-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUpdAuH1zLduiWm19/OnXtos8bFFPyCbSgesBqZ8BipsFiLOt4c6o4Tq26yUnJZY BXWC6lO/4ZF8R+ufg7p+hw== 0000950147-00-000787.txt : 20000517 0000950147-00-000787.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950147-00-000787 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000501 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAVETECH INTERNATIONAL INC CENTRAL INDEX KEY: 0000799694 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 860916826 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-15482 FILM NUMBER: 637704 BUSINESS ADDRESS: STREET 1: 5210 E WILLIAMS CIRCLE STREET 2: STE 200 CITY: TUCSON STATE: AR ZIP: 85711 BUSINESS PHONE: 5207509093 MAIL ADDRESS: STREET 1: 5210 E WILLIAMS CIRCLE CITY: TUCSON STATE: AZ ZIP: 85711 FORMER COMPANY: FORMER CONFORMED NAME: WAVETECH INC DATE OF NAME CHANGE: 19920703 8-K 1 CURRENT REPORT DATED 5/01/00 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) May 1, 2000 WAVETECH INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Nevada 001-15482 86-0916826 - ---------------------------- ------------ ------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 5210 E. Williams Circle, Suite 200, Tucson, Arizona 85711 - --------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (520) 750-9093 Not Applicable -------------------------------------------------------------- (Former name or former address, if changed since last report.) ITEM 5. OTHER EVENTS. On May 1, 2000, Wavetech International, Inc. (the "Company"), completed a $5 million private placement of Series B Convertible Preferred Stock (the "Preferred Stock"), and common stock purchase warrant (the "Warrant"), with an accredited investor. The financing consisted of 1,000 shares of Preferred Stock and a Warrant to purchase 160,000 shares of common stock. The Preferred Stock carries a dividend of 6% and a conversion price equal to the lower of 80% of the average closing bid prices of the Company's common stock for the three lowest trading days of the 10 consecutive trading days immediately preceding the conversion date or 110% of the average closing bid prices of the Company's common stock for the five trading days prior to the date of issuance of the Preferred Stock. The Warrant has a term of three years and is exercisable at a price of $.01 for all 160,000 shares of common stock. The Company also issued a warrant to purchase 43,371 shares of common stock to the placement agent in the private placement (the "Agent Warrant"). The Agent Warrant has a term of three years and is exercisable at an aggregate price of $350,000. In connection with the issuance of the Preferred Stock and Warrant, the Company has granted the holder certain registration rights pursuant to a Registration Rights Agreement. Copies of the Certificate of Designations, Rights, Preferences and Limitations of Series B Convertible Preferred Stock, Warrant, Registration Rights Agreement and Securities Purchase Agreement are attached hereto as Exhibits 4, 10.1, 10.2 and 10.3, respectively. For additional discussion regarding this transaction, see also the Company's press release attached hereto as Exhibit 99.1. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS Exhibit No. Description ---------- ----------- 4 Certificate of Designations, Rights, Preferences and Limitations of Series B Convertible Preferred Stock 10.1 Placement Agent's Warrant 10.2 Investor's Warrant 10.3 Registration Rights Agreement 10.4 Securities Purchase Agreement 99.1 Wavetech International, Inc. press release announcing the completion of a $5 million private placement 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized. WAVETECH INTERNATIONAL, INC. Date: May 16, 2000 By /s/ Gerald I. Quinn ------------------------------------- Gerald I. Quinn Chief Executive Officer and President 3 EX-4 2 CERTIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, RIGHTS, PREFERENCES AND LIMITATIONS WAVETECH INTERNATIONAL, INC. SERIES B CONVERTIBLE PREFERRED STOCK PURSUANT TO TITLE 7, CHAPTER 78, SECTION 78.1955 OF THE NEVADA REVISED STATUTES It is certified that: A. The name of the corporation is Wavetech International, Inc., a Nevada corporation (hereinafter the "Company"). B. The certificate of incorporation of the Company, as amended, authorizes the issuance of Ten Million (10,000,000) shares of Preferred Stock, $.001 par value per share, and expressly vests in the Board of Directors of the Company the authority provided therein to issue all of said shares in one or more series and by resolution or resolutions to establish the designation and number and to fix the relative rights and preferences of each series to be issued. C. The Board of Directors of the Company, pursuant to the authority expressly vested in it, has adopted the following resolutions creating a class of Series B Preferred Stock: RESOLVED, that a portion of the Ten Million (10,000,000) authorized shares of Preferred Stock of the Company shall be designated as a separate series possessing the rights and preferences set forth below: 1. DESIGNATION AND AMOUNT. The shares of such series shall have a par value of $.001 per share and shall be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be up to 1,000. The Series B Preferred Stock shall be offered for sale at a purchase price of $5,000 per share (the "Purchase Price"). 2. RANKING. The Series B Preferred Stock shall rank (i) prior to the Corporation's common stock, par value $.001 per share ("Common Stock"); (ii) junior to the Corporation's Series A Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"); (iii) prior to any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holders of Series B Preferred Stock (which may be withheld in such holders' sole and absolute discretion) obtained in accordance with Section 8 hereof, such class or series of capital stock specifically, by its terms, ranks senior to or PARI PASSU with the Series B Preferred Stock); (iv) PARI PASSU with any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of the Series B Preferred Stock (which may be withheld in such holders' sole and absolute discretion) obtained in accordance with Section 8 hereof) specifically ranking, by its terms, on parity with the Series B Preferred Stock ("Pari Passu Securities"); and (v) junior to 1 any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series B Preferred Stock (which may be withheld in such holders' sole and absolute discretion) obtained in accordance with Section 8 hereof) specifically ranking, by its terms, senior to the Series B Preferred Stock ("Senior Securities"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. 3. DIVIDEND RIGHTS. (a) The holders of shares of Series B Preferred Stock shall be entitled to receive out of any assets legally available therefor cumulative dividends at the rate per share equal to six percent (6%) per year of the amount of the Liquidation Value of the Series B Preferred Stock, in preference and priority to any payment of any dividend on the Common Stock or any other class or series of stock of the corporation except for the Series A Preferred Stock. Such dividends shall accrue on any given share from the day of original issuance of such share and shall accrue from day to day whether or not earned or declared. Such dividends shall be cumulative so that if such dividends in respect of any previous or current annual dividend period, at the annual rate specified above, shall not have been paid or declared and a sum sufficient for the payment thereof set apart for all Series B Preferred Stock at the time outstanding, the deficiency shall first be fully paid before any dividend or other distribution shall be paid on or declared or set apart for the Common Stock or any other class or series of stock of the corporation except for the Series A Preferred Stock. Dividends on the Series B Preferred Stock shall be non-participating and the holders of the Series B Preferred Stock shall not be entitled to participate in any other dividends beyond the cumulative dividends specified herein. (b) Any dividends payable pursuant to the provisions of this section 3 may be paid, at the Company's option, either in cash or unrestricted shares of Common Stock of the Company, and shall be paid within five days of when due. The number of shares of Common Stock to be issued by the Company in lieu of a cash payment for dividends due as set forth herein shall be equal to the number of shares of Common Stock resulting from dividing the dollar amount of dividends owed by the Conversion Price (as defined below) on such date as the dividends are payable (if such date is not a Trading Day, then the next Trading Day (as defined below) immediately thereafter). (c) The holders of the outstanding shares of Series B Preferred Stock shall not be entitled to other distributions of the assets of the Company other than distributions of the assets of the Company upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. For purposes of this Certificate, unless the context otherwise requires, "distribution" shall mean the transfer of cash or property without consideration, whether by way of dividend or otherwise, payable other than in shares of Common Stock or other equity securities of the Company, or the purchase or redemption of shares of Common Stock or other equity securities of the Company (other than redemptions set forth in Section 6 below or repurchases of Common Stock or other equity securities held by employees or consultants of the Company upon termination of their employment or services pursuant to agreements providing for such repurchase) for cash or property payable other than in shares of Common Stock or other equity securities of the Company. 2 3. LIQUIDATION, DISSOLUTION OR WINDING UP The Series B Preferred Stock carries a liquidation preference of $5,000.00 per share, plus any accrued but unpaid dividends (the "Liquidation Preference"). In the event of any liquidation, dissolution, winding up, either voluntary or involuntary, of the Corporation, or any partial liquidation effected by means of a distribution of assets or return of capital, the holders of each share of Series B Preferred Stock shall be entitled to receive and be paid in cash out of the surplus funds of the Corporation or out of the assets so distributed, full payment of the Liquidation Preference of such share before any amount shall be paid to the holders of any other class of capital stock of the Corporation except for the Series A Preferred Stock If upon liquidation, the assets of the Corporation available for distribution to stockholders shall be insufficient to permit the payment in full of the Liquidation Preference payable hereunder to the holders of the Series A Preferred Stock, the Series B Preferred Stock and PARI PASSU Securities, then all such assets shall be distributed first to the Series A Preferred Stock and thereafter, to extent sufficient ratably among the holders of such shares of Convertible Preferred Stock and PARI PASSU Securities first in payment of the Liquidation Preference per share of Convertible Preferred Stock and PARI PASSU Securities, in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit such payments in full. No distribution shall be made with respect to any class of capital stock of the Corporation standing junior in preference to the Series B Preferred Stock until the distributions required hereunder have been paid in full to all holders of Series B Preferred Stock. After the holders of Series B Preferred Stock have received the sum per share equal to the Liquidation Preference of such Series B Preferred Stock, the holders of classes of capital stock standing junior in preference shall be entitled to share in accordance with their respective rights and preferences hereunder in the distribution of all remaining assets of the Corporation available for distribution. 4. VOTING RIGHTS. Except as otherwise required by law, and except as set forth in Section 8 of this Certificate, the holders of Series B Preferred Stock shall not be entitled to vote upon any matter relating to the business or affairs of the Company or for any other purpose. 5. CONVERSION RIGHTS FOR THE SERIES B PREFERRED STOCK. The holders of Series B Preferred Stock shall have conversion rights as follows ("Conversion Rights"): (a) RIGHT TO CONVERT. The Series B Preferred Stock may be converted, in whole or in part, at any time after the closing date (the "Closing Date") of the sale of the Series B Preferred Stock. (b) CONVERSION RATE. Each share of Series B Preferred Stock may be converted into the number of fully-paid and non-assessable shares of Common Stock of the Company calculated in accordance with the following formula ("Conversion Rate"): The number of shares issuable upon conversion of one share of Series B Preferred Stock shall be determined by dividing the Purchase Price by the Conversion Price, where: (i) The Purchase Price is defined in Section 1 hereof; 3 (ii) the Conversion Price equals the lesser of (x) one hundred ten percent (110%) of the average of the Closing Bid Prices (defined below) for the Common Stock for the five (5) trading days prior to the date of issuance of the Series B Preferred Stock being converted, or (y) eighty percent (80%) (the "Conversion Percentage") of the average of the Closing Bid Prices for the Common Stock for the three (3) lowest trading days out of the ten (10) consecutive trading days immediately preceding the Conversion Date (as herein defined), as reported on the National Association of Securities Dealers OTC Bulletin Board Market (or on such other national securities exchange or market as the Common Stock may trade at such time); (iii) for purposes hereof, the term "Closing Bid Price" shall mean for any security as of any date, the last closing bid price for such security on the OTC: Bulletin Board Market as reported by Bloomberg, L.P., or, if the OTC: Bulletin Board Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, L.P., or, if no last closing bid or trade price is reported for such security by Bloomberg, L.P., the closing bid price shall be determined by reference to the closing bid price as reported on the principal trading market, and if not so reported shall be determined from the average of the bid prices of any market makers for such security as reported in the "pink sheets" published by the National Quotation Bureau, Inc. If the closing bid price cannot be calculated for such security on such date on any of the foregoing bases, the closing bid price of such security on such date shall be the fair market value as mutually agreed by the Company and the holders of two-thirds of the outstanding shares of Series B Preferred Stock. (c) FORCED CONVERSION. In the event the holders of the Series B Preferred Stock have not exercised the Conversion Rights set forth herein within two years after the date of issuance of the Series B Preferred Stock (the "Final Date"), the Series B Preferred Stock shall automatically be converted as if the holder had exercised their Conversion Rights on the Final Date. (d) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock issuable upon the conversion of the Series B Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, stock split, stock dividend, or similar event, then and in each such event, the holder of each share of Series B Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such capital reorganization, reclassification or other change which such holder would have received had its shares of Series B Preferred Stock been converted immediately prior to such capital reorganization, reclassification or other change. (e) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for in Section 5(d) above), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and/or assets to any other person or entity (any of which events is herein referred to as a "Reorganization"), then as a part of such Reorganization, provision shall be made so that the holders of the Series B 4 Preferred Stock shall thereafter be entitled to receive upon conversion of the Series B Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series B Preferred Stock immediately prior to such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series B Preferred Stock after the Reorganization, to the end that the provisions of this Section 5 (including adjustment of the number of shares issuable upon conversion of the Series B Preferred Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. (f) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY COMPANY. Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Series B Preferred Stock, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series B Preferred Stock a certificate executed by the president and chief financial officer (or in the absence of a person designated as the chief financial officer, by the treasurer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment are based. The Company shall, upon written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a certificate setting forth (A) the Conversion Price at the time in effect, and (B) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series B Preferred Stock. (g) EXERCISE OF CONVERSION RIGHTS. Holders of Series B Preferred Stock may exercise their right to convert the Series B Preferred Stock by telecopying an executed and completed Notice of Conversion to the Company and delivering the original Notice of Conversion in the form annexed hereto as Exhibit A ("Notice of Conversion") and the certificate representing the Series B Preferred Stock (once fully converted, unless specifically requested otherwise by the Company) by express courier. Each business date on which a Notice of Conversion is telecopied to and received by the Company in accordance with the provisions hereof shall be deemed a "Conversion Date." Such holders of Series B Preferred Stock which have sent a Notice of Conversion to the Company shall, if requested by the Company, deliver the originally executed Series B Preferred Stock certificates to the Company within three business days from the Conversion Date. The Company will transmit, or instruct its transfer agent to transmit, the certificates representing shares of Common Stock issuable upon conversion of any share of Series B Preferred Stock (together with the certificates representing the Series B Preferred Stock not so converted, if the prior certificate was delivered to the Company) to the holder thereof via express courier, by electronic transfer or otherwise, within three business days after the Company has received the facsimile Notice of Conversion. In addition to any other remedies which may be available to the holders of shares of Series B Preferred Stock, Except as otherwise stated in the Purchase Agreement, in the event that the Company fails to deliver, or has failed to contact its transfer agent within two business days to deliver, such shares of Common Stock within such three business day period, the holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the holder shall each be restored to their respective positions 5 immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Series B Preferred Stock certificates representing the portion of the Series B Preferred Stock converted shall be delivered as follows: To the Company: Wavetech International, Inc. 5210 E. Williams Circle Suite 200 Tucson, Arizona 85711 Telephone: (520) 750-9093 Facsimile: Attention: In the event that shares representing the Common Stock issuable upon conversion of the Series B Preferred Stock (the "Conversion Shares") are not delivered by the Company within five (5) business days of receipt by the Company of the facsimile Notice of Conversion, the Company shall pay to the holders thereof, in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, the amounts stated in the following schedule, which liquidated damages shall begin to accrue on the sixth business day after the Conversion Date provided that the Company shall not be responsible for or required to pay such liquidated damages if such failure to deliver or convert was not caused by any actions or omissions of the Company, the Company's transfer agent or counsel to the Company. Any and all payments required pursuant to this paragraph shall be payable in cash on demand. Late Payment For Each $10,000 of Preferred Stock Liquidation No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 +$200 for each Business Day Late beyond 5 days from The Delivery Date Nothing herein shall limit the holder's right to seek specific performance of the Company's obligations hereunder and other remedies and damages for the Company's actions or inactions resulting in the transfer agent's failure to issue and deliver the Common Stock to the holder. (h) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of any Series B Preferred Stock certificate(s), and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon the cancellation of the Series B Preferred Stock certificate(s), if mutilated, the Company shall execute and deliver new certificates for Series B Preferred Stock of like tenure and date. However, the Company shall not be obligated to reissue such lost or stolen certificates for shares of Series B Preferred Stock if the holder contemporaneously requests the Company to convert such Series B Preferred Stock into Common Stock. 6 (i) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of shares of Series B Preferred Stock. In lieu of any fractional share to which the holder would be entitled for this paragraph, the number of shares of Common Stock to be received shall be rounded to the nearest whole share. (j) PARTIAL CONVERSION. In the event some but not all of the shares of Series B Preferred Stock represented by a certificate or certificates are converted, the Company may require the holder to surrender the said certificate(s) to the Company within three (3) business days after such a conversion; if so, the Company shall execute and deliver to or to the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series B Preferred Stock which were not converted. (k) RESERVATION OF COMMON STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock (including also exercise of the Option), such number of its shares of Common Stock as shall from time to time be sufficient or as may be available to effect the conversion of all outstanding shares of the Series B Preferred Stock, including also full exercise of the Option, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all the then outstanding shares of the Series B Preferred Stock, including also full exercise of the Option, the Company shall use its best efforts to take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 6. REDEMPTION. (a) The Company may redeem any or all of the outstanding shares of the Series B Preferred Stock on any date (the "Redemption Date") set by the Board of Directors of the Company for such redemption at any time at the Redemption Price, as that term is defined below, for each share of Series B Preferred Stock, to be paid in cash on the Redemption Date, PROVIDED, that (except as hereinafter provided) the Company shall not send a Redemption Notice, as that term is defined below, to any of the holders of Series B Preferred Stock, unless it has good and clear funds, for payment of the Redemption Price for the shares of Series B Preferred Stock it intends to redeem, in a bank account controlled by the Company, and PROVIDED FURTHER, HOWEVER, that in the event the redemption is to be made simultaneously with the closing of a public offering of the Company, then the Company may send a Redemption Notice even if it does not have such good and clear funds, but not earlier than on the day prior to the date the public offering is priced. (b) The Redemption Price shall be an amount equal to one hundred twenty-five percent (125%) of the Purchase Price, plus an amount equal to all accrued but unpaid dividends, whether or not declared, to but excluding the Redemption Date. 7 (c) The Redemption Price shall be payable in cash. If fewer than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the redemption shall be pro rata among the holders of the Series B Preferred Stock based upon the number of shares held by such holders and subject to such other provisions as may be determined by the Board of Directors of the Company. (d) Five days prior to the Redemption Date, the Company shall send, by facsimile transmission and by first class mail, postage prepaid, a notice (the "Redemption Notice") to each holder of Series B Preferred Stock, which notice shall contain all instructions and materials necessary to enable such holders to tender Series B Preferred Stock pursuant to the redemption. Such notice shall (i) state that a redemption is being effected, (ii) specify the Redemption Date, and (iii) state that holders will be required to surrender the certificate or certificates representing such shares, properly endorsed, in the manner and at the place specified in the notice prior to the close of business on the business day prior to the Redemption Date. The Company may not redeem any portion of the Series B Preferred Stock that has been converted on or prior to the date of the Redemption Notice. In the event the Company fails to deliver the Redemption Price plus accrued and unpaid dividends on or before (i) six days after the date of the Redemption Notice or (ii) in the event the redemption is made simultaneously with the closing of a public offering of the Company, six days after the closing date of such public offering, the Redemption Notice shall be null and void and the Company will relinquish its Redemption rights provided by this section. (e) On the Redemption Date, unless the Company defaults in the payment for the shares of Series B Preferred Stock tendered pursuant to the redemption, dividends will cease to accrue with respect to the shares of Series B Preferred Stock tendered. All rights of holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Redemption Date. (f) After receipt of the Redemption Notice, the holders of Series B Preferred Stock may not convert all or any portion of their shares of Series B Preferred Stock into shares of Common Stock; provided, however, that if the Company fails for any reason to pay the Redemption Price on the Redemption Date, the rights of the holders of Series B Preferred Stock to convert such shares to Common Stock shall be immediately restored. (g) The Company may, at its option, at any time after the mailing of the Redemption Notice pursuant to Section 6 (d) above, deposit the aggregate amount payable upon redemption of the Series B Preferred Stock with a bank or trust company (the "Depositary") having its principal office in New York, New York, and having a combined capital and surplus (as shown by its then most recently published financial statement) of at least $200,000,000, designated by the Board of Directors of the Company, to be held in trust by the Depositary for payment to the holders of the shares to be redeemed. Upon such deposit, the Company shall be released and discharged from any obligation to pay the Redemption Price of the shares to be redeemed, and the holders of the shares instead shall have the right to receive from the Depositary only, and not from the Company, the amount payable upon redemption of the shares on surrender to the Depositary of the certificates representing the shares. Any money so deposited with the Depositary that is not claimed after one year from the Redemption Date shall be repaid to the Company by the Depositary on demand, and the holder of any of the shares shall thereafter look only to the Company for any payment to which the 8 holder may be entitled. Any interest which accrues on money deposited with the Depositary shall belong to the Company and shall be paid to the Company from time to time by the Depositary. (h) Any Series B Preferred Stock redeemed or re-purchased by the Company shall be canceled and shall have the status of authorized and unissued shares of preferred stock, without designation as to class or series. 7. NO REISSUANCE OF SERIES B PREFERRED STOCK. Any share or shares of Series B Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise SHALL be canceled, shall return to the status of authorized but unissued preferred stock of no designated series, and shall not be reissuable or re-sellable by the Company as Series B Preferred Stock. 8. RESTRICTIONS AND LIMITATIONS (a) AMENDMENTS TO CHARTER. The Company shall not amend its certificate of incorporation without the approval by the holders of at least a majority of the then outstanding shares of Series B Preferred Stock if such amendment would: (i) change the relative seniority rights of the holders of Series B Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Company, or create any other class or series of capital stock entitled to seniority as to the payment of dividends in relation to the holders of Series B Preferred Stock; (ii) reduce the amount payable to the holders of Series B Preferred Stock upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, or change the relative seniority of the liquidation preferences of the holders of Series B Preferred Stock to the rights upon liquidation of the holders of other capital stock of the Company, or change the dividend rights of the holders of Series B Preferred Stock; (iii) cancel or modify the conversion rights of the holders of Series B Preferred Stock provided for in Section 5 herein; or (iv) cancel or modify the rights of the holders of the Series B Preferred Stock provided for in this Section 8. 9. NOTICES OF RECORD DATE. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, or any other entity or person, or 9 (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, then and in each such event the Company shall mail or cause to be mailed to each holder of Series B Preferred Stock a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up is expected to become effective and (iii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least ten days prior to the date specified in such notice on which such action is to be taken. 10. CERTIFICATE OF INCORPORATION. The statements contained in the foregoing, creating and designating the said Series B issue of Preferred Stock and fixing the number, powers, preferences and relative, OPTIONAL, participating, and other special rights and the qualifications, limitations and restrictions shall, upon the effective date of said series, be deemed to be included in and be a part of the Articles of Incorporation of the Company pursuant to the relevant provisions of the General Corporation Law of the State of Nevada. 11. LIMITATION ON NUMBER OF CONVERSION SHARES. (a) If (i) the Common Stock shall be listed on the Nasdaq Small Cap Market or the Nasdaq National Market, and (ii) such Market shall have advised the Company in writing that a proposed issuance of shares of Common Stock upon conversion of shares of Series B Preferred Stock would exceed the issuance of that number of shares of Common Stock which the Company may issue upon conversion of the Series B Preferred Stock (the "Exchange Cap") without breaching the Company's obligations under the rules and regulations of The Nasdaq Stock Market, Inc., then notwithstanding any other provision herein, the Company shall not be obligated to issue any shares of Common Stock upon conversion of the Series B Preferred Stock if the issuance of such shares of Common Stock would exceed the Exchange Cap, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by applicable rules of The Nasdaq Sock Market, Inc., for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the shares of Series B Preferred Stock then outstanding; PROVIDED, HOWEVER, that notwithstanding anything herein to the contrary, the Company will issue such number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock at the then current Conversion Price up to the Exchange Cap. Until such approval or written opinion is obtained, no holder of Series B Preferred Stock pursuant to the Securities Purchase Agreement ("Purchase Agreement") shall be issued, upon conversion of Series B Preferred Stock, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of shares of Series B Preferred Stock issued to such holder pursuant to the Purchase Agreement and the denominator of which is the aggregate amount of all 10 the shares of Series B Preferred Stock issued to all holders pursuant to the Purchase Agreement (the "Cap Allocation Amount"). In the event that any holder of Series B Preferred Stock shall convert all of such holder's shares of Series B Preferred Stock into a number of shares of Common Stock which, in the aggregate, is less than such holder's Cap Allocation Amount, then the difference between such holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Series B Preferred Stock on a pro rata basis in proportion to the number of shares of Series Preferred Stock then held by each such holder. The provisions of this paragraph will apply only in the event the Company becomes listed for trading on the NASDAQ stock market (either Small Cap or National Market). (b) CONVERSION RESTRICTIONS. Notwithstanding anything to the contrary set forth herein or in the Certificate of Designations, in no event shall any holder of the Series B Preferred Stock be entitled to convert Series B Preferred Stock (or exercise the Option to receive Option Shares) in excess of such portion of the principal of the Series B Preferred Stock that, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by such converting holder and its affiliates to exceed 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock with respect to which the determination of such proviso is being made. Except as set forth in the preceding sentence, for purposes of this Section 2(a), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. The limitations imposed by this Section 4(l) on conversion of Series B Preferred Stock shall no longer apply, and the holder of the Series B Preferred Stock may convert all or any portion of the Series B Preferred Stock, irrespective of the resulting beneficial ownership of the Company's Common Stock, should any of the following events occur: (I) The Company shall either: (i) become insolvent; (ii) admit in writing its inability to pay its debts generally or as they become due; (iii) make an assignment for the benefit of creditors or commence proceedings for its dissolution; or (iv) apply for, or consent to the appointment of, a trustee, liquidator, or receiver for its or for a substantial part of its property or business; or (II) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without the Company's consent and such appointment is not discharged within sixty (60) days after such appointment; or (III) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company and shall not be dismissed within sixty (60) days thereafter; or (V) Bankruptcy, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company and, if instituted against the Company, shall not be dismissed within sixty days after such institution or the Company shall by any action or answer approve of, consent to, or acquiesce in any such proceedings or admit the material allegations of, or default in answering a petition filed in, any such proceeding. 