<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1999
SEC Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
PAYSTAR COMMUNICATIONS CORPORATION
(Name of small business issuer in its charter)
NEVADA 481 86-0885565
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Number) Identification No.)
incorporation or
organization)
1110 WEST KETTLEMAN LANE, SUITE 48, LODI, CA 95240
Telephone (209) 339-0484
(Address and Telephone Number of Principal Executive Offices)
1110 WEST KETTLEMAN LANE, SUITE 48, LODI, CA 95240
(Address of Principal Place of Business)
JEFF MCKAY, PRESIDENT, PAYSTAR COMMUNICATIONS CORPORATION
1110 WEST KETTLEMAN LANE, SUITE 48, LODI, CA 95240; (209) 339-0484
(Name, Address and Telephone number of agent for service)
Copies to:
Ronald N. Vance, Esq.
57 West 200 South, Suite 310
Salt Lake City, UT 84101
(801) 359-9300
(801) 359-9310 - FAX
<PAGE>
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit(1) Price(1) Fee
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<S> <C> <C> <C> <C>
Series A Preferred 5,500,000 $ 2.00 $ 11,000,000 $ 3,058
Stock, $.001
par value
Common Stock, 15,000 $ 2.50(2) $ 37,500 $ 11
$.001 par ----
value
TOTAL $ 3,069
=======
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933.
(2) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457. This amount is based upon the average of the bid and asked
prices ($2.50) of the common stock of the Registrant as of December 20, 1999.
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<PAGE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PAYSTAR COMMUNICATIONS CORPORATION
5,500,000 Shares of Preferred Stock
$2.00 Per Share
We are offering for sale shares of our series A convertible cumulative
$2.00 preferred stock. This offering of our preferred shares is not
underwritten. Our officers and directors will offer and sell the preferred
shares without remuneration to them. The minimum number of preferred shares a
person must purchase is 1,000. An indeterminate number of the shares may be sold
through broker/dealers who are members of the National Association of Securities
Dealers, Inc., and who will be paid a 10% commission on sales they make. The
offering will end not later than one hundred eighty days following the date of
this prospectus.
We are escrowing proceeds from sales of the shares at Community Bank of
San Joaquin, Stockton, California, until the sale of the minimum number of
preferred shares is achieved. If the minimum of $3,000,000 in proceeds is not
received within ninety days from the date of this prospectus, which period may
be extended for an additional thirty days, at our option, all escrowed funds
will be promptly returned to subscribers without interest or deduction.
<TABLE>
<CAPTION>
Per Share Total Amount
--------- ------------
<S> <C> <C>
The Offering: Minimum: 1,500,000 shares $2.00 $3,000,000
Maximum: 5,500,000 shares $2.00 $11,000,000
Less Selling Commissions
Minimum $0.20 $300,000
Maximum $0.20 $1,100,000
Proceeds to us
Minimum $1.80 $2,700,000
Maximum $1.80 $9,900,000
</TABLE>
Concurrently with this offering, we are registering for resale 15,000
shares to be offered by a selling security holder. We will not receive any of
the proceeds from the sale of the shares by this person.
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<PAGE>
THIS OFFERING IS HIGHLY SPECULATIVE AND INVOLVES SPECIAL RISKS
CONCERNING THE COMPANY AND ITS BUSINESS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
________, 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Business
Management
Certain Transactions
Market Information
Principal Shareholders
Selling Shareholder
Description of Securities
Dividend Policy
Plan of Distribution
Shares Eligible For Future Sale
Legal Matters Experts
Financial Statements
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
OUR COMPANY
We service and operate pay telephones for various owners, including
ourselves. We also operate and manage scrip ATM machines which permit customers
to use their debit cards to purchase merchandise or food at retail outlets and
receive cash back.
Our principal executive offices are located at 1110 West Kettleman
Lane, Suite 48, Lodi, California 95240, and our telephone number at these
offices is (209) 339-0484
<TABLE>
THE OFFERING
<S> <C>
Securities offered: Series A preferred stock. The shares have a
face value of $2.00 per share and carry a
cumulative dividend rate beginning at 11%
and decreasing to 10%. They have no voting
rights, except if we fail to pay a quarterly
dividend.
Conversion Rate: They are convertible beginning at one share
of common stock for each two shares of
preferred stock, decreasing to one share of
common stock for each four shares of
preferred stock.
Redemption Provisions: We can redeem the preferred shares beginning
January 1, 2001, beginning at $2.20 per
share and decreasing to $1.80 per share.
Total public price
Maximum Offering $11,000,000
Minimum Offering $3,000,000
Selling Commissions
Maximum Offering $1,100,000
Minimum Offering $300,000
Estimated offering expenses $65,000
Net proceeds
Maximum Offering $9,835,000
Minimum Offering $2,635,000
</TABLE>
We intend to use the net offering proceeds to:
- Repay existing debt;
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<PAGE>
- Acquire more pay telephones; and
- Provide working capital.
The following summary financial information has been derived from our
financial statements which appear later in this prospectus and should be read in
conjunction with those financial statements and related notes:
<TABLE>
<CAPTION>
(Unaudited)
For the Nine
Months Ended For the Years
September 30 Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues $ 3,346,225 $ 1,156,149 $ 252,332
Gross profit 647,624 371,953 252,332
Net loss (287,068) (116,212) (83,554)
Loss per share (0.07) (0.03) (0.08)
Shares used in per
share computations 3,821,200 3,539,500 1,081,200
Consolidated Balance Sheet Data:
Cash $ 756,347 $ 17,171
Current assets 952,794 22,254
Total assets 1,803,022 249,263
Working capital (506,391) (39,965)
Total stockholders' equity (deficit) 195,923 187,044
</TABLE>
RISK FACTORS
IF WE ARE UNABLE TO GENERATE SUFFICIENT REVENUES IN THE FUTURE, WE MAY NOT BE
ABLE TO DECLARE THE DIVIDENDS REQUIRED BY THE TERMS OF THE PREFERRED STOCK. IF
WE ARE UNABLE TO DO SO, THE PREFERRED SHAREHOLDERS MAY VOTE THEIR SHARES TO
ELECT A MAJORITY OF THE DIRECTORS AND CHANGE CONTROL OF THE COMPANY.
