UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act
of 1934
HitCom Corporation
(Name of Small Business Issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or jurisdiction.)
87-0389677
(I.R.S. Employer Identification Number)
700 North Second Street, Third Floor, St. Louis, MO 63102
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (314) 231-1000
Securities to be registered under Section 12(b) of the Act:
Common Stock, $.004 par value per share
8% Convertible Preferred Stock, $.001 par value per share
Securities to be registered under Section 12(g) of Act:
None
HitCom Corporation
INDEX
Part I
ITEM 1. Description of Business
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM 3. Description of Properties
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management
ITEM 5. Directors, Executive Officers, Promoters and
Control Persons
ITEM 6. Executive Compensation
ITEM 7. Certain Relationships and Related Transactions
ITEM 8. Description of Securities
Part II
ITEM 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters
ITEM 2. Legal Proceedings
ITEM 3. Changes in and Disagreements with Accountants
ITEM 4. Recent Sales of Unregistered Securities
ITEM 5. Indemnification of Directors and Officers
Financial Statements
- HitCom Corporation for the nine-month period ended December 31, 1997
- One Plus Marketing, Inc. for the three-month period ended March 31, 1997
- Channel Telecom Inc. for the nine-month period ended December 31, 1997
and for the year ended March 31, 1997
- HitCom Corporation pro forma for the year ended December 31, 1997
(unaudited)
- One Plus Marketing, Inc. for the year ended December 31, 1996 (unaudited)
Part III
ITEM 1. Index To Exhibits
Signatures
PART I
ITEM 1: DESCRIPTION OF BUSINESS
General
HitCom Corporation (HitCom or the Company) was reincorporated under the
laws of the state of Delaware in 1995 and is the successor to a corporation
originallyincorporated under the laws of the state of Utah in 1982.
After acquiring 80% of the outstanding stock of One Plus Marketing, Inc.
(One Plus) in April 1997, the Company re-engineered itself to become a
facilities-basedtelecommunications company providing enhanced communication
services and technologies. The Company's currently pending
acquisition, Channel Telecom Inc. (Channel) is expected
to close in April of 1998, and is an intricate part of the
re-engineering process. (See 1997 Acquisitions).
Today, the Company is engaged in the following products and
services:
- - - Interactive Voice Response/Voice Processing Services
- - - PhoneCards and PhoneCard Platform Services
- - - Internet Connectivity Services
The Company is expanding its research and development to
support an aggressive internal growth plan and to attract
additional strategic acquisitions as well as to establish
international partnerships that will allow the Company to
offer new IP (Internet Protocol) telephony driven services
abroad. Today, the Company uses a proprietary PC-based
network to handle its call volume. However, the Company is
in the final stages of developing a new proprietary-
switching platform utilizing Excel switching hardware that
will greatly increase and enhance the Company's
capabilities. The Company also plans to license and resell
its proprietary switching software as an Excel Value Added
Reseller (VAR) to corporate clients throughout the world.
In first quarter of 1998, the Company announced that
Channel was the official network provider for the Rolling
Stones prepaid phonecards. The Rolling Stones prepaid
phonecards are available at concerts, the Rolling Stones
merchandise catalog and in select retail outlets.
The Company has also committed some of its resources to
developing a premium Internet connectivity service targeted
at high-end Internet users. One Plus plans to further
integrate its voice and Internet technology to introduce
services using CTI (Computer Telephony Integration) and IP
(Internet Protocol) telephony.
Currently, the Company employs approximately 35 people
including managerial, administration, technical and sales
personnel.
1997 Acquisitions
In April 1997, the Company acquired 80% of the voting stock
of One Plus, presently the Company's largest subsidiary.
One Plus has been in business since 1991 with its original
focus on the interactive voice response and voice
processing segment of the telecommunications industry. One
Plus developed a proprietary PC-based platform that it has
used to handle its customer traffic since the Company's
inception. There are currently in excess of 15,000
subscribers on the One Plus network which handles more than
one million calls per month.
In December 1997, the Company entered into a Letter of
Intent to acquire Channel Telecom Inc. A definitive
agreement has since been executed anticipating an April
1998 closing and an effective date of January 1, 1998.
Channel was established in 1994, with its focus on the
retail distribution of prepaid phone cards. Presently,
Channel is the fourth largest facility-based phone card
company in Canada with over 1,500 retail outlets.
Products & Services
The following section has been divided by product category.
Each product category includes the product/service the
Company, including Channel, provides.Interactive Voice
Response/Voice Processing Services
800Link
One Plus 800Link has become a favorite Interactive Voice
Response(IVR)/Voice Processing Platform for several Direct
Sales Organizations in the United States.
The basic service includes:
- - - Up to a 5 minute greeting time
- - - Up to a 2 minute message time
- - - Holds up to 40 messages with a 14 day storage time
- - - Personal Security Code for retrieving messages
- - - Time and date stamp for each incoming message
- - - Caller ID
- - - Online account status
- - - Monthly account status mailing, including usage detail
and balance information
For an additional fee, other features can be added to an
800Link account. They include:
- - - Calling card capabilities
- - - Call forwarding (follow me service)
- - - Automated attendant
- - - Extended greeting time (up to 30 minutes)
- - - Reduced response (from 2 minutes to 1 minute)
- - - Group broadcasting (broadcast the same message to a
specified group)
- - - Call rotation (allows one incoming number to be
rotated evenly to a group)
- - - Fax back
- - - Fax on demand
- - - Fax broadcast (allows broadcast faxing to a list of
fax numbers almost instantly)
GAP LINES
The GAP lines allow subscribers to pre-record a message
that their clients and prospects can access using an 800
number and a Personal Identification Number (PIN) to
listen to the message. The minimum message length is 10
minutes.
CUSTOM APPLICATIONS
One Plus can develop a custom IVR application for virtually
any situation. For instance:
- - - Automated online surveys (allows a caller to complete a
survey using the telephone)
- - - Automated locator service (allows a caller to find the
location nearest to them)
- - - Automated payment systems
All of the Company's IVR services are marketed through One
Plus. The marketing effort consists of nationally placed
advertisements that attract prospects to obtain the
Company's 800Link services. Nevertheless, the majority of
new business is still generated through referral.
Currently, these products are marketed in the US and
Canada.
One Plus has been extremely successful marketing its
800Link service to small businesses and Direct Sales
Organizations. To date, the Company has actually limited
its sales efforts because the Company was not able to build
the technology infrastructure quick enough to handle the
new subscribers.
With the implementation of the Company's new telco-grade
switch-based platform, One Plus will now have the capacity
it requires to greatly expand the number of 800Link users.
Accordingly, the Company expects to expand its advertising
efforts to attract new subscribers.
The Company has also hired a new Account Manager to
approach additional Direct Sales Organizations (DSO). DSOs
use the Company's 800Link to provide needed advertising
support and communication services to their participants.
Phone Card and Phone Card Platform Services
Channel PhonePass
The Channel PhonePass is one of the best selling retail
phone cards in Canada.
Available in a variety of images, this high-end card has
become a favorite with tourists, card collectors, students
and anyone who needs a phone card for long distance
convenience.
Some of the benefits include:
- - - High commission rate for retailers
- - - Multilingual voice prompts to ensure sales to foreign
visitors and for sales in ethnic communities
- - - Significant savings over other direct dialing methods
- - - Available in $10, $20, $30, $50, and $100 denominations
- - - Point-of-sale marketing material available including
posters, brochures and displays
- - - Consignment
- - - Co-branding
- - - Vending machines available for high volume locations
Channel plans to introduce a US version of the Channel
PhonePass in the second quarter of 1998.
Channel PhoneCash
The Channel PhoneCash is a deep discount card offering
rates that are competitive or lower than most residential
long distance rates, providing the best value to consumers
and excellent margins for retailers, particularly in high
traffic areas.
Some of the benefits include:
- - - Local and 1-800 access numbers
- - - Available in $5, $10, $20, and $50 denominations
- - - Co-branding
- - - Point-of-sale marketing material available including
posters, brochures and displays
- - - Vending machines available for high volume locations
Channel plans to introduce a US version of the Channel
PhoneCash in the second quarter of 1998.
CUSTOM CARDS
Channel has created completely customized prepaid phone
cards for resale or promotional/institutional use.
Custom cards can carry a company image and logo, product
imaging, or any custom design or text desired.
Some of the benefits include:
- - - Turnkey custom service and advice including market
planning, card design and development, card manufacturing,
inventory tracking and fulfillment, and production of
point-of-sale marketing material available including
posters, brochures and displays.
- - - Custom voice prompts can be implemented so that customized
company or product messages can be used to greet card users
and additional options can be implemented which allow card
users access to other information about a company or
product.
- - - Available in any denomination.
COLLECTIBLE CARDS
Channel has also premiered its first collectible prepaid
phone card. Through an exclusive worldwide licensing
agreement, Channel markets a numbered, four card series
featuring the world famous Rolling Stones. Channel is
currently working with other entertainment and sports
celebrities to gain the rights to market prepaid phone
cards that carry their trademark names and images.
There are only a handful of companies in Canada with
national presence in the phone card marketplace. Channel
is one of those companies. Further, several of the major
players in Canada do not own their own switching platform
and must rely on a third party service bureau. As the
industry evolves with competition, it appears in 1998 there
could be a consolidation in the industry and double-digit
growth for well established companies with technical and
marketing strength.
Service Bureau
Utilizing the Company's proprietary switching platform and
customer service center, the Company has recently
introduced a service bureau for other phone card sales and
marketing organizations. This turnkey solution allows a
non-switch-based marketer of prepaid phone cards to
purchase the required network services from the Company.
The Company's service bureau features:
- - - Processing of over 3 million minutes per month. The
network is capable of processing 25 million calls per month
- - - 24-hour customer service
- - - 24-hour technical staff and system monitoring
- - - Excel Switching Platform
- - - Competitive rates
- - - Superior performance quality
- - - Telecommunication expertise
Prior to 1998, the Company's marketing of its phone card
capabilities was limited. With the acquisition of Channel,
there efforts will be expanded in both the US and Canada.
All of the Company's PhoneCard products and services are
now marketed under the Channel name (Channel Telecom and
Channel Telecom USA).
Internet Connectivity Services
The Company, through its One Plus subsidiary, markets
premium Internet connectivity services to commercial
accounts in the St. Louis, Missouri market. Those services
include:
- - - Dedicated ISDN connectivity
- - - Dedicated T-1 connectivity
- - - Web site development and hosting
- - - Related Internet and web services
The Companys Internet connectivity is provided using its
state-of-the-art, 100% digital network featuring Cisco 7513
routers and a direct ATM/ fiber optic connection to the
Internet. The Companys service quality exceeds that of
most other Internet Service Providers due to its enhanced
levels of security and 24-hour monitoring and customer
support.
The Company's Internet services were introduced to the St.
Louis market in the fall of 1997. The Companys primary
objective with its Internet services sales efforts is to
subsidize, and potentially profit from, the Internet
technology (i.e., IP telephony) research and development.
Because of the investment the Company has made in its
Internet technology, the Company believes its Internet
connectivity service is one of the best in the marketplace.
As the Company expands its efforts, the Company believes
its service will continue to set the standard for superior
Internet connectivity services. This includes speed
(bandwidth), security and stability.
The St. Louis market consists of approximately 25,000
businesses that fit the Companys target market for
connectivity services. The Company intends to continue to
market its services to this segment.
IP Telephony Related Services
International Fax-to-Fax
The Company's international fax-to-fax service will allow
its customers to fax from developing countries to the
United States and Canada at greatly reduced rates over
traditional fax transmission utilizing current long
distance providers. The Company expects to begin marketing
its international fax-to-fax services in late 1998 from at
least one international gateway. Depending upon the success
of the international test market, the Company expects to
add international gateways in 1998.
Continuing worldwide deregulation and advancing IP
telephony technology is opening a variety of IP telephony
market niches both domestically and internationally. The
Company has devoted a portion of its resources to the
research and development of several IP telephony related
products/services as well as international market research.
To date, the Company has completed the design phase of its
IP telephony network, including the US hub gateway. Over
the next few months, the Company expects to complete the
provisioning and installation of the hub gateway in the
United States.
The Company has decided to pursue these international
products based on the following considerations:
- - - Voice telecommunication has more stringent regulations
compared to data (fax) transmission. Even though the
Companys IP technology will eventually carry voice
communication, several technical advancements will need to
occur in the industry before this becomes a practical
reality.
- - - Faxing from most developing countries to the US and Canada
is very expensive. The Companys international fax could be
75% less expensive than current methods.
- - - Fax machines are not as readily available as compared to
the US and Canada.
- - - The Company has already established key relationships in
several developing countries that would increase the
Company's possibility of success.
Switch Platform Services
In 1998, the Company expects to begin licensing its
proprietary switching technology to organizations
throughout the world. The package is expected to
licensed/sold as a turnkey telecommunications platform
including all the necessary hardware and software to get up
and running. The software will be sold in a modular
fashion, each module providing a specific function.
Additional modules, optional support packages and upgrades
(capacity expansion) will be offered separately.
The Company purchased an Excel LNX 2000 switch and began
development of the platform in late 1996. Programming for
low level switch functionality, or the Switching Engine
was completed in the fall of 1997. Work has begun on
several of the modules, specifically the User Interface
Console and Phone Card modules with an expected completion
date in the second quarter 1998.
Before the platform is ready for commercial use,
comprehensive documentation must be written and technicians
for customer support recruited and trained. As these issues
are being addressed, development of additional modules will
continue. Platform sales are expected to commence in late
1998.
The Company's goal is to offer a proprietary state-of-the-
art, non-blocking digital switching system which will allow
integration of voice processing, database and networking
technologies to provide turnkey and custom telephony
products. Specifically, the system will be aimed at the
following marketing applications:
- - - Prepaid and postpaid calling card authorization
- - - Prepaid wireless
- - - Voice mail
- - - Information line
- - - 1+ service
- - - Callback
- - - Enhanced services
- - - Stored value transactions
- - - Smart card applications in closed environments
- - - Other
Industry Overview
Telecommunications Industry Overview
Canada is going through the final phases of deregulation in
the telecommunications industry. There are two specific
areas of deregulation which will create new opportunities
in the phone card industry in 1998; swipe access
functionality and elimination of Teleglobes monopoly on
overseas long distance services.
Until late 1997, Bell Canada and the Stentor Alliance had a
monopoly on swipe access. Swipe access allows cards to
have magnetic stripes which encode the 1-800# and the PIN#
to be dialed on the cards. The cards can be swiped on any
of Bell Canada's pay phones (approximately 70,000)
eliminating the user having to enter the 1-800# and their
PIN#. Channel expects to have swipe functionality on its
cards in 1998.
The CRTC (Canada's governing telecom regulator) has ruled
that Teleglobe's monopoly on overseas long distance
services must be eliminated by October 1998. This will
drive down the price of overseas long distance in Canada to
be more in line with the U.S. Currently Canadian pricing
is 30-40% higher than in the U.S. Lower pricing will
increase volume and create short-term arbitrage
opportunities for companies. The Company expects to be
positioned to take full marketing advantage during this
time period.
Telecommunications is a complex, rapidly evolving $200
billion industry affecting every aspect of our lives.
Telecommunications no longer refers only to local and long
distance telephone communications. Instead, the industry is
now made up of everything from cellular and satellite or
wireless communications to interactive voice and voice
mail messaging; from data transmission, including fax, to
voice and video conferencing; and from Internet and
intranet connectivity to cable television. That's just
today. The industry is currently experiencing an
unprecedented introduction of new and enhanced
communication technology and services.
The way these services are purchased is changing as well.
Not that long ago, only select groups were able to benefit
from the latest communication advancements and conveniences
available. Today, people from every social economic
background are familiar with local and international
communications services and technologies. As a result,
prepaid phone cards, prepaid cellular and even prepaid dial
tone have witnessed explosive acceptance and growth.
In the decade since the mid-1980s, divestiture,
deregulation and the advent of computer telephony
integration (CTI) have reopened a virtually monopolized
industry to promote unparalleled competition and expansion.
Now, in addition to the major players AT&T, MCI, Sprint
and WorldCom other companies, like the Company, are able
to successfully compete and thrive by developing new
technologies and pursuing niche markets and opportunities.
By focusing and building upon the products and services
that employ computer telephony, the Company has been able
to take advantage of the enormous demand for alternative
and specialized providers and services. Specifically, the
Company has established itself in four segments of the
industry. They are:
- - - Interactive Voice Response services
- - - Prepaid phone cards and phone card platform services
- - - Internet connectivity services
- - - IP (Internet telephony) services
A more detailed explanation and overview of each of these
segments follow:
Interactive Voice Response (IVR)
Interactive Voice Response (IVR) includes a variety of
voice processing and messaging services. IVR allows a user
to access, store and carry out transactions by using his
voice or the keypad of a touch tone telephone. For
instance, simple call routing Press 3 for Customer
Service is a type of IVR. So is Bank by Phone and For
the nearest location, enter your zip code. In essence, IVR
allows any telephone to become a computer terminal. In
addition to these applications, businesses are developing
thousands of new applications each year that allow them to
benefit from the efficiencies and cost savings surrounding
this relatively new technology.
As new uses and consumer acceptance have developed, so has
the technology. Now, instead of using the keypad alone, the
systems are using Voice Recognition to accept and act upon
commands. Then, text-to-speech technology can actually
read information to the caller from text fields in
computer databases. Of course, there are other, less
dramatic, uses for IVR, including simple voice mail, fax
broadcasting and follow-me call and fax routing services.
The Internet is also having an impact on IVR. As
increasingly larger numbers of people are researching and
communicating (e-mail) via the Internet, IVR applications
are being used to integrate the telephone and the Internet.
An example would be calling a voice mail system to retrieve
e-mail using a text-to-speech system.
Industry analysts report the IVR market was $1.5 billion in
1995 and predict it to grow to an estimated $3.7 billion in
2002.
The Company entered the market by providing large Direct
Sales Organizations with customized voice processing
systems that allow each member of a national or
international sales organization a method by which the
response from a large advertising campaign can be handled
24 hours a day and pertinent data reported to the
membership almost instantly. In addition, such
organizations are able to broadcast such things as product
specifications (by voice or fax) and motivational messages
to their teams. In addition to this market niche, the
Company develops and implements several other custom
applications for its clients, such as automated surveys and
fax-on-demand.
Prepaid Phone Cards and Phone Card Platform Services
Prepaid phone cards, originally introduced in Europe in the
early 1980's, have been gaining popularity in the US since
1992, and Canada since 1994. A prepaid phone card permits
a consumer to purchase a card (actually an account) with
a preset denomination of call time or minutes available.
The consumer can then use the card from virtually any touch
tone telephone by calling a local or toll-free (800 or 888)
number to access a network provided or contracted by the
card issuer to make a local or long distance (including
international) telephone call.
There are currently two types of prepaid phone cards in
use:
Remote Memory Card a card that has an account number
and a PIN printed or coded into a magnetic strip. This
card does not actually keep track of the usage or time
remaining on the account. Instead, it tells a computer
database on the other end of the line the caller's
identity, allowing the system to look-up the most
current account information and balances.
Smart Card a smart card, unlike a remote memory
card, actually provides data storage, using a tiny
computer chip, of the account usage and balances on
the card itself. Smart card technology has been used
in European markets for several years, and has been
recently introduced in the United States and Canada.
Unlike remote memory cards, smart cards require
readers that are not currently available on most
North American telephones.
The Company primarily uses remote memory prepaid phone
cards.
Initially, when prepaid phone cards were introduced in
North America, they were used by advertisers as promotional
items. For example, a major beverage company gave everyone
who purchased a 12-pack of their product, a free 10-minute
card as a premium for choosing their product. Promotional
cards accounted for nearly 60% of the market in 1995.
However, 1997 indications are that only about 40% of
prepaid cards are issued for promotional use and that
number is steadily decreasing as the retail market
increases.
The retail segment consists of the following primary
buyers: transients, the credit challenged, immigrants,
tourists, business travelers, truckers, students, and those
who do not typically carry money (e.g., children). The
shift from promotional use to retail as well as the
changing user demographics clearly indicates that phone
cards are now a well established and accepted consumer
product in North America.
There are primarily two types of prepaid card issuers.
Facility-based, those who have their own platforms and non-
facility-based, those who market the cards and outsource
their network needs to facility-based companies that resell
prepaid phone card network services through its own service
bureau. The Company is a facility-based card issuer.
The growth of the prepaid phone card market has been
extraordinary. According to industry research, the US
market was about $500,000 in 1992 and grew to $500 million
by 1994. In 1996, the US prepaid calling card market
surpassed the billion-dollar mark, exceeding all
expectations of industry and analysts. A report released in
early 1997 by Atlantic-ACM, a Boston-based market research
firm that tracks the telecommunications industry, predicted
the sales of prepaid cards would reach $2.5 billion by the
millenium. Later in 1997, due to unanticipated sales growth
within the retail segment, Atlantic-ACM increased its long-
term forecast by more than 50%. The research firm now
estimates overall revenues for prepaid phone cards to be
$2.7 billion in 1997 and $4.3 billion by 2001.
Internet Connectivity Services
Even though the Internet's roots date back to a 1960s US
Department of Defense network project, it wasn't until the
mid-1990s that its mass acceptance and communications
potential exploded. In 1997, an American Internet Usage
Survey estimated that 31.3 million adults were using the
Internet and 55 million were poised to become Internet
users within the next few years.
As users continue to benefit from their use of the
Internet, the need for bigger, safer, faster connections
has also increased. Consumers, who previously used the
Internet as a novelty for entertainment purposes have now
become dependent on it for research and communications.
Many businesses have found a connection to the Internet to
be as important as a telephone and a fax machine when
communicating with their customers and suppliers.
According to a 1997 research report by International Data
Corporation (IDC), Internet connectivity is estimated to be
a $1 billion business in 1997, with revenue expectations
projected to be $4 billion by 2000.
In addition to research and communication, the Internet and
specifically IP telephony is presenting numerous
alternatives for transporting important data and
communications. Experts believe that in just the next few
years these alternative technologies will handle 34% of the
traffic currently running over existing telecommunications
networks.
Even though the Company offers a premium Internet
connectivity service to commercial clients, the Company's
Internet connectivity sales are used to subsidize its
ongoing research and development of applications that will
allow it to benefit from as well as develop for sale
emerging concepts and technologies relating to Internet
Protocol (IP) or IP telephony.
IP Telephony
IP telephony is now in its infancy but, by all indications,
will quickly become a major factor in the
telecommunications industry. IP telephony is the
convergence of CTI (Computer Telephony Integration) with
the Internet. The resulting products and services enhance
both the telephony and computer environments and also
create new hybrid applications. A sampling of existing CTI
technologies and applications include intelligent PBXs
(Private Branch Exchanges), IVR (Interactive Voice
Response), ACDs (Automatic Call Distribution centers), fax
servers, voice mail and messaging, cellular phone services,
modems and ISDN.
These new IP telephony applications include PC-to-PC
connections, PC-to-phone connections, and phone-to-phone
connections. IP telephony applications include voice over
the Internet and intranets, fax traffic, Web enabled IVR,
Unified Messaging and more.
Some specific applications include:
Voice Applications. IP-based networks can be used to
carry voice in real-time. This capability is provided
through the use of "packetization," where the voice
is digitized and transmitted over the Internet in
packets. The cost, particularly for international
calls can be 90% less than that of placing a regular
long distance call. In addition, voice by-pass
increases the number of lines available so those users
with only a single phone line can now make voice calls
while on the internet.
Fax Applications. Like voice by-pass, fax by-pass
converts fax signals into "packetized" data. As a
result, fax by-pass can dramatically cut the cost of
sending long distance faxes, especially overseas, by a
factor of 10 or more, without the need for end users
to purchase additional equipment.
ACD/Call Center Integration with the Web. Call centers
queue and connect incoming telephone calls to service
staff who usually have computers at their desks
providing sales and product information.
Unified Messaging Delivery via the Web. Unified
messaging with IP telephony allows a user to access
multiple media types (voice, fax, e-mail) and multiple
systems, all through a Web browser and, by
implication, from across the Internet.
Conferencing. IP telephony enables networked computer
users to conduct one-on-one, one-to-many and many-to-
many conferences, greatly reducing the cost of
conference calls.
Internet-Enabled IVR. IVR can be integrated with Web
technology, allowing users to navigate IVR menus from
their Web browsers instead of their telephone
handsets. Existing IVR resources can be made
available through Web tools and the Internet.
According to Jupiter Communication, an Internet marketing
consulting firm, the key issues in IP telephony include
voice quality, potential government regulations, standards,
and scalability. Even so, IP telephony holds the promise to
enhance existing methods of communications, while creating
new information delivery methods, applications and market
opportunities.
A recent Frost & Sullivan study estimates the total
Internet equipment market to grow to $47 billion by 2002.
This represents only the hardware involved in provisioning
Internet activity such as modems, firewalls, storage
systems, and servers. IDC estimates that the size of the IP
telephony market, including related software for IP
telephony and fax server equipment, and revenues generated
by IP telephony use to rapidly grow to $1 billion by 1999.
A recent Probe Research report estimates that by 2005, 34%
of all telephony traffic (representing potentially hundreds
of billions of dollars) will run across some type of IP
network.
In 1998, the Company expects to begin marketing its first
IP telephony based service an international fax by-pass
service that will dramatically cut the cost of sending
international faxes from the Company's gateway countries
to the US.
Switch Platform Services
As the telecommunications industry and product offerings
have changed, so have the networks that process the
communication. Until recently, telecom companies used
massive switch networks that could perform the more
routine, and most needed services predominantly
connecting one caller with another caller. However, with
the influx of new services voice, data, fax, video,
conferencing, etc. more sophisticated and flexible
switching technology is required.
Today's more robust switching technology is most often
achieved using PC-based platforms or switch-based
platforms. PC-based platforms are composed of standard PCs
equipped with specialized hardware and software to provide
the necessary functionality. PC-based platforms are
generally sufficient to meet the needs of organizations
with a moderate call volume and switching needs. The
significantly more expensive switch-based platforms, which
are built around a programmable switch, provide a
platform naturally suited to high call volume environments
and afford virtually unrestricted switching flexibility.
Most telecom companies prefer switch-based platforms. And,
even when a company can afford to purchase switch hardware
manufactured by companies like Excel, Harris, Summa Four,
Siemens, NEC and Lucent Technologies acquiring software
to control the switch, installation and maintenance are up
to the customer.
The abundance of new telecommunications companies combined
with those existing companies that need to upgrade their
networks to offer the new services, is creating an
opportunity for companies which have developed their own
proprietary switching platform. Adding to the demand is the
fact there are only a limited number of companies that
provide this required switching expertise.
It appears the world market for intelligent telephony
solutions is immense. According to information obtained
from Cabling Installation & Maintenance Magazine, CTI
software and expertise is one of the fastest growing
service sectors. The potential telephony market industry
which would have an application for the proprietary
technology the Company is developing is estimated to be
$6.3 billion in 1997 and $13.4 billion by 2000.
The Company's goal is to become an Excel VAR (Value Added
Reseller) by the end of 1998.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company principally derives its revenues from the sale
of interactive voice response/voice processing services to
Direct Sales Organizations. These customized voice
processing systems allow each member of a national or
international sales organization a method by which the
response from a large advertising campaign can be handled
24 hours a day and pertinent data reported to their
membership almost instantly. The Company generally
requires its customers to establish a minimum account
balance prior to receiving voice mail service. The Company
recognizes revenues as services are rendered. Account
balances in excess of services rendered are recorded as
deferred revenue. Account balances without activity for
180 days are treated as revenue.
Effective April 1, 1997, the Company acquired 80% of the
outstanding stock of One Plus Marketing, Inc. (the
Acquisition) for 5,837,503 shares of the Company's common
stock. The Acquisition was accounted for as a reverse
acquisition in accordance with APB No. 16 Business
Combinations. As such, One Plus Marketing, Inc. is
considered the accounting acquiror. The historical
financial statements prior to April 1, 1997 are those of
One Plus Marketing, Inc.
RESULTS OF OPERATIONS AND CASH FLOWS
The following table sets forth certain financial data of
the Company for the years ending December 31, 1997 (pro
forma) and 1996. Note that since the Acquisition has been
accounted for as a reverse acquisition, the 1997 results
reflect the three-month period ended March 31, 1997, for
One Plus combined with the Company's nine-month period
ended December 31, 1997.
(Unaudited) (Unaudited)
1996 1997
Net revenues $3,568,167 $1,927,142
Costs and expenses:
Cost of sales 1,969,358 1,077,090
Selling, general and administrative 1,418,250 442,359
Total costs and expenses 3,387,608 1,519,449
Operating income 180,559 407,693
Other expense (income)--net 50,566 (13,493)
Income before income tax benefit and
minority interest 129,993 421,186
Tax benefit (885) --
Income before minority interest 130,878 421,186
Minority interest 64,257 --
Net income $ 66,621 $ 421,186
(Unaudited) (Unaudited)
1996 1997
Cash flows from operating activities:
Net income $ 66,621 $ 421,186
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation and amortization 70,594 26,235
Minority interest in earnings of
subsidiaries 64,257 --
Deferred tax benefit (885) --
Changes in assets and liabilities:
Accounts receivable--net (80,864) (85,185)
Prepaid expenses and other 39,900 (67,041)
Other assets (25,513) --
Accounts payable and accrued expenses (267,805) 30,313
Deferred revenue 77,441 254,520
Net cash provided by (used in)
operating activities (56,254) 580,028
Cash flows used in investing activities:
Purchase of property and equipment (76,483) (243,005)
Cash acquired in reverse acquisition 1,052 --
Net cash used in investing activities (75,431) (243,005)
Cash flows provided by financing activities:
Shareholder distributions (94,424) --
Payments on capital leases (1,961) --
Purchase of stock for treasury (9,712) --
Common stock canceled (7) --
Net cash used in financing activities (106,104) --
Net increase (decrease) in cash and cash
equivalents (237,789) 337,023
Cash and cash equivalents:
Beginning of year 426,589 89,566
End of year $ 188,800 $ 426,589
Prior to April 1, 1997, One Plus was an S Corporation for
tax purposes and the One Plus' stockholder elected to be
treated as an S Corporation under provisions of the
Internal Revenue Code which provides that, in lieu of
corporate income taxes, the stockholder is taxed for the
Company's taxable income. Therefore, no provision or
liability for federal and state income taxes is reflected
in the financial data for periods prior to April 1, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
NET REVENUES. Net revenues increased $1,641,025 or 85%
from $1,927,142 in 1996. Revenues are primarily generated
from the Company's interactive voice response products and
services. The Company currently has in excess of 15,000
subscribers on the One Plus network which handles more than
one million calls per month. At December 31, 1996, the
Company had approximately 6,000 subscribers on the One Plus
network handling more than 700,000 per calls per month.
COST OF SALES. Cost of sales increased $892,268 or 83%
from $1,077,090 in 1996. The cost of sales percentage to
net revenues decreased from 56% to 55%, thus gross profit
margin increased correspondingly. Cost of sales primarily
represents the long distance minutes purchased to service
the interactive voice response products and services. The
Company purchases long distance minutes from a highly
competitive service market. In late fourth quarter 1997,
the Company was able to renegotiate its long distance per
minute rate with its current service provider. The Company
expects its interactive voice response gross profit
percentage to increase between 1 and 2 percent in 1998 as a
result of its affiliation with its long distance service
provider.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased $975,891 or 121% from
$442,359 in 1996. The selling, general and administrative
percentage to net revenues increased to 40% from 23%. The
primary reasons for the increase was attributable to the
re-engineering and restructuring of the Company in the
third and fourth quarters of 1997, combined with the
additional costs of administrative support functions to
enhance the management of the Company.
OTHER EXPENSE (INCOME), NET. Other expense (income), net
increased $64,059 from income of $13,493 in 1996. The
primary reason for the increase was attributible to the
Company's re-engineering and restructuring costs in the
third and fourth quarters of 1997.
MINORITY INTEREST. Minority interest increased $64,257 from
no activity in 1996. Minority interest represents a 20%
ownership interest in the Company's subsidiary One Plus
owned by the major stockholder of the Company.
NET INCOME. As a result of the foregoing, net income for
the year ended December 31, 1997, decreased by $345,565 or
84% compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
During 1997, the Company had net cash flows used by
operating activities of $56,254 as compared to net cash
provided by operating activities of $580,028. Effective
with the reverse merger acquisition of One Plus, the
Company assumed an immediate increase in accounts payable
and accrued expenses of $1,150,960. Cash from operations
was used to reduce these liabilities.
