley has
been the President and sole stockholder of Handley Walker Incorporated, a
payroll processing firm. From 1977 to February 1990, Mr. Munley served as
President and Chief Executive Officer of Dey Brothers Inc., a subsidiary of
Allied Stores Corporation. Prior to 1977, Mr. Munley held various positions with
regional divisions of Allied Stores.
JAMES MARTIN KAPLAN has been a director of the Company since December
1994. Mr. Kaplan is a partner of the law firm of Tenzer Greenblatt LLP, counsel
to the Company, which he joined in 1998. From 1977 to 1998, Mr. Kaplan was a
partner with the law firm of Zimet, Haines, Friedman & Kaplan, former counsel to
the Company. Mr. Kaplan also serves on the Board of Directors of Finlay
Enterprises, Inc. and Finlay Fine Jewelry Corporation.
HUGH H. JONES, JR. has been a director of the Company since December
1994. From 1993 to October 1998, Mr. Jones has served as President of Baptist
Health System Foundation, Inc. He served on the Board of Directors of The
Barnett Bank of Jacksonville, N.A. ("Barnett Bank") from September 1980 to
February 1996. From 1982 to 1993, Mr. Jones served as Chairman and Chief
Executive Office of Barnett Bank, and from 1980 to 1982, he served as Vice
Chairman and director, retiring from Barnett Bank in 1993 after 23 years of
service.
Of the five individuals nominated for election to the WAW Board of
Directors at the Special Meeting, four have been designated by TeleHub and only
one nominee, Mr. Cornstein, has been designated by WAW to serve after completion
of the Transaction. If the Transaction is not completed, the current directors
of the Company (including Mr. Cornstein) will continue as the directors of WAW.
MEETINGS OF THE BOARD
The Board of Directors met four times during the year ended January 31,
1998. No director attended fewer than 75% of the total number of meetings of the
Board of Directors which he was eligible to attend.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires officers and directors of
the Company and holders of more than 10% of WAW's common stock to file reports
of ownership and changes in ownership of WAW common stock with the Commission
within specified time periods and to furnish the Company with copies of all such
reports. Based on its review of the copies of such reports furnished to the
Company by such persons or on the written representations of such persons that
no reports on Form 5 were required, the Company believes that, during the year
ended January 31, 1998, all of these persons complied with their Section 16(a)
reporting requirements on a timely basis except for Hugh H. Jones. Mr. Jones
filed a report in June 1998 with respect to 1,000 shares of WAW common stock
which he sold in December 1997.
50
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to David F.
Miller, the Company's former President, during the last three fiscal years. Mr.
Miller resigned as President in September 1998; he remains as a member of the
Board of Directors and Secretary of the Company. No person has yet been
appointed to succeed Mr. Miller as President. No other executive officer earned
an annual salary and bonus that exceeded $100,000 during fiscal 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------------ ----------
RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) OPTIONS/SARS(#) PAYOUTS($) COMPENSATION($)
- --------------------------- ------ --------- -------- --------------- ----------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David F. Miller............. 1997 -0- -0- -0- -0- -0- -0- -0-
Former President 1996 -0- -0- -0- -0- 100,000/-0- -0- -0-
1995 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------
COMPENSATION OF DIRECTORS
The Company's directors are currently not compensated for serving as
members of the Board of Directors.
OPTION/SAR GRANTS DURING FISCAL 1997
The following table shows information concerning stock options granted
during the year ended January 31, 1998 for the individual shown in the Summary
Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN FISCAL EXERCISE OR BASE
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE
---- ------------ ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
David F. Miller -0- N/A N/A N/A
</TABLE>
51
<PAGE>
OPTION/SAR EXERCISES DURING FISCAL 1997 AND YEAR END OPTION/SAR VALUES
No stock options were exercised by any of the Company's executive
officers during the year ended January 31, 1998. The following table shows
information concerning stock option values as of January 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT OPTIONS/SARS AT JANUARY 31,
JANUARY 31, 1998 1998($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
David F. Miller* 100,000/-0- -0-/-0-
Edward J. Munley 75,000/-0- -0-/-0-
</TABLE>
* Does not include additional warrants to purchase shares granted in 1996.
See "WAW Related Party Transactions".
1994 STOCK OPTION PLAN
In order to attract, retain and motivate employees (including
officers), directors, consultants and other persons who perform substantial
services for or on behalf of the Company, in November 1994, the Company adopted
the 1994 Stock Option Plan. Under the 1994 Stock Option Plan, stock options
covering an aggregate of 560,000 shares of WAW common stock may be granted to
such persons. Under the 1994 Stock Option Plan, "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, may
be granted to employees (including officers), and non-incentive stock options
may be granted to any such employee and to other persons (including directors)
who perform substantial services for or on behalf of the Company.
The 1994 Stock Option Plan is administered by WAW's Board of Directors
or, at its discretion, by a committee of the Board appointed by the Board to
perform such function. The Board of Directors or the Committee is vested with
complete authority to administer and interpret the 1994 Stock Option Plan, to
determine the terms upon which options may be granted, to prescribe, amend and
rescind such interpretations and determinations and to grant options. The Board
of Directors or the Committee has the power to terminate or amend the 1994 Stock
Option Plan from time to time in such respects as it deems advisable, except
that no termination or amendment may materially adversely affect any outstanding
option without the consent of the grantee, and the approval of the Company's
stockholders will be required for any amendment which would change the total
number of shares subject to the 1994 Stock Option Plan or change the
designations or class of employees or other persons eligible to receive
incentive options or non-incentive options under the Plan.
The price at which shares covered by an option may be purchased shall
be no less than the par value of such shares and, in the case of incentive
options, no less than the fair market value of such shares on the date of grant.
The purchase price of shares issuable upon exercise of an option may be paid in
cash or by delivery of shares with a value equal to the exercise price of the
option. The Company may also loan the purchase price to the optionee, or
guarantee third-party loans to the optionee, on terms and conditions acceptable
to the Board of Directors. The number of shares covered by an option is subject
to adjustment for stock splits, mergers, consolidations, combinations of shares,
reorganizations and recapitalizations. Options are generally non-transferable
except by will or by the laws of descent and distribution, and in the case of
employees, with certain
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exceptions, may be exercised only so long as the optionee continues to be
employed by the Company. If the employee dies or becomes disabled, the right to
exercise the option, to the extent then vested, continues for specified periods.
Non-incentive options may be exercised within a period not exceeding 10 years
from the date of grant. The terms of incentive options are subject to additional
restrictions provided by the 1994 Stock Option Plan. An aggregate of 520,000
options are outstanding under the 1994 Stock Option Plan. No options were
granted pursuant to the 1994 Stock Option Plan during the year ended January 31,
1998.
1994 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
In order to attract and retain the services of non-employee members of
the Board of Directors and to provide them with increased motivation and
incentive to exert their best efforts on behalf of the Company by enlarging
their personal stake in the Company, in November 1994, the Company adopted the
1994 Nonemployee Directors' Stock Option Plan. Under the Directors' Plan, stock
options covering an aggregate of 40,000 shares of WAW common stock may be
granted to such non-employee directors.
Pursuant to the Directors' Plan, each member of the Board who is not an
employee of the Company (or a subsidiary) and who is elected or re-elected as a
director of the Company by the stockholders at any annual meeting of
stockholders will receive options to purchase 2,500 shares of WAW common stock
upon his or her election. All options granted under the Directors' Plan will be
exercisable at the fair market value of WAW common stock as of the date of
grant. The options granted under the Directors' Plan are non-incentive options.
An aggregate of 20,000 options are outstanding under the Directors' Plan. No
options were granted pursuant to the Directors' Plan during the year ended
January 31, 1998.
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PRINCIPAL HOLDERS OF SECURITIES OF WAW
The following table sets forth certain information, as of the date of
this Proxy Statement/Prospectus, with respect to the beneficial ownership of
shares of Common Stock by (i) each person known by the Company to be the
beneficial owner of 5% or more of the outstanding shares of Common Stock, (ii)
each director and executive officer of the Company and (iii) all of the
Company's directors and officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PERCENT OWNED
- --------------------------------------- ----------------------- -------------
<S> <C> <C>
David B. Cornstein 745,352 (3) 31.74%
David F. Miller 623,062 (4) 26.97%
Edward J. Munley 280,000 (5) 12.77%
Brian S. Lappin 12,667 (6) *
James Martin Kaplan 14,000 (7) *
Hugh H. Jones, Jr. 26,000 (8) 1.21%
Elliot J. Smith 301,031 (9) 12.97%
All officers and directors as a 1,701,281 (3)-(8) 63.97%
group (6 persons)
</TABLE>
- ----------
* Less than one percent
(1) The address of each person listed is c/o What A World!, Inc., P.O. Box
20125, Tampa Florida 33625.
(2) A person is treated as the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement/Prospectus upon the exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date of
this Proxy Statement/Prospectus have been exercised. The Company believes
that all persons named in the table have sole voting and investment power
with respect to all shares of WAW common stock beneficially owned by them.
(3) The number of shares beneficially owned by Mr. Cornstein assumes the
exercise of options to purchase 5,000 shares of WAW common stock and the
exercise of warrants to purchase 225,000 shares of WAW common stock.
(4) The number of shares beneficially owned by Mr. Miller assumes the exercise
of options to purchase 102,500 shares of WAW common stock and the exercise
of warrants to purchase 90,000 shares of WAW common stock, but does not
include any shares owned by Mr. Miller's adult children. Mr. Miller
disclaims beneficial ownership of any shares owned by his children. Mr.
Miller resigned as President of the Company in September 1998.
(5) The number of shares beneficially owned by Mr. Munley assumes the exercise
of options to purchase 75,000 shares of WAW common stock but does not
include any shares owned by Mr. Munley's adult children. Mr. Munley
disclaims beneficial ownership of any shares owned by his children. Mr.
Munley resigned as President of the Company in March 1996.
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(6) The number of shares owned beneficially by Mr. Lappin assumes the exercise
of options to purchase 12,667 shares of WAW common stock but does not
include an aggregate of 7,333 shares of WAW common stock issuable at
various times upon the exercise of options granted to Mr. Lappin.
(7) The number of shares beneficially owned by Mr. Kaplan assumes the exercise
of options to purchase 5,000 shares of WAW common stock.
(8) The number of shares beneficially owned by Mr. Jones assumes the exercise
of options to purchase 5,000 shares of WAW common stock and the exercise of
warrants to purchase 21,000 shares of WAW common stock.
(9) The number of shares beneficially owned by Mr. Smith includes 96,942 shares
of WAW common stock underlying certain Underwriter's Warrants issued in
connection with the Company's 1994 initial public offering. In addition,
the number of shares beneficially owned by Mr. Smith includes (i) 90,500
shares of WAW common stock beneficially owned by The Elliot J. Smith SDRP
Money Purchase Pension Plan, including 44,000 shares issuable upon exercise
of warrants held by the Pension Plan, (ii) 65,460 shares of WAW common
stock beneficially owned by The Elliot J. Smith IRA/Rollover, including
33,460 shares issuable upon exercise of warrants held by the IRA, (iii)
3,000 shares of WAW common stock issuable upon exercise of warrants held by
Praefero Partners, a partnership of which Mr. Smith is the sole general
partner, and (iv) an additional 25,000 shares issuable upon exercise of
warrants held by Mr. Smith. Mr. Smith may be deemed to be the beneficial
owner of shares of WAW common stock beneficially owned by the Pension Plan,
the IRA and Praefero Partners.
WAW RELATED PARTY TRANSACTIONS
In July 1993, David B. Cornstein, David F. Miller and Edward J. Munley,
each of whom is a founder of the Company and serves as a director of the
Company, entered into a stockholders agreement pursuant to which, among other
things, Messrs. Cornstein and Miller each purchased 600,000 shares of WAW common
stock for a purchase price of $60,000 and Mr. Miller purchased 800,000 shares of
WAW common stock for a purchase price of $80,000.
On August 28, 1996, Messrs. Cornstein and Miller and Hugh H. Jones,
Jr., a director of the Company, entered into a commitment to lend the Company
for working capital purposes, as needed, and to fund the opening of 13 temporary
stores, up to an aggregate of $600,000 at an interest rate of 12% per annum. All
amounts outstanding under this working capital commitment were repaid when due,
together with accrued interest, on January 3, 1997. These loans were secured by
a first priority lien on substantially all of the assets of the Company. As
partial consideration for the working capital commitment, the Company granted to
the lenders warrants to purchase an aggregate of up to 200,000 shares of WAW
common stock at an exercise price of $1.00 per share, originally exercisable
until August 31, 2001. In addition, the Company granted to the lenders demand
and "piggyback" registration rights relating to the securities underlying such
warrants. See "Description of WAW Capital Stock - Registration Rights."
WARRANT EXTENSION
In May 1998, the Company announced that it had extended the exercise
period of its publicly-held redeemable common stock purchase warrants from May
17, 1988 to May 17, 2000. Following such action, the Board of Directors also
approved the extension of the warrants issued to Messrs. Cornstein, Miller and
Jones pursuant to the 1996 working capital commitment from August 31, 2001 to
August 31, 2003.
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BUSINESS OF TELEHUB
OVERVIEW
TeleHub was formed in May 1998 under the Business Corporations Act
(Ontario) and is in the early development stage. Since its inception, TeleHub
has been primarily engaged in exploring and developing opportunities in the call
center teleservices industry. Call centers facilitate the direct communication
by telephone of information to and from current and prospective customers of the
call center's clients. Generally, the teleservices provided by call centers
include performing call center-initiated ("outbound") telemarketing services as
well as responding to and managing customer-initiated ("inbound") calls.
Outbound telemarketing services consist primarily of direct marketing and sales
activities initiated on behalf of a call center's clients, and inbound
teleservices activities consist primarily of the processing of incoming phone
calls (often placed by customers using toll-free numbers) for product or service
orders, customer inquiries, processing of credit and other consumer applications
and customer and technical service.
Call campaigns provided by call centers involve outbound and/or inbound
calling programs that follow prepared scripts targeted at specific markets or
customers previously determined by the client. In connection with outbound
teleservices, call center representatives typically place phone calls through
automated dialing systems (known as predictive dialers). A predictive dialer is
an integrated computer and telephone switch designed to minimize time spent
dialing numbers, getting busy signals or no answers. The automated dialing
system works with databases either provided by clients or prepared by the call
center to launch outgoing calls. Once a live connection has been established
with a potential customer, the automated dialing system transfers the call,
together with relevant customer information and the applicable prepared script,
to a call center representative to complete the call. In connection with inbound
teleservices, call center representatives typically receive phone calls through
an automated call distributor, which is a phone switch that accepts and routes
incoming calls to increase the speed at which incoming calls can be
appropriately answered. Once the call is received, the automated call
distributor directs the call, together with relevant customer information and
the applicable prepared script, to an available call center representative.
Since its formation, TeleHub has been marketing its proposed services
and forming relationships with individuals and organizations in the teleservices
industry to develop and further TeleHub's proposed call center business. While
TeleHub is currently negotiating with several such individuals and
organizations, to date, TeleHub has not finalized any agreements or binding
commitments other than its agreements with Access One, Call Tell, CSTI and SNS
for the provision by TeleHub of telemarketing activities. TeleHub has recently
secured a lease of premises in Montreal, Quebec and has acquired furniture and
telecommunications and computer equipment to be used in its call center
operations. In October 1998, TeleHub provided teleservices on a limited basis in
connection with a fund raising campaign for Universite de Montreal, and is
currently providing teleservices pursuant to its agreements with Access One,
Call Tell and CSTI. See "Business of TeleHub - Services" and "- Customers."
INDUSTRY BACKGROUND
Unlike indirect marketing methods, such as radio, television and print
advertising, the teleservices industry facilitates the direct communication of
information to and from current or prospective customers, enabling companies to
deliver sales, marketing or other types of information directly to these
customers. TeleHub believes that businesses are increasingly focused on using
personalized services to target consumers and to service and retain customers.
Call centers have evolved significantly in recent years as businesses
increasingly recognize that teleservices can provide an effective means to
contact targeted consumers and provide customer service. Advances in computer
and telecommunications technology, such as predictive dialers and automated call
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distributors, have assisted telemarketers to more accurately and efficiently
identify and contact potential customers and have provided call center
representatives with more complete on-line guidance and support.
Traditionally, businesses that have included teleservices in their
marketing and customer service programs have primarily used in-house call center
personnel and facilities. TeleHub believes that businesses are increasingly
outsourcing their telephone-based marketing and customer services needs to third
party providers as part of overall efforts to reduce costs and focus internal
resources on their core competencies. TeleHub believes that outsourced
teleservices can provide advantages over internal operations, including the
ability to reduce marketing infrastructure costs (such as investment in labor,
training, facilities and specialized equipment) while maintaining or improving
operating efficiencies related to customer contact and support. As a result,
TeleHub believes that many businesses are increasingly seeking to develop
relationships with independent teleservices specialists for the management and
enhancement of the call center aspects of their marketing, sales and customer
service activities.
While there are currently many independent teleservices companies
competing for call center outsourcing, TeleHub believes that any increase in
outsourcing of teleservices presents opportunities for independent call centers
if they can successfully offer and deliver a flexible range of call center
services.
THE TELEHUB APPROACH
TeleHub has established and plans to expand its presence in the
outsourced teleservices market by focusing its energies on developing as an
independent call center which is capable of providing a broad range of inbound
and outbound teleservices. TeleHub has recently obtained 48 call stations and
computer and telecommunications equipment, including a predictive dialer and
telephone switch for automated call distribution, for its call center located in
Montreal, Quebec, and is hiring call center representatives as required by
TeleHub's volume of business. TeleHub is currently negotiating with several
potential customers and strategic partners in order to expand the breadth of its
service offerings and, to date, has entered into agreements with Access One,
Call Tell, CSTI and SNS for the provision by TeleHub of telemarketing
activities.
TeleHub seeks to capitalize on outsourced teleservices opportunities in
the following manners:
LOW RELATIVE COST. TeleHub has recently established its call center in
Montreal, Canada. TeleHub believes that this location may offer several cost
advantages over locations in the US such as: low rent in comparison to major US
cities; employment incentives offered by the Quebec provincial government; and a
large number of educated and bilingual unemployed workers. It is anticipated
that these factors, together with declining long distance rates in Canada, will
allow TeleHub to build its infrastructure and operate its call center at a
relatively low cost. TeleHub also believes that the current exchange rate
between the Canadian and U.S. dollars may attract U.S. clients who can receive
U.S. service from TeleHub while paying with Canadian dollars, thereby realizing
a cost savings benefit. TeleHub is currently seeking agreements with U.S.
clients and third party companies who contract for telemarketing from the United
States, and currently has agreements in place with such U.S. clients as Access
One, CSTI and SNS.
SERVICE OFFERINGS. TeleHub is developing a broad range of inbound and
outbound call center teleservices. TeleHub's current or proposed inbound
teleservices include receiving and processing calls for sales, service and
information and managing product and warranty service and sales support.
TeleHub's current or proposed outbound teleservices include the telemarketing of
goods and services, fund raising and conducting surveys. See "Business of
TeleHub - Services". TeleHub believes that offering a broad range of services
will allow various companies from various industries to utilize TeleHub's
teleservices. For example, many traditional call centers may narrow their scope
by isolating themselves into single industries such as airline sales,
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insurance information or software service. TeleHub believes that there is an
opportunity to provide teleservices for product and service lines not serviced
by such narrowly-focused call centers.
CAPITALIZE ON OVERFLOW. TeleHub believes there is an opportunity to
capitalize on other call centers' overflow of teleservices requirements or
commitments. Many call centers (both internal and independent) may also be
subject to seasonal fluctuations in their operations that mandate either
excessive hiring or staff consolidation to adapt to these changes. As clients
and call centers seek to match capacity with fluctuating demand, TeleHub
believes there is an opportunity for TeleHub to provide teleservices on a
subcontracted basis to such internal and independent call centers in times of
excess demand. TeleHub's agreement with Call Tell is an example of the available
opportunities for such overflow business. See "Business of TeleHub - Customers."
IMPLEMENTATION OF TECHNOLOGY. TeleHub has licensed the use of automated
dialing technology (predictive dialer) from Info Zero Un, a Quebec
telecommunications company, to assist in outbound teleservices. For inbound
teleservices, TeleHub has obtained a telephone switch from WilTel Inc., a
telecommunications company based in Ontario, which enables automated call
distribution. These technologies are designed to improve call center
productivity and thereby reduce the effective cost per call made or received.
TeleHub has also obtained a server which includes scripting software (which
provides call center representatives with prompt access to customer and product
information) and call management data software which is designed to manage,
update and reference client data files and collect statistical transaction and
performance data. TeleHub believes that such technologies will assist TeleHub in
performing quality teleservices on a cost-effective basis.
QUALITY OF SERVICE. TeleHub believes that it is imperative for it to
devise and implement relevant procedures to allow it to monitor and improve the
quality of its service. In this regard, TeleHub has implemented a quality
assurance program which includes prior client approval of scripts to be used by
call center representatives, monitoring of calls for quality control and
adherence to approved scripts, daily scrutiny of scripts, and script adjustments
in consultation with clients' comments and suggestions.
SERVICES
In October 1998, TeleHub performed an outbound fund raising campaign
for Universite de Montreal through VIP Connections, a Montreal-based management
consulting firm. In connection with this project, four temporary call center
representatives were retained by TeleHub to provide 1,500 calls in return for
certain promotional services by VIP Connections relating to the opening of
TeleHub's call center in Montreal. No revenues were received by TeleHub in
connection with this campaign.
In November 1998, TeleHub conducted an outbound telemarketing campaign
as a subcontractor for Call Tell, a Canadian reseller of teleservices, in
connection with Call Tell's agreement with USA TeleCorp relating to the purchase
of long distance telephone services. TeleHub has performed all of the services
required to be performed by it under this agreement and, in connection
therewith, received revenues of approximately Cdn $70,000. Although work under
this agreement has been completed, TeleHub believes that the agreement may be
extended for an additional term.
TeleHub is currently performing its obligations pursuant to its
agreements with Access One, CSTI and SNS. See "Business of TeleHub --
Customers."
TeleHub currently employs 18 call center representatives and one call
center supervisor who provide call center teleservices using 19 of TeleHub's 48
call stations. TeleHub plans to hire additional call center representatives as
required by TeleHub's volume of business.
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TeleHub's service offerings include both inbound and outbound
teleservices. TeleHub's current or proposed inbound teleservices include
receiving and processing calls for sales, service and information, management of
toll-free or pay-per-use 1-800/888/900 lines for product and warranty service
and sales support. TeleHub also intends to acquire an interactive voice response
system which will enable it to provide automatic call answering, recording and
order taking services during non-business hours. TeleHub's current and proposed
outbound teleservices include the telemarketing of goods and services, fund
raising, conducting surveys, and assisting in the production of client lists
which can be derived from information which has been either provided by the
client or independently obtained or developed by TeleHub. TeleHub's role under
any outbound marketing campaign may range from the identification and initial
solicitation of prospective customers to performing a full marketing and sales
role involving a sale of a client's product or services to a customer, the
collection by TeleHub of fees for the product or service and the remittance of
such fees to TeleHub's client. TeleHub is currently exploring its options with
respect to such complete sales service offering, but no agreements or
arrangements in this regard have been completed to date.
With respect to inbound teleservices, typically a customer will call a
toll-free or pay-per-use 1-800/888/900 number to request product or service
information, place an order for a particular product or service or obtain
assistance with respect to a previously purchased product or service. The
information and results of calls received are typically captured by the call
center and reported to the client for order processing, customer service or data
management. To assist in the handling of the various calls, TeleHub has acquired
a digital switch to enable automated call distribution, which classifies each
call by program and routes the call to a call center representative trained for
that program. Along with the call, the call center representative's computer
screen displays information relevant to the call.
With respect to outbound call campaigns, TeleHub expects that, in most
cases, it will receive customer data, including names and telephone numbers,
electronically from clients. TeleHub may, however, be required to obtain
customer or market information or databases from non-client third parties. The
cost of such acquired databases may depend on the particularity of such
databases and such cost would typically be passed on to TeleHub's client.
Subject to confidentiality obligations to its clients, TeleHub hopes to refine
and build upon customer databases it acquires from non-client third parties and
in time be able to offer detailed customer or market information to prospective
clients in connection with outbound teleservices offerings. Once the applicable
database is obtained or created for an outbound call campaign, TeleHub's call
management system is designed to use a predictive dialer to automatically dial
the telephone numbers in these files, determine if a live connection is made and
present connected calls to a call center representative who has been trained for
the client's program. When a call is connected to a call center representative,
the customer's name, other information about the customer and the program script
will simultaneously appear on the call center representative's computer screen
and the call center representative will then use the script to solicit an order
for the product or service or to request information that will be added to the
applicable database.
TeleHub plans to enhance the value of its teleservices by employing
sales representatives with the capability to market in English and other
languages to reach residential and business customers in the international
market.
Many independent call center teleservices firms typically operate under
month-to-month contracts with their clients. TeleHub's contracts with its
clients are also on a month-to-month basis or are otherwise terminable by the
client on short notice. Depending on TeleHub's role under any given teleservices
contract, TeleHub's compensation for the services it provides can consist of an
initial fee and ongoing service charges which may be based on an hourly or
per-call rate or based only on successful completion of sales either by TeleHub
or its client. Each of TeleHub's current agreements may be terminated on short
notice to TeleHub and, under each such agreement, TeleHub will only be
compensated if and when the client approves a sale referred by TeleHub. See
"Business of TeleHub - Customers."
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STRATEGY
Key elements of TeleHub's business strategy are as follows:
PURSUE OUTSOURCED TELESERVICES OPPORTUNITIES. TeleHub's current
marketing activities are particularly focused on identifying and soliciting
companies with direct sales and customer service needs and companies which have
large customer bases which can benefit from targeted teleservices programs.
TeleHub is also seeking relationships with other call centers to provide
teleservices on a subcontracted basis to assist in fulfillment of overflow.
TeleHub intends for its teleservices to be adaptable to serve the needs of many
various types of businesses and teleservices requirements.
FACILITATE GROWTH THROUGH EXPANSION AND COMPLEMENTARY ACQUISITIONS.
Subject to financial constraints, TeleHub is committed to growth through
internal expansion. TeleHub currently utilizes 19 of its 48 call stations.
TeleHub's practice is to hire employees as required to support these call
stations as well as to expand as required to capitalize on growth opportunities.
TeleHub believes that it will benefit by locating itself in Montreal, a city
which has a large multi-lingual and educated population with relatively high
unemployment. TeleHub uses local advertisements as well as available human
resources outsourcing groups to fulfill its labor requirements. TeleHub may also
explore strategic acquisitions of existing call centers and telecommunications
services and technology that offer complementary services or that can expand
TeleHub's geographic markets. Although TeleHub has no arrangements, agreements
or understandings with respect to any particular opportunities at the present
time, TeleHub believes that any fragmentation in the call center teleservices
industry could result in opportunities for TeleHub to pursue and consolidate
selected complementary businesses.