At September 30, 1999, we had a net loss of ($287,068) for the nine
months then ended, and net losses of ($116,212) and ($83,554) for 1998 and 1997.
However, our assets exceeded our liabilities by $313,790 at September 30, 1999,
and by $195,923 at December 31, 1998. Generally, dividends may be paid from the
excess of our assets less our liabilities. If we do not meet this requirement,
we will not be able to pay the quarterly dividends required by the terms of this
series of
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<PAGE>
preferred stock. In such an event, the preferred shareholders will have the
right to elect a majority of the directors, who may in turn appoint new
officers. They may also vote to sell the assets, change the business, or
issue shares of either common or preferred stock. There is no assurance that
we will be profitable in the future or generate sufficient revenues to avoid
default of the provisions of the series A preferred stock.
OUR COMPETITION WITH OTHER PAY TELEPHONE COMPANIES MAY REQUIRE US TO OFFER
HIGHER COMMISSIONS TO SITE OWNERS, WHICH IN TURN COULD REDUCE OUR PROFITABILITY.
The pay telephone business is highly competitive. We have no patents or
exclusive rights to operate our business. The markets in which we operate are
fragmented, but include certain large, well-capitalized providers of
telecommunications services. Our principal competition in the pay telephone
business comes from local exchange carriers operated by the regional Bell
operating companies, GTE Corporation, a number of independent providers of pay
telephone services, major operator service providers and interexchange carriers.
In addition to offering pay telephone service, local exchange carriers are the
exclusive line service providers in certain geographical regions. We also
compete with many other non-local exchange carrier telecommunication companies,
which offer services similar to those of ours. Increased competition from these
sources could cause us to offer higher commissions to new location owners. Such
higher commissions could have a material adverse effect on us by impeding our
ability to grow and by increasing our operating expenses as a percentage of
revenue. Wireless and cellular communications provide an alternative to
payphones and may, therefore, be a factor in slowing the rate of growth of the
payphone industry.
WE ARE DEPENDENT UPON CONTINUED SERVICE BY OUTSIDE PROVIDERS. THE INTERRUPTION
OF THESE SERVICES COULD MATERIALLY AFFECT OUR ABILITY TO GENERATE BUSINESS.
Our long-distance operations require that our switching equipment and
the equipment of our long-distance service providers be operational 24 hours per
day, 365 days per year. As is the case with other telecommunications companies,
our long-distance operations may experience temporary service interruptions or
equipment failures, which may result from causes beyond our control.
OUR PAY TELEPHONE CONTRACTS WITH OWNERS ARE SUBJECT TO TERMINATION WITHOUT
CAUSE. THE LOSS OF THESE CONTRACTS, OR THE FAILURE TO PAY ON A TIMELY BASIS
COULD MATERIALLY AFFECT OUR ABILITY TO CONTINUE OR EXPAND OUR BUSINESS.
Each of the pay telephones we manage signs an agreement with us to
manage their pay telephones. The owner may terminate this agreement should we
fail to properly maintain the pay telephones in good working order as per the
agreement. There is a risk that we could at some time in the future not perform
satisfactory service and lose the management contract. There also is the
possibility that we may be unable to collect its management fees in a timely
manner, which could have an adverse financial impact on us. Currently, one of
our vendors, Quantum Communications, is three months delinquent in payment of
management fees to us.
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<PAGE>
OUR ABILITY TO EXPAND OUR PAY TELEPHONE BUSINESS IS DEPENDENT UPON FINDING NEW
TELEPHONES OR ROUTES. THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO IDENTIFY AND
ACQUIRE BUSINESSES ON A BASIS WHICH WILL SATISFY OUR MINIMUM RATES OF RETURN AND
OTHER CRITERIA FOR ACQUISITION.
We intend to expand our business by contracting to install payphones or
acquiring assets from payphone service providers in geographic areas where we
are presently operating, as well as in new areas. There can be no assurance that
the Company will be able to locate favorable new sites for internal growth,
access developing technologies at satisfactory costs to provide those service
enhancements demanded by consumers and customers in its existing and future
businesses, or hire qualified new employees to meet the requirements of our
expanding business. There can be no assurance that our business strategy will
prove to be successful or that expansion of our business will not have a
material adverse effect on the operations and financial condition of the
Company. While we are negotiating with certain pay telephone route owners, we
have not been able to finalize any such acquisitions
5,300,000, OR 80%, OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM IMMEDIATE
RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS
DOING WELL.
The preferred shares being offered are convertible into common shares.
We have outstanding 6,636,000 common shares. This includes 15,000 restricted
shares which are being registered for resale into the public market. The
remaining 5,300,000, or 80%, of our total outstanding shares, as well as the
shares being registered for resale, will become available for resale in the
public market as shown in the chart below.
As restrictions on resale end, the market price could drop
significantly if the holders of these restricted shares sell them or are
perceived by the market as intending to sell them.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
NUMBER OF SHARES AND PERCENTAGE OF TOTAL DATE OF AVAILABILITY FOR RESALE INTO THE
OUTSTANDING PUBLIC MARKET
- ------------------------------------------------------------------------------------------------
<S> <C>
15,000/0.2% Immediately available, so long as the
registration statement remains effective.
- ------------------------------------------------------------------------------------------------
5,300,000/80% Between 90 and 365 days after the date of this
prospectus due to the requirements of the
federal securities laws.