11 Signed and attested to on April 28, 2000. WAVETECH INTERNATIONAL, INC. By: /s/ Gerald I. Quinn ------------------------------------- Name: Gerald I. Quinn ----------------------------------- Title: President & CEO ---------------------------------- Attest: /s/ Richard P. Freeman - ----------------------------------- Secretary 12 STATE OF ) ---------------------------) ss. County of ) -------------------------- On this _____ day of April, 2000, before me personally appeared/personally known to me me ______________________, the _________________ of WAVETECH INTERNATIONAL, INC., a Nevada corporation, on behalf of said corporation. ------------------------------------- Notary Public My Commission Expires: - ----------------------------------- 13 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series B Preferred Stock) The undersigned hereby irrevocably elects to convert ___ shares of Series B Preferred Stock, Certificate No. ___ (the "Preferred Stock") into shares of Common Stock of Wavetech International, Inc. (the "Company"), according to the conditions hereof, as of the date written below. The undersigned hereby irrevocably elects to purchase ____ Option Shares, at an exercise price per share equal to the Conversion Price, or $_______ per share. The undersigned shall pay the purchase price for such Option Shares to the Company within two (2) business days after the date of delivery of this Notice of Conversion. The undersigned represents and warrants that (i) All offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Series B Preferred Stock (and exercise of the Option as stated above) shall be made in compliance with Regulation D, pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to registration of the Common Stock under the Act, subject to any restrictions on sale or transfer set forth in the purchase agreement between the Company and the original holder of the Certificate submitted herewith for conversion. (ii) Upon conversion (and exercise of the Option, if applicable) pursuant to this Notice of Conversion, the undersigned will not own of record (within the meaning of the Securities Exchange Act of 1934, as amended) 4.99% or more of the then issued and outstanding shares of the Company. ------------------ --------------------------- Date of Conversion Applicable Conversion Price -------------------------------- ---------------------- Number of shares of Common Stock $ Amount of Conversion issuable upon Conversion Legal Name of Converting Holder: ------------------------------------------ ----------------------------------------------- Signature/Title of Authorized Representative of Converting Holder Address for Delivery of Shares: --------------------------------------------- --------------------------------------------- --------------------------------------------- EX-10.1 3 PLACEMENT AGENT'S WARRANT PLACEMENT AGENT'S WARRANT WARRANT NO. _______ THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR FILED OR REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, BUT ARE BEING ISSUED PURSUANT TO CERTAIN EXEMPTIONS THEREUNDER. THIS WARRANT, AND SUCH SHARES OF COMMON STOCK, HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS WARRANT, AND SUCH SHARES OF COMMON STOCK, ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION THEREUNDER OR EXEMPTION THEREFROM. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. WAVETECH INTERNATIONAL, INC. Warrant for the Purchase of Shares of Common Stock May 1, 2000 43,371 Shares FOR VALUE RECEIVED, Wavetech International, Inc., a Nevada corporation (the "Company"), hereby certifies that THOMSON KERNAGHAN & CO. LIMITED (the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) 43,371 fully paid and nonassessable shares of common stock of the Company, par value $0.001 per share (the "Common Stock") at the price of $8.07 per share, for an aggregate exercise price of $350,000 (the "Exercise Price"). The number and character of shares of Common Stock or other securities to be received upon exercise of this Warrant are subject to adjustment in accordance with the provisions of Section 8). For purposes of this Warrant, "Warrant Shares" means the shares of Common Stock deliverable upon exercise of this Warrant, as adjusted from time to time. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment. This Warrant is issued pursuant to the Securities Purchase Agreement dated May 1, 2000, between the Company and Cedar Avenue LLC (the "Agreement"), and is subject to the provisions thereof. -1- Section 1. EXERCISE OF WARRANT. (a) This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office at the address set forth on the signature page hereof (or at such other address as the Company may hereafter notify the Holder in writing), or at the office of its stock transfer agent or warrant agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier's check to the order of the Company or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at such office, or by the stock transfer agent or warrant agent of the Company, if any, at its office, the Company or the stock transfer agent or warrant agent, if any, shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or its designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. (b) CASHLESS EXERCISE. Notwithstanding the foregoing, in lieu of paying the Exercise Price, the Holder may, by designating a "cashless" exercise on the Purchase Form and surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised, acquire a number of Warrant Shares equal to (i) the difference between (x) the Current Market Value of the Common Stock and (y) the Exercise Price, (ii) multiplied by the number of shares of Common Stock purchasable under the portion of the Warrant tendered to the Company, and (iii) divided by the Market Value of the Company's Common Stock. "Spread" means the Current Market Value of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein. (c) LIMITATION ON RIGHT AND POWER TO EXERCISE. Any provision in this warrant, the Securities Purchase Agreement or any other document to the contrary not withstanding, the Holder shall not have the right or power to exercise this warrant, either in whole or in part, and any attempt to do so shall be void if, after having given effect to such exercise, the Holder shall be or shall be deemed to be the beneficial owner of 10% or more of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. -2- Section 2. EXERCISE PERIOD. This Warrant shall be exercisable during the period (the "Exercise Period") beginning the date of execution of this Warrant (the "Initial Exercise Date") and ending at 5:00 p.m. (New York City time) on May 1, 2003 (the "Termination Date"). Section 3. RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company or other property from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights. Section 4. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value (as hereinafter defined) per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a "security") at the date herein specified shall be: (i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the "Current Market Value" per share of the security shall be determined in good faith by the Board of Directors of the Company, or (ii) if the security is registered under the Exchange Act, the "Current Market Value" per share of the security shall be deemed to be the average of the daily market prices of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily market prices for all of the trading days before such date for which daily market prices are available. The market price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on any securities exchange, the closing price on the primary exchange on which the Common Stock is then listed, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act. -3- Section 5. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent or warrant agent, if any, for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant. (b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent or warrant agent, if any, together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged. (c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 6. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. Section 7. ANTI-DILUTION PROVISIONS. (a) So long as this Warrant is outstanding, except as provided in paragraph (b) of this Section 7, the Company shall not, without prior consent of the Holder, issue or sell (i) any Common Stock (other than treasury stock) without consideration or for a consideration per share less than its fair market value determined immediately prior to its issuance, or (ii) issue or sell any warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock (other than treasury stock) without consideration or for a consideration per share less than such Common Stock's fair market value determined immediately prior to its issuance. For the purpose of this Section 7, the Common Stock's fair market value shall be the closing bid price for the Common Stock on the trading day before its issuance as reported by Bloomberg LP. (b) The provisions of paragraph (a) of this Section 7 shall not apply to (i) Common Stock or options to acquire Common Stock issued to directors, officers or employees of the Company pursuant to bona fide compensation plans or awards, or (ii) to the sale of securities in an underwritten public offering in which the underwriters have established the price at which the securities shall be offered to the public. Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the -4- Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7(a). Section 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the "Securities Act"), shall bear a legend substantially in the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. -5- Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be "Warrant Shares" for all purposes of this Warrant. Section 10. LISTING ON SECURITIES EXCHANGES. On or before the Initial Exercise Date, the Company shall list on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon the exercise of this Warrant, all shares of Common Stock from time to time issuable upon exercise of this Warrant and the Company shall maintain, so long as any other shares of its Common Stock shall be so listed, all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of capital stock of the same class shall be listed on such national securities exchange by the Company. Any such listing shall be at the Company's expense. Section 11. AVAILABILITY OF INFORMATION. The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock. Section 12. REGISTRATION RIGHTS. Registration rights with respect to this Warrant and the Warrant Shares shall be governed by the Registration Rights Agreement, dated as of the date hereof, by and between the Company and the Holder. Section 13. SUCCESSORS AND ASSIGNS. All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives. -6- Section 14. HEADINGS. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. Section 15. AMENDMENTS. This Warrant may not be amended except by the written consent of the Company and the Holder. Section 16. NOTICES. Unless otherwise provided in this Warrant, all notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered `other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: IF TO THE HOLDER: IF TO THE COMPANY: Thomson Kernaghan & Co. Limited Wavetech International, Inc. 365 Bay Street, Tenth Floor 5210 East Williams Circle, Suite 200 Toronto, Ontario M5H 2V2, Canada Tucson, Arizona 85711 Attention: Michelle McKinnon Attention: Gerald I. Quinn, President Facsimile No. (284) 494-4771 Facsimile No. (520) 750-9194 Either party hereto may from time to time change its address or facsimile number for notices under this Section 11.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. Section 17. CHOICE OF LAW; VENUE; JURISDICTION. This Warrant and the other Transaction Documents defined in the Agreement shall be construed and enforced in accordance with the laws of the State of Arizona, except for (i) matters arising under the federal securities laws, which shall be construed and enforced in accordance with those laws, (ii) matters relating to the Company's organization, which shall be governed by the laws of the jurisdictions of its incorporation, and (iii) if any provision of this Agreement or any other Transaction Document is unenforceable under Arizona law but is enforceable under the laws of the State of New York, then New York law shall govern the construction and enforcement of that provision. Any controversy or claim arising out of or relating to this Agreement or any other Transaction Document (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration in the Borough of Manhattan, City of New York, in accordance with the Commercial Arbitration Rules (the "Rules") of the American Bar Association, before a panel of three arbitrators, one appointed by each of the Investor and the Company, and the third chosen by the two so appointed. If the -7- two arbitrators chosen by the parties cannot agree on a third, then the third shall be selected in accordance with the Rules. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York for that purpose. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the day and year first above written. WAVETECH INTERNATIONAL, INC. By /s/ Gerald I. Quinn -------------------------------------- Gerald I. Quinn, President Date Signed May 1, 2000 ----------------------------- -8- PURCHASE FORM To: Wavetech International, Inc.: The undersigned irrevocably exercises the Warrant for the purchase of ____________________ shares (subject to adjustment) of Common Stock of Wavetech International, Inc. (the "Company"): for the Warrant and herewith makes payment of $____________________ (the "Exercise Price") through the following method: such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of The Company . or By a "cashless exercise," with payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant) equal to the aggregate Exercise Price, all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to The Company Corp. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.. Date: ________________, _______ ---------------------------------------- (Signature of Owner)(1) ---------------------------------------- (Street Address) ---------------------------------------- (City) (State) (Zip Code) - ---------- (1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised part of the Warrant evidenced by the within Warrant to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
Social Security or Number of Shares of Other Identifying Common Stock Name of Assignee Address of Assignee Number of Assignee Assigned to Assignee - ---------------- ------------------- ------------------ -------------------- - ---------------- ------------------- ------------------ -------------------- - ---------------- ------------------- ------------------ --------------------