PROVIDE COMPREHENSIVE CLIENT SOLUTIONS. TeleHub's long-term strategy is
to provide comprehensive telecommunications-based solutions to facilitate its
clients' marketing, sales and other business objectives. Through relationships
with clients and strategic alliances, and its combination of its proposed
inbound and outbound call center teleservices activities, TeleHub intends to
provide its clients with a multi-service call center or "HUB" that will link
clients with their ultimate customers and other organizations across various
complementary industries. For example, certain customers may require financing
once they have expressed interest in contracting for the clients' products or
services; TeleHub's "HUB" would link services provided by other TeleHub clients,
such as banks, which could secure and service the required financing. The
success of TeleHub's "HUB" concept will be largely dependent on its ability to
secure contracts and relationships with complementary customers and strategic
partners including marketing, sales and financial organizations . No agreements
or binding commitments have been consummated to date with such parties.
TELECOM SERVICES. TeleHub is currently also exploring options with AT&T
Canada and other Canadian long distance telephone carriers to resell long
distance telephone services. The advantageous rates available to resellers of
long distance services may reduce TeleHub's call center costs and allow TeleHub
to competitively price the long distance services it provides to call center
teleservices clients while maintaining a small profit on such resales.
SALES AND MARKETING
TeleHub currently markets its teleservices to potential clients through
a sales team of two full-time employees who are responsible for generating
accounts and securing service contracts. TeleHub's current marketing activities
are particularly focused on identifying and soliciting companies with direct
sales and customer service needs and also those which have large customer bases
which can benefit from targeted teleservices programs. TeleHub is also seeking
relationships with other call centers to provide teleservices on a subcontracted
basis to assist in fulfillment of overflow.
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CUSTOMERS
To date, TeleHub has entered into four contracts for the provision by
it of teleservices. As a start-up company, TeleHub anticipates a heavy
dependence upon these current contractual relationships. TeleHub has recognized
this dependency and is pursuing other opportunities. Any significant
interruption in the business of its current clients, or of any other clients
with whom TeleHub is able to contract, could have a material adverse effect on
TeleHub's financial performance, especially in its initial year.
On October 29, 1998, TeleHub entered into an agreement with Access One,
a provider of local telecommunications services. Pursuant to this agreement,
TeleHub has agreed to act as Access One's direct telemarketing agent in
specified markets. TeleHub will receive payment for each sale it makes that
Access One is able to independently verify and approve according to its in-house
approval process within seven business days of receiving from TeleHub
information regarding such sale. The term of this agreement is for an
unspecified period from the date of execution, and the agreement may be
terminated at any time upon written notice by either party. The agreement
provides that, during the term of the agreement and for a period of three years
following the termination or expiration thereof, TeleHub shall be prohibited
from competing with, or recruiting or soliciting any employees or customers of,
Access One. TeleHub commenced performing services under this agreement on
November 11, 1998.
Pursuant to an oral agreement between TeleHub and Call Tell, a Canadian
telemarketing company, TeleHub has performed telemarketing services on a
subcontractor basis for Call Tell in connection with Call Tell's direct
agreement with USA Tele Corp., a long-distance service provider. Pursuant to its
agreement, with Call Tell, during November 1998, TeleHub provided outbound
telemarketing services to potential customers of USA Tele Corp.'s long distance
telephone services and, in connection therewith, TeleHub received payment in the
amount of approximately Cdn $70,000 for sales made by it. Although TeleHub has
performed all of the obligations required to be performed by it under this
agreement, TeleHub believes that Call Tell may seek to hire TeleHub for
additional subcontracting activities in connection with its contract with USA
Tele Corp., although there can be no assurance of such.
TeleHub has entered into an agreement dated November 1, 1998 with CSTI,
a long distance telephone service provider, pursuant to which TeleHub has agreed
to provide telemarketing services for the solicitation of customers for CSTI.
All services provided by TeleHub under this agreement must be performed in
accordance with CSTI's policies and procedures manual. TeleHub will receive
payment for each sale of CSTI's long distance services made by TeleHub that is
independently verified and approved in accordance with CSTI's in-house approval
process. The agreement may be terminated by either party upon 30 days' written
notice, and may be terminated by CSTI without notice in the event that over 20%
of TeleHub's sales submitted for verification are not verified or in the event
that TeleHub is in default under the agreement. The agreement provides that,
during the term of the agreement and for a period of three years following the
termination or expiration thereof, TeleHub shall be prohibited from soliciting
any customers of CSTI for the benefit of a competitor of CSTI. TeleHub commenced
performing services under this agreement on November 16, 1998.
Pursuant to an agreement dated October 29, 1998 between TeleHub and
SNS, an Internet service and content provider engaged in the business of
web-site design, development, hosting, marketing and management, TeleHub has
agreed to provide telemarketing services designed to market specified services
and products offered by SNS. Under the terms of the agreement, TeleHub's
services are to be overseen and managed by PTI, Inc./Outsource Telemanagement
Center ("PTI"), a management company retained by SNS for the implementation,
management and operation of SNS's telemarketing program. TeleHub will receive
payment for each order it refers to SNS that is independently verified and
approved by either SNS or PTI according to SNS's in-house approval process, with
such payment to be made within two weeks of TeleHub's submitting information
regarding a sale to SNS or PTI; provided, however, that if the number of orders
in any given week is 30% less
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than the number of orders submitted the prior week, SNS may elect to withhold
payments until sales referred by TeleHub return to previous levels. The
agreement may be terminated by SNS at any time, with or without cause, upon
written notice. The agreement provides that, during the term of the agreement
and for a period of five years following the termination or expiration thereof,
TeleHub shall be prohibited from knowingly contacting or selling to any SNS
customer any product or service related to communications or competing with
services offered by SNS. TeleHub commenced performing services under this
agreement on November 16, 1998.
COMPETITION
The telemarketing industry is intensely competitive and highly
fragmented. TeleHub competes with many other teleservices companies ranging in
size from very small companies offering special applications or short-term
projects to very large publicly listed companies. Currently, TeleHub's Canadian
competitors include Vox Data Inc., Media Express Telemarketing Corp., the
Equinox Group and Sodema, Transcontinental Technologie Inc. Large U.S.
independent telemarketing companies such as APAC TeleServices Inc., Electronic
Data Systems, MATRIXX Marketing Inc., SITEL Corporation, Stream International
Holdings Inc., Sykes Enterprises Inc. and West TeleServices Corporation may also
exert intense competitive pressure on TeleHub in the U.S. market. In addition,
some of these large telemarketing companies have recently opened call centers in
Canada and may offer increasing competition as their Canadian presence grows.
Providers of other forms of advertising and marketing media, such as direct
mail, television, radio and other advertising media will also offer TeleHub
varying degrees of competition. Furthermore, TeleHub competes with the internal
marketing capabilities of many of its own prospective clients, many of whom have
significant internal teleservices, marketing and sales capabilities and also
contract for these services from competitors of TeleHub.
Much outsourced telemarketing work is contracted on an individual
project basis, with many projects being allocated among various teleservice
providers from time to time. This may force TeleHub to compete frequently with
other call centers as individual projects are initiated or reallocated.
Furthermore, the relatively low barriers to entry to this industry and the rapid
growth of the teleservices industry may attract many new competitors, some of
whom may be substantially larger and better capitalized than TeleHub. Entry into
the Canadian market may be especially heavy as a result of the Canadian dollar's
current low exchange rate against the U.S. dollar. TeleHub believes that the
principal competitive factors in its industry will be price, quality, service
and responsiveness to clients' needs.
REGULATION
TeleHub's business is subject to various Canadian federal and
provincial and U.S. federal and state laws and regulations. Specifically,
TeleHub is required to comply with Canadian and U.S. laws and regulations as
they pertain to the call center teleservices industry. TeleHub has established
and will continue to maintain operating procedures to comply with all applicable
rules and regulations. TeleHub does not anticipate that such compliance will
require it to incur significant additional expenses.
In Canada, the rules promulgated by the Canadian Radio Television and
Telecommunication Commission ("CRTC") under the General Tariffs of Bell Canada
require telemarketers to remove from their calling lists for a period of three
years the names of any parties who so request, to provide the names, addresses
and phone numbers of both the telemarketer and of any party for whom they are
acting, to limit the hours during which they may call consumers, to refrain from
the use of sequential dialing and to refrain from calling emergency and
healthcare facilities. Legislation in the several Canadian provinces also
regulates telephone solicitations in regard to cancellation periods and the sale
of goods.
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In the United States, the rules promulgated by the Federal
Communications Commission (the "FCC") under the Federal Telephone Consumer
Protection Act of 1991 limit the hours during which telemarketers may call
consumers and prohibit the use of automated telephone dialing equipment to call
certain telephone numbers. In addition, regulations under the Federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, among other
things, require telemarketers to make certain disclosures when soliciting sales.
The U.S. Telemarketing Fraud Prevention Act of 1997 increases penalties
for persons convicted of telemarketing fraud, requires telemarketers to disclose
information to further investigations of telemarketing fraud, and purports to
extend jurisdiction to foreign telemarketers who may be responsible for fraud
inside the U.S.
A number of states have enacted or are considering enacting legislation
to regulate telephone solicitations. For example, telephone sales in certain
states cannot be final unless a written contract is delivered to and signed by
the buyer and may be canceled within three business days. Other states require
third-party verification for this sort of solicitation.
If TeleHub enters into an agreement with a long distance telephone
carrier to resell long distance telephone services, TeleHub will be required to
comply with CRTC and FCC regulations applicable to long distance telephone
providers, including regulations concerning the switching of long distance
carriers.
EMPLOYEES
To date, TeleHub employs twenty-six persons, including two in sales and
marketing, three in administration, two in information systems and nineteen call
center representatives (including one supervisor). In October 1998, TeleHub
hired four temporary employees through a temporary placement agency for a fund
raising campaign for a two-week term which ended in October 1998. TeleHub
currently hires its call center representatives as temporary employees who are
contracted as required by TeleHub's volume of business. Although temporary call
center representatives hired by TeleHub are typically hired through a temporary
placement agency, TeleHub eventually intends to recruit and hire temporary
employees directly on its own. Administrative personnel have been hired as
full-time employees of TeleHub.
TeleHub has entered into a memorandum of understanding with the Societe
de Developpement Industriel de Quebec (Industrial Development Corporation), a
division of the government of the Province of Quebec, dated July 21, 1998. The
Industrial Development Corporation has agreed to provide TeleHub with a grant of
Cdn $3,000 for each full-time employee hired by TeleHub, such amounts to be paid
between 1999 and 2002 and not to exceed a maximum of Cdn $480,000. A deduction
in the amount of Cdn $2,400 will be made from the first grant under the
memorandum of understanding, representing payment in the amount of 0.5% of the
maximum amount payable under the memorandum of understanding for federal and
provincial taxes.
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PROPERTIES
TeleHub has recently leased 6,812 square feet of office space at 1000
St. Antoine Street, Suite 600, Montreal, Quebec, H3C 3R7, Canada under a lease
with Entreprise Point Zero dated August 21, 1998. The term of this lease extends
from September 1, 1998 to October 31, 2003, unless terminated earlier in
accordance with the terms of the lease. The lease provides for a minimum monthly
rent of Cdn $3,689.83 payable in advance of each month, as well as additional
gross operating and other costs of approximately Cdn $3,974 per month. The
lessor under such lease has agreed to grant TeleHub free rental for the months
of September and October, 1998. Pursuant to this lease, TeleHub has deposited
Cdn $26,444.82 with the lessor, of which Cdn $17,629.88 will be applied to rent
for the months of November and December 1998, and the remainder will be held as
security for the performance of TeleHub's obligations under the lease. TeleHub
has agreed to grant the lessor a security interest in its moveable assets to
secure the value of six months rent under the lease (Cdn $22,139). TeleHub
anticipates that its premises will be adequate for its needs through October
2003.
LEGAL PROCEEDINGS
TeleHub is not a party or subject to any legal proceedings.
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MANAGEMENT OF TELEHUB
DIRECTORS AND EXECUTIVE OFFICERS OF TELEHUB
The following table lists the names of and positions held by each executive
officer and director of TeleHub:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stanley Young 53 Chief Executive Officer and President, Director
Patrick Thomas 43 Chief Operating Officer and Secretary, Director
John De Luca 31 Vice-President, Sales and Marketing and Director
</TABLE>
STANLEY YOUNG. Stanley A. Young has been a director of TeleHub since
its formation in May 1998. From January 1997 to May 1998, Mr. Young was Chairman
of the Board of Directors of 3218341 Canada Inc., a privately held Canadian
company doing business as Socitete Nationale des Telecommunications de Quebec
("SNTQ"). SNTQ was declared bankrupt on June 11, 1998. See "The Transaction -
Background". Mr. Young has been Chairman and Chief Executive Officer of Young
Management Group Inc. since March 1994. Since November 1990, Mr. Young has
served as a director of JetForm Corporation, a provider of electronics forms and
workflow software solutions, and from January 1996 to 1997, Mr. Young was a
director of Andyne Computing Limited, a manufacturer of software products for
information access and reporting software products. Mr. Young was Chairman of
the Board of Push Button Software, Inc., a publisher of consumer software
products, from April 1993 to March 1994. He was the principal shareholder and
Chairman of the Board of Penn-Pride Packaging, Inc., a manufacturer of plastic
containers, from February 1991 until February 1993. Mr. Young is a director of
SEEC, Inc. and Cable-Sat Systems, Inc. Mr. Young was formerly a director of
Parametric Technology Corporation.
PATRICK THOMAS. Patrick Thomas has been Chief Operating Officer and a
director of TeleHub since its formation in May 1998. From January 1997 to May
1998, Mr. Thomas was Chief Financial Officer of SNTQ. SNTQ was declared bankrupt
on June 11, 1998. See "The Transaction - Background". From February 1995 to
March 1997, Mr. Thomas was Chief Financial Officer for Interselect Societe
Anonymous, which negotiated contracts with the Haitian government for
electricity for Haiti. In this capacity, Mr. Thomas negotiated the financing
with the US government Aid Agencies such as Office for Private Investment
Corporation (OPIC), US Aid, International Development Bank (IDB) and with
Caribbean Banks, such as Overseas Development Bank (Antigua), First Citizens
Bank (Trinidad), and the government officials, including the private secretary
of Presidency, Minister of Public Works, Minister of Finance and Chairman of the
National Bank of Haiti. From 1993 through 1995, he served as Chief Financial
officer for the Fort Thomas Group of Companies, a business which ran supervision
of hotel financial activities, the preparation of reports for offshore
investors, and the preparation of real estate investment programs such as
condominiums, townhouses, villas, casinos & entertainment centers for St. Kitts,
of the Western Indies. From 1987 to 1993, Mr. Thomas served as Chief Executive
Officer of Metropolitan Financial Services Inc., a company specializing in tax
advantaged investments, real estate and financial brokerage services.
JOHN DE LUCA. John De Luca has been Vice-President of Sales and
Marketing and a director of TeleHub since its formation in May 1998. From March
1997 to May 1998, Mr. De Luca was director of collections at HFC Household
Finance Corporation in Montreal, Quebec. From July 1990 to March 1997, Mr. De
Luca was director of operations at Axxsys Solutions Inc. in Montreal, Quebec.
From 1996 to the present, Mr. De Luca has also participated in Dawson College's
call center program in Montreal, Quebec.
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Under the Business Corporations Act, Ontario (the "OBCA"), a majority
of the Board of Directors of TeleHub and a majority of Board Committee members
must be resident Canadians. All directors hold office until the next annual
meeting of shareholders and until their successors have been elected. The
officers of the TeleHub serve at the discretion of the Board of Directors of
TeleHub. There are no family relationships among any of the directors and
executive officers of TeleHub.
EXECUTIVE COMPENSATION
Summary Compensation Table for Executive Officers
The following table sets forth summary information concerning
compensation paid or earned for services rendered to TeleHub in all capacities
since its formation to TeleHub's Chief Executive Officer. No other executive
officers had total annual salary and bonus and other compensation that exceeded
$100,000:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION LONG TERM COMPENSATION
- --------------------------- ------------------- ----------------------
ALL OTHER SECURITIES UNDERLYING
SALARY BONUS COMPENSATION OPTIONS GRANTED (#)
------ ----- ------------ ---------------------
<S> <C> <C> <C> <C>
Stanley Young
Chief Executive Officer and $0 $0 $40,000(1) 0
President
</TABLE>
- ----------
(1) This amount represents a U.S. dollar consulting fee paid to the Young
Management Group in TeleHub shares.
DIRECTOR COMPENSATION
No director has been paid compensation for serving as a member of the Board of
Directors since inception. TeleHub has resolved to pay non-employee directors a
fee of $1,200.00 for each meeting of the Board of Directors which the director
attends in person and $300.00 for each meeting of a Committee of the Board of
Directors which the director attends in person, and are reimbursed for travel
and other expenses incurred in attending such meetings.
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PRINCIPAL HOLDERS OF SECURITIES OF TELEHUB
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date of
this Proxy Statement/Prospectus, with respect to the beneficial ownership of the
common shares of TeleHub by (i) each person known by TeleHub to be the owner of
more than five percent of TeleHub common stock, (ii) each director and executive
officer of TeleHub, and (iii) all directors and executive officers of TeleHub as
a group. Statements contained in the table as to securities beneficially owned
by directors, executive officers and beneficial owners of more than 5% of
TeleHub's outstanding common shares are, in each instance, based upon
information obtained from such directors and executive officers and beneficial
owners.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS OWNED
- ------------------- ------------------------ ----------------------
<S> <C> <C>
Stanley A. Young (2) 904,991 (3) 28.69%
Patrick Thomas (2) 52,240 1.66%
Bruce Young (2) 651,961 (4) 20.67%
David Smith 434,397 (5) 13.77%
Marc Cornstein 280,000 8.88%
All directors and Executive
Officers as a Group (3 persons) 957,231 30.34%
</TABLE>
- ----------
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Proxy
Statement/Prospectus, upon the exercise of options. Each beneficial owner's
percentage of ownership is determined by assuming that options that are
held by such person (but not those held by any other person) and which are
exercisable within 60 days of the date of this Proxy Statement/Prospectus
have been exercised. Unless otherwise noted in the footnotes below, TeleHub
believes all persons named in the table have sole voting power and
investment power with respect to all shares beneficially owned by them.
(2) The address of each of Messrs. Stanley Young and Bruce Young is c/o the
Young Management Group at 24 New England Executive Park, Burlington,
Massachusetts, 01803; the address of Mr. Thomas is c/o TeleHub.
(3) Includes (i) 25,250 shares held by Adam Young, son of Stanley Young; (ii)
68,310 shares held by Barbara Young, wife of Stanley Young; (iii) 32,750
shares held by the Stanley A. Young Trust; (iv) 200,000 shares held by the
Young Technology Fund, (v) 45,110 shares held by SAY Limited Partnership;
(vi) 416,852 shares held by Young Management Group; (vii) 28,350 shares
held by the Bletzer Family Trust, a trust for the benefit of the Bletzer
family, which is related by marriage to Mr. Young; (viii) 10,000 shares
held by Kimberly and Kurt Bletzer; (ix) 9,155 shares held by Kimberly
Bletzer; (x) 9,240 shares held by James Bletzer; (xi) 2,575 shares held by
the Ashley Elizabeth Bletzer
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Trust; (xii) 2,575 shares held by the Abigail Taylor Bletzer Trust; (xiii)
2,575 shares held by the Alyson Barry Bletzer Trust; and (xiv) 10,000
shares held by Hazel LeCraw, who is related to Mr. Young by marriage. Mr.
Young disclaims beneficial ownership of all shares except those owned by
him personally, those held by SAY Limited Partnership, those held by the
Young Management Group and those held by the Young Technology Fund.
(4) Includes 70,000 shares held by Global Business Consultants, Inc., a
corporation of which Mr. Young is the sole shareholder, and 100,000 shares
held by the Young Technology Fund. Mr. Young disclaims beneficial ownership
of those shares held by the Young Technology Fund.
(5) Includes (i) 110,000 shares held by Carol A. Smith on account for Lindsey
A. Smith, (ii) 170,000 shares held by David A. Smith on account for Andrew
Brewer Smith, and (iii) 154,397 shares held by Carol A. Smith. Carol A.
Smith is Mr. Smith's wife, and Lindsey A. Smith and Andrew Brewer Smith are
Mr. Smith's children. Mr. Smith disclaims beneficial ownership of all
shares.
DESCRIPTION OF WAW CAPITAL STOCK
GENERAL
Prior to giving effect to the Transaction and the proposed amendment to
the Company's Certificate of Incorporation, the authorized capital stock of the
Company consists of 10,000,000 shares of common stock, par value $.01 per share,
of which 2,118,125 shares are issued and outstanding. The Board of Directors of
the Company has reserved for issuance (i) 560,000 shares upon the exercise of
options granted or available for future grant pursuant to the Company's 1994
Stock Option Plan; (ii) 40,000 shares upon the exercise of options granted or
available for future grant pursuant to the Company's 1994 Nonemployee Directors'
Stock Option Plan; (iii) 1,150,000 shares upon the exercise of outstanding
redeemable common stock purchase warrants issued in connection with the
Company's 1994 initial public offering; (iv) 200,000 shares upon the exercise of
underwriter's warrants granted in the initial public offering, including
underwriter's warrants to purchase 100,000 shares of WAW common stock and
underwriter's warrants to purchase 100,000 common stock purchase warrants and
(v) 200,000 shares upon the exercise of outstanding warrants issued to certain
officers and directors of the Company in connection with loans made by such
officers and directors to the Company. See "WAW Related Party Transactions."
Upon the consummation of the Transaction, the authorized capital stock
of the Company will consist of 50,000,000 shares of WAW common stock, of which
15,279,464 will be issued and outstanding (assuming the issuance of 13,011,339
shares in the Transaction and the issuance of 150,000 shares to Prospect Capital
upon consummation of the Transaction in accordance with Prospect Capital's
engagement letter with the Company).
The following description of the Company's capital stock is qualified
in its entirety by reference to the Company's Certificate of Incorporation, as
amended, and Restated By-Laws and the warrant agreement described below. A copy
of each of these documents is filed as an exhibit to the Registration Statement
of which the Proxy Statement/Prospectus forms a part.
COMMON STOCK
Holders of WAW common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders, including the election
of directors. Accordingly, the holders of a majority of the shares of WAW common
stock entitled to vote in any election of directors may elect all of the
directors standing for election if they choose to do so. The Certificate of
Incorporation does not provide for cumulative voting for the election of
directors.
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The holders of WAW common stock are entitled to such dividends as may
be declared from time to time by the Board of Directors from funds legally
available therefor and upon liquidation will be entitled to receive pro rata all
assets of the Company available for distribution to such holders. The WAW Common
Stock is not convertible or redeemable and there are no sinking fund payments
therefor. The holders of WAW common stock are not entitled to any preemptive
rights.
As of the date of this Proxy Statement/Prospectus, there were
approximately fifteen holders of record of WAW common stock (including at least
one of which is a nominee for an undetermined number of beneficial holders), and
upon consummation of the Transaction, there will be approximately 67 record
holders of WAW common stock.
REDEEMABLE WARRANTS
In connection with the Company's 1994 initial public offering, the
Company issued an aggregate of 1,150,000 redeemable common stock purchase
warrants. Each warrant originally entitled the holder to purchase one share of
WAW common stock at a price of $5.00, subject to adjustment in specified
circumstances, for a period of three years commencing on May 17, 1995 and ending
on May 17, 1998. In May 1998, the Company extended the exercise period of the
warrants to May 17, 2000. See "WAW Related Party Transactions - Warrant
Extensions."
The warrants are redeemable by the Company, upon the consent of Whale
Securities Co., L.P., the Underwriter in the initial public offering, at any
time commencing on May 17, 1995, upon notice of not less than 30 days, at a
price of $.10 per warrant, provided that the closing bid quotation of WAW common
stock on all 20 trading days ending on the third day before the day on which the
Company gives notice has been at least 150% of the then-effective exercise price
of the warrants. The warrant holders have the right to exercise their warrants
until the close of business on the date fixed for redemption.
The warrants were issued in registered form under a warrant agreement
by and among the Company, American Stock Transfer & Trust Company, as warrant
agent, and the Underwriter. The exercise price and number of shares of WAW
common stock or other securities issuable on exercise of the warrants are
subject to adjustment in specified circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation of the
Company. The warrants are not subject to adjustment for issuances of WAW common
stock at prices below the exercise price of the warrants and, accordingly, will
not be adjusted as a result of the issuance of shares of WAW common stock in
connection with the Transaction. The warrant holders do not have the rights or
privileges of holders of WAW common stock.
UNDERWRITER'S WARRANT AND UNDERLYING WARRANTS
In connection with the Company's initial public offering, the Company
sold to the Underwriter and its designees certain warrants to purchase up to
100,000 shares of WAW common stock at an exercise price of $7.25 per share
and/or up to 100,000 warrants having the same terms as those sold in the initial
public offering at an exercise price of $.145 per warrant. The holder of an
underwriter's warrant may exercise such underwriter's warrant at any time until
November 17, 1999 by tendering cash or, at such holder's option, in whole or in
part, by tendering WAW common stock or WAW's publicly-traded common stock
purchase warrants.
DIVIDENDS
To date, the Company has not paid any dividends on its common stock.
The payment by the Company of dividends, if any, is within the discretion of the
Board of Directors and will depend on the Company's
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earnings, if any, financial condition and capital requirements, as well as on
other relevant factors. The Board of Directors does not intend to declare any
dividends in the foreseeable future, but instead intends to retain earnings, if
any, for use in the Company's business operations.
REGISTRATION RIGHTS
The Company granted to the Underwriter of the 1994 initial public
offering and its designees certain rights with respect to the registration under
the Securities Act of the underwriter's warrants, the shares of WAW common stock
and warrants underlying the underwriter's warrants and the shares of WAW common
stock issuable upon the exercise of the warrants underlying the underwriter's
warrants. Subject to certain limitations and exclusions, the Company has agreed,
at the request of the holders of a majority of the underwriter's warrants, on
one occasion to register under the Securities Act, at the Company's expense, the
underwriter's warrants, the shares of WAW common stock and warrants underlying
the underwriter's warrants and the shares of WAW common stock issuable upon
exercise of the underlying warrants, and to include such underwriter's warrants
and such underlying securities in any appropriate registration statement (which
does not include the Registration Statement of which this Proxy
Statement/Prospectus forms a part) filed by the Company during the seven-year
period following the 1994 initial public offering.
David B. Cornstein, David F. Miller and Hugh H. Jones, Jr. are the
holders of warrants to purchase an aggregate of up to 200,000 shares of WAW
common stock at an exercise price of $1.00 per share, exercisable until August
31, 2003. During the seven-year period commencing on August 28, 1996, the
holders of these warrants have certain rights to receive notice of the proposed
registration of shares of WAW common stock for the account of any stockholder
(other than in connection with the Registration Statement of which this Proxy
Statement/Prospectus forms a part and certain other exceptions) and to request
that their securities be included in such registration. The inclusion of any
such securities in any registration effected by the Company will be subject to
the right of the managing underwriter, if any, to reduce the number of such
securities so included. In addition, holders of a majority of these securities
have the right on two occasions to require the Company to effect the
registration of their securities at the Company's expense. See "WAW Related
Party Transactions."
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
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COMPARISON OF STOCKHOLDER RIGHTS
Upon the consummation of the Transaction, the former TeleHub
shareholders, by virtue of their ownership of WAW common stock, will be subject
to the provisions of the Delaware General Corporation Law ("DGCL"). Set forth
below is a comparison of certain material provisions of the DGCL and the Ontario
Business Corporation Act ("OBCA").