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</TABLE>
FORWARD LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the
future. Forward-looking statements include statements about the future of the
pay telephone or scrip ATM businesses, statements about our future business
plans and strategies, and most other statements that are not historical in
nature. In this prospectus forward-looking statements are generally identified
by the
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<PAGE>
words "anticipate," "plan," "believe," "expect," "estimate," and the like.
Although we believe that any forward-looking statements we make in this
prospectus are reasonable, because forward-looking statements involve future
risks and uncertainties, there are factors that could cause actual results to
differ materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements,
besides the specific factors identified in the Risk Factors section of this
prospectus, include the following:
- Obsolescence of our current technology;
- Uncertainty of the markets for our products or services;
- Our ability to anticipate and respond to changes and new
technology;
- Our ability to make the investments necessary to acquire new
technology or to introduce new services that would satisfy an
expanded range of customer needs;
- Our access to long-distance providers at competitive rates;
- Changes in existing laws and regulations or the adoption of
new laws or regulations;
In light of the significant uncertainties inherent in the
forward-looking statements made in this prospectus, particularly in view of our
early stage of operations, the inclusion of this information should not be
regarded as a representation by us or any other person that our objectives and
plans will be achieved.
The Private Securities Litigation Reform Act of 1995, which provides a
"safe harbor" for similar statements by existing public companies, does not
apply to our offerings.
USE OF PROCEEDS
The following table sets forth the use of proceeds, alternatively under
the minimum and maximum offering, and management's present estimate of the
allocation and prioritization of net proceeds expected to be received from this
offering. If funds in excess of the minimum amount, but less than the maximum,
are received, the funds will be allocated pro rata among the items in the table,
except for the repayment of debt which will be paid in full. Actual receipts and
expenditures may vary from these estimates. Pending use of the funds, the
Company will invest the net proceeds in investment-grade, short-term, interest
bearing securities.
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<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
-------- --------
<S> <C> <C>
Gross Proceeds $ 3,000,000 $ 11,000,000
Selling commissions (300,000) (1,100,000)
Other offering expenses (65,000) (65,000)
------- -------
NET OFFERING PROCEEDS $ 2,635,000 $ 9,835,000
=========== ============
Use of Net Proceeds
Debt Repayment(1) $ 800,000 $ 1,200,000
Accounts Payable 300,000 400,000
Pay Telephone Acquisitions 1,100,000 7,900,000
Working Capital 435,000 335,000
------- -------
TOTAL $ 2,635,000 $ 9,835,000
=========== ============
- ------------
</TABLE>
(1) These funds were loaned to us by Intermountain Marketing
Associates, LLC, a Utah limited partnership managed by Mr. Thomas Howell, the
director of our ATM subsidiary, and one of our shareholders. The loans were
evidenced by a series of nine-month notes, the first of which was issued on May
13, 1999, and bearing interest at 13.35% per annum due at the maturity date. The
loans are non-recourse, but are secured by the revenues from the various
telecommunications and income opportunities and certain equipment. Of the total
amount of these loans, $1,062,500 were loaned to PayStar Communications, Inc.
for working capital and $152,950 were loaned to U.S. Cash Exchange to acquire
ATM equipment.
We estimate that the net minimum proceeds from this offering will meet
our cash needs for at least the next twelve months.
From the minimum proceeds allocated for accounts payable, we intend to
repay $20,000 to Mr. Yotty, an officer, director, and principal shareholder, for
advances made by him.
If we are able to acquire significant pay telephone routes with part of
the funds from this offering, we may allocate more funds to working capital to
support these acquisitions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
We were basically dormant until October 1998. At that time we
reorganized and acquired PayStar Communications, Inc. We realized a 1998 net
loss of $116,212 on sales of $1,156,149. The net loss can be attributed to the
company being in its developmental stage, therefore, incurring one time
extraordinary start-up costs.
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<PAGE>
On October 1, 1999, we acquired U.S. Cash Exchange, Inc. With the
addition of U.S. Cash Exchange, Inc. we had a September 30, 1999 net loss of
$287,068 on sales of $3,346,225. These numbers reflect the consolidation of
PayStar Communications, Inc. and U.S. Cash Exchange, Inc. While the numbers
reflect an upward trend in revenue, we are still experiencing extraordinary
developmental costs.
Our expansion plans of acquiring and owning additional payphones as
well as expanding our ATM script business will provide for additional revenue
and profits. We currently conduct the majority of our business within the state
of California. The expansion plan for both payphones and ATMs include having a
presence in states throughout the United States. We utilize an elaborate model
when we review a future acquisition, thus insuring that additional business will
add profit to our bottom line. The proceeds from this offering will be utilized
to fund these profitable acquisitions.
YEAR 2000 ISSUE
We do not believe that the Year 2000 Issue will have a significant
impact on our business. The "Year 2000 Issue" involves the potential for system
and processing failures of date-related data resulting from computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that contain time-sensitive software may recognize a
date using two digits of "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar ordinary business activities.
We believe that our internal software and hardware systems will
function properly with respect to dates in the Year 2000 and thereafter.
We have contacted our suppliers, manufacturers, and principal clients,
or our utility and telecommunications companies and other companies which
provide key services or equipment to our business. Each has indicated its
readiness for the Year 2000. As a contingency plan, we believe that if for any
reason a particular manufacturer proves not to be Year 2000 compliant,
alternative manufacturers would be available. Of the utility and
telecommunications companies, and others who provide key equipment or services
to us, each has disclosed that it is presently Year 2000 compliant.
BUSINESS
HISTORY AND ORGANIZATION
Our company, PayStar Communications Corporation, was originally
incorporated under the name of "Soterco, Inc." on June 16, 1977. We changed our
name to "Sun Source, Inc." on September 11, 1997, and again to "PayStar
Communications Corporation" on November 10, 1998.
