EXHIBIT 4.2
US WATS, INC.
STOCK OPTION AGREEMENT
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Option granted as of July 19, 1995 (the "Date of Grant") by US WATS, INC.
(the "Corporation") to WHALE SECURITIES CO., L.P. (hereinafter referred to as
the "Grantee"):
1. The Option. In further consideration of the services to be provided to
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the Corporation by the Grantee pursuant to that certain consulting agreement
between the Corporation and the Grantee dated July 19, 1995 (the "Consulting
Agreement"), the Corporation grants to the Grantee, a stock option (the
"Option") to purchase, on the terms and conditions herein set forth, up to
125,000 shares (the "Shares") of the Corporation's fully paid, nonassessable
shares of common stock ("Common Stock"), at the purchase price set forth in
Section 2 below.
2. The Purchase Price. The purchase price of 62,500 of the Shares shall
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be $1.25 per share and the purchase price of the remaining 62,500 of the Shares
shall be $2.00 per share (together, the "Option Price"), as such Option Price
shall be adjusted from time to time pursuant to Section 9.
3. Exercise of Option.
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(a) The Option is exercisable over a period ending five years from
the Date of Grant (the "Option Period"). The Option may be exercised from time
to time during the Option Period as to the total number of Shares subject to
this Option as determined under Section 1, or any lesser amount thereof, and the
Option shall continue as to any unexercised portion of the Option.
(b) In the event the Grantee elects to exercise all or any portion of
the Option, the Grantee shall deliver to the Corporation written notice (the
"Notice") of such election, which Notice shall specify the number of Shares in
respect of which the Option is to be exercised, along with payment of the Option
Price of the Shares in respect of which the Option is exercised. The Option
Price shall be paid in full in United States dollars at the time of exercise. If
the Option is exercised in accordance with the provisions of this Agreement, the
Corporation shall deliver as soon as practicable to the Grantee a certificate or
certificates representing the number of Shares in respect of which the Option is
being exercised, which Shares shall be registered in the Grantee's name.
4. Sale of Shares; Restrictions on Transferability. The Grantee
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understands and acknowledges that:
(a) the Shares have not been registered under the Securities Act of
1933, as amended (the "Act") or any applicable state securities law and Grantee
shall not be entitled to
sell, transfer, or distribute the Shares unless the Shares are subsequently so
registered or unless an exemption from such registration is available;
(b) prior to offering or selling the Shares upon claim of exemption,
the Grantee shall obtain a written opinion from counsel reasonably satisfactory
to the Corporation to the effect that such exemption is available or shall
deliver a "No action" letter from the Securities and Exchange Commission with
respect to the proposed sale, transfer or distribution of the Shares;
(c) the Grantee is a registered broker-dealer;
(d) the Shares are not being acquired with a view to distribution by
Grantee;
(e) each certificate representing the Shares will bear the following
legend, or one similar thereto, drawing attention to the restrictions on its
transferability;
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED
EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT SUCH
TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW;
(f) prior to the date of this Agreement, Grantee has had the
opportunity to review the Corporation's reports filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, and
has had the opportunity to ask questions of and receive answers from the
Corporation concerning the Corporation, its business and its financial condition
and prospects.
5. Registration Rights.
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(a) Subject to the provisions of Section 5(d) below, at any time
hereafter whenever the Corporation proposes to file with the Securities and
Exchange Commission a registration statement registering its common stock for
sale in a public offering for cash (other than as to securities issued pursuant
to an employee benefit plan or as to a merger, acquisition or similar
transaction subject to Rule 145 promulgated under the Act), the Corporation
shall, at least 30 days prior to such filing, given written notice of such
proposed filing to the Grantee setting forth the facts with respect to such
proposed filing, and shall use its best efforts to include in any such filing
the Shares subject to the Option, provided, that the Corporation receives a
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request therefor at least 30 days prior to the proposed filing date and,
provided, further, that if the foregoing registration statement relates to an
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underwritten public offering, the Corporation may
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require the holders of the Shares not to sell such Shares pursuant to such
registration statement for a period of up to six (6) months after the
consummation of such public offering, if so requested by the underwriter of such
public offering.
(b) If registration of the Shares is not effected under paragraph
5(a) hereof within eighteen (18) months of the date of the Consulting Agreement,
at the request of the Grantee the Corporation shall prepare and file a
registration statement on the appropriate form with the SEC under the Act
covering the offering and sale of the Shares by the Grantee.
(c) All fees, disbursements and out-of-pocket expenses in connection
with the filing of any registration statement and in complying with applicable
securities and blue sky laws shall be borne by the Corporation.
(d) The Corporation shall register or qualify the Shares registered
pursuant to Section 5(a) or 5(h)) hereof under the securities or "blue sky" laws
of such states as Grantee shall determine (but in any event in not more than 10
states); provided, however, that the Corporation shall not be required to
qualify to do business as a foreign corporation in any state where it is not
then so qualified, nor take any action which will subject it to general service
of process in any state where it is not then so subject.
(e) The Corporation shall not be obligated pursuant to Section 5(a)
to include in any filing any Shares subject to the Option where the Corporation
determines that inclusion of such Shares would conflict with or result in a
breach of agreements between the Corporation and third parties existing on the
date hereof pursuant to which such third parties have been granted the right to
have stock of the Corporation owned by them included in the registration
statement.