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS. Under the OBCA,
amalgamations, continuances, sales or leases or exchanges of all or
substantially all of the assets of a company and other extraordinary corporate
actions require the approval of the holders of two-thirds of the shares being
voted thereon in person or by proxy. Under the DGCL, mergers or consolidations
require the approval of the holders of a majority of the outstanding stock of
the corporation entitled to vote thereon; provided, however, that unless
otherwise provided in its certificate of incorporation, a constituent
corporation surviving a merger shall not be required to obtain stockholder
approval if (i) the merger agreement does not amend in any respect the surviving
corporation's certificate of incorporation, (ii) each share of stock of such
corporation outstanding prior to the merger is to be an identical share of the
corporation following the merger and (iii) if shares of common stock of such
corporation are to be issued in the merger, such shares and any shares of common
stock issuable upon conversion of any other securities issued in the merger do
not exceed 20% of the corporation's shares outstanding immediately prior to the
merger. Unless a greater percentage is required by the charter, a sale, lease or
exchange of all or substantially all the property or assets of a corporation or
an amendment to the certificate of incorporation also require the approval of
the holders of a majority of the outstanding stock entitled to vote thereon.
BYLAW AMENDMENTS. Under the OBCA, either stockholders or directors may
make, amend or repeal bylaws, but director bylaws are subject to later
confirmation by the stockholders. Under the DGCL, stockholders may adopt, amend
or repeal bylaws. In addition, directors of a corporation, if authorized by the
certificate of incorporation, may adopt, amend or repeal bylaws, such action not
being subject to later stockholder confirmation.
AMENDMENTS TO THE CHARTER. Under the OBCA, an amendment to a
corporation's articles of incorporation requires the affirmative vote of at
least two-thirds of the votes cast by stockholders entitled to vote thereon
represented in person or by proxy and in most instances, the affirmative vote of
at least two-thirds of the votes cast within each class or series of outstanding
shares by stockholders represented in person or by proxy. Under the DGCL, an
amendment to a corporation's certificate of incorporation requires the approval
of a majority of the outstanding stock entitled to vote, unless such level of
approval is increased by the certificate of incorporation. In addition, under
the DGCL, if the amendment to the certificate of incorporation adversely affects
the rights of a particular class of stock, that class is entitled to vote
separately on the amendment whether or not it is designated as voting stock.
REMOVAL OF DIRECTORS. Under both the OBCA and DGCL, directors may
generally be removed, with or without cause, by a vote of the holders of a
majority of the shares being voted. However, under the DGCL, if the board is
classified, directors may be removed only for cause, unless the certificate of
incorporation provides otherwise. Further, if a director is elected by holders
of a class or series of shares, the OBCA provides that only the stockholders of
that class or series can vote to remove that director, with or without cause,
whereas the DGCL provides that only the stockholders of that class or series can
vote to remove that director without cause. Finally, in the case of a
corporation having cumulative voting, under both the OBCA and the DGCL, a
director may not be removed from office without cause if the votes cast against
the director's removal would be sufficient to elect such director and such votes
could be voted cumulatively at an election at which the same total number of
votes were cast and, (i) in the case of OBCA, the number of directors required
by the articles were
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then being elected, or (ii) in the case of DGCL, the entire board is being
elected or, if there are classes of directors, the class of directors of which
such director is a part is being elected.
QUORUM OF STOCKHOLDERS. Under the OBCA, a quorum for stockholders'
meetings consists of the holders of a majority of the outstanding shares,
present in person or represented by proxy, unless the bylaws otherwise provide.
Under the DGCL, a quorum consists of a majority of shares entitled to vote,
present in person or represented by proxy, unless the charter or bylaws provide
otherwise, but in no event may a quorum consist of less than one-third of the
shares entitled to vote at the meeting.
NOTICE AND CALLING OF STOCKHOLDER MEETINGS. Under the OBCA,
stockholders' meetings may be called by the board of directors and must be
called by the board when so requested by the holders of not less than 5% of the
voting shares, on a minimum of 21 days' notice. Under the DGCL, unless the
certificate of incorporation or bylaws authorize additional persons, only the
board of directors may call a stockholders' meeting, on ten days' notice.
STOCKHOLDER CONSENT IN LIEU OF MEETING. Under the OBCA, stockholder
action without a meeting may only be taken by unanimous written consent of all
stockholders. Under the DGCL, unless otherwise provided in the charter,
stockholders may act by written consent without a meeting if holders of
outstanding stock representing not less than the minimum number of votes that
would be necessary to take such action at an annual or special meeting execute a
written consent providing for such action.
APPRAISAL RIGHTS. The DGCL does not give appraisal rights in a merger
or consolidation to holders of stock listed on a national securities exchange
(such as the Nasdaq SmallCap market) or held of record by more than 2,000
stockholders, provided that such holders receive shares of stock of the company
surviving the merger or consolidation or shares of stock of any other company
which is either listed on a national securities exchange or held of record by
more than 2,000 stockholders. The OBCA does not contain any similar exemption
from its provisions relating to dissenter's rights of appraisal for
amalgamations. In addition, appraisal rights are available under the DGCL for
sales of all or substantially all of the corporation's assets or charter
amendments only if the charter so provides. Stockholders are entitled to
appraisal rights under the OBCA in connection with the sale, lease or exchange
of all or substantially all the assets of a company and for charter amendments
which affect share issuance or transferability or corporate purposes or which
would require a separate class vote.
STOCKHOLDER REGISTER. A Delaware company's stock ledger showing the
names, addresses and security ownership of its stockholders may be inspected
only by directors and stockholders of record for a purpose reasonably related to
their respective interests as directors or stockholders. Stockholders and
certain other persons may inspect the stockholder list of an Ontario company
that is an offering corporation.
DIVIDENDS AND DISTRIBUTIONS. The DGCL and OBCA treat dividends
similarly. The DGCL permits a company, unless otherwise restricted by the
certificate of incorporation, to pay dividends out of surplus or, if there is no
surplus, out of net profits for the current and preceding fiscal year (provided
that the amount of capital of the company is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets). In addition, the DGCL
generally provides that a company may redeem or repurchase its shares only if
such redemption or repurchase would not impair the capital of the corporation.
The ability of a Delaware company to pay dividends on, or to make repurchases or
redemptions of, its shares is dependent on the financial status of the company
standing alone and not on a consolidated basis. In determining the amount of
surplus of a Delaware company, the assets of the company, including stock of
subsidiaries owned by the company, must be valued at their fair market value as
determined by the board of directors if fair market value is less than
historical book value and may be valued at their fair market value if fair
market value is greater than historical book value. Under the OBCA, a company
may not declare or pay a dividend if there are reasonable grounds for believing
that the company is or after the
72
<PAGE>
payment would be, unable to pay its liabilities as they become due, or if the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and stated capital of all classes.
DIRECTOR QUALIFICATION AND NUMBER. A majority of the directors of an
Ontario company must be Canadian residents. The DGCL has no similar requirement.
The number of directors of a Delaware company may be changed by resolution of
the directors if the charter or bylaws so provide (as is the case with the
Bylaws of WAW) while the charter of an Ontario company must specify the number
or range for the number of directors and if authorized by a special
stockholders' resolution, in between stockholders' meetings, the directors may
increase the number of directors within the minimum and maximum range provided
that they may not do so if after such appointment, the total number of directors
would be one and one-third times greater than the number of directors required
to have been elected at the last annual meeting of stockholders.
DIRECTOR LIABILITY. Under the DGCL, the charter of a Delaware company
may eliminate or limit the personal liability of a director to the stockholders
of the company for monetary damages for breach of fiduciary duty, except that
such provision shall not eliminate or limit the liability of a director for: (i)
any breach of a director's duty of loyalty to the company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of a dividend or approval of a
stock repurchase in violation of statutory limitations or (iv) any transaction
from which a director derived an improper personal benefit. The OBCA has no
comparable provision. Such a charter provision under the DGCL does not affect
the right of a company or its stockholders to pursue equitable remedies such as
an action to enjoin or rescind a transaction involving a breach of a director's
duty of care (although such equitable remedies may not always be available) and
in no way affects a director's liability under United States federal securities
laws.
OPPRESSION RELIEF AND EQUITABLE REMEDIES. The OBCA creates a cause of
action for "oppression" and "unfairness" with respect to stockholders,
creditors, directors and officers and vests the court with broad remedial powers
in connection therewith. The DGCL contains no comparable provision and the scope
of the equitable powers of the Delaware courts as defined by existing case law
is less certain than the scope of the powers of Ontario courts.
In addition, certain differences between the powers granted to
companies under the DGCL and the powers granted to companies under the OBCA may
make a Delaware company less vulnerable than an Ontario company to hostile
takeover attempts. These differences include the absence of power of
stockholders to call special meetings unless expressly granted as discussed
above. On the other hand, because of such provisions as the power of
stockholders to take action without a meeting by less than unanimous consent,
the DGCL may, under some circumstances, facilitate a hostile takeover attempt.
73
<PAGE>
THE PROPOSED AMENDMENT TO WAW'S CERTIFICATE OF INCORPORATION
GENERAL
The Board of Directors of the Company has determined that it is
advisable to amend the Company's Certificate of Incorporation and recommends
that the Company's stockholders approve the proposed amendment pursuant to which
(i) Article FOURTH of WAW's Certificate of Incorporation shall be amended to
increase the authorized shares of WAW common stock from 10,000,000 shares to
50,000,000 shares in order to permit, among other things, the issuance of shares
in connection with the Transaction described elsewhere in this Proxy
Statement/Prospectus and (ii) Article FIRST of WAW's Certificate of
Incorporation shall be amended to change the Company's name to TeleHubLink
Corporation. A copy of the Amendment is set forth in the Form of Certificate of
Amendment to the Certificate of Incorporation attached to this document as Annex
B and the following discussion is qualified by reference to the Form of
Certificate of Amendment.
The Board of Directors of WAW believes that the proposed amendment is
in the best interests of WAW and its stockholders and unanimously recommends
that the stockholders of WAW vote FOR the approval of the proposed amendment. As
described elsewhere in this Proxy Statement/Prospectus, the obligations of WAW,
TeleHub and the TeleHub shareholders to complete the Transaction are subject to,
among other things, the approval by WAW's stockholders of the Share Purchase
Agreement and the proposed amendment at the Special Meeting. In the event either
of the proposals is not approved by the stockholders of WAW, then neither
proposal will be implemented and the Transaction will not be completed,
notwithstanding that the other proposal may have been approved by the
stockholders of WAW.
Under Delaware law, approval of the proposed amendment requires the
affirmative vote of a majority of the total number of shares of WAW common stock
which are outstanding and entitled to vote thereon. Messrs. Cornstein, Miller
and Munley have agreed to vote their shares of WAW common stock in favor of the
approval of the Amendment. Messrs. Cornstein, Miller and Munley represent, in
the aggregate, approximately 54.3% of the issued and outstanding shares of WAW
Common Stock. Accordingly, the affirmative vote of Messrs. Cornstein, Miller and
Munley will be sufficient to approve the proposed amendment, and no action on
the part of any other stockholder will be required for such approval.
INCREASE IN AUTHORIZED SHARES
The Board of Directors has unanimously approved the proposed amendment
to WAW's Certificate of Incorporation in order to facilitate the Transaction. As
of the date hereof, there are 10,000,000 shares of WAW common stock authorized
by WAW's Certificate of Incorporation, of which 2,118,125 shares are issued and
outstanding, 600,000 shares are reserved for issuance upon exercise of options
granted or to be granted under WAW's 1994 Stock Option Plan and Nonemployee
Directors' Stock Option Plan, 1,150,000 shares are reserved for issuance upon
exercise of the redeemable common stock purchase warrants issued in the 1994
initial public offering and 400,000 shares are reserved for issuance upon
exercise of other currently outstanding options and warrants. As a result, there
currently remain only 5,731,875 shares of WAW common stock which are available
for issuance. Pursuant to the terms of the Share Purchase Agreement, WAW shall
be required to issue to the TeleHub shareholders, on the Closing Date, an
aggregate of 13,011,339 shares of WAW common stock and, pursuant to the terms of
WAW's engagement letter with Prospect Capital, WAW shall be required to issue to
Prospect Capital 150,000 shares of WAW common stock on the Closing Date.
Accordingly, the Company will be required to increase the number of authorized
but unissued shares of WAW common stock in order to consummate the Transaction
in accordance with the terms of the Share Purchase Agreement.
In addition, the Board of Directors believes that it is in the
Company's and the Company's stockholders best interest to increase the number of
authorized but unissued shares of common stock in order to have
74
<PAGE>
additional authorized shares available for issuance without further action or
authorization by the Company's stockholders (except as may be required by law or
any stock exchange on which the Company's securities may then be listed) in
order to meet business needs as they arise. The Board of Directors believes that
the availability of authorized shares of common stock in excess of those either
issued or reserved for issuance will provide the Company with the flexibility to
issue WAW common stock for other corporate purposes which are identified from
time to time by the Board of Directors and which the Board may deem advisable.
For example, such additional shares would be available for issuance in
connection with future financing activities and existing or future stock-based
employee benefit or other plans, possible future stock splits, the possible
acquisition of other companies and properties and other corporate purposes.
Other than the Transaction, the Company's management currently has no
arrangements, agreements, understandings or commitments, either oral or written,
for the issuance or use of any of the additional shares of WAW common stock
proposed to be authorized. The issuance of any additional shares of WAW common
stock may have a dilutive effect on earnings per share and voting power of the
then existing stockholders. Upon issuance, such shares will have the same rights
as outstanding shares of WAW common stock. Stockholders do not have preemptive
rights to subscribe for any additional shares of WAW common stock and will not
have such rights unless the Company's Board of Directors grants such rights at
the time of issuance. The Board of Directors does not intend to issue any shares
of WAW common stock except on terms which the Board deems to be in the best
interest of the Company and its then existing stockholders.
An increase in the authorized shares of WAW common stock could have an
anti-takeover effect by making more difficult, and thereby discouraging,
attempts to acquire control of the Company, even though stockholders may deem
such an acquisition to be desirable. Issuances of shares of WAW common stock
could dilute the stock ownership of a person seeking to effect a change in the
composition of the Board of Directors or contemplating a tender offer or other
transaction for the combination of the Company with another company. In
addition, shares of WAW common stock could be issued in a private placement to
one or more persons or organizations sympathetic to management and opposed to
any takeover bid. This proposal to amend the Certificate of Incorporation is not
in response to any effort of which the Company is aware to accumulate the
Company's securities or obtain control of the Company. The Board of Directors
does not presently contemplate recommending the adoption of any other amendments
to the Certificate of Incorporation which could be construed to affect the
ability of third parties to take over or change control of the Company.
CHANGE OF NAME
As described elsewhere in this Proxy Statement/Prospectus, as a result
of the Sale, the Company ceased operating as a mall-based specialty retailer of
nature-related products in May 1997 and, since such time, has served as a
vehicle to effect acquisitions of operating businesses. As a result of the
Transaction, the Company's business will become substantially the same as the
business conducted by TeleHub prior to the Transaction. Accordingly, the Board
of Directors believes that it is in the best interest of the Company to change
the name of the Company to TeleHubLink Corporation at the time of the
Transaction in order to reflect more accurately the business of the Company
following the Transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS
OF THE COMPANY VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION.
75
<PAGE>
ELECTION OF DIRECTORS OF WAW
The Board of Directors of WAW has nominated the five individuals whose
names are set forth below for election to the Board of Directors of WAW, each to
hold office until the next annual meeting of stockholders of WAW and until his
successor is elected and duly qualified. Of the five individuals nominated for
election to the WAW Board of Directors at the Special Meeting, four have been
designated by TeleHub and only one nominee, Mr. Cornstein, has been designated
by WAW to serve after consummation of the Transaction. Unless otherwise
specified, the enclosed proxy will be voted in favor of the election of the
persons named below, only one of which, Mr. Cornstein, is now a director of the
Company. In the event that any of such nominees for election at the Special
Meeting should become unavailable for election for any reason not presently
known, it is intended that votes will be cast pursuant to the accompanying proxy
for such substitute nominees as the Board of Directors may designate unless the
Board of Directors reduces the number of directors. The directors are to elected
by the affirmative vote of the holders of a plurality of the shares of WAW
common stock entitled to vote and present in person or represented by proxy at
the Special Meeting. If the Transaction is not consummated, the current
directors of the Company (including Mr. Cornstein) will continue as the
directors of WAW.
INFORMATION REGARDING NOMINEES
The Board of Directors has nominated David B. Cornstein, Stanley Young,
Patrick Thomas, John DeLuca, and Bruce Young for election to the Board of
Directors of WAW. For information regarding Mr. Cornstein, see "Management of
WAW." For information regarding Messrs. Young, Thomas, DeLuca and Young, see
"Management of TeleHub." In addition, for information concerning (i) meetings of
the WAW Board of Directors, (ii) compensation of WAW directors, (iii) executive
compensation and (iv) certain relationships and related transactions, see
"Management of WAW" and "Management of TeleHub." Of the five individuals
nominated for election to the WAW Board of Directors at the Special Meeting,
four have been designated by TeleHub and only one nominee, Mr. Cornstein, has
been designated by WAW to serve after completion of the Transaction.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR election of
the nominees identified above as directors of the Company.
LEGAL MATTERS
The legality of the Transaction and the consummation of the
transactions contemplated thereby and by the proposed amendment to the Company's
Certificate of Incorporation will be passed upon for the Company by Tenzer
Greenblatt LLP, New York, New York and for TeleHub by LaBarge Weinstein, Ottawa,
Ontario Canada. James Martin Kaplan, a partner of Tenzer Greenblatt LLP, is a
stockholder and director of the Company. Deborah Weinstein, a partner of LaBarge
Weinstein, is a stockholder of TeleHub.
EXPERTS
The financial statements of the Company as of January 31, 1998 and for
the year ended January 31, 1998 included in this Proxy Statement/Prospectus have
been audited by Kirkland, Russ, Murphy & Tapp, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The unaudited financial statements of TeleHub as of and for the three months
ended October 31, 1998 included in this Proxy
76
<PAGE>
Statement/Prospectus have been reviewed by Giroux Menard et Associes,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Proposals of the Company's stockholders intended to be presented at the
1999 Annual Meeting of the Company must be received by the Company at What A
World!, Inc., P.O. Box 20125, Tampa, Florida, 33622, Attention: Secretary no
later than ____________________, 1999.
OTHER ACTION AT MEETING AND VOTING OF PROXIES
The Board of Directors of the Company does not know of any matters to
come before the Special Meeting other than those specified in the Notice of
Special Meeting accompanying this Proxy Statement/Prospectus. If any matters not
set forth in the Notice of Special Meeting properly come before the Special
Meeting or any adjournment thereof, the persons named in the enclosed form of
proxy solicited by the Board of Directors will vote such proxy in accordance
with their judgment on such matters.
By Order of the Board of Directors,
DAVID B. CORNSTEIN DAVID F. MILLER
CHAIRMAN OF THE BOARD SECRETARY
Tampa, Florida
___________, 1999
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WHAT A WORLD!, INC.:.......................................................... F-1
Report of Kirkland, Russ, Murphy & Tapp................................... F-2
Report of Arthur Andersen, LLP............................................ F-3
Balance Sheet as of January 31, 1998...................................... F-4
Statements of Operations and Accumulated Deficit for the years
ended January 31, 1998 and February 1, 1997............................. F-5
Statements of Cash Flows for the years ended January 31, 1998
and February 1, 1997.................................................... F-6
Notes to Financial Statements............................................. F-8
Condensed Balance Sheets as of January 31, 1998 and October 31,
1998 (Unaudited)........................................................F-17
Condensed Statements of Operations for the Thirteen Weeks Ended
November 1, 1997 and October 31, 1998 and the Thirty-Nine Weeks Ended
November 1, 1997 and October 31, 1998 (Unaudited).......................F-18
Condensed Statements of Cash Flows for the Thirty-Nine Weeks Ended
November 1, 1997 and October 31, 1998 (Unaudited).......................F-20
Notes to Condensed Financial Statements (Unaudited).......................F-21
TELE HUB LINK CORPORATION:
Report of Giroux, Menard et Associes...................................... F-23
Statement of Earnings and Deficit for the Initial Period of Three Months
Ended October 31, 1998 (Unaudited)...................................... F-24
Balance Sheets as of July 31, 1998 and October 31, 1998 (Unaudited)....... F-25
Statement of Changes in Financial Position for the Initial Period of Three
Months Ended October 31, 1998 (Unaudited)................................ F-26
Notes to Financial Statements for the Initial Period of Three Months Ended
October 31, 1998 (Unaudited)............................................. F-27
Additional Information for the Initial Period of Three Months Ended
October 31, 1998 (Unaudited)............................................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
What A World!, Inc.:
We have audited the accompanying balance sheet of What A World!, Inc. (a
Delaware corporation) as of January 31, 1998 and the related statements of
operations and accumulated deficit 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.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of 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 financial statements referred to above present fairly,
in all material respects, the financial position of What A World!, Inc. as of
January 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring operating losses, the Board of
Directors' unanimous approval of the sale of substantially all of the Company's
operating assets, the speculative nature of the post-sale business, and the lack
of liquidity and financing raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Clearwater, Florida
May 13, 1998 /s/ Kirkland, Russ, Murphy, & Tapp
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
What A World!, Inc.
We have audited the accompanying statements of operations and accumulated
deficit and cash flows of What a World!, Inc. for the year ended February 1,
1997. 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.
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 of 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 financial statements referred to above present fairly,
in all material respects, the results of operations of What a World!, Inc. and
its cash flows for the year ended February 1, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring operating losses, the Board of
Directors' unanimous approval of the sale of substantially all of the Company's
operating assets, the speculative nature of the post-sale business, and the lack
of liquidity and financing raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Tampa, Florida,
March 29, 1997 /s/ Arthur Andersen, LLP
F-3
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
BALANCE SHEET
JANUARY 31, 1998
ASSETS
JANUARY 31, 1998
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 130,713
Certificate of deposit --
Inventories --
Prepaid expenses and other current assets 6,873
-----------
Total current assets 137,586
Property and equipment, net 2,500
Other assets --
-----------
$ 140,086
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,000
Accrued expenses 60,950
Current maturities on capital lease obligations 1,518
-----------
Total current liabilities 92,468
Capital lease obligations 1,849
-----------
Total liabilities 94,317
-----------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized, 2,118,125 shares issued and outstanding
at January 31, 1998 21,181
Additional paid-in capital 4,538,782
Accumulated deficit (4,514,194)
-----------
Net stockholders' equity 45,769
-----------
$ 140,086
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Continuing operations:
General and administrative expenses $ 214,904 $ 223,736
----------- -----------
Loss from continuing operations (214,904) (223,736)
Discontinued operations:
Loss from discontinued operations (508,186) (2,304,875)
Loss on disposal of assets and adjustment
to net realizable value of accounts
payable and capital lease obligations (393,741) --
----------- -----------
Net loss (1,116,831) (2,528,611)
Accumulated deficit, beginning of year (3,397,363) (868,752)
----------- -----------
Accumulated deficit, end of year $(4,514,194) $(3,397,363)
=========== ===========
Net loss from continuing operations per
weighted average common and common
equivalent share - basic and diluted $ (.10) (.10)
Net loss from discontinued operations per
weighted average common and common
equivalent share - basic and diluted (.24) (1.09)
Net loss on disposal of assets and adjustment
to net realizable value of accounts payable
and capital lease obligations per weighted
average common and common equivalent
share - basic and diluted (.19) --
----------- -----------
Net loss per weighted average common and
common equivalent share - basic and
diluted $ (.53) $ (1.19)
=========== ===========
Weighted average common and common
equivalent shares outstanding - basic and
diluted 2,118,125 2,118,125
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,116,831) (2,528,611)
Adjustments to reconcile net loss to
net cash and cash equivalents:
Depreciation and amortization 118,000 386,749
Loss on sale of equipment -- 4,114
Loss on disposal of assets and
adjustment to net realizable
value of accounts payable and
capital lease obligations 393,741 --
Loss on impairment -- 1,485,535
Changes in operating assets and liabilities:
Decrease in construction
allowance receivable -- 267,000
(Increase) decrease in
inventories 198,015 (228,786)
Decrease in prepaid expenses
and other current assets 41,178 84,262
(Increase) decrease in other
assets 14,812 (2,713)
Increase (decrease) in accounts
payable (1,076,938) 834,192
Decrease in accrued expenses (196,829) (223,712)
Increase in deferred rent -- 87,479
----------- -----------
Net cash provided by (used
in) operating activities (1,624,852) 165,509
Cash flows from investing activities:
Purchases of property and
equipment -- (212,391)
Proceeds from Sale Agreement 517,795 --
F-6
<PAGE>
Proceeds from sale of equipment -- 15,900
Redemption of certificate of
deposit 100,000 --
----------- -----------
Net cash provided by (used
in) investing activities 617,795 (196,491)
Cash flows from financing activities:
Borrowings under related party
loan agreements -- 410,000
Repayment of related party loans -- (410,000)
Payments made on capital lease
obligations (156,419) (61,827)
----------- -----------
Net cash used in financing
activities (156,419) (61,827)
Net decrease in cash and
cash equivalents (1,163,476) (92,809)
Cash and cash equivalents, beginning
of year 1,294,189 1,386,998
----------- -----------
Cash and cash equivalents, end of
year $ 130,713 $ 1,294,189
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for
interest $ 10,186 $ 36,789
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
What A World!, Inc. (Company) was a mall-based unique gift specialty
retailer. The Company's assortment of products generally targeted
customers who have an active interest in nature, the outdoors and
science. The Company opened its first store in August 1993 and had 12
permanent stores in operation at February 1, 1997, which were located
in major regional malls. Ten of those stores were located in Florida
and one store each was located in New York and New Jersey. In addition,
the Company operated three temporary holiday outlets (temporary stores)
in Florida and 13 temporary stores in Florida, Georgia and South
Carolina during the 1995 and 1996 Christmas selling season,
respectively.
(b) Discontinued Operations and Subsequent Sale of Operations
SALE OF OPERATIONS
In February 1997, the Company's Board of Directors approved the sale of
substantially all of the Company's operating assets and decided to
discontinue the Company's retail business.
The Company operated its chain of mall-based specialty gift retail
stores until March 10, 1997. On March 7, 1997, the Company and Natural
Wonders, Inc. (the Buyer) entered into an Asset Purchase Agreement
(Sale Agreement) pursuant to which the Company agreed, subject to
stockholder approval, to transfer to the Buyer substantially all of its
operating assets (including specified inventories, fixed assets and
tangible personal property, intangible personal property and contract
rights and store leases) in consideration for the payment by Buyer of
approximately $500,000 in cash, subject to certain adjustments, and the
assumption by the Buyer of certain liabilities (including the Company's
store leases) (Sale). In addition, in order to immediately implement
the benefits of the Sale Agreement (and to reduce operating losses
which were continuing to be incurred by the Company), the Company and
the Buyer entered into an agreement, effective March 10, 1997 through
the closing of the Sale Agreement, pursuant to which the Buyer began to
operate the Company's specialty retail gift business. The Buyer agreed
to fund certain costs, expenses and liabilities associated with the
operation of the Company during the term of such agreement. On May 22,
1997, the stockholders approved the sale transaction and the Sale was
completed.