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<PAGE>
From the date of incorporation until October of 1979, we did not engage
in any business activities. In October of 1979 the Board of Directors was
presented with an opportunity to develop a mineral property in Inyo County,
California, on a joint venture basis with a mining company. In December 1979 we
were informed that the test drills in the Inyo mine site had not proved out and
that the mine, known as the Suitcase Mine, could not be commercially operated.
The project was thereafter abandoned and we became inactive until 1997.
In December of 1997 we acquired, in a stock for stock exchange, all of
the issued and outstanding stock of a closely held Utah corporation known as Sun
Source, Inc. The Utah Company became a wholly owned subsidiary and was engaged
in the business of operating a tanning salon in Salt Lake City, Utah. The
business was subsequently terminated and the subsidiary was sold. We again
became dormant in approximately July 1998.
On October 12, 1998, we entered into a reorganization agreement with
PayStar Communications, Inc., a closely held Nevada corporation, and the
shareholders of this entity. The closely held company was incorporated in the
State of Nevada on June 10, 1998, for the purpose of managing coin and credit
card operated pay telephones. The agreement provided that on the closing date
the shareholders of the closely-held company would exchange all of their shares
for 2,000,000 shares of our company, such that the closely-held company would
become a wholly owned subsidiary and the shareholders of the subsidiary would
own approximately 65% of the outstanding stock. The closing of the
reorganization agreement was held on October 30, 1998.
Our outstanding shares of common stock were forward split at the rate
of six-for-one on August 22, 1997, and at the rate of two-for-one effective
November 16, 1998. All references to outstanding shares in this prospectus
reflect these forward stock splits, unless otherwise designated.
In April 1999, we completed a limited offering of our stock pursuant to
Rule 504 in which we issued 240,000 shares and received gross proceeds of
$240,000.
On September 30, 1999, we entered into a reorganization agreement with
U.S. Cash Exchange, Inc., a closely held California corporation, and the
shareholders of this entity. The closely held company was incorporated in the
State of California on June 24, 1996, for the purpose of incorporating a sole
proprietorship business engaged in the business of marketing and managing
scrip-type ATM machines. The agreement provided that on the closing date the
shareholders of the closely-held company would exchange all of their shares for
2,700,000 shares of our company, such that the closely-held company would become
a wholly owned subsidiary and the shareholders of the subsidiary would own
approximately 41% of the outstanding stock. The closing of the reorganization
agreement was held on October 1, 1999.
Our business is divided into two distinct segments: Pay telephone
services and ATM scrip services. Our pay telephone business is managed through
our wholly owned subsidiary, PayStar Communications, Inc., and our ATM scrip
business is managed through our other wholly owned subsidiary, U.S. Cash
Exchange, Inc.
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<PAGE>
OUR PAY TELEPHONE BUSINESS
We operate and manage over 2,200 privately owned pay telephones located
throughout California and in northwestern Nevada. Of these, we own forty-seven.
The pay telephones are situated in a wide variety of retail, commercial, and
business environments, including many Fortune 500 companies. The pay telephones
generate revenue from both coin and non-coin calls. The typical location of the
pay telephones includes liquor and convenience stores, gas stations, retail
strip centers, restaurants, and fast food facilities.
INDUSTRY BACKGROUND
In 1984, a ruling by the U.S. District Court for the District of
Columbia in the well-documented Bell System antitrust divestiture case, UNITED
STATES V. AMERICAN TELEPHONE & TELEGRAPH COMPANY, created various business
opportunities in the telecommunications industry. In 1985, the FCC and most of
the state public service commissions followed this initiative by authorizing the
connection of competitive or privately owned public pay telephones to the public
switched network. Prior to that time, the Bell System and other monopoly local
exchange carriers owned all public telephones in the United States.
Prior to 1987, coin calls were the sole source of revenue for
independent public pay telephone companies. Long distance calling card and
collect calls from these pay telephones were handled exclusively by AT&T. All
revenue, except the coins deposited in public pay telephones, went to AT&T
rather than to the owner of the public pay telephone. Beginning in 1987, a
competitive operator service system developed which allowed operator services
providers to offer independent public pay telephone companies commissions for
directing operator assisted or calling card calls to them.
ACQUISITION OF PAY TELEPHONES
As part of our business strategy we intend to seek and acquire suitable
existing pay telephone routes. We have established certain criteria used in
seeking and evaluating potential acquisition candidates. These criteria include:
- The volume of coin revenues;
- operator services revenues;
- dial around compensation;
- commissions paid to the site owners;
- years remaining with the merchant agreements;
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<PAGE>
- the amount of the phone bills; and
- the brand of pay phones.
Acquisitions may take several forms, including cash purchases, or a
combination of cash and stock. In some instances we may purchase the company
owning and operating the pay telephones, and in other cases we may purchase only
the pay telephone equipment and site contracts. We are currently negotiating
with several potential acquisition candidates, but we have not entered into any
definitive agreements for purchase.
We have entered into a letter of intent to purchase a pay telephone
route in Oklahoma City, Oklahoma, consisting of 100 pay telephones. The purchase
price will be approximately $335,000. We anticipate paying $100,000 and the
balance of the purchase price in shares of our common stock.
MANAGEMENT ARRANGEMENTS
Of the pay telephones that we manage, 858 are owned by Quantum Network
Services, Inc., a California corporation controlled by William D. Yotty, an
officer, director, and principal shareholder of ours. We perform these services
pursuant to a one-year, renewable management agreement with Quantum dated May 1,
1999. We receive a flat monthly fee for each pay telephone we manage for
Quantum. In return, we are responsible for collection of the coins and other
revenue from the telephones; disbursing from the gross revenues the costs of the
telephones, such as site owner commissions, local and long distance costs,
operator service providers and other carriers; providing for the repair of the
telephones, including parts and labor; maintaining the telephones in a neat and
clean condition; and, with the prior consent of Quantum, performing capital
improvements to the telephones to alter, rebuild, or renovate the telephones.