and does hereby irrevocably constitute and appoint ______________________ as the undersigned's attorney to make such transfer on the books of ______________________ Wavetech International, Inc. maintained for that purpose, with full power of substitution in the premises. Date: ______________, ____ ---------------------------------------- (Signature of Owner)(1) ---------------------------------------- (Street Address) ---------------------------------------- (City) (State) (Zip Code) - ---------- (1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. EX-10.2 4 INVESTOR'S WARRANT INVESTOR'S WARRANT WARRANT NO. _______ THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR FILED OR REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR WITH THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, BUT ARE BEING ISSUED PURSUANT TO CERTAIN EXEMPTIONS THEREUNDER. THIS WARRANT, AND SUCH SHARES OF COMMON STOCK, HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY STATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS WARRANT, AND SUCH SHARES OF COMMON STOCK, ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION THEREUNDER OR EXEMPTION THEREFROM. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. WAVETECH INTERNATIONAL, INC. Warrant for the Purchase of Shares of Common Stock May 1, 2000 160,000 Shares FOR VALUE RECEIVED, Wavetech International, Inc., a Nevada corporation (the "Company"), hereby certifies that CEDAR AVENUE LLC (the "Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) 160,000 fully paid and nonassessable shares of common stock of the Company, par value $0.001 per share (the "Common Stock") at the aggregate exercise price of ONE CENT ($.01) for all 160,000 shares (the "Exercise Price"). The number and character of shares of Common Stock or other securities to be received upon exercise of this Warrant are subject to adjustment in accordance with the provisions of Section 8). For purposes of this Warrant, "Warrant Shares" means the shares of Common Stock deliverable upon exercise of this Warrant, as adjusted from time to time. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable -1- upon exercise of this Warrant as a result of such adjustment. This Warrant is issued pursuant to the Securities Purchase Agreement dated May 1, 2000, between the Company and Cedar Avenue LLC (the "Agreement"), and is subject to the provisions thereof. Section 1. EXERCISE OF WARRANT. (a) This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office at the address set forth on the signature page hereof (or at such other address as the Company may hereafter notify the Holder in writing), or at the office of its stock transfer agent or warrant agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier's check to the order of the Company or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at such office, or by the stock transfer agent or warrant agent of the Company, if any, at its office, the Company or the stock transfer agent or warrant agent, if any, shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or its designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. (b) CASHLESS EXERCISE. Notwithstanding the foregoing, in lieu of paying the Exercise Price, the Holder may, by designating a "cashless" exercise on the Purchase Form and surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised, acquire a number of Warrant Shares equal to (i) the difference between (x) the Current Market Value of the Common Stock and (y) the Exercise Price, (ii) multiplied by the number of shares of Common Stock purchasable under the portion of the Warrant tendered to the Company, and (iii) divided by the Market Value of the Company's Common Stock. "Spread" means the Current Market Value of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein. (c) LIMITATION ON RIGHT AND POWER TO EXERCISE. Any provision in this warrant, the Securities Purchase Agreement or any other document to the contrary not withstanding, the Holder shall not have the right or power to exercise this warrant, either in whole or in part, if, and any attempt to do so shall be void, after having given effect to such exercise, the Holder shall be or shall be deemed to be the beneficial owner of 10% or more of the then outstanding Common Stock within the meaning or for the purposes of Section 13(d) or 13(g) of the U.S. Securities Exchange Act of 1934, as amended, or as the term "beneficial owner" is defined in Rule 13d-3 of the U.S. Securities and Exchange Commission or otherwise. -2- Section 2. EXERCISE PERIOD. This Warrant shall be exercisable during the period (the "Exercise Period") beginning the date of execution of this Warrant (the "Initial Exercise Date") and ending at 5:00 p.m. (New York City time) on May 1, 2003 (the "Termination Date"). Section 3. RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company or other property from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights. Section 4. FRACTIONAL SHARES. The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value (as hereinafter defined) per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a "security") at the date herein specified shall be: (i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the "Current Market Value" per share of the security shall be determined in good faith by the Board of Directors of the Company, or (ii) if the security is registered under the Exchange Act, the "Current Market Value" per share of the security shall be deemed to be the average of the daily market prices of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily market prices for all of the trading days before such date for which daily market prices are available. The market price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on any securities exchange, the closing price on the primary exchange on which the Common Stock is then listed, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act. -3- Section 5. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent or warrant agent, if any, for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant. (b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent or warrant agent, if any, together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged. (c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Section 6. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. Section 7. ANTI-DILUTION PROVISIONS. (a) So long as this Warrant is outstanding, except as provided in paragraph (b) of this Section 7, the Company shall not, without prior consent of the Holder, issue or sell (i) any Common Stock (other than treasury stock) without consideration or for a consideration per share less than its fair market value determined immediately prior to its issuance, or (ii) issue or sell any warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock (other than treasury stock) without consideration or for a consideration per share less than such Common Stock's fair market value determined immediately prior to its issuance. For the purpose of this Section 7, the Common Stock's fair market value shall be the closing bid price for the Common Stock on the trading day before its issuance as reported by Bloomberg LP. (b) The provisions of paragraph (a) of this Section 7 shall not apply to (i) Common Stock or options to acquire Common Stock issued to directors, officers or employees of the Company pursuant to bona fide compensation plans or awards, or (ii) to the sale of securities in an underwritten public offering in which the underwriters have established the price at which the securities shall be offered to the public. Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7(a). -4- Section 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the "Securities Act"), shall bear a legend substantially in the following form: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. -5- Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be "Warrant Shares" for all purposes of this Warrant. Section 10. LISTING ON SECURITIES EXCHANGES. On or before the Initial Exercise Date, the Company shall list on each national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon the exercise of this Warrant, all shares of Common Stock from time to time issuable upon exercise of this Warrant and the Company shall maintain, so long as any other shares of its Common Stock shall be so listed, all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of capital stock of the same class shall be listed on such national securities exchange by the Company. Any such listing shall be at the Company's expense. Section 11. AVAILABILITY OF INFORMATION. The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock. Section 12. REGISTRATION RIGHTS. Registration rights with respect to this Warrant and the Warrant Shares shall be governed by the Registration Rights Agreement, dated as of the date hereof, by and between the Company and the Holder. Section 13. SUCCESSORS AND ASSIGNS. All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives. -6- Section 14. HEADINGS. The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. Section 15. AMENDMENTS. This Warrant may not be amended except by the written consent of the Company and the Holder. Section 16. NOTICES. Unless otherwise provided in this Warrant, all notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered `other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: IF TO THE HOLDER: IF TO THE COMPANY: Cedar Avenue LLC Wavetech International, Inc. Corporate Center 5210 East Williams Circle, Suite 200 Windward One, West Bay Road Tucson, Arizona 85711 PO Box 31106 SMB Attention: Gerald I. Quinn, President Grand Cayman, Cayman Islands Facsimile No. (520) 750-9194 Attention: David Sims Facsimile No. (284) 494-4771 Either party hereto may from time to time change its address or facsimile number for notices under this Section 11.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. Section 17. CHOICE OF LAW; VENUE; JURISDICTION. This Warrant and the other Transaction Documents defined in the Agreement shall be construed and enforced in accordance with the laws of the State of Arizona, except for (i) matters arising under the federal securities laws, which shall be construed and enforced in accordance with those laws, (ii) matters relating to the Company's organization, which shall be governed by the laws of the jurisdictions of its incorporation, and (iii) if any provision of this Agreement or any other Transaction Document is unenforceable under Arizona law but is enforceable under the laws of the State of New York, then New York law shall govern the construction and enforcement of that provision. Any controversy or claim arising out of or relating to this Agreement or any other Transaction Document (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration in the Borough of Manhattan, City of New York, in accordance with the Commercial Arbitration Rules (the "Rules") of the American Bar Association, before a panel of three arbitrators, one appointed by each of the -7- Investor and the Company, and the third chosen by the two so appointed. If the two arbitrators chosen by the parties cannot agree on a third, then the third shall be selected in accordance with the Rules. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York for that purpose. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, as of the day and year first above written. WAVETECH INTERNATIONAL, INC. By /s/ Gerald I. Quinn -------------------------------------- Gerald I. Quinn, President Date Signed May 1, 2000 ----------------------------- -8- PURCHASE FORM To: Wavetech International, Inc.: The undersigned irrevocably exercises the Warrant for the purchase of ____________________ shares (subject to adjustment) of Common Stock of Wavetech International, Inc. (the "Company"): for the Warrant and herewith makes payment of $____________________ (the "Exercise Price") through the following method: such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of The Company . or By a "cashless exercise," with payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant) equal to the aggregate Exercise Price, all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to The Company Corp. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.. Date: ________________, _______ ---------------------------------------- (Signature of Owner)(1) ---------------------------------------- (Street Address) ---------------------------------------- (City) (State) (Zip Code) - ---------- (1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised part of the Warrant evidenced by the within Warrant to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
Social Security or Number of Shares of Other Identifying Common Stock Name of Assignee Address of Assignee Number of Assignee Assigned to Assignee - ---------------- ------------------- ------------------ -------------------- - ---------------- ------------------- ------------------ -------------------- - ---------------- ------------------- ------------------ --------------------
and does hereby irrevocably constitute and appoint ______________________ as the undersigned's attorney to make such transfer on the books of ______________________ Wavetech International, Inc. maintained for that purpose, with full power of substitution in the premises. Date: ______________, ____ ---------------------------------------- (Signature of Owner)(1) ---------------------------------------- (Street Address) ---------------------------------------- (City) (State) (Zip Code) - ---------- (1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. EX-10.4 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of May 1, 2000, among Cedar Avenue LLC (the "Purchaser"), a limited liability Company organized under the laws of the Cayman Islands, THOMSON KERNAGHAN & CO. LIMITED (the "Placement Agent,"), an Ontario (Canada) corporation, and WAVETECH INTERNATIONAL, INC. (the "Company"), a Nevada corporation. This Agreement is made with reference to the following facts and circumstances: A. The Purchaser and the Company have entered into a Securities Purchase Agreement dated May 1, 2000 (the "Securities Purchase Agreement). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Securities Purchase Agreement. The term "Holder" shall mean the Company, the Transfer Agent, any assignee or transferee of a Warrant, and any other owner of Registrable Securities. B. It is a condition to the consummation of the transactions contemplated by the Securities Purchase Agreement that the parties hereto enter into this Agreement. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I REGISTRATION OF REGISTRABLE SECURITIES Section 1.01. REGISTRABLE SECURITIES. As used in this Agreement the term "Registrable Securities" means the Conversion Shares and the Warrant Shares; PROVIDED, HOWEVER, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Securities Act of 1933, as amended (the "Securities Act") and disposed of pursuant thereto, (ii) registration under the Securities Act is no longer required for the immediate public distribution of such security as a result of the provisions of Rule 144(k) promulgated under the Securities Act, or (iii) it has ceased to be outstanding. In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, the term "Registrable Securities" shall also include any securities issued or issuable in exchange for the Conversion Shares or the Warrant Shares. Section 1.02. REGISTRATION RIGHTS. (a) The Company shall, at its at the sole expense (except as provided in Section 1.02(c) hereof), prepare and file with the Securities and Exchange Commission ("the SEC"), within forty-five (45) days after the Subscription Date (the "Registration Deadline"), a registration statement on Form S-3 under the Securities Act (the "Registration Statement"), providing for a public offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act, relating to the offer and sale of all Registrable Securities. The Company shall use its best efforts to cause the Registration Statement to become effective as soon as practical after its filing and in any event within one hundred twenty (120) days from the Subscription Date or within five (5) days after the Company's receipt of a "no review" letter from the SEC (whichever occurs first, the "Effectiveness Deadline"). The number of shares of Common Stock designated in the Registration Statement to be registered shall be two hundred (200%) -1- percent of the number of shares that would be required if all the Registrable Securities were issued on the day before the filing of the Registration Statement. (b) The Company shall use its best efforts to keep the Registration Statement continuously effective, and shall file in a timely manner all post effective amendments and supplements thereto, in order to permit the prospectus forming part thereof to be useable by the Holders until the earliest of (i) the date that all of the Registrable Securities have been sold pursuant to the Registration Statement, (ii) the date the Holders receive an opinion of counsel that all of the Registrable Securities may be sold under the provisions of SEC Rule 144(k), or (iii) five and one half years after the Subscription Date. (c) The Company shall pay all fees, disbursements and out-of-pocket expenses and costs incurred by it in connection with the preparation, filing and maintaining the current status of the Registration Statement under this Article I, and in complying with applicable securities and Blue Sky laws (including, without limitation, all reasonable attorneys' fees). Each Holder shall bear the cost of underwriting discounts, if any, applicable to the Registrable Securities being registered and the fees and expenses of its counsel. The Company shall qualify any of the securities for sale in such states as the Holders reasonably designate. However, the Company shall not be required to qualify in any state that will require an escrow or other restriction relating to the Company or the sellers. The Company at its expense will supply the Holders with copies of the Registration Statement and prospectus or offering circular included tin this Agreement, all exhibits, amendments and supplements thereto, and other related documents in such quantities the Holders may reasonably request. (d) As used in this Agreement, the term "Registration Default Day" shall mean: (i) If the Company has not filed the Registration Statement by the Registration Deadline, then each day thereafter until the Company files the Registration Statement; (ii) if the SEC has not declared the Registration Statement effective by the Effectiveness Deadline, then each day thereafter until the SEC declares the Registration Statement effective; and (iii) each day, from the effective date of the Registration Statement until the date that the Company is no longer required to keep the Registration Statement effective, that the Registration Statement is not effective and current. For each Registration Default Day, the Company shall pay each Holder, on demand, an amount equal to 2% per month of the product of the number of Registrable Securities then held by such Holder multiplied by the price paid or payable to the Company for each such Registrable Security. The Company shall pay Liquidated Damages to each Holder, at the Company's option, either (i) in cash, or (ii) in Registrable Securities, the number of which shall be determined by multiplying the amount of Liquidated Damages by the Bid Price on the date of the Company's election to be paid in Registrable Securities. If the Company elects to pay Liquidated Damages in Registrable Securities, then it shall promptly file an amendment (including a post-effective amendment, to the extent the SEC rules permit, if necessary) to