(f) In the event of the registration of any Shares subject to the
Option, the Corporation will indemnify and hold harmless the Grantee, each
person who controls the Grantee within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and each person who is deemed to be an underwriter with respect to such
Shares subject to the Option, as defined in the Act (provided that if any such
underwriter provided written information to the Corporation for use in the
registration statement, such underwriter shall indemnify the Corporation with
respect to such information in the same manner as the Grantee indemnify the
Corporation as set forth in this last sentence of this subparagraph (f) and such
information shall constitute an exception to the Corporation's indemnity of such
underwriter in the same manner as set forth in the last proviso of this
sentence), from and against any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in any settlement
effected with the Corporation's consent (not to be unreasonably withheld) of any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such losses,
damages or liabilities arise out of or are based on (A) any untrue-statement or
alleged untrue statement of a material fact contained
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in the registration statement filed with respect to the Shares (including any
related preliminary or definitive prospectus, or any amendment or supplement to
such registration statement or prospectus), (B) any omission or alleged omission
to state in such document a material fact required to be stated in it or
necessary to make the statements in it not misleading, or (C) any violation by
the Corporation of the Act, the Exchange Act, any blue sky laws or any rule or
regulation thereunder in connection with such registration; provided, however,
that the Corporation will not be liable in any such case to the extent that such
loss, claim, damage, expense or liability arises from or is based on a material
untrue statement or omission or alleged material untrue statement or omission
made in such registration statement and in conformity with information furnished
in writing to the Corporation by the Grantee, or, with the knowledge of the
Grantee, a person who controls the Grantee, expressly for use in such
registration statement. With respect to the matters referred to in the last
proviso of the foregoing sentence, the Grantee will indemnify and hold harmless
the Corporation, and its directors, officers and control persons, from and
against any and all losses, claims, damages, expenses and liabilities, joint or
several, to which it may become subject under the Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise to the same
extent provided in the immediately preceding sentence.
(g) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving matters referred to in the foregoing
paragraph, such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party, notify the indemnifying party in writing
thereof and the indemnifying party shall have the right to participate in and to
assume the defense thereof at its own expense with counsel reasonably
satisfactory to the indemnified party, and in such case, if the indemnified
party desires to retain its own counsel, the expense of such counsel shall be
borne by the indemnified party. In the event that, in the reasonable judgment of
the indemnified party, a bona fide conflict of interest arises between the
indemnified and indemnifying party with respect to any claim referenced above,
the indemnified party shall have the option of retaining counsel reasonably
satisfactory to the indemnifying party at the expense of the indemnifying party.
(h) Nothing contained in this Option Agreement shall be construed as
requiring any holder to exercise his option prior to the initial filing of any
registration statement or the effectiveness thereof.
6. Successors and Assigns. This agreement shall be binding upon the
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parties and their respective successors and permitted assigns. This Option is
not assignable in whole or in part by the Grantee.
7. Expiration of Option. This Option shall expire on the date which is
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five years from the Date of Grant.
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8. Rights.
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(a) The granting of this Option shall not confer upon the Grantee any
right to be, or to continue to be, retained by the Corporation or any of its
subsidiaries, subject, however, to the terms of the Consulting Agreement between
the Grantee and the Corporation.
(b) The Grantee shall not, by reason of the granting to it of the
Option, have or thereby acquire any rights of a stockholder of the Corporation
with respect to any Shares unless and until it has tendered full payment of the
Option Price for such Shares.
9. Adjustment of Number of Shares and Option Price. In the event that a
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dividend shall be declared upon the Shares payable in shares of Common Stock,
the number of Shares then subject to the Option and the Option Price shall be
adjusted by adding to each of such Shares the number of shares of Common Stock
which would be distributable thereon if such Shares had been outstanding on the
date fixed for determining the stockholders entitled to receive such stock
dividend and reducing the Option Price proportionally. In the event that the
outstanding Shares shall be changed into or exchanged for a different number or
kind of shares of stock or other securities of the Corporation or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there shall be substituted
for each Share then subject to the Option the number and kind of shares of stock
or other securities into which each outstanding share of Common Stock shall be
so changed or for which each such share shall be exchanged; provided, however,
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that in the event. that such change or exchange results from a merger or
consolidation, and in the judgment of the Board of Directors of the Corporation
such substitution cannot be effected or would be inappropriate, or if the
Corporation shall sell all or substantially all of its assets, the Corporation
shall use reasonable efforts to effect some other adjustment of the option which
the Board of Directors, acting in good faith, shall deem equitable. In the case
of any such substitution or adjustment as provided for in this Section 9, the
Option Price will be the option price for all shares of stock or other
securities which shall have been substituted for each Share or to which such
Share shall have been adjusted pursuant to this Section 9. No adjustment or
substitution provided for in this Section 9 shall require the Corporation to
sell a fractional Share, and the total substitution or adjustment shall be
limited accordingly.
10. Reserve of Shares. The Corporation will reserve and set about and have
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at all times, free from preemptive rights, that number of shares of authorized
but unissued Common Stock deliverable upon exercise of the Option, and it will
have at all times any other rights or privileges provided for therein sufficient
to enable it at any time to fulfill all of its obligations in this Agreement.
11. Governing Law. This Agreement shall be governed by, and construed and
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enforced in accordance with, the laws and jurisdiction of the State of New
York.
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If the foregoing is in accordance with the Grantee's understanding and
agreed to an approved by it, it may so confirm by signing and returning the
duplicate of this Agreement delivered for that purpose.
US WATS, INC.
Dated: 9/19/95 By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
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The foregoing is in accordance with the undersigned's understanding and is
hereby confirmed and agreed to as of the Date of Grant.
WHALE SECURITIES CO., L.P.
By: WHALE SECURITIES CORP.,
general partner
Dated:___________________ By:______________________________
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