All funds collected by us, less all of the costs associated with the telephones
and our monthly fees, are disbursed to Quantum. Quantum has the right to
terminate the management agreement at any time upon 120 days' written notice to
us. We have each agreed to indemnify the other for actions arising out of
tortuous conduct or any breach of the agreement. Quantum is required to maintain
fire and business interruption insurance, liability insurance for the operation
of the telephones, and any workers' compensation insurance required by law. The
agreement is freely assignable by either party.
The other pay telephones managed by us are done so pursuant to
contracts containing terms similar to the foregoing.
COIN CALLS
The pay telephones generate coin revenues from interstate and
intrastate long distance calls and local calls. We estimate that most of the
gross coin revenues are derived from local calls. Because busy and non-connect
calls are part of the billing system, but generate no revenues, we cannot
provide exact figures and therefore can only estimate such amount. In all of the
territories in which we operate, we charges the same rates for local coin calls
as the local exchange carriers charge.
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<PAGE>
They typically charge $0.35 for a local coin call in all of the territories
in which the pay telephones are located. For the year ended December 31, 1998
the total coin revenues were approximately 90% of the total revenues
generated by the telephones.
NON-COIN CALLS
We have entered into contractual agreements with operator service
companies such as AT&T to provide non-coin call capabilities on all of our pay
telephones. These calls include 800 number access, operator assisted calling,
person-to-person calling, foreign language assistance, and collect calling.
PayStar receives a commission off of each call made. For the year ended December
31, 1998, the pay telephones generated approximately 10% of the revenues from
non-coin telephone calls.
SITE SELECTION
As part of our management arrangement, we are also involved in the
selection of the sites for the pay telephones. The pay telephones are generally
located where there is a demonstrated high demand for public pay telephone
service based upon high foot traffic or a reason for a patron to use the pay
telephone, such as at a truck stop, school, prison, fast food chain, drug store,
or movie theater. Each location is evaluated for suitability based upon strict
criteria that only allows profit-generating locations to be acquired. If
available from the local exchange carrier, the performance history of each
potential location is obtained by the site owner and is evaluated by us. If such
performance history is not available, locations are generally selected based
upon the experience of our employees in evaluating payphone locations. If a pay
telephone fails to perform as anticipated within from three to six months, it is
generally removed and placed in a new location.
We generally focus our efforts to secure accounts with small local
businesses, but we also negotiate with larger national accounts when possible.
As discussed above, we also actively seek and purchase groups of pay telephones.
We utilize outside independent locating contractors in securing new locations.
As of December 1, 1999, we had two principal outside contracting companies.
Outside locating contractors are compensated on a flat-fee, per-location basis
The pay telephones are installed pursuant to agreements with the
property owners. Each of the agreements has a specified term, generally for five
to ten years. Each agreement provides for a revenue sharing arrangement with the
particular property owner, which is generally a percentage of either the gross
or net coin and non-coin revenue generated from the use of the pay telephones.
The percentage of revenue paid to the property owner is generally fixed for the
period of the agreement.
We are obligated to service, clean, and maintain the pay telephone
equipment installed pursuant to the site agreements. The site owners have no
ownership interest in the pay telephone equipment. Generally the owner is
obligated to maintain insurance on the pay telephone equipment to cover
potential liability from persons or property arising from the operation of the
equipment.
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SERVICE AND MAINTENANCE
We maintain a staff of telephone technicians in each area in which the
pay telephones are located. We impose a high standard of service and maintenance
in order to assure the pay telephones are operating properly and generating
revenue. The software system used with the pay telephones enables us via modem
to diagnose the vital functions of the telephones and to count the coins in the
pay telephones on a daily basis. Such software programs are obtained from the
manufacturers of the pay telephones by means of a license granted to us. In
addition, we own a software system that enables us to compute the commissions
due to each property owner based upon the actual collections.
The pay telephones are polled on a daily basis for potential
operational problems and for coin counts. This routine allows us to respond
quickly to any suspected troubles and to collect the coins on a scheduled basis.
Generally, we are able to determine possible troubles before the telephone users
report the problems to us. As a result of our computer system, the telephones
are usually repaired within 24 hours. This system also enables us to reduce the
number of visits required at each pay telephone to maintain its operation and to
collect the coins.
Based upon the results of the polling of each of the telephones each
night, we can determine which of the telephones requires collection or service.
Our service technicians are authorized to remove the coin boxes from the pay
telephones. Upon removing the sealed coin box from the pay telephone, the
technician is unaware of the number of coins in the coin box, while management,
through use of the pay telephone software system, has an accurate count of the
coins. Once the coin boxes are returned to the office, the office manager opens
them and the coins are counted. The amount in each coin box is recorded and
compared with the information provided by the software system. We reconcile
variances at each telephone on a regular basis.
Vandalism of the pay telephone equipment has had a negligible effect
upon the operations or profitability of the pay telephones. We estimate that
approximately .05% of the pay telephone equipment is vandalized on a weekly
basis. Such vandalism usually consists of damage to the handsets. If vandalism
at a particular location persists, we usually will relocate the pay telephones
to a more secure location at the same site or remove the telephone to a new
site.
The loss of long distance revenues because of the unauthorized use of
our long distance service by so-called "hackers" has been substantially
eliminated. If a hacker in fact charges an unauthorized long distance telephone
call to one of the our pay telephones, we can notify the long distance carrier
and receive credit for such call. We estimate that our current arrangements with
our long distance carrier prevents virtually 100%of such unauthorized calls from
being placed; we also estimate that we are able to identify almost all of the
remaining unauthorized long distance calls by hackers and receive credit back
from the long distance carrier.