the Registration Statement registering the resale of those Registrable Securities. The parties hereto agree that it would be difficult, if not impossible to accurately fix the amount of damages that Holders would incur because of the occurrence of Registration Default Days, and that the Liquidated Damages are a fair, reasonable and equitable under the circumstances. The payment of Liquidated Damages shall not relieve the Company from its obligations to register the Registrable Securities pursuant to this Section. The provisions of this paragraph shall not prevent any Holder from obtaining specific performance of the Company's obligations under Section 1.02. Section 1.03. INCIDENTAL REGISTRATION. If, at any time following the Effective Time, The Company proposes to file a Registration Statement other than -2- the Shelf Registration Statement (an "Incidental Registration") under the Securities Act with respect to an offering of Common Stock (i) for its own account (other than a Registration Statement on Form S-4 or S-8 (or any filing on any substitute form that may be adopted by the Commission for a transaction for which Form S-4 or S-8 is currently available)) or (ii) the account of any holder of Common Stock, the Company shall give written notice of such proposed filing (including the proposed date thereof) to the Holders as soon as practicable, but in any event not less than 10 days before the anticipated filing date and such notice shall offer each Holder the opportunity to register such number of Registrable Securities as such Holder shall request. Upon the written direction of any such Holder (which direction shall specify the number of Registrable Securities intended to be disposed of by any Holder), given within 10 days following the receipt by the Holders of any such written notice, The Company shall use its reasonable best efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered; PROVIDED, that, if The Company does not file such registration statement by the proposed filing date, the Company shall again comply with the notice provisions of this Section 1.03 prior to filing such registration statement. Notwithstanding anything contained herein, if the lead underwriter of an offering involving an Incidental Registration notifies The Company that the inclusion of such Registrable Securities would (i) materially and adversely affect the price of the Common Stock to be offered or (ii) result in a greater amount of Common Stock being offered than the market could reasonably absorb, then the number of Registrable Securities to be registered by Holders shall be reduced to the extent that, in the lead underwriter's reasonable judgment, neither of the effects in the foregoing clauses (i) and (ii) would result from the number of shares of Common Stock proposed to be issued by The Company. Any reduction in the amount of a Holder's Registrable Securities to be included in an Incidental Registration shall be made on a pro rata basis with other holders of registration rights participating in such Incidental Registration. Section 1.04. UNDERWRITING REQUIREMENTS. In connection with any underwritten offering, the Company shall not be required under Section 1.02 of this Agreement to include shares of Registrable Securities in such underwritten offering unless the holder of such shares of Registrable Securities accepts the terms of the underwriting of such offering that have been reasonably agreed upon between the Company and the underwriters selected by the Company. Section 1.05. REGISTRATION PROCEDURES. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Securities Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible: (a) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Holder of such securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Securities Act); (b) furnish to each Holder such numbers of copies of a summary prospectus or other prospectus, including a preliminary prospectus or any amendment or supplement to any prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such Holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Holder; -3- (c) use its best effort to register and qualify the securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Holder shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable each Holder to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction win this Agreement it is not so qualified or to file tin this Agreement any general consent to service of process; (d) use its best efforts to list such securities on the Principal Market; (e) enter into and perform its obligations under an underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering; (f) notify each Holder at any time when a prospectus relating to Registrable Securities covered by the Registration Statement is required to be delivered under the Securities Act, of the occurrence of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated tin this Agreement or necessary to make the statements tin this Agreement not misleading in the light of the circumstances then existing. Section 1.06. INFORMATION BY HOLDER. Each Holder included in any registration shall furnished to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. Section 1.07. TRANSFER OF REGISTRATION RIGHTS. Any holder of a Warrant or Registrable Securities may transfer its rights under this Agreement in connection with any transfer of such Warrant or Registrable Securities effected in compliance with applicable law. Section 1.08. PUBLIC INFORMATION. The Company covenants to make available "adequate current public information" concerning the Company within the meaning of Rule 144(c) under the Securities Act so long as any Holder holds any Registrable Securities. ARTICLE II INDEMNIFICATION Section 2.01. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY THE COMPANY. The Company shall, and it hereby agrees to, indemnify and hold harmless each Holder, such Holder's directors and officers, each person, if any, who controls, is subject to control of or who is in common control with such Holder (an "Affiliate"), and each person who participates as a placement or sales agent or as an underwriter (within the meaning of the Securities Act) in any offering or sale of Registrable Securities, against any losses, claims, damages or liabilities ("Losses") to which such Holder, Affiliate, agent or underwriter may become subject under Securities Act or otherwise, insofar as such Losses (or actions or proceedings in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus contained therein or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be -4- stated therein or necessary to make the statements therein not misleading, and the Company shall, and it hereby agrees to, reimburse such Holder or any such Affiliate, agent or underwriter for any legal or other out-of-pocket expenses reasonably incurred by them (but not in excess of expenses incurred in respect of one counsel for all of them unless there is an actual conflict of interest between any indemnified parties, which indemnified parties may be represented by separate counsel) in connection with investigating or defending any such action, proceeding or claim; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 2.01(a) shall not apply to amounts paid in settlement of any such Loss or action if such settlement is effected without the consent of the Company which consent shall not be unreasonably withheld; PROVIDED, FURTHER, that the Company shall not be liable to any such person in any such case to the extent that any such Loss or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or prospectus contained therein, in reliance upon and in conformity with written information furnished to the Company by such Holder or any Affiliate, agent, underwriter or representative of such Holder expressly for use therein, or by such Holder's failure to furnish the Company, upon request, with the information with respect to such Holder, such Holder's directors and officers, or any agent, underwriter or representative of such Holder, or such Holder's intended method of distribution, that is the subject of the untrue statement or omission or if the Company shall sustain the burden of proving that such Holder, such Holder's directors and officers, or such agent or underwriter sold securities to the person alleging such Loss without sending or giving, at or prior to the written confirmation of such sale, a copy of the applicable prospectus (excluding any documents incorporated by reference therein) or of the applicable prospectus, as then amended or supplemented (excluding any documents incorporated by reference therein) if the Company had previously furnished copies thereof to such Holder or such agent or underwriter, and such prospectus corrected such untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement. (b) INDEMNIFICATION BY HOLDERS. Each Holder participating in a registration pursuant to this Agreement shall severally and not jointly indemnify and hold harmless the Company, each of its directors and officers, each person, if any, who controls the Company within the meaning of the Securities Act, and each agent and any underwriter for the Company (within the meaning of the Securities Act) against any Losses, joint or several, to which the Company or any such director, officer, controlling person, agent or underwriter may become subject, under the Securities Act or otherwise, insofar as such Losses (or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement on the effective date thereof (including any prospectus filed under Rule 424 under the Securities Act or any amendments or supplements thereto) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement or prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by or on behalf of such Holder expressly for use in connection with such registration statement or prospectus, or by such Holder's failure to furnish the Company, upon request, with the information with respect to such Holder, such Holder's directors and officers, or any agent, underwriter or representative of such Holder, or such Holder's intended method of distribution, that is the subject of the untrue statement or omission; and such Holder shall reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, agent or underwriter (but not in excess of expenses incurred in respect of one counsel for all of them unless there is an actual conflict of interest between any indemnified parties, which indemnified parties may be represented by separate counsel) in connection with -5- investigating or defending any such Loss or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 2.01(b) shall not apply to amounts paid in settlement of any such Loss or action if such settlement is effected without the consent of the Holder which consent shall not be unreasonably withheld. (c) NOTICE OF CLAIMS. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action or proceeding for which indemnification under subsection (a) or (b) may be requested, such indemnified party shall, without regard to whether a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of, or as contemplated by, this Section 2.01, notify such indemnifying party in writing of the commencement of such action or proceeding; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party in respect of such action or proceeding on account of the indemnification provisions of or contemplated by Section 2.01(a) or Section 2.01(b) hereof unless the indemnifying party was materially prejudiced by such failure of the indemnified party to give such notice, and in no event shall such omission relieve the indemnifying party from any other liability it may have to such indemnified party. In case any such action or proceeding shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall determine, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal or any other expenses subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation (unless such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying party, in which event the indemnified party shall have the right to control its defense and shall be reimbursed by the indemnifying party for the expenses incurred in connection with retaining separate counsel). If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel (in addition to local counsel) for each indemnified party with respect to such claim. The indemnifying party will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld or delayed. No indemnifying party will consent to entry of any judgment or enter into any settlement agreement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) CONTRIBUTION. Each Holder participating in a registration pursuant to this Agreement and the Company agree that if, for any reason, the indemnification provisions contemplated by Section 2.01(a) or Section 2.01(b) hereof are unavailable to or are insufficient to hold harmless an indemnified party in respect of any Losses (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such Losses (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of, and benefits derived by, the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just -6- and equitable if contribution pursuant to this Section 2.01(d) were determined (i) by pro rata allocation (even if the Holder or any agents for, or underwriters of, the Registrable Securities, or all of them, were treated as one entity for such purpose); or (ii) by any other method of allocation which does not take account of the equitable considerations referred to in this Section 2.01(d). The amount paid or payable by an indemnified party as a result of the Losses (or actions or proceedings in respect thereof) referred to above shall be deemed to include (subject to the limitations set forth in Section 2.01(c) hereof) any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, proceeding or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) BENEFICIARIES OF INDEMNIFICATION. The obligations of the Company under this Section 2.01 shall be in addition to any liability that it may otherwise have and shall extend, upon the same terms and conditions, to each officer, director, partner and member of each Holder requesting or joining in a registration pursuant to this Agreement and each agent and underwriter of the Registrable Securities and each person, if any, who controls such Holder or any such agent or underwriter within the meaning of the Securities Act; and the obligations of such Holder and any agents or underwriters contemplated by this Section 2.01 shall be in addition to any liability that such Holder or its respective agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. ARTICLE III GENERAL PROVISIONS Section 3.01. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) IF TO THE COMPANY: Wavetech International Inc. 5210 East Williams Circle, Suite 200 Tucson, Arizona 85711 Attention: Gerald I. Quinn, President Facsimile No. (520) 750-9194 WITH A COPY THAT DOES NOT CONSTITUTE NOTICE TO: Squire, Sanders & Dempsey L.L.P. 40 North Central, Suite 2700 Phoenix, Arizona 85004 Attention: Gregory R. Hall Facsimile No. (602) 253-8129 -7- (b) IF TO THE INVESTOR: Cedar Avenue LLC Corporate Center Windward One, West Bay Road PO Box 31106 SMB Grand Cayman, Cayman Islands Attention: David Sims Facsimile No. (284) 494-4771 WITH A COPY THAT DOES NOT CONSTITUTE NOTICE TO: John M. Mann Attorney at Law 1330 Post Oak Boulevard, Suite 2800 Houston, Texas 77056-3060 Facsimile No. (713) 622-7185 (c) IF TO THE PLACEMENT AGENT: Thomson Kernaghan & Col Limited 365 Bay Street, Tenth Floor Toronto, Ontario M5H 2V2, Canada Attention: Ms. Michelle McKinnon Facsimile No. (416) 367-8055 WITH A COPY THAT DOES NOT CONSTITUTE NOTICE TO: John M. Mann Attorney at Law 1330 Post Oak Boulevard, Suite 2800 Houston, Texas 77056-3060 Facsimile No. (713) 622-7185 Section 3.02, AMENDMENT. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the parties hereto or (b) by a waiver in accordance with Section 3.05 of this Agreement. Section 3.03. WAIVER. Any party to this Agreement may as to it (a) extend the time for the performance of any obligations or other acts of any other party hereto or (b) waive compliance with any agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or as a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. Section 3.04. SURVIVAL. The several indemnities, agreements, representations, warranties and each other provision set forth in this Agreement and made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any party, any director or officer of such party, or any controlling person of any of the foregoing, and shall survive the transfer of any Registrable Securities by the Stockholder, and the indemnification and contribution provisions set forth in Section 2.01 hereof shall survive termination of this Agreement. Section 3.05. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. -8- Section 3.06. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and Exhibits hereto, together with the other Transaction Documents: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (b) shall not be assigned by operation of law or otherwise except as otherwise specifically provided. Section 3.07. SEVERABILITY. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. The parties further agree to negotiate in good faith to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. Section 3.08. CHOICE OF LAW; VENUE; JURISDICTION. This Agreement and the other Transaction Documents shall be construed and enforced in accordance with the laws of the State of Arizona, except for (i) matters arising under the federal securities laws, which shall be construed and enforced in accordance with those laws, (ii) matters relating to the Company's organization, which shall be governed by the laws of the jurisdictions of its incorporation, and (iii) if any provision of this Agreement or any other Transaction Document is unenforceable under Arizona law but is enforceable under the laws of the State of New York, then New York law shall govern the construction and enforcement of that provision. Any controversy or claim arising out of or relating to this Agreement or any other Transaction Document (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration in the Borough of Manhattan, City of New York, in accordance with the Commercial Arbitration Rules (the "Rules") of the American Bar Association, before a panel of three arbitrators, one appointed by each of the Investor and the Company, and the third chosen by the two so appointed. If the two arbitrators chosen by the parties cannot agree on a third, then the third shall be selected in accordance with the Rules. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York for that purpose. Section 3.08. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. -9- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized or in their individual capacities, as applicable. WAVETECH INTERNATIONAL, INC. By /s/ Gerald I. Quinn --------------------------------- Gerald I. Quinn, President Date Signed May 1, 2000 ------------------------ CEDAR AVENUE LLC By Navigator Management Ltd., Director By /s/ David Sims --------------------------------- David Sims, Director Date Signed April 28, 2000 ------------------------ THOMSON KERNAGHAN & CO. LIMITED By /s/ Michelle McKinnon --------------------------------- Michelle McKinnon Date Signed May 11, 2000 ------------------------ -10- EX-10.3 6 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT BETWEEN CEDAR AVENUE LLC And Wavetech International, Inc. Dated as of May 1, 2000 This SECURITIES PURCHASE AGREEMENT, dated as of May 1, 2000 (the "Agreement"), is made and entered into between CEDAR AVENUE LLC (the "Investor"), a limited liability company organized and existing under the laws of the Cayman Islands, and WAVETECH INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Nevada (the "Company"). This Agreement is made with reference to the following facts and circumstances: A. The Company proposes that, upon the terms and subject to the conditions contained herein, the Company shall sell to the Investor 1,000 shares of the Company's Series B Convertible Preferred Stock (the "Preferred Shares") for the aggregate purchase price of $5,000,000. B. The Company proposes to issue to the Investor a warrant to purchase 160,000 shares of Common Stock (the "Investor's Warrant"). C. The Company proposes to issue to Thomson Kernaghan & Co. Limited (the "Placement Agent"), for services rendered, a Warrant to purchase $350,000 of Common Stock (the "Placement Agent's Warrant"). D. The proposed investments will be made in reliance upon the provisions of Section 4(2) of the United States Securities Act of 1933, as amended, Regulation D promulgated by the Securities and Exchange Commission thereunder, and upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments in Common Stock to be made hereunder. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS Section 1.1 "BID PRICE" shall mean the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market. Section 1.2. "BUSINESS DAY" shall mean a day other than a Saturday or Sunday that national banks in Phoenix, Arizona are open for business.. Section 1.3 "CERTIFICATE OF DESIGNATION" shall mean the Company's certificate of designation of the rights and preferences of the Series B Convertible Preferred Stock, substantially in the form set forth in Exhibit A to this Agreement. Section 1.4 "CLOSING" shall mean the closing of the sale of the Preferred Shares and the Warrants. Section 1.5 "CLOSING DATE" shall mean May 1, 2000, or such other day as the Investor and the Company shall agree in writing to the Closing Day. 1 Section 1.6 "COMMON STOCK" shall mean the Company's common stock, par value $.001 per share. Section 1.7 "CONVERSION SHARES" shall mean the shares of Common Stock into which the Preferred Shares are convertible. Section 1.8 "DAMAGES" shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements and costs and expenses of expert witnesses and investigation). Section 1.9 "DISCLOSURE SCHEDULE" shall mean the disclosure schedule attached as Exhibit B to this Agreement. Section 1.10 "EFFECTIVE DATE" shall mean the date on which the SEC declares the Registration Statement to be effective. Section 1.11 "ESCROW AGENT" shall mean John M. Mann, Esq., or such successor escrow agent as the Investor and the Company may appoint pursuant to the Escrow Agreement. Section 1.12 "ESCROW AGREEMENT" shall me the Escrow Agreement between the Investor and the Company in the form of Exhibit F to this Agreement. Section 1.13 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.14 "EXERCISE PRICE" shall mean the purchase price per share of Common Stock for which a Warrant may be exercised. Section 1.15 "LEGEND" shall mean the legend specified in Section 8.1. Section 1.16 "MARKET PRICE" on any given date shall mean the average of the three lowest closing Bid Prices (as reported by Bloomberg L.P.) of the Common Stock preceding that date. Section 1.17 "MATERIAL ADVERSE EFFECT" shall mean any effect on the business, operations, properties, prospects or financial condition of the Company that is material and adverse to the Company ,its subsidiaries and affiliates, taken as a whole, or that would prohibit or materially interfere with the ability of the Company to enter into and perform any of its obligations under the Transaction Documents. Section 1.18 "NASD" shall mean the National Association of Securities Dealers, Inc. Section 1.19 "OUTSTANDING" when used with reference to shares of Common Stock or other equity securities (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; PROVIDED, HOWEVER, that "Outstanding" shall not mean any such Shares then directly or indirectly owned or held by or for the account of the Company. Section 1.20 "PERSON" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision, agency or instrumentality thereof. 2 Section 1.21 "PREFERRED SHARES" shall mean the Series B Convertible Preferred Stock, $0.001 par value, of the Company, which shall have the rights and preferences set forth in the Certificate of Designation. Section 1.22 "PREFERRED SHARES INVESTMENT AMOUNT" shall mean Five Million ($5,000,000) Dollars. Section 1.23 "PRINCIPAL MARKET" shall mean the OTC Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Section 1.24 "PURCHASE PRICE" shall mean, with respect to the Preferred Shares, an amount equal to the "Liquidation Value" of each share set forth in the Certificate of Designation attached hereto as Exhibit A. Section 1.25 "REGISTRABLE SECURITIES" shall mean the Conversion Shares, the Warrant Shares, and additional shares of Common Stock issued pursuant to Section 2.3, (i) in respect of which the Registration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) which have not been otherwise transferred to holders who may trade such shares without restriction under the Securities Act as evidenced by unrestricted and unlegended evidence of ownership, or (iv) the sales of which, in the opinion of counsel to the Company, are not eligible for sale pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. Section 1.26 "REGISTRATION RIGHTS AGREEMENT" shall mean the agreement regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor on the Subscription Date annexed hereto as Exhibit E. Section 1.27 "REGISTRATION STATEMENT" shall mean a registration statement on Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement, the Registration Rights Agreement, and the Warrants and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. Section 1.28 "REGULATION D" means Regulation D of the SEC promulgated under the Securities Act. Section 1.29 "SEC" shall mean the U.S. Securities and Exchange Commission. Section 1.30 "SEC FILINGS" shall mean the Form's 10-KSB, Form's 10-QSB, Form's 8-K, Proxy Statements, and any other statements, reports and materials, as supplemented to the date hereof, filed by the Company with the SEC during the twelve (12) months immediately preceding the date hereof, and hereafter until such time the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. Section 1.31 "SECTION 4(2)" shall mean Section 4(2) of the Securities Act. 3 Section 1.32 "SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended, and the regulations of the SEC promulgated thereunder. Section 1.33 "SUBSCRIPTION DATE" shall mean the date on which this Agreement is executed and delivered by the parties hereto. Section 1.34 "TRADING DAY" shall mean any day during which the New York Stock Exchange shall be open for business. Section 1.35 "TRANSFER AGENT" shall mean the Company's Transfer Agent for the Common Stock. Section 1.36 "TRANSFER AGENT INSTRUCTIONS" shall me the Instructions to the Transfer Agent in the form of Exhibit G to this Agreement. Section 1.37 "TRANSACTIONS DOCUMENTS" shall mean this Agreement, the Certificate of Designation, the Warrants, the Registration Rights Agreement, the Escrow Agreement, the Notices of Conversion, and the Transfer Agent Instructions. Section 1.38 "WARRANT" shall mean each of the Investor's Warrant, which shall be substantially in the form of Exhibit C, and the Placement Agent's Warrant, which shall be substantially in the form of Exhibit D; and "WARRANTS" shall mean both of such warrants, collectively. Section 1.39 "WARRANT SHARES" shall mean shares of Common Stock issued or issuable pursuant to exercise of the Warrants. ARTICLE II PURCHASE AND SALE OF SECURITIES Section 2.1 PREFERRED SHARES PURCHASE. (a) On the Subscription Date, the Company agrees to sell and the Investor agrees to purchase $5,000,000 in aggregate principal amount of Preferred Shares, at a price per share equal to the Initial Stated Value thereof set forth in the Certificate of Designation. The number of shares of Common Stock issuable upon conversion of the Preferred Shares shall be determined by dividing $5,000,000 by the conversion formula contained in the Certificate of Designation. (b) CONVERSION. The Investor may, subject to the limitations set forth in paragraphs (a) and (b) of Article 11 of the Certificate of Designation, convert the Preferred Shares to Conversion Shares at any time in whole or from time to time in part at any time prior to their redemption. Provided that the Registration Statement shall then be in effect for the sale of the Conversion Shares, if the Preferred Shares have not been redeemed or converted two (2) years from the date of issuance, the Preferred Shares shall automatically be converted as if the Investor voluntarily elected such conversion in accordance with the procedure, terms and conditions set forth in this Agreement. The Preferred Shares shall be convertible into Conversion Shares at a conversion price per share equal to the lesser of (x) one hundred ten percent (110%) of the average of the Bid Price for the Common Stock for the five (5) Trading Days prior to the Closing Date, or (y) eighty percent (80%) of the average of the closing bid prices for the Common Stock for the three (3) lowest Trading Days out of the ten (10) consecutive Trading Days immediately preceding the Conversion Date (as defined in paragraph 2.1(d). 4 (c) GATING. As used in this paragraph, the "Gating Date" shall mean the earlier of (i) the Effective Date, and (ii) the 120th day following the Subscription Date. The Purchaser agrees not to sell, pursuant to the Registration Statement, (i) more than one-third of the Conversion Shares during the 30-day period beginning on the Gating Date, and (ii) more than one-third of the Conversion Shares during the 31st through 61th days following the Gating Date. Thereafter, there shall be no limitation on the amount of Conversion Shares that the Investor may sell pursuant to the Registration Statement. (d) CONVERSION PROCEDURE. The Company shall permit the Investor to exercise its right to convert the Preferred Shares by sending an executed Notice of Conversion to the Company by facsimile transmission, and delivering the original Notice of Conversion and the certificate representing the Preferred Shares to the Company by express courier. Each Business Day on which a Notice of Conversion is sent by facsimile transmission to the Company in accordance with the provisions hereof shall be deemed a conversion date (the "Conversion Date"). The Company shall deliver the certificates representing shares of Common Stock issuable upon conversion of any Preferred Shares (together with the certificates representing the Preferred Shares not so converted) to the Investor via express courier, by electronic transfer or otherwise within five Business Days after the conversion date if the Company has received the original Notice of Conversion and Preferred Shares certificate being so converted by such date. In addition to any other remedies which may be available to the Investors, in the event that the Company fails for any reason to effect delivery of such shares of Common Stock within such five Business Day period, the Investors will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Investors shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. The Notice of Conversion and Preferred Shares representing the portion of the shares converted shall be delivered to the Company at its address to its facsimile number set forth in Article XI. (e) LIQUIDATED DAMAGES. In the event that the Common Stock issuable upon conversion of the Preferred Shares is not delivered within five (5) Business Days of receipt by the Company of a valid Conversion Notice and the Preferred Shares to be converted, the Company shall pay to the Investor, on demand and in immediately available funds, as liquidated damages for such failure and not as a penalty, for each $100,000 of Preferred Shares sought to be converted, $500 for each of the first ten (10) days and $1,000 per day thereafter that the Conversion Shares are not delivered, which liquidated damages shall run from the sixth (6th) Business Day after the Conversion Date up until the time that either the Notice of Conversion is revoked or the Common Stock has been delivered, at which time liquidated damages shall cease. (f) REDEMPTION. The Company shall have the right to redeem the Preferred Shares on any Business Day before their conversion by giving the Investor written notice of its election to do so (the "Redemption Notice") specifying the date on which the Company shall redeem the shares (the Redemption Date), and by depositing the Redemption Price (as hereafter defined) with the Escrow Agent not later than three Business Days before the Redemption Date. The Redemption Date shall not be later than the fifth Business Day after the date on which the Company gives the Redemption Notice. The Investor may not send a Notice of Conversion after receipt of Redemption Notice, unless the Company does not redeem the Preferred Shares on the Redemption Date. On or before the Redemption Date, the Investor shall deliver any Preferred Shares that it elects not to convert to the Escrow Agent, against payment of the Redemption Price. The Redemption Price shall be 125% of the Purchase Price of the Preferred Shares, plus any accrued and unpaid dividends thereon. If the Company does not deposit the Redemption Price with the Escrow Agent within the time proscribed by this paragraph, the Redemption Notice shall be voidable at the election of the Investor. (g) LIMITATION ON INVESTOR'S RIGHT TO CONVERT. Any provision contained in the Certificate of Designation or the Investor's Warrant to the contrary notwithstanding, the Investor shall have the right and power to convert 5 Preferred Shares so long as after giving effect to such conversion, the Investor shall not be deemed to be the beneficial owner of more than 9.99% of the outstanding Common Stock, calculated in accordance with Section 13(d) of Exchange Act. Section 2.2 THE WARRANTS. (a) THE INVESTOR'S WARRANT. On the Subscription Date, the Company shall issue the Investor's Warrant to the Investor, substantially in the form of Exhibit C, with appropriate insertions, to purchase 160,000 Warrant Shares at the aggregate Exercise Price of $.01 for all 160,000 shares, exercisable in at any time in whole or from time to time in part over the five-year period beginning on the Subscription Date. The Investor's Warrant shall be delivered by the Company to the Escrow Agent, and delivered to the Investor pursuant to the terms of this Agreement and the Escrow Agreement. The Warrant Shares covered by the Investor's Warrant shall be registered for resale pursuant to the Registration Rights Agreement. (b) THE PLACEMENT AGENT'S WARRANT. On the Subscription Date, the Company shall issue the Placement Agent's Warrant to the Placement Agent, substantially in the form of Exhibit D, with appropriate insertions, to purchase the number of Warrant Shares (rounded to the nearest whole number) determined by dividing $350,000 by the Exercise Price. The Exercise Price shall be 110% of the average Bid Price for the five (5) Trading Days preceding the Subscription Date. The Placement Agent's Warrant shall be exercisable at any time in whole or from time to time in part over the five year period beginning on the Subscription Date. The Placement Agent's Warrant shall be delivered by the Company to the Escrow Agent, and delivered to the Placement Agent pursuant to the Terms of this Agreement and the Escrow Agreement. The Warrant Shares covered by the Placement Agent's Warrant shall be registered for resale pursuant to the Registration Rights Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR The Investor represents and warrants to the Company that: Section 3.1 ORGANIZATION AND AUTHORIZATION. Investor is duly incorporated or organized and validly existing in the country of its incorporation or organization, and has all requisite power and authority to purchase and hold the securities issuable hereunder. The decision to invest and the execution and delivery of the Transaction Documents to be executed and delivered by the Investor, the performance by the Investor of its obligations under the Transaction Documents and the consummation by the Investor of the transactions contemplated hereby have been duly authorized and require no other proceedings on the part of the Investor. The undersigned executing this Agreement on behalf of the Investor has all right, power and authority to execute and deliver this Agreement on behalf of the Investor. Each of this Agreement, the Registration Rights Agreement and the Escrow Agreement has been duly executed and delivered by the Investor and, assuming the execution, delivery and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to the indemnification provisions set forth in any of the Transaction Documents. Section 3.2 ACCREDITED AND SOPHISTICATED INVESTOR. The Investor is an accredited investor as defined in SEC Rule 501(a), and a sophisticated investor as described in SEC Rule 506(b)(2)(ii). 