Cash Flows from Investing Activities
During 1997 and 1996, the Company used $76,483 and $243,005
for purchases of property and equipment related principally
to support the Company's interactive voice response
operations.
The Company's total budgeted capital expenditures,
including acquisitions, are currently anticipated to be
approximately $1.5 million during 1998 in connection with
the purchase of strategic interactive voice response and
prepaid phone card operations, the minority interest of One
Plus and enhanced phone card computer system upgrades. The
Company expects to fund these expenditures through equity
financing and bank borrowings. Although management
anticipates that the Company will continue to expand, there
can be no assurances that the Company's expansions plans
will not be adversely affected by competition, market
conditions, or changes in laws or government regulations
affecting telecommunication businesses.
Cash Flows from Financing Activities
The Company maintains a $100,000 secured revolving credit
arrangement with a bank that bears interest at the bank's
prime rate plus one percent (prime was 8.5% at December 31,
1997) and expires on April 24, 1998. The Company has
pledged its assets as security for the existing
indebtedness. At December 31, 1997, the entire credit
arrangement available has been used by the Company. The
Company is currently reviewing its short and long-term debt
financing and expects to implement more favorable debt
financing in the first and second quarters of 1998.
SUBSEQUENT EVENTS
On February 18, 1998, the Company announced the signing of
a definitive agreement to acquire 100% of the outstanding
shares of Channel Telecom Inc., (Channel) headquartered
in Toronto, Canada. Channel is the fourth largest
facility-based provider of prepaid calling cards in Canada.
The transaction had been approved by the Company's Board of
Directors and is expected to be ratified at the Company's
Annual Meeting of Shareholders.
Under the terms of the agreement, the Company will exchange
approximately 3.8 million shares, adjusted for certain
events, of Company common stock and $175,000 in cash for
all of Channel's outstanding shares. The transaction is
expected to close in April 1998 with an effective date of
January 1, 1998.
IMPACT ON INFLATION
Management believes that the Company's results of
operations are not dependent upon the levels of inflation.
PLAN OF OPERATION
Management believes that it can continue to fund its
operations at current revenue levels. However, management
has planned an aggressive future revenue growth plan
through acquisitions and increased market shares and thus,
expects to complete a private placement in the second
quarter of 1998 to provide additional funds for working
capital, property and equipment purchases and acquisitions
that compliment the Company's strategic goals and
objectives.
FORWARD LOOKING STATEMENTS
Statements included in this Management's Discussion and
Analysis and elsewhere in this Form 10-SB, in future
filings by the Registrant with the Securities and Exchange
Commission and in the Registrant's press releases and oral
statements made with the approval of authorized executive
officers, if the statements are not historical or current
facts, should be considered "forward-looking statements"
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements
are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical
earnings and those presently anticipated or projected.
Registrant wishes to caution the reader not to place undue
reliance on any such forward-looking statements, which
speak only as of the date made.
ITEM 3: DESCRIPTION OF PROPERTIES
The Company operates its interactive voice response and
prepaid phone cards through leased offices located in St.
Louis, Missouri and Edwardsville, Illinois, USA, and upon
completion of the Channel acquisition, will have leased
offices in Toronto, Ontario, and Vancouver, British
Columbia.
The Company believes its facilities have generally been
well maintained, are in good operating condition and are
adequate for the Company's current requirements.
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of shares of the
Company's Common Stock owned by each person who, as of
December 31, 1997, and adjusted was known by the Company to
oun beneficially more than 5% of its outstanding Common
Stock and the ownership of all Executive Officers and
Directors of the Company, individually and as a group.
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned(1) Class
Scott A. Beil,
700 North Second Street
St. Louis, Missouri 63102 5,837,012 73.6%
Anthony W. Hitt
700 North Second Street
St. Louis, Missouri 63102 1,005,391 12.7%
Officers and Directors as
a Group 5,837,012 73.6%
_________________
(1) As of December 31, 1997, the Company had outstanding
7,923,764 shares of Common Stock.
ITEM 5: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets forth certain information
concerning the directors, advisory directors and key
management of the Company:
Name Position Age
Scott A. Beil Chairman & Chief Operating Officer/Director 29
Rajan Arora President & Chief Executive Officer/Director 33
David B. Parks Executive Vice President, Chief Financial
Officer & Corporate Secretary/Director 32
Jeffrey Shier Executive Vice President, Sales & Marketing/
Proposed Director 36
Ronald K. Mann Proposed Director 47
Scott A. Beil, Chairman and Chief Operating Officer/Director
Scott A. Beil founded One Plus Marketing, Inc., a
telecommunications and voice processing company in 1991,
where he has been employed since its founding. In addition
to developing a unique sales and marketing approach that
resulted in doubling in size every year since inception,
Mr. Beil designed, built and managed the proprietary PC-
based network that continues to handle the Company's call
volume today.
In April 1997, the Company acquired 80% of One Plus
Marketing, Inc. At that time Mr. Beil became the Company's
Chairman and CEO. In the year since the acquisition, Mr.
Beil has successfully recruited and led a team of
professionals who will be responsible for the aggressive
growth plans of the Company.
To date, Mr. Beil has personally designed the technical
specifications and guided the programmers who are
responsible for research and development of the Company's
new, proprietary telco-grade Excel switch-based platform.
With the acquisition of Channel Telecom, Mr. Beil will
continue to act as Chairman and focus more intensely on the
development and management of the state-of-the-art
switching platform as well as other emerging technologies
that will lead the Company into the next century. In
addition to overseeing design, development and provision of
the technology solutions that form the Company's technology
infrastructure; Mr. Beil remains active in the day-to-day
operations and financial aspects of the Company.
Mr. Beil earned his Bachelor of Science degree in
Electrical Engineering from the University of Illinois.
Rajan Arora, President & Chief Executive Officer/Director
Rajan Arora co-founded Channel Telecom Inc., now Canada's
fourth largest facility-based prepaid phone card company,
in 1994. Mr. Arora has been instrumental in the development
and implementation of the strategic plan that has
successfully gained Channel national, and now
international, attention and market share.
The Company expects to close on the acquisition of Channel
Telecom Inc. in April of 1998. Mr. Arora has become the
Company's president and Chief Executive Officer and a
member of the Company's Board of Directors. In this
position, Mr. Arora is assisting the Company in the
completion of its new strategic business plan. Mr. Arora
will now oversee the implementation of the Company's
aggressive plan that includes internal sales growth, growth
through acquisitions and development of a significant
international market for several new services.
From 1990 to 1993, Mr. Arora was Vice President of Finance
for Madison Avenue Partners, Ltd., a sports and promotional
marketing company. Prior to that, Mr. Arora was a Manager
at the public accounting firm of Price Waterhouse in
Toronto.
Mr. Arora earned his Bachelor of Arts degree in Economics
and Commerce from the University of Toronto and is a member
of the Institute of Chartered Accountants of Ontario.
David B. Parks, Executive Vice President, Chief Financial
Officer & Corporate Secretary/Director
David B. Parks became the Company's Executive Vice
President and Chief Financial Officer in January 1998. In
March of 1998, Mr. Parks was elected to Corporate Secretary
and Director of the Company.
Prior to joining the Company, Mr. Parks spent eight years
with the public accounting firm of Arthur Andersen, LLP. As
an Audit Manager, his client responsibilities included
significant public company reporting.
After leaving public accounting, he held the positions of
Director of Internal Audit for a Fortune 500 company and
Vice President and Chief Financial Officer for a large
privately held real estate holding company that was
acquired by a publicly traded REIT.
Mr. Parks earned his Bachelor of Science degree in
Accounting from the University of Missouri and is a
Certified Public Accountant.
Jeffrey Shier, Executive Vice President, Sales &
Marketing/Proposed Director
Jeff Shier co-founded Channel Telecom, Inc. with Rajan
Arora in 1994. Mr. Shier's strong sales and marketing
background has been integral in Channel building one of
Canada's largest retail distribution networks for prepaid
phone cards. Mr. Shier is expected to become a Director of
the Company upon the closing of the Company's acquisition
of Channel Telecom Inc.
Prior to his involvement in Channel Telecom Inc., Mr. Shier
formed what has become Canada's largest supplier of high-
end sports related memorabilia and collectibles. Mr.
Shier's experience in the sports and entertainment
memorabilia industry has crossed over to his role at
Channel, and now the Company. Recently, Mr. Shier
negotiated a worldwide exclusive agreement to market
collectible prepaid phone cards featuring the world famous
Rolling Stones.
As the Company's Executive Vice President, Sales &
Marketing, Mr. Shier will continue to increase Channel's
Canadian phone card market share by doubling the size of
the sales organization and expanding the Company's
predominantly central market presence to nationwide
coverage. Mr. Shier will also play an important role in the
US replication of Channel's Canadian phone card marketing
success, the introduction of several emerging technology
services in Canada and the Company's international
expansion.
From 1988 to 1990, Mr. Shier was Director of Arbitrage at
Counsel Capital Corporation in Toronto.
Mr. Shier earned his Bachelor of Arts degree in Economics
from the University of Western Ontario.
Ronald K. Mann, Proposed Director
Ronald Mann is a practicing attorney in Toronto, Canada.
Mr. Mann has acted as a financial consultant for Channel
Telecom Inc. since its inception in 1994. Mr. Mann is
expected to become a Director of the Company upon the
closing of the Company's acquisition of Channel Telecom
Inc.
Mr. Mann has served as a member of the Board of Directors
for American Eco Corporation, a publicly traded company on
the NASDAQ and TSE exchanges. Mr. Mann has also been
involved in investment and merchant banking throughout
Canada, the United States and several international
locations.
From 1987 to 1989, Mr. Mann was Assistant General Manager
of Corporate Finance for the Canadian Imperial Bank of
Commerce in Toronto, and Chief Financial Officer and
Director of CIBC Securities, Inc., in Toronto.
Mr. Mann earned his Bachelor of Law degree from the
University of Toronto.
ITEM 6: EXECUTIVE COMPENSATION
The following table sets forth certain information
concerning executive compensation of the Company:
Name And Other Restricted Securities LTIP All
Principal Annual Stock Underlying Pay- Other
Position Year Salary Bonus Comp. Awards Options Outs Comp.
(a) (b) ($)(c) ($)(d) ($)(e) ($)(f) SARS (#)(g) ($)(h) ($)(i)
Scott Beil
Chairman
and CEO 1997 $42,005(1)-- -- -- -- -- --
199 $28,000 -- -- -- -- -- --
(1) Amount represents salary for the period from January 1 through
December 31, 1997
No compensation was paid or accrued by the Company to its Executive
Officers in excess of $100,000 for the years ended December 31, 1997 and 1996.
ITEM 7: CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
Not Applicable.
ITEM 8: DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of
12,500,000 shares of Common Stock, $0.004 par value (the
Common Stock) and 5,000,000 shares of Preferred Stock,
$0.001 par value (the Preferred Stock).
The following summary of certain provisions of the Common
Stock and Preferred Stock does not purport to be complete
and is subject to, and qualified in its entirety by, the
provisions of the Company's Certificate of Incorporation
and applicable law.
COMMON STOCK
At December 31, 1997, there were 7,931,014 and 7,923,764
shares of Common Stock issued and outstanding and held of
record by approximately 350 stockholders. Each holder of
Common Stock is entitled to one vote for each share held
and the holders of the Company's 8% Convertible Preferred
Stock are entitled to vote that number of shares of Common
Stock into which their shares of Preferred Stock are
convertible. Matters submitted for stockholder approval
generally require a majority vote.
Holders of Common Stock are entitled to received ratably
such dividends as may be declared by the Company's Board of
Directors out of funds legally available therefor, provided
that no dividends may be paid until all cumulated dividends
have been paid on the Company's 8% Convertible Preferred
Stock. In the event of liquidation, dissolution or winding
up of the Company, holders of Common Stock would be
entitled to share in the Company's assets remaining after
the payment of liabilities and the satisfaction of any
liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive or other subscription rights. The
shares of Common Stock are not convertible into any other
security. The outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Company's Preferred Stock may be issued in series, and
shares of each series will have such rights and preferences
as are fixed by the Company's Board of Directors in the
resolutions authorizing the issuance of that particular
series. In designating any series of Preferred Stock, the
Company's Board of Directors may, without further action by
the holders of Common Stock, fix the number of shares
constituting that series and fix the dividend rights,
dividend rate, conversion rights, voting rights, rights and
terms of redemption (including any sinking fund provisions)
and the liquidation preference of the series of Preferred
Stock.
At December 31, 1997, the Company had outstanding 1,144,143
shares of Preferred Stock designated as 8% Convertible
Preferred Stock. Such outstanding shares have a
liquidation preference of $0.80 per share, a cumulative
dividend of $0.80 per share and a conversion right into
Common Stock at the rate of four shares of Preferred Stock
for one share of Common Stock. The outstanding shares of
Preferred Stock have voting rights equivalent to the number
of shares of Common Stock into which they are convertible
and under some circumstances are callable by the Company at
$0.85 per share.
Certain Statutory and Charter Provisions
Section 203 of the Delaware General Corporation Law
(DGCL) provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting shares of a
corporation subject to the statute (an Interested
Stockholder) but less than 85% of such shares may not
engage in certain Business Combinations with the
corporation for a period of three years subsequent to the
date on which the stockholder became an Interested
Stockholder unless (i) prior to such date the corporation's
Board of Directors approved whether the Business
Combination or the transaction in which the stockholder
became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's Board of
Directors and authorized by a vote of at least two-thirds
of the outstanding voting stock of the corporation not
owned by the Interested Stockholder.
Section 203 of the DGCL defines the term Business
Combination to encompass a wide variety of transactions
with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit
on other than a pro rata basis with other stockholders,
including mergers, certain asset sales, certain issuances
of additional shares to the Interested Stockholder,
transactions with the Company which increase the
proportionate interest of the Interested Stockholder or
transactions in which the Interested Stockholder receives
certain other benefits.
These provisions could, in addition to the FCC Rules, have
the effect of delaying, deferring or preventing a change in
control of the Company. The Company's stockholders, by
adopting an amendment to the Certificate of Incorporation
or Bylaws of the Company, may elect not to be governed by
Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws of
the Company currently excludes the Company from the
restrictions imposed by Section 203.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's Common
Stock is ChaseMellon Shareholder Services.
PART II
ITEM 1: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
The following table sets forth the high and low sale prices
of the Common Stock as reported by NASDAQ since April 1,
1997:
High Low
Quarter ended June 30, 1997 3 3/8 1 1/8
Quarter ended September 30, 1997 2 7/16 7/8
Quarter ended December 31, 1997 2 1/8 7/8
On March 16, 1998, the last reported sale price of Common
Stock on the NASDAQ was $1.00 per share.
DIVIDENDS
The Board of Directors has not declared any cash dividends
on the Company's Common Stock. The Board of Directors does
not currently intend to declare any cash dividends in the
foreseeable future.
ITEM 2: LEGAL PROCEEDINGS
The Company is involved in various legal proceedings
incidental to the conduct of its business. Management
believes that none of these legal proceedings will result
in any material impact on the Company's financial condition
or results of operations.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
Preferred Stock
During the period from June through December of 1996, the
Company sold 1,051,250 shares of 8% Convertible Preferred
Stock for $841,000. The Preferred Stock is convertible at
four shares of Preferred Stock for one share of Common
Stock. In December of 1997, 12,500 shares of Preferred
Stock were converted to 3,125 shares of Common Stock at an
approximate market value of $3,125.
All of the Preferred Stock was all sold in transactions
exempt from registration under Regulation D and Section
4(2) of the Securities Act of 1933, as amended (the 1933
Act). The Company believes that issuance of Common Stock
upon conversion of Preferred Stock was exempt from
registration under Section 4(2) of the 1933 Act.
Common Stock
In 1997, the Company issued 17,500 shares of Common Stock
with an approximate fair market value of $21,719 to one
individual in lieu of compensation for services rendered.
In 1996, the Company issued 832,072 shares of Common Stock
with an approximate fair market value of $1,178,713 to
various individuals in lieu of compensation for services
rendered. In 1995, the Company issued 13,302 shares of
Common Stock with an undeterminable fair market value to
various individuals in lieu of compensation for services
rendered.
In 1997, options to purchase 125 shares of Common Stock
were exercised by an individual at $0.40 per share.
The Company believes that the above mentioned issuances of
Common Stock were exempt from registration under Section
4(2) of the 1933 Act.
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that to
the fullest extent permitted by Delaware law, a Director of
the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary
duty as a Director. Under current Delaware law, liability
of a Director may not be limited (i) for any breach of the
Director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions by the Director
not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) in respect of certain
unlawful dividend payments or stock redemptions or
repurchases; and (iv) for any transaction from which the
Director derives an improper personal benefit. The effect
of this provision of the Company's Certificate of
Incorporation is to limit or eliminate the rights of the
Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover
monetary damages against a Director for breach of the
fiduciary duty of care as a Director including breaches
resulting from negligent or grossly negligent behavior)
except in those circumstances described in clauses (I)
through (iv) above. This provision does not limit or
eliminate the rights of the Company or any stockholder to
seek nonmonetary relief such as an injunction or recession
in the event of a breach of a Director's duty of care. In
addition, The Company's Certificate of Incorporation and
Bylaws provide that the Company shall indemnify its
Directors, Officers, employees and agents to the fullest
extent permitted by Delaware law.
The Company's Bylaws provide that the Company shall
indemnify its Officers and Directors to the fullest extent
permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under
Delaware law. The Company intends to obtain Director and
Officer (D&O) liability insurance with respect to
liabilities arising out of certain matters, including
matters arising under the 1933 Act.
At present, there is no pending litigation or proceeding
involving any Officer or Director, employee or agent of the
Company where indemnification will be required or
permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for
such indemnification.
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of HitCom Corporation:
We have audited the accompanying consolidated balance sheet
of HitCom Corporation (a Delaware corporation) and
subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the nine-month period ended
December 31, 1997. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of HitCom Corporation and
subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for the nine-month
period ended December 31, 1997, in accordance with
generally accepted accounting principles.
MOORE STEPHENS SMITH WALLACE LLC
St. Louis, Missouri
February 17, 1998
HITCOM CORPORATION
___________
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
ASSETS
December 31, 1997
Current assets:
Cash and cash equivalents ......................... $188,800
Accounts receivable--net of allowance
for doubtful accounts of $6,949 ................... 110,066
Prepaid expenses and other ........................ 6,162
Total current assets .............................. 305,028
Property and equipment--net ....................... 336,967
Other assets ...................................... 52,473
Total ......................................... $694,468
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, 1997
Current liabilities:
Revolving line of credit .......................... $100,000
Current portion of long-term obligations .......... 59,766
counts payable and accrued expenses ............... 678,898
Deferred revenue .................................. 429,362
Total current liabilities .................... 1,268,026
Long-term obligations, less current portion ...... 14,658
Commitments and contingencies
Minority interest ................................. 166,107
Stockholders' equity (deficit):
Preferred stock, $.001 par value--5,000,000 authorized;
1,144,143 issued and outstanding ............. 1,144
Common stock, $.004 par value--12,500,000 authorized;
7,931,014 issued; 7,923,764 outstanding ...... 31,724
Additional paid in capital ...................... (1,139,904)
Retained earnings 372,509
Treasury stock at cost ............................ (19,796)
Total stockholders' equity (deficit) ............ (754,323)
Total .......................................... $ 694,468
See accompanying notes to financial statements.
HITCOM CORPORATION
___________
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE-MONTH
PERIOD ENDED DECEMBER 31, 1997
For the Nine-month
Period Ended
December 31, 1997
Net revenues .................................. $2,732,377
Costs and expenses:
Cost of sales ................................ 1,440,524
Selling, general and administrative .......... 1,242,901
Total costs and expenses .................. 2,683,425
Operating income ............................... 48,952
Other expense--net ............................. 55,041
Loss before income tax benefit and minority
interest ...................................... (6,089)
Tax benefit .................................... (885)
Loss before minority interest ................. (5,204)
Minority interest .............................. 64,257
Net loss ....................................... ($69,461)
Basic loss per share ........................... $ (0.01)
Weighted average number of common shares
outstanding ................................... 7,921,458
See accompanying notes to financial statements.
HITCOM CORPORATION
___________
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE-MONTH PERIOD ENDED DECEMBER 31, 1997
Preferred Stock Common Stock
Shares Amount Shares Amount
Balance,
March 31,1997 ......... -- -- 100 --
Issuance of common
stock in acquisition .. -- -- 5,837,503 (23,350)
Recapitalization
adjustment .......... -- -- (100) --
Acquired deficit in
stock acquisition ... 1,072,543 1,073 2,074,537 8,298
Preferred stock
converted to common
stock ................. (12,500) (13) 3,125 (13)
Preferred stock
dividends ............. 84,10 84 -- --
Common stock issued ... -- -- 17,500 70
Common stock
canceled .............. -- -- (1,776) (7)
Stock options
exercised ............. -- -- 125 --
Repurchase of common
stock ................. -- -- -- --
Net loss .............. -- -- -- --
Balance,
December 31, 1997 ..... 1,144,143 1,144 7,931,014 31,724
continued
Additional Retained Treasury Total
Paid in Earnings/ Stock
Capital (Decifit)
Balance
March 31, 1997......... -- 509,250 -- 509,250
Issuance of Common
stock in stock
acquisition............ (23,350) -- -- --
Recapitalization
adjustmemt ............ -- -- -- --
Acquired deficit in
stock acquisition ..... (1,205,399) -- (10,084)(1,206,112)
Preferred stock
converted to common
stock ................. -- -- -- --
Preferred stock
dividends ............. 67,196 (67,280) -- --
Common stock issued ... 21,649 -- -- 21,719
Common stock canceled . -- -- -- (7)
Stock options exercised -- -- -- --
Repurchase of common
stock ................. -- -- (9,712) (9,712)
Net loss .............. -- (69,461) -- (69,461)
Balance,
December 31, 1997 ..... (1,139,904) 372,509 19,796 (754,323)
See accompanying notes to financial statements.
HITCOM CORPORATION
___________
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE-MONTH
PERIOD ENDED DECEMBER 31, 1997
For the Nine-month
Period-ended
December 31,1997
Cash flows from operating activities:
Net loss ................................ ($69,461)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ........... 57,487
Minority interest in earnings of
subsidiaries ........................... 64,257
Deferred tax benefit ................... (885)
Changes in assets and liabilities:
Accounts receivable--net ........... 130,002
Prepaid expenses and other ......... (190)
Other assets ....................... (25,513)
Accounts payable and accrued
expenses .......................... (672,295)
Deferred revenue ................... (4,750)
Net cash used in operating
activities ...................... (521,348)
Cash flows used in investing activities:
Purchases of property and equipment .... (43,430)
Cash acquired in reverse acquisition ... 1,052
Net cash used in investing
activities ..................... (42,378)
Cash flows used in financing activities:
Payments on capital leases ............. (1,961)
Purchase of stock for treasury ......... (9,712)
Common stock canceled .................. (7)
Net cash used in financing
activities ..................... (11,680)
Net decrease in cash and cash equivalents (575,406)
Cash and cash equivalents:
Beginning of period...................... 764,206
End of period ........................... 188,800
Supplemental cash flow disclosures:
Cash paid for interest during the period. 10,276
Cash paid for taxes during the period 0
Property and equipment acquired under a
capital lease amounted to $15,035.
During the nine-month period ended
December 31, 1997, 17,500 shares of
common stock were issued in exchange for
services valued at $21,719.
See accompanying notes to financial statements.
HITCOM CORPORATION
___________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Organization and Description of Business
HitCom Corporation (the Company) was incorporated under
the laws of the state of Delaware in 1982. Prior to
March 31, 1997, the Company's primary operations were
Internet marketing services. With the acquisition of 80%
of One Plus Marketing, Inc. on April 1, 1997, (see Note
3), the Company became a facility-based
telecommunications company that provides enhanced
communication products and services to businesses and
customers. The Company's customers are located within
North America without a significant geographic
concentration.
2. Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles. The consolidated financial statements
include the Company and its wholly-owned and majority-
owned subsidiaries. Intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from
those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investment securities
purchased with an original maturity date of three months
or less to be cash equivalents. At times, cash balances
held at financial institutions were in excess of FDIC
insurance limits. The Company believes that no
significant concentration of credit risk exists with
respect to these cash investments.
Property and Equipment
Property and equipment is stated at cost. Depreciation
and amortization is computed using the straight-line
method over estimated useful lives ranging from five to
ten years.
Revenue Recognition
The Company generally requires its customers to establish
a minimum account balance prior to receiving services.
The Company recognizes revenue as services are rendered.
Account balances in excess of services rendered are
recorded as deferred revenue. Account balances without
activity for 180 days are recorded to revenue.
2. Significant Accounting Policies - Continued
Income Taxes
The Company has implemented the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. SFAS No. 109 utilizes an
asset and liability approach and deferred taxes are
determined based on the estimated future tax effects of
differences between the financial statement and tax bases
of assets and liabilities given the provisions of the
enacted tax laws.
In accordance with the provisions of SFAS No. 109, a
valuation allowance should be recognized if it is more
likely than not that some portion or all of a deferred
tax asset will not be realized.
Earnings/Loss Per Common Share
The Company has implemented the provisions of SFAS No.
128, Earnings per Share. SFAS No. 128 simplifies the
computation of earnings per share (EPS) by replacing
the presentation of primary EPS with a presentation of
basic EPS. Basic EPS is calculated by dividing income or
loss available to common stockholders by the weighted
average number of common shares outstanding during the
period. Options, warrants, and other potentially
dilutive securities are excluded from the calculation of
basic EPS. Diluted EPS includes the options, warrants
and other potentially dilutive securities that are
excluded from basic EPS.
The Company has options and warrants on 95,950 shares of
common stock and preferred stock convertible into 349,111
shares of common stock. Diluted EPS has not been
presented as the effects of the options, warrants and
convertible preferred stock are antidilutive.
Impairment of Long Lived Assets
The Company evaluates whether events and circumstances
have occurred that indicate the remaining estimated
useful life of long lived assets may warrant revision or
that the remaining balance of an asset may not be
recoverable. The measurement of possible impairment is
based on the ability to recover the balance of assets
from expected future operating cash flows on an
undiscounted basis. In the opinion of management, no
such impairment exists at December 31, 1997.
Software Development Costs
All internal costs of computer software development
related to the Company's systems are expensed as
incurred.
2. Significant Accounting Policies - Continued
Fair Values of Financial Instruments
Management believes that the carrying values of all
financial instruments approximate their fair values.
Stock-Based Compensation Plans
The Company adopted SFAS No. 123, Accounting for Stock-
Based Compensation, on January 1, 1996, for financial
note disclosure purposes and will continue to apply the
intrinsic value method of Accounting Principles Board
Opinion No. 25 for financial reporting purposes. See
Note 8 Stockholders' Equity (Deficit).
New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 is effective for fiscal years beginning after
December 15, 1997. Earlier application is permitted.
Reclassification of financial statements for earlier
periods provided for comparative purposes is required.
The Company is in the process of determining its
preferred format. The adoption of SFAS No. 130 will have
no impact on the Company's results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS
No. 131 changes how operating segments are reported in
annual financial statements and requires the reporting of
selected information about operating segments in interim
financial reports issued to stockholders. SFAS No. 131
is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to
be restated. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its
application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No.
131 will have no impact on the Company's results of
operations, financial position or cash flows.
3. Acquisition
Effective April 1, 1997, the Company acquired 80% of the
outstanding common stock of One Plus Marketing, Inc.
(One Plus) for 5,837,503 shares of the Company's common
stock. For accounting purposes, the acquisition has been
treated as a recapitalization of One Plus with One Plus
as the acquiror in accordance with APB No. 16 Business
Combinations. Under the provisions of APB No. 16, the
Company's assets and liabilities were adjusted to fair
value. A summary of net liabilities assumed is as
follows:
Assets acquired:
Cash 1,052
Account receivable--net 578
Prepaid expenses and other 972
Property and equipment 87,123
Other assets 4,123
-------
93,848
Liabilities assumed:
Debt obligations 149,000
Accounts payable and accrued expenses 1,150,960
---------
1,299,960
Net liabilities assumed 1,206,112
4. Property and Equipment
Property and equipment consists of the following:
Computers and electronic equipment 374,571
Software 20,247
Furniture and fixtures 62,627
Total 457,445
Accumulated depreciation and amortization (120,478)
Net property and equipment 336,967
5. Revolving Credit Arrangement
The Company has a $100,000 secured revolving credit
arrangement with a bank that bears interest at the bank's
prime rate plus one percent (prime was 8.5% at December
31, 1997) and expires on April 24, 1998. The Company has
pledged its assets as security for the existing
indebtedness. At December 31, 1997, the entire credit
arrangement available has been used by the Company.
Interest due has been accrued for the revolving credit
arrangement and reflected on the accompanying balance
sheet within accounts payable and accrued expenses.
6. Notes Payable
The Company has several notes payable ranging in
principal values from $1,000 to $15,000 to former
employees and related parties. These notes are unsecured
with interest rates ranging from prime (8.5% at December
31, 1997) plus one percent to 12 percent. Interest due
has been accrued for the notes payable and reflected on
the accompanying balance sheet within accounts payable
and accrued expenses. The following reflects the
aggregate future maturities of notes payable at December
31, 1997:
Year Ended December 31, Amount
1998 $49,000
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses comprised the
following at December 31, 1997:
Amount
Accounts payable 413,023
Employee-related expenses 108,692
Professional fees 75,000
Interest 22,821
Other 59,362
678,898
8. Stockholders' Equity (Deficit)
Preferred Stock
In May 1996, the Company's stockholders approved an
amendment and restatement of the certificate of
incorporation that authorized the future issuance of
1,500,000 shares of 8% convertible preferred stock (the
Preferred Stock), $.001 par value, with rights and
preferences to be determined by the Company's Board of
Directors. The Preferred Stock is convertible at four
shares of the Preferred Stock for one share of common
stock. The Preferred Stock is entitled to an $0.80
liquidation preference subject to certain adjustments
that coincide with the conversion price. The Preferred
Stock accrues dividends at 8% per annum and may be paid
in cash or like kind. Like kind dividends of 84,100
preferred shares were declared and paid in 1997 and are
reflected in the accompanying statement of stockholders'
equity (deficit).
During 1997, 12,500 shares of the Preferred Stock were
converted to 3,125 shares of common stock and are
reflected in the accompanying statement of stockholders
equity (deficit).
Common Stock
On January 20, 1997, the Board of Directors of the
Company authorized a four-for-one reverse stock split.
The split was effected by distributing one share of new
common stock for every four shares of old common stock
outstanding. All shares of old common stock were
canceled. All share data was retroactively adjusted.
Cash was paid in lieu of fractional shares.
Common Stock Disputed
The Company is vigorously disputing 150,000 shares of
common stock (the Disputed Shares) held by a former
officer and director of the Company. The Company asserts
that the former officer and director was erroneously
issued the Disputed Shares without appropriately
fulfilling the conditions for issuance of the Disputed
Shares. As a result of repeated unsuccessful attempts to
recover the Disputed Shares, the Company has demanded
that the former officer and director immediately return
the Disputed Shares. Management believes that the
Disputed Shares will be ultimately returned and canceled
without a material affect on the financial position of
the Company. The Company has not reflected the Disputed
Shares as issued or outstanding in the accompanying
financial statements.
8. Stockholders' Equity (Deficit) Continued
Stock Option Plans
The Company has various stock option agreements that
allow eligible employees, directors and consultants of
the Company to purchase the Company's common stock at
fair market value at the date the option is granted.
Options are granted at the discretion of senior
management and the Board of Directors and generally vest
over periods ranging from one to four years. The options
expire up to ten years from the date the option is
granted.
The following table summarizes stock option activity from
April 1 through December 31, 1997, under the Company's
plans:
Number of Option price
shares per share
Outstanding, March 31, 1997 45,825 $.40--$2.00
Exercised (125) .40
Forfeited -- --
Granted -- --
Outstanding, December 31, 1997 45,700 $.40--$2.00
No dividends have been declared or paid relating to
common stock during 1997.