DISCONTINUED OPERATIONS REPORTING
As a result of the sale on May 22, 1997, the results of What A World!,
Inc. for all years presented are reported in the accompanying
reclassified statements of operations and accumulated deficit under
discontinued operations. During fiscal year 1996, the Company wrote
down certain assets of the retail operation to their net realizable
values and recognized the cost of disposing these operations. In
addition, in the first quarter of fiscal year 1997 the Company revalued
its estimate of a majority of its accounts payable and capital lease
obligation balances reducing the balances to reflect the realizable
value of the total debt based on the Company's negotiation of debt
concessions from its debtors.
Upon closing of the Sale Agreement, the Company has been paying its
remaining liabilities and obligations with available cash and the
proceeds of the Sale Agreement. The Company has since become
F-8
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
an acquisition vehicle to effect acquisitions, whether by merger,
exchange of capital stock, acquisition of assets, or other similar
business combination with an operating business. Since the closing of
the sale transaction, the Company's ability to meet its general and
administrative cost obligations has become limited, and the Company
does not have an operating business to generate income and may have
limited excess cash, if any, upon paying its vendors and other
liabilities. There is no assurance that funds will be available from
any source, particularly in light of the Company's anticipated
financial condition, to effect any such business combinations. The
Company has not entered into any arrangements in which it will attempt
to obtain an interest.
Total revenues related to discontinued operations for the years
reported on in the statements of operations and accumulated deficit
were $1,640,151 and $8,166,755 for the years ended January 31, 1998 and
February 1, 1997, respectively.
(c) Fiscal Year
The years ended January 31, 1998 and February 1, 1997 were 52-week
years.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with
original maturities of less than three months.
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets. Assets acquired under capital lease obligations and leasehold
improvements are amortized over the lesser of the useful lives of the
assets or the lease terms. Maintenance and repairs of property and
equipment are expensed as incurred, and major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation or amortization are
eliminated from the accounts, and any gain or loss is charged or
credited to operations.
In the year ended February 3, 1996, the Company adopted the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of" (SFAS 121). The
impact of adopting SFAS 121 is reflected in loss on impairment in the
accompanying statements of operations and accumulated deficit for the
year ended February 1, 1997.
(f) Net Loss Per Share of Common Stock
In the fourth quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128).
Under SFAS 128, basic net loss per share of common stock is computed by
dividing income available to common stockholders by the weighted
average number of common shares actually outstanding during the period.
Diluted net loss per share of common stock presents loss attributable
to common shares actually outstanding plus potential dilutive common
shares
F-9
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
outstanding during the period. The Company's options and warrants were
not included in computing dilutive net loss per common stock because
their effects were anti-dilutive.
(g) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(h) Seasonality
The Company's business was highly seasonal, with a substantial portion
of its revenues derived from product sales during the months of
November and December. If for any reason the Company's sales were
substantially below those normally expected in the fourth quarter of
any fiscal year, the Company's operating results would be materially
adversely affected.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of January 31, 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES AMOUNT
------------ ------
<S> <C> <C>
Furniture, fixture and equipment 5 years $ 7,500
--------
Less - accumulated depreciation
and amortization (5,000)
--------
$ 2,500
========
</TABLE>
The Company recorded a loss on impairment of equipment and leasehold
improvements at certain store locations to their net realizable value in
fiscal 1996 and is included in the net loss from discontinued operations. A
majority of these assets represented improvements to the property, which
were revalued to zero, since they could not be sold or used in other store
locations.
(3) COMMITMENTS AND CONTINGENCIES
Prior to the Sale on May 22, 1997, the Company leased retail store space and
office space under operating leases set up to expire in various years
through 2005. These leases included fixed rent payments that escalated over
the term of the lease and contingent rent payments based on gross sales
exceeding certain thresholds. There were no contingent rent payments for the
years ended January 31, 1998 and February 1, 1997.
F-10
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(3) COMMITMENTS AND CONTINGENCIES (Continued)
As a result of the Sale Agreement, the Company agreed to assign their
existing operating leases to the Buyer. The Company received landlord
consent for all of the lease assignments except two. For one assigned lease
lacking landlord consent, the Buyer is negotiating on the Company's behalf
with the landlord for their consent. The other remaining assigned lease did
not require landlord consent for the assignment; however, certain
requirements for lease assignment were set up by the landlord in the lease
contract. The Company, as well as the Buyer, believes that the Buyer has
satisfactorily complied with the landlord's requirements for assigning this
lease obligation. The Company may still be held liable under these lease
obligations should the Buyer default on the assigned leases.
Approximate minimum future rental payments under these noncancelable
operating leases (exclusive of common area maintenance charges) as of
January 31, 1998 were as follows:
<TABLE>
<CAPTION>
ASSIGNED UNASSIGNED
FISCAL YEAR LEASES LEASES
----------- -------- ----------
<S> <C> <C>
1999 $ 819,000 $ 81,000
2000 846,000 84,000
2001 871,000 89,000
2002 921,000 89,000
2003 981,000 89,000
Thereafter 1,842,000 $ 278,000
---------- ---------
$6,280,000 $ 710,000
========== =========
</TABLE>
Total rent expense, including common area maintenance charges under the
Company's operating leases, was approximately $194,000 and $1,328,000 during
the years ended January 31, 1998 and February 1, 1997, respectively.
Through May 22, 1997, the Company maintained a $100,000 letter-of-credit to
serve as collateral for primarily all of the Company's capital lease
obligations. The letter-of-credit was set up to expire in November 1997,
however, as a result of the Sale the Company's letter-of-credit was no
longer applicable, therefore it was canceled.
Future minimum lease payments under capital lease obligations, together with
the present value of the future minimum lease payments, were as follows as
of January 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1999 $1,779
2000 1,936
------
Total minimum lease obligations 3,715
Less interest (348)
------
Present value of capital lease obligations,
including current maturities of $1,518 $3,367
======
</TABLE>
F-11
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(3) COMMITMENTS AND CONTINGENCIES (Continued)
Effective March 26, 1996, the original president of the Company resigned.
The original president had an employment agreement (Agreement) with the
Company which, as amended, expired in February 1997. All amounts due to the
original president under this Agreement had been paid as of January 31,
1998. The Company does not have an employment agreement with its' current
president.
The Company had a $55,000 corporate credit line as of February 1, 1997, to
facilitate employee expenses. The amount outstanding under this line was
minimal as of February 1, 1997 and was included in accounts payable in the
accompanying 1997 balance sheet. As a result of the Sale, this corporate
credit line was terminated and repaid.
The Company is not a party or subject to any legal proceedings, other than
claims and lawsuits arising in the ordinary course of business. The Company
does not believe that any such claims or lawsuits will have a material
adverse effect on its financial condition or results of operations.
(4) INCOME TAXES
As of January 31, 1998, the Company had net deferred income tax assets of
approximately $819,000 which was fully offset by a valuation allowance. The
vast majority of net deferred income tax asset (before allocation of the
valuation allowance) consisted of net operating loss (NOL) carryforwards as
of January 31, 1998.
As of January 31, 1998, the Company had federal NOL carryforwards of
approximately $2,183,000. Approximately $90,000 of the NOL was associated
with the period January 1, 1995 through January 28, 1995, and can be carried
forward ratably over the next three fiscal years. Approximately $2,093,000
of the NOL relates to the Company's C corporation periods and can be carried
forward through periods ranging from 2009 to 2013. The benefit of the NOL
carryforwards most likely will not be realized due to the Company's
discontinued operations from the specialty retail business and subsequent
change to an acquisition company after the closing of the sale transaction.
(5) RELATED PARTY TRANSACTION
During the year ended February 1, 1997, the Company entered into agreements
with three members of its Board to borrow up to $600,000 to fund operations.
The Company borrowed $410,000 under these agreements, all of which was
repaid before February 1, 1997. Outstanding balances under these agreements
accrued interest at 12% per annum, and interest of approximately $9,000 is
included in interest expense in the accompanying statements of operations
and accumulated deficit. Additionally, the Company granted to the three
directors one warrant for every three dollars of borrowings made available
(see Note 6). There were no similar related party transactions during the
year ended January 31, 1998.
F-12
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(6) WARRANTS
As of January 31, 1998, the following warrants were outstanding:
<TABLE>
<CAPTION>
TITLE OF AGGREGATE
ISSUANCE OF AMOUNT OF
SECURITY CALLED SECURITIES
FOR BY CALLED FOR BY TERMS OF EXERCISE REDEMPTION
TITLE WARRANTS WARRANTS WARRANTS PRICE PRICE
----- --------------- ------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Redeemable
warrants Common Stock 1,150,000 5/17/95-5/17/98 $ 5.00 $ 0.10
Underwriters'
warrants Common Stock 100,000 11/17/95-11/17/99 7.25 -
Underwriters' Redeemable
warrants Warrants 100,000 11/17/95-11/17/99 .145 -
Directors' warrants Common Stock 200,000 8/31/96-8/31/01 1.00 -
---------
Warrants
outstanding 1,550,000
=========
</TABLE>
The Redeemable Warrants may be redeemed by the Company, subject to certain
conditions, at $.10 per warrant if the Company's common stock trades for 20
consecutive days at or above $7.50 per share. The Underwriter's Warrants and
Directors' Warrants are not redeemable by the Company. The effect of
warrants outstanding has not been included in the weighted average common
and common equivalent shares outstanding on the accompanying statements of
operations and accumulated deficit, as these warrants would have an
antidilutive effect on net loss per weighted average common and common
equivalent share.
(7) STOCK OPTION PLANS
1994 Non-Employee Directors' Stock Option Plan
In November 1994, the Board adopted the 1994 Non-Employee Directors' Stock
Option Plan (the Directors' Plan), which became effective upon the date of
the Company's initial public offering (Offering), reserving 40,000
unregistered shares of common stock for issuance under the Directors' Plan.
Options under Directors' Plan vest ratable over three years and may be
exercised for ten years from the grant date. The exercise price per share of
each stock option will be equal to the fair market value of the stock on the
date of grant. No options were granted during the year ended January 31,
1998. During the year ended February 1, 1997, the Company granted 10,000
options to non-employee directors at an exercise price of $1.50 under the
Directors' Plan.
F-13
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(7) STOCK OPTION PLANS (Continued)
1994 Stock Option Plan
In November 1994, the Board adopted the 1994 Stock Option Plan (Stock Option
Plan) which became effective upon the effective date of the Offering,
reserving 260,000 unregistered shares of common stock for issuance under the
Stock Option Plan as incentive or non-incentive stock options. Options under
the Stock Option Plan vest ratable between one and five years as stated and
may be exercised for ten years from the grant date. The exercise price per
share of each stock option will be an amount not less than the par value of
such shares and, in the case of incentive options, not less than the fair
market value of such shares on the date of the grant. No options were
granted during the year ended January 31, 1998, under the Stock Option Plan.
In May 1996, the Stock Option Plan was amended to add 300,000 shares to the
previously authorized shares that were subject to options under the Stock
Option Plan, resulting in a total of 560,000 shares of common stock
available to grant under the Stock Option Plan. During the year ended
February 1, 1997, the Company granted 400,000 options at exercise prices
ranging from $1.00 to $1.68 per share under the Stock Option Plan.
Aggregate Stock Option Activity
The following table summarizes information about the aggregate stock option
activity for the years ended January 31, 1998 and February 1, 1997:
<TABLE>
<CAPTION>
JANUARY 31, 1998 FEBRUARY 1, 1997
---------------- ----------------
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of
year 540,000 $2.24 130,000 $4.54
Granted - - 410,000 1.51
Exercised - - - -
Forfeited - - - -
-------- ----- ------- -----
Outstanding, end of year 540,000 $2.24 540,000 $2.24
======= ===== ======= =====
Options vested, end of
year 356,667 $2.61 293,333 $2.85
======= ===== ======= =====
</TABLE>
The weighted-average fair value of options granted during the year ended
February 1, 1997 was $.69.
F-14
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(7) STOCK OPTION PLANS (Continued)
The following table summarizes information about stock options at January
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER WEIGHTED-AVERAGE REMAINING CONTRACTUAL NUMBER WEIGHTED-AVERAGE
PRICE OUTSTANDING EXERCISE PRICE LIFE (YEARS) EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$1.00 70,000 $1.00 8 28,000 $1.00
1.50 110,000 1.50 8 106,667 1.50
1.68 230,000 1.68 8 92,000 1.68
4.25 80,000 4.25 6 80,000 4.25
5.00 50,000 5.00 6 50,000 5.00
------- ----- ---- ------- -----
540,000 $2.24 7.52 356,667 $2.61
======= ===== ==== ======= =====
</TABLE>
The effect of options outstanding has not been included in weighted average
common and common equivalent shares outstanding in the accompanying
statements of operations and accumulated deficit, as these options would
have an antidilutive effect on net loss per weighted average common and
common equivalent share.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans under Accounting Principles
Board Opinion No. 25 (APB 25), under which no compensation expense has been
recognized. In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), which was effective for fiscal years
beginning after December 15, 1995. SFAS 123 allows companies to continue
following the accounting guidance of APB 25, but requires pro forma
disclosure of net income and earnings per share for the effects on
compensation expense had the accounting guidance of SFAS 123 been adopted.
The pro forma disclosures are required only for options granted in fiscal
years beginning after December 15, 1994.
The Company adopted SFAS 123 for disclosure purposes in the year ended
February 1, 1997. For SFAS 123 purposes, the fair value of each option
granted has been estimated as of the grant date using the Black-Scholes
option pricing model with the following weighed average assumptions:
risk-free interest rates ranging from 5.9% to 6.4%, expected life of three
years, no expected dividends, and expected volatility of approximately 60%.
Using these assumptions, the fair value of the stock options granted in the
year ended February 1, 1997, was approximately $75,000, which would be
amortized as compensation expense over the vesting periods of the options.
Had compensation expense been recognized under SFAS 123, utilizing the
assumptions detailed above, the Company's net loss and net loss per weighted
average common and common equivalent share (EPS) would have been changed to
the following pro forma amounts for the fiscal year ended February 1, 1997.
The Company did not grant any options during the year ended January 31,
1998.
F-15
<PAGE>
WHAT A WORLD!, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998 AND FEBRUARY 1, 1997
(7) STOCK OPTION PLANS (Continued)
<TABLE>
<CAPTION>
FEBRUARY 1, 1997
----------------
<S> <C>
Net loss:
As reported $ (2,528,611)
Pro forma (2,570,863)
EPS:
As reported $ (1.19)
Pro forma (1.21)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted in fiscal years beginning prior to December 15, 1994, the resulting
pro forma compensation expense may not be representative of that to be
expected in future years.
(8) SUBSEQUENT EVENTS
Subsequent to January 31, 1998, the Company extended the exercise period of
its publicly-held Redeemable Common Stock Purchase Warrants (Note 6) from
May 17, 1998 to May 17, 2000.
Also, subsequent to January 31, 1998, the Company extended the exercise
period of its publicly-held Directors' Common Stock Purchase Warrants (Note
6) from August 31, 2001 to August 31, 2003.
F-16
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
CONDENSED BALANCE SHEETS
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 130,713 $ 13,178
Prepaid expenses and other current assets 6,873 2,715
----------- -----------
Total current assets 137,586 15,893
Property and equipment, net 2,500 1,375
----------- -----------
Total assets $ 140,086 $ 17,268
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 30,000 $ 2,000
Accrued expenses 60,950 38,400
Current maturities of capital lease obligations 1,518 2,242
----------- -----------
Total current liabilities 92,468 42,642
Capital lease obligations 1,849 -0-
Stockholders' equity:
Common stock 21,181 21,181
Additional paid-in capital 4,538,782 4,538,782
Accumulated deficit (4,514,194) (4,585,337)
----------- -----------
Total stockholders' equity 45,769 (25,374)
----------- -----------
Total liabilities and stockholders' equity $ 140,086 $ 17,268
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -------------------------------------
NOVEMBER 1, 1997 OCTOBER 31, 1998 NOVEMBER 1,1997 OCTOBER 31, 1998
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CONTINUING
OPERATIONS:
General and
administrative expenses $ 44,569 $ 33,946 $ 165,672 $ 71,143
---------- ---------- ----------- -----------
Loss from continuing
operations (44,569) (33,946) (165,672) (71,143)
DISCONTINUED
OPERATIONS:
Loss from discontinued
operations -0- -0- (487,048) -0-
(Loss)/gain on disposal
of assets and
adjustment to net
realizable value of
accounts payable and
capital lease
obligations -0- -0- (393,741) -0-
---------- ---------- ----------- -----------
NET (LOSS)/GAIN $ (44,569) $ (33,946) $(1,046,461) $ (71,143)
========== ========== =========== ===========
Net loss from
continuing operations
per weighted average
common and common
equivalent share - basic
and diluted $ (.02) $ (.02) $ (.08) $ (.03)
Net loss from
discontinued operations
per weighted average
common and common
equivalent share - basic
and diluted N/A N/A (.23) N/A
F-18
<PAGE>
Net (loss)/gain on
disposal of assets and
adjustment to net
realizable value of
accounts payable and
capital lease
obligations per
weighted average
common and common
equivalent share - basic
and diluted N/A N/A (.19) N/A
Net (loss)/gain per
weighted average
common and common
equivalent share - basic
and diluted $ .02 $ (.02) $ (.49) $ (.03)
========== ========== =========== ===========
Weighted average
common and
common equivalent
shares outstanding 2,118,125 2,118,125 2,118,125 2,118,125
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
WHAT A WORLD!, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THIRTY-NINE WEEKS ENDED
-----------------------------------
NOVEMBER 1, 1997 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,046,461) $ (71,173)
Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activities:
Depreciation and amortization 117,250 1,125
Loss on disposal of assets and adjustment to net
realizable value of accounts payable and capital
lease obligations 393,741 -0-
Changes in operating assets and liabilities-
Decrease in inventories 198,015 -0-
Decrease (increase) in prepaid expenses and
other current assets 28,347 4,148
Decrease in other assets 14,812 -0-
Decrease in accounts payable and accrued
expenses (1,239,177) (50,550)
----------- -----------
Net cash and cash equivalents (used in)
operating activities (1,488,904) (116,410)
INVESTING ACTIVITIES:
Proceeds from Sale Agreement 517,795 -0-
Net cash provided by investing activities 517,795 -0-
FINANCING ACTIVITIES:
Payments made on capital lease obligations (156,419) (1,125)
----------- -----------
Net cash and cash equivalents used in financing
activities (156,419) (1,125)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (1,127,528) (117,535)
CASH AND CASH EQUIVALENTS, beginning of
period 1,294,189 130,713
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 62,302 $ 13,178
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 6,967 $ 303
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
WHAT A WORLD!, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Presentation
The accompanying unaudited condensed interim financial statements of
What A World!, Inc. (the "Company") have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended January 31, 1998, which
are included in the Company's Annual Report on Form 10-KSB filed on May
18, 1998 as amended by the Company's Form 10-KSB/A (Amendment No. 1) as
filed on May 28, 1998.
(b) Fiscal Year
The Company's Fiscal Year ends on the Saturday closest to January 31.
(c) Net Loss Per Weighted Average Common and Common Equivalent Share
Net loss per weighted average common and common equivalent share is
computed by dividing net loss by the weighted average number of shares
of common stock outstanding and dilutive common equivalent shares from
stock options and warrants using the treasury stock method.
(2) 1994 STOCK OPTION PLAN:
Following the approval by the Board of Directors and Stockholders of the
Company, effective May 21, 1996, the 1994 Stock Option Plan (the "Stock
Option Plan") was amended to add 300,000 shares to the previously authorized
260,000 shares that were subject to options under the Stock Option Plan. The
amendment resulted in a total of 560,000 shares of common stock available to
grant under the Stock Option Plan.
As of October 31, 1998, 520,000 options were outstanding under the Stock
Option Plan.
(3) DISCONTINUED OPERATIONS:
In February 1997, the Company's Board of Directors approved the sale of
substantially all the Company's operating assets and to discontinue the
Company's retail business. Accordingly, the Company has accounted for and
presented its financial information consistent with discontinued operations,
which considers all activity related to the support and operation of the
specialty retail business as discontinued operations following the Company's
Board of Directors' decision to approve the sale of assets.
The Company operated its chain of mall-based specialty gift retail stores
until March 10, 1997. On March 7, 1997, the Company and Natural Wonders,
Inc. (the "Buyer") entered into an Asset Purchase Agreement (the "Sale
Agreement") pursuant to which the Company agreed, subject to stockholder
approval, to transfer to the Buyer substantially all of its operating assets
(including specified inventories, fixed assets and tangible personal
property, intangible personal property and contract rights and store leases)
in consideration for the payment by Buyer of $517,795 in cash, and the
assumption by the Buyer of certain liabilities. In conjunction
F-21
<PAGE>
WHAT A WORLD!, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1998
(3) DISCONTINUED OPERATIONS (Continued)
with the Sale Agreement and in order to immediately implement the benefits
of the Sale Agreement (and to reduce operating losses which were continuing
to be incurred by the Company), the Company and the Buyer entered into an
agreement, effective March 10, 1997 through the closing of the Sale
Agreement, pursuant to which the Buyer operated the Company's specialty
retail gift business.
The net losses of these operations related to the Sale for the thirteen
weeks ended May 3, 1997 are included in the condensed statements of income
under "Discontinued Operations". The net gain or loss reflected in the
condensed statements of income includes the write-down of the assets of the
retail operation to the net realizable values and the cost of disposing
these operations. In addition, in the second quarter of fiscal 1997, the
Company revalued its estimate of a majority of its accounts payable and
capital lease obligation balances and reduced the entire balance by $279,670
to reflect the realizable value of the total debt based on the Company's
negotiation of debt concessions from its vendors and a lessor, which
resulted in a gain on disposal of assets and adjustment to net realizable
value of accounts payable and capital lease obligation for the second
quarter of fiscal 1997 of $279,670 and reduced the fiscal 1997 year to date
loss on disposal of assets and adjustment to net realizable value of
accounts payable and capital lease obligation to $(393,741) from $(673,411)
for the thirteen weeks ended May 2, 1997. There was no additional activity
regarding discontinued operations for the third quarter of fiscal 1997.
(4) SUBSEQUENT EVENTS
The Company is currently engaged in negotiations with a privately-held
Canadian telemarketing services provider (the "Target Company") and the
shareholders of the Target Company regarding a proposed acquisition of the
Target Company by the Company (the "Transaction"). Pursuant to the proposed
Transaction, the Company would acquire from the Target Company's
shareholders all of the outstanding capital stock of the Target Company in
consideration for which the Company would issue to said shareholders shares
of the Company's common stock. As a result, the Target Company would become
a wholly-owned subsidiary of the Company and the former shareholders of the
Target Company would hold approximately 86% of the outstanding
post-Transaction shares of the Company's common stock. In connection with
the proposed Transaction, the Company granted to the Target Company the
exclusive right (the "Option"), extended until March 16, 1999, to negotiate
a Transaction with the Company. In consideration for the Option, the Target
Company made payments to the Company in the aggregate amount of $40,000, a
substantial portion of which has been used to fund transactional expenses
and certain general and administrative costs. There can be no assurance that
the Company, the Target Company and the shareholders of the Target Company
will enter into a definitive agreement regarding the proposed Transaction.
Furthermore, in the event the parties do enter into a definitive agreement,
it is contemplated that consummation of the proposed Transaction will be
subject to the satisfaction of certain conditions, including receipt of
shareholder approval of the Transaction from the Company's shareholders.
There can be no assurance that the proposed Transaction will be consummated
or, if consummated, as to the timing thereof.
F-22
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Shareholders of
Tele Hub Link Corporation:
We have reviewed the balance sheet of Tele Hub Link Corporation as of
October 31, 1998, and the statements of earnings and deficit and changes in
financial position for the initial period of three months then ended. Our review
was made in accordance with generally accepted standards for review engagements
and accordingly consisted primarily of inquiry, analytic procedures and
discussion related to information supplied to us by the Company.
A review does not constitute an audit and consequently we do not express an
auditor's opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
/s/Giroux, Menard et Associes
Chartered Accountants
Longueuil, Quebec, Canada
November 25, 1998
F-23
<PAGE>
<TABLE>
<CAPTION>
TELE HUB LINK CORPORATION
STATEMENT OF EARNINGS AND DEFICIT
FOR THE INITIAL PERIOD OF THREE MONTHS
ENDED OCTOBER 31, 1998
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31, 1998
------------------
(U.S. DOLLARS)
<S> <C>
Sales $ 82,729
Cost of Sales 42,559
--------
Gross Earnings 40,170
Expenses:
Selling 31,149
Administration 55,196
--------
86,345
Net Loss and Deficit at the End $(46,175)
========
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
TELE HUB LINK CORPORATION
BALANCE SHEET
AS OF OCTOBER 31, 1998
(UNAUDITED)
OPENING
OCTOBER 31, 1998 JULY 31, 1998
---------------- -------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current:
Cash $ 5,304 $ 94,979
Accounts receivable (note 3) 85,718 -0-
Subscription to be received -0- 234
Investment (note 4) -0- 20,000
Prepaid expenses 11,427 -0-
-------- -------
102,449 115,213
Rental deposit 10,574 -0-
Fixed assets (note 5) 186,663 -0-
-------- -------
$299,686 $115,213
======== ========
LIABILITIES
Current
Accounts payable and accrued liabilities $ 15,885 $ -0-
Current portion of long-term debt 35,329 -0-
-------- -------
51,214 -0-
Long-term debt (note 6) 164,434 -0-
-------- -------
215,648 -0-
-------- -------
SHAREHOLDERS' EQUITY
Capital stock (note 7) 130,213 115,213
Deficit (46,175) -0-
-------- -------
84,038 115,213
-------- -------
$299,686 $115,213
======== =======
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
TELE HUB LINK CORPORATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
THREE MONTHS ENDED OPENING
OCTOBER 31, 1998 JULY 31, 1998
------------------ --------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
OPERATIONS
Net loss $(46,175) $ -0-
Items not affecting cash
Depreciation and amortization 5,165 -0-
Option to be acquired by U.S. public
corporation, expired October 28, 1998 20,000 -0-
-------- --------
Working capital used by operations (21,010) -0-
Change in non-cash items (91,600) (234)
-------- --------
(112,610) (234)
-------- --------
INVESTMENT
Investment in option -0- (20,000)
Additions to fixed assets (191,828) -0-
-------- --------
(191,828) (20,000)
-------- --------
FINANCING
Long-term debt 199,763 -0-
Issue of shares 15,000 115,213
-------- --------
214,763 115,213
-------- --------
CHANGE IN CASH POSITION (89,675) 94,979
CASH AT THE BEGINNING 94,979 -0-
-------- --------
CASH AT THE END $ 5,304 $ 94,979
======== ========
</TABLE>
F-26
<PAGE>
TELE HUB LINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
1. INCORPORATION AND NATURE OF ACTIVITIES
The company, incorporated May 15, 1998 under the Ontario Companies Act,
provides telemarketing services.