6 Section 3.3 EVALUATION OF RISKS. The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the securities issuable pursuant to this Agreement, and of protecting its interests in connection with the transactions contemplated hereby. The Investor understands that its investment in the Company involves a high degree of risk. Section 3.4 INDEPENDENT COUNSEL. The Investor acknowledges that it has been advised to consult with its own attorney regarding legal matters concerning the Company and to consult with its tax advisor regarding the tax consequences of acquiring the securities issuable hereunder. Section 3.5 NO REGISTRATION. The Investor understands that the securities issuable hereunder have not been registered under the Securities Act or any other securities laws but are being offered and sold to it in reliance upon specific exemptions from the registration requirements of federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Investor set forth herein in order to determine the applicability of such exemptions and the suitability of the securities being sold hereunder for investment by the Investor. Section 3.6 INVESTMENT INTENT. The Investor is acquiring the securities issuable to it hereunder for investment purposes, and has no present arrangement to sell any of them to or through any Person. The Investor is not, however, agreeing or obligated by this Agreement to hold any of those securities for any specific period of time, except as may otherwise specifically provided in this Agreement. The Investor understands and agrees that it may bear the economic risk of its investment in those securities for an indefinite period of time. Section 3.7 NO ADVERTISEMENTS. The Investor is not entering into this Agreement as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or presented at any seminar or meeting. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investor that except as set forth in the SEC Filings or on the Disclosure Schedule: Section 4.1 ORGANIZATION; QUALIFICATION. The Company is a corporation duly organized and validly existing and is in good standing under the laws of the State of Nevada. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets, and to carry on its business as presently conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction in which the ownership of its property or the nature of its business requires such qualification, except where failure to so qualify would not have a material adverse effect on the Company. Section 4.2 CAPITALIZATION. The authorized capital stock of the Company consists of (i) 50,000,000 shares of Common Stock, $.001 par value per share, of which 3,202,519 are issued and outstanding;; (ii) 650 shares of Series A Preferred Stock, par value $.001 per share, of which 485 shares are issued and outstanding; and (iii) 1,000 shares of Series B Convertible Preferred Stock, par value $.001 per share, all of which are reserved for issuance pursuant to Section 2.1 of this Agreement. All issued and outstanding shares of Common Stock and Series A Preferred Stock have been duly authorized and validly issued and are fully paid and nonassessable. 7 Section 4.3 AUTHORIZATION. The Company has all requisite corporate right, power and authority to execute and deliver this Agreement and the other Transaction Documents to be executed and delivered by it, and to consummate the transactions contemplated hereby and thereby. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents by the Company, the authorization, sale, issuance and delivery of the securities issuable hereunder and the performance of the Company's obligations hereunder and thereunder have been taken. This Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy as they may apply to the indemnification provisions set forth in any of the Transaction Documents. Upon their issuance and delivery pursuant to this Agreement, the securities issueable hereunder will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances; PROVIDED, HOWEVER, that the securities are subject to restrictions on transfer under state and federal securities laws. The issuance and sale of the securities hereunder will not give rise to any preemptive right or right of first refusal or right of participation on behalf of any person. Section 4.4 NO CONFLICT. The execution and delivery of this Agreement and the other Transaction Documents do not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with, or result in any violation of, or default, or give rise to a right of termination, cancellation or acceleration of any material obligation or to a loss of a material benefit, under, any provision of the Articles of Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and any amendments thereto of the Company or any material mortgage, indenture, lease or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree statute, law, ordinance, rule or regulation applicable to the Company, its properties or assets and which would have a material adverse effect on the Company's business and financial condition. Section 4.5 NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no liabilities or obligations other than those incurred in the ordinary course of the Company's business since November 30, 1999, and which individually or in the aggregate do not or would not have a Material Adverse Effect . Section 4.6 NO DEFAULT. The Company is not materially in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound, and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the other Transaction Documents will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound or any statute or the Articles of Incorporation or Bylaws of the Company, or any decree, judgment, order, rule or regulation of any court or governmental agency having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect. Section 4.7 GOVERNMENTAL CONSENT, ETC. Except for the filing of any required Form D, no consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the securities hereunder, or the consummation of any other transaction contemplated hereby. 8 Section 4.8 INTELLECTUAL PROPERTY RIGHTS. The Company has sufficient trademarks, trade names, patent rights, copyrights and licenses to conduct its business as presently conducted in the Reports, except where failure to have any such intellectual property would not cause a Material Adverse Effect. To the Company's knowledge, neither the Company nor its products is infringing or will infringe any trademark, trade name, patent right, copyright, license, trade secret or other similar right of others currently in existence; and there is no claim being made against the Company regarding any trademark, trade name, patent, copyright, license, trade secret or other intellectual property right which could have a Material Adverse Effect. Section 4.9 MATERIAL CONTRACTS. The Company is not part to any agreements, the performance, breach or termination of which would have a Material Adverse Effect. The agreements to which the Company is a party described in the SEC Filings or the Disclosure Schedule are valid agreements, in full force and effect. The Company is not in material breach or material default under any of such agreements, except where such breach or default would not cause a Material Adverse Effect . Section 4.10 LITIGATION. There is no action, proceeding or investigation pending or to the Company's knowledge threatened against the Company, and the Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality, is any such case that could have a Material Adverse Effect. Section 4.11 TITLE TO ASSETS. The Company has good and marketable title to all properties and material assets owned by it all of which are disclosed in the SEC Filings, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company. Section 4.12 SUBSIDIARIES. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity. Section 4.13 REQUIRED GOVERNMENTAL PERMITS. The Company is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from state, federal and other regulatory authorities which are material to the conduct of its business, all of which are valid and in full force and effect. Section 4.14 LISTING. The Common Stock is listed on the NASDAQ OTC Bulletin Board, and the Company has not received any notice of, and has no knowledge of, any facts or circumstances that could cause the Company or the Common Stock to loose its eligibility for such listing. Section 4.15 OTHER OUTSTANDING SECURITIES/FINANCING RESTRICTIONS. The Company has no outstanding shares of Common Stock or securities that are convertible into or exchangeable for restricted shares of Common Stock, that are eligible for resale under SEC Rule 144(k). Set forth as item 4.16 on the Disclosure Schedule is a list of all restricted shares of Common Stock, whether issued or unissued, that are now or within two years of the Subscription Date will be eligible for resale under SEC Rule 144(k). Section 4.16 SEC FILINGS. For a period of at least twelve (12) months immediately preceding this offer and sale, (i) the Company has filed in a timely manner with the SEC all reports, statements, forms and other information (including exhibits) required of it under the Exchange Act; and (ii) none of the SEC Filings (as they may have been amended or supplemented as provided in the reports) contains any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading as of the date of such filing. 9 Section 4.17 DILUTION. The Company is aware and acknowledges that conversion of the Preferred Shares and the exercise of the Warrants could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock. Section 4.18 FULL DISCLOSURE. There is no fact known to the Company (other than general economic conditions known to the public generally) that it has not disclosed in writing to the Investor that could reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE COMPANY Section 5.1 During the Commitment Period, and for so long thereafter as any of the Preferred Shares are outstanding or any of the Warrants are not fully exercised or expired, the Company will: (a) CORPORATE EXISTENCE. Preserve and maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required. (b) BUSINESS. Continue to engage in a business of the same general type as proposed by it on the date of this Agreement. (c) COMPLY WITH LAWS. Comply in all material respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property. (d) REPORTING COMPANY; TIMELY FILINGS. Remain a reporting company under the Exchange Act, cause its Common Stock to continue to be registered under Section 12(b) of the Exchange Act, and make all SEC Filings required under the Exchange Act in a timely manner. (e) LISTING OF COMMON STOCK. Maintain the listing of the Common Stock (including the Warrant Shares and the Conversion Shares) on a Principal Market. (f) NASDAQ. Cause the Common Stock to be listed on the Nasdaq Small Cap Market as soon as the Company is eligible for such listing. (g) CONSOLIDATION; MERGER. Not effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) (i) is a reporting company under the Exchange Act with its Common Stock listed on the Nasdaq OTC Bulletin Board, the Nasdaq Small Cap or National Market, the American Stock Exchange or the New York Stock Exchange, and (ii) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement. (h) OPINION OF COUNSEL. Obtain for the Investor, at the Company's expense, any and all opinions of counsel which may be required in order to convert, exercise or sell the securities issuable hereunder, including, but not limited to, obtaining for the Investor, at the Company's expense an opinion of counsel with respect to the sale and transfer of the securities. 10 Section 5.2. SOFTALK LOCKUP. The Company agrees to obtain a lockup agreement (the "Lockup Agreement") from Softalk, Inc. ("Softalk"), reasonably satisfactory to the Investor, with respect to those 4,329,004 shares of Class A non-voting preferred stock of Interpretel (Canada) (the "Class A Shares") held by Softalk. The Lockup Agreement shall provide that the Class A Shares may not be exchanged for shares of Wavetech Common Stock for a period of one year following the Closing Date; provided, however, that such restriction shall terminate at such time as any person seeks to acquire, or offers or proposes to acquire, or agrees to acquire directly or indirectly, whether by purchase, tender or exchange offer, through the acquisition of control of another person, by joining a partnership, limited partnership, syndicate or other "group" (within the meaning of Section 13(d)(3) of the Exchange Act, or otherwise, beneficial ownership of any voting securities of the Company if such acquisition would result in the purchaser's aggregate percentage ownership of the Company's voting securities exceeding 35% of the Company's issued and outstanding voting securities (on a fully-diluted basis). The Lockup Agreement shall also provide that the shares of Common Stock underlying the warrants previously issued by the Company to Softalk shall be sold in accordance with the "leak out" provisions of Rule 144 under the Securities Act, including any warrants transferred by Softalk to any affiliate or employee of Softalk." Section 5.3. LIMITATION ON PIK DIVIDENDS. Notwithstanding the provisions of paragraph 3(b) of the Certificate of Designation, the Company shall not elect to pay dividends on the Preferred Shares in shares of Common Stock, and shall pay such dividends only in cash, unless at the time of payment, (i) the Registration Statement with respect to such shares of Common Stock shall be effective, and (ii) and the payment of such dividend in shares of Common Stock would not cause the aggregate number of shares of Common Stock beneficially owned by the Investor, calculated in accordance with Section 13(d) of the Exchange Act, to exceed 4.99% of the outstanding shares of the Common Stock. Section 5.4. RIGHT OF FIRST REFUSAL ON FINANCINGS. As used in this paragraph, "Capital Financing Transaction" means (a) the sale of any of the Company's (i) equity securities, or (ii) securities that are convertible into or exchangeable for equity securities, or (iii) debt securities having a maturity of more than 270 days; or (b) loans to the Company having a maturity of more than one year; PROVIDED, HOWEVER, that a Capital Financing Transaction does not include the sale of Common Stock or the issuance of options to purchase Common Stock made to directors, officers, employees or consultants to the Company pursuant to bona fide employment, benefit or compensation plans, or loans incurred by the Company in the ordinary course of business that are primarily for operating purposes and not for capital financing purposes. For a period of one year from the Effective Date, the Company shall not engage in, or commit to engage in, any Capital Financing Transaction, other than in a firmly underwritten public offering, without having given the Investor, 30 days' prior written notice of its intention to engage in such Capital Financing Transaction, which notice shall set forth all of the material terms of the proposed transaction, and offering the Investor and its financial advisors, Thomson Kernaghan & Co. Limited and Southridge Capital Management LLC, the right of first refusal during that 30-day notice period to agree to provide the Company with substantially the same financing as that set forth in the notice. ARTICLE VI CONDITIONS TO CLOSING Section 6.1. CONDITIONS TO CLOSING. The Investor's obligation to purchase the Preferred Shares and to perform its other obligations under the Transaction Documents is subject to the following conditions precedent: (a) The Company shall have executed and delivered this Agreement and the other Transaction Documents to be executed by it. 11 (b) The Company shall have delivered the Preferred Shares, the Investor's Warrant and the Placement Agent's Warrant to the Escrow Holder. (c) The Investor shall have received the opinion of the Company's legal counsel, substantially in the form of Exhibit H. (d) The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Subscription Date. (e) The Company and Softalk shall have executed the Lockup Agreement. ARTICLE VII DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION. Section 7.1 DUE DILIGENCE REVIEW. The Company shall from time to time as the Investor may reasonably request make available for inspection and review by the Investor, advisors to and representatives of the Investor (who may or may not be affiliated with the Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of the Registrable Securities on behalf of the Investor pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all SEC Documents and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. Section 7.2 NON-DISCLOSURE OF NON-PUBLIC INFORMATION (a) The Company shall not disclose non-public information to the Investor, advisors to or representatives of the Investor unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require the Investor's advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investor. (b) Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts. The Company will immediately notify the Investor and, if any, underwriters of any Registrable Securities, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact 12 required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. ARTICLE VIII LEGENDS Section 8.1 LEGENDS. Unless otherwise provided below, each certificate representing Registrable Securities will bear a legend (the "Legend"), substantially in the following form or such other form as may be required by applicable law: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. Upon the execution and delivery of this Agreement, the Company shall issue to the Transfer Agent instructions in substantially the form of Exhibit G hereto (the "Transfer Agent Instructions"). The Company shall not revoke the Transfer Agent Instructions during the time that the Investor is the holder of Registrable Securities. The Company shall use its best efforts to cause the Transfer Agent to transfer and issue unlegended certificates for Registrable Securities in accordance with the Transfer Agent Instructions. Section 8.