Stock Options Disputed
The Company is vigorously disputing options to purchase
625,000 shares of its common stock (the Disputed Stock
Options) held by a former officer and director of the
Company. The Company asserts that the former officer and
director's Disputed Stock Options are invalid because the
Disputed Stock Options were not properly approved by the
Company's Board of Directors and certain conditions were
not fulfilled. The Company considers the Disputed Stock
Options invalid and believes the matter will be resolved
without a material affect on the financial position of
the Company. The Company has not reflected the Disputed
Stock Options as outstanding in the table above or in the
accompanying financial statements.
Warrants
The Company has issued warrants to purchase 52,500 shares
of its common stock at $.88 per share to the Company's
investment banking firm. The warrants were issued at
fair value and expire two years after the date of issue.
8. Stockholders Equity (Deficit) Continued
Treasury Stock
During 1997, the Company repurchased 5,250 common stock
shares on the open market at prices ranging from $1.69 to
$1.88 per share. At December 31, 1997, the Company holds
in treasury stock 7,250 shares of common stock and is
reflected in the accompanying statement of stockholders
equity.
9. Commitments and Contingencies
Operating Leases
The Company leases certain equipment and facilities under
operating leases through June 2000. At December 31,
1997, future minimum annual payments under non-cancelable
leases are as follows:
1998 $ 92,328
1999 80,084
2000 28,735
Total minimum lease payments $201,147
Included in the minimum lease payments for 1998 and 1999
are amounts due to the majority stockholder of $30,000
and $22,500, respectively.
Rent expense was $60,076 for the nine-month period from
April 1 through December 31, 1997, including $14,180 to
the majority stockholder for office facilities.
9. Commitments and Contingencies - Continued
Capital Leases
The Company leases certain property and equipment with
lease terms through August 2000. Obligations under
capital leases have been recorded in the accompanying
financial statements at the present value of future
minimum lease payments, discounted at interest rates
ranging from 8% to 10.25%. The capitalized cost of
$31,788 less accumulated depreciation of $6,035 in 1997,
is included in property and equipment in the accompanying
financial statements. Depreciation expense for this
equipment for the nine-months ended December 31, 1997,
was $4,423.
Obligations under capital leases consist of the
following:
1997
Total 25,424
Less current maturities 10,766
Long-term portion 14,658
The future minimum lease payments under the capital
leases and the net present value of the future minimum
lease payments are as follows:
Year Ended December 31, Amount
1998 13,122
1999 10,560
2000 5,309
Total minimum lease payments 28,991
Less amount representing interest 3,567
Present value of minimum lease payments 25,424
Legal Proceedings
The Company is involved in various legal proceedings
incidental to the conduct of its business. Management
believes that none of these legal proceedings will result
in any material impact on the Company's financial
condition or results of operations.
10. Income Taxes
The tax benefit for income taxes consists of the
following at December 31, 1997:
Current:
Federal income tax $ --
State income tax --
--
Deferred (885)
Total (885)
The net deferred tax asset consists of the following:
Gross assets 617,534
Gross liabilities (112,481)
Gross deferred tax asset 505,053
Less: valuation allowance (504,168)
Net deferred tax asset 885
The tax effect of significant temporary differences
representing deferred tax assets and liabilities are as
follows:
Net operating loss carryforward 575,466
Other (70,413)
Total 505,053
The provision for taxes on income as reported differs
from the tax provision computed by applying the statutory
federal income tax rate of 34% as follows:
Federal income tax benefit on
loss at statutory rate of 34% (2,070)
State tax benefit, net of
federal benefit (241)
Other 1,426
Income tax benefit (885)
As part of the Acquisition (discussed in Note 3), the
Company purchased net operating loss carryforwards of
approximately $1,693,000. These net operating loss
carryforwards are restricted by certain Internal Revenue
Code sections and regulations and expire through 2012.
13. Subsequent Event (unaudited)
On February 18, 1998, the Company announced the signing
of a definitive agreement to acquire 100% of the
outstanding shares of Channel Telecom Inc., (Channel)
headquartered in Toronto, Canada. Channel is the fourth
largest facility-based provider of prepaid calling cards
in Canada. The transaction had been approved by the
Company's Board of Directors and is expected to be
ratified at the Company's Annual Meeting of Shareholders.
Under the terms of the agreement, the Company will
exchange approximately 3.8 million shares, adjusted for
certain events, of Company common stock and $175,000 in
cash for all of Channel's outstanding shares. The
effective date of the transaction will be January 1,
1998.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors of One Plus Marketing, Inc.:
We have audited the accompanying statements of income,
stockholder's equity and cash flows of One Plus Marketing, Inc.
(an Illinois corporation) for the three-month period ended March
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of One Plus Marketing, Inc. for the
three-month period ended March 31, 1997, in accordance with
generally accepted accounting principles.
MOORE STEPHENS SMITH WALLACE LLC
St. Louis, Missouri
February 6, 1998
ONE PLUS MARKETING, INC.
___________
STATEMENT OF INCOME FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 1997
For the Three-month
Period Ended
March 31, 1997
Net revenues .................... 835,790
Costs and expenses:
Cost of sales .................. 528,834
Selling, general and
administrative ................. 175,349
Total costs and expenses ...... 704,183
Operating income 131,607
Other income--net ............... 4,475
Net income 136,082
Earnings per share 1,360
Weighted average number of
common and common equivalent
shares outstanding .............. 100
See accompanying notes to financial statements.
ONE PLUS MARKETING, INC.
___________
STATEMENT OF STOCKHOLDER'S EQUITY FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 1997
Common Stock
Shares Amount Retained Total
Earnings
Balance,
December 31, 1996 100 -- 467,592 467,592
Stockholder
distribution -- -- (94,424) (94,424)
Net income -- -- 136,082 136,082
Balance,
March 31, 1997 100 -- 509,250 509,250
See accompanying notes to financial statements.
ONE PLUS MARKETING, INC.
___________
STATEMENT OF CASH FLOWS FOR THE THREE-MONTH PERIOD ENDED
MARCH 31, 1997
For the Three-month
Period-ended
March 31,1997
Cash flows from operating activities:
Net income ............................. 136,082
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 13,107
Changes in assets and liabilities
Accounts receivable, net............ (210,866)
Prepaid expenses and other ......... 40,090
Accounts payable and accrued
expenses .......................... 404,490
Deferred revenue ........................ 82,191
Net cash provided by operating activities 465,094
Cash flows used in investing activities:
Purchases of property and equipment....... (33,053)
Cash flows used in financing activities:
Shareholder distributions ............... (94,424)
Net increase in cash and cash equivalents 337,617
Cash and cash equivalents:
Beginning of period ..................... 426,589
End of period ........................... $764,206
Supplemental cash flow disclosures:
Cash paid for interest during the period. $ 0
Cash paid for taxes during the period.... $ 0
See accompanying notes to financial statements.
ONE PLUS MARKETING, INC.
___________
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. Organization and Description of Business
One Plus Marketing, Inc. (the Company) was incorporated
under the laws of the state of Illinois in 1991. The Company
designs and markets interactive voice response and voice
processing systems. The Company's customers are located
within North America without a significant geographic
concentration.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's financial statements have been prepared in
accordance with generally accepted accounting principles.
Use of Estimates
Preparation of financial statements in accordance with
generally accepted accounting principles requires, among other
things, the use of management's estimates and assumptions
which affect the reported revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investment securities purchased
with an original maturity date of three months or less to be
cash equivalents.
Revenue Recognition
The Company generally requires its customer to establish a
minimum account balance prior to receiving voice mail service.
The Company recognizes revenue as service is rendered.
Account balances not used are recorded as deferred revenue.
Account balances without activity for 180 days are recorded to
revenue.
Income Taxes
The Company's stockholder has elected to be treated as an S
Corporation under provisions of the Internal Revenue Code
which provides that, in lieu of corporation income taxes, the
stockholder is taxed for the Company's taxable income.
Therefore, no provision or liability for federal and state
income taxes is reflected in these financial statements.
The unaudited pro forma results if the Company had been a C
Corporation for the three-month period ended March 31, 1997,
would result in a tax provision with an effective rate of 40%
and an amount of $54,433. Earnings per share would have
decreased by $544.33 per share.
ONE PLUS MARKETING, INC.
___________
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1997
2. Summary of Significant Accounting Policies - Continued
Depreciation and Amortization
Depreciation and amortization is computed based on the
straight-line method over estimated useful lives ranging from
five to seven years.
3. Related Party Transactions
In the normal course of conducting business, the Company has
entered into transactions with various individuals and
companies who are related parties.
4. Leases
The Company leases its facilities from the stockholder under
an operating lease through September 30, 1999, with certain
renewal options. At March 31, 1997, future minimum annual
payments under non-cancelable leases are as follows:
1997 $13,500
1998 30,000
1999 22,500
Total minimum lease payments $66,000
Rent expense for the period from January 1 through March 31,
1997 was $7,044.
5. Subsequent Event
Majority Exchange of Common Stock
Effective April 1, 1997, the Company exchanged 80% of the
voting stock of One Plus Marketing, Inc. (the Exchange) with
HitCom Corporation for 5,837,503 common shares of HitCom
Corporation, a publicly traded company on the NASDAQ OTC
Bulletin Board. The remaining 20% minority ownership interest
is being retained by the predecessor owner of One Plus
Marketing, Inc. Effective with the closing One Plus
Marketing, Inc. minority interest owner will become the
Chairman of HitCom Corporation.
ONE PLUS MARKETING, INC.
___________
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1997
5. Subsequent Event - Continued
Recapitalization of Equity
The Exchange is being treated as a reverse acquisition in
accordance with Accounting Principles Board Opinion No. 16
Business Combinations. As part of the reverse acquisition,
the Company is being treated as the accounting acquiror. As
such, the accounting acquiror's historical stockholder's
equity prior to the Exchange will be retroactively restated
for the equivalent number of shares received in the
transaction with any difference between par value of the
issuer's and acquiror's stock recorded with an offset to
additional paid in capital.
CHANNEL TELECOM INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
AUDITOR'S REPORT
To the Shareholders of:
Channel Telecom Inc.
I have audited the consolidated balance sheet of Channel Telecom
Inc. as at December 31, 1997 and the consolidated statements of
income and deficit, and changes in financial position for the
nine months then ended. These financial statements are the
responsibility of the company's management. My responsibility
is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In my opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
company as at December 31, 1997 and the results of its
operations and the changes in its financial position for the
nine months then ended in accordance with generally accepted
accounting principles.
Etobicoke, Ontario SILVANO BOATTO
February 5, 1998 CHARTERED ACCOUNTANT
CONSOLIDATED BALANCE SHEET
(Incorporated under the laws of Ontario)
AS AT DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
ASSETS
March 31, March 31,
1997 1997
CURRENT
Cash $ 64,430 $ 8,267
Term deposit 10,000 10,000
Accounts receivable,
less allowance of $52,660 for
doubtful accounts
(March 31, 1997 - $42,660 321,605 171,438
Inventory 14,632 8,850
Prepaid expenses and sundry assets 3,865 5,936
Loans receivable,
related parties (Note 4) 10,333 10,488
424,865 214,979
Investment in and advances to
affiliated companies (Note) 39,551 39,688
Capital assets (Note 6) 45,175 27,537
$ 509,591 $ 282,204
LIABILITIES
CURRENT
Bank loan (Note 7) $ 7,592 $ 7,592
Accounts payable and accrued liabilities 540,098 298,540
Loans payable, related parties (Note 8) 7,963 18,130
555,653 324,262
Bank loan (Note 7) 8,777 14,471
564,430 338,733
SHAREHOLDERS' EQUITY
Capital stock (Note 9) 20 20
Deficit (54,859) (56,549)
(54,839) (56,529)
$ 509,591 $ 282,204
See Accompanying Note
CONSOLIDATED STATEMENT OF INCOME AND DEFICIT
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
REVENUE
Sales $ 1,770,278 $ 1,318,672
Less: discounts and returns 610,860 435,480
1,159,418 883,192
COST OF GOODS
Long distance services 797,829 583,747
Cost of cards 49,606 61,531
847,435 645,278
GROSS PROFIT 311,983 237,914
EXPENSES
Salesmen commissions and expenses 104,103 65,114
Administration fees (Note 10(a)) 42,500 60,000
Management fees (Note 10(b)) - 20,500
Salaries and benefits 51,418 -
Advertising 5,563 2,280
Amortization 6,440 6,116
Bad debt 11,242 45,313
Bank charges and interest 1,169 516
Brand development costs 4,826 10,692
Business taxes 2,047 1,765
Insurance 1,677 -
Loan Interest 980 1,187
Office and general 17,405 3,928
Printing 8,855 20,364
Professional fees 17,293 11,393
Rent 14,680 4,732
Telephone 6,873 3,709
Travel and trade shows 13,085 7,708
Share of loss from affiliated company (Note 5) 137 5,332
Interest income - (570)
310,293 270,079
Net income (loss) 1,690 (32,165)
Deficit, beginning of period (56,549) (24,384)
Deficit, end of period $ (54,859) $ (56,549)
See Accompanying Notes
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
OPERATING ACTIVITIES
Cash provided by operations
Net loss $ 1,690 $ (32,165)
Add (deduct): charges to income
not involving cash
Amortization 6,440 6,116
Share of loss from affiliated company 137 5,332
8,267 (20,717)
Net change in non-cash working capital
(Increase) in accounts receivable (150,167) (116,563)
(Increase) decrease in inventory (5,782) 350
(Increase) decrease in prepaid expenses
and sundry assets 2,071 (3,961)
Increase (decrease) in accounts payable 241,558 97,444
95,947 56,553
FINANCING ACTIVITIES
Loans receivable/payable, related parties (10,012) 13,977
Repayment of bank loan (5,694) (8,303)
(15,706) 5,674
INVESTING ACTIVITIES
Additions to capital assets (24,078) (9,762)
Investment in affiliated companies - (20)
Advances to affiliated company - (45,000)
(24,078) (54,782)
Increase in cash 56,163 7,445
Cash, beginning of period 18,267 10,822
Cash, end of period $ 74,430 $ 18,267
For the purposes of this statement, Cash includes term deposits
See Accompanying Note
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF BUSINESS
The company is in the business of developing and
marketing prepaid phone cards which provide the
cardholder access to long distance service.
2. SALE OF SHARES
On January 1, 1998, pursuant to a purchase and sale
agreement, the shareholders of the company have sold
their shares in Channel Telecom Inc. to Hitcom
Corporation for proceeds of cash and common shares of
Hitcom Corporation. Accordingly, Channel Telecom Inc.
will change its year end to December 31, to coincide
with the year end of Hitcom Corporation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been
prepared in accordance with generally accepted
accounting principles in Canada. Outlined below are
those policies considered particularly significant for
the company.
(a) Principles of consolidation
The accompanying consolidated financial statements
include the accounts of Channel Telecom Inc. and its
wholly owned subsidiary, Channel Telecom USA Limited.
All intercompany balances and transactions have been
eliminated on consolidation.
(b) Revenue recognition
Revenue from the sale of prepaid telephone phone cards
is recorded at the time of sale to customers less
related merchant discounts and commissions. The
company accrues for it's cost for future long distance
services at the time of sale by reference to past
experience.
(c) Inventory
Inventory consists of phone cards and is stated at the
lower of cost and market, with cost determined using
the average cost method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
(d) Capital assets
Capital assets are stated at cost. Amortization is
being provided annually on the declining balance
method at the following rate:
Furniture and equipment - 20%
Computer equipment - 30%
Vending machines - 20%
(e) Investment in affiliated companies
The company accounts for its investment in affiliated
companies, using the equity method. Under this method,
the pro rata share of the investee's earnings is
recorded as income and the carrying value of the
investment on the balance sheet is increased
accordingly. Dividends received are considered as a
return of capital and are deducted from the carrying
value of the investment.
(f) Foreign currency translation
Assets and liabilities of integrated foreign
subsidiary operations and foreign currency denominated
assets and liabilities of Canadian operations are
translated into Canadian dollars at exchange rates
prevailing at the balance sheet date for monetary
items and at exchange rates prevailing at the
transaction date for non-monetary items. The revenues
and expenses are converted at the average exchange
rates for the year. Gains or losses on translation are
expensed except for the exchange gains or losses on
long-term monetary items which are deferred and
amortized over the remaining terms of the related
items.
4. LOANS RECEIVABLE, RELATED PARTIES
DECEMBER 31, MARCH 31,
1997 1997
Canam Marketing Inc. $ 950 $ -
Channel Sports Marketing Inc. 9,383 8,689
Premiere Collector House Inc. - 1,799
$ 10,333 $10,488
The above loans are non-interest bearing and are due on
demand.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
5. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANIES
The company acquired a 50% interest in Sussex Service
Bureau Inc. and 1218396 Ontario Ltd. as one of the two
incorporating shareholders. The investment in these
companies consists of:
Sussex Service 1218396 December March
Bureau Inc. Ontario Ltd. 31, 1997 31, 1997
Percentage ownership 50% 50%
Cost of shares $ (5,322) $ 10 $ (5,312) $ 20
Share of net loss (137) - (137) (5,332)
(5,459) 10 (5,449) (5,312)
Note receivable,
due September 15, 2001 30,000 - 30,000 30,000
Note receivable,
due November 15, 2001 15,000 - 15,000 15,000
$ 39,541 $ 10 $ 39,551 $ 39,688
The above notes bear interest at the annual Canada Trust
prime interest rate and are to be repaid at the discretion
of Sussex Service Bureau Inc., but no later than five years
from the initial advance.
6. CAPITAL ASSETS
Net Net
Accumulated December March
Cost Amortization 31, 1997 31, 1997
Furniture and equipment $ 35,020 $ (15,433) $ 19,587 $ 20,339
Computer equipment 10,988 (2,985) 8,003 3,918
Vending machines 19,642 (2,057) 17,585 3,280
$ 65,650 $ (20,475) $ 45,175 $ 27,537
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
7. BANK LOAN
December March
31, 1997 31, 1997
TD Bank Small Business Loan $ 16,369 $ 22,063
Less: current portion 7,592 7,592
$ 8,777 $ 14,471
The above small business loan was used to finance the
purchase of assets. The loan bears interest at the
Toronto Dominion Bank prime rate plus 1.75% and is
payable in monthly installments of principal of $632.63.
Future principal repayments on the loan which matures
March 21, 2000 are as follows:
1998 $ 7,592
1999 7,592
2000 1,185
$ 16,369
The company has provided security for the loan, the most
significant of which is a general security agreement
covering all the assets of the company. In addition,
certain related individuals have provided a limited
guarantee in the total amount of $3,796.
8. LOANS PAYABLE, RELATED PARTIES
December March
31, 1997 31, 1997
Bheem Capital Corp. $ 3,115 $ 4,065
1027126 Ontario Ltd. 3,115 14,065
Premiere Collector House Inc. 1,733 -
$ 7,963 $ 18,130
The above loans are non-interest bearing and are due on
demand.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
9. CAPITAL STOCK
Authorized:
Unlimited number of common shares
Unlimited number of Class "A" voting, non-redeemable
non-cumulative, non-participating,
retractable Preference shares Unlimited number of Class "B"
non-voting, redeemable non-cumulative, non-participating Preference
shares December March 31, 1997 31, 1997
Stated:
200 common shares $ 20 $ 20
10. RELATED PARTY TRANSACTIONS
(a) During the period, the company paid administration
fees in the amount of $42,500 (year ended March 31,
1997 - $60,000) to Channel Sports Marketing Inc., a
company controlled by individuals who
directly/indirectly own Channel Telecom Inc.
(b) During the period, the company paid management fees in
the amount of $NIL (year ended March 31, 1997 -
$20,500) to the holding companies of the individual
shareholders of Channel Telecom Inc.
(c) During the period the company made purchases in the
amount of $816,094 (year ended March 31, 1997 -
$79,642) from Sussex Service Bureau Inc., an affiliated company.
These transactions are in the normal course of
business and are measured at the exchange amount being
the amount of consideration established and agreed upon
by the related parties. Included in accounts payable
and accrued liabilities is $260,860 (March 31, 1997-
$44,535) due to Sussex Service Bureau Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
11. SUBSEQUENT EVENT
Lease commitments
Subsequent to December 31, 1997, the company entered
into a lease agreement for its office and warehouse
facility. The lease is for a period of five years
commencing March 1, 1998 with an option to renew for a
further period of five years.
Future minimum lease payments for the above facility
are as follows:
1998 $ 11,212
1999 28,654
2000 32,392
2001 35,382
2002 39,618
Thereafter 6,728
$ 153,986
12. LOSS CARRYFORWARD
The company has non-capital income tax loss carryforward of
approximately $42,900 available to reduce future taxable income
and they begin to expire in year 2002.
HITCOM CORPORATION AND SUBSIDIARIES
___________
PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1997 (UNAUDITED)
(AMOUNTS STATED IN US DOLLARS)
ASSETS
HitCom Channel Pro Forma Pro Forma
Corporation Telecom Inc. Adj. Combined
Current assets:
Cash and cash
equivalents ......... $188,800 $ 51,357 ($175,000) $ 65,157
Accounts receivable--
net of allowance
for doubtful
accounts of $6,949 110,066 221,907 -- 331,973
Prepaid expenses and
other ............... 6,162 19,893 -- 26,055
Total current assets .. 305,028 293,157 (175,000) 423,185
Property and equipment--
net ................ 336,967 31,171 -- 368,138
Other assets........... 52,473 27,290 228,039 307,802
TOTAL ............ $694,46 $351,61 $ 53,039 1,099,125
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
HitCom Channel Pro Forma Pro Forma
Corporation Telecom Inc. Adj. Combined
Current liabilities:
Revolving line of credit $100,000 $ -- $ -- $ 100,000
Current portion of long-
term obligations ...... 59,766 10,733 -- 70,499
Accounts payable and
Accrued expenses ....... 678,898 572,668 -- 1,051,566
Deferred revenue ....... 429,362 -- -- 429,362
Total current
liabilities .......... 1,268,026 383,401 -- 1,651,427
Long-term obligations, less
current portion ..... 14,658 6,056 -- 20,714
Commitments and contingencies
Minority interest ......... 166,107 -- -- 166,107
Stockholders' equity (deficit):
Preferred stock, $.001 par
value--5,000,000
authorized; 1,144,143
issued and outstanding 1,144 -- -- 1,144
Common stock, $.004 par
value--12,500,000
authorized; 11,731,014
issued; 11,723,764
outstanding ............ 31,724 14 15,186 46,924
Additional paid in capital (1,139,904) -- -- (1,139,904)
Retained earnings .......... 372,509 (37,853) 37,853 372,509
Treasury stock--at cost .... (19,796) -- -- (19,796)
Total stockholders'
equity (deficit)............ (754,323) (37,839) 53,039 (739,123)
Total $694,468 $351,618) $53,039 $1,099,125
HITCOM CORPORATION AND SUBSIDIARIES
___________
PRO FORMA INCOME STATEMENT FOR THE YEAR ENDED
DECEMBER 31, 1997 (UNAUDITED)
(AMOUNTS STATED IN US DOLLARS)
One Plus
Marketin
g, Inc.
1/1-
3/31/97
HitCom
Corpor
ation
4/1-
12/31/
97
Combin
ed
Channel
Telecom
1/1-
12/31/97
Pro
Forma
Total
Net revenues . . . .
. . . . . . . . . . .
. . . . . . . . .
$
835,790
$2,732
,377
$3,568
,167
$945,079
$4,513
,246
Costs and expenses:
Cost of sales . . .
. . . . . . . . . . .
. . . . . . . .
528,834
1,440,
524
1,969,
358
678,979
2,648,
337
Selling, general and
administrative . .
. . .
175,349
1,242,
901
1,418,
250
264,788
1,683,
038
Total costs and
expenses . . . . . .
. . . .
704,183
2,683,
425
3,387,
608
943,767
4,331,
375
Operating income . .
. . . . . . . . . . .
. . . . . . .
131,607
48,952
180,55
9
1,312
181,87
1
Other expense
(income)--net . . . .
. . . . . . .
(4,475)
55,041
50,566
- - --
50,566
Income (loss) before
income tax benefit
and minority
interest . . . . . .
. . . . . . . . . .
. . . .
136,082
(6,089
)
129,99
3
1,312
131,30
5
Tax benefit . . . . .
. . . . . . . . . . .
. . . . . . . . . .
- - --
(885)
(885)
- - --
(885)
Income (loss) before
minority interest . .
. . .
136,082
(5,204
)
130,87
8
1,312
132,19
0
Minority interest . .
. . . . . . . . . . .
. . . . . . . . .
- - --
64,257
64,257
- - --
64,257
Net income (loss). .
. . . . . . . . . . .
. . . . . . . .
$
136,082
($69,4
61)
$66,62
1
$
1,312
$67,93
3
Basic earnings per
share . . . . . . .
. . . . . . .
$1,360.8
2
$
(0.01)
$
0.01
$
0.00
$
0.01
Diluted earnings per
share . . . . . . . .
. . . . .
$1,360.8
2
N/A
$
0.01
$
0.00
$
0.01
Weighted average
number of common
and potential
common shares
outstanding . . .
. . . . . . . . .
. . . . . .
100
7,921,
458
8,368,
825
3,800,00
0
12,168
,825
ONE PLUS MARKETING, INC.
___________
STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1996 (UNAUDITED)
For the Year
Ended
December 31,
1996
(unaudited)
Net revenues. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. . . .
$1,927,142
Costs and expenses:
Cost of sales. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
. . . .
1,077,090
Selling, general and administrative .
. . . . . . . . . . . . . . . . . . .
442,359
Total costs and expenses . . . . . .
. . . . . . . . . . . . . . . . . .
. .
1,519,449
Operating income . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. .
407,693
Other income--net . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
. .
13,493
Net income . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . . .
$ 421,186
Earnings per share. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. .
$ 4,211.86
Weighted average number of common and
common equivalent shares outstanding . .
. . . . . . . . . . . . . . . . . . .
. . . .
Accompanying notes to financial statements.
ONE PLUS MARKETING, INC.
___________
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1996 (UNAUDITED)
For the Year
Ended December 31, 1996
(unaudited)
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. . .
$421,186
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization. . . . .
. . . . . . . . . . . . . . . .
26,235
Changes in assets and liabilities
Accounts receivable--net . . . . . .
. . . . . . . . . . . . . . . .
(85,185)
Prepaid expenses and other . . . . .
. . . . . . . . . . . . . . .
(67,041)
Accounts payable and accrued
expenses . . . . . . . . . .
30,313
Deferred revenue. . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
254,520
Net cash provided by operating
activities . . . . . . . . .
580,028
Cash flows used in investing activities:
Purchases of property and equipment . .
. . . . . . . . . . . . . . .
(243,005)
Net increase in cash and cash equivalents.
. . . . . . . . . . . . . . .
337,023
Cash and cash equivalents:
Beginning of period . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
. . .
89,566
End of period . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . .
$426,589
Supplemental cash flow disclosures:
Cash paid for interest during the period .
. . . . . . . . . . . . . . . . .
$ 0
Cash paid for taxes during the period. . .
. . . . . . . . . . . . . . . . .
$ 0
See accompanying notes to financial statements.
ONE PLUS MARKETING, INC.
___________
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
1. Organization and Description of Business
One Plus Marketing, Inc. (the Company) was incorporated
under the laws of the state of Illinois in 1991. The
Company designs and markets interactive voice response
and voice processing systems. The Company's customers
are located within North America without a significant
geographic concentration.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's financial statements have been prepared in
accordance with generally accepted accounting principles.
Use of Estimates
Preparation of financial statements in accordance with
generally accepted accounting principles requires, among
other things, the use of management's estimates and
assumptions which affect the reported revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investment securities
purchased with an original maturity date of three months
or less to be cash equivalents.
Revenue Recognition
The Company generally requires its customer to establish
a minimum account balance prior to receiving voice mail
service. The Company recognizes revenue as service is
rendered. Account balances not used are recorded as
deferred revenue. Account balances without activity for
180 days are recorded to revenue.
Income Taxes
The Company's stockholder has elected to be treated as an
S Corporation under provisions of the Internal Revenue
Code which provides that, in lieu of corporation income
taxes, the stockholder is taxed for the Company's taxable
income. Therefore, no provision or liability for federal
and state income taxes is reflected in these financial
statements.
Depreciation and Amortization
Depreciation and amortization is computed based on the
straight-line method over estimated useful lives ranging
from five to seven years.
ONE PLUS MARKETING, INC.
___________
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 (UNAUDITED)
3. Related Party Transactions
In the normal course of conducting business, the Company
has entered into transactions with various individuals
and companies who are related parties.
4. Leases
The Company leases it facilities from the stockholder
under an operating lease through September 30, 1999 with
certain renewal options. At December 31, 1996, future
minimum annual payments under non-cancelable leases are
as follows:
1997 $ 18,000
1998 30,000
1999 22,500
Total minimum lease payments $ 70,500
Rent expense for 1996 was $ 13,454.
SGNATURES
In accordance with Section 12 of the Securities and
Exchange Act of 1934, the registrant caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HITCOM CORPORATION
By: /s/ DAVID B. PARKS
David B. Parks
Executive Vice President,
Chief Financial Officer,
Corporate Secretary and Director
Date: March 25, 1998
In accordance with the Securities and Exchange Act of 1934,
this registration statement has been signed by the
following persons on behalf of the registrant in the
capacities and on the dates indicated.
/s/ SCOTT A. BEIL
Scott A. Beil
Chairman of the Board and
Director
March 25, 1998
/s/ RAJAN ARORA
Rajan Arora
President and Chief Executive Officer and
Director
March 25, 1998
CERTIFICATE OF INCORPORATION
OF ROYAL OAK RESOURCES CORPORATION
1. ARTICLE I- NAME. The name of the corporation is
Royal Oak Resources Corporation.
2. ARTICLE II- REGISTERED OFFICE. The registered
office of the Corporation in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, County of New Castle 19801. The registered agent
in charge thereof at such address is The Corporation Trust
Company.
3. ARTICLE III- PURPOSES. The purpose of the
Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General
Corporation law of Delaware.
4. ARTICLE IV- CAPITAL STOCK. The total number of
shares of all classes of capital stock which the Corporation
has the authority to issue is 55,000,000 shares which are
divided into two classes as follows:
5,000,000 shares of Preferred Stock (Preferred
Stock) $.001 par value per share, and
50,000,000 shares of Common Stock (Common Stock)
$.001 par value per share.
Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Shares as
Preferred Shares which are part of a series and, in
connection with the creation of such series to fix by the
resolution or resolutions providing for the issue of shares
thereof, the number of shares of such series, and the
designation, powers, preferences and rights of such series,
and the qualifications, limitations and restrictions of such
series to the full extent now or hereafter permitted by the
laws of the State of Delaware.
5. ARTICLE V- INCORPORATOR. The name and mailing
address of the incorporator of the Company is A. O. Headman,
Jr., 525 East 100 South, Fifth Floor, Salt Lake City, UT
84102.
6. ARTICLE VI- BOARD OF DIRECTORS. The powers of the
incorporator(s) shall terminate upon the filing of this
Certificate of Incorporation. The name and mailing address
of the persons to serve as the initial directors of the
Company to serve until successors are elected and qualify
are:
Name of Director Mailing Address
Mark A. Scharmann 1661 Lakeview Circle
Ogden, UT 84403
Rachel Scharmann 1661 Lakeview Circle
Ogden, UT 84403
David Knudson 2331 East 1200 North
Layton, UT 84040
The number of members of the Board of Directors shall
be fixed from time to time by the Board of Directors. If any
vacancy occurs, the remaining directors, by an affirmative
vote of a majority thereof, may elect a director to fill the
vacancy until the next annual meeting of stockholders. The
election of directors need not be by written ballot.
7. ARTICLE VII- BYLAWS. The Board of Directors shall
have the power to make, adopt, amend, or repeal the Bylaws
of the Corporation.
8. ARTICLE VIII- COMPROMISE OR ARRANGEMENT. Whenever
a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way
of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the
provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors,
and/or of the stockholder or class of stockholders of this
corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders or this corporation, as the case may be, agree
to any compromise or arrangement and to any reorganization
of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which
the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation,
as the case may be, and also on this corporation.
9. ARTICLE IX- PERSONAL LIABILITY OF DIRECTORS. No
Director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for
any breach of fiduciary duty by such a Director as a
Director. Notwithstanding the foregoing sentence, a
Director shall be liable to the extent provided by
applicable law (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
pursuant to section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which such
Director derived an improper personal benefit. No amendment
or repeal of this Article IX shall apply to or have any
effect on the liability or alleged liability of any Director
of the Corporation for or with respect to any acts or
omissions of such Director occurring prior to such amendment
or repeal.