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COMPETITION
The markets in which we operate are fragmented, but very competitive
due principally to the number of providers of telecommunications services
operating in the markets in which our pay telephones are located.
Our principal competitor in each market is the local exchange carrier.
We estimate that approximately 82% of all pay telephones in these markets are
owned and operated by the local access carriers. In addition, we estimate that
there are approximately one hundred independent providers in most populated
state geographic market areas. We believe that the principal competitive factors
in the public pay telephone industry are related to the ability to locate pay
telephones in desirable locations. The competitive factors involved in obtaining
such locations include the payment of signing bonuses or incentives to property
owners, the rate of commission paid to the property owners, and the level of
service provided to the them.
We believe there are two principal factors that determine whether a
company can successfully compete in this industry, namely the cost of locating a
pay telephone and the service provided to the location owner. Because of the
many years of experience of our management in this industry, we believe we can
negotiate profitable contracts for the site locations. We also believe that the
level of service that we provide to our location owners and our pay telephone
customers equals or exceeds that provided by our competition. In part, our
superior service is a result of the use of equipment that equals or exceeds that
used by our competition, thus allowing us to respond quickly to any problems
with the pay telephone.
In particular, we believe we can compete directly with the local
exchange carriers. We can generally offer site owners more revenue and better
services than they currently receive from the local exchange carrier.
To a limited degree we also compete with cellular telephone companies.
However, in many cases, those who cannot afford the cost of obtaining cellular
telephone service use pay telephones.
EQUIPMENT
Our pay telephone equipment and the pay telephones managed by us use
the latest technology. Protel manufactured approximately 78% of these pay
telephones currently operated by us, and Elcotel manufactured approximately 22%.
Most of the pay telephones were purchased less than two years ago and are
updated on a regular basis with new electronics from the manufacturers
approximately every six months to a year. In addition to the pay telephones, we
purchase the pay telephone booth equipment from a number of different vendors
based upon the best price available.
Our pay telephones use microprocessors that provide voice synthesized
calling instructions and the capability to detect and count coins deposited
during each call. These intelligent telephones
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also provide information to the caller at certain intervals regarding the
time remaining on each call and the need for an additional deposit.
REGULATION
In January 1996, Congress passed the Telecom Act, a comprehensive
telecommunications bill that, in part, dealt with several concerns of the
independent pay telephone industry. Congress stated that its intent was to
create a "pro-competitive, de-regulatory national policy framework designed to
accelerate rapidly private sector deployment of advanced telecommunications and
information technologies and services to all Americans by opening all
telecommunications markets to competition". The Telecom Act, among other things,
requires local telephone companies to eliminate subsidies of their pay telephone
services and to treat their own and independent payphones in a nondiscriminatory
manner.
Of particular importance to our company, the Telecom Act addressed the
inherently unfair disadvantage independent pay telephone companies have in
competing with regulated monopolies, the compensation of independent pay
telephone companies for calls made from their equipment that previously offered
no compensation, and the issue of price regulation of local calls by the various
state Public Utility Commissions.
Under the Telecom Act, the Regional Bell Operating Company's (RBOCs)
must operate their payphone divisions with separate profit and loss statements.
The Company believes that this will likely result in the Company's RBOC
competitors being less aggressive in bidding for locations. It may result in the
RBOCs removing many low volume pay telephones that collectively compete with the
Company's pay telephones.
With regard to Dial-Around Compensation, pay telephones are now
required by the FCC to provide equal Dial-Around access to all long-distance
carriers, either by access code (such as "10-10-321") or by 800 service. Prior
to November 1996, the Company received just $6.00 per payphone per month from
long-distance carriers for providing this Dial-Around service. The Telecom Act
recognized that it is a burden to payphone companies to provide such access and
that the compensation paid to payphone companies for this access should be
greater. Because the infrastructure to track and compensate for these calls did
not exist at that time, the FCC's 1996 order raised the flat rate of
compensation for Dial-Around service to about $45.00 per payphone per month,
based upon $0.35 per call times the national average of 131 monthly Dial-Around
calls placed per payphone. In October 1997, the method of compensating payphone
companies was scheduled to switch to a per call charge of $0.35 to be tracked
and paid by the long-distance carriers.
The FCC's 1996 order implementing the increased Dial-Around
compensation was appealed, with the intent of decreasing the amount of the
matter to the FCC for reconsideration of the rate of Dial-Around compensation.
The Court found that the per call charge of $0.35 was inappropriate because the
FCC did not consider evidence of the differences in the cost of coin calls and
Dial-Around calls. The long distance carriers then petitioned the Court to
clarify the effect of the Court's
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July decision and to a vacate the portion of the FCC's 1996 order setting the
rate of Dial-Around compensation pending the FCC's re-examination of the
Dial-Around rate. Further, in a letter to the FCC dated August 15, 1997, AT&T
challenged the FCC's authority to order the long-distance carriers to make
any payments during the pendency of the rate determination and stated its
intention to make Dial-Around payments voluntarily based on its imputed rate
of $0.12 per call, subject to retroactive adjustments, up or down, after the
FCC's final order on remand. The Court agreed with the long-distance
carriers. In a decision dated September 16, 1997, the Court vacated the
portion of the FCC's 1996 order setting the rate of Dial-Around compensation
pending a new FCC order on remand. Accordingly, the long-distance carriers
were not required to make Dial-Around payments to payphone service providers
until the FCC issued a new order setting the Dial-Around rate. On October 9,
1997, the FCC issued an order establishing the Dial-Around rate as of October
7, 1997 at $0.284 per call ($0.35 minus an off set of $0.066 for expenses
unique to coin calls) for the two years beginning October 7, 1997. The FCC
indicated that it planned to address Dial-Around compensation for the period
from November 6, 1996, through October 6, 1997 in a subsequent order and
tentatively concluded that the $0.284 per call rate adopted on a going
forward basis should also govern compensation during the period from November
6, 1996 through October 6, 1997. This would be approximately $37 per payphone
per month. Because the Company could not be certain what the rate of
Dial-Around compensation would be for the period from November 7, 1996
through October 6, 1997, it has determined the amount of its revenue from
Dial-Around compensation for the six months ended June 30, 1997 and going
forward through October 6, 1997 based upon the previous rate of $6.00 per
payphone per month, and established an $85,000 liability for revenue accrued
in excess of the previous rate during the period from November 6, 1996
through December 31, 1996. Beginning October 7, 1997, the Company began
recognizing revenue from Dial-Around compensation based upon the Dial-Around
rate of $0.284 per call multiplied by an estimated number of dial-around
calls per phone. On May 15, 1998 the Court again remanded the dial-around
rate back to the FCC for further justification of the $0.35 starting point.