2. ACCOUNTING POLICIES
a. Investment
Investment is accounted for at cost.
b. Foreign currency transactions
Foreign currency transactions are converted into US dollars using the
rate of exchange in effect at the balance sheet date for monetary items
in assets and liabilities. For non-monetary items in assets and
liabilities, the initial exchange rate is used. Income statement items
are converted at the average rate in effect during the month. Gains and
losses on currency exchange are reported on the earnings statements.
c. Depreciation and amortization
Fixed assets are depreciated according to the declining balance method
at the following rates:
Telecommunication equipment 20%
Furniture and fixtures 20%
Computer equipment 30%
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
OPENING
OCTOBER 31, 1998 JULY 31, 1998
---------------- -------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
Financing to be received $67,812 $-0-
Sales tax 17,906 -0-
$85,718 $-0-
======= ====
</TABLE>
4. INVESTMENT
<TABLE>
<CAPTION>
OPENING
OCTOBER 31, 1998 JULY 31, 1998
---------------- ---------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
Option to be acquired by a U.S. public
corporation, expired October 28, 1998 $ -0- $20,000
======= =======
</TABLE>
F-27
<PAGE>
TELE HUB LINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
5. FIXED ASSETS
<TABLE>
<CAPTION>
OPENING
OCTOBER 31, 1998 JULY 31, 1998
(U.S. DOLLARS) (U.S. DOLLARS)
----------------------------------------------------------- --------------
ACCUMULATED
COST DEPRECIATION NET VALUE NET VALUE
-------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Telecommunication
equipment $117,035 $2,943 $114,092 $-0-
Furniture and fixtures 47,660 1,198 46,462 -0-
Computer equipment 27,133 1,024 26,109 -0-
-------- ------ -------- ----
$191,828 $5,165 $186,663 $-0-
======== ====== ======== ====
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
OPENING
OCTOBER 31, 1998 JULY 31, 1998
---------------- -------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
Commercial loan, 10%, secured by all currant and
future tangible and intangible assets, payable in
monthly installments of $5,066 starting in January
1999, including interest, maturing in January 2003 $199,763 $-0-
Current portion 35,329 -0-
-------- ----
$164,434 $-0-
======== ====
</TABLE>
Estimated payments for each of the next five years are as follows:
(U.S. DOLLARS)
1999 $ 35,329
2000 46,448
2001 51,307
2002 56,673
2003 10,006
--------
$199,763
========
F-28
<PAGE>
TELE HUB LINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
7. CAPITAL STOCK
a. Authorized
Common shares, voting and participating
Preferred shares, non-voting, non-participating, discretionary
dividend, redeemable at the amount of the consideration received
b. Issued and paid
<TABLE>
<CAPTION>
OPENING
OCTOBER 31, 1998 JULY 31, 1998
---------------- -------------
(U.S. DOLLARS) (U.S. DOLLARS)
<S> <C> <C>
2,654,795 Common shares $130,213 $115,213
======== =========
</TABLE>
During the period, the Company proceeded to the issuance of 60,000
common shares for a total of $15,000.
8. COMMITMENTS
Under the terms of a lease maturing in October 2003, the Company is
committed to the following minimum amounts to which escalating clauses will
be added:
(U.S. DOLLARS)
1999 $ 68,961
2000 68,961
2001 68,961
2002 68,961
2003 68,961
--------
$344,805
========
Also, the Company signed an agreement with a long distance company for use
of their services for four years at a monthly commitment level of $23,150
for a total of $1,111,200.
9. CONTINGENCY
The Company is in negotiations to be acquired by a U.S.-based company, What
A World!, Inc., resulting in a parent-subsidiary bond.
F-29
<PAGE>
TELE HUB LINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
10. SUBSEQUENT EVENTS
Negotiations are under way regarding a small business loan for an amount of
$32,406 to finance acquisitions of equipment.
The Company intends to proceed to the issuance of 500,000 common shares for
a total of $125,000.
On November 17, 1998, the Company made an offer to renew its option for an
additional 120-day period commencing November 17, 1998, in consideration for
which the Company will pay What A World!, Inc. an additional $20,000.
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identity a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
F-30
<PAGE>
<TABLE>
<CAPTION>
TELE HUB LINK CORPORATION
ADDITIONAL INFORMATION
FOR THE INITIAL PERIOD OF THREE MONTHS ENDED OCTOBER 31, 1998
(UNAUDITED)
THREE MONTHS ENDED
OCTOBER 31, 1998
(US DOLLARS)
------------------
<S> <C>
COST OF SALES
Sub-contracts $39,617
Depreciation of telecommunication equipment 2,942
-------
$42,559
SELLING EXPENSES
Salaries and commissions $15,236
Travelling and promotion 5,453
External consultant - sales 9,311
Telecommunications 1,149
-------
$31,149
=======
ADMINISTRATION EXPENSES
Telecommunications $ 383
Taxes 163
Stationery and supplies 3,285
Advertising 1,262
Professional services 6,438
External consultant - administration 19,558
External consultant - corporation finance 1,630
Expired option 20,000
Depreciation of furniture and fixtures 1,198
Depreciation of computer equipment 1,024
Interest and bank charges 255
-------
$55,196
=======
</TABLE>
F-31
<PAGE>
ANNEX A
SHARE PURCHASE AGREEMENT
MADE AS OF DECEMBER 21, 1998
BETWEEN
THE SHAREHOLDERS OF TELE HUB LINK CORPORATION
AS LISTED ON SCHEDULE 1.3 HERETO
AND
WHAT A WORLD!, INC.
AND
TELE HUB LINK CORPORATION
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE I -SALE AND PURCHASE OF SHARES.....................................................A-1
1.1 Agreement to Purchase and Sell..............................................A-1
1.2 Purchase Price..............................................................A-2
1.3 Allocation of Purchase Price................................................A-2
ARTICLE II - CLOSING ARRANGEMENTS..........................................................A-2
2.1 Closing.....................................................................A-2
2.2 Company Closing Deliveries..................................................A-2
2.3 Vendors' Closing Deliveries.................................................A-3
2.4 Purchaser's Closing Deliveries..............................................A-3
ARTICLE III - CONDITIONS OF CLOSING........................................................A-3
3.1 Conditions for the Purchaser's Benefit......................................A-3
(a) Representations and Warranties.......................................A-3
(b) Compliance...........................................................A-4
(c) Business Since Balance Sheet Date....................................A-4
(d) Conduct Business in Ordinary Course..................................A-4
(e) Consents and approvals...............................................A-4
(f) No Litigation........................................................A-4
(g) Due Diligence Investigation..........................................A-4
(h) Delivery and Good Title..............................................A-4
(i) Closing Deliveries...................................................A-4
(j) Purchaser's Stockholders' Meeting....................................A-4
3.2 Conditions for the Vendors' Benefit.........................................A-5
(a) Representations and Warranties.......................................A-5
(b) Compliance...........................................................A-5
(c) Closing Deliveries...................................................A-5
ARTICLE IV - REPRESENTATIONS OF THE COMPANY................................................A-5
4.1 Organization and Qualification..............................................A-5
4.2 Capital Structure of the Company............................................A-6
4.3 No Other Securities.........................................................A-6
4.4 No Subsidiaries.............................................................A-6
4.5 Corporate Authority; No Conflicts; Required Consents........................A-6
4.6 Compliance with Applicable Laws.............................................A-7
4.7 Permits.....................................................................A-7
4.8 Financial Statements........................................................A-7
4.9 Certain Transactions........................................................A-8
4.10 Insolvency..................................................................A-8
4.11 Absence of Certain Changes..................................................A-8
4.12 Absence of Undisclosed Liabilities..........................................A-8
4.13 Litigation..................................................................A-9
4.14 Title to Properties: Encumbrances; Etc......................................A-9
4.15 Taxes.......................................................................A-9
4.16 Contracts and Commitments..................................................A-10
4.17 Registration Statement, Proxy Statements, Etc..............................A-11
4.18 Absence of Environmental Liabilities.......................................A-12
4.19 Facilities and Equipment...................................................A-12
4.20 Proprietary Rights.........................................................A-12
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
4.21 Accounts Receivable........................................................A-12
4.22 Personnel..................................................................A-12
4.23 Insurance..................................................................A-13
4.24 Brokers' and Finders' Fees.................................................A-13
4.25 Representations Complete...................................................A-13
ARTICLE V - PERSONAL REPRESENTATIONS AND WARRANTIES OF THE
VENDORS.............................................................A-13
5.1 Title to Shares............................................................A-13
5.2 Authority; No Conflicts; Required Consents.................................A-14
5.3 Litigation.................................................................A-14
5.4 Brokerage..................................................................A-15
5.5 Tax Consequences...........................................................A-15
5.6 Registration Statement, Proxy Statement/Prospectus.........................A-15
5.7 Representations Complete...................................................A-15
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASER..................................A-15
6.1 Organization, Standing and Power...........................................A-15
6.2 Capital Structure of the Purchaser.........................................A-16
6.3 Corporate Authority; No Conflict; Required Consents........................A-16
6.4 SEC Documents; Financial Statements........................................A-17
6.5 Absence of Certain Changes.................................................A-17
6.6 Absence of Undisclosed Liabilities.........................................A-18
6.7 Litigation.................................................................A-18
6.8 Compliance with Applicable Laws............................................A-18
6.9 Permits....................................................................A-18
6.10 Taxes......................................................................A-19
6.11 Contracts and Commitments..................................................A-20
6.12 Registration Statement, Proxy Statements, Etc..............................A-20
6.13 Proprietary Rights.........................................................A-21
6.14 Brokers' and Finders' Fees.................................................A-21
6.15 Board Approval.............................................................A-21
6.16 Representations Complete...................................................A-21
ARTICLE VII - COVENANTS AND AGREEMENTS....................................................A-21
7.1 Conduct of Business........................................................A-21
7.2 Charter Documents and Capital Changes......................................A-22
7.3 No Solicitations...........................................................A-23
7.4 Dividends, etc.............................................................A-23
7.5 Consummation of Agreement..................................................A-23
7.6 Full Access / Audit........................................................A-23
7.7 Confidentiality............................................................A-23
7.8 Cooperation................................................................A-24
7.9 Further Assurances.........................................................A-24
ARTICLE VIII - GENERAL DEFINITIONS AND INTERPRETATION.....................................A-24
8.1 Definitions................................................................A-24
8.2 Headings and Table of Contents.............................................A-27
8.3 Number and Gender..........................................................A-27
8.4 Business Days..............................................................A-27
8.5 Currency and Payment Obligations...........................................A-27
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C>
8.6 Statute References.........................................................A-27
8.7 Section and Schedule References............................................A-27
8.8 Notices....................................................................A-28
8.9 Entire Agreement...........................................................A-29
8.10 Waiver.....................................................................A-29
8.11 Severability...............................................................A-30
8.12 Appointment of Attorney....................................................A-30
8.13 Language...................................................................A-30
8.14 Governing Law..............................................................A-30
8.15 Successor and Assigns......................................................A-30
8.16 Counterparts...............................................................A-31
8.17 Termination................................................................A-31
</TABLE>
A-iii
<PAGE>
THIS SHARE PURCHASE AGREEMENT is made as of December 21, 1998
B E T W E E N:
THE SHAREHOLDERS OF TELE HUB LINK CORPORATION
AS LISTED ON SCHEDULE 1.3 HERETO
(hereinafter collectively called the "Vendors")
OF THE FIRST PART
- and -
WHAT A WORLD!, INC.,
a corporation formed under the laws of Delaware
(hereinafter called the "Purchaser")
OF THE SECOND PART
- and -
TELE HUB LINK CORPORATION,
a corporation formed under the laws
of the Province of Ontario
(hereinafter called the "Company")
OF THE THIRD PART
WHEREAS the Vendors own in the aggregate all of the issued and outstanding
shares in the capital of the Company; and
WHEREAS the Purchaser, directly or through one or more wholly owned
subsidiaries, desires to acquire the Shares from the Vendors, and the Vendors
desire to sell the Shares to the Purchaser, upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS certain words and phrases with initial capitals are terms as defined in
this Agreement;
NOW THEREFORE this Agreement witnesses that, in consideration of the mutual
covenants and agreements contained herein, the Parties hereto covenant and agree
as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 AGREEMENT TO PURCHASE AND SELL
Subject to the terms and conditions hereof, the Vendors agree to sell to
the Purchaser, and the Purchaser agrees to purchase from the Vendors, the Shares
at the Closing.
A-1
<PAGE>
1.2 PURCHASE PRICE
As consideration for the sale, transfer and delivery of the Shares to
the Purchaser, the Purchaser shall issue to the Vendors an aggregate of
13,011,339 shares of common stock, par value $0.01 per share, of the Purchaser
(the "Purchaser Shares") or 4.124306 Purchaser Shares for each Share sold,
transferred and delivered by the Vendors on the Closing Date.
1.3 ALLOCATION OF PURCHASE PRICE
The number of Shares owned by each of the Vendors and to be sold by each
such Vendor to the Purchaser, and the number of Purchaser Shares to be allocated
to such Vendor for such Shares, is set forth in Schedule 1.3 hereto.
ARTICLE II
CLOSING ARRANGEMENTS
2.1 CLOSING
The Closing of the purchase and sale of the Shares shall take place at
10:00 a.m. (Ottawa time) on the Closing Date at such place as may be approved in
writing by the Parties hereto.
2.2 COMPANY CLOSING DELIVERIES
At the Closing, subject to the satisfaction of all the conditions set
out in Section 3.1 that have not been waived in writing as therein provided, the
Company shall deliver to the Purchaser:
(a) resolutions of the Company authorizing the transfer of the Shares
from the Vendors to the Purchaser;
(b) the minute books, share certificate books and corporate seal of
the Company;
(c) a certificate of the Secretary or other officer of the Company in
the form attached hereto as Exhibit A;
(d) a certificate of the Chief Executive Officer of the Company or
other senior officer of the Company, in the person's capacity as
an officer of the Company, dated as of the Closing date in the
form attached hereto as Exhibit B;
(e) evidence reasonably satisfactory to the Purchaser to the effect
that the Company has obtained or made the Consents and Approvals
required to be obtained or made by it prior to the Closing Date;
and
(f) all such other assurances, agreements, documents and instruments
as may be reasonably required by the Purchaser to complete the
transactions provided for in this Agreement.
2.3 VENDORS' CLOSING DELIVERIES
At the Closing, subject to the satisfaction of all the conditions set
out in Section 3.1 that have not been
A-2
<PAGE>
waived in writing as therein provided, the Vendors shall deliver to the
Purchaser:
(a) the certificates representing the Shares in fully transferable
form free and clear of all Liens, together with duly executed
powers of attorney to transfer shares in the form of the power of
attorney attached hereto as Exhibit C executed in blank, and the
Vendors shall cause the transfers of the Shares to be fully
entered in the registers of the Company at Closing;
(b) the Vendors' Closing Opinion substantially in the form attached
hereto as Exhibit D;
(c) evidence reasonably satisfactory to the Purchaser to the effect
that the Vendors have obtained or made the Consents and Approvals
required to be obtained or made by them prior to the Closing
Date; and
(d) all such other assurances, agreements, documents and instruments
as may be reasonably required by the Purchaser to complete the
transactions provided for in this Agreement.
2.4 PURCHASER'S CLOSING DELIVERIES
At the Closing, subject to the satisfaction of all the conditions set
out in Section 3.2 that have not been waived in writing as therein provided, the
Purchaser shall deliver to the Vendors:
(a) certificates representing the Purchaser Shares, such certificates
to be in suchdenominations and registered in such names as listed
in Schedule 1.3 hereto;
(b) a certificate of the Chief Executive Officer of the Purchaser or
other senior officer of the Purchaser, in the person's capacity
as an officer of the Purchaser, dated as of the Closing Date in
the form attached hereto as Exhibit E;
(c) a certificate of the Secretary or other officer of the Purchaser
in the form attached hereto as Exhibit F:
(d) the Purchaser's Closing Opinion substantially in the form
attached hereto as Exhibit G; and
(e) all such other assurances, consents, agreements, documents and
instruments as may be reasonably required by the Vendors to
complete the transactions provided for in this Agreement.
ARTICLE III
CONDITIONS OF CLOSING
3.1 CONDITIONS FOR THE PURCHASER'S BENEFIT
The Purchaser is not obligated to complete the purchase of the Shares
pursuant to this Agreement unless, on or prior to the Closing Date, each of the
following conditions shall have been satisfied, it being understood that the
following conditions are included for the exclusive benefit of the Purchaser and
may be waived in writing, in whole or in part, by the Purchaser at any time; and
the Company and the Vendors agree with the Purchaser to take all such actions,
steps and procedures within their reasonable control as may be necessary to
ensure that the following conditions are fulfilled at or before the Closing
Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each of the Company and the Vendors set forth in
this Agreement or in any exhibit, schedule or other document
delivered
A-3
<PAGE>
pursuant hereto shall be true and correct in all material
respects (except that any such representation or warranty which
is already qualified by materiality shall be true and correct in
all respects) and not misleading in any material respect on and
as of the Closing Date, with the same force and effect as though
made on and as of the Closing Date;
(b) COMPLIANCE. All of the terms, covenants, conditions, obligations
and agreements set forth in this Agreement to be complied with or
performed by the Company and/or the any of the Vendors at or
before the Closing Date shall have been complied with or
performed by the Company or such Vendors, as the case may be, on
or before the Closing Date;
(c) BUSINESS SINCE BALANCE SHEET DATE Except as otherwise permitted
in this Agreement, during the period from the Company Balance
Sheet Date to the Closing Date, there shall have been no material
adverse change in the Company's business, assets, operations,
prospects or consolidated financial condition;
(d) CONDUCT BUSINESS IN ORDINARY COURSE. To the Closing Date, the
business of the Company shall have been conducted in the ordinary
course, consistent with past practices of such entity, except for
actions expressly permitted by this Agreement, matters incidental
to carrying out this Agreement or such further matters as may be
consented to by the Purchaser in writing;
(e) CONSENTS AND APPROVALS. All Consents and Approvals required to
have been obtained by the Company or any of the Vendors prior to
the Closing Date shall have been obtained;
(f) NO LITIGATION. There shall be no litigation or other proceedings
pending or threatened against any of the Parties to this
Agreement or against any of their respective Affiliates, and no
order, stay, injunction or decree shall be in effect and no
statute, rule or regulation shall have been enacted:
(i) which seeks to enjoin, prevent or restrain the completion
of the transactions contemplated by this Agreement; or
(ii) which, if decided adversely, would adversely affect the
right of the Purchaser to acquire or retain the Shares or
which, in the judgment of the Purchaser, acting
reasonably, would make the completion of the transactions
contemplated by this Agreement inadvisable;
(g) DUE DILIGENCE INVESTIGATION. As a result of the Purchaser's
investigation carried out pursuant to this Agreement, the
Purchaser shall be satisfied with its due diligence review of the
Company and the Company's financial condition, business, assets,
operations, sales, development, market and prospects;
(h) DELIVERY AND GOOD TITLE. The Vendors shall have delivered or
caused to be delivered to the Purchaser or its designees the
certificates for all of the Shares to be purchased, duly endorsed
for transfer to the Purchaser or its designees with signatures
bank guaranteed and there shall be no other shares of the Company
outstanding or outstanding options, warrants or any other rights
to acquire any capital in the Company; and each of the Vendors
shall have and shall transfer good and marketable title to the
Shares owned by him, free and clear of all Liens;
(i) CLOSING DELIVERIES. The Vendors shall have delivered, and the
Purchaser shall have received, the deliveries described in
Sections 2.2 and 2.3; and
(j) PURCHASER'S STOCKHOLDERS' MEETING. At the Purchaser Stockholders'
Meeting, the stockholders of the Purchaser shall have approved,
by the requisite vote required under the Delaware General
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Corporation Law, this Agreement and the transactions contemplated
herein and an amendment to the Purchaser's Certificate of
Incorporation pursuant to which, among other things, the number
of shares of Purchaser Common Stock authorized thereunder shall
be increased to 50,000,000 shares (the "Amendment").
3.2 CONDITIONS FOR THE VENDORS' BENEFIT
The Vendors are not obligated to complete the sale of the Shares
pursuant to this Agreement unless, on or prior to the Closing Date, each of the
following conditions shall have been satisfied, it being understood that the
following conditions are included for the exclusive benefit of the Vendors and
may be waived in writing, in whole or in part, by the Vendors' Representatives
at any time; and the Purchaser agrees with the Vendors to take all such actions,
steps and proceedings within its reasonable control as may be necessary to
ensure that the following conditions are fulfilled at or before the Closing
Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser set forth in this Agreement or in any
exhibit, schedule or other document delivered pursuant hereto
shall be true and correct in all material respects (except that
any such representation or warranty which is already qualified by
materiality shall be true and correct in all respects) and not
misleading in any material respect on and as of the Closing Date,
with the same force and effect as though made on and as of the
Closing Date;
(b) COMPLIANCE. All of the terms, covenants, conditions, obligations
and agreements set forth in this Agreement to be complied with or
performed by the Purchaser at or before the Closing Date shall
have been complied with or performed by the Purchaser on or
before the Closing Date; and
(c) CLOSING DELIVERIES. Purchaser shall have delivered, and the
Vendors shall have received, the deliveries described in Section
2.4
ARTICLE IV
REPRESENTATIONS OF THE COMPANY
As a material inducement to the Purchaser entering into this Agreement
and completing the purchase of the Shares contemplated by this Agreement and
acknowledging that the Purchaser is entering into this Agreement in reliance
upon the representations and warranties of the Company set out in this
Agreement, the Company represents and warrants to the Purchaser as follows:
4.1 ORGANIZATION AND QUALIFICATION
The Company is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of the Province of Ontario. The
Company has the corporate power to own, lease and operate its properties and
business and to carry on its business as and in the places where such properties
are now owned, leased or operated or such business is now conducted. The Company
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in every jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except where the failure to so qualify has not had and is reasonably likely not
to have a Material Adverse Effect on the Company. The Company has delivered to
the Purchaser a true copy of its Articles of Incorporation and By-laws or other
charter or organizational documents. The Company is not in violation of any of
the provisions of such Articles of Incorporation or By-laws or other charter or
organizational documents.
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4.2 CAPITAL STRUCTURE OF THE COMPANY
The authorized capital of the Company consists of an unlimited number of
common shares (the "Common Shares"), of which, as of the date hereof, 3,154,795
Common Shares are issued and outstanding, and such Common Shares represent the
entire issued and outstanding share capital of the Company. All of the issued
and outstanding Common Shares have been validly issued and are fully paid and
non-assessable. Schedule 1.3 lists all shareholders of the Company and the
number of Common Shares held by each of such shareholders.
4.3 NO OTHER SECURITIES
Other than as set out in Schedules 1.3 and 4.3 hereto:
(a) there are no other outstanding shares of, or any securities of the
Company convertible into or exchangeable for, or any options or
other rights (including any pre-emptive rights) to acquire from
the Company, or any other contracts, understandings,
arrangements or obligations (whether contingent or otherwise)
providing for the issuance, transfer or sale by the Company,
directly or indirectly, of, any capital stock or any other
securities of the Company;
(b) there are no shares of any class or series of the Company which
are currently held by the Company as treasury shares;
(c) there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any Common Shares or other
securities issued by the Company;
(d) no holder of any securities of the Company has any registration
rights with respect thereto and no holder of any Common Shares
or any ownership interest of the Company is entitled to any
dividend or distribution in respect of such Common Shares; and
(e) there are no voting interests or other agreements or commitments
with respect to the voting of any Common Shares.
4.4 NO SUBSIDIARIES
The Company has no subsidiaries and does not directly or indirectly own
any equity or similar interest in, or any interest convertible or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity. For the
purposes of this Agreement, "joint venture" means any entity or contractual
relationship (written or oral) pursuant to which any Person shares with any
other Person the profits and/or losses of any business undertaking or pursuant
to which any Person may be liable for the acts or undertakings of any other
Person.
4.5 CORPORATE AUTHORITY; NO CONFLICTS; REQUIRED CONSENTS
(a) The Company has all requisite corporate power to enter into this
Agreement and to consummate the transactions contemplated
herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been
duly authorized by the board of directors and the shareholders
of the Company. No other corporate actions on the part of the
Company are necessary to authorize the execution and delivery by
the Company of this Agreement and the consummation by the
Company of the transactions contemplated herein. This Agreement
has been duly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms
except
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(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (ii)
as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(b) The execution and delivery of this Agreement by the Company do
not, and the consummation of the transactions contemplated
herein will not, conflict with, or result in any violation of,
or default under (with or without notice or lapse of time or
both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i)
any provision of the Articles of Incorporation or By-laws of the
Company, in each case as amended, (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument to
which the Company is a party or by which the Company or any of
its properties or assets is bound, or (iii) any Company Permit,
concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets, except, in the case of
clauses (ii) and (iii), where such conflict, violation, default,
termination, cancellation or acceleration would be reasonably
likely not to have a Material Adverse Effect on the Company.
(c) No Consents and Approvals are required to be made or obtained by
the Company in connection with the execution and delivery by the
Company of this Agreement or the consummation by the Company of
the transactions contemplated herein, except for such Consents
and Approvals which, if not obtained or made, are reasonably
likely not to have a Material Adverse Effect on the Company and
would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
4.6 COMPLIANCE WITH APPLICABLE LAWS
The business of the Company is being conducted in compliance with all
laws, ordinances, regulations, judgments, orders and decrees of all Governmental
Entities (collectively, "Laws") applicable to or binding upon the Company or the
properties, assets or business of the Company, except for such violations or
failures to comply that would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect on the Company. The Company
has not received notification that any investigation or inquiry is being or has
been conducted by any Governmental Entity with respect to the Company and, to
the best knowledge of the Company, (i) no such investigation or inquiry is
threatened and (ii) no fact exists or event or circumstance has occurred which
would be reasonably likely to give rise to any such investigation or inquiry.
4.7 PERMITS
The Company holds or has applied for, is in compliance with the terms of
and is entitled to all of the benefits under, all permits, licenses, exemptions,
orders and approvals of all Governmental Entities necessary for the conduct of
its business as currently conducted ("Company Permits"), except for failures to
hold or comply with any such Company Permits which would not, individually or in
the aggregate, be reasonably likely to have a Material Adverse Effect on the
Company. All Company Permits are in full force and effect and will continue in
full force and effect upon consummation of the transactions contemplated herein,
free and clear of all Liens. No Defaults are or have been recorded with any
Governmental Entity in respect of any of the Company Permits, except such
Defaults which would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect on the Company, and no proceeding is pending
or, to the best knowledge of the Company, threatened to revoke, limit or impose
conditions on any of the Company Permits, and no fact exists or event or
circumstance has occurred which would be reasonably likely to give rise to any
such revocation, limitation or imposition of conditions.
4.8 FINANCIAL STATEMENTS
The balance sheet of the Company dated as of October 31, 1998 and the
statements of earnings and deficit
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and changes in financial position for the three-month period ended October 31,
1998 (the "Company Financial Statements") contained in Schedule 4.8 hereto
fairly present, in conformity with generally accepted accounting principles in
Canada, in all material respects the financial condition and operating results
of the Company at the date and during the period indicated thereon. The Company
Financial Statements, and the notes thereto are complete and accurate in all
material respects.
4.9 CERTAIN TRANSACTIONS
The Company is not indebted, either directly or indirectly, to any of
its officers, directors or any "affiliate" or "associate" (as such terms are
defined in the rules and regulations of the SEC under the Securities Act) of the
Company or any of its officers or directors in any amount whatsoever; nor are
any of its officers, directors, affiliates or associates indebted to the
Company; nor are there any transactions of a continuing nature between the
Company and any of its officers, directors, affiliates or associates not subject
to cancellation which will continue beyond the Closing Date.