10. ARTICLE X- INDEMNIFICATION. The corporation
shall, to the fullest extent permitted by the provisions of
Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in
or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under the Bylaw,
agreement, vote of stockholders, or disinterested directors,
or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such
a person.
11. ARTICLE XI- AMENDMENT. The Corporation reserves
the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted
subject to this reservation.
The undersigned, for the purpose of forming a
corporation under the laws of the State of Delaware, does
make, file, and record this certificate, and does certify
that the facts stated herein are true; and has executed this
Certificate of Incorporation.
Dated:July 5, 1995
/s/ A. O. Headman, Jr.
A. O. Headman, Jr.
STATE OF UTAH )
) SS
COUNTY OF SALT LAKE )
On the 5 day of July, 1995, personally
appeared before me, A. O. Headman, Jr., who being by me
first duly sworn, declared that he is the person who signed
the foregoing document as an incorporator and that the
statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and
seal this 5 day of July, 1995.
/s/ Melanie Colton
Melanie Colton, NOTARY PUBLIC
Residing at Salt Lake City, Utah
My commission expires 4/4/98
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
ROYAL OAK RESOURCES CORPORATION
Pursuant to the provisions of Section 242, of the
General Corporation Law of the state of Delaware, Royal Oak
Resources Corporation, a Delaware corporation, hereinafter
referred to as the "Corporation," hereby adopts the
following Certificate of Amendment to its Certificate of
Incorporation:
FIRST: The name of the Corporation is Royal Oak
Resources Corporation.
SECOND: Article I of the Articles of Incorporation shall
be amended to read as follows:
Article I
The name of the Corporation is HitCom Corporation
THIRD: By executing this Certificate of Amendment to
the Certificate of Incorporation, the president and
secretary of the Corporation do hereby certify that on
November 28, 1995, the foregoing amendment to the
Certificate of Incorporation of Royal Oak Resources
Corporation, was authorized and approved pursuant to Section
242 of the General Corporation Law of the state of Delaware
by the consent of the majority of the Corporation's
shareholders. The number of issued and outstanding shares
entitled to vote on the foregoing amendment to the
Certificate of Incorporation was 1,635,000 of which 1,083,
350 shares voted for, with no shares voting against or
abstaining from the foregoing amendment to the Certificate
of Incorporation. No other class of shares was entitled to
vote thereon as a class.
DATED this 19 day of December, 1995.
Mark Scharmann
Mark Scharmann, President
Rachel Scharmann
Rachel Scharmann, Secretary
State of Utah )
)
County of Weber )
On this 19 day of December, 1995, personally
appeared before me, the undersigned, a notary public, Mark
Scharmann and Rachel Scharmann, who being by me first duly
sworn, declared that they are the president and secretary,
respectively, of the above-named corporation, that they
signed the foregoing Certificate of Amendment to the
Certificate of Incorporation and that the statements
contained therein are true.
WITNESS MY HAND AND OFFICIAL SEAL
/s/ Julie Carpenter
Julie Carpenter, Notary Public
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
HITCOM CORPORATION
HitCom Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law
of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of
HitCom Corporation, resolutions were duly adopted setting
forth a proposed amendment of the Certificate of
Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the shareholders of
said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing Article IV thereof
so that, as amended said Article shall be and read as
follows:
4. ARTICLE IV - CAPITAL STOCK. The total number of
shares of all classes of capital stock which the
Corporation has the authority to issue in 17,500,000 shares
which are divided into two classes as follows:
5,000,000 shares of Preferred Stock
("Preferred Stock") $.001 par value per share, and
12,500,000 shares of Common Stock ("Common
Stock") $.004 par value per share.
Authority is hereby expressly granted to the Board
of Directors from time to time to issue the Preferred Shares
as Preferred Shares which are part of a series and, in
connection with the creation of such series to fix by the
resolution or resolutions providing for the issue of shares,
the number of shares of such series, and designation,
powers, preferences and rights of such series, and the
qualifications, limitations and restrictions of such series
to the full extent now or hereafter permitted by the laws of
the State of Delaware.
Effective as of the close of business on the date
on which this Certificate of Amendment is filed with the
Delaware Secretary of State, each four shares of Common
Stock outstanding issued at that time shall be automatically
changed and reclassified without further action into one
fully paid and non-assessable share of the Corporation's
Common Stock, provided that no fractional shares shall be
issued pursuant to such change and reclassification. The
Corporation shall pay to each shareholder who would
otherwise be entitled to fractional shares as a result of
such change and reclassification the cash value of such
fractional share based upon the average of the closing bid
and asked quotations for the Corporation's Common Stock on
the first business day following the date Certificate is
filed with the Delaware Secretary of State.
SECOND: That thereafter, pursuant to resolution
of its Board of Directors, a special meeting of the
shareholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation
law of the state of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation law of the State of Delaware.
IN WITNESS WHEREOF, said HitCom Corporation has
caused this certificate to be signed by Anthony W. Hitt, its
authorized officer, this 23 day of January, 1997.
/s/ Anthony W. Hitt
Anthony W. Hitt
President
HITCOM CORPORATION
AMENDED AND RESTATED BY-LAWS OF HITCOM CORPORATION
ARTICLE I
OFFICES
Section 1. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 2. The corporation may also have offices at
such other places, both within and without the State of
Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the
election of directors shall be held at such place, either
within or without the State of Delaware, as may be designated
from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any
other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders, commencing
with the year 1999, shall be held on the third Friday of
March if not a legal holiday, and if a legal holiday, then on
the next business day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time
by the Board of Directors and stated in the notice of the
meeting, at which the stockholders shall elect one or more
directors and transact such other business as may properly be
brought before the meeting.
At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an
annual meeting, business must be: (a) specified in the
notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing
to the secretary of the corporation. To be timely, a
stockholder's notice must be received at the principal
executive offices of the corporation not less than 120 days
nor more than 150 days prior to the date of the notice to
stockholders of the previous year's annual meeting. A stock-
holder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual
meeting: (a) a brief description of the proposal or business
desired to be brought before the annual meeting and the
reasons for presenting the proposal or conducting such
business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder
proposing such business, (c) the class and number of shares
of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder
in such proposal or business. Notwithstanding anything in
these bylaws to the contrary, no business shall be conducted
at any annual meeting except in accordance with the
procedures set forth in this Section 2. The chairman of the
annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this
Section 2, and if he should so determine and declare to the
meeting, any such business not properly brought before the
meeting shall not be transacted.
Section 3. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be
given to each stockholder entitled to vote at such meeting
not less than ten (10) nor more than sixty (60) days before
the date of the meeting.
Section 4. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the Stockholders, for
any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called
by the chairman of the board or the president and shall be
called by the chairman of the board, president or secretary
at the request in writing of a majority of the Board of
Directors, or at the request in writing of Stockholders
owning a majority in amount of the entire capital stock of
the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of the
stockholders entitled to vote, stating the place, date and
hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) nor
more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at the meeting.
Section 7. Business transacted at a special meeting of
the stockholders entitled to vote shall be limited to the
purposes stated in the notice.
Section 8. The holders of a majority of the issued and
outstanding stock which is entitled to vote, whether present,
in person or represented by proxy, shall constitute a quorum
at all meetings of the stockholders for the transaction of
business. If, however, such a quorum shall not be present or
represented at a meeting, except as otherwise provided in
Article VI, Section 5, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented,
any business may be transacted which might have been
transacted at the meeting in accordance with the original
notice thereof. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled
to vote at the meeting in accordance with Section 3 and/or
Section 6 of this Article II.
Section 9. When a quorum is present at any meeting,
the affirmative vote of a majority of the votes cast shall
decide any question brought before the meeting, unless the
question is one upon which, by the express provision of
statute, the Certificate of Incorporation of the corporation
or these bylaws, a different vote is required in which case
such express provision shall govern and control the decision
of such question.
Section 10. When determining the presence of a quorum
at any meeting, all shares held by (a) any stockholder, or
represented by a holder of a proxy therefor, who is present
but voluntarily decides not to vote, or (b) a broker or
nominee who lacks authority to vote such shares, shall be
deemed present. However, such shares shall not be deemed
cast on any matter unless properly voted and, therefore,
shall have no effect on the outcome of the matter in
question.
Section 11. Unless otherwise provided in the
Certificate of Incorporation of the corporation, each
stockholder shall at every meeting of the stockholders be
entitled to cast one vote in person or by proxy for each
share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after eleven (11)
months from its date, unless the proxy provides for a longer
period.
Section 12. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the
corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting
forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to be voted
were present and voted, and is delivered to the corporation
to its registered office in this State, its principal place
of business, or to an officer or agent of the corporation
having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested.
ARTICLE III
DIRECTORS
Section 1. (a) The number of directors constituting
the entire Board shall be not less than three (3) nor more
than nine (9) as fixed from time to time by vote of a
majority of the entire Board, provided, however, that the
number of directors shall not be reduced so as to shorten the
term of any director then in office, and provided further,
that the number of directors constituting the entire Board
shall be five (5) until otherwise fixed by a majority of the
entire Board.
(b) Notwithstanding any other provisions of the
Certificate of Incorporation of the Corporation or these
bylaws (and notwithstanding the fact that some lesser
percentage may be specified or permitted by law, the
Certificate of Incorporation or the bylaws of the
Corporation), any director or the entire Board of Directors
of the Corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of the
majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally at an election of
directors. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or
more series of Preferred Stock shall have the right, voting
separately as a class, to elect one or more directors of the
Corporation, the provisions of this subsection (c) shall not
apply with respect to the director or directors elected by
such holders of Preferred Stock.
Section 2. The business of the corporation shall be
managed by or under the direction of its Board of Directors,
which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by
the Certificate of Incorporation of the Corporation or by
these bylaws directed or required to be exercised or done by
the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3. The Board of Directors of the corporation
may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 4. The annual meeting of the Board of
Directors shall be held immediately following the annual
meeting of stockholders at the place at which the meeting of
the stockholders is held, and no notice of such meeting shall
be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum of the Board of
Directors is present.
Section 5. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as
shall from time to time be determined by the Board of
Directors.
Section 6. Special meetings of the board may be called
by the chairman of the board or the president on three (3)
days' notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the
chairman of the board or the president or secretary in like
manner and on like notice on the written request of two
directors unless the board consists of only one director; in
which case special meetings shall be called by the chairman
of the board, president or secretary in like manner and on
like notice on the written request of the sole director.
Section 7. At all meetings of the Board of Directors,
a majority of directors shall constitute a quorum for the
transaction of business and the vote of a majority of the
directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute. If a quorum
shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.
Section 8. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, without
prior notice and without a meeting, if all members of the
Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or
committee.
Section 9. Members of the Board of Directors, or any
committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in
person at the meeting.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors of may, by
resolution passed by a majority of the whole Board of
Directors, designate one or more committees, each committee
to consist of one or more of the directors of the
corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of
the committee.
In the absence or disqualification of a member of a
committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he,
she or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in
resolutions of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of
the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority to
amend the Certificate of Incorporation of the Corporation
(except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors, as
provided in Section 151(a) of the General Corporation Law of
Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any
distribution of assets of the corporation, or the conversion
into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other
class or classes of stock of the corporation), to adopt an
agreement of merger or consolidation, to recommend to the
stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets,
to recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or to amend the
bylaws of the corporation; and, unless the resolution of the
Board of Directors or the Certificate of Incorporation of the
Corporation expressly so provides, no such committee shall
have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of
ownership and merger. Such committee or committees shall
have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes
of its meetings and report the same to the Board of
Directors.
COMPENSATION OF DIRECTORS
Section 12. The Board of Directors shall have the
authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors or committee
thereof and may be paid, either in cash or in securities of
the corporation, a fixed sum for attendance at each meeting
of the Board of Directors or committee thereof or a stated
salary as director or committee member. No such payment
shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICES
Section 1. Whenever notice is required or permitted to
be given to any director or stockholder, it shall not be
construed to require personal notice, but such notice may be
given in writing, by mail, addressed to such director or
stockholder, at his or her address as it appears on the
records of the corporation, with first class postage thereon
prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States
mail. Notice to directors may also be given personally, by
facsimile or by next business day courier delivery and shall
be deemed to be given when personally given or so sent.
Section 2. Whenever any notice is required to be
given, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be
chosen by the Board of Directors and shall be a chairman of
the board, a president, a vice-president, a secretary and a
treasurer. The Board of Directors may also choose additional
vice-presidents, and one or more assistant secretaries and
assistant treasurers. Any number of offices may be held by
the same person, unless the Certificate of Incorporation or
these By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting
after each annual meeting of Stockholders shall choose a
chairman of the board, a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who
shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of
the corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office
of the corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The chairman of the board shall be the
chief executive officer of the corporation and shall have
general supervision over the policies, affairs and finances
of the corporation. He shall keep the Board of Directors
fully informed and shall freely consult with the Board of
Directors concerning the business of the corporation and
shall perform such other duties as are incident to his office
and are properly required of him by the Board of Directors.
The chairman of the board shall preside at all meetings of
the shareholders and the Board of Directors. Except where by
law the signature of the president is required and except as
otherwise provided by the Board of Directors, the chairman
may sign all certificates, contracts, documents and other
instruments on behalf of the corporation.
THE PRESIDENT
Section 7. The president shall be the principal
operating and administrative officer of the corporation and
shall be responsible for the day-to-day operating affairs of
the corporation. He may sign, with the secretary or
treasurer or any other proper officer thereunto authorized by
the Board of Directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors have authorized to
be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of
Directors or by these bylaws to some other officer or agent
of the corporation, or shall be required by law to be
otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other
duties as may be prescribed by the Board of Directors from
time to time. In the absence of the chairman of the board,
the president shall preside at all meetings of the
stockholders and the Board of Directors and shall otherwise
perform the duties of the chairman of the board.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the
event of his inability or refusal to act, the vice-president
(or in the event there be more than one vice-president, the
vice-presidents in the order designated by the directors, or
in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when
so acting, shall have all the powers of and be subject to all
the restrictions upon the president. The vice-presidents
shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of
the Board of Directors and all meetings of the Stockholders
and record all the proceedings of the meetings of the
corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause
to be given, notice of all meetings of the Stockholders and
special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of
Directors or president, under whose supervision he shall be.
He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or
by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to
affix the seal of the corporation and to attest the affixing
by his signature.
Section 10. The assistant secretary, or if there be
more than one, the assistant secretaries in the order
determined by the Board of Directors (or if there be no such
determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability
or refusal to act, perform the duties and exercise the powers
of the secretary and shall perform such other duties and have
such other powers as the Board of Directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and
other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the
Board of Directors.
Section 12. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall
render to the president and the Board of Directors, at its
regular meetings, or when the Board of Directors so requires,
an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 13. If required by the Board of Directors, he
shall give the corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind
in his possession or under his control belonging to the
corporation.
Section 14. The assistant treasurer, or if there shall
be more than one, the assistant treasurers in the order
determined by the Board of Directors (or if there be no such
determination, then in the order of their election) shall, in
the absence of the treasurer or in the event of his inability
or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have
such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be
represented by a certificate or shall be uncertificated.
Certificates shall be signed by, or in the name of the
corporation by, the chairman of the Board of Directors or the
president or a vice president and the treasurer or an
assistant treasurer, or the secretary or an assistant
secretary of the corporation.
Upon the face or back of each stock certificate issued
to represent any partly paid shares shall be set forth the
total amount of the consideration to be paid therefor and the
amount paid thereon.
If the corporation is authorized to issue more than one
class of stock or more than one series of any class, the
powers, designations, preferences and relative,
participating, optional or other special rights of each class
of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized or referenced on the
face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided
that, if summarized or referenced, there shall also be set
forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of
stock, a statement that the corporation will furnish without
charge to each stockholder thereof who so requests a copy of
the powers, designations, preferences and relative,
participating, optional or other special rights of the class
of stock or series and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on a
certificate may be facsimile. If any officer, transfer agent
or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same
effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate
or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal
representative, to advertise the same in such manner as it
shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the
person entitled thereto, cancel the old certificate and
record the transaction upon its books, subject, however to
restrictions imposed either by applicable federal or state
securities laws or by agreements by or among the
stockholders.
FIXING RECORD DATE
Section 5. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any
meeting of stockholders, or to express consent to corporate
action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of
any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more
than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to
recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, to vote as
such owner, and to hold liable for calls and assessments, and
shall not be bound to recognize any equitable or other claim
to or interest in such shares on the part of any other
person, whether or not the corporation shall have express or
other notice thereof.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in shares of the capital
stock of the corporation.
Section 2. Before payment of any dividend, there may
be set aside out of any funds of the corporation available
for dividends such sum or sums as the directors from time to
time, in their absolute discretion, think proper as a reserve
to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may
modify or abolish any such reserve in the manner in which it
was created.
CHECKS
Section 3. All checks or demands for money and notes
of the corporation shall be signed by such officer or
officers or such other person or persons as the Board of
Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
SEAL
Section 5. The corporate seal shall have inscribed
thereon the name of the corporation and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Section 1. (a) The corporation shall indemnify any
person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was
a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by such person
in connection with such action, suit, or proceeding if such
person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe such conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to
believe that such conduct was unlawful.
(b)The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director
or officer of the corporation, or is or was serving at the
request of the corporation, as a director or officer of
another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best
interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper.
(c) To the extent that a director or officer of
the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding
referred to in subparagraphs (a) and (b), or in defense of
any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith.
(d) Any indemnification under subparagraphs (a)
and (b) (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer
is proper in the circumstances because such person has met
the applicable standard of conduct set forth in subparagraphs
(a) and (b). Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion,
or (iii) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by
an officer or director in defending a civil, criminal,
administrative or investigative action, suit, or proceeding
may be paid by the corporation in advance of the final
disposition of such action, suit, or proceeding upon receipt
of an undertaking by or on behalf of the director or officer
to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the
corporation as authorized herein.
(f) The indemnification and advancement of
expenses provided by, or granted pursuant to, other
subsections of this section shall not be deemed exclusive of
any other rights to which officers or directors seeking
indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in
his or her official capacity and as to action in another
capacity while holding such office.
(g) The corporation also shall have the authority
to indemnify employees and agents of the corporation, but
only to the extent provided by a majority vote of
disinterested directors on a case-by-case basis, after full
disclosure to the directors of all relevant facts and
circumstances.
(h) The corporation shall have the power to
purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or
arising out of his or her status as such, whether or not the
corporation would have the power to indemnify such person
against such liability under the provisions of this section.
(i) For the purposes of this section, references
to "the corporation" include all constituent corporations
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had
continued, would have had the power and authority to
indemnify its directors, officers, employees or agents, as
well as the resulting or surviving corporation, so that any
person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this
section with respect to the resulting or surviving
corporation as such person would have with respect to such
constituent corporation if its separate existence had
continued.
(j) For purposes of this section, references to
"other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed
on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation"
shall include any service as a director or officer of the
corporation which imposes duties on, or involves services by,
such director or officer with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(k) The indemnification and advancement of
expenses provided by, or granted pursuant to, this section
shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director,
officer, employee or agent, including, but not limited to, a
person who ceases to be a director, officer, employee or
agent due to the resignation of such person prior to the
initiation of any action, suit or proceeding referred to in
subparagraphs (a) and (b), and shall inure to the benefit of
the heirs, executors and administrators of such a person.
Section 2. The corporation shall, to the fullest
extent permitted by Section 145 of the General Corporation
Law of the State of Delaware, as the same may be amended and
supplemented from time to time, indemnify all officers and
directors whom it shall have the power to indemnify under
said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by
said section, or any successor section thereto.
ARTICLE IX
AMENDMENTS
Section 1. These bylaws may be altered, amended or
repealed or new bylaws may be adopted by the stockholders or
by the Board of Directors (when such power is conferred upon
the Board of Directors by the Certificate of Incorporation),
at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of
the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in
the notice of such special meeting. If the power to adopt,
amend or repeal bylaws is conferred upon the Board of
Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend
or repeal bylaws.
CERTIFICATE OF DESIGNATION OF SERIES PRIVATE
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
8% CONVERTIBLE PREFERRED STOCK
OF
HITCOM CORPORATION
HitCom Corporation, a Delaware corporation (the "Company"),
acting pursuant to Section 151 of the General Company Law of Delaware,
does hereby submit the following Certificate of Designation of
Series and Determination of Rights and Preferences of its 8%
Convertible Preferred Stock.
FIRST: The name of the Company is HitCom Corporation.
SECOND: The Board of Directors of the Company has duly
adopted the following resolutions:
WHEREAS the Certificate of Incorporation of the Company
authorizes Preferred Stock consisting of 5,000,000 shares, par
value $.001 per share, issuable from time to time in one or more
series; and
WHEREAS the Board of Directors of the Company is authorized,
subject to limitations prescribed by law and by the provisions of
Article IV of the Company's Certificate of Incorporation, as
amended, to establish and fix the number of shares to be included
in any series of Preferred Stock and the designation, rights,
preferences, powers, restrictions and limitations of the shares of
such series; and
WHEREAS it is the desire of the Board of Directors to
establish and fix the number of shares to be included in a new
series of Preferred Stock and the designation, rights, preferences
and limitations of the shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article IV of
the Company's Certificate of Incorporation, as amended, there is
hereby established a new series of 1,500,000 shares of 8%
Convertible Preferred Stock of the Company (the "Preferred Stock")
to have the designation, rights, preferences, powers, restrictions
and limitations set forth in a supplement of Article IV as
follows:
1. Liquidation. Upon the voluntary or involuntary
liquidation, winding up or dissolution of the Company out of the
assets available for distribution to shareholders, the Preferred
Stock shall be entitled to receive, in preference to any payment
on the Common Stock, $0.80 (the "Preferred Liquidation Amount")
per share plus any dividends previously declared but unpaid. In
the event the assets of the Company are insufficient to pay the
entirety of the Preferred Stock, the Common Stock and other junior
classes of stock will receive nothing. After the Preferred Stock
has been paid, the remaining assets shall be paid to the Common
Stock and other junior classes of stock in accordance with their
respective priority, if any.
2. Dividends. The Preferred Stock is entitled to receive,
out of legally available funds, cumulative dividends from the
issuance date at the annual rate of eight percent (8%) of the
Preferred Liquidation Amount per share. All such dividends shall
be payable annually on December 31 when and as declared by the
Board of Directors. Cumulative dividends shall accrue from
issuance date, regardless of whether earned, such that no
dividends or other distributions shall be made with respect to the
Common Stock and no Common Stock shall be redeemed until
cumulative dividends on the Preferred Stock for all past and
present dividend periods have been paid or set apart. The
dividend may be paid in-kind with Preferred Stock based upon the
liquidating value of the Preferred Stock.
3. Voting Rights. The Common Stock is entitled to one
vote per share. Each holder of Preferred Stock is entitled to the
number of votes equal to the number of shares of Common Stock into
which the holder's Preferred Stock is convertible. The Common
Stock and Preferred Stock shall vote together as a single class on
all matters which require shareholder approval. Without the
approval of at least a majority of the outstanding shares of
Preferred Stock, the Company shall not (i) amend the certificate
of incorporation or any other document to alter or change any
rights, preferences or privileges of the Preferred Stock which
materially and adversely affect the Preferred Stock, (ii) increase
or decrease the authorized number of shares of Preferred Stock or
effect a stock split or reverse stock split of the Preferred
Stock, (iii) authorize another class or series of shares senior to
the Preferred Stock with respect to distribution of assets on
liquidation, it being understood that the Board of Directors may
authorize another class or series of preferred shares in parity
with the Preferred Stock with respect to distribution, including
liquidating distributions or (iv) purchase, redeem or otherwise
acquire any Common Stock, either directly or through a subsidiary,
excluding the purchase of Common Stock from an employee or
consultant of the Company.
4. Conversion Rights. From the date of issuance, at the
option of the holders, each share of Preferred Stock shall be
convertible into Common Stock at any time. The Company will use
its best efforts to register the Common Shares that underlie the
Preferred Stock within 24 months of the date of issue. The shares
are callable 90 days after the effective date of registration
statement or for a period of 26 months from the date of issue
whichever is less at $0.85 per share.
5. Conversion Ratio. For the purpose of any conversion as
set forth above, each share of Preferred Stock shall be treated as
equivalent to the Preferred Liquidation Amount per share; provided
that, initially, one share of Preferred Stock shall be convertible
into one share of Common Stock. The initial conversion price per
share shall be $0.80. Upon conversion, no fractional shares shall
be issued. The Company shall, in lieu thereof, pay cash value for
all fractional shares of Common Stock. The Company shall reserve
sufficient authorized but unissued shares of Common Stock
necessary to effectuate the conversion of all shares of Preferred
Stock. In addition, the Company will keep sufficient shares
available for the conversion of Preferred Stock.
6. Conversion Procedure. A holder of Preferred Stock who
desires to convert his or her shares into Common Stock shall
forward his or her share certificate to the Company at its
principal executive office, accompanied by a written request to
convert, and specifying the number of shares to be converted. The
endorsement of the share certificate and the request to convert
shall be in form satisfactory to the Company. Upon the date of
such delivery the conversion is deemed to have occurred, and the
person entitled to receive share certificates for Common Stock
shall be regarded for all corporate purposes, from and after such
date, as the holder of the number of shares of Common Stock to
which he is entitled upon the conversion.
7. Stock Splits and Combinations. If the Company shall at
any time subdivide or combine its outstanding Common Stock, or fix
a record date for payment of a dividend in Common Stock or other
securities of the Company exercisable, convertible or exchangeable
for Common Stock (in which latter event the maximum number of
shares of Common Stock issuable upon the exercise, conversion or
exchange of such securities shall be deemed to have been
distributed), after that subdivision, combination or dividend, the
number of shares of Common Stock issuable upon conversion shall be
adjusted to that number of shares which is determined by (A)
multiplying the number of shares of Common Stock purchasable
immediately prior to such adjustment by the conversion price in
effect immediately prior to such adjustment, and then (B) dividing
that product by the conversion price in effect immediately after
such adjustment. If the Company shall at any time subdivide the
outstanding shares of Common Stock or fix a record date for
payment of a dividend in Common Stock or other securities
exercisable, convertible or exchangeable into Common Stock, the
Exercise Price then in effect immediately before that subdivision
or dividend shall be proportionately decreased, and, if the
Company shall at any time combine the outstanding shares of Common
Stock, then the conversion price in effect immediately before that
combination shall be proportionately increased. Any adjustment
under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes
effective or the dividend is distributed.
8. Reclassification, Exchange and Substitution. If the
shares issuable upon exercise of a share of Preferred Stock shall
be changed into the same or a different number of shares of any
other class or classes of securities, whether by capital
reorganization, reclassification, or otherwise (other than a
subdivision or combination or payment for dividend of securities
provided for above), the holder shall, on its conversion, be
entitled to purchase of the same aggregate consideration, in lieu
of the shares which the holder would have become entitled to
purchase but for such change, a number of shares of such other
class or classes of securities which such holder would have been
entitled to receive as the holder of that number of shares subject
to purchase by the holder on conversion of a share of Preferred
Stock immediately before that change.
9. Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, payment
of dividend, reclassification or exchange of Common Stock provided
for above), or merger or consolidation of the Company with or into
another corporation, or the sale of the Company's properties and
assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or
sale, lawful provision shall be made so that the holder of a share
of Preferred Stock shall thereafter be entitled to receive upon
conversion of a share of Preferred Stock, during the period
specified above the number of shares or other securities or
property of the Company, or of the successor corporation resulting
from such merger or consolidation, to which a holder of the shares
issuable upon conversion of a share of Preferred Stock would have
been entitled in such capital reorganization, merger, or
consolidation or sale if such share of Preferred Stock had been
converted immediately before that capital reorganization, merger,
consolidation, or sale. If any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of the
Preferred Stock with respect to the rights and interest of the
holder of a share of Preferred Stock after the reorganization,
merger, consolidation, or sale such that the provisions of the
Preferred Stock (including adjustment of the conversion price then
in effect and number and kind of securities received upon
conversion of a share of Preferred Stock) shall be applicable
after that event in relation to any securities received after that
event upon conversion of a share of Preferred Stock.
10. Minimum Conversion Price Adjustment. No adjustment in
the conversion price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%)
or more of the conversion price, provided, however, that any
adjustments which by reason of this paragraph are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph
shall be made to the nearest cent or to the nearest one-hundredth
of a share.
11. Notices. The Company shall prepare a written statement
setting forth in detail the facts and the revised conversion ratio
promptly after any change in the conversion price or any other
action contemplated above occurs. The statement shall be signed
by the Chief Executive Officer, the Chief Operating Officer, the
Treasurer and filed with the Secretary of the Company. A copy of
the statement shall be mailed to each holder of Preferred Stock.
12. Redemption. The Preferred Stock is non-redeemable
except as herein specifically provided.
13. Call Feature. The Preferred Stock is non-callable
until 90 days after the notice of registration of Common Stock is
given to Preferred Shareholders or 26 months from the issuance
date, whichever comes first (See "Conversion Rights"). After the
expiration of 90 days following notice of registration of the
Common Stock or 26 months from the issuance date, whichever comes
first, the Preferred Stock may be called at $0.85 per share upon
30 days written notice if the Preferred Stock is not converted to
Common Stock.
IN WITNESS WHEREOF, said HitCom Corporation has caused this
Certificate to be signed by Anthony W. Hitt, its President, as of
this 22nd day of May, 1996.
/s/ Anthony W. Hitt
Anthony W. Hitt
President
HitCom Corporation
SHARE EXCHANGE AGREEMENT
BETWEEN HITCOM CORPORATION AND SCOTT BEIL
For the Purchase of Eighty Percent (80%) of
the Outstanding Common Stock of
ONE PLUS MARKETING, INC.
Dated: April 14, 1997
TABLE OF CONTENTS
ARTICLE I TERMS OF PURCHASE AND SALE
1.0 Exchange of Stock
1.1 Closing
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF
2.0 Organization, Qualification and Authorization
2.1 Capitalization
2.2 No Additional Stock Issuable
2.3 Subsidiaries and Partnership Interests
2.4 Authority; No Conflict
2.5 Financial Statements
2.6 Books and Records
2.7 Title to Properties; Encumbrances
2.8 Condition and Sufficiency of Assets
2.9 Accounts Receivable
2.10 Inventory
2.11 No Undisclosed Liabilities
2.12 Taxes
2.13 No Material Adverse Change
2.14 Labor Agreements, Benefit Plans and Employment
Agreements
2.15 ERISA
2.16 Employees and Consultants
2.17 Overtime, Back Wages, Vacations, and Minimum
Wages
2.18 Discrimination, Occupational Safety,
Environmental Control and Other Statutes and Regulations
2.19 Contracts and Commitments
2.20 Insurance
2.21 Litigation
2.22 Proprietary Rights
2.23 No Breach of Statute, Decree, Order or Contract
2.24 Guaranties
2.25 Transactions With Affiliates, Directors and
Others
2.26 Officers and Directors
2.27 Beil Investment Intent
2.28 Brokers or Finders
2.29 Disclosure
2.30 Survival
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF
3.0 Organization, Qualification and Authorization
3.1 Capitalization
3.2 Derivative Securities
3.3 SEC Requirements.
3.4 Subsidiaries and Partnership Interests
3.5 Authority; No Conflict
3.6 Financial Statements
3.7 Books and Records
3.8 Title to Properties; Encumbrances
3.9 Condition and Sufficiency of Assets
3.10 Accounts Receivable
3.11 Inventory
3.12 No Undisclosed Liabilities
3.13 Taxes
3.14 No Material Adverse Change
3.15 Labor Agreements, Benefit Plans and Employment
Agreements
3.16 ERISA
3.17 Employees and Consultants
3.18 Overtime, Back Wages, Vacations, and Minimum
Wages
3.19 Discrimination, Occupational Safety,
Environmental Control and Other Statutes and Regulations
3.20 Contracts and Commitments
3.21 Insurance
3.22 Litigation
3.23 Proprietary Rights
3.24 No Breach of Statute, Decree, Order or Contract
3.25 Guaranties
3.26 Transactions With Affiliates, Directors and
Others
3.27 Officers and Directors
3.28 Brokers or Finders
3.29 Disclosure
3.30 HitCom Investment Intent
3.31 Survival
ARTICLE IV COVENANTS AND AGREEMENTS
[Intentionally deleted]
ARTICLE V ACTIONS TAKEN AT THE CLOSING BY HITCOM AND
5.0 Actions taken at the Closing by Beil
5.1 Actions taken at the Closing by HitCom
ARTICLE VI INDEMNIFICATION
6.1 Indemnification
6.2 Damages
6.3 Notice and Procedures
6.4 Rights of Indemnitor
6.5 Final Claims Statement
6.6 Survival, Calculations and Exclusive Remedy
ARTICLE VII MISCELLANEOUS
7.1 Notices
7.2 Amendment
7.3 Counterparts
7.4 Binding on Successors and Assigns
7.5 Severability
7.6 Waivers
7.7 Cooperation of Parties
7.8 Headings
7.9 Expenses
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT ("Agreement") is made and
entered into this 14th day of April 1997, by and between
HitCom Corporation, Inc., a Delaware corporation ("HitCom")
and Scott Beil, an individual currently residing in the
State of Illinois ("Beil"), together being the parties to
this Agreement ("Parties").