On February 4, 1999 the FCC issued an order reducing the dial around rate to
$0.24 retroactive to October 7, 1997 and going forward until at Least January
31, 2002. The FCC indicated that it planned to address Dial-Around
compensation for the period from November 7, 1996 through October 6, 1997 in
a subsequent order and tentatively concluded that the $0.24 per call rate
adopted on a going forward basis should also govern compensation during the
period from November 7, 1996 through October 6, 1997. However, there can be
no assurance that Dial-Around compensation will not be based on a rate that
is less than $6.00 per payphone per month for the period from November 7,
1996 through October 6, 1997 or that is less than $0.24 per call for the
period beginning October 7, 1997. The setting of a rate of Dial-Around
compensation that is to be paid to the Company that is less than the
Company's estimate of such rate could have an adverse effect on the results
of operations and financial condition of the Company, which could be material.
The FCC also adopted rules pursuant to the Telecom Act which on October
7, 1997, repealed all rules regulating the cost of a local call placed at a
payphone and allowed the market to set the rate for local coin calls, unless the
state can demonstrate to the satisfaction of the FCC that there are market
failures within the state that would not allow market-based rates.
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OUR ATM SCRIP BUSINESS
GENERAL
U.S. Cash Exchange, Inc. was originally founded in 1984 by Jeff McKay
as a sole proprietorship in Modesto, California. Approximately eight years ago
he launched the scrip machine business. We are currently an independent owner
and operator of automatic scrip machines which provides individuals the
mechanism to use their bank debit card to obtain on-the-spot scrip to purchase
items and to obtain cash for use in various retail stores using funds from their
bank savings or checking accounts for a fee. At December 1, 1999, we owned and
operated approximately 1,143 scrip machines located throughout the United
States. Generally, the scrip machines are located in convenience and liquor
stores, fast food and other restaurants, gas stations, video and entertainment
facilities, and other high traffic merchant locations. The scrip machines are
provided to the merchants at no cost, and the merchants receive a percentage of
the fee paid by the customer to use the machine. We receive the balance of the
processing fee.
The company owns about 50% of our machines with the balance rented back
after being sold out of inventory. These machines we rent were originally
purchased by us and were then re-sold to a broker who located investors
interested in financing the machines. The broker sells these machines to the
investor who in turn rents the machines back to us. Our company pays the monthly
rental fee out of the profits generated each month by the machines, and keeps
the balance left over.
INDUSTRY OVERVIEW
In recent years the number and use of cash dispensing and debit
machines have increased dramatically. The Star System, Inc. debit network
reported April 5, 1999, that ATM/debit card use continues to escalate as
evidenced by the results of their consumer survey. The survey of more than 4,000
households in nine Western states revealed that consumers used their ATM/debit
cards, on average, 16.3 times per month in 1998 compared to 15.4 times per month
in 1997. More importantly for our industry, while ATM use increased just
slightly, growth was more rapid in the use of scrip at the point of sale which
jumped from an average of 6.6 times per month in 1997 to 7.4 times per month in
1998, a one year increase of 11%. The Star consumer survey conducted in 1994
revealed consumers were using ATM cards an average of 8.0 times per month. In
just four years, usage doubled.
This industry can be separated into three broad categories:
- Those companies marketing point of sale products;
- Those marketing ATM cash dispensing machines, including banks
and independent agents; and
- Those marketing scrip machines.
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Companies marketing point of sale products are characterized as
providing the merchant with a debit PINpad that allows customers to use their
ATM debit cards at the checkout register. Most merchants purchasing this system
buy a PINpad to use in conjunction with their credit card equipment. This PINpad
integrates with their equipment to provide debit card processing.
Generally, ATM cash dispensing machines are either sold to the merchant
or placed on the premises for free if the merchant meets certain qualifications
designed to assure the owner of the machine that a minimum amount of
transactions would occur at the location.
Currently those companies, like ours, that market scrip machines to
merchants, represent the smallest segment of the industry. Management estimates
that there are approximately 5,000 of this type of machine installed throughout
the United States, including those owned by us.
A number of large franchise companies are testing the use of debit or
cash dispensing machines in their franchise locations. We believe that the trend
toward the increased use of debit or cash dispensing machines will be a positive
factor in the growth of our business.
AGREEMENTS WITH BUSINESS OPERATORS
We provide our services and place our scrip machines at locations
pursuant to agreements with the owners of business premises. Such agreements
typically have initial terms of five years, with automatic renewal clauses for
two additional years, unless terminated by the client prior to the end of the
initial term. These agreements also provide that if there are fewer than a
minimum number of approved transactions per month, the business owner will pay a
certain amount for each transaction less than the minium number. There can be no
assurance that any of the agreements will be renewed after their initial terms.