4.10 INSOLVENCY
(a) No order has been made and no resolution has been passed for the
winding up of the Company or for a liquidator to be appointed in
respect of the Company and no petition has been presented which
remains outstanding and no meeting has been convened for the
purpose of winding up the Company.
(b) To the best knowledge of the Company, no administrative order in
respect of receivership has been made and no petition for such an
order has been presented in respect of the Company.
(c) No receiver (which expression shall include an administrative
receiver) has been appointed in respect of the Company or any of
its assets.
(d) No execution or distress has been levied upon any of the assets or
properties of the Company.
4.11 ABSENCE OF CERTAIN CHANGES
Since October 31, 1998 (the "Company Balance Sheet Date"), the Company
has conducted its business in the ordinary course consistent with past practice
and there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has had or is reasonably likely to have a Material
Adverse Effect on the Company; (ii) any acquisition, sale or transfer of any
material asset of the Company other than in the ordinary course of business and
consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Company or any revaluation by the Company of any of its assets;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
shares of capital stock; (v) any material contract entered into by the Company,
other than in the ordinary course of business and as made available to Purchaser
prior hereto, or any material amendment or termination of, or default under, any
material contract to which the Company is a party or by which it is bound; or
(vi) any negotiation or agreement by the Company to do any of the things
described in the preceding clauses (i) through (v) (other than negotiations with
Purchaser and its representatives regarding the transactions contemplated by
this Agreement).
4.12 ABSENCE OF UNDISCLOSED LIABILITIES
The Company has no material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Company Financial Statements, (ii) those incurred
in the ordinary course of business prior to the Company Balance Sheet Date but
which are not required to
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be set forth in the Company Financial Statements under generally accepted
accounting principles in Canada, (iii) those incurred in the ordinary course of
business since the Company Balance Sheet Date and consistent with past practice,
(iv) those arising under the contracts and commitments set forth in Schedule
4.16 hereto, and (v) those arising under or pursuant to this Agreement.
4.13 LITIGATION
There are no actions, investigations, proceedings (or any basis
therefor), suits or claims, or legal, administrative or arbitral proceedings
pending against, or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its assets or properties or any of its officers
or directors (in their capacities as such) or any of the Vendors that,
individually or in the aggregate, have or are reasonably like to have (i) the
effect of restraining, modifying or preventing the consummation of the
transactions contemplated hereby or (ii) a Material Adverse Effect on the
Company, or on the Purchaser or any Affiliate of the Purchaser which acquires
the Shares. There is no judgment, decree or order against the Company or, to the
knowledge of the Company, any of its directors or officers (in their capacities
as such) or any of the Vendors that could prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement, or that has had or
is reasonably likely to have a Material Adverse Effect on the Company.
4.14 TITLE TO PROPERTIES: ENCUMBRANCES; ETC.
(a) To the best knowledge of the Company, it has good and defensible
title to all its properties and assets, including without
limitation, all of its properties and assets reflected in the
Company Financial Statements and all such properties and assets
purchased by the Company since the Company Balance Sheet Date,
except in each case for properties and assets sold or disposed
of or contracted to be sold or disposed of since the Company
Balance Sheet Date in the ordinary course of business and except
for the Company Permitted Encumbrances (as defined below).
(b) None of the Company's properties or assets is subject to any Liens
except the following (herein called the "Company Permitted
Encumbrances"): (i) Liens as shown on the Company Financial
Statements or as described on Schedule 4.14(b), in each case
securing liabilities or obligations with respect to which no
Default exists; (ii) purchase money and other security interests
for purchased or leased equipment arising in the ordinary course
of business since the Company Balance Sheet Date; and (iii)
current taxes, assessments and charges not yet due.
4.15 TAXES
(a) The Company has duly filed or caused to be filed, or will duly
file or cause to be filed, with the appropriate governmental
authorities all federal, provincial, local and foreign tax
reports and returns required to be filed by it prior to the
Closing Date, subject to any allowable extension periods, and
has maintained, or caused to be maintained, all required records
with respect to taxes, and has duly paid in full or caused to be
duly paid in full or will duly pay in full, or has established
or caused to be established in the Company Financial Statements
reserves adequate for payment of, all federal, provincial, local
and foreign taxes and other charges due or claimed to be due
from each of them by federal, provincial, local or foreign
taxing authorities for all periods up to and including the
Closing Date, except where the failure to file tax reports and
returns and to pay taxes, individually or in the aggregate, is
reasonably likely not to have a Material Adverse Effect on the
Company. As of the time of filing, the foregoing tax reports and
returns correctly reflected or will reflect the facts regarding
the income, business, assets, operations and activities of the
Company or any other information to be shown thereon. The
Company has timely paid or will timely pay all taxes that have
been shown as due and payable on such tax reports and returns.
The Company is not delinquent in the payment of any taxes and
will not be delinquent in the payment of any taxes as
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of the Closing Date.
(b) The federal, provincial, local and foreign tax returns of the
Company have not been audited by the respective governmental
authorities.
(c) All deficiencies and assessments resulting from any examination of
the federal, provincial, local and foreign tax returns and
reports of the Company have been paid, finally settled, or
adequately provided for in the Company Financial Statements, and
no issue resulting in an adjustment has been raised by the
Minister of National Revenue ("MNR") or relevant provincial or
local authorities in any examination which, by application of
similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined or in
any jurisdiction not so examined.
(d) To the best knowledge of the Company, no deficiency for any taxes
has been proposed, asserted, or assessed against the Company
(other than deficiencies or assessments referred to in
subparagraph (c) hereof, which deficiencies or assessments have
either been paid, finally settled, or adequately provided for in
the Company Financial Statements), and the Company has no reason
to believe that any such deficiency will be proposed, asserted or
assessed. There has been no intentional disregard of any statute,
regulation, rule or revenue ruling in the preparation of any tax
return that would result in a material increase in any tax
liability for any period that remains open to adjustment.
(e) Amounts have been withheld and paid over to the appropriate
governmental authorities by the Company from its employees for all
prior periods in compliance with the tax withholding provisions of
all applicable federal, provincial, local and foreign laws.
(f) Amounts have been withheld and paid over to the appropriate
governmental authorities by the Company from any payments made in
respect of which a withholding obligation is imposed, in
compliance with the withholding provisions or "collection at
source" provisions of all applicable federal, provincial, local
and foreign laws, except where the failure to withhold and pay
over, individually or in the aggregate, is reasonably likely not
to have a Material Adverse Effect on the Company.
4.16 CONTRACTS AND COMMITMENTS
(a) Except as set forth on Schedule 4.16 hereto the Company:
(i) has no contract, arrangement or commitment which is
material to its business, operations or prospects
(for the purpose of this subsection, any contract,
arrangement or commitment shall be deemed "material"
if, together with all related and similar contracts,
it calls for fixed and/or contingent payments
thereunder of more than $50,000 in the aggregate),
except those which are cancelable by the Company on
notice of not longer than thirty (30) days and
without liability, penalty or premium;
(ii) has no contract, arrangement or commitment with any
director, officer, employee, agent, consultant, advisor,
salesman, or representative providing for future
compensation of more than $50,000 per annum that is not
cancelable by it on notice of not longer than thirty (30)
days and without liability, penalty or premium;
(iii) has no employment agreement with any officer, employee or
agent, nor any agreement that contains any severance or
termination pay liabilities or obligations;
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(iv) has no collective bargaining or union contracts or
agreements;
(v) has no agreement restricting it from carrying on its
business or any part thereof anywhere in the world or from
competing in any line of business with any person;
(vi) has no debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt
obligation of others;
(vii) has no outstanding loan to any person in excess of
$10,000, other than advances to directors, officers and
employees of the Company for business expenses in the
ordinary course of business not exceeding $10,000 in the
aggregate;
(viii) has no obligation or liability as guarantor, surety,
co-signer, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any other person, other than
endorsements in the ordinary course of business; and
(ix) has not given any irrevocable power of attorney to any
person except any agent for service of process in foreign
jurisdictions.
(b) The Company has previously delivered to the Purchaser a true copy
of each of the contracts, agreements and other instruments set
forth on Schedule 4.16 hereto.
(c) The Company is not in violation of any of the provisions of its
Articles of Incorporation or By-laws or other organizational
documents. Except as set out in Schedule 4.16 hereto, (i) each of
the material contracts, agreements, commitments, arrangements,
leases, insurance policies or other instruments, whether entered
into in the ordinary course of business or otherwise, and whether
written or oral, to which the Company is a party or by which any
of its assets or properties is bound (each, a "Company Contract"),
is a valid and binding obligation of the Company and, to the best
of the Company's knowledge, of each of the other parties thereto,
(ii) there are no uncured or unwaived Defaults under any of the
Company Contracts on the part of the Company or, to the best of
the Company's knowledge, any of the other parties to any such
Company Contracts, and (iii) no event has occurred that, with the
giving of notice or the lapse of time or both, would result in a
Default under any of the Company Contracts, except, in each case,
any such Defaults which, either individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect on the
Company.
4.17 REGISTRATION STATEMENT PROXY STATEMENTS ETC.
None of the information with respect to the Company that is included in
(i) the Registration Statement on Form S-4 (the "Registration Statement") to be
filed by the Purchaser, either at the time the Registration Statement is
declared effective by the SEC (the "Effective Time") or at the Closing Date,
(ii) in the Proxy Statement/Prospectus to be mailed to the stockholders of the
Purchaser ("Proxy Statement/Prospectus") (including any information incorporated
by reference therein), either at the time copies thereof are filed with the SEC
pursuant to Rule 424(b) of the general rules and regulations promulgated under
the Securities Act, on the date the Proxy Statement/Prospectus is first mailed
to the Company's or the Purchaser's stockholders or on the date of the meeting
of the stockholders of the Purchaser to consider and approve the transactions
contemplated by this Agreement and the Amendment (the "Purchaser Stockholders'
Meeting"), or (iii) any other schedules, statements, reports or other documents
required to be filed under the Exchange Act, or the Securities Act or under any
other United States federal securities laws relating to the transactions
contemplated hereby to be filed by the Purchaser (collectively, the "Other
Filings") shall contain any statement which, at such time and in light of the
circumstances under which it was made, is false or misleading with respect to
any material fact, or omits to state any material fact necessary in order to
make the statements therein
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not false or misleading or necessary to correct any statement in any earlier
communication. The Company will advise the Purchaser promptly in writing if
prior to the Effective Time or the Closing Date it shall obtain knowledge of any
facts that would make it necessary to amend the Registration Statement in order
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading or to comply with applicable laws.
4.18 ABSENCE OF ENVIRONMENTAL LIABILITIES
The Company has complied with all applicable environmental laws, orders,
regulations, rules and ordinances adopted, imposed or promulgated by any
governmental entity relating to the Company's properties. Neither the Company
nor any of its leased, owned or other properties are in violation of any
federal, provincial, local or foreign law, ordinance or regulation relating to
industrial hygiene, worker safety, environmental hazardous materials or waste or
toxic materials on, under or about any of the properties, including soil and
waste water conditions. No current use of any of the Company's properties
constitutes a public or private nuisance. The environmental licenses, permits,
clearances, consents and authorizations, if any, material to the operations of
the Company are in full force and effect. The Company is not aware of any fact
or circumstance that could involve the Company or, following the Closing Date,
the Purchaser in any environmental litigation or impose any material
environmental liability upon the Company or, following the Closing Date, the
Purchaser.
4.19 FACILITIES AND EQUIPMENT
Except as set forth on Schedule 4.19 hereto, the facilities, structures
and equipment of the Company are adequate for the uses to which they are being
put. The Company has not received notification that it is in violation of any
applicable building, zoning, anti-pollution, health or other law, ordinance or
regulation in respect of its facilities, structures and equipment or its
operations, the violation of which would, individually or in the aggregate, have
or reasonably be likely to have a Material Adverse Effect on the Company and, to
the best knowledge of the Company, no such violation exists.
4.20 PROPRIETARY RIGHTS
To the Company's best knowledge, the Company has not infringed, and is
not now infringing, on any patent, trade name, trademark, service mark,
copyright, trade secret, technology, know-how or process (collectively, the
"Proprietary Rights") belonging to any other person. Set forth on Schedule 4.20
hereto is a list of all Proprietary Rights which are either owned by the Company
or which the Company otherwise has the right to use. To the best of the
Company's knowledge, the Company holds adequate licenses or other rights to use
all Proprietary Rights used in the business of the Company as now conducted.
4.21 ACCOUNTS RECEIVABLE
The accounts receivable of the company ("Company Accounts Receivable")
reflected on Schedule 4.21 hereto represent sales actually made or services
actually performed in the ordinary course of business of the Company, and are
collectible in the normal course of business at the aggregate recorded amounts
thereof. None of the Company Accounts Receivable are subject to any conditions
to payment, offsets, counterclaims, defenses of any kind, allowances or credits
which together with uncollectible accounts exceeds the bad debt reserves shown
on the company Financial Statements (which reserves are adequate and were
calculated consistent with past practice).
4.22 PERSONNEL
The Company has no (i) Employee Plans (as hereinafter defined),
contracts or agreements with directors, officers, employees or consultants to
which the Company is a party or is subject as of the date of this Agreement, or
any (ii) group insurance programs in effect for employees of the Company. The
Company has no union contracts or collective bargaining agreements with, or any
other obligations to, employee organizations or groups relating to
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the Company's business, nor is the Company currently engaged in any labour
negotiations except in minor grievances not involving any employee organization
or group, nor, to the best knowledge of the Company, is the Company the subject
of any union organization affecting its business. There is no pending or, to the
Company's best knowledge, threatened labour dispute, strike or work stoppage
affecting the Company's business.
The term "Employee Plan" includes all present and prior (including
terminated and transferred) plans, programs, agreements, arrangements and
methods of contributions or compensation (including all amendments to and
components of the same, such as a trust with respect to a plan) providing any
remuneration or benefits, other than current cash compensation, to any current
or former employee of the Company or to any other person who provides services
to the Company's business. The term Employee Plan includes, but is not limited
to, pension, retirement, profit sharing, percentage compensation, stock
purchase, stock option, bonus and non-qualified deferred compensation plans. The
term Employee Plan also includes, but is not limited to, disability, medical,
dental, workers compensation, health insurance, life insurance or other death
benefits, incentive, severance plans, vacation benefits and fringe benefits.
4.23 INSURANCE
Schedule 4.23 hereto constitutes a list of all insurance policies and
bonds in force with respect to the Company or any of its properties, showing for
each such policy or bond: (i) the owner; (ii) the coverage of such policy or
bond; (iii) the amount of premium properly allocable to such policy or bond;
(iv) the name of the insurer; and (v) the termination date of the policy or
bond. All such insurance policies and bonds are in full force and effect, and
the insurance coverage provided by such policies and bonds is adequate for the
conduct of the business conducted by the Company in accordance with good
business practices.
4.24 BROKERS' AND FINDERS' FEES
The Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
4.25 REPRESENTATIONS COMPLETE
None of the representations or warranties made by the Company herein, or
in any certificate, instrument or other document furnished by the Company
pursuant to this Agreement, when all such documents are read together in their
entirety, contains, or will contain at either the Effective Time or on the
Closing Date any untrue statement of a material fact, or omits, or will omit at
either the Effective Time or on the Closing Date to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE V
PERSONAL REPRESENTATIONS AND WARRANTIES OF THE VENDORS
Each of the Vendors severally represents and warrants to Purchaser
as of the date hereof and on and as of the Closing Date as follows:
5.1 TITLE TO SHARES
(i) Such Vendor is and will be at the Closing the holder of record and
the owner of all beneficial interest in the Shares set forth
opposite such Vendors' name on Schedule 1.3 hereto, free and clear
of any Liens whatsoever.
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(ii) Such Vendor will transfer and deliver to the Purchaser or its
designee at the Closing good and valid title to all of the Shares
set forth opposite such Vendor's name on Schedule 1.3, free and
clear of any Liens, and all beneficial interest therein.
5.2 AUTHORITY: NO CONFLICTS; REQUIRED CONSENTS
(a) Such Vendor has all requisite legal right or corporate power, as
the case may be, and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. No other actions,
corporate or otherwise, on the part of such Vendor are necessary
to authorize the execution and delivery by such Vendor of the
Agreement and the consummation by such Vendor of the transactions
contemplated herein. This Agreement has been duly executed and
delivered by such Vendor and constitutes the valid and binding
obligations of such Vendor, enforceable against such Vendor in
accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable
remedies.
(b) The execution and delivery of this Agreement by such Vendor do
not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) where such Vendor is
a corporation, any provision of the Articles of Incorporation or
By-Laws, in each case as amended, of such Vendor, or (ii) where
such Vendor is a partnership, any provision of the partnership
agreement or other governing instrument of such partnership, or
(iii) where such Vendor is a trust or other entity, the relevant
governing instrument of such trust or other entity, or (iv) any
material mortgage, indenture, lease, contract or other agreement
or instrument to which such Vendor is a party or by which such
Vendor or any of its assets or properties is bound, or (v) any
Permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to such
Vendor or its assets or properties, except in the case of clauses
(iv) or (v) where such conflict, violation, default, termination,
cancellation or acceleration would be reasonably likely not to
have a Material Adverse Effect on such Vendor.
(c) No Consents and Approvals are required to be made or obtained by
such Vendor in connection with the execution and delivery of this
Agreement by such Vendor or the consummation by such Vendor of the
transactions contemplated hereby, except for such Consents and
Approvals which, if not obtained or made, are reasonably likely
not to have a Material Adverse Effect on such Vendor and would not
prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
5.3 LITIGATION
There are no actions, investigations, proceedings (or any basis
therefor), suits or claims or legal, administrative or arbitral proceedings
pending against or, to the best knowledge of such Vendor, threatened against or
affecting such Vendor or such Vendor's Shares that individually or in the
aggregate have or are reasonably likely to have (i) the effect of restraining,
modifying or preventing the consummation of the transactions contemplated hereby
or (ii) a Material Adverse Effect on the Company, or on the Purchaser or any
Affiliate of the Purchaser that acquires the Shares. There is no judgment,
decree or order against such Vendor that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
will have or are reasonably likely to have a Material Adverse Effect on the
Company.
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5.4 BROKERAGE
Such Vendor has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby except, in each such case, any
such fees or expenses which are the sole liability and obligation of such Vendor
and which shall not, either as a result of the transactions contemplated herein
or otherwise, become a liability of the Company or the Purchaser as of or after
the Closing Date.
5.5 TAX CONSEQUENCES
Such Vendor has reviewed with tax advisors the federal, provincial,
local and foreign tax consequences of the transactions contemplated by this
Agreement. Such Vendor is relying solely on such advisor and not on any
statements or representations of the Purchaser or the Company or any of its
agents or representatives and understands that the Vendor (and not the Purchaser
or the Company) shall be responsible for the Vendor's own tax liability that may
arise as a result of the transactions contemplated by this Agreement.
5.6 REGISTRATION STATEMENT PROXY STATEMENT/PROSPECTUS
None of the information with respect to such Vendor that is included in
(i) the Registration Statement to be filed by the Purchaser, either at the
Effective Time or at the Closing Date, (ii) in the Proxy Statement/Prospectus
(including any information incorporated by reference therein), either at the
time copies thereof are filed with the SEC pursuant to Rule 424(b) of the
general rules and regulations promulgated under the Securities Act, on the date
the Proxy Statement/Prospectus is first mailed to the Company's or the
Purchaser's stockholders or on the date of the Purchaser Stockholders' Meeting,
or (iii) any of the Other Filings shall contain any statement respecting such
Vendor which, at such time and in light of the circumstances under which it was
made, is false or misleading with respect to any material fact respecting such
Vendor, or omits to state any material fact necessary in order to make the
statements therein respecting such Vendor not false or misleading or necessary
to correct any statement in any earlier communication. Such Vendor will advise
the Purchaser promptly in writing if prior to the Effective Time or the Closing
Date it shall obtain knowledge of any facts that would make it necessary to
amend the Registration Statement in order to make the statements respecting such
Vendor contained therein, in light of the circumstances under which they were
made, not misleading or to comply with applicable laws.
5.7 REPRESENTATIONS COMPLETE
None of the representations or warranties made by such Vendor herein, or
in any certificate, instrument or other document furnished by such Vendor or by
the Vendors' Representative on behalf of such Vendor pursuant to this Agreement,
when all such documents are read together in their entirety, contains, or will
contain at either the Effective Time or on the Closing Date any untrue statement
of a material fact, or omits, or will omit at either the Effective Time or on
the Closing Date, to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Vendors as follows:
6.1 ORGANIZATIONS STANDING AND POWER
The Purchaser is a corporation duly incorporated and organized, validly
existing and in good standing under the laws of the State of Delaware. The
Purchaser has the corporate power to own, lease and operate its properties
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and business and to carry on its business as and in the places where such
properties are now owned, leased or operated or such business is now being
conducted. The Purchaser is duly qualified or licensed to do business as a
foreign corporation and is in good standing in every jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
and in good standing has not had and is reasonably likely not to have a Material
Adverse Effect on Purchaser. Purchaser has delivered a true and correct copy of
the Articles of Incorporation and Bylaws or other charter or organizational
documents, as applicable, of Purchaser to the Company on behalf of the Vendors.
The Purchaser is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or other charter or organizational documents. Purchaser
has no subsidiaries and does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
6.2 CAPITAL STRUCTURE OF THE PURCHASER
The authorized capital stock of the Purchaser consists of 10,000,000
shares of Purchaser Common Stock of which, as of the date hereof, 2,118,125
shares are issued and outstanding. All of the issued and outstanding shares of
Purchaser Common Stock have been validly issued and are fully paid and
non-assessable. As of the date hereof, the Purchaser has reserved for issuance
(i) up to 560,000 shares of Purchaser Common Stock issuable upon exercise of
options granted or to be granted under the Purchaser's 1994 Stock Option Plan,
(ii) up to 40,000 shares of Purchaser Common Stock issuable upon exercise of
options granted or to be granted under the Purchaser's Non-Employee Directors'
Stock Option Plan, (iii) up to 1,150,000 shares of Purchaser Common Stock
issuable upon exercise of the Purchaser's outstanding Redeemable Common Stock
Purchase Warrants, and (iv) up to 400,000 shares of Purchaser Common Stock
issuable upon exercise of other warrants previously issued by the Purchaser.
Except as set out herein or in Schedule 6.2 hereto:
(a) there are no other outstanding shares of, or any securities of the
Purchaser convertible into or exchangeable for, or any options or
other rights (including any re-emptive rights) to acquire from the
Purchaser, or any other contracts, understandings, arrangements or
obligations (whether contingent or otherwise) providing for the
issuance, transfer or sale by the Purchaser, directly or
indirectly, of, any capital stock or any other securities of the
Purchaser;
(b) there are no outstanding contractual obligations of the Purchaser
to repurchase, redeem or otherwise acquire any shares of Purchaser
Common Stock or other securities issued by the Purchaser;
(c) no holder of any securities of the Purchaser has any registration
rights with respect thereto and no holder of any shares of
Purchaser Common Stock or any ownership interest of the Purchaser
is entitled to any dividend or distribution in respect of such
shares of Purchaser Common Stock;
(d) there are no shares of any class or series of capital stock of the
Purchaser which are currently held by the Purchaser as treasury
shares; and
(e) there are no voting interests or other agreements or commitments
with respect to the voting of any shares of Purchaser Common
Stock.
6.3 CORPORATE AUTHORITY; NO CONFLICTS; REQUIRED CONSENTS
(a) Purchaser has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Purchaser
and, except for the approval by the shareholders of the Purchaser
of (i) this Agreement and the transactions contemplated herein and
(ii) the Amendment
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(the "Shareholder Approval"), no other corporate actions on the
part of the Purchaser are necessary to authorize the execution and
delivery by the Purchaser of the Agreement and the consummation by
the Purchaser of the transactions contemplated herein. This
Agreement has been duly executed and delivered by Purchaser and
constitutes the valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under (i) any provision of the
Articles of Incorporation or By laws of Purchaser, in each case as
amended, (ii) any material mortgage, indenture, lease, contract or
other agreement or instrument to which Purchaser is a party or by
which the Purchaser or any of its assets or properties is bound,
or (iii) any Purchaser Permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Purchaser or its assets or properties,
except in the case of clauses (ii) or (iii) where such conflict,
violation, default, termination, cancellation or acceleration
would be reasonably likely not to have a Material Adverse Effect
on Purchaser.
(c) No Consents and Approvals are required to be made or obtained by
Purchaser in connection with the execution and delivery of this
Agreement by Purchaser or the consummation by Purchaser of the
transactions contemplated hereby, except for (i) the Shareholder
Approval, (ii) the filing of the Registration Statement and Proxy
Statement/Prospectus and the approvals thereof by the SEC, (iii)
any filings as may be required under applicable state securities
laws and the securities laws of any foreign country, and (iv) such
other Consents and Approvals which, if not obtained or made, are
reasonably likely not to have a Material Adverse Effect on
Purchaser and would not prevent or materially alter or delay any
of the transactions contemplated by this Agreement.
6.4 SEC DOCUMENTS; FINANCIAL STATEMENTS
The Purchaser has filed with the SEC all forms, reports and documents
required to be filed by it within the past three years pursuant to the
Securities Act, the Exchange Act and the rules and regulations promulgated by
the SEC thereunder (the "Purchaser SEC Documents"), all of which, when filed,
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and, as of their
respective dates, did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
Purchaser, including the notes thereto, included in the Purchaser SEC Documents
(the "Purchaser Financial Statements") fairly present in all material respects
the consolidated financial condition and operating results of Purchaser at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in Purchaser accounting policies except as described in the notes to
the Purchaser Financial Statements or in the Purchaser SEC Documents.
6.5 ABSENCE OF CERTAIN CHANGES
Since October 31, 1998 (the "Purchaser Balance Sheet Date") and except
as described in any of the Purchaser SEC Documents or in any of the Purchaser
Financial Statements or the notes thereto included therein, Purchaser has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has had or is reasonably likely to have a Material
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Adverse Effect on Purchaser; (ii) any acquisition, sale or transfer of any
material asset of Purchaser other than in the ordinary course of business and
consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by Purchaser or any revaluation by Purchaser of any of its assets; (iv)
any declaration, setting aside, or payment of a dividend or other distribution
with respect to the shares of Purchaser, or any direct or indirect redemption,
purchase or other acquisition by Purchaser of any of its shares of capital
stock; (v) any material contract entered into by Purchaser, other than in the
ordinary course of business and as made available to Vendors prior hereto, or
any material amendment or termination of, or default under, any material
contract to which Purchaser is a party or by which it is bound; or (vi) any
negotiation or agreement by Purchaser to do any of the things described in the
preceding clauses (i) through (v) (other than negotiations with the Company and
the Vendors and its representatives regarding the transactions contemplated by
this Agreement).