W I T N E S S E T H:
WHEREAS, Beil owns 100 shares of the common stock, no
par value per share, of One Plus Marketing, Inc., an
Illinois corporation ("One Plus"), which constitute all of
the issued and outstanding shares of the capital stock of
the One Plus (the "One Plus Stock"); and
WHEREAS, Beil desires to exchange eighty (80) shares of
One Plus Stock, constituting 80% of the currently
outstanding shares of One Plus Stock (the "Subject One Plus
Shares") for Five Million Eight Hundred thirty-seven
Thousand Five Hundred Three (5,837,503) newly issued shares
of the common stock of HitCom, $0.001 par value per share
("HitCom Common Stock") constituting 70% of the currently
outstanding shares of HitCom Common Stock (the "Subject
HitCom Shares"), and HitCom desires to issue and deliver to
Beil the Subject HitCom Shares in exchange for the Subject
One Plus Shares; and
WHEREAS, Beil requires that he be permitted to maintain
ownership of 70% of all outstanding HitCom Common Stock to
the extent that any "Derivative Securities" (as hereafter
defined) existing on the date hereof are subsequently
exercised or converted and HitCom has agreed to grant to
Beil the right to purchase such additional shares of HitCom
Common Stock pursuant to an anti-dilution option; and
WHEREAS, it is the desire of the Parties that the
transactions contemplated hereby constitute a tax-free
reorganization under Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of
the covenants and agreements set forth in this Agreement,
the Parties hereby agree as follows:
ARTICLE I
TERMS OF PURCHASE AND SALE
Exchange of Stock.
Upon the terms and subject to the
conditions of this Agreement, immediately following the
execution and delivery of this Agreement:
(a) Beil is transferring and delivering to HitCom
all of the Subject One Plus Shares, free and clear of all
options, pledges, security interest, liens, charges, rights
or other encumbrances or restriction on transfer
(collectively, the "Encumbrances") of any kind whatsoever,
other than as may be described herein; and
(b) HitCom is transferring and delivering to Beil
(i) the Subject HitCom Shares, free and clear of all
Encumbrances of any kind whatsoever, other than as may be
described herein, and (ii) an anti-dilution option, in the
form attached hereto as Exhibit A (the "Anti-Dilution
Option").
Closing.
The consummation of the exchange described in Section 1.0 above
(the "Exchange") and the other transactions provided for or
contemplated hereby (the "Closing") is being consummated
contemporaneously with the execution and delivery of the
Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BEIL
Beil represents, warrants and covenants to HitCom as
follows:
Organization, Qualification and Authorization.
One Plus is duly organized, validly
existing and in good standing under the laws of the State of
Illinois. One Plus has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is
not required by law to be qualified as a foreign corporation
to do business in any jurisdiction where the nature of its
business or the ownership or lease of its properties
requires such qualifications, except where the failure to
qualify would not have a materially adverse effect on the
business of One Plus. Beil has the full power and legal
capacity to enter into this Agreement and to carry out his
obligations hereunder.
Capitalization.
The authorized stock of One Plus consists
solely of 1,000 shares of common stock, no par value, of
which 100 shares are issued and outstanding. All of One
Plus' issued and outstanding stock is owned beneficially and
of record by Beil. The issued and outstanding stock of One
Plus has been duly and validly issued, and is fully paid and
non-assessable. None of such shares is subject to any
Encumbrance.
No Additional Stock Issuable.
One Plus has no outstanding stock purchase warrants or options, nor
securities convertible into any class of the capital stock
of One Plus; it has no shares which it is committed to issue
but which are as yet unissued; and neither One Plus nor the
Beil is a party to any agreement obligating either of them
to issue or transfer, or restricting either of them from
transferring, at present or upon the occurrence of any
event, any securities of One Plus.
Subsidiaries and Partnership
Interests.
One Plus has no subsidiaries or interests in
any joint venture, general or limited partnerships.
Authority; No Conflict.
This Agreement constitutes the
legal, valid and binding obligation of Beil enforceable
against Beil in accordance with its terms. Beil has the
absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and to
perform his obligations hereunder. Except as set forth in
Schedule 2.4, neither the execution and delivery of this
Agreement by Beil nor the consummation of the Exchange or
any other transaction contemplated hereby will:
(a) violate or conflict with any provision of the
Certificate or Articles of Incorporation or the By-Laws of
One Plus;
(b) violate or conflict with any provision of any law,
rule, regulation, order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other
decision of any court, government, governmental agency or
instrumentality, domestic, or foreign, or arbitrator,
binding upon Beil or One Plus;
(c) result in a breach of, or constitute a default
under (or with notice or lapse of time or both would result
in a breach of or constitute a default under) or otherwise
give any person the right to terminate, any lease, license,
contract or other agreement or instrument to which One Plus
is a party or by which it is bound;
(d) result in, or require, the creation or imposition
of, any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon
or with respect to any of the properties now owned or used
by One Plus.
Except as disclosed in Schedule 2.4, neither the Beil nor
One Plus are required to give prior notice to, or obtain any
consent, approval or authorization of, any governmental
authority, creditor or other party in connection with the
execution and delivery of this Agreement or the consummation
of the Exchange or any other transaction contemplated by it.
Financial Statements.
Beil has delivered to HitCom: (a)
unaudited balance sheets of One Plus as at December 31,
1995 and 1996, and the related unaudited statements of
income, changes in stockholder's equity and cash flows for
each of the fiscal years then ended, and (b) an unaudited
consolidated balance sheet of One Plus as at January 31,
1997 (the "One Plus Interim Balance Sheet") and the related
unaudited statements of income, changes in stockholder's
equity and cash flow for period then ended, including in
each case the notes thereto. Such financial statements and
notes fairly present the financial condition and results of
operations of One Plus as at the respective dates thereof
and for the periods referred to, all in accordance with
generally accepted United States accounting principles
("GAAP"), subject, in the case of interim financial
statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate,
be materially adverse) and the absence of notes, which, if
presented, would not differ materially from those included
in the Balance Sheet as at December 31, 1996 (the "1996
Balance Sheet") referred to above. The financial statements
referred to in this Section 2.5 reflect the consistent
application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such
financial statements.
Books and Records.
The books of account, minute books, stock
record books and other records of One Plus, all of which
have been made available to HitCom, are complete and correct
and have been maintained in accordance with sound business
practices.
Title to Properties; Encumbrances.
Schedule 2.7 describes all real property, leaseholds or other real
property interests therein owned by One Plus. One Plus owns
(with good and marketable title in the case of real
property) all the properties and assets (real, personal and
mixed, tangible and intangible) reflected in the 1996
Balance Sheet and the Interim Balance Sheet (except for
assets held under capitalized leases not required to be
disclosed in the 1996 Balance Sheet or One Plus Interim
Balance Sheet and property sold since the date of the 1996
Balance Sheet and the One Plus Interim Balance Sheet, as the
case may be, in the ordinary course of business and
consistent with past practice), and all of the properties
and assets purchased or otherwise acquired by One Plus since
the date of the 1996 Balance Sheet (except for personal
property acquired and sold since the date of the 1996
Balance Sheet in the ordinary course of business and
consistent with past practice). Except as listed on
Schedule 2.7, properties and assets reflected in the 1996
Balance Sheet and the One Plus Interim Balance Sheet are
free and clear of all liens, security interests, and other
encumbrances.
Condition and Sufficiency of Assets.
To the knowledge of Beil, the buildings, plants, structures and
equipment of One Plus are structurally sound with no known
defects, are in good operating condition and repair and are
adequate for the uses to which they are being put, and none
of such buildings, plants, structures or equipment is in
need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or
cost. The building, plants, structures and equipment of One
Plus are sufficient for the conduct of its business, as
currently being conducted. Schedule 2.8 lists all items of
machinery and equipment owned by One Plus having a book
value or replacement cost in excess of [$1,000].
Accounts Receivable.
All accounts receivable of One Plus
that are reflected in the Balance Sheet or the One Plus
Interim Balance Sheet arose from sales actually made in the
ordinary course of business. Attached as Schedule 2.9 is a
true, complete and correct aging schedule of all accounts
receivable and trade accounts due One Plus as of the date
hereof.
Inventory.
All inventory of One Plus, whether or not reflected in the
1996 Balance Sheet or the One Plus Interim Balance Sheet,
consists of a quality and quantity usable and salable in the
ordinary course of business, except for obsolete items and
items of below-standard quality, all of which have been
written off or written down to net realizable value in the
1996 Balance Sheet or the One Plus Interim Balance Sheet or
on the accounting records of One Plus as of the Closing
Date, as the case may be. The quantities of each type of
inventory are not excessive, but are reasonable and
warranted in the present circumstance of One Plus.
No Undisclosed Liabilities.
Except as set forth in Schedule 2.11, One Plus has no knowledge of
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) that are not fully reflected or reserved against
in the 1996 Balance Sheet or the One Plus Interim Balance
Sheet, except liabilities and obligations incurred in the
ordinary course of business and consistent with past
practice since the respective dates thereof.
Taxes.
One Plus has filed or caused to be filed on a timely basis all
tax returns that are or were required to be filed by it
pursuant to the laws, regulations or administrative
requirements of each governmental body with taxing power
over it or its assets. One Plus has paid, or made
provision for the payment of, all taxes that have or may
have become due pursuant to such tax returns, or otherwise,
or pursuant to any assessment received by One Plus, except
such taxes, if any, as are set forth in Schedule 2.12 and
are being contested in good faith and as to which adequate
reserves (determined in accordance with generally accepted
United States accounting principles consistently applied)
have been provided in the 1996 Balance Sheet and the Interim
Balance Sheet. The United States federal and state income
tax returns of One Plus have been audited by the Internal
Revenue Service or are closed by the applicable statute of
limitations for all taxable years through 199___. All
deficiencies proposed as a result of such audits have been
paid, reserved against, settled, or, as described in
Schedule 2.12, are being contested in good faith by
appropriate proceedings. One Plus has not given or been
requested to give any waivers or extensions of any statute
of limitations relating to the payment of taxes of One Plus
or for which One Plus may be liable. The charges, accruals
and reserves with respect to taxes on the books of One Plus
are adequate (determined in accordance with GAAP) and are at
least equal to One Plus's current and deferred liabilities
for taxes. There exists no proposed tax assessment against
One Plus except as disclosed in the 1996 Balance Sheet, the
One Plus Interim Balance Sheet or in Schedule 2.12. All
taxes that One Plus is or was required by law to withhold or
collect have been duly withheld or collected and, to the
extent required, have been paid to the proper governmental
body or taxing authority. To the knowledge of Beil, all tax
returns filed by One Plus are true, correct and complete in
all material respects.
No Material Adverse Change.
Since the date of the 1996 Balance Sheet, there has not been
any material adverse change in the business, operations,
properties, assets or condition of One Plus or any event, condition
or contingency that is likely to result in such a material adverse change.
Labor Agreements, Benefit Plans and Employment Agreements.
Except as set forth in Schedule 2.14, One Plus is not a party to or
otherwise subject to (i) any union, collective bargaining
or similar agreement; (ii) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension,
retainer, consulting, retirement, welfare or incentive plan
or agreement; (iii) any plan providing for "fringe
benefits" to its employees, including but not limited to
vacation, sick leave, medical, hospitalization, life
insurance, automobile, club memberships and other plans and
related benefits; or (iv) any employment agreement not
terminable without penalty on 30 days written notice.
There are no negotiations, demands or proposals which are
pending which concern matters covered by the type of
agreement listed in this paragraph.
ERISA.
All "employee welfare benefit" and "employee pension benefit"
plans, as defined in Sections 3 (1) and 3 (2), respectively,
of the Employee Retirement Income Security Act of 1974, as
amended and in effect ("ERISA"), established or maintained
by One Plus in which employees of One Plus are participating
(singly, a "Plan" and, collectively, the "Plans") are
included in Schedule 2.15. No Plan had an accumulated
funding deficiency (as such term is defined in Section 302
of ERISA) as of the last day of the most recent fiscal year
of such Plan ended prior to the date hereof, and no
liability to the Pension Benefit Guaranty Corporation
("PBGC") has been, or is expected by One Plus to be,
incurred with respect to any such Plan by One Plus. As to
each Plan which is a defined benefit plan with the meaning
of Section 3 (35) of ERISA, the value of the assets thereof
as of December 31, 1996, as determined by such plans
independent actuaries, exceeds the present value, as
determined by such actuaries as of such date, of the
benefits vested under such Plan which are guaranteed by the
Pension Benefit Guaranty Corporation under Title IV of
ERISA. None of the Plans is a multi-employer plan within
the meaning of Section 3(37) of ERISA, and One Plus has not
maintained or sponsored, has not been required to contribute
to, has not terminated or withdrawn, and is not aware of any
withdrawal liability (as defined in Section 4201 of ERISA)
assessed or to be assessed against One Plus with respect to
any defined benefit plan or multi-employer plan in which
employees of One Plus have participated. The Plans have
been administered in substantial compliance with their terms
and with all material filing, reporting, disclosure, and
other requirements of ERISA. Each Plan (together with its
related funding instrument) which is an employee pension
benefit plans qualified under Section 401 of the Code and
each such Plan and its related funding instrument have been
the subject of a favorable determination letter issued by
the Internal Revenue Service holding that such Plan and
funding instrument are so qualified under Section 401(a) of
the Code as in effect prior to the enactment of the Tax
Reform Act of 1986, and nothing has occurred which would
cause such letters to become invalid assuming that One Plus
timely amends such plans to comply with the Code as
presently in effect. Neither One Plus nor any or its
employees or directors, nor to the best of Beil's knowledge
any Plan fiduciary of any of the Plans, has engaged in any
transaction in violation of Section 406 (a) or (b) of ERISA
or any "prohibited transaction" (as defined in Section 4975
(c) (1) of the Code) for which no exemption exists under
408 (b) of ERISA or Section 4975 (d) of the Code or for
which no administrative exemption has been granted under
Section 408 (a) of ERISA, and no "reportable event" (as
defined in Section 4043 of ERISA) for which the 30 day
notice requirement has not been waived, other than such as
may arise out of the consummation of the transactions
contemplated by this Agreement, has occurred in connection
with any Plan. No matter is pending relating to any Plan
before any court or governmental agency, except as otherwise
disclosed herein.
Employees and Consultants.
Set forth on Schedule 2.16 is a list setting forth (i) all
current employees of
One Plus not covered by collective bargaining agreements
whose salary rate exceeds $30,000.00 per year, and (ii) all
consultants (other than lawyers and accountants) performing
services for One Plus since December 31, 1995, together with
the job title of such employees or the services provided by
such consultants and the current compensation rate
(including bonuses) of such employees and the fees paid or
payable to such consultants. Schedule 2.16 also contains a
summary description of any employment or other agreement or
understanding, whether or not written, with any such person
that is not terminable upon 30 days notice without penalty.
Overtime, Back Wages, Vacations, and Minimum Wages.
Except as disclosed on Schedule 2.17, to the knowledge of Beil,
no present or former employee of One Plus has any claim against it
(whether under federal or state law, under any employment
agreement or otherwise), on account of or for (i) overtime
pay other than for current payroll; (ii) wages or salary
for any period other than the current payroll; (iii)
bonuses; (iv) vacation, time off or pay in lieu of vacation
or time off, other than vacation or time off (or pay in lieu
thereof) earned in respect of the current fiscal year; (v)
any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours of work; or (vi)
any rights or claims which would result from consummation
of the transaction contemplated by this Agreement.
Discrimination, Occupational Safety,
Environmental Control and Other Statutes and Regulations.
Except as disclosed in Schedule 2.18, neither Beil nor One
Plus have received any notice of any claim or have any
reason to believe that there is any basis for any action or
proceeding against One Plus arising out of any statute,
ordinance or regulation relating to discrimination in
employment, termination of employment, or unemployment
practices, occupational safety and health standards, or
environmental pollution or control, which if upheld would
have a materially adverse effect on its business or
condition, financial or otherwise. To Beil's knowledge, One
Plus has properly disposed of all hazardous waste for which
it is lawfully responsible, and to the knowledge of Beil,
there are no hazardous wastes or substances on any property
owned or occupied by One Plus.
Contracts and Commitments.
Except as set forth in Schedule 2.19, the 1996 Balance Sheet or One Plus
Interim Balance Sheet, One Plus does not have outstanding and is not
a party to: (i) any contract or commitment requiring it to
render services or make a payment at a price or in an amount
of over $10,000.00 in the aggregate, other than [a] any
contract or commitment of not more than $25,000.00 entered
into in the ordinary course of business, or [b] any
contract or commitment of not more than $25,000.00 which is
terminable upon not more than one months notice without
penalty; (ii) any lease of any real or personal property
under which it is lessor; (iii) any revocable or
irrevocable power of attorney to any person, firm or
corporation for any purpose whatsoever; or (iv) any loan
agreement, security agreement, indenture, promissory note,
conditional sales agreements or other similar agreement.
All of such contracts and commitments are valid, binding and
in full force and effect in accordance with their terms, and
none require the consent of any other party which has not
been or will not be obtained prior to the consummation of
the transactions contemplated by this Agreement. To the
knowledge of Beil, One Plus and the other parties to such
material contracts, have complied or are presently in
compliance with the provisions thereof, and One Plus is not
in default and, to the knowledge of the Beil, no other party
is in default in the performance, observation or fulfillment
of any obligation, covenant or condition contained therein,
and no event has occurred which, with or without the giving
of notice, lapse of time or both, would constitute a default
thereunder.
Insurance.
One Plus has been continuously and is presently insured for
reasonable amounts with insurance companies believed by Beil
to be responsible and financially sound against such risks
as companies engaged in providing professional and
consulting engineering services are, in accordance with good
business practice, customarily insured, including but not
limited to professional and consulting engineering
professional liability insurance and casualty and fire
insurance. No pending or threatened claim has been made
against any insurer or One Plus on account of any such
policy or policies of insurance, and One Plus has not
received any cancellation notices or indication that the
insurer is unwilling to renew or continue coverage. Within
the past five years, no insurer has canceled or refused to
issue a policy of insurance to One Plus. Set forth on
Schedule 2.20 is a list setting forth the carrier, the
amount and type of coverage, the term, the expiration date,
the premium and the broker for all insurance policies and
bonds in force covering One Plus and its properties,
operations and personnel. Such parties are sufficient for
all requirements of law and all agreements to which One Plus
is a party or by which it is bound, and none of such
policies will in any way be affected by, terminate or lapse
by reason of the transactions contemplated by this
Agreement.
Litigation.
Except as set forth on Schedule 2.21, (i)
neither Beil nor One Plus are subject to any judgment,
award, injunction, rule, order, or decree in which relief is
sought involving, affecting, or relating to the ownership,
operation, or use of their assets or the conduct of One
Plus business or which would prevent, delay, or make
illegal the transactions contemplated by this Agreement,
(ii) there are no actions, lawsuits, audits,
investigations, claims, or proceedings pending or, to the
knowledge of Beil, threatened against, involving, affecting,
or relating to One Plus or to its ownership, operation or
use of its assets or to the conduct of its business before
any court, arbitrator, or federal, state, municipal, or
other governmental department, board, agency, or
instrumentality, or (iii) to the knowledge of Beil, there
exist no facts to serve as a basis, under current laws or
regulations, for the institution of any action, lawsuit,
audit, investigation, claim or proceeding which might affect
materially and adversely the business or the financial
condition of One Plus.
Proprietary Rights.
Except as set forth on Schedule 2.22,
One Plus does not own or use any patents, trademarks,
copyrights, computer programs, software, trade secrets or
other proprietary rights. To the knowledge of Beil, One
Plus is not infringing upon or otherwise acting adversely to
any such rights owned by any other party or parties, and
there is no such claim or action pending or, to the
knowledge of Beil, threatened.
No Breach of Statute, Decree, Order or Contract.
Except as disclosed in any schedule hereto,
subject to any applicable grace period, One Plus is not in
default under or in violation in any material respect of any
applicable statute, law, ordinance, decree, order, rule or
regulation of any governmental body, or the provisions of
any franchise of license, or in default under or in
violation of any provision of its Certificate or Articles of
Incorporation, By-Laws, any promissory notes, indentures, or
any evidence of indebtedness or security therefor, or any
lease, contract, purchase or other commitment or any other
agreement by which it is bound which could result in a
materially adverse effect on its business or condition,
financial or otherwise.
Guaranties.
Except as set forth on Schedule 2.24 or in
the 1996 Balance Sheet, One Plus is not a guarantor,
indemnitor or otherwise liable for any indebtedness of any
other person, firm or corporation, except as endorser on
checks received by it and deposited in the ordinary course
of business.
Transactions With Affiliates, Directors and Others.
Except as set forth in Schedule
2.25, (i) One Plus is not indebted to Beil or to any
director, officer or employee, except for amounts due as
normal salaries, wages and bonuses for the current period at
rates in effect prior to December 31, 1996, or subsequently
accrued for the current fiscal year in accordance with One
Pluss regular past practice, or in reimbursement of
ordinary expenses on a current basis; (ii) neither Beil
nor any director, officer or employee of One Plus is
indebted to One Plus except for advance for ordinary
business expenses for which such Beil, directors, officers
or employees are accountable; and (iii) neither Beil nor
any officer or director has any material financial interest
in any transaction with One Plus in which it is in
competition with One Plus.
Officers and Directors.
Set forth in Schedule 2.26 is a
list of the officers and directors of One Plus.
Beil Investment Intent.
Beil represents and warrants
that:
(a) he is acquiring Subject HitCom Shares and the
HitCom Common Stock issuable pursuant to the Anti-Dilution
Option for investment, for his own account and not with a
view to the distribution or resale thereof;
(b) he will not sell, hypothecate or otherwise dispose
of all or any part of the Subject HitCom Shares or the
HitCom Common Stock issuable pursuant to the Anti-Dilution
Option unless such Subject HitCom Shares or HitCom Common
Stock issuable pursuant to the Anti-Dilution Option have
been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities
laws or, in the opinion of counsel satisfactory to HitCom,
an exemption from the registration requirements of the
Securities Act and such state securities laws is available,
and he agrees that a legend to the foregoing effect may be
placed upon any certificates or other documents issued to
them representing the Subject HitCom Shares or HitCom Common
Stock issuable pursuant to the Anti-Dilution Option, and the
records of Hitcom may be marked to indicate such
restrictions on transfer;
(c) he has such knowledge and experience in financial
and business matters that he is capable of evaluating the
merits and risks of an investment in HitCom;
(d) he has evaluated and understands the risks and
terms of his investment in HitCom, and he understands the
speculative nature of an investment in HitCom; and
(e) he has had an opportunity to ask questions of
management of HitCom concerning his investment in HitCom and
to obtain such information as he deemed necessary to his
evaluation of his investment in HitCom.
Brokers or Finders.
Beil has incurred no obligation or
liability, contingent or otherwise, for brokerage or
finders fees or agents commissions or other like payment
in connection with this Agreement.
Disclosure.
No representation or warranty by Beil in this
Agreement, nor any schedule, statement or certificate
furnished or to be furnished to HitCom pursuant hereto, or
in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact
necessary to make the statements contained therein not
misleading.
Survival.
All covenants, representations and warranties made by Beil
shall survive the Closing for a period of six (6) months.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF HITCOM
HitCom represents, warrants and covenants to Beil as
follows:
Organization, Qualification and Authorization.
HitCom is duly organized, validly existing
and in good standing under the laws of the State of
Delaware. HitCom has all requisite corporate power and
authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and is
not required by law to be qualified as a foreign corporation
to do business in any jurisdiction where the nature of its
business or the ownership or lease of its properties
requires such qualifications. HitCom has the full power to
enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this
Agreement by HitCom has been duly and effectively authorized
and approved by all requisite actions and no other acts or
proceedings are necessary to authorize this Agreement or the
transactions contemplated hereby.
Capitalization.
The authorized capital stock of HitCom
consists of 50,000,000 shares of HitCom Common Stock, $0.001
par value, of which 2,501,787 shares are issued and
outstanding, and 5,000,000 shares of preferred stock, $0.001
par value, of which 1,051,250 shares of 8% convertible
preferred stock are issued and outstanding. The issued and
outstanding stock of HitCom has been duly and validly
issued, and is fully paid, non-assessable and free of
preemptive rights.
Derivative Securities.
As of the date of this Agreement,
except as set forth in Schedule 3.2, HitCom does not have
and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character
calling for the purchase or issuance of any shares of HitCom
Common Stock or any securities representing the right to
purchase or otherwise receive any shares of HitCom Common
Stock or securities convertible into or exercisable for any
shares of HitCom Common Stock (collectively, "Derivative
Securities"). Except to set forth in Schedule 3.2, neither
the issuance and transfer of the Subject HitCom Shares
pursuant to Section 1.0 hereof nor the consummation of the
Exchange or other transactions contemplated hereunder will
affect the number of shares of HitCom Common Stock covered
by any Derivative Securities or the exercise or purchase
price for the shares covered thereunder. Except as set
forth in Schedule 3.2, since December 31, 1996, HitCom has
not issued or entered into any agreement to issue any shares
of HitCom Common Stock, any securities convertible into or
exercisable for any shares of HitCom Common Stock, or any
other form of Derivative Securities.
SEC Requirements.
HitCom is not registered, and is not
required to register the HitCom Common Stock or any other
class of its securities, under the Securities Exchange Act
of 1934, as amended.
Subsidiaries and Partnership Interests.
HitCom has no subsidiaries or interests in
joint ventures, general or limited partnerships except as
listed on Schedule 3.4 hereto. Schedule 3.4 contains a
description of HitCom's ownership interest in each such
subsidiary, joint venture or partnership.
Authority; No Conflict.
This Agreement constitutes the legal, valid and binding
obligation of HitCom enforceable
against HitCom in accordance with its terms. HitCom has the
absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and to
perform its obligations hereunder. Except as set forth in
Schedule 3.5 neither the execution and delivery of this
Agreement by HitCom nor the consummation of the Exchange or
any other transaction contemplated hereunder will:
(a) violate or conflict with any provision of the
Certificate or Articles of Incorporation of By-Laws of
HitCom;
(b) violate or conflict with any provision of any law,
rule, regulation, order, permit, certificate, writ,
judgment, injunction, decree, determination, award or other
decision of any court, government, governmental agency or
instrumentality, domestic, or foreign, or arbitrator,
binding upon HitCom;
(c) result in a breach of, or constitute a default
under (or with notice or lapse of time or both result in a
breach of or constitute a default under) or otherwise give
any person the right to terminate, any lease, license,
contract or other agreement or instrument to which HitCom is
a party or by which it is bound;
(d) result in, or require, the creation or imposition
of, any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon
or with respect to any of the properties now owned or used
by HitCom.
Except as disclosed in Schedule 3.5, HitCom is not required
to give prior notice to, or obtain any consent, approval or
authorization of, any governmental authority, creditor or
other party in connection with the execution and delivery of
this Agreement or the consummation of the Exchange or any
other transaction contemplated hereby.
Financial Statements.
HitCom has delivered to Beil: (a)
audited balance sheets of HitCom as at March 31, 1996, and
the related audited statements of income, changes in
stockholders equity and cash flow (hereinafter referred to
as the "Balance Sheet"), and (b) an unaudited consolidated
balance sheet of HitCom as at December 31, 1996 (the "HitCom
Interim Balance Sheet") and the related unaudited statements
of income, changes in stockholders' equity and cash flow for
the nine months then ended, including in each case the notes
thereto. Such financial statements and notes fairly present
the financial condition and results of operations of HitCom
as at the respective dates thereof and for the periods
referred to, all in accordance with GAAP, subject, in the
case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and
the absence of notes (which, if presented, would not differ
materially from those included in the Balance Sheet); the
financial statements referred to in this Section 3.6 reflect
the consistent application of such accounting principles
throughout the periods involved, except as disclosed in the
notes to such financial statements.
Books and Records.
The books of account, minute books, stock
record books and other records of HitCom, all of which have
been made available to Beil, are complete and correct and
have been maintained in accordance with sound business
practices.
Title to Properties; Encumbrances.
Schedule 3.8 describes all real property, leaseholds or other real
property interests therein owned by HitCom. HitCom owns
(with good and marketable title in the case of real
property) all the properties and assets (real, personal and
mixed, tangible and intangible) that it purports to own,
including, but not limited to, all the properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet
(except for assets held under capitalized leases not
required to be disclosed in the Balance Sheet and Interim
Balance Sheet and property sold since the date of the
Balance Sheet and the Interim Balance Sheet, as the case may
be, in the ordinary course of business and consistent with
past practice), and all of the properties and assets
purchased or otherwise acquired by HitCom since the date of
the Balance Sheet (except for personal property acquired and
sold since the date of the Balance Sheet in the ordinary
course of business and consistent with past practice).
Except as listed on Schedule 3.8 properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet
are free and clear of all liens, security interests and
encumbrances.
Condition and Sufficiency of Assets.
To the knowledge of HitCom, the buildings, plants, structures and
equipment of HitCom are structurally sound with no known
defects, are in good operating condition and repair and are
adequate for the uses to which they are being put, and none
of such buildings, plants, structures or equipment is in
need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or
cost. The building, plants, structures and equipment of
HitCom are sufficient for the continued conduct of HitCom's
business. Schedule 3.9 lists all items of machinery and
equipment owned by HitCom having a book value or replacement
cost in excess of $1,000.
Accounts Receivable.
All accounts receivable of HitCom
that are reflected in the Balance Sheet or the HitCom
Interim Balance Sheet represent or will represent valid
obligations arising from sales actually made in the ordinary
course of business, and are current and collectible net of
the respective reserves shown on the Balance Sheet or the
HitCom Interim Balance Sheet or on the accounting records of
HitCom as of the Closing Date.
Inventory.
All inventory of HitCom, whether or not reflected in the
Balance Sheet or the HitCom Interim Balance Sheet, consists
of a quality and quantity usable and salable in the ordinary
course of business, except for obsolete items and items of
below-standard quality, all of which have been written off
or written down to net realizable value in the Balance Sheet
or the HitCom Interim Balance Sheet or on the accounting
records of HitCom as of the Closing Date, as the case may
be. The quantities of each type of inventory are not
excessive, but are reasonable and warranted in the present
circumstance of HitCom.
No Undisclosed Liabilities.
Except as set forth in Schedule 3.12, HitCom has no knowledge
of any liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) that were not fully reflected
or reserved against in the Balance Sheet or the HitCom Interim
Balance Sheet, except liabilities and obligations incurred in the ordinary
course of business and consistent with past practice since
the respective dates thereof.
Taxes.
HitCom has filed or caused to be filed on a timely basis all tax
returns that are or were required to be filed by it pursuant
to the laws, regulations or administrative requirements of
each governmental body with taxing power over it or its
assets. Hit has paid, or made provision for the payment of,
all taxes that have or may have become due pursuant to such
tax returns, or otherwise, or pursuant to any assessment
received by Hitcom, except such taxes, if any, as are set
forth in Schedule 3.13 and are being contested in good faith
and as to which adequate reserves (determined in accordance
with GAAP) have been provided in the Balance Sheet and the
HitCom Interim Balance Sheet. The United States federal and
state income tax returns of HitCom have been audited by the
Internal Revenue Service or are closed by the applicable
statute of limitations for all taxable years through 199___.