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend other than the one specified in Section 8.1 shall be placed on certificates representing Registrable Securities and no instructions, stop transfer orders, stock transfer restrictions, or other restrictions shall be given to the Transfer Agent with respect to Registrable Securities. Section 8.3 LIQUIDATED DAMAGES.(a) In the event the Company does not deliver, or cause the Transfer Agent to deliver unlegended Common Stock in compliance with the Transfer Agent Instructions within five (5) calendar days after the Transfer Agent's receipt (the "Receipt Date") of a Transfer Notice and applicable share certificate, the Company shall pay to the Investor, in immediately available funds, upon demand, as liquidated damages for such failure and not as a penalty, for each 500 shares of Common Stock to be so delivered by the Investor as set forth above, $500 for each of the first ten (10) days and $1,000 per day thereafter that the unlegended shares of Common Stock are not delivered, which liquidated damages shall run from the sixth calendar day after the Receipt Date. ARTICLE IX CHOICE OF LAW / JURISDICTION Section 9.1 CHOICE OF LAW; VENUE; JURISDICTION. This Agreement and the other Transaction Documents shall be construed and enforced in accordance with the laws of the State of Arizona, except for (i) matters arising under the federal securities laws, which shall be construed and enforced in accordance 13 with those laws, (ii) matters relating to the Company's organization, which shall be governed by the laws of the jurisdictions of its incorporation, and (iii) if any provision of this Agreement or any other Transaction Document is unenforceable under Arizona law but is enforceable under the laws of the State of New York, then New York law shall govern the construction and enforcement of that provision. Any controversy or claim arising out of or relating to this Agreement or any other Transaction Document (whether in contract or tort, or both, or at law or in equity) shall be determined by binding arbitration in the Borrow of Manhattan, City of New York, in accordance with the Commercial Arbitration Rules (the "Rules") of the American Bar Association, before a panel of three arbitrators, one appointed by each of the Investor and the Company, and the third chosen by the two so appointed. If the two arbitrators chosen by the parties cannot agree on a third, then the third shall be selected in accordance with the Rules. The prevailing party in any arbitration proceeding shall be awarded reasonable attorneys fees and costs of the proceeding. The arbitration award shall be final, and may be entered in any court having jurisdiction. Nothing in this paragraph shall preclude either party from applying to a court for temporary equitable relief, when appropriate, pending and subject to such temporary orders and permanent award as the arbitrator or arbitrators may make. The parties hereby consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York for that purpose. ARTICLE X ASSIGNMENT Section 10.1 ASSIGNMENT. Neither this Agreement nor any rights of the Investor or the Company hereunder may be assigned by either party to any other Person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any Preferred Shares, Warrants or Registrable Securities, (b) the Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other Person with the prior written consent of the Company, which consent shall not unreasonably be withheld. ARTICLE XI NOTICES Section 11.1 NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered `other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: 14 IF TO THE INVESTOR: IF TO THE COMPANY: Cedar Avenue LLC Wavetech International, Inc. Corporate Center 5210 East Williams Circle, Suite 200 Windward One, West Bay Road Tucson, Arizona 85711 PO Box 31106 SMB Attention: Gerald I. Quinn, President Grand Cayman, Cayman Islands Facsimile No. (520) 750- 9194 Attention: David Sims Facsimile No. (284) 494-4771 WITH A COPY (THAT DOES NOT WITH A COPY (THAT DOES NOT CONSTITUTE NOTICE) TO: CONSTITUTE NOTICE) TO: John M. Mann Squire, Sanders & Dempsey L.L.P. Attorney at Law 40 North Central Avenue, Suite 2700 1330 Post Oak Boulevard, Suite 2800 Phoenix, Arizona 85004 Houston, Texas 77056-3060 Attn: Gregory R. Hall Facsimile No. (713) 622-7185 Facsimile No. (602) 253-8129 Either party hereto may from time to time change its address or facsimile number for notices under this Section 11.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. ARTICLE XII INDEMNIFICATION Section 12. 1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained in this Agreement shall survive it termination. Section 12.2. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold the Investor, the Placement Agent, and each of their respective, directors, officers, employees, agents and attorneys (each an "Indemnified Party" and collectively, the "Indemnified Parties") harmless from and against, and agree promptly to defend any such Indemnified Party from and reimburse any such Indemnified Party for, any and all means any losses, costs, expenses, damages, taxes, penalties, fines, charges, demands, liabilities, obligations and claims of any kind (including interest, penalties and reasonable attorneys' fees, expenses and disbursements) ("Losses") which any such Indemnified Party may suffer or incur, or become subject to, arising out of or resulting from, without duplication: (a) any breach or inaccuracy as of the date of this Agreement of any of the representations and warranties made by the Company in this Agreement; and (b) any failure by the Company to carry out, perform, satisfy and discharge any of its respective covenants, agreements, undertakings, liabilities or obligations under this Agreement. Section 12.3. INDEMNIFICATION PROCEDURES. Any party asserting a right to indemnification under Sections 12.2 shall so notify the Company in writing as promptly as practicable. The Indemnified Party's failure to so notify the Company of any such matter shall not release the Company, in whole or in part, from its obligations to indemnify under this Article XII, except to the extent the Indemnified Party's failure to so notify actually prejudices Company. If the facts giving rise to such indemnification shall involve any actual or threatened claim or demand by or against a third party, the Company shall be entitled to control the defense or prosecution of such claim or demand in the name of the Indemnified Party, with counsel reasonably satisfactory to the Indemnified Party, if (i) it notifies the Indemnified Party in writing of its intention to do so within 20 days of its receipt of such notice, without prejudice, however, to the right of the Indemnified Party to participate therein through counsel of its own choosing, which participation shall be at the Indemnified Party's expense unless (x) the Indemnified Party shall have been advised by its counsel 15 that use of the same counsel to represent both the Company and the Indemnified Party would present a conflict of interest (which shall be deemed to include any case where there may be a legal defense or claim available to the Indemnified Party which is different from or additional to those available to the Company) or (y) the Company shall fail to defend or prosecute in good faith such claim or demand within a reasonable time, in which case the reasonable fees of counsel for the Indemnified Party shall be for the account of the Company and the Company shall not have the right to direct the defense of such action on behalf of the Indemnified Party, and (ii) it agrees to accept full responsibility, indemnify and hold harmless the Indemnified Party in accordance herewith in respect of the claim or demand. Whether or not the Company chooses to defend or prosecute such claim, the parties hereto shall cooperate in the prosecution or defense of such claim and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may reasonably be requested in connection therewith. The Company shall not settle or permit the settlement of any such third party claim or action in which any relief other than the payment of money damages is sought against the Indemnified Party without the prior written consent of the Indemnified Party. The Indemnified Party shall not settle or permit the settlement of any claim or action for which it is entitled to indemnification without the prior written consent of the Company, unless the Company shall have failed to assume the defense thereof after the notice referred to in the first sentence of this Section 12.3, and in the manner provided above. Section 12.3. SUBROGATION. In the event of any indemnification made pursuant to a third party claim, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnified Party, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. ARTICLE XIII MISCELLANEOUS Section 13.1 COUNTERPARTS/FACSIMILE/AMENDMENTS. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by all parties. Section 13.2 ENTIRE AGREEMENT. This Agreement, the Exhibits or Attachments hereto, which include, but are not limited to the Warrant, the Escrow Agreement, and the Registration Rights Agreement set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits and Attachments to this Agreement are incorporated herein by this reference and shall constitute-part of this Agreement as is fully set forth herein. Section 13.3 SURVIVAL; SEVERABILITY. The representations, warranties, covenants and agreements of the parties hereto shall survive each Closing hereunder. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. 16 Section 13.4 TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Section 13.5 REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity. Section 13.6 REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a certificate representing the Preferred Shares, the Conversion Shares or the Warrant Shares and (ii) in the case of any such loss, theft or destruction of such certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or (iii) in the case of any such mutilation, on surrender and cancellation of such certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate of like tenor. Section 13.7 FEES AND EXPENSES. The Company shall pay the following fees and expenses: (a) Placement Agent's Fee. The Company shall pay the Placement Agent a fee equal to 6.25% of the purchase price of the Preferred Shares, and shall pay Roth Capital Partners, Inc., a fee equal to 3.75% of the purchase price of the Preferred Shares, payable on the Subscription Date. (b) Legal and Escrow Fees. On the Subscription Date, the Company shall pay the Investor's counsel, John M. Mann, Esq., $30,000 for legal, administrative and escrow fees incurred through the Subscription Date. Except as so provided, each of the parties shall pay its own fees and expenses (including those of any attorneys, accountants and others engaged by it) in connection with the negotiation and preparation of this Agreement. Section 13.8 BROKERAGE. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the Company in connection with this Agreement or the transactions contemplated hereby. Section 13.9 CONFIDENTIALITY. If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party's domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information, without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herewith. [signature page follows] 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. WAVETECH INTERNATIONAL, INC. By /s/ Gerald I. Quinn ------------------------------- Gerald I. Quinn, President Date Signed May 1, 2000 ---------------------- CEDAR AVENUE LLC By Navigator Management Ltd., Director By /s/ David Sims ------------------------------- David Sims, Director Date Signed April 28, 2000 ---------------------- 18 EXHIBIT A CERTIFICATE OF DESIGNATION EXHIBIT B DISCLOSURE SCHEDULE EXHIBIT C INVESTOR'S WARRANT EXHIBIT D PLACEMENT AGENT'S WARRANT EXHIBIT E REGISTRATION RIGHTS AGREEMENT EXHIBIT F ESCROW AGREEMENT EXHIBIT G TRANSFER AGENT INSTRUCTIONS EXHIBIT H LEGAL OPINION OF COMPANY'S COUNSEL 19 EX-99.1 7 PRESS RELEASE DATED 5/5/00 FRIDAY MAY 5, 9:20 AM EASTERN TIME COMPANY PRESS RELEASE SOURCE: WAVETECH INTERNATIONAL, INC. WAVETECH ANNOUNCES $5 MILLION PRIVATE PLACEMENT TO SUPPORT COMMERCIALIZATION OF WEB-BASED INTERNET TELEPHONY PRODUCT TUCSON, Ariz., May 5 /PRNewswire/ -- Wavetech International, Inc. (OTC Bulletin Board: ITEL - news) announced today the completion of a $5 million private placement of 6% Series B convertible preferred stock and common stock purchase warrants. The Company will use the proceeds primarily to finance the commercialization of Bestnetcall, the Company's web-based telephony product (see April 25, 2000 - "Wavetech Launches Internet-Based Telephony Product"). Proceeds will be used to fund marketing and other existing capital needs, to expand service capacity into its New York and Los Angeles facilities, and to pay off a $2 million bridge loan executed in mid-December. Bestnetcall is the industry's first Internet-based long distance service that provides worldwide access to low-cost long distance with call management capabilities, without the need for special software or hardware. Businesses and individuals can now sign up online for Bestnetcall through the Company's website, www.bestnetcall.com. A full market launch is anticipated within the next month. Gerry Quinn, President and CEO said, "We are very pleased to have investors share our confidence in Wavetech as we prepare for full commercialization of Bestnetcall. We believe this service offers many advantages over current telephony systems. This funding will enable us to utilize the best marketing resources available to gain market share and to become a significant player in this industry." Wavetech issued a total of $5 million of the convertible preferred securities. A preferred share carries a dividend of 6% and a conversion price of 80% of the average closing bid prices of the Company's common stock for the three lowest trading days out of the ten (10) consecutive trading days immediately preceding the conversion date or 110% of the average closing bid prices of the Company's common stock for the five (5) trading days prior to the date of issuance of the preferred shares. The preferred stock is redeemable by the Company at any time. Wavetech is a web-based telephony company, offering advanced products to businesses and individuals worldwide. To learn more about Bestnetcall, visit the website at www.bestnetcall.com. To contact a company representative, please send an email to sales@bestnetcall.com. This press release contains certain forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, those factors detailed by Wavetech in its filings with the Securities and Exchange Commission. Contact: Bill Roberts, CTC Inc. 937-434-2700, for Wavetech International, Inc. SOURCE: WAVETECH INTERNATIONAL, INC. 4 -----END PRIVACY-ENHANCED MESSAGE-----