6.6 ABSENCE OF UNDISCLOSED LIABILITIES
Purchaser has no material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the balance sheet included in Purchaser's Quarterly
Report on Form 10-QSB for the period ended October 31, 1998 (the "Purchaser
Balance Sheet"), (ii) those incurred in the ordinary course of business prior to
the Purchaser Balance Sheet Date and not required to be set forth in the
Purchaser Balance Sheet under generally accepted accounting principles in the
United States, (iii) those incurred in the ordinary course of business since the
Purchaser Balance Sheet Date and consistent with past practice, and (iv) those
arising under or pursuant to this Agreement.
6.7 LITIGATION
There are no actions, investigations, proceedings (or any basis
therefor), suits or claims, or legal, administrative or arbitral proceedings
pending against, or, to the best knowledge of the Purchaser, threatened against
or affecting the Purchaser or any of its assets or properties or any of its
officers or directors (in their capacities as such) that, individually or in the
aggregate, have or are reasonably like to have (i) the effect of restraining,
modifying or preventing the consummation of the transactions contemplated hereby
or (ii) a Material Adverse Effect on the Purchaser. There is no judgment, decree
or order against the Purchaser or, to the Purchaser's best knowledge, any of its
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that has had or is reasonably likely to have a Material Adverse
Effect on the Purchaser.
6.8 COMPLIANCE WITH APPLICABLE LAWS
The business of the Purchaser is being conducted in compliance with all
Laws applicable to or binding upon the Purchaser or the properties, assets or
business of the Purchaser, except for such violations or failures to comply that
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on the Purchaser. The Purchaser has not received
notification that any investigation or inquiry is being or has been conducted by
any Governmental Entity with respect to the Purchaser and, to the best knowledge
of the Purchaser, (i) no such investigation or inquiry is threatened and (ii) no
fact exists or event or circumstance has occurred which would be reasonably
likely to give rise to any such investigation or inquiry.
6.9 PERMITS
The Purchaser holds or has applied for, is in compliance with the terms
of and is entitled to all of the benefits under, all permits, licenses,
exemptions, orders and approvals of all Governmental Entities necessary for the
conduct of its business as currently conducted ("Purchaser Permits"), except for
failures to hold or comply with any such Purchaser Permits which would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on the Purchaser. All Purchaser Permits are in full force and
effect and will continue in full force and
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effect upon consummation of the transactions contemplated herein, free and clear
of all Liens. No Defaults are or have been recorded with any Governmental Entity
in respect of any of the Purchaser Permits, except such Defaults which would
not, individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect on Purchaser, and no proceeding is pending or, to the best
knowledge of Purchaser, threatened to revoke, limit or impose conditions on any
of the Purchaser Permits, and no fact exists or event or circumstance has
occurred which would be reasonably likely to give rise to any such revocation,
limitation or imposition of conditions.
6.10 TAXES
(a) Except as set forth on Schedule 6.10 hereto, the Purchaser has
duly filed or caused to be filed with the appropriate governmental
authorities all federal, state, local and foreign tax reports and
returns required to be filed by it, subject to any allowable
extension periods, and has maintained, or caused to be maintained,
all required records with respect to taxes, and has duly paid in
full or caused to be duly paid in full, or has established or
caused to be established in the Purchaser Financial Statements
reserves adequate for payment of, all federal, state, local and
foreign taxes and other charges due or claimed to be due from each
of them by federal, state, local or foreign taxing authorities for
all periods up to and including the date of this Agreement, except
where the failure to file tax reports and returns and to pay
taxes, individually or in the aggregate, is reasonably likely not
to have a Material Adverse Effect on the Purchaser. As of the time
of filing, the foregoing tax reports and returns correctly
reflected the facts regarding the income, business, assets,
operations and activities of the Purchaser or any other
information to be shown thereon. The Purchaser has timely paid all
taxes that have been shown as due and payable on such tax reports
and returns. The Purchaser is not delinquent in the payment of any
taxes.
(b) Except as set forth on Schedule 6.10 hereto, the federal, state,
local and foreign tax returns of the Purchaser have not been
audited by the respective governmental authorities.
(c) All deficiencies and assessments resulting from any examination of
the federal, state, local and foreign tax returns and reports of
the Purchaser have been paid, finally settled, or adequately
provided for in the Purchaser Financial Statements, and no issue
resulting in an adjustment has been raised by the Internal Revenue
Service ("IRS") or relevant state or local authorities in any
examination which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency
for any other period not so examined or in any jurisdiction not so
examined.
(d) To the best knowledge of the Purchaser, no deficiency for any
taxes has been proposed, asserted, or assessed against the
Purchaser (other than deficiencies or assessments referred to in
subparagraphs (c) or (e) hereof, which deficiencies or assessments
have either been paid, finally settled, or adequately provided for
in the Purchaser Financial Statements), and the Purchaser has no
reason to believe that any such deficiency will be proposed,
asserted or assessed. There has been no intentional disregard of
any statute, regulation, rule or revenue ruling in the preparation
of any tax return that would result in a material increase in any
tax liability for any period that remains open to adjustment.
(e) Amounts have been withheld and paid over to the appropriate
governmental authorities by the Purchaser from its employees for
all prior periods in compliance with the tax withholding
provisions of all applicable federal, state, local and foreign
laws.
(f) Amounts have been withheld and paid over to the appropriate
governmental authorities by the Purchaser from any payments made
in respect of which a withholding obligation is imposed, in
compliance with the withholding provisions or "collection at
source" provisions of all applicable federal, state, local and
foreign laws, except where the failure to withhold and pay over,
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individually or in the aggregate, is reasonably likely not to have
a Material Adverse Effect on the Purchaser.
6.11 CONTRACTS AND COMMITMENTS
(a) Except as disclosed in Schedule 6.11 hereto, the Purchaser:
(i) has only one employee, its Vice President Finance, whose
employment may be terminated by the Company on notice of
not longer than thirty (30) days and without severance or
termination pay or other liability, penalty or premium;
(ii) has no other contract, arrangement or commitment with any
director, officer, employee, agent, consultant, advisor,
salesman, or representative providing for future
compensation;
(iii) has no agreement restricting it from carrying on its
business or any part thereof anywhere in the world or from
competing in any line of business with any person;
(iv) has no debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt
obligation of others;
(v) has no outstanding loan to any person;
(vi) has no obligation or liability as guarantor, surety,
co-signer, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any other person, other than
endorsements in the ordinary course of business; or
(vii) has not given any irrevocable power of attorney to any
person except any agent for service of process in foreign
jurisdictions.
(b) The Purchaser is not in violation of any of the provisions of its
Articles of Incorporation or By-laws or other organizational
documents. Except as set out in Schedule 6.11 hereto, (i) each of
the material contracts, agreements, commitments, arrangements,
leases, insurance policies or other instruments, whether entered
into in the ordinary course of business or otherwise and whether
written or oral, to which the Purchaser is a party or by which any
of its assets or properties is bound (each, a "Purchaser
Contract"), is a valid and binding obligation of the Purchaser
and, to the Purchaser's best knowledge, of each of the other
parties thereto, (ii) there are no uncured or unwaived Defaults
under any of the Purchaser Contracts on the part of the Purchaser
or, to the Purchaser's best knowledge, any of the other parties to
such Purchaser Contracts, and (iii) there has not occurred any
event that, with the giving of notice or the lapse of time or
both, would result in a Default under any of the Purchaser
Contracts, except, in each case, any such Defaults which, either
individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect on the Purchaser.
6.12 REGISTRATION STATEMENT PROXY STATEMENTS ETC.
None of the information with respect to the Purchaser that is included
in (i) the Registration Statement to be filed by Purchaser, either at the
Effective Time or on the Closing Date, (ii) in the Proxy Statement/Prospectus
(including any information incorporated by reference therein), at the time
copies thereof are filed with the SEC pursuant to Rule 424(b) of the general
rules and regulations promulgated under the Securities Act, on the date the
Proxy Statement/Prospectus is first mailed to the Purchaser's stockholders, or
on the date of the Purchaser Stockholders' Meeting, or (iii) any of the Other
Filings by the Purchaser shall contain any statement which, at such
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time and in light of the circumstances under which it was made, is false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein not false or misleading
or necessary to correct any statement in any earlier communication. The
Purchaser will advise the Company and the Vendors Representatives promptly in
writing if prior to the Effective Time or the Closing Time it shall obtain
knowledge of any facts that would make it necessary to amend the Registration
Statement in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading or to comply with
applicable laws.
6.13 PROPRIETARY RIGHTS
To the best knowledge of the Purchaser, the Purchaser has not infringed,
and is not now infringing, on any patent, trade name, trademark, service mark,
copyright, trade secret, technology, know-how or process (collectively, the
"Purchaser's Proprietary Rights") belonging to any other Person.
6.14 BROKERS' AND FINDERS' FEES
Purchaser has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with this
agreement or any transaction contemplated hereby.
6.15 BOARD APPROVAL
The Board of Directors of Purchaser has (i) approved this Agreement and
(ii) determined that the Agreement is in the best interests of its stockholders
and is on terms that are fair to such stockholders.
6.16 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Purchaser herein, or
in any certificate instrument or other document furnished by Purchaser pursuant
to this Agreement, when all such documents are read together in their entirety,
contains or will contain at either the Effective Time or on the Closing Date any
untrue statement of a material fact, or omits or will omit at either the
Effective Time or on the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE VII
COVENANTS AND AGREEMENTS
7.1 CONDUCT OF BUSINESS
During the period from the date hereof to the Closing Date, except as
otherwise expressly agreed in writing by the Purchaser or expressly contemplated
hereunder, the Company shall conduct its business in the same manner as
heretofore conducted and will not engage in any transaction or activity, enter
into any agreement or make any commitment, except for (a) changes which are not
in the aggregate material; or (b) changes which are otherwise in the ordinary
course of business and consistent as to the type of action and amounts involved
with past practice. The Company will not take any action the taking of which, or
omit to take any action the omission of which, would cause any of the
representations or warranties contained in Article IV hereto to fail to be true
in any material respect either at or as of any time prior to either the
Effective Time or the Closing Date, except as otherwise permitted by this
Agreement. The Company will use its reasonable best efforts to preserve its
business, business organization and good will, keep available the services of
its present officers and employees, and maintain satisfactory relationships with
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persons having business dealings with it. Without limiting the generality of the
foregoing, between the date hereof and the Closing Date, the Company shall not,
without the prior written consent of the Purchaser:
(a) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company;
(b) (i) incur or assume any long-term or short-term debt other than in
the ordinary course of business consistent with past practice, or
issue any debt securities, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
Person, (iii) make any loans, advances or capital contributions
to, or investments in, any other Person other than in the ordinary
course of business consistent with past practice, (iv) pledge or
encumber any Company Common Shares or (v) mortgage or pledge any
of its material assets, tangible or intangible, or create or
suffer to exist any material Lien thereupon (other than Liens in
the ordinary course of business consistent with past practice);
(c) (i) increase or agree to increase the compensation payable to its
officers or employees, (ii) grant any severance or termination pay
to, or enter into any employment or severance agreements with, any
officers or employees, (iii) enter into any collective bargaining
agreement or (iv) establish, adopt, enter into or amend in any
material respect any bonus, profit sharing, thrift, compensation,
stock options, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(d) acquire or agree to acquire by merger or consolidation with, or by
purchase of a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division, or
otherwise acquire or agree to acquire any material assets not in
the ordinary course of business consistent with past practice;
(e) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate,
to the business of the Company;
(f) enter into any contract or agreement which would be material to
the Company or make or authorize any capital expenditure which,
individually, is in excess of $100,000 or, together with all such
other expenditures, is in excess of $100,000; or
(g) take, or agree in writing or otherwise to take, any of the actions
described in paragraphs (a) through (f) of this Section 7.1, or
any other action which is reasonably likely to make any of the
Company's representations or warranties contained in this
Agreement or in any schedule or other instrument or document
delivered pursuant hereto untrue or incorrect in any material
respect.
7.2 CHARTER DOCUMENTS AND CAPITAL CHANGES
From the date of this Agreement to the Closing Date, neither the Company
nor the Purchaser will (a) change or amend its Articles of Incorporation or
By-laws or other organizational documents except, in the case of the Purchaser,
as provided in the Amendment, (b) issue or sell any shares of its capital stock
or other securities or ownership interests, except for issuances upon exercise
of options, warrants, convertible securities or other rights to purchase
outstanding on the date hereof as set out herein or in any schedule hereto, or
(iii) issue options, warrants, convertible securities or other rights to
purchase or acquire, or enter into any arrangement or contract with respect
thereto, or (c) make any other changes in its capital structure.
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<PAGE>
7.3 NO SOLICITATIONS
From the date of this Agreement until the Closing Date, the Company,
Purchaser and the Vendors shall not, and shall not permit any of their
respective officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by any of them to
initiate, solicit or encourage any discussions, negotiations, inquiries or
proposals for the acquisition of all or substantially all of the Purchaser's or
the Company's assets or business or for a merger, consolidation, liquidation, or
dissolution of the Company or the Purchaser, as the case may be (an "Acquisition
Transaction"), provided, however, that the Company and the Purchaser and their
respective directors and officers may participate in any discussions or
negotiations regarding, or furnish any information with respect to, any
unsolicited Acquisition Transaction if the Company's or the Purchaser's Board of
Directors, as the case may be, is advised by the Company's or the Purchaser's
outside legal counsel that, in its opinion, the failure to take such action
would be likely to constitute a breach of fiduciary duty by such Board of
Directors to its stockholders.
7.4 DIVIDENDS ETC.
From the date of this Agreement to the Closing Date, neither the
Purchaser nor the Company shall declare, pay or set aside for payment any
dividend or make any distributions, including a distribution of rights, in
respect of its respective capital stock or redeem, purchase or otherwise acquire
any shares of its respective capital stock, or make any commitment for any such
action.
7.5 CONSUMMATION OF AGREEMENT
Each of the Purchaser, the Company and each of the Vendors shall use
his, her or its best efforts to perform and fulfill all conditions and
obligations to be performed and fulfilled by such Person under this Agreement
and each of the Company and each of the Vendors shall use his, her or its best
efforts further to ensure that to the extent within the Company's or such
Vendor's control or capable of influence by the Company or such Vendor,
respectively, no breach of any of the Company's or such Vendor's respective
representations, warranties, and agreements hereunder or contemplated hereby
occurs or exists on or before the Closing Date.
7.6 FULL ACCESS/AUDIT
From the date hereof to the Closing Date, each of the Company and the
Purchaser will afford to the other, its directors, officers, counsel,
accountants and other authorized representatives, full access, during normal
business hours and upon reasonable notice, to its offices, properties, books and
records in order that each may have full opportunity to make such investigations
as they shall desire to make of the affairs of the other. Each of the Company
and the Purchaser will also cause its officers, accountants and solicitors to
furnish such additional financial and operating data and other information as
the other shall from time to time reasonably request.
7.7 CONFIDENTIALITY
Until the Closing Date, or, in the event of the termination of this
Agreement pursuant to Section 8.17 hereof, for a period of two years from the
date of such termination, the Company and the Vendors, on the one hand and, the
Purchaser on the other hand and their respective consultants, advisors,
officers, directors and employees shall hold in confidence and not divulge or
use any confidential or proprietary information of the other obtained from any
investigation of the other referred to in Section 7.6 hereof, or given to them
by the other or by others performing services for the other or in a confidential
relationship with the other, except to the extent (a) required by law, (b)
otherwise available from third parties or (c) previously known to it. Neither
the Company nor the Purchaser shall misuse to the detriment of the other
material confidential or proprietary information obtained from the other.
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<PAGE>
7.8 COOPERATION
The Company and the Purchaser will generally cooperate with each other
and take such reasonable action as may be reasonably necessary to consummate the
transactions contemplated herein in a manner advantageous to all Parties hereto
as soon as reasonably practicable, including, without limitation, furnishing to
each other, or reviewing, the information relating to each of them required by
applicable statutes, rules and regulations for the purpose of preparing the
Registration Statement, the Proxy Statement/Prospectus and any state securities
law filings, using their best efforts to respond to the comments of the SEC or
state securities law administrators, and causing the Proxy Statement/Prospectus
to be mailed to each of the Company's and the Purchaser's shareholders as
promptly as practicable following the execution of this Agreement. The Company
and the Purchaser shall promptly notify each other of any comments or requests
for additional information received from the SEC or any state securities law
administrators, and will supply each other with copies of all correspondence
between them or their representatives and the SEC or members of its staff or
state securities law administrators, with respect to the Registration Statement,
state securities law matters or any other matters contemplated herein.
7.9 FURTHER ASSURANCES
Each of the Parties hereto shall execute such documents, further
instruments and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby
ARTICLE VIII
GENERAL DEFINITIONS AND INTERPRETATION
8.1 DEFINITIONS
In this Agreement, the following terms shall have the meanings set out
below unless the context requires otherwise:
"ACQUISITION TRANSACTION" has the meaning given in Section 7.3.
"AFFILIATE" means, with respect to any Person, any other Person who
directly or indirectly controls, is controlled by, or is under direct or
indirect common control with, such Person, and includes any Person in
like relation to an Affiliate. A Person shall be deemed to control a
Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract
or otherwise; and the term "controlled" shall have a similar meaning.
"AFFILIATE" has the meaning given in Section 4.9.
"AGREEMENT" means this Agreement, including the Exhibits and the
Schedules to this Agreement, as it or they may be amended or
supplemented from time to time, and the expressions "HEREOF", "HEREIN",
"HERETO", "HEREUNDER", "HEREBY" and similar expressions refer to this
Agreement and not to any particular Section or other portion of this
Agreement.
"ASSOCIATE" has the meaning given in Section 4.9.
"BUSINESS DAY" means any day except Saturday, Sunday or any day on which
banks are generally not open for business in the City of Ottawa or the
City of New York.
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<PAGE>
"CLOSING" means the completion of the purchase and sale of the Shares in
accordance with the provisions of this Agreement.
"CLOSING DATE" means March 16, 1999 or such earlier or later date as may
be agreed upon in writing by the Parties.
"CLOSING TIME" means the time of closing on the Closing Date provided
for in Section 2.1.
"COMMON SHARES" has the meaning given in Section 4.2.
"COMPANY" means Tele Hub Link Corporation.
"COMPANY ACCOUNTS RECEIVABLE" has the meaning given in Section 4.21.
"COMPANY BALANCE SHEET DATE" means October 31, 1998.
"COMPANY CONTRACT" has the meaning given in Subsection 4.1 6(c).
"COMPANY FINANCIAL STATEMENTS" has the meaning given in Section 4.8
"COMPANY PERMITS" has the meaning given in Section 4.7.
"COMPANY PERMITTED ENCUMBRANCES" has the meaning given in paragraph
4.14(b).
"CONSENTS AND APPROVALS" means all consents, approvals, permits,
licenses or grants required to be obtained from, or any filings required
to be made with, any Governmental Entity or other Person in connection
with the execution and delivery of this Agreement and the completion of
the transactions contemplated by this Agreement.
"DEFAULT" means a violation, contravention or breach of any of the terms
or conditions of, any modification of the effect of, or the occurrence
of any event that would give any other contracting party the right to
terminate, accelerate or cancel any right or obligation of a Party
hereto under any contract, agreement, indenture, lease, instrument or
other document to which a Party hereto is also a party or by which any
of the assets or properties of a Party hereto are bound or subject.
"EMPLOYEE PLAN" has the meaning given in Section 4.22.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934,
as amended.
"GOVERNMENTAL ENTITY" means any federal, provincial, state, local or
foreign court, arbitral tribunal, administrative agency or commission or
other governmental or regulatory authority or administrative agency or
commission.
"INCLUDING" means "including without limitation", and "INCLUDES" means
"includes without limitation".
"IRS" means the Internal Revenue Service of the United States of
America.
"LAWS" has the meaning given in Section 4.6.
"LIENS" means any and all liens, claims, charges, options, agreements,
mortgages, pledges, security interests, restrictions or encumbrances of
any kind.
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<PAGE>
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
condition (financial or otherwise), prospects, results of operations,
properties, assets or business of the Party in question.
"MNR" means the Minister of National Revenue of the Government of
Canada.
"OTHER FILINGS" has the meaning given in Section 4. 17.
"PARTY" means a party to this Agreement and any reference to a Party
includes its successors and permitted assigns; "PARTIES" means every
Party.
"PERSON" is to be broadly interpreted and includes an individual, a
corporation, a partnership, association, a trust, an unincorporated
organization or other entity or organization, the government of a
country or any political subdivision thereof, or any other Governmental
Entity, and the executors, administrators or other legal representatives
of an individual in such capacity.
"PROPRIETARY RIGHTS" has the meaning given in Section 4.20.
"PROXY STATEMENT/PROSPECTUS" has the meaning given in Section 4. 17.
"PURCHASER" means What a World!, Inc.
"PURCHASER BALANCE SHEET" has the meaning given in Section 6.6.
"PURCHASER BALANCE SHEET DATE" means October 31, 1998.
"PURCHASER COMMON STOCK" means the shares of common stock, par value
$0.01 per share, of the Purchaser.
"PURCHASER CONTRACT" has the meaning given in Subsection 6.1 1 (b).
"PURCHASER FINANCIAL STATEMENTS" has the meaning given in Section 6.4.
"PURCHASER PERMITS" has the meaning given in Section 6.9.
"PURCHASER SEC DOCUMENTS" has the meaning given in Section 6.4.
"PURCHASER'S CLOSING OPINION" means the opinion of Tenzer Greenblatt
LLP, counsel to the Purchaser in the form attached hereto as Exhibit F.
"PURCHASER'S SOLICITORS" means Tenzer Greenblatt LLP.
"PURCHASER SHARES" means 13,011,339 shares of Purchaser Common Stock.
"PURCHASER PROPRIETARY RIGHTS" has the meaning given in Section 6. 13.
"PURCHASER STOCKHOLDERS' MEETING" has the meaning given in Section 4.17.
"REGISTRATION STATEMENT" has the meaning given in Section 4.17.
"SEC" means the United States Securities and Exchanges Commission.
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<PAGE>
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
"SHAREHOLDER APPROVAL" has the meaning given in Subsection 6.3(a).
"SHARES" means all the issued and outstanding shares in the capital of
the Company.
"VENDOR REPRESENTATIVES" has the meaning given in Section 8.12.
"VENDORS" means those Persons listed on Schedule 1.3 hereto.
"VENDORS' SOLICITOR" means LaBarge Weinstein.
"VENDORS' CLOSING OPINION" means the opinion of LaBarge Weinstein
counsel to the Vendors in the form attached hereto as Exhibit D.
8.2 HEADINGS AND TABLE OF CONTENTS
The division of this Agreement into Articles and Sections, the insertion
of headings, and the provision of any table of contents are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
8.3 NUMBER AND GENDER
Unless the context requires otherwise, words importing the singular
include the plural and vice versa and words importing gender include all
genders.
8.4 BUSINESS DAYS
If any payment is required to be made or other action is required to be
taken pursuant to this Agreement on a day which is not a Business Day, then such
payment or action shall be made or taken on the next Business Day.
8.5 CURRENCY AND PAYMENT OBLIGATIONS
Except as otherwise expressly provided in this Agreement:
(a) All dollar amounts referred to in this Agreement are stated in
United States Dollars;
(b) Any payment contemplated by this Agreement shall be made by cash,
certified cheque or any other method that provides immediately
available funds.
8.6 STATUTE REFERENCES
Any reference in this Agreement to any statute or any section thereof
shall, unless otherwise expressly stated, be deemed to be a reference to such
statute or section as amended, restated or re-enacted from time to time.
8.7 SECTION AND SCHEDULE REFERENCES
Unless the context requires otherwise, references in this Agreement to
Sections, Exhibits or Schedules are to Sections, Exhibits or Schedules of this
Agreement. The Exhibits and Schedules to this Agreement are as follows:
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<PAGE>
<TABLE>
<S> <C>
SCHEDULES
1.3 List of Vendors, Shareholdings and Allocation of Purchase Price
4.3 Other Securities
4.8 Company Financial Statements
4.14(b) Company Permitted Encumbrances
4.16 Contracts and Commitments
4.19 Facilities and Equipment
4.20 Proprietary Rights
4.21 Company Accounts Receivable
4.23 Insurance
5.2 Actions, Approvals and Filings
6.2 Capital Stock of Purchaser
6.10 Purchaser's Taxes
6.11 Purchaser's Contracts and Commitments
EXHIBITS
A Company's Secretary's Certificate
B Company's Officer's Certificate
C Power of Attorney to Transfer Shares
D Vendors' Closing Opinion
E Purchaser's Officer's Certificate
F Purchaser's Secretary's Certificate
G Purchaser's Closing Opinion
</TABLE>
8.8 NOTICES
(a) Any notice, certificate, consent, determination or other
communication required or permitted to be given or made under
this Agreement shall be in writing and shall be effectively
given and made if (i) delivered personally, (ii) sent by prepaid
courier service or mail, or (iii) sent prepaid by fax or other
similar means of electronic communication, in each case to the
applicable address set out below:
(i) if to the Vendors, to:
c/o Tele Hub Link Corporation
1255 Greene Avenue, Suite 400
Westmount, Quebec H3Z 2C3
Attention: Stanley Young, Chief Executive Officer
Telephone: (781) 229-6668
Facsimile: (781) 229-6794
with a copy to:
LaBarge Weinstein
Xerox Building, 11th Floor
333 Preston Street
Ottawa, Ontario K1 S 5N4
Attention: Randy Taylor
Telephone: (613) 231-3000
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<PAGE>
Facsimile: (613) 231-3900
(ii) if to the Purchaser, to:
What A World!, Inc.
P.O. Box 20125
Tampa, Florida 33622
Attention: David Cornstein
Telephone: (212) 808-2060
Facsimile: (212) 808-0349
with a copy to:
Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York City, New York 10174
Attention: James Martin Kaplan, Esq.
Telephone: (212) 885-5000
Facsimile: (212) 885-5001
(b) Any such communication so given or made shall be deemed to have
been given or made and to have been received on the day of
delivery if delivered, or on the day of faxing or sending by
other means of recorded electronic communication, provided that
such day in either event is a Business Day and the communication
is so delivered, faxed or sent before 4:30 p.m. on such day.
Otherwise, such communication shall be deemed to have been given
and made and to have been received on the next following
Business Day. Any such communication sent by mail shall be
deemed to have been given and made and to have been received on
the fifth Business Day following the mailing thereof; provided
however that no such communication shall be mailed during any
actual or apprehended disruption of postal services. Any such
communication given or made in any other manner shall be deemed
to have been given or made and to have been received only upon
actual receipt.
(c) Any Party may from time to time change its address under this
Section 8.8 by notice to the other Party given in the manner
provided by this Section.
8.9 ENTIRE AGREEMENT
This Agreement (together with all documents attached as Appendices and
Schedules, constitutes the entire agreement between the Parties pertaining to
the subject matter of this Agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written. There are
no conditions, warranties, representations or other agreements between the
Parties in connection with the subject matter of this Agreement (whether oral or
written, express or implied, statutory or otherwise) except as specifically set
out in this Agreement (together with all documents attached as Appendices and
Schedules).
8.10 WAIVER
A waiver of any default, breach or non-compliance under this Agreement
is not effective unless in writing and signed by the Party to be bound by the
waiver. No waiver shall be inferred from or implied by any failure to
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<PAGE>
act or delay in acting by a Party in respect of any default, breach or
non-observance or by anything done or omitted to be done by the other Party. The
waiver by a Party of any default, breach or non-compliance under this Agreement
shall not operate as a waiver of that Party's rights under this Agreement in
respect of any continuing or subsequent default, breach or non-observance
(whether of the same or any other nature).