All deficiencies proposed as a result of such audits have
been paid, reserved against, settled, or, as described in
Schedule 3.13, are being contested in good faith by
appropriate proceedings. HitCom has not given or been
requested to give any waivers or extensions of any statute
of limitations relating to the payment of taxes of HitCom or
for which HitCom may be liable. The charges, accruals and
reserves with respect to taxes on the books of HitCom are
adequate (determined in accordance with generally accepted
United States accounting principles consistently applied)
and are at least equal to HitCom's current and deferred
liabilities for taxes. There exists no proposed tax
assessment against HitCom except as disclosed in the Balance
Sheet, the HitCom Interim Balance Sheet or in Schedule 3.13.
All taxes that HitCom is or was required by law to withhold
or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper governmental
body or taxing authority. To the knowledge of HitCom, all
tax returns filed by HitCom are true, correct and complete.
No Material Adverse Change.
Since the date of the
Balance Sheet, there has not been any material adverse
change in the business, operations, properties, assets or
condition of HitCom or any event, condition or contingency
that is likely to result in such a material adverse change.
Labor Agreements, Benefit Plans and Employment Agreements.
Except as set forth in Schedule 3.15, HitCom is not a party to or
otherwise subject to (i) any union, collective bargaining
or similar agreement; (ii) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension,
retainer, consulting, retirement, welfare or incentive plan
or agreement; (iii) any plan providing for "fringe
benefits" to its employees, including but not limited to
vacation, sick leave, medical, hospitalization, life
insurance, automobile, club memberships and other plans and
related benefits; or (iv) any employment agreement not
terminable without penalty on 30 days written notice.
There are no negotiations, demands or proposals which are
pending which concern matters covered by the type of
agreement listed in this Section 3.15.
ERISA.
All Plans established or maintained by HitCom in which employees
of HitCom are participating are included in Schedule 3.16.
No Plan had an accumulated funding deficiency (as such term
is defined in Section 302 of ERISA) as of the last day of
the most recent fiscal year of such Plan ended prior to the
date hereof, and no liability to the Pension Benefit
Guaranty Corporation ("PBGC") has been, or is expected by
HitCom to be, incurred with respect to any such Plan by
HitCom. As to each Plan which is a defined benefit plan
with the meaning of Section 3 (35) of ERISA, the value of
the assets thereof as of December 31, 1996, as determined by
such plans independent actuaries, exceeds the present
value, as determined by such actuaries as of such date, of
the benefits vested under such Plan which are guaranteed by
the Pension Benefit Guaranty Corporation under Title IV of
ERISA. None of the Plans is a multi-employer plan within
the meaning of Section 3(37) of ERISA, and HitCom has not
maintained or sponsored, has not been required to contribute
to, has not terminated or withdrawn, and is not aware of any
withdrawal liability (as defined in Section 4201 of ERISA)
assessed or to be assessed against HitCom with respect to
any defined benefit plan or multi-employer plan in which
employees of HitCom have participated. The Plans have been
administered in substantial compliance with their terms and
with all material filing, reporting, disclosure, and other
requirements of ERISA. Each Plan (together with its related
funding instrument) which is an employee pension benefit
plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations
issued thereunder, and each such Plan and its related
funding instrument have been the subject of a favorable
determination letter issued by the Internal Revenue Service
holding that such Plan and funding instrument are so
qualified under Section 401(a) of the Code as in effect
prior to the enactment of the Tax Reform Act of 1986, and
nothing has occurred which would cause such letters to
become invalid assuming that HitCom timely amends such plans
to comply with the Code as presently in effect. Neither
HitCom nor any or its employees or directors, nor to the
best of Hitcom's knowledge any Plan fiduciary of any of the
Plans, has engaged in any transaction in violation of
Section 406 (a) or (b) of ERISA or any "prohibited
transaction" (as defined in Section 4975 (c) (1) of the
Code) for which no exemption exists under 408 (b) of ERISA
or Section 4975 (d) of the Code or for which no
administrative exemption has been granted under Section 408
(a) of ERISA, and no "reportable event" (as defined in
Section 4043 of ERISA) for which the 30 day notice
requirement has not been waived, other than such as may
arise out of the consummation of the transactions
contemplated by this Agreement, has occurred in connection
with any Plan. No matter is pending relating to any Plan
before any court or governmental agency, except as otherwise
disclosed herein.
Employees and Consultants.
Set forth on Schedule 3.17 is a list setting forth (i) all
current employees of
HitCom not covered by collective bargaining agreements whose
salary rate exceeds $30,000.00 per year, and (ii) all
consultants (other than lawyers and accountants) performing
services for HitCom or any subsidiary since December 31,
1996, together with the job title of such employees or the
services provided by such consultants and the current
compensation rate (including bonuses) of such employees and
the fees paid or payable to such consultants. Schedule 3.17
also contains a summary description of any employment or
other agreement or understanding, whether or not written,
with any such person that is not terminable upon 30 days
notice without penalty.
Overtime, Back Wages, Vacations, and Minimum Wages.
Except as disclosed on
Schedule 3.18, no present or former employee of HitCom has
any claim against it (whether under federal or state law,
under any employment agreement or otherwise), on account of
or for (i) overtime pay other than for current payroll, (ii)
wages or salary for any period other than the current
payroll, (iii) bonuses, (iv) vacation, time off or pay in
lieu of vacation or time off, other than vacation or time
off (or pay in lieu thereof) earned in respect of the
current fiscal year, (v) any violation of any statute,
ordinance or regulation relating to minimum wages or maximum
hours of work, or (vi) any rights or claims which would
result from consummation of the transaction contemplated by
this Agreement.
Discrimination, Occupational Safety,
Environmental Control and Other Statutes and Regulations.
Except as disclosed in Schedule 3.19, HitCom has not
received any notice of any claim or have any reason to
believe that there is any basis for any action or proceeding
against HitCom arising out of any statute, ordinance or
regulation relating to discrimination in employment,
termination of employment, or unemployment practices,
occupational safety and health standards, or environmental
pollution or control, which if upheld would have a
materially adverse effect on its business or condition,
financial or otherwise. To HitCom's knowledge, HitCom has
properly disposed of all hazardous waste for which it is
lawfully responsible, and to the knowledge of HitCom, there
are no hazardous wastes or substances on any property owned
or occupied by it.
Contracts and Commitments.
Except as set forth in
Schedule 3.20, the Balance Sheet or HitCom Interim Balance
Sheet, HitCom does not have outstanding and is not a party
to: (i) any contract or commitment requiring it to render
services or make a payment at a price or in an amount of
over $10,000.00 in the aggregate, other than [a] any
contract or commitment of not more than $25,000.00 entered
into in the ordinary course of business, or [b] any
contract or commitment of not more than $25,000.00 which is
terminable upon not more than one month's notice without
penalty; (ii) any lease of any real or personal property
under which it is lessor; (iii) any revocable or
irrevocable power of attorney to any person, firm or
corporation for any purpose whatsoever; or (iv) any loan
agreement, security agreement, indenture, promissory note,
conditional sales agreements or other similar agreement.
All of such contracts and commitments are valid, binding and
in full force and effect in accordance with their terms, and
none require the consent of any other party which has not
been or will not be obtained prior to the consummation of
the transactions contemplated by this Agreement. HitCom
and, to the knowledge of HitCom, the other parties to such
material contracts, have complied or are presently in
compliance with the provisions thereof, and HitCom is not in
default and, to the knowledge of HitCom, no other party is
in default, in the performance, observation, or fulfillment
of any obligation, covenant or condition contained therein,
and no event has occurred which, with or without the giving
of notice, lapse of time or both, would constitute a default
thereunder.
Insurance.
HitCom has been continuously and is presently insured for
reasonable amounts with insurance companies believed by
HitCom to be responsible and financially sound against such
risks as companies engaged in providing professional and
consulting engineering services are, in accordance with good
business practice, customarily insured, including but not
limited to professional and consulting engineering
professional liability insurance and casualty and fire
insurance. No pending or threatened claim has been made
against any insurer or HitCom on account of any such policy
or policies of insurance, and HitCom has not received any
cancellation notices or indication that the insurer is
unwilling to renew or continue coverage. Within the past
five years, no insurer has canceled or refused to issue a
policy of insurance to HitCom. Set forth on Schedule 3.21
is a list setting forth the carrier, the amount and type of
coverage, the term, the expiration date, the premium and the
broker for all insurance policies and bonds in force
covering HitCom and its properties, operations and
personnel. Such parties are sufficient for all requirements
of law and all agreements to which HitCom is a party or by
which it is bound, and none of such policies will in any way
be affected by, terminate or lapse by reason of the
transactions contemplated by this Agreement.
Litigation.
Except as set forth on Schedule 3.22, (i)
HitCom is not subject to any judgment, award, injunction,
rule, order, or decree in which relief is sought involving,
affecting, or relating to the ownership, operation, or use
of their assets or the conduct of HitCom's business or which
would prevent, delay, or make illegal the transactions
contemplated by this Agreement, (ii) there are no actions,
lawsuits, audits, investigations, claims, or proceedings
pending or, to the knowledge of HitCom, threatened against,
involving, affecting, or relating to HitCom or to its
ownership, operation, or use of its assets or to the conduct
of its business before any court, arbitrator, or federal,
state, municipal, or other governmental department, board,
agency, or instrumentality, or (iii) to the knowledge of
HitCom, there exist no facts to serve as a basis, under
current laws or regulations, for the institution of any
action, lawsuit, audit, investigation, claim, or proceeding
which might affect materially and adversely the business,
financial condition, or prospects of HitCom.
Proprietary Rights.
Except as set forth on Schedule 3.23,
HitCom does not own or use any patents, trademarks,
copyrights, computer programs, software, trade secrets or
other proprietary rights. To its knowledge, HitCom is not
infringing upon or otherwise acting adversely to any such
rights owned by any other party or parties, and there is no
such claim or action pending or, to the knowledge of HitCom,
threatened.
No Breach of Statute, Decree, Order or Contract.
Except as disclosed in any schedule hereto,
subject to any applicable grace period, HitCom is not in
default under or in violation in any material respect of any
applicable statute, law, ordinance, decree, order, rule or
regulation of any governmental body, or the provisions of
any franchise of license, or in default under or in
violation of any provision of its Certificate or Articles of
Incorporation, By-Laws, any promissory notes, indentures, or
any evidence of indebtedness or security therefor, or any
lease, contract, purchase or other commitment or any other
agreement by which it is bound which could result in a
materially adverse effect on its business or condition,
financial or otherwise.
Guaranties.
Except as set forth on Schedule 3.25 or in
the Balance Sheet, HitCom is not a guarantor, indemnitor, or
otherwise liable for any indebtedness of any other person,
firm or corporation, except as endorser on checks received
by it and deposited in the ordinary course of its business.
Transactions With Affiliates, Directors and Others.
Except as set forth in Schedule
3.26: (i) HitCom is not indebted to any director, officer
or employee, except for amounts due as normal salaries,
wages and bonuses for the current period at rates in effect
prior to December 31, 1996, or subsequently accrued for the
current fiscal year in accordance with HitCom's regular past
practice, or in reimbursement of ordinary expenses on a
current basis; (ii) neither HitCom nor any director,
officer or employee of HitCom is indebted to HitCom except
for advance for ordinary business expenses for which HitCom,
directors, officers or employees are accountable; and (iii)
neither HitCom nor any officer or director has any material
financial interest in any transaction with HitCom in which
it is in competition with HitCom.
Officers and Directors.
Set forth in Schedule 3.27 is a
list of the officers and directors of HitCom.
Brokers or Finders.
HitCom has incurred no obligation or
liability, contingent or otherwise, for brokerage or
finders fees or agents commissions or other like payment
in connection with this Agreement.
Disclosure.
No representation or warranty by HitCom in
this Agreement, nor any schedule, statement or certificate
furnished or to be furnished to Beil pursuant hereto, or in
connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact
necessary to make the statements contained therein, not
misleading.
HitCom Investment Intent.
HitCom represents and warrants to Beil that:
(a) it is requiring the Subject One Plus Shares for
investment, for its own account and not with a view to the
distribution or resale thereof;
(b) it will not sell, hypothecate or otherwise dispose
of all nor any part of the Subject One Plus Shares unless
such Subject One Plus Shares have been registered under the
Securities Act, and applicable state securities laws or, in
the opinion of counsel satisfactory to Beil, an exemption
from the registration requirements of the Securities Act and
such state securities laws is available, and it agrees that
a legend to the foregoing effect may be placed upon any
certificate or other documents issued to it representing the
Subject One Plus Shares;
(c) it has such knowledge and experience in financial
and business matters that it is capable of evaluating the
merits and risk of an investment in One Plus;
(d) it has evaluated and understands the risk and
terms of its investment in One Plus, and it understands the
speculative nature of such an investment, and it can afford
to bear the risk of its investment in One Plus; and
(e) it has had an opportunity to ask questions of Beil
and other representatives of One Plus concerning its
investment in the Subject One Plus Shares and to obtain such
information as it has deemed necessary to evaluate its
investment in the Subject One Plus Shares.
Survival.
All covenants, representations and
warranties made by HitCom shall survive the Closing for a
period of six (6) months.
ARTICLE IV
COVENANTS AND AGREEMENTS
[Intentionally deleted]
ARTICLE V
ACTIONS TAKEN AT THE CLOSING BY HITCOM AND BEIL
Actions taken at the Closing by Beil.
At closing, Beil:
(a) delivered to HitCom a good standing certificate
issued by the Illinois Secretary of State with respect to
One Plus, dated not less that three (3) business days
immediately preceding the Closing; and
(b) delivered to HitCom copies of the following
documents, certified as to accuracy and completeness by the
Secretary or President of One Plus:
(i) a certificate signed by Beil to the effect
that his representations and warranties set forth in this
Agreement are true and correct in all material respects,
both individually and collectively, as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) and that Beil has
performed in all material respects, both individually and
collectively, all of his obligations to be performed by him
under this Agreement; and
(ii) an incumbency certificate of One Plus signed
by the Secretary or President, dated as of the date of this
Agreement and setting forth the identity of the directors
and officers of the One Plus and the offices held by such
officers, certifying the genuineness of the signatures of
the officers executing this Agreement and all instruments
and certificates delivered on behalf of One Plus to HitCom
pursuant hereto.
Actions taken at the Closing by HitCom.
At Closing HitCom:
(a) delivered to Beil a good standing certificate
issued by the Delaware Secretary of State with respect to
HitCom, dated not less that three (3) business days
immediately preceding the Closing;
(b) delivered to Beil copies of the following
documents, certified as to accuracy and completeness by the
Secretary or President of HitCom:
(i) a certificate signed by the President of
HitCom, dated as of the Closing Date, to the effect that all
of the representations and warranties of HitCom set forth in
this Agreement are true and correct in all material
respects, both individually and collectively, as of the date
of this Agreement and (except to the extent that such
representations and warranties speak as of an earlier date),
and that HitCom has performed in all material respects, both
individually and collectively, all obligations required to
be performed by it under this Agreement;
(ii) the resolutions of the Board of Directors of
HitCom authorizing the execution and delivery of this
Agreement and the consummation of the Exchange and all of
the other transactions contemplated herein (including,
without limitation, the reconstitution of the Board of
Directors as of the Closing, to consist of five directors,
three of whom to be designated by Beil and the remaining two
directors of HitCom to be such persons designated by HitCom
and approved by Beil, and HitCom's entering into the Anti-
Dilution Option and the Registration Agreement);
(iii) an incumbency certificate signed by the
Secretary or President, dated as to the Closing and setting
forth the identity of the directors and officers of HitCom
and the offices held by such officers, certifying the
genuineness of the signatures of the officers executing this
Agreement and all instruments and certificates delivered on
behalf of HitCom to Beil pursuant hereto; and
(c) delivered to Beil copies of the Anti-Dilution
Option executed by HitCom.
ARTICLE VI
INDEMNIFICATION
Indemnification
(a) Indemnity by Beil. Beil
shall indemnify, defend and hold harmless HitCom from and
against any and all losses, liabilities, costs, expenses or
damages (including judgments and settlement payments)
incident to, arising in connection with or resulting from
any material misrepresentation, breach, non-performance or
inaccuracy of any representation, indemnity, warranty,
covenant or agreement by Beil made or contained in this
Agreement or in any Exhibit, Schedule, certificate or
document executed and delivered to HitCom by or on behalf of
Beil pursuant to or in connection with this Agreement or the
transactions contemplated herein.
(b) Indemnity by HitCom. HitCom shall indemnify,
defend and hold Beil harmless from and against any and all
losses, liabilities, costs, expenses or damages incident to,
arising in connection with or resulting from any material
misrepresentation, breach, non-performance or inaccuracy of
any representation, indemnity, warranty, or any covenant or
agreement by HitCom made or contained in this Agreement or
in any Exhibit, Schedule, certificate or document executed
and delivered to Beil by or on behalf of HitCom pursuant to
or in connection with this Agreement or the transactions
contemplated herein.
Damages.
Any and all of the items for which HitCom or Beil may be
entitled to indemnification pursuant to subsections (a) or
(b) of this Section herein after called "Damages".
Notice and Procedures.
When a Party becomes aware of
facts or a situation which may result in Damages for which
it could be entitled to be indemnified hereunder, such Party
(the "Indemnitee") shall submit a written notice (the
"Initial Claim Notice") to the other Party (the
"Indemnitor") to such effect with reasonable promptness
after it first becomes aware of such matter, and shall
furnish the Indemnitor with such information as it has
available demonstrating its right or possible right to
receive indemnity. If the potential claim is predicated on
the filing by a third party of any action at law or in
equity (a "Third Party Claim"), the Indemnitee shall provide
the Indemnitor with an Initial Claim Notice not later than
ten (10) days prior to the date on which a responsive
pleading must be filed, and shall also furnish a copy of
such claim (if made in writing) and of all documents
received from the third party in support of such claim.
Every Initial Claim Notice shall, if feasible, contain a
reasonable estimate by the Indemnitee of the losses, costs,
liabilities and expenses (including, but not limited to,
costs and expenses of litigation and attorneys fees) which
the Indemnitee may incur. In addition, each Initial Claim
Notice shall name, when known, the person or persons making
the assertions which are the basis for such claim. Failure
by the Indemnitee to deliver an Initial Claim Notice or an
update thereof in a timely manner shall not relieve the
Indemnitor of any of its or his obligations under this
Agreement, except to the extent that actual monetary
prejudice to the Indemnitor can be demonstrated as having
resulted from such failure.
Rights of Indemnitor.
If, prior to the expiration of thirty (30) days from the mailing
of an Initial Claim Notice (the "Claim Answer Period"), the
Indemnitor shall request in writing that such claim not be paid,
the same shall not be paid, and the Indemnitor shall settle, compromise or
litigate in good faith such claim, and employ attorneys of
its or his choice to do so; provided, however, that
Indemnitee shall not be required to refrain from paying any
claim which has matured by court judgment or decree, unless
appeal is taken therefrom and proper appeal bond posted by
Indemnitor, nor shall it or he be required to refrain from
paying any claim where such action would result in the
foreclosure of a lien upon any of its or his assets or a
default in a lease or other contract, except a lease or
other contract which is the subject of the dispute. If the
Indemnitor elects to settle, compromise or litigate such
claim, all reasonable expenses, including but not limited to
all amounts paid in settlement or to satisfy judgments or
awards and reasonable attorney's fees and costs, incurred by
the Indemnitor in settling, compromising or litigating such
claim shall be secured to the reasonable satisfaction of
Indemnitee. Indemnitee shall cooperate fully to make
available to the Indemnitor and its attorneys,
representatives and agents, all pertinent information under
its control. Indemnitee shall have the right to elect to
settle or compromise all other contested claims with respect
to which the Indemnitor has not, within the Claim Answer
Period, acknowledged in writing (i) liability therefor
(should such claim ultimately be resolved against
Indemnitee), and (ii) its election to assume full
responsibility for the settlement, compromise, litigation
and payment of such claim, and to pursue any and all
remedies against Indemnitor for Indemnitor's obligations
under this ARTICLE VI. Indemnitor shall not settle or
compromise any claim for damages or remedies other than
money damages without the prior written consent of
Indemnitee.
Final Claims Statement.
At such time as Damages
for which the Indemnitor is liable hereunder are incurred by
Indemnitee by actual payment thereof or by entry of a final
judgment, Indemnitee shall forward a Final Claims Statement
to the Indemnitor setting forth the amount of such Damages
in reasonable detail on an itemized basis. Indemnitee shall
supplement the Final Claims Statement with such supporting
proof of loss (e.g. vouchers, agreements, etc.) as the
Indemnitor may reasonably request in writing within thirty
(30) days after receipt of a Final Claims Statement. All
amounts reflected on Final Claims Statements shall be paid
promptly by Indemnitor to Indemnitee.
Survival, Calculations and Exclusive Remedy.
The representations and warranties of
the Parties shall survive the Closing Date for a period of
one hundred and eighty (180) days, and no claim may be made
based upon an alleged breach of any such representations and
warranties unless the Initial Claim Notice is submitted to
the Indemnitor on or before the expiration of such one
hundred eighty (180) day period. In no event shall the
aggregate amount of either Party payable under this ARTICLE
VI exceed Five Hundred Thousand Dollars ($500,000). The
amount of indemnity payable hereunder shall be reduced by
proceeds received by the Indemnitee from insurance policies
covering the damages sustained by the Indemnitee. Except
with respect to the willful breach of a Party of any
material provision of this Agreement, this ARTICLE VI sets
forth the exclusive remedy of the Parties against the other
Party for failure to satisfy its obligations with respect to
any representation, warranty, covenant or agreement made by
the Indemnitor.
ARTICLE VII
MISCELLANEOUS
Notices.
Any notices or other communications required or permitted
hereunder (including, by way of illustration and not
limitation, any notice permitted or required under any
Article hereof) to HitCom or Beil shall be sufficiently
given if delivered in person or sent by registered mail,
postage prepaid, addressed as follows:
In the case of HitCom:
HitCom Corporation
700 North Second Street
Third Floor
St. Louis, Missouri 63102-2519
(314) 231-1000
In the case of Beil:
One Plus, Inc.
P.O. Box 825
Edwardsville, Illinois 62025
(618) 692-9372
or such substitute address as any party shall have given
notice to the other in writing.
Amendment.
This Agreement may be amended or modified in whole or in
part by an agreement in writing executed by each Party in
the same manner as this Agreement and making specific
reference thereto.
Counterparts.
This Agreement may be executed in two or
more counterparts, all of which taken together shall
constitute one instrument.
Binding on Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the Parties and their respective
successors and assigns and, in the case of Beil, his
personal representatives and heirs, and shall be assignable
only with the prior written consent of the other Party.
Severability.
In the event that any one or more of the
provisions contained in this Agreement or any application
thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the
remaining provisions of this Agreement and any other
application thereof shall not in any way be affected or
impaired thereby; provided, however, that to the extent
permitted by applicable law, any invalid, illegal, or
unenforceable provision may be considered for the purpose of
determining the intent of the parties in connection with
other provisions of this Agreement.
Waivers.
The Parties may, by written agreement, (a) extend the time for
the performance of any of the obligations or other acts of
the parties hereof, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement, (c)
waive compliance with or modify any of the covenants or
conditions contained in this Agreement and (d) waive or
modify performance of any of the obligations of any of the
Parties hereto; provided, that neither such an extension or
waiver nor any failure to insist upon strict compliance with
any obligation, covenant, agreement or upon strict
compliance with any obligation, covenant, agreement or
condition herein shall operate as a waiver of, or an
estoppel with respect to, any subsequent insistence upon
strict compliance.
Cooperation of Parties.
Each Party agrees to undertake any action and execute any contract,
assignment, or other document or documents necessary to carry out the
intent of this Agreement and complete the Exchange and the other
transactions provided for herein. Each Party further agrees
to comply with any reasonable request from the other Party
for such action or execution of documents in a prompt and
reasonable manner.
Headings.
The headings in the Articles and Sections of this Agreement are
inserted for convenience only and in no way alter, amend,
modify, limit or restrict the contractual obligations of the
parties.
Expenses.
Each Party shall be responsible for, and shall pay, all of
the fees, costs and expenses incurred by them in connection
with the negotiation, execution or performance of this
Agreement.
IN WITNESS HEREOF, this Agreement has been duly
executed by HitCom and Beil as of the date first above
written.
HITCOM CORPORATION
/s/ Anthony W. Hitt
Anthony W. Hitt
President
/s/ Scott A. Beil
Scott A. Beil
TABLE OF CONTENTS
ARTICLE I - Terms of Purchase and Sale
1.1
1.2
ARTICLE II - Representations and Warranties of Sellers
2.1 Organization, Standing and Qualification.
2.2 Capitalization.
2.3 No Additional Stock Issuable.
2.4 Subsidiaries and Partnership Interests.
2.5 Authority; No Conflict.
2.6 Financial Statements
2.7 Books and Records.
2.8 Title to Properties; Encumbrances.
2.9 Condition and Sufficiency of Assets.
2.10 Accounts Receivable
2.11 Inventory.
2.12 No Undisclosed Liabilities.
2.13 Taxes.
2.14 No Material Adverse Change.
2.15 Labor Agreements, Benefit Plans and Employment
Agreements.
2.16 Employees and Consultants.
2.17 Overtime, Back Wages, Vacations, and Minimum
Wages.
2.18 Discrimination, Occupational Safety, Environmental
Control, and Other Statutes and Regulations.
2.19 Contracts and Commitments.
2.20 Insurance.
2.21 Litigation.
2.22 Proprietary Rights.
2.23 No Breach of Statute, Decree, Order or Contract.
2.24 Guaranties.
2.25 Transactions With Affiliates, Directors and
Others.
2.26 Officers and Directors.
2.27 Bank Accounts.
2.28 Sellers' Investment Intent.
2.29 Brokers or Finders
2.30 Disclosure.
2.31 1027126 Ontario Ltd.
ARTICLE III - Representations and Warranties of Buyer
3.1 Organization, Standing and Qualification.
3.2 Capitalization.
3.3 Additional Stock Issuable.
3.4 Subsidiaries and Partnership Interests.
3.5 Authority; No Conflict.
3.6 Financial Statements
3.7 Accounts Receivable
3.8 No Undisclosed Liabilities.
3.9 Taxes.
3.10 No Material Adverse Change.
3.11 Labor Agreements, Benefit Plans and Employment
Agreements.
3.12 Insurance.
3.13 Litigation.
3.14 Proprietary Rights.
3.15 No Breach of Statute, Decree, Order or Contract.
3.16 Guaranties.
3.17 Transactions With Affiliates, Directors and
Others.
3.18 Officers and Directors.
3.19 Brokers or Finders
3.20 Investment Intent
3.21 Validity of Shares
3.22 Disclosure
3.23 Share Holdback
ARTICLE IV - Covenants Prior to Closing Date
4.1 Affirmative Covenants.
4.1.1 Access and Investigation.
4.1.2 Operations
4.2 Negative Covenants.
4.2.1 Restrictions.
4.3 Notification.
4.4 Best Efforts and No Negotiation.
4.5 Update of Disclosure.
ARTICLE V - Conditions Precedent to Buyer's Obligations
5.1 Correctness of Representations and Warranties.
5.2 No Adverse Change.
5.3 Compliance with Agreement.
5.4 Certification of Compliance.
5.5 Opinion of Counsel.
5.6 Absence of Litigation.
5.7 Consents.
5.8 Insurance Coverage.
5.9 Financial Statements.
5.10 Further Assurances.
5.11 Employment Agreements.
5.12 Authorization of Additional Shares
ARTICLE VI - Conditions Precedent to Sellers' Obligations
6.1 Correctness of Warranties and Representations.
6.2 Opinion of Counsel.
6.3 Compliance with Agreement.
6.4 Further Assurances.
6.5 Purchase of Minority Interest
6.6 Shareholder Approval
6.7 Absence of Litigation
6.8 Financial Statements
6.9 Reporting Company Status
6.10 No Adverse Change
ARTICLE VII - Closing
7.1 Delivery by Sellers.
7.2 Delivery by Buyer.
7.3 Other Closing Transactions.
ARTICLE VIII - Covenants of Sellers Subsequent to the Closing
8.1 Further Assurances.
ARTICLE IX - Indemnification
9.1 Indemnification by Sellers.
9.2 Indemnification by Buyer.
9.3 Notice and Defense of Third Party Claims.
9.4 Limitation on Claims
ARTICLE X - Termination
10.1
10.2
ARTICLE XI - Miscellaneous
11.1 Notices.
11.2 Further Assurances
11.3 Waiver.
11.4 Entire Agreement and Modification.
11.5 Assignments, Successors and No Third-Party
Rights.
11.6 Severability.
11.7 Sections Headings, Construction.
11.8 Time of Essence.
11.9 Governing Law.
11.10 Publicity.
11.11 Survival.
11.12 Expenses
11.13 Counterparts.
ARTICLE XII - Special Covenants
12.1 Registration Rights.
12.2 Election of Officers
STOCK PURCHASE AGREEMENT
between
HITCOM CORPORATION
and
RAJAN ARORA
JEFFREY SHIER
and
THE JEFFREY SAMUEL SHIER FAMILY TRUST
For Purchase of All Outstanding
Stock of
CHANNEL TELECOM INC.
Dated February 18, 1998
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, entered into this 18th
of February, 1998, between HitCom Corporation, a Delaware
corporation ("Buyer"), and Rajan Arora, an individual
resident in the City of Toronto, Canada ("Arora"), Jeffrey
Shier, an individual resident in the City of Toronto, Canada
("Shier"), and the Jeffrey Samuel Shier Family Trust (the
"Trust") (Arora, Shier and the Trust being herein
collectively called the "Sellers");
W I T N E S S E T H:
WHEREAS, Arora owns, and on the Closing Date (as
hereafter defined) will own 100 shares of the common stock,
no par value, of Channel Telecom Inc., an Ontario corporation
(the "Company");
WHEREAS, Shier and the Trust are the only shareholders
of 1027126 Ontario Limited, an Ontario corporation
("Limited") and Limited owns, and on the Closing Date will
own, 100 shares of the no par value common stock of the
Company; and
WHEREAS, the total of 200 shares of the Company's
Common Stock owned by Arora and Limited on the Closing Date
will constitute all of the issued and outstanding shares of
capital stock of the Company; and
WHEREAS, Sellers desire to sell, and Buyer desires to
purchase, the Stock in consideration for the payment to be
made as described hereunder;
NOW, THEREFORE, in consideration of the premises and
other good and valuable consideration, the parties hereto
hereby agree as follows:
ARTICLE I
Terms of Purchase and Sale
Upon the terms and subject to the conditions of this Agreement,
on the Closing Date (as hereinafter defined), Sellers shall sell to Buyer,
and Buyer shall purchase from Sellers, the Stock for a
purchase price equal to 4,000,000 shares of Buyer's Common
Stock, $0.001 par value (which number of shares shall be
adjusted as hereinafter provided), issuable to Sellers in
proportion to their stock ownership in the Company (the
"HitCom Shares") and a cash payment as hereinafter provided.
Such purchase of the Stock will be accomplished by Buyer
purchasing 100 shares directly from Arora and acquiring the
100 shares owned by Limited by acquiring from the Trust all
of the outstanding stock of Limited. The 4,000,000 HitCom
Shares to be issued to Sellers are based upon Buyer having
9,500,000 shares outstanding at the Closing Date on a fully
diluted basis, (excluding from such calculation Buyer's
outstanding Convertible Preferred Stock and the shares into
which such stock is convertible) and the HitCom Shares to be
issued Sellers shall be adjusted upward or downward to the
extent there is a variance from such 9,500,000 shares, and
the resulting number of shares shall be increased by 839,950
shares. In addition, the number of HitCom Shares issued to
Sellers will be proportionately increased if after the date
hereof the Buyer is required to issue any additional shares
of its common stock, or options to purchase such shares, to
any person listed on Schedule 1.1.
Upon execution of this Agreement, Buyer will pay Sellers in
proportion to their
stock ownership in the Company an earnest money deposit of US
$10,000 which shall be nonrefundable except in the event of a
breach of this Agreement by Sellers. In addition, on the
Closing Date, Buyer shall pay Sellers US $175,000 in
proportion to their stock ownership in the Company toward
which payment there shall be credited the US $10,000 earnest
money deposit.
ARTICLE II
Representations and Warranties of Sellers
Sellers and Limited jointly and severally represent and
warrant to Buyer as follows:
Organization, Standing and Qualification.
The Company is a corporation duly
organized, validly existing and in good standing under the
laws of the Province of Ontario, Canada. The Company has
full power and authority to conduct the business of marketing
and distributing prepaid calling cards (the "Business") and
to own and use its properties and assets in the manner in
which, and in the places where, such properties and assets
are now owned or used. The Company is qualified to transact
business as a foreign corporation and is in good standing in
each jurisdiction where failure to be so qualified would have
a material adverse effect on the Company. The Company has
obtained all certificates, licenses or permits necessary to
engage in the Business it now conducts from all governmental
authorities having jurisdiction over such Business, as
required by each jurisdiction in which it has engaged in such
Business, and all such certificates, licenses and permits are
listed on Schedule 2.1 hereto. The Company does not engage
in any activities other than the Business.
Capitalization. The sole authorized stock of the Company
consists of an unlimited number of Class A preferred shares
and an unlimited number of Class B preferred shares, none of
which have been issued, and an unlimited number of shares of
common stock, no par value, of which 200 shares are issued
and outstanding. The Company's issued and outstanding stock
is all owned beneficially and of record by Sellers in the
amounts set forth opposite their signatures at the end of
this Agreement. The issued and outstanding stock of the
Company has been duly and validly issued, and is fully paid
and non-assessable. None of such shares is subject to any
lien or encumbrance or any restriction on sale.
No Additional Stock Issuable.
Neither Company nor
Limited has any outstanding stock purchase warrants or
options, or securities convertible into stock; neither has
any shares which it is committed to issue but which are as
yet unissued; and neither the Company nor any of the Sellers
is a party to any agreement obligating any of them to issue
or transfer, or restricting any of them from transferring, at
present or upon the occurrence of any event, any securities
of the Company.
Subsidiaries and Partnership Interests.
The Company has no subsidiaries or interests in
any joint venture, general or limited partnerships except as
listed on Schedule 2.4 hereto. Schedule 2.4 contains a
description of the Company's ownership interest in each such
subsidiary, joint venture or partnership.
Authority; No Conflict. This Agreement constitutes the
legal, valid and binding obligation of Sellers enforceable
against Sellers in accordance with its terms. Sellers have
the absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and to perform
their obligations hereunder. Except as set forth in Schedule
2.5 neither the execution and delivery of this Purchase
Agreement by Sellers nor the consummation of the transactions
contemplated by them will:
(a) violate or conflict with any provision of the
Certificate or Articles of Incorporation or
By-Laws of the Company;
(b) violate or conflict with any provision of any
law, rule, regulation, order, permit,
certificate, writ, judgment, injunction,
decree, determination, award or other
decision of any court, government,
governmental agency or instrumentality,
domestic or foreign, or arbitrator, binding
upon Sellers or the Company;
(c) result in a breach of, or constitute a
default under (or with notice or lapse of
time or both result in a breach of or
constitute a default under) or otherwise give
any person the right to terminate, any lease,
license, contract or other agreement or
instrument to which Sellers or the Company is
a party or by which any of them are bound;
(d) result in, or require, the creation or
imposition of, any mortgage, deed of trust,
pledge, lien, security interest or other
charge or encumbrance of any nature upon or
with respect to any of the properties now
owned or used by the Company.
Except as disclosed in Schedule 2.5, neither the Sellers nor
the Company are required to give prior notice to, or obtain
any consent, approval or authorization of, any governmental
authority, creditor or other party in connection with the
execution and delivery of this Agreement or the consummation
of the transactions contemplated by it.
Financial Statements. Sellers have delivered to Buyer:
(a) audited balance sheets of the Company as at March 31 in
each of the years 1996 through 1997, and the included audited
statements of income, changes in stockholders' equity and
cash flow for each of the fiscal years then ended (including
the balance sheet as of March 31, 1997) (hereinafter referred
to as the "Balance Sheet"), and (b) an unaudited consolidated
balance sheet of the Company as at December 31, 1997 (the
"Interim Balance Sheet") and the included unaudited
statements of income, changes in stockholders' equity and
cash flow for the nine months then ended, including in each
case the notes thereto. Such financial statements and notes
fairly present the financial condition and results of
operations of the Company as at the respective dates thereof
and for the periods referred to, all in accordance with
generally accepted accounting principles, subject, in the
case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and
the absence of notes (which, if presented, would not differ
materially from those included in the Balance Sheet); the
financial statements referred to in this section reflect the
consistent application of such accounting principles
throughout the periods involved, except as disclosed in the
notes to such financial statements.
Books and Records. The books of account, minute books, stock
record books and other records of the Company, all of which
have been made available to Buyer, are complete and correct
and have been maintained in accordance with sound business
practices. At the Closing, all of those books and records
will be in the possession of the Company.
Title to Properties; Encumbrances. Schedule 2.8
describes all real property, leaseholds or other real
property interests therein owned by the Company. The Company
owns (with good and marketable title in the case of real
property) all the properties and assets (real, personal and
mixed, tangible and intangible) that it purports to own,
including, but not limited to, all the properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet
(except for assets held under capitalized leases disclosed or
not required to be disclosed in Schedule 2.19 and property
sold since the date of the Balance Sheet and the Interim
Balance Sheet, as the case may be, in the ordinary course of
business and consistent with past practice), and all the
properties and assets purchased or otherwise acquired by the
Company since the date of the Balance Sheet (except for
personal property acquired and sold since the date of the
Balance Sheet in the ordinary course of business and
consistent with past practice). Except as listed on Schedule
2.8, properties and assets reflected in the Balance Sheet and
the Interim Balance Sheet are free and clear of all liens and
encumbrances.
Condition and Sufficiency of Assets.
The buildings, plants, structures and equipment owned, leased or
used by the Company have no known defects, are in good
operating condition and repair and are adequate for the uses
to which they are being put, and none of such building,
plants, structures or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost. The building,
plants, structures and equipment owned, leased or used by the
Company are sufficient for the continued conduct of the
Business after the Closing Date in substantially the same
manner as conducted prior to the Closing date. Schedule 2.9
lists all items of machinery and equipment owned by the
Company having a book value or replacement cost in excess of
$1,000.
Accounts Receivable.
All accounts receivable of the Company that are reflected in
the Balance Sheet or the Interim Balance Sheet represent or
will represent valid obligations arising from sales actually
made in the ordinary course of business, and are current and
collectible net of the respective reserves shown on the Balance
Sheet or the Interim Balance Sheet or on the accounting records of the
Company as of the Closing Date.
Inventory.
All inventory of the Company, whether or not reflected in the
Balance Sheet or the Interim Balance Sheet, consists of a
quality and quantity usable and salable in the ordinary
course of business, except for obsolete items and items of
below-standard quality, all of which have been written off or
written down to net realizable value in the Balance Sheet or
the Interim Balance Sheet or on the accounting records of the
Company as of the Closing Date, as the case may be. The
quantities of each type of inventory are not excessive, but
are reasonable and warranted in the present circumstances of
the Company.
No Undisclosed Liabilities.
Except as set forth in Schedule 2.12 the Company has no liabilities
or obligations of any nature (known or unknown, absolute, accrued,
contingent or otherwise) that were not fully reflected or
reserved against in the Balance Sheet or the Interim Balance
Sheet, except liabilities and obligations incurred in the
ordinary course of business and consistent with past practice
since the respective dates thereof.
The Company has filed or caused to be filed on a timely basis all
tax returns that are or were required to be filed by it
pursuant to the laws, regulations or administrative
requirements of each governmental body with taxing power over
it or its assets. The Company has paid, or made provision
for the payment of, all taxes that have or may have become
due pursuant to such tax returns, or otherwise, or pursuant
to any assessment received by Sellers or the Company, except
such taxes, if any, as are set forth in Schedule 2.13 and are
being contested in good faith and as to which adequate
reserves (determined in accordance with generally accepted
accounting principles consistently applied) have been
provided in the Balance Sheet and the Interim Balance Sheet.
The Canadian and provincial income tax returns of the
Company have been filed for all tax years through 1997. The
charges, accruals and reserves with respect to taxes on the
books of the Company are adequate (determined in accordance
with generally accepted accounting principles consistently
applied) and are at least equal to the Company's current and
deferred liabilities for taxes. There exists no proposed tax
assessment against the Company except as disclosed in the
Balance Sheet, the Interim Balance Sheet or in Schedule 2.13.
All taxes that the Company is or was required by law to
withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper
governmental body or taxing authority. All tax returns filed
by the Company are true, correct and complete.
No Material Adverse Change.
Since the date of the Balance Sheet, there has not been any
material adverse change in the business, operations, properties,
prospects, assets or condition of the Company or any event, condition or
contingency that is likely to result in such a material
adverse change.
Labor Agreements, Benefit Plans and Employment Agreements.
Except as set forth in Schedule 2.15, the Company is not a party to or
otherwise subject to (i) any union, collective bargaining or
similar agreement; (ii) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension,
retainer, consulting, retirement, welfare or incentive plan
or agreement; (iii) any plan providing for "fringe benefits"
to its employees, including but not limited to vacation, sick
leave, medical, hospitalization, life insurance, automobile,
club memberships and other plans and related benefits; or
(iv) any employment agreement not terminable without penalty
on 30 days' written notice. There are no negotiations,
demands or proposals which are pending which concern matters
covered by the type of agreement listed in this paragraph nor
does the Company have any liabilities with respect thereto
except as reflected in the Balance Sheet or Interim Balance
Sheet.
Employees and Consultants.
Set forth on Schedule 2.16 is a list setting forth (i) all current
employees of the Company not covered by collective bargaining
agreements whose salary rate exceeds US $25,000 per year, and (ii) all
consultants (other than lawyers and accountants) performing
services for the Company or any subsidiary since December 31,
1996, together with the job title of such employees or the
services provided by such consultants and the current
compensation rate (including bonuses) of such employees and
the fees paid or payable to such consultants. Schedule 2.16
also contains a summary description of any employment or
other agreement or understanding, whether or not written,
with any such person that is not terminable upon 30 days'
notice without penalty.
Overtime, Back Wages, Vacations, and Minimum Wages.
Except as disclosed on Schedule 2.17, no present or former
employee of the Company has any claim against it (whether under
federal or state law, under any employment agreement or otherwise),
on account of or for (i) overtime pay other than for the current payroll;
(ii) wages or salary for any period other than the current
payroll; (iii) bonuses; (iv) vacation, time off or pay in
lieu of vacation or time off, other than vacation or time off
(or pay in lieu thereof) earned in respect of the current
fiscal year; (v) any violation of any statute, ordinance or
regulation relating to minimum wages or maximum hours of
work; or (vi) any rights or claims which would result from
consummation of the transaction contemplated by this
Agreement.
Discrimination, Occupational Safety,
Environmental Control, and Other Statutes and Regulations.
Except as disclosed in Schedule 2.18, neither Sellers nor
the Company have received any notice of any claim or have any
reason to believe that there is any basis for any action or
proceeding against the Company arising out of any statute,
ordinance or regulation relating to discrimination in
employment, termination of employment, or unemployment
practices, occupational safety and health standards, or
environmental pollution or control, which if upheld would
have a materially adverse effect on its business or
condition, financial or otherwise. To Sellers' knowledge,
the Company has properly disposed of all hazardous waste for
which it is lawfully responsible, and to the knowledge of
Sellers there are no hazardous wastes or substances on any
property owned or occupied by it.
Contracts and Commitments. Except as set forth in
Schedule 2.19, the Balance Sheet or Interim Balance Sheet,
the Company does not have outstanding and is not a party to:
(i) any contract or commitment requiring it to render
services or make a payment at a price or in an amount of over
US $10,000.00 in the aggregate, other than [a] any contract
or commitment of not more than US $10,000 entered into in the
ordinary course of business, or [b] any contract or
commitment of not more than US $10,000 which is terminable
upon not more than one month's notice without penalty;
(ii) any lease of any real or personal property under which
it is lessor; (iii) any revocable or irrevocable power of
attorney to any person, firm or corporation for any purpose
whatsoever; or (iv) any loan agreement, security agreement,
indenture, promissory note, conditional sales agreements or
other similar agreement. All of such contracts and
commitments are valid, binding and in full force and effect
in accordance with their terms, and none require the consent
of any other party which has not been or will not be obtained
prior to the consummation of the transactions contemplated by
this Agreement. The Company and, to the best of Sellers'
knowledge, the other parties to such material contracts, have
complied or are presently in compliance with the provisions
thereof, and the Company is not in default and, to the best
knowledge of the Sellers, no other party is in default, in
the performance, observation or fulfillment of any
obligation, covenant or condition contained therein, and no
event has occurred which, with or without the giving of
notice, lapse of time or both, would constitute a default
thereunder.
Insurance.
The Company has been continuously and is presently insured
for reasonable amounts with insurance companies believed by
Sellers to be responsible and financially sound against such
risks as companies engaged in providing similar services are,
in accordance with good business practice, customarily
insured, including but not limited to casualty and fire
insurance. No pending or threatened claim has been made
against any insurer or the Company on account of any such
policy or policies of insurance, and the Company has not
received any cancellation notices or indication that the
insurer is unwilling to renew or continue coverage. Within
the past five years, no insurer has cancelled or refused to
issue a policy of insurance to the Company. Set forth on
Schedule 2.20 is a list setting forth the carrier, the amount
and type of coverage, the term, the expiration date, the
premium and the broker for all insurance policies and bonds
in force covering the Company and its properties, operations
and personnel. Such parties are sufficient for all
requirements of law and all agreements to which the Company
is a party or by which it is bound, and none of such policies
will in any way be affected by, terminate or lapse by reason
of the transactions contemplated by this Agreement.
Litigation.
Except as set forth on Schedule 2.21, (i) neither Sellers
nor the Company are subject to any judgment, award,
injunction, rule, order, or decree in which relief is sought
involving, affecting, or relating to the ownership,
operation, or use of their assets or the conduct of the
Company's business or which would prevent, delay, or make
illegal the transactions contemplated by this Agreement, (ii)
there are no actions, lawsuits, audits, investigations,
claims, or proceedings pending or, to the best knowledge of
the Sellers or the Company, threatened against, involving,
affecting, or relating to the Company or to its ownership,
operation, or use of its assets or to the conduct of its
business before any court, arbitrator, or federal, state,
municipal, or other governmental department, board, agency,
or instrumentality, or (iii) to the knowledge of Sellers or
the Company, there exist no facts to serve as a basis, under
current laws or regulations, for the institution of any
action, lawsuit, audit, investigation, claim, or proceeding
which might affect materially and adversely the business,
financial condition, or prospects of the Company.
Proprietary Rights.
Except as set forth on Schedule 2.22,
the Company does not own or use any patents, trademarks,
copyrights, computer programs, software, trade secrets or
other proprietary rights. The Company is not infringing upon
or otherwise acting adversely to any such rights owned by any
other party or parties, and there is no such claim or action
pending or, to the knowledge of Sellers, threatened.
No Breach of Statute, Decree, Order or Contract.
Except as disclosed in any schedule hereto,
subject to any applicable grace period, the Company is not in
default under or in violation in any material respect of any
applicable statute, law, ordinance, decree, order, rule or
regulation of any governmental body, or the provisions of any
franchise or license, or in default under or in violation of
any provision of its Certificate or Articles of
Incorporation, By-Laws, any promissory notes, indentures, or
any evidence of indebtedness or security therefor, or any
lease, contract, purchase or other commitment or any other
agreement by which it is bound which could result in a
materially adverse effect on its business or condition,
financial or otherwise.
Guaranties.
Except as set forth on Schedule 2.24 or in the Balance
Sheet, the Company is not a guarantor, indemnitor, or
otherwise liable for any indebtedness of any other person,
firm or corporation, except as endorser on checks received by
it and deposited in the ordinary course of business.
Transactions With Affiliates, Directors and Others.
Except as set forth in Schedule 2.25: (i) the Company is
not indebted to Sellers or to any director, officer or employee
or any relative of any of
Sellers, except for amounts due as normal salaries, wages and
bonuses for the current period at rates in effect prior to
December 31, 1996, or subsequently accrued for the current
fiscal year in accordance with the Company's regular past
practice, or in reimbursement of ordinary expenses on a
current basis; (ii) neither Sellers nor any director, officer
or employee of the Company or any relative of any of Sellers
is indebted to the Company except for advances for ordinary
business expenses for which such Sellers, directors, officers
or employees are accountable; and (iii) neither Sellers nor
any officer or director has any material financial interest
in any transaction with the Company in which it is in
competition with the Company.
Officers and Directors.
Set forth in Schedule 2.26 is a
list of the officers and directors of the Company.
Bank Accounts.
Set forth in Schedule 2.27 is a complete list of
all bank accounts and safe deposit boxes of the Company,
together with the names of persons authorized to sign on or
have access thereto.
Sellers' Investment Intent.
Sellers represent and warrant that:
(i) They are acquiring the HitCom Shares issuable
pursuant to this Agreement for investment for
their own account and not with a view to
distribution or resale;
(ii) They will not sell, hypothecate or otherwise
dispose of all or any part of the HitCom
Shares unless such HitCom Shares have been
registered under the Securities Act of 1933,
as amended, and applicable state and
provincial securities laws or, in the opinion
of counsel satisfactory to Buyer, an
exemption from the registration requirements
of the Securities Act and state and
provincial securities laws is available, and
they agree that a legend to the foregoing
effect may be placed upon any certificates or
other documents issued to them representing
the HitCom Shares, and the records of Buyer
may be marked to indicate the restrictions on
transfer; provided that a portion of the
HitCom Shares may be transferred by Sellers
to Ronald K. Mann in payment of a finder's
fee obligation to him subject to availability
of an exemption from registration under
applicable securities laws.
(iii) They have such knowledge and experience in
financial and business matters that they are
capable of evaluating the merits and risks of
an investment in Buyer;
(iv) They have evaluated and understand the risks
and terms of their investment in Buyer, and
they understand the speculative nature of an
investment in Buyer, and that they can afford
to bear the risks of their investment in
Buyer.
(v) They have had an opportunity to ask questions
of the Buyer concerning their investment in
the HitCom Shares and to obtain such
information as they deemed necessary to their
evaluation of their investment in the HitCom
Shares.
Brokers or Finders.
Except for a finder's fee payable to
Ronald K. Mann which is payable solely by Sellers, Sellers
have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents'
commissions or other like payment in connection with this
Agreement and will indemnify and hold Buyer harmless from any
such payment alleged to be due by or through Sellers as a
result of the action of Sellers.
Disclosure.
No representation or warranty by Sellers in this agreement,
nor any schedule, statement or certificate furnished or to be
furnished to Buyer pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will
omit to state a material fact necessary to make the
statements contained therein, not misleading.
1027126 Ontario Ltd.
Limited is a corporation duly and
validly organized under the laws of Ontario with full power
and authority to enter into and carry out the terms of this
Agreement and has taken all actions, corporate and otherwise,
required for it to so. Limited has no business or purpose
other than owning 100 shares of the Company's stock and has
not engaged in any activities other than owning such stock.
Sellers have provided to Buyer Limited's unaudited financial
statement as of December 31, 1996 and will provide Limited's
unaudited financial statement as of December 31, 1997. Such
financial statements fairly present Limited's financial
condition and the results of its operations as of the dates
and for the periods indicated in accordance with generally
accepted accounting principles consistently applied. At the
Closing, Limited will have no liabilities, contingent or
otherwise. Sellers shall, at their sole expense, prepare and
cause to be filed all income or other tax returns required to
be filed by Limited through the Closing Date or as a result
of the transaction contemplated hereby and shall pay when due
all taxes owed by Limited for such period or as a result of
the transactions contemplated by this Agreement.
ARTICLE III
Representations and Warranties of Buyer
Buyer represents and warrants to Sellers as follows:
Organization, Standing and Qualification.
Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware. Buyer has full power and authority to
conduct its business and to own and use its properties and
assets in the manner in which, and in the places where, such
properties and assets are now owned or used. Buyer is
qualified to transact business as a foreign corporation and
is in good standing in each jurisdiction where failure to be
so qualified would have a material adverse effect on Buyer.
Buyer has obtained all certificates, licenses or permits
necessary to engage in the business it now conducts from all
governmental authorities having jurisdiction over Buyer, as
required by each jurisdiction in which it has engaged in such
business.
Capitalization.
The sole authorized stock of Buyer
consists of 12,500,000 shares of common stock, $0.004 par
value, of which 8,333,514 shares are issued and outstanding
and 5,000,000 shares of convertible preferred stock, $.001
par value, of which 265,010.75 shares are issued and
outstanding.
Additional Stock Issuable.
Except as set forth in
Schedule 3.3, Buyer has no outstanding stock purchase
warrants or options, nor securities convertible into stock;
and it has no shares which it is committed to issue but which
are as yet unissued.
Subsidaries and Partnership Interests. Buyer has no subsidiaries
or interests in any
joint venture, general or limited partnerships except as
listed on Schedule 3.4 hereto. Schedule 3.4 contains a
description of the Buyer's ownership interest in each such
subsidiary, joint venture or partnership.
Authority; No Conflict.
This Agreement constitutes the
legal, valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms. Buyer has the
absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and to perform
its obligations hereunder. Neither the execution and
delivery of this Purchase Agreement by Buyer nor the
consummation of the transactions contemplated by them will:
(a) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of
the Company;
(b) violate or conflict with any provision of any
law, rule, regulation, order, permit,
certificate, writ, judgment, injunction,
decree, determination, award or other
decision of any court, government,
governmental agency or instrumentality,
domestic or foreign, or arbitrator, binding
upon Buyer;
(c) result in a breach of, or constitute a
default under (or with notice or lapse of
time or both result in a breach of or
constitute a default under) or otherwise give
any person the right to terminate, any lease,
license, contract or other agreement or
instrument to which Buyer is a party or by
which it is bound;
(d) result in, or require, the creation or
imposition of, any mortgage, deed of trust,
pledge, lien, security interest or other
charge or encumbrance of any nature upon or
with respect to any of the properties now
owned or used by the Buyer.
Buyer is not required to give prior notice to, or obtain any
consent, approval or authorization of, any governmental
authority, creditor or other party in connection with the
execution and delivery of this Agreement or the consummation
of the transactions contemplated by it.
Financial Statements.
Buyer has delivered to Sellers
Buyer's internal financial statements for the nine months
ended December 31, 1997 which fairly present the financial
condition and results of operations of Buyer as at the date
thereof and for the period referred to.
Accounts Receivable.
All accounts receivable of Buyer that
are reflected in Buyer's December 31, 1997 audited balance
sheet provided to Sellers represent valid obligations arising
from sales actually made in the ordinary course of business,
and are current and collectible net of the respective
reserves shown thereon or on the accounting records of Buyer
as of the Closing Date.
No Undisclosed Liabilities.
Except as set forth in
Schedule 3.8 Buyer has no liabilities or obligations of any
nature (known or unknown, absolute, accrued, contingent or
otherwise) that were not fully reflected or reserved against
in the December 31, 1997 audited balance sheet provided to
Sellers, except liabilities and obligations incurred in the
ordinary course of business and consistent with past practice
since the respective dates thereof.
Taxes.
Buyer has filed or caused to be filed on a timely basis all tax
returns that are or were required to be filed by it pursuant
to the laws, regulations or administrative requirements of
each governmental body with taxing power over it or its
assets. Buyer has paid, or made provision for the payment
of, all taxes that have or may have become due pursuant to
such tax returns, or otherwise, or pursuant to any assessment
received by Buyer, except such taxes, if any, as are set
forth in Schedule 3.9 and are being contested in good faith
and as to which adequate reserves (determined in accordance
with generally accepted accounting principles consistently
applied) have been provided in Buyer's balance sheets
provided or to be provided to Sellers. All deficiencies
proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Schedule 3.9, are being
contested in good faith by appropriate proceedings. Buyer
has not given or been requested to give any waivers or
extensions of any statute of limitations relating to the
payment of taxes of the Buyer or for which the Buyer may be
liable. The charges, accruals and reserves with respect to
taxes on the books of the Buyer are adequate (determined in
accordance with generally accepted accounting principles
consistently applied) and are at least equal to the Buyer's
current and deferred liabilities for taxes. There exists no
proposed tax assessment against the Buyer except as disclosed
in Buyer's balance sheets provided or to be provided to
Sellers or in Schedule 3.9. All taxes that Buyer is or was
required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been
paid to the proper governmental body or taxing authority.
All tax returns filed by Buyer are true, correct and
complete.
No Material Adverse Change.
Since December 31, 1997, there has not been any material adverse
change in the business, operations, properties, prospects, assets or
condition of the Buyer or any event, condition or contingency
that is likely to result in such a material adverse change.
Labor Agreements, Benefit Plans and Employment Agreements.
Except as set forth in Schedule 3.11, Buyer is not a party to or otherwise
subject to (i) any union, collective bargaining or similar
agreement; (ii) any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer,
consulting, retirement, welfare or incentive plan or
agreement; (iii) any plan providing for "fringe benefits" to
its employees, including but not limited to vacation, sick
leave, medical, hospitalization, life insurance, automobile,
club memberships and other plans and related benefits; or
(iv) any employment agreement not terminable without penalty
on 30 days' written notice. There are no negotiations,
demands or proposals which are pending which concern matters
covered by the type of agreement listed in this paragraph nor
does Buyer have any liabilities with respect thereto except
as reflected in Buyer's balance sheets provided or to be
provided to Sellers.
Insurance.
Buyer has been continuously and is presently insured for
reasonable amounts with insurance companies believed by Buyer
to be responsible and financially sound against such risks as
companies engaged in providing similar services are, in
accordance with good business practice, customarily insured,
including but not limited to casualty and fire insurance. No
pending or threatened claim has been made against any insurer
or Buyer on account of any such policy or policies of
insurance, and Buyer has not received any cancellation
notices or indication that the insurer is unwilling to renew
or continue coverage.
Litigation.
Except as set forth on Schedule 3.13, (i) Buyer is not
subject to any judgment, award, injunction, rule, order, or
decree in which relief is sought involving, affecting, or
relating to the ownership, operation, or use of their assets
or the conduct of the Buyer's business or which would
prevent, delay, or make illegal the transactions contemplated
by this Agreement, (ii) there are no actions, lawsuits,
audits, investigations, claims, or proceedings pending or, to
the best knowledge of Buyer, threatened against, involving,
affecting, or relating to Buyer or to its ownership,
operation, or use of its assets or to the conduct of its
business before any court, arbitrator, or federal, state,
municipal, or other governmental department, board, agency,
or instrumentality, or (iii) to the knowledge of Buyer, there
exist no facts to serve as a basis, under current laws or
regulations, for the institution of any action, lawsuit,
audit, investigation, claim, or proceeding which might affect
materially and adversely the business, financial condition,
or prospects of the Buyer.
Proprietary Rights.
Except as set forth on Schedule 3.14,
Buyer does not own or use any patents, trademarks,
copyrights, computer programs, software, trade secrets or
other proprietary rights. Buyer is not infringing upon or
otherwise acting adversely to any such rights owned by any
other party or parties, and there is no such claim or action
pending or, to the knowledge of Buyer, threatened.
No Breach of Statute, Decree, Order or Contract.
Except as disclosed in any schedule hereto,
subject to any applicable grace period, Buyer is not in
default under or in violation in any material respect of any
applicable statute, law, ordinance, decree, order, rule or
regulation of any governmental body, or the provisions of any
franchise or license, or in default under or in violation of
any provision of its Certificate of Incorporation, By-Laws,
any promissory notes, indentures, or any evidence of
indebtedness or security therefor, or any lease, contract,
purchase or other commitment or any other agreement by which
it is bound which could result in a materially adverse effect
on its business or condition, financial or otherwise.
Guaranties.
Except as set forth on Schedule 3.16, Buyer is not a
guarantor, indemnitor, or otherwise liable for any
indebtedness of any other person, firm or corporation, except
as endorser on checks received by it and deposited in the
ordinary course of business.
Transactions With Affiliates, Directors and Others.
Except as set forth in Schedule
3.17: (i) Buyer is not indebted to any of its directors,
officers or employees or any of their relatives, except for
amounts due as normal salaries, wages and bonuses for the
current period at rates in effect prior to December 31, 1997,
or subsequently accrued for the current fiscal year in
accordance with the Buyer's regular past practice, or in
reimbursement of ordinary expenses on a current basis;
(ii) none of Buyer's directors, officers or employees or any
of their family members is indebted to Buyer except for
advances for ordinary business expenses for which such
directors, officers or employees are accountable; and
(iii) no officer or director of Buyer has any material
financial interest in any transaction with Buyer in which it
is in competition with Buyer.
Officers and Directors.
Set forth in Schedule 3.18 is a
list of the officers and directors of the Company.
Brokers or Finders.
Except for Fidelity Capital Corporation whose compensation
is the sole responsibility of Buyer, Buyer and its officers
and agents have incurred no
obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other
like payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment
alleged to be due by or through Buyer as a result of the
action of Buyer, its officers and agents.
Investment Intent.
Buyer acknowledges that the Stock has
not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and that Sellers have disclosed to
Buyer that the Stock may not be resold absent such
registration or unless an exemption from registration is
available. Buyer is acquiring the shares for its own
account, for investment purposes only and not with a view to
distribution thereof within the meaning of Section 2(11) of
the 1933 Act.
Validity of Shares.
Subject to Buyer's shareholders voting
to amend Buyer's Certificate of Incorporation to authorize
the issuance of additional shares of Buyer's Common Stock,
when issued pursuant to the terms of this Agreement, the
HitCom Shares to be issued to Sellers hereunder will be duly
and validly issued, fully paid and non-assessable.
Disclosure.
No representation or warranty by Buyer in this Agreement,
and no certificate or written statement furnished or to be
furnished to Sellers pursuant to this Agreement or in
connection with the transactions contemplated hereby,
contains or shall contain any untrue statement of material
fact, or omits or shall omit to state a material fact
necessary in order to make the statements contained herein
and therein not misleading.
Share Holdback.
For one year after the Closing Date, Buyer will
not permit or facilitate any sale or other disposition of any
of the HitCom Shares owned by Scott Beil or Anthony Hitt
except pursuant to a registered public offering.
ARTICLE IV
Covenants Prior to Closing Date
Affirmative Covenants.
During the period from the date of
this Agreement to the Closing Date, Buyer shall, and Sellers
shall and shall cause the Company to:
Access and Investigation.
(a) Afford the other and their respective
representatives full and free access to the Company's and
Buyer's respective personnel, properties, documents,
contracts, books and records, including tax returns, and
furnish the other with copies of said documents and with such
additional financial and operating data and other information
as the other shall, from time to time, reasonably request for
the purpose of enabling Buyer and Sellers to conduct an
investigation of the Company and Buyer, respectively;
provided that all such access and information shall be
supplied in such a way as to minimize disruption of the
business of Buyer and the Company. The furnishing of such
information and any such investigation, shall not affect a
party's right to rely on any representations and warranties
made in this Agreement.
(b) During such investigation, Buyer and Sellers and
their respective representatives shall have the right to make
copies of such documents, contracts, books and records, tax
returns and other materials as they may seem advisable. In
the event the transactions contemplated by this Agreement are
not consummated, Buyer and Seller and their representatives
shall treat all information originally obtained in such
investigation, and not otherwise known to recipient thereof
or already in the public domain, as confidential and shall
promptly return to the provider thereof all copies of
materials belonging to such provider made by such recipient
or its representatives.
Operations.
(a) continue to conduct its business consistent with
past practice in its usual manner; and maintain its books of
account in a manner that fairly and accurately reflects its
income, expenses and liabilities in accordance with generally
accepted accounting principles and practices;
(b) duly and punctually perform all of its contractual
obligations in accordance with the terms hereof;
(c) give prompt written notice to the other party of
any notice received by it of any default or breach or alleged
default or breach under any material instrument or agreement
to which it is a party or by which it is bound and take all
reasonable steps to cure any default;
(d) use its best efforts to preserve the goodwill of
its suppliers, customers, landlords and others having
business relations with it;
(e) maintain and keep its properties and facilities in
good condition and working order, except for ordinary wear
and tear;
(f) comply with all laws applicable to it and the
conduct of its business;
(g) give prompt written notice to the other party of
the commencement of any action, suit, proceeding or
investigation or the assertion of any material claim or
threat to commence any action, suit, proceeding or
investigation; keep the other party fully and promptly
informed as to any developments in any pending action, suit,
proceeding or investigation;
(h) use its best efforts and cooperate with the other
party in taking all necessary steps necessary to obtain any
consent, approval or authorization required by law to allow
the consummation of this Agreement and the transactions
contemplated hereby, including the approval and authorization
of any Federal, state or local governmental agency or
authority having jurisdiction over the transactions
contemplated hereby as may be required, and such steps will
be taken as soon as practicable;
(i) use its best efforts to preserve its business
organization intact and retain the services of its present
officers, employees and agents;
(j) maintain in full force and effect insurance
policies on all properties real and personal providing
coverage and amounts of coverage comparable to the coverage
and amounts of coverage provided under its policies of
insurance now in effect and obtain such additional insurance
as Buyer may direct by notice; and
(k) use its best efforts to cause all conditions to
the consummation of the transactions contemplated hereby to
be satisfied.