8.11 SEVERABILITY
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such prohibition or unenforceability and shall be severed from the balance of
this Agreement, all without affecting the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
8.12 APPOINTMENT OF ATTORNEY
Each of the Vendors, by execution hereof, hereby appoints Stanley Young
and Bruce Young acting jointly as attorney in fact and representatives (the
"Vendor Representatives"), with full power in such Vendor's name, place and
stead to act for and on behalf of such Vendor in respect of any and all matters
related to this Agreement, including power to transfer the Shares in the capital
of the Company held by such Vendor, to execute such documents and agreements as
shall be necessary to carry out the terms of this Agreement and to make such
modifications to the terms hereof, provided such modifications do not materially
increase the obligations of such Vendor hereunder. The Vendors each agree to
execute and deliver such additional instruments and take such additional actions
as may be necessary to give effect to this Section 8.12. This power-of-attorney
is irrevocable and is coupled with an interest and shall not be effected by the
subsequent death, disability or incapacity of any Vendor or, if the Vendor is
not a natural person, by the dissolution, liquidation or termination thereof.
8.13 LANGUAGE
The Parties have required that this Agreement and all deeds, documents
and notices relating to this Agreement be drawn up in the English language.
8.14 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York and the laws of the United States of America
applicable in that State and shall be treated, in all respects, as a New York
contract without giving effect to the conflict of laws provisions of the laws of
the State of New York. The Company and each of the Vendors hereby submits to the
jurisdiction of the courts of the State of New York and the Federal Courts of
the United States of America located in such state solely in respect of the
interpretation and enforcement of the provisions of this Agreement and the
documents referred to herein, and hereby waives and agrees not to assert as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or any such document any claim based on alleged lack of personal
jurisdiction, improper venue,forum NON CONVENIENT, or any similar basis. The
Parties to this Agreement each consent to the service of process in accordance
with the notice provisions hereof.
8.15 SUCCESSOR AND ASSIGNS
This Agreement shall inure to the benefit of, and be binding on, the
Parties and their respective heirs, administrators, executors, successors and
permitted assigns. None of the Parties hereto may assign or transfer, whether
absolutely, by way of security or otherwise, all or any part of his, hers or its
respective rights or obligations under this Agreement without the prior written
consent of the other Parties hereto (if being understood that the consent of the
Vendor Representatives shall be deemed to constitute the consent of each of the
Vendors)
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<PAGE>
8.16 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together shall be
deemed to constitute one and the same instrument. Counterparts may be executed
either in original or faxed form and the Parties adopt any signatures received
by a receiving fax machine as original signatures of the Parties; provided,
however, that any Party providing its signature in such manner shall promptly
forward to the other Party an original of the signed copy of this Agreement
which was so faxed.
8.17 TERMINATION
This Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time prior to the Closing Date, whether before or
after approval of this Agreement by the Company, the Vendors or the Purchaser:
(a) by mutual written consent of the Parties hereto;
(b) by any of the Parties hereto if, without fault of the terminating
Party, the transactions contemplated herein have not been
consummated by May 1, 1999;
(c) by any of the Parties hereto if there shall be any statute, rule
or regulation which makes consummation of the transactions
contemplated herein illegal or otherwise prohibited, or any
order, decree, injunction enjoining any of the Parties hereto
from consummating the transactions contemplated herein and such
order, decree, injunction or judgment shall have become final
and non-appealable;
(d) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement of the Purchaser
contained in this Agreement or in any other instrument or
document delivered pursuant hereto, which breach shall not have
been cured within 10 business days of receipt by the Purchaser
of written notice of such breach from the Company;
(e) by the Purchaser if there has been a material breach of any
representation, warranty, covenant or agreement of the Company or
any of the Vendors contained in this Agreement or in any other
instrument or document delivered pursuant hereto, which breach
shall not have been cured within 10 business days of receipt by
the Company or such Vendor, as the case may be, of written notice
of such breach from the Purchaser;
(f) by the Company upon the occurrence of any event that would result
in a failure of any of the conditions set forth in section 3.2
hereof, and such event is not capable of being remedied within 30
days after the occurrence thereof; or
(g) by the Purchaser upon the occurrence of any event that would
result in a failure of many of the conditions set forth in section
3.5 hereof, and such event is not capable of being remedied within
30 days after the occurrence thereof.
If this Agreement is terminated pursuant to this Section 8.17, this
Agreement shall become void and of no effect with no liability on the part of
any Party hereto, except that nothing herein shall relieve any Party of any
liability for willful breach hereof.
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<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
WHAT A WORLD!, INC.
Per: /S/ BRIAN S LAPPIN
--------------------------
TELE HUB LINK CORPORATION
Per: /S/ PATRICK THOMAS
--------------------------
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<PAGE>
/S/ STANLEY A. YOUNG
- -------------------------------- -----------------------------------
Witness STANLEY A. YOUNG
/S/ ADAM D. YOUNG
- -------------------------------- -----------------------------------
Witness ADAM D. YOUNG
/S/ BARBARA YOUNG
- -------------------------------- -----------------------------------
Witness BARBARA YOUNG
/S/ HAZEL LECRAW
- -------------------------------- -----------------------------------
Witness HAZEL LECRAW
/S/ KIMBERLY BLETZER
- -------------------------------- -----------------------------------
Witness KIMBERLY BLETZER
/S/ JAMES BLETZER
- -------------------------------- -----------------------------------
Witness JAMES BLETZER
/S/ BRUCE YOUNG
- -------------------------------- -----------------------------------
Witness BRUCE YOUNG
/S/ CAROL SMITH
- -------------------------------- -----------------------------------
Witness CAROL SMITH
/S/ DAVID CORNSTEIN
- -------------------------------- -----------------------------------
Witness DAVID CORNSTEIN
/S/ MARC CORNSTEIN
- -------------------------------- -----------------------------------
Witness MARC CORNSTEIN
/S/ NORMAN BERGERON
- -------------------------------- -----------------------------------
Witness NORMAN BERGERON
/S/ DENIS CROUGH
- -------------------------------- -----------------------------------
Witness DENIS CROUGH
/S/ GREGORY D. DWYER
- -------------------------------- -----------------------------------
Witness GREGORY D. DWYER
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<PAGE>
/S/ ABRAHAM OSTROVSKY
- -------------------------------- -----------------------------------
Witness ABRAHAM OSTROVSKY
/S/ ED SCHOLEMAN
- -------------------------------- -----------------------------------
Witness ED SCHOLEMAN
/S/ CHAD RAO
- -------------------------------- -----------------------------------
Witness CHAD RAO
/S/ SAM ROSENBERG
- -------------------------------- -----------------------------------
Witness SAM ROSENBERG
/S/ JOHN DE LUCA
- -------------------------------- -----------------------------------
Witness JOHN DE LUCA
/S/ ROBERT FREHILL
- -------------------------------- -----------------------------------
Witness ROBERT FREHILL
/S/ MARTIN GOLDMAN
- -------------------------------- -----------------------------------
Witness MARTIN GOLDMAN
/S/ DAVID PHILLIPS
- -------------------------------- -----------------------------------
Witness DAVID PHILLIPS
/S/ JANET GALLANT
- -------------------------------- -----------------------------------
Witness JANET GALLANT
/S/ ADRIENNE WILLLIAM
- -------------------------------- -----------------------------------
Witness ADRIENNE WILLIAM
/S/ MARK COHEN
- -------------------------------- -----------------------------------
Witness MARK COHEN
/S/ ROY STEILMAN
- -------------------------------- -----------------------------------
Witness ROY STEILMAN
/S/ DEBORAH WEINSTEIN
- -------------------------------- -----------------------------------
Witness DEBORAH WEINSTEIN
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<PAGE>
/S/ MAIMON LEAVITT
- -------------------------------- -----------------------------------
Witness MAIMON LEAVITT
/S/ DAVID MILLER
- -------------------------------- -----------------------------------
Witness DAVID MILLER
/S/ EDWARD MARTIN
- -------------------------------- -----------------------------------
Witness EDWARD MARTIN
/S/ JEFF SMITH
- -------------------------------- -----------------------------------
Witness JEFF SMITH
/S/ JOHN BENNETT
- -------------------------------- -----------------------------------
Witness JOHN BENNETT
/S/ JOHN SPECIAL
- -------------------------------- -----------------------------------
Witness JOHN SPECIAL
/S/ RAY STEPHENS
- -------------------------------- -----------------------------------
Witness RAY STEPHENS
/S/ JOSH DRACHMAN
- -------------------------------- -----------------------------------
Witness JOSH DRACHMAN
/S/ KELLY SMITH
- -------------------------------- -----------------------------------
Witness KELLY SMITH
/S/ PATRICK THOMAS
- -------------------------------- -----------------------------------
Witness PATRICK THOMAS
/S/ JOHN ROTONDE
- -------------------------------- -----------------------------------
Witness JOHN ROTONDE
/S/ GARRY FETMAN
- -------------------------------- -----------------------------------
Witness GARRY FETMAN
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<PAGE>
STANLEY A. YOUNG TRUST SAY LIMITED PARTNERSHIP
Per: /S/ STANLEY A. YOUNG Per: /S/ STANLEY A. YOUNG
---------------------------- --------------------------------
YOUNG MANAGEMENT GROUP, INC. YOUNG TECHNOLOGY FUND
Per: /S/ STANLEY A. YOUNG Per: /S/ STANLEY A. YOUNG
---------------------------- --------------------------------
BLETZER FAMILY TRUST ASHLEY ELIZABETH BLETZER
MINOR'S TRUST MINOR'S TRUST
Per: /S/ KIRK BLETZER Per: /S/ KIRK BLETZER
---------------------------- --------------------------------
ABIGAIL TAYLOR BLETZER ALYSON BARRY BLETZER
MINOR'S TRUST MINOR'S TRUST
Per: /S/ KIRK BLETZER Per: /S/ KIRK BLETZER
---------------------------- --------------------------------
KIMBERLY BLETZER AND GLOBAL BUSINESS
JAMES BLETZER (JOINTLY) CONSULTANTS, INC.
Per: /S/ JAMES BLETZER Per: /S/ BRUCE YOUNG
---------------------------- --------------------------------
Per: /S/ KIMBERLY BLETZER
----------------------------
CAROL A. SMITH DAVID A. SMITH ACF
ACF LINDSEY A. SMITH ANDREW BREWER SMITH
Per: /S/ CAROL SMITH Per: /S/ CAROL SMITH
---------------------------- --------------------------------
DAVID A. PHILLIPS KROLL DESIGN ASSOC., INC.
FAMILY TRUST
Per: /S/ DAVID A. PHILLIPS Per: /S/ DIANE KROLL
---------------------------- --------------------------------
B.T. ALEX BROWN INC. FORWARDISSUE LIMITED
CUSTODIAN FOR J. ROTONDE
Per: B.T. Alex Brown Inc.
Custodian for J. Rotonde Per: /S/ GUY NAGGAR
--------------------------------
Per: /S/ JOHN R. ROTONDE
----------------------------
A-36
<PAGE>
ANNEX B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WHAT A WORLD!, INC.
----------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------
WHAT A WORLD!, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation is WHAT A WORLD!, INC.
SECOND: Resolutions setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and directing that said amendment be considered by the stockholders of
the Corporation, were adopted by the Board of Directors of the Corporation at a
meeting duly held on December 14, 1998.
THIRD: Thereafter, said amendment was approved in accordance with
Section 242 of the General Corporation Law of the State of Delaware by the
holders of a majority of the outstanding shares of the Corporation's capital
stock at a special meeting of the Corporation's stockholders duly held on ,
1999.
FOURTH: Said amendment amends the Certificate of Incorporation of the
Corporation by deleting Article FIRST and Article FOURTH thereof and
substituting therefor a new Article FIRST and Article FOURTH, which read in
their entirety as follows:
FIRST: The name of the corporation is TeleHubLink Corporation
(hereinafter referred to as the "Corporation").
FOURTH: The total number of shares of capital stock that the
Corporation shall have authority to issue is 50,000,000 shares of Common Stock,
par value $0.01 per share.
FIFTH: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
B-1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President and attested by its Secretary this
______ day of __________________, 199__.
WHAT A WORLD!, INC.
By:
----------------------
David B. Cornstein
Chairman of the Board
Attest:
By:
---------------
Brian S. Lappin
Secretary
B-2
<PAGE>
ANNEX C
PROSPECT CAPITAL ADVISORS, LLC
444 MADISON AVENUE
25TH FLOOR
NEW YORK, NY 10022
____________ , 1999
The Special Committee of the Board of Directors
What A World!, Inc.
P.O. Box 20125
Tampa, FL 33622
Members of the Special Committee:
You have requested our opinion as investment bankers as to the fairness
to the unaffiliated shareholders (the "Unaffiliated Shareholders") of What A
World!, Inc. ("What A World"), from a financial point of view, of the proposed
exchange ratio reflected in the Share Purchase Agreement, dated as of December
21, 1998 (the "Share Purchase Agreement"), between What A World, Tele Hub Link
Corporation ("TeleHub") and the shareholders of TeleHub. Under the Share
Purchase Agreement, What A World will issue to the TeleHub shareholders shares
of What A World common stock at the rate of 4.124306 shares of What A World
common stock in exchange for each share of common stock of TeleHub (the
"Exchange Ratio"), and as a result, TeleHub will become a wholly-owned
subsidiary of What A World (the "Transaction"), with the former TeleHub
shareholders holding approximately 86% of the outstanding post-Transaction
shares of What A World common stock. The terms and conditions of the Transaction
are more fully set forth in the Share Purchase Agreement.
In arriving at our opinion, we have, among other things (i) reviewed
the Share Purchase Agreement and discussed with What A World's management the
terms of the Share Purchase Agreement; (ii) reviewed What A World's audited
financial statements for the years ended February 1, 1997 and January 31, 1998,
and interim quarterly financial statements for the quarters ended May 2, 1998,
August 1, 1998 and October 31, 1998; (iii) reviewed TeleHub's audited opening
balance sheet at July 31, 1998, and TeleHub's unaudited financial statements for
the three-month period ended October 31, 1998; (iv) reviewed certain financial
projections furnished by TeleHub for calendar years 1998 to 2001 and the
assumptions and bases therefor; (v) reviewed certain publicly available filings
with the Securities and Exchange Commission for What A World; (vi) held
discussions with management of TeleHub and What A World to discuss the business,
operations, historical financial results and future prospects of TeleHub and
What A World, both on an independent and combined basis, and the implications
for combining TeleHub into the What A World public shell; (vii) reviewed the
historical market prices and trading volumes of What A World's common stock;
(viii) compared the financial terms and pro forma post-Transaction percentage
ownership of the combined entity which What A World common shareholders will
retain to that of certain other publicly traded public shell mergers deemed
relevant; and (ix) discussed with What A World's management potential market
reaction to the Merger.
In conducting our analysis and in arriving at our opinion, we have,
with your consent, relied upon and assumed the accuracy and completeness of the
financial and other information that was publicly available or provided to us by
What A World and TeleHub, and we have not undertaken to independently verify the
same.
C-1
<PAGE>
We have not prepared or obtained any independent evaluation or appraisal
of What A World's or TeleHub's assets or liabilities. With your consent, we have
assumed and relied upon the statements of senior management of TeleHub as to the
reasonableness and achievability of the financial and operating forecasts
furnished by management (and the assumptions and bases therefor). Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof. We have been
retained by the Special Committee of the Board of Directors of What A World to
act as financial advisor to What A World only with respect to this fairness
opinion. We do not hold or trade the equity securities of What A World or
TeleHub or any of their respective affiliates. Our opinion is directed to the
Special Committee of the Board of Directors of What A World and does not
constitute a recommendation to any shareholder of What A World as to how such a
shareholder should vote on any shareholder vote of What A World held in
connection with the Transaction. Our opinion is limited solely to the fairness
of the Exchange Ratio to the Unaffiliated Shareholders of What A World.
On the basis of and subject to the foregoing, as of the date hereof, we
are of the opinion that the Exchange Ratio reflected in the Share Purchase
Agreement is fair to the Unaffiliated Shareholders of What A World from a
financial point of view.
Very truly yours,
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its shareholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation Law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the corporation or its shareholders to obtain injunction relief, specific
performance or other equitable relief against directors.
Reference is made to Article Tenth of the Certificate of Incorporation, as
amended, of the Registrant for the provisions which the Registrant has adopted
relating to indemnification of officers, directors, employees and agents.
The Agreement filed as Exhibit 10.1 to this Registration Statement contains
provisions entitling certain persons to indemnification for losses incurred
under certain circumstances.
Reference is also made to Section 7 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.
In addition to the foregoing, the Registrant maintains a directors and
officers liability insurance policy insuring directors and officers of the
Registrant against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The Exhibits required to be filed as part of this Registration
Statement are listed on the attached Index to Exhibits.
(b) Financial Statement Schedules
No Financial Statement Schedules are filed as part of this
Registration Statement because they are not required or not applicable or the
required information is contained in the financial statements as notes thereto.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
A. GENERAL UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
B. INDEMNIFICATION UNDERTAKINGS.
Reference is made to the items of the Delaware General Corporation Law and
the Company's Certificate of Incorporation, which provide for certain rights of
indemnification for officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on
December 22, 1998.
WHAT A WORLD!, INC.
By: /S/ DAVID B. CORNSTEIN
-----------------------
David B. Cornstein
Chairman of the Board
Each person whose signature appears below on this Registration
Statement hereby constitutes and appoints David B. Cornstein and James Martin
Kaplan or either of them his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and his name, place and
stead, in any and all capacities (until revoked in writing) to sign any and all
amendments (including post-effective amendments and amendments thereto) to this
Registration Statement of What a World!, Inc. and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ DAVID B. CORNSTEIN Chairman of the Board (Principal December 22, 1998
- ---------------------------------------- Executive Officer)
David B. Cornstein
/S/ DAVID F. MILLER Secretary and Director December 22, 1998
- ----------------------------------------
David F. Miller
Director December 22, 1998
- ----------------------------------------
Edward J. Munley
/S/ JAMES MARTIN KAPLAN Director December 22, 1998
- ----------------------------------------
James Martin Kaplan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ HUGH H. JONES Director December 22, 1998
- ----------------------------------------
Hugh H. Jones
/S/ BRIAN S. LAPPIN Vice President of Finance and Chief December 22, 1998
- --------------------------------------- Financial Officer (Principal Financial
Brian S. Lappin Officer and Principal Accounting
Officer)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Underwriting Agreement between Registrant and Whale Securities Co.,
L.P. and Selected Dealer Agreement. (incorporated by reference to
Exhibit 1.1 of the Registrant's Form 10-KSB for the year ended
December 31, 1994 as filed with the Securities and Exchange Commission
(the "1994 Form 10-KSB")).
3.1 Certificate of Incorporation of Registrant, as amended (incorporated
by reference from Exhibit 1.1 of the Registrant's Registration
Statement on Form SB-2, (Commission No. 33-84774) as filed with the
Securities and Exchange Commission (the "SB-2")).
3.2 By-Laws of Registrant (incorporated by reference to Exhibit 3.2 of the
SB-2).
3.2.A Restated By-Laws of Registrant (incorporated by reference to Exhibit
3.2A of the SB-2).
4.1 Form of Certificate for Common Stock (incorporated by reference to
Exhibit 4.1 of the SB-2).
4.2 Public Warrant Agreement between the Registrant, American Stock
Transfer & Trust Company and Whale Securities Co., L.P. (incorporated
by reference to Exhibit 4.2 of the SB-2).
4.3 Form of Public Warrant Certificate (incorporated by reference to
Exhibit 4.3 of the SB-2).
4.4 Underwriter's Warrant Agreement (incorporated by reference to Exhibit
4.4 of the SB-2).
5.1 Opinion of Tenzer Greenblatt LLP*
10.1 Share Purchase Agreement dated as of December 21, 1998 between the
Registrant, Tele Hub Link Corporation ("TeleHub") and the shareholders
of TeleHub (included as Annex A to the Proxy Statement/Prospectus
which forms a part of this Registration Statement).
10.2 Agreement among the Registrant, Edward J. Munley, David B. Cornstein,
David Miller and the other parties thereto, dated as of July 21, 1993,
together with amendments to said Agreement (incorporated by reference
to Exhibit 10.1 of the SB-2).
10.3 Employment Agreement with Edward J. Munley dated as of November 8,
1994 (incorporated by reference to Exhibit 10.3 of the SB-2).
10.4 Consulting Agreement between the Registrant and the Whale Securities
Co., L.P. (incorporated by reference to Exhibit 10.11 of the 1994 Form
10-KSB).
10.5 1994 Stock Option Plan (incorporated by reference to Exhibit 10.12 of
the SB-2).
10.5.A 1994 Nonemployee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.12A of the SB-2).
10.6 Letter agreement dated October 3, 1994 by and among the Registrant,
David B. Cornstein, David F. Miller and Edward J. Munley (incorporated
by reference to Exhibit 10.17 of the SB-2).
10.7 Agreement dated as of September 8, 1994 by and among the Registrant,
Edward J. Munley, David B. Cornstein and David F. Miller in respect of
contribution of shares to the Registrant (incorporated by reference to
Exhibit 10.19 of the SB-2).
<PAGE>
10.8 Form of Seasonal Secured Revolving Note dated August 28, 1996 in favor
of each of David B. Cornstein, Hugh H. Jones, Jr. and David F. Miller
(incorporated by reference to the Registrant's Form 10-QSB for the
Quarter ended August 3, 1996 (the "Third Quarter 1996 10-QSB")).
10.9 Form of Warrant and Registration Agreement dated as of August 28, 1996
in favor of each of David B. Cornstein, Hugh H. Jones, Jr. and David
F. Miller. (incorporated by reference to Exhibit 10.2 to the Third
Quarter 1996 10-QSB).
10.10 Security Agreement dated as of August 28, 1996 in respect of Seasonal
Secured Revolving Notes (incorporated by reference to Exhibit 10.3 to
the Third Quarter 1996 10-QSB).
10.11 Asset Purchase Agreement dated as of March 7, 1997 between the
Registrant and Natural Wonders, Inc. (incorporated by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB for the fiscal year
ended February 1, 1997 (the "Fiscal 1996 10-KSB")).
10.12 Management Agreement dated March 7, 1997 between the Registrant and
Natural Wonders, Inc. (incorporated by reference to Exhibit 10.13 to
the Fiscal 1996 10-KSB).
10.13 Form of Non Competition Agreement dated March 7, 1997 by David B.
Cornstein and David F. Miller (incorporated by reference to Exhibit
10.14 to the Fiscal 1996 10-KSB).
10.14 Agreement dated October 29, 1998 between TeleHub and Access One
Communications, Inc.*
10.15 Agreement dated as of November 1, 1998 between TeleHub and Corporate
Services Telecom, Inc.*
10.16 Agreement dated as of October 29, 1998 between TeleHub and Shared
Network Services.*
10.17 General Security Agreement dated as of June __, 1998 between TeleHub
and AT&T Canada Long Distance Services Company.*
10.18 Business Long Distance Special Flat Rate Service Agreement between
TeleHub and AT&T Canada Long Distance Services Company.*
11 Statement re Computation of Per Share Earnings (not required because
the relevant computations can be clearly determined from material
contained in the financial statements included herein).
16 Letter dated June 8, 1998 from Arthur Anderson LLP pursuant to Item
304(a)(3) of Regulation S-B (incorporated by reference to Exhibit 16
to the Registrant's Current Report on Form 8-K dated June 9, 1998).
23.1 Consent of Tenzer Greenblatt LLP (to be included in its opinion filed
as Exhibit 5.1).
23.2 Consent of Kirkland, Russ, Murphy & Tapp.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Giroux, Menard et Associes.
23.5 Consent of Prospect Capital regarding their fairness opinion.
24 Power of Attorney (included on signature page).
<PAGE>
99.1 Form of What A World!, Inc. Proxy.
- ----------
* To be filed by amendment
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report on the financial statements of What A
World!, Inc. included in this Registration Statement on Form S-4 and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/s/ KIRKLAND, RUSS, MURPHY & TAPP
- ---------------------------------
Clearwater, Florida
December 21, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use, in
this registration statement filed on Form S-4, of our report dated March 29,
1997, included herein.
/s/ Arthur Andersen LLP
Tampa, Florida
December 18, 1998
EXHIBIT 23.4
We hereby consent to the inclusion in the What A World!, Inc. Registration
Statement on Form S-4 of our report dated November 25, 1998 with respect to the
financial statements of Tele Hub Link Corporation. We also consent to the
reference to our firm under the headings "Experts" and "Selected Historical
Financial Date of TeleHub" in the same Registration Statement.
GIROUX, MENARD ET ASSOCIES
Chartered Accountants
/s/Giroux, Menard et Associes
Longueuil, Quebec, Canada
December 21, 1998
EXHIBIT 23.5
PROSPECT CAPITAL ADVISORS, LLC
444 MADISON AVANUE, 25TH FLOOR
NEW YORK, NY 10022
December 18, 1998
The Special Committee of the Board of Directors
What A World!, Inc.
P.O. Box 20125
Tampa, FL 33622
Members of the Special Committee:
We hereby consent to the inclusion of our opinion letter in its entirety
as an annex or exhibit to What A World!, Inc. Registration Statement on Form
S-4.
Sincerely,
Prospect Capital Advisors, LLC
/s/ JOHN Y. FREEMAN
- -----------------------
John Y. Freeman, Managing Director
C-1
EXHIBIT 99.1
[FRONT]
PROXY WHAT A WORLD!, INC.
PROXY SOLICITED BY
THE BOARD OF DIRECTORS OF WHAT A WORLD, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS- _______________, 1999
The undersigned hereby appoints David B. Cornstein and James Martin
Kaplan and each of them, with power of substitution and resubstitution to each,
as the proxies and attorneys of the undersigned to vote, as designated below,
all shares of common stock which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of What A World!, Inc.
("WAW") to be held at _________________________ _______________ at _____ a.m.
(local time) on _____________, 1999, and at any adjournment thereof.
1. Approval of the Share Purchase Agreement, dated as of December 21, 1998
between WAW, Tele Hub Link Corporation ("TeleHub") and the shareholders of
TeleHub providing for the acquisition by WAW of all of the outstanding
shares of TeleHub common stock, as a result of which TeleHub will become a
wholly-owned subsidiary of WAW.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of an amendment to WAW's Certificate of Incorporation to increase
to 50,000,000 shares the number of shares of WAW's common stock authorized
for issuance and to change the name of WAW to TeleHubLink Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Election of Directors:
[ ] FOR all nominees listed below [ ] WITHHOLD APPROVAL
(except as marked to to vote for all nominees
the contrary below) listed below
David B. Cornstein, Stanley Young, Patrick Thomas, John DeLuca and Bruce Young
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below)
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
If no direction is given, this proxy will be voted FOR Proposal No. 1, FOR
Proposal No. 2, FOR Proposal No. 3 and FOR the election of the nominees
set forth in Proposal No. 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSALS 1, 2 AND 3 AND
FOR THE ELECTION OF THE NOMINEES SET FORTH IN PROPOSAL NO. 4
TO BE VALID, THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
<PAGE>
[BACK]
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign in full corporate name by
president or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Dated:
Signature
Signature
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