Negative Covenants.
Except as contemplated by this
Agreement, Buyer shall not, without the prior written consent
of Sellers, and Sellers shall not, without the prior written
consent of Buyer permit the Company to:
Restrictions.
(a) except in the ordinary course of business,
(i) enter into any contract or commitment, or (ii) incur or
agree to incur any liability or make any capital expenditure,
where the aggregate payments involved may reasonably be
expected to exceed US $25,000;
(b) change, amend or modify its charter (including,
without limitation to change its capital stock by
reclassification, subdivision, reorganization or otherwise)
or amend its bylaws;
(c) issue, sell or otherwise dispose of any share of
its capital stock or create any obligation to issue, sell or
otherwise dispose of any shares of its capital stock;
(d) incur, or agree to incur, or otherwise guarantee
or become liable for any indebtedness for money borrowed
except for contemplated debt financing by Buyer not to exceed
US $400,000 in principal amount;
(e) cause or suffer any of its real or personal
property to become subject to any material lien security
interest, mortgage or other encumbrance except in connection
with contemplated debt financing by Buyer not to exceed US
$400,000 in principal amount;
(f) increase the compensation payable or to become
payable to any of its directors, officers, employees, agents
or consultants, make or agree to make or change any bonus,
pension, option, deferred compensation, retirement payment,
profit sharing or like payment or arrangement to or for the
benefit of any such person or enter into or change any
employment arrangement with any such person;
(g) directly or indirectly, declare, set aside, pay or
make any distribution in respect of, or, directly or
indirectly, purchase, redeem or otherwise acquire, or agree
to purchase, redeem or otherwise acquire, any of its capital
stock;
(h) enter into any employment agreement, or increase
the compensation payable to or to become payable to any of
its or their directors, employees, consultants or agents;
(i) enter into or amend any lease, contract,
understanding, commitment, or transaction other than in the
usual and ordinary course of business;
(j) incur any obligation or liability, absolute or
contingent, other than in the usual and ordinary course of
business;
(k) fail to maintain its tangible properties in good
condition and repair;
(l) incur any indebtedness for borrowed money other
than in the usual and ordinary course of business except for
contemplated debt financing by Buyer not to exceed US
$400,000 in principal amount;
(m) make loans or advances, except extensions of
credit in the usual and ordinary course of business for
merchandise purchased and customary advances to salesman
against commissions;
(n) make any capital expenditures other than in the
usual and ordinary course of business;
(o) use any of its assets for other than proper
corporate purposes and in the usual and ordinary course of
business;
(p) purchase, cancel, retire, redeem or otherwise
acquire any securities or declare or pay any dividends or
make any distribution with respect to its capital stock;
(q) change the banking arrangements and signatures
currently in effect or grant any powers of attorney;
(r) knowingly waive any right of substantial value;
(s) take any action by its Board of Directors or
stockholders except in the ordinary course of business;
(t) violate or continue to violate any governmental
law or regulation, other than minor infractions constituting
summary offenses, if the violation would have a materially
adverse effect on its business; or
(u) fail to notify Buyer of any fact or occurrence,
which, if it existed on the date hereof, would constitute a
breach of the representations and warranties in Article III
hereof.
Notification.
Each party will promptly notify
the other in writing if such party becomes aware of any fact
or condition which makes untrue, or shows to have been
untrue, any representation or warranty made by such party in
this Agreement.
Best Efforts and No Negotiation.
The parties will
each use their best efforts to cause all conditions to the
consummation of the transactions contemplated hereby to be
satisfied and, prior to termination of this Agreement, and
Sellers will not undertake any negotiation for sale of the
Stock or the business or assets of the Company to any person
or entity other than Buyer.
Update of Disclosure. The parties shall each supplement
their respective Disclosure Schedules forthwith upon the
occurrence of any event which changes in any material respect
any statement made by such party in this Agreement or in
their respective Disclosure Schedules.
ARTICLE V
Conditions Precedent to Buyer's Obligations
All obligations of Buyer under this Agreement are
subject to the fulfillment on or before the Closing of each
of the following conditions, subject, however, to the right
of Buyer to waive any one or more of such conditions:
Correctness of Representations and Warranties.
The representations and warranties by Sellers
contained in this Agreement and in the certificates and
papers to be delivered to Buyer pursuant hereto and in
connection herewith shall be true on the date hereof, and on
the Closing Date as though such representations and
warranties were made on and as of the Closing Date.
No Adverse Change.
The Business and property of the Company
shall not have been threatened or affected materially and
adversely or substantially interfered with in any way,
whether or not covered by insurance, as the result of fire,
explosion, earthquake, flood, disaster, accident, labor
dispute or any action of the United States or any
governmental authority, riot, civil disturbances, activities
of the armed forces, or act of God or the public enemy, or
otherwise; and there shall not have occurred any materially
adverse change in the financial condition or of the condition
of the assets or liabilities of the Company as reflected in
the Balance Sheet and Interim Balance Sheet.
Compliance with Agreement.
Sellers shall have performed
and complied with all of their obligations under this
Agreement which are to be performed or complied with by them
prior to the Closing Date.
Certification of Compliance.
Sellers shall have delivered to Buyer a certificate signed by them and such
officers of the Company as Buyer may reasonably request,
dated the Closing Date, certifying to the best of their
knowledge in such form as Buyer may reasonably request, as to
the fulfillment of the conditions set forth in Sections 5.1,
5.2 and 5.3 of this Article V.
Opinion of Counsel.
Buyer shall have received from counsel
to Sellers an opinion of such counsel dated as of the Closing
Date to the effect that:
(a) The Agreement has been duly executed and delivered
by Sellers and constitutes a valid and binding
obligation of Sellers, enforceable against each of
them in accordance with its terms.
(b) The authorized capital stock of the Company
consists of an unlimited number of Class A
preferred shares and an unlimited number of Class
B preferred shares, none of which is outstanding,
and an unlimited number of shares of common stock,
no par value, of which 200 shares are outstanding
and the authorized capital stock of Limited
consists of the number of authorized and issued
and outstanding shares as specified in such
opinion. Sellers own all of the stock of record
and, to the best of counsel's knowledge,
beneficially, free and clear of all liens and
adverse claims. As a result of the delivery of
certificates for the Stock and the stock of
Limited to Buyer and the payment to Sellers being
made at the Closing, Buyer is acquiring record and
beneficial ownership of all of the Stock, free and
clear of all liens and adverse claims.
(c) The Company and Limited are each corporations duly
organized, validly existing and in good standing
under the laws of their jurisdictions of
incorporation with full corporate power and
authority to own its properties and to engage in
its business as presently conducted or
contemplated, is duly qualified and in good
standing as a foreign corporation under the laws
of each other jurisdiction in which it is
authorized to do business as set forth in Seller's
Disclosure Schedules. All of the Stock and the
stock of Limited has been duly authorized and
validly issued and is fully paid and nonassessable
and was not issued in violation of any preemptive
rights. To the best of such counsel's knowledge,
there are no outstanding options, rights,
conversion rights, agreements or commitments of
any kind relating to the issuance, sale or
transfer of any capital stock or other securities
of the Company or Limited.
(d) Neither the execution and delivery of the
Agreement nor the consummation of any or all of
the transaction contemplated thereby (i) violates,
is in conflict with, or constitutes a default (or
an event which, with notice or lapse of time or
both, would constitute a default) under any
agreement or commitment known to such counsel to
which any of the Sellers is party or (ii) violates
any statute, law, regulation or rule, or, to the
best of such counsel's knowledge, any judgment,
decree or order, of any court or other
governmental body applicable to any of the
Sellers.
(e) Neither the execution and delivery of the
Agreement nor the consummation of any or all of
the transactions contemplated thereby (i) violates
any provision of the certificate or article of
incorporation or by-laws (or other governing
instrument) of the Company or Limited,
(ii) violates, or is in conflict with, or
constitutes a default (or an event which, with
notice or lapse of time or both, would constitute
a default) under, or results in the termination
of, or accelerates the performance required by, or
excuses performance by any party of any of its
obligations under, or causes the acceleration of
the maturity of any debt or obligations under, or
causes the acceleration of the maturity of any
debt or obligation pursuant to, or results in the
creation or imposition of any encumbrance upon any
property or assets of the Company or Limited under
any agreement or commitment known to such counsel
to which the Company or Limited is a party or by
which any its property or assets is bound, or to
which any of the property or assets of the Company
or Limited is subject, or (iii) violates any
statute, law, regulation or rule, or, to the best
of such counsel's judgment, decree or order, of
any court or other governmental body applicable to
the Company or Limited.
(f) No consent, approval or authorization of, or
declaration, filing or registration with, any
governmental body is required for the valid
execution, delivery and performance of the
Agreement or the consummation of the transactions
contemplated thereby.
Absence of Litigation.
No suit, action or other proceeding
or investigation shall be threatened or pending before any
court or governmental agency (i) to restrain or prohibit, or
to claim damages or other relief in connection with this
Agreement, the performance thereof in accordance with its
terms, or the consummation of the transactions contemplated
hereby, or (ii) on account of any matter or for any claims
against Sellers or the Company not disclosed herein or on the
schedules or exhibits hereto and which may materially and
adversely affect the Business or financial condition of the
Company, or the ability of Sellers to consummate the
transactions hereunder.
Consents.
All consents or court approval necessary to the transfer,
sale and delivery of the Stock free and clear of any liens,
claims or encumbrances except as contemplated herein, shall
have been obtained.
Insurance Coverage.
The Company shall not have experienced
any lapse or reduction in its liability or other insurance
coverage from the amounts of coverage currently carried.
Financial Statements.
Sellers shall have provided Buyer
with the Company's audited financial statement as of December
31, 1997 which will fairly present, in accordance with
generally accepted accounting principles, the Company's
financial condition as of such date and the results of its
operations for the nine months then ended and the Company's
financial condition as of December 31, 1997 shall not vary
materially adversely from its financial condition as shown on
the Interim Balance Sheet.
Further Assurances.
Buyer shall have received such further
instruments of assignment as it may reasonably require to
carry out effectively the transactions contemplated
hereunder.
Employment Agreements.
Scott Beil, Rajan Arora and Jeffrey
Shier shall each have each entered into an Employment and
Non-Compete Agreement with Buyer or a subsidiary of Buyer
prior to Closing. Such agreements shall be in the same form
and provide for annual salaries of not less than $80,000,
$80,000 and $50,000, respectively.
Authorization of Additional Shares.
Buyer's shareholders shall have voted to amend Buyer's Certificate of
Incorporation to authorize the issuance of such additional
shares of Buyer's Common Stock as may be needed to consummate
the transactions contemplated by this Agreement.
ARTICLE VI
Conditions Precedent to Sellers' Obligations
All obligations of Sellers under this Agreement are
subject to fulfillment on or before the Closing Date of the
following conditions; subject, however, to the right of
Sellers to waive anyone or more of such conditions:
Correctness of Warranties and
Representations.
The representations and warranties of
Buyer contained in this Agreement and in any certificates and
papers to be delivered pursuant hereto shall be true on the
date hereof, and on the Closing Date as if such
representations and warranties were made on and as of the
Closing Date.
Opinion of Counsel.
Seller shall have received from
Messrs. Armstrong, Teasdale, Schlafly & Davis, counsel to
Buyer, an opinion of such counsel dated as of the Closing
Date, to the effect that:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of
Delaware, with full corporate power and authority
to execute and deliver the Agreement and to
perform its obligations thereunder and to deliver
the HitCom Shares.
(b) The execution, delivery and performance of the
Agreement have been duly authorized by all
necessary corporate action, including, but not
limited to, approval by the Board of Directors of
Buyer. The Agreement has been duly executed and
delivered by Buyer and constitutes the valid and
binding obligation of Buyer, enforceable against
it in accordance with its terms.
(c) Neither the execution and delivery of the
Agreement nor the performance of Buyer's
obligations thereunder (i) violates any provision
of the articles of incorporation or by-laws of
Buyer; (ii) violates, is in conflict with, or
constitutes a default (or an event which, with
notice or lapse of time or both, would constitute
a default) under any agreement or commitment known
to such counsel to which Buyer is party, or
(iii) violates any statute, law, regulation or
rule, or, to the best knowledge of such counsel,
any judgment, decree or order of any court or
governmental body applicable to Buyer.
(d) The HitCom shares being issued to Sellers pursuant
to the Agreement have been duly and validly issued
and are fully paid and nonassessable.
Compliance with Agreement.
Buyer shall have performed and
complied with all of its obligations under this Agreement
which are to be performed or complied with by it prior to the
Closing Date.
Further Assurances.
Sellers shall have received such
further instruments or documents as they may reasonably
require to carry out effectively the transactions
contemplated hereunder and to evidence fulfillment of the
agreements contained herein and the performance of all
conditions to the consummation of such transactions.
Purchase of Minority Interest.
Buyer shall have
purchased from Scott A. Beil his minority interest in One
Plus Marketing, Inc. for total cash consideration of not more
than $250,000, of which amount $150,000 shall be payable on
the Closing Date and $100,000 on or after December 31, 1998
with interest on the unpaid balance at the rate of 9% per
annum.
Shareholder Approval.
Buyer's shareholders shall have
ratified and approved Buyer's entering into this Agreement
and consummating the transactions contemplated hereby after
such shareholders have been provided with Buyers audited
financial statement as of December 31, 1997.
Absence of Litigation.
No suit, action or other proceeding
or investigation shall be threatened or pending before any
court or governmental agency (i) to restrain or prohibit, or
to claim damages or other relief in connection with this
Agreement, the performance thereof in accordance with its
terms, or the consummation of the transactions contemplated
hereby, or (ii) on account of any matter or for any claims
against Buyer not disclosed herein or in the schedules or
exhibits hereto and which may materially and adversely affect
the business or financial condition of Buyer, or the ability
of Buyer to consummate the transactions hereunder.
6.8 Financing Statements. Buyer shall have provided
Seller with Buyer's audited financial statement as of
December 31, 1997 and the nine months then ended which will
fairly present, in accordance with generally accepted
accounting principles, Buyer's financial condition as of such
date and the results of its operations for the nine months
then ended, which statements shall not vary materially
adversely from Buyer's internally prepared financial
statements provided pursuant to Section 3.6.
Reporting Company Status.
Buyer shall have filed a Form
10-SB with the Securities and Exchange Commission and become
subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended.
No Adverse Change.
The business and property of Buyer shall
not have been threatened or affected materially and adversely
or substantially interfered with in any way, whether or not
covered by insurance, as the result of fire, explosion,
earthquake, flood, disaster, accident, labor dispute or any
action of the United States or any governmental authority,
riot, civil disturbances, activities of the armed forces, or
act of God or the public enemy, or otherwise; and there shall
not have occurred any materially adverse change in the
financial condition or of the condition of the assets or
liabilities of Buyer as reflected in its December 31, 1997
audited Balance Sheet.
ARTICLE VII
Closing
The closing (herein referred to as the "Closing" or the
"Closing Date") under this Agreement shall take place at the
offices of Armstrong, Teasdale, Schlafly & Davis, One
Metropolitan Square, Suite 2600, St. Louis, Missouri 63012,
on March 31, 1998, or at such other time and place as the
parties may agree. Buyer shall have the option of extending
the Closing for 30 days upon notice to Sellers and the
issuance to Sellers of an aggregate of 50,000 shares of
Buyer's Common Stock in proportion to their holdings in the
Company on a non-refundable basis for which shares Buyer
shall receive a credit toward the HitCom Shares issuable at
the Closing. Buyer shall have a further option to extend the
Closing for an additional 30 days upon notice to Sellers
provided Buyer is proceeding diligently to effectuate the
Closing.
Delivery by Sellers.
At the Closing, Sellers shall deliver
to Buyer: (a) certificates representing all of the Stock and
the stock of Limited endorsed in blank or with stock powers
attached; (b) the certificate required by Section 5.4; (c)
the opinion of counsel required by Section 5.5; (d) the
Company's and Limited's minute books, stock ledgers, stock
books and corporate seal; and (e) such other further
instruments, documents or certificates as Buyer may
reasonably request to carry out effectively the transactions
contemplated hereunder.
Delivery by Buyer.
At the Closing, Buyer shall deliver to
Sellers: (a) certificates registered in Sellers' names for
the HitCom Shares; (b) the opinion of counsel required by
Section 6.2; (c) certified resolutions of Buyer's Board of
Directors authorizing the execution, delivery and performance
of this Agreement by Buyer; (d) US $175,000 as provided for
in Article I hereof less the US $10,000 previously paid to
Sellers; and (e) such other further instruments, documents or
certificates as Sellers may reasonably request to carry out
effectively the transactions contemplated hereunder. Unless
otherwise specified by Sellers prior to Closing, the HitCom
Shares and checks payable to them hereunder shall be issued
in proportion to their ownership of the Stock.
Other Closing Transactions.
At the Closing, the
Company, Scott Beil, Rajan Arora and Jeffrey Shier shall each
enter into Employment and Non-Compete Agreements as herein
provided.
ARTICLE VIII
Covenants of Sellers Subsequent to the Closing
Further Assurances.
Sellers will, upon request of Buyer
from time to time after the Closing, execute and deliver, and
use their best efforts to cause other persons to execute and
deliver, to Buyer all such further documents and instruments,
and will do or use their best efforts to cause to be done
such other acts, as Buyer may reasonably request more
completely to consummate and make effective the transactions
completed hereby.
ARTICLE IX
Indemnification
Indemnification by Sellers.
Except as otherwise
expressly provided in this Article IX, Sellers jointly and
severally shall defend, indemnify and hold harmless Buyer
for, from and against each and every demand, claim, loss
(which shall include any diminution in value), liability,
damage, cost and expense (including, without limitation,
interest, penalties, costs of preparation and investigation,
and the reasonable fees, disbursements and expenses of
attorneys, accountants and other professional advisors)
(collectively, "Losses") imposed on or incurred by Buyer or
the Company, directly or indirectly, relating to, resulting
from or arising out of: (a) any inaccuracy in any
representation or warranty in any respect or nonfulfillment
of any covenant, agreement or other obligation of Sellers
under this Agreement, any Schedule hereto, or any certificate
or other document delivered or to be delivered pursuant
hereto; and (b) any claim, action, suit, proceeding, demand,
assessment or judgment incident to any of the foregoing.
Indemnification by Buyer.
Except as otherwise expressly
provided in this Article IX, Buyer shall defend, indemnify
and hold harmless Sellers for, from and against all Losses
imposed on or incurred by Sellers directly or indirectly,
relating to, resulting from or arising out of: (a) any
inaccuracy in any representation or warranty in any respect,
or nonfulfillment of any covenant, agreement or other
obligation of Buyer under this Agreement, any Schedule
hereto, or any certificate or other document delivered or to
be delivered or to be delivered pursuant hereto, and (b) any
claim, action, suit, proceeding, demand, assessment or
judgment incident to any of the foregoing.
Notice and Defense of Third Party Claims.
If any action, claim or proceeding shall be brought or
asserted against an indemnified party under this Article IX
or any successor thereto (the "Indemnified Person") in
respect of which indemnity may be sought from an indemnifying
person under this Article IX (the "Indemnifying Person"), the
Indemnified Person shall give prompt written notice of such
action or claim to the Indemnifying Person who shall assume
the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Person and the
payment of all expenses; except that any delay or failure to
so notify the Indemnifying Person shall relieve the
Indemnifying Person of its obligations hereunder only to the
extent, if at all, that it is prejudiced by reason of such
delay or failure. The Indemnified Person shall have the
right to employ separate counsel in any of the foregoing
actions, claims or proceedings and to participate in the
defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Person unless both
the Indemnified Person and the Indemnifying Person are named
as parties and the Indemnified Person shall in good faith
determine that representation by the same counsel is
inappropriate. In the event that the Indemnifying Person,
within ten (10) days after notice of any such action or claim
fails to assume the defense thereof, the Indemnified Person
shall have the right to undertake the defense, compromise or
settlement of such action, claim or proceeding for the
account of the Indemnifying Person, subject to the right of
the Indemnifying Person to assume the defense of such action,
claim or proceeding with counsel reasonably satisfactory to
the Indemnified Person at any time prior to the settlement,
compromise or final determination thereof. Anything in this
Article IX to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior
written consent, settle, or compromise any action or claim or
consent to the entry of any judgment with respect to any
action, claim or proceeding for anything other than money
damages paid by the Indemnifying Person. The Indemnifying
Person may, without the Indemnified Person's prior written
consent, settle or compromise any such action, claim or
proceeding or consent to entry of any judgment with respect
to any such action or claim that requires solely the payment
of money damages by the Indemnifying Person and that includes
as an unconditional term thereof the release by the claimant
or the plaintiff of the Indemnified Person from all liability
in respect of such action, claim or proceeding.
Limitation on Claims.
Any claim for indemnification by a
party under this Article IX shall be barred unless brought
within one year after the Closing.
ARTICLE X
Termination
This Agreement and
the transactions contemplated herein may be terminated and
abandoned at any time prior to the Closing under the
following circumstances:
(a) By mutual consent of the Sellers and Buyer.
(b) By either Sellers or Buyer by notice to the other
if the Closing shall not have taken place on or
prior to May 31, 1998.
(c) By the party adversely affected in the event of
any of the conditions set forth in Articles V and
VI have not been fulfilled and the performance has
not been waived by such party.
If the Agreement is
terminated under this Article X, the parties shall have no
further liability to each other by reason of such
termination, except that if any party hereto knowingly or
wilfully breaches or defaults in any of its representations,
warranties or covenants, the other party adversely affected
may at its option seek and exercise all remedies permitted by
law and seek to recover attorneys' fees and other expenses
related to the exercise of the foregoing remedies.
ARTICLE XI"
Miscellaneous
Notices.
All notices given in connection with this Agreement shall be
in writing and shall be delivered either by personal
delivery, by telecopy or similar facsimile means, by
certified or registered mail, return receipt requested, or by
express courier or delivery service, addressed to the parties
hereto at the following addresses:
Sellers:
Rajan Arora
Channel Telecom Inc.
393 King Street West, Suite 709
Toronto, Ontario
Canada M5V 3G8
Telecopy No. (416) 979-0647
With a copy to:
R.K. Mann
9 A Casimir Street
Toronto, Canada MST 2P6
Telecopy No. (416) 603-9186
Buyer:
HitCom Corporation
700 North Second Street
Third Floor
St. Louis, Missouri 63102-2519
Telecopy No. (314) 231-2468
With a copy to:
Joseph S. von Kaenel, Esq.
Armstrong, Teasdale, Schlafly,
& Davis
One Metropolitan Square, Suite 2600
St. Louis, Missouri 63102-2740
Telecopy No. (314) 621-5065
or at such other address and number as either party shall
have previously designated by written notice given to the
other party in the manner hereinabove set forth. Notices
shall be deemed given when received, if sent by telecopy or
similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of
communication sent by telecopy or other facsimile means); and
when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or
sent by certified or registered mail, return receipt
requested.
Further Assurances.
The parties hereto agree (i) to
furnish upon request to each other such further information,
(ii) to execute and deliver to each other such other
documents, and (iii) to do such other acts and things, all as
the other party hereto may at any time reasonably request for
the purpose of carrying out the intent of this Agreement and
the documents referred to herein.
Waiver.
The rights and remedies of the parties of this Agreement are
cumulative and not alternative. Neither the failure nor any
delay on the part of any party in exercising any right, power
or privilege under this Agreement or the documents referred
to herein shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof, or
the exercise of any other right, power or privilege.
Entire Agreement and Modification.
This Agreement is intended by the parties to this Agreement as a
final expression of their agreement with respect to the
subject matter hereof, and is intended as a complete and
exclusive statement of the terms and conditions of that
agreement. This Agreement may not be modified, rescinded, or
terminated orally, and no modification, rescission,
termination or attempted waiver of any of the provisions
hereof (including this Section) shall be valid unless in
writing and signed by the party against whom the same is
sought to be enforced.
Assignments, Successors and No
Third-Party Rights.
This Agreement shall apply to and be
binding in all respects upon, and shall inure to the benefit
of, the successors and assigns of the parties hereto.
Nothing expressed or referred to in this Agreement is
intended or shall be construed to give any person or entity
other than the parties to this Agreement any legal or
equitable right, remedy or claim under or with respect to
this Agreement, or any provision hereof, it being the
intention of the parties hereto that this Agreement and all
of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement, either
successors and assigns, and for the benefit of no other
person or entity.
Severability.
In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or
render unenforceable any other provisions hereof. Any
provision of this Agreement held invalid or unenforceable
only in part or degree shall remain in full force and effect
to the extent not held invalid or unenforceable.
Sections Headings, Construction.
The headings of articles and sections contained in this Agreement are
provided for convenience only. They form no part of this
Agreement and shall not affect its construction or
interpretation. All references to articles and sections in
this Agreement refer to the corresponding articles and
sections of this Agreement. All words used herein shall be
construed to be of such gender or number as the circumstances
require. Unless otherwise specifically noted, the words
"herein", "hereof", "hereby", "hereinabove", "hereinbelow",
"hereunder", and words of similar import, refer to this
Agreement as a whole and not to any particular section,
subsection, paragraph, clause or other subdivision hereof.
Time of Essence.
With regard to all time period s set forth or
referred to in this Agreement, time is of the essence.
Governing Law.
This Agreement shall be governed by, and
construed under, the laws of the State of Missouri without
regard to conflicts of laws, all rights and remedies being
governed by such laws.
Publicity.
Any public announcement or similar publicity with respect to
this Agreement or the transactions contemplated hereby shall
be issued, if at all, at such time and in such manner as
Buyer shall determine after consultation with Sellers.
Unless consented to by the Buyer in advance or required by
law, prior to the Closing Sellers shall, and shall cause the
Company to, keep the provisions of this Agreement strictly
confidential and make no disclosure thereof to any person.
Sellers and Buyer will consult with each other concerning the
means by which the Company's employees, customers and
suppliers and others having dealings with the Company will be
informed of the transaction contemplated hereby, and Buyer
shall have the right to be present for any such
communication.
Survival.
All covenants, agreements, representations and warranties
made herein shall be deemed to be material and to have been
relied upon by Buyer and Sellers, respectively,
notwithstanding any prior knowledge or any investigations
hereunder or hereafter made by Buyer or Sellers or on behalf
of either of them. All representations and warranties shall
survive the Closing for a period of one year.
Expenses.
The costs, expenses, taxes or charges incurred by the Buyer
and the Sellers in connection with this Agreement shall be
borne by the party incurring such costs, expenses, or
charges; provided the Sellers shall bear any costs, expenses,
or charges incurred by the Company prior to Closing except
for such costs as may have been approved in advance by Buyer.
Counterparts.
This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original copy of this Agreement, and all of which, when taken
together, shall be deemed to constitute but one and the same
agreement.
ARTICLE XII
Special Covenants
Registration Rights.
If within two years after the Closing
Buyer files a registration statement under the Securities Act
of 1933, as amended, (on other than Form S-8 or Form S-4 or
successor forms thereto) covering shares of Buyer's other
shareholders, Buyer will offer Sellers "piggyback"
registration rights entitling them to include their shares in
such registration on a pro rata basis with other shareholders
of Buyer participating in such offering. Such registration
rights shall be subject to customary indemnification and
expense sharing provisions and such conditions and terms as
the underwriters may require. Such registration rights shall
also apply to the 50,000 shares of Buyer's Common Stock
issuable upon an extension of the Closing for one year after
such issuance.
Election of Officers. At the Closing, Buyer will cause
Rajan Arora, Jeffrey Shier and Ron Mann to be elected to
Buyer's Board of Directors and will cause Rajan Arora to be
elected President and Chief Executive Officer of Buyer,
Jeffrey Shier to be elected Executive Vice President of Buyer
and Scott A. Beil to be elected Buyer's Chairman of the
Board.
IN WITNESS WHEREOF, Buyer has caused this Agreement to
be executed by its duly authorized officer, and Sellers have
executed this Agreement, on the date first above written.
HITCOM CORPORATION
By:_____/S/ Scott A. Beil______
Scott A. Beil, President
No. of Shares Owned
/s/ Rajan Arora 100
Rajan Arora
/s/ Jeffrey Shier
Beneficial interest as
beneficiary of the
Jeffrey Shier
Jeffrey Samuel Shier
Family Trust which is the sole
shareholder of 1027126 Ontario Ltd.
/s/ Jeffrey Shier 100
Trustee of the Jeffrey
Samuel Shier Family Trust
under agreement dated February XX, 1998, as
owner of all outstanding
stock of 1027126 Ontario Ltd.
______________________________________________________
Scott A. Beil and Anthony Hitt hereby represent and warrant
to Sellers pursuant to the foregoing agreement that they own
5,837,012 and 1,005,391 HitCom Shares, respectively, and
agree not to sell or otherwise dispose of said shares until
one year after the Closing Date except pursuant to a
registered public offering.
/s/ Anthony Hitt /s/ Scott A. Beil
Anthony Hitt Scott A. Beil
Employment Contract
between HitCom Corporation and
David B. Parks
Contract Term. The employment period (Contract) between
HitCom Corporation (the Company) and David B. Parks will be
from January 12, 1998 through December 31, 1998. The
period from January 12 through February 14, 1998 Mr. Parks
will be treated as a consultant receiving $1,500 per week
in consulting fees. The Contract may be renewed by the
Company and Mr. Parks upon the mutual agreement of both
parties. If the Company elects not to renew the Contract,
the Company will notify Mr. Parks at least 90 days prior to
the term of the Contract. If the Company does not notify
Mr. Parks of its intent not to renew said contract at each
subsequent expiration date, the Contract will automatically
renew at the discretion of Mr. Parks for one calendar year.
Job Title. Mr. Parks will serve as Executive Vice
President and Chief Financial Officer of the Company.
Severance. If the Company releases Mr. Parks prior to the
term of the contract, either by dismissal or non-renewal of
Contract, unless for acts of gross negligence, Mr. Parks
will be entitled to severance equal to 9 months of Mr.
Parks' monthly base pay. For each calendar year Mr. Parks
is employed at the Company, the available severance will be
increased by 1 1/2 months not to exceed twelve months.
Base Salary. Base salary for calendar year 1998 will be
equal to $80,000. On January 1, 1999, base salary will
increase to not less than $100,000.
Options. The Company will issue Mr. Parks options to
purchase 240,000 shares of HitCom stock at the closing
price on January 12, 1998 ($1 per share). The shares vest
as follows:
25,000 shares upon signing employment contract
35,000 shares at March 31, 1998
35,000 shares at June 30, 1998
35,000 shares at September 30, 1998
35,000 shares at December 31, 1998
50,000 shares once 10-SB is filed
25,000 shares upon completing private placement memorandum
Any additional shares issued will be at the discretion of
management and/or the Board of Directors.
Vacation. Mr. Parks may have up to four weeks of Company
paid vacation per calendar year. Which vacation shall be
taken at mutually agreeable times so as not to interfere
with the company's business.
Higher-Level Tuition Costs. Mr. Parks' higher-level
tuition costs will be paid at 100% upon advance approval of
the CEO or President. This is in excess of the current
Company's policy. If Mr. Parks should voluntarily leave
the Company he will be responsible for reimbursing the
Company for the past 12 months of excess tuition costs.
Professional Dues and CPE Credits. The Company will
sponsor all relevant and reasonable professional dues and
CPE credits required for Mr. Parks to keep such
professional titles that he brought with him to the
Company.
Medical, Dental and Other Employee-Related Insurance.
Reasonable medical, dental and other employee-related
insurance costs shall be made available to Mr. Parks where
the Company pays for 50% of said premiums. All premiums
paid by Mr. Parks in excess of $1,800 will be reimbursed by
the Company, net of any tax implications.
This Contract is hereby agreed to by the undersigned below:
/s/ David B. Parks
David B. Parks
/s/ Scott A. Beil
Scott A. Beil
Chairman & CEO
HitCom Corporation
HitCom Corporation
List of Subsidiaries
Subsidiary Name Percent Ownership
State of Incorporation
Webtech, Inc. 100%
Missouri
One Plus Marketing, Inc. 80%
Illinois