These owners typically receive a fee based on a percentage of scrip dispensed
transactions.
SERVICES OFFERED
Our scrip machine can be described as a hybrid ATM machine and works
essentially like a cash-dispensing machine. At the machine, the customer swipes
his or her debit card through the machine, enters a PIN number that acts as a
security code for the customer, and selects the dollar amount of scrip desired.
The merchant can preset the amounts of the scrip at various levels, for example,
$5, $10, $20, and $40, depending upon the type of business. Upon authorization
of the transaction by either the bank who issued the debt card or a designated
agent, the scrip machine dispenses a paper receipt, which the customer takes to
the check out stand to receive merchandise and any cash in excess of the
purchase. The customer is guided through the process by instructions and
messages that appear on the LCD display on the machine. This process allows the
customer to make a purchase without using cash and to receive cash back from the
transaction. In most instances, the customer is required to purchase an item at
the location to redeem the scrip. Total elapsed time to obtain the scrip from
our machine is usually under one-half minute per customer. Generally, the
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scrip machine is located somewhere other than at the checkout counter to
avoid delaying the checkout process for other customers waiting in line.
Our scrip machines will accept all debit cards. There is a preset limit
on the amount of scrip available in each transaction. The bank, the merchant, or
both can set this limit. Each transaction charges the customer a terminal fee.
This fee is split between the processing company, the merchant, and us. All
transactions are posted through Lynk Systems, Inc. which in turn posts the
transaction to the merchant's bank within two business days. Lynk Systems, Inc.
monthly distributes the terminal fee to the merchants and us.
We believe this type of machine offers a number of advantages to the
merchant and the customer. For the merchant it has the potential to increase
foot traffic into his store because of the convenience for the customer in using
a debit machine rather than carrying cash. It also has the potential to increase
the amount spent by each customer who may want to purchase more items than he
has cash to do so. It also decreases losses from bad checks and is faster to
process than checks at the checkout counter. For the customer it is faster and
easier than writing a check, it is safer than carrying cash, it requires no
identification to use the scrip machine or at checkout, there is more security
using the scrip machine inside the store rather than an outside ATM machine, and
the surcharge is usually less than the cost of using an ATM machine.
We also offer a 24-hour telephone support system to provide assistance
to customers and to report problems of any machine at any location. Our office
staff handles customer and service calls during normal business hours. During
non-business hours calls are taken by our voice mail system which directs the
caller to an 800-number for after hours assistance. This 800 service is
available 24 hours every day from our current debit processor. We are highly
dependent upon the proper functioning of our telecommunications and equipment.
While we strive to provide reasonable backup provisions, there can be no
assurance that certain events caused by outside parties, such as telephone
companies, debit card processors and banks, which are beyond our reasonable
control, could not disrupt our business.
SERVICE AND MAINTENANCE
Our in-house service representative's handle most service calls from
the merchant. They will attempt to walk the merchant through corrective actions
to attempt to fix the problem. If this does not occur, a service representative
will be dispatched to the location if it is close to our company office. If it
is outside of this geographic location, we will sometimes call an outside
contractor to visit the location and fix the problem. These are contractors with
whom we may have a preexisting business relationship, but with whom we do not
have any existing contract. In other instances, we will simply ship a new scrip
machine to the merchant and have him return the broken one.
Our scrip machines permit us to check the activity of the machine, but
do not allow us to diagnose any malfunctions. If a machine with a history of
transactions posts no transactions for a particular period, we will contact the
merchant to check the operation of the machine. We monitor
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our machines each day to ensure they are operating as efficiently as
possible, thereby maximizing revenues.
DEBIT CARD PROCESSING
Our company has contracted with Lynk Systems, Inc. of Atlanta, Georgia,
to process our debit transactions through the various debit networks. The basic
debit transaction works similarly to a cash dispensing machine: a customer in
our merchant's place of business walks up to the terminal, swipes the debit card
through the unit, enters the PIN number and then enters the dollar amount. The
terminal dials up to the appropriate ATM network, ensures the transaction is
valid, and then sends back an approval (or a denial) code to the terminal. Then,
instead of receiving cash out of the machine, the machine prints up a coupon or
receipt which the customer then takes to the front counter and receives their
cash back, less any purchase they have made.
The merchant receives his money back from the ATM networks in one to
two days. We receive our surcharge fee that was placed on the transaction from
Lynk at the end of the month. This surcharge fee was debited from the
cardholder's account at the same time the transaction occurred. The merchant
also receives any commissions from the surcharge at the end of the month.
MARKETING
The key to the success of our business is the marketing of our debit
machines to retail merchants. We will continue to focus on several target
groups. These include the fast food and restaurant groups, liquor and
convenience stores, gas stations, video and entertainment facilities, bars and
entertainment facilities, grocery stores, and other similar high traffic
merchant locations. Our prospective merchant clients generally share the need
for additional non-cash forms of payment for merchandise. Typically, they will
have a high volume of cash transactions and a relatively high foot traffic
count. The decision-maker typically works at the business location. Many of
these merchants cannot afford to purchase a cash dispensing machine or do not
have sufficient foot traffic to qualify for placement of a cash dispensing
machine owned by someone else.
We currently market our machines using in-house sales people and
independent sales representatives. We employ three in-house sales people who act
as managers of our independent sales people. At December 1, 1999, we had 45
active independent sales representatives located throughout the United States.
We offer our sales representatives a flat commission per installation and a
percentage of the surcharge per debit transaction at that location so long as
they meet minimum volume criteria for locating new merchants to use our scrip
machines. We also offer our sales representatives cash bonuses if they submit a
minimum number of new locations in a particular month.
We recruit and train our independent sales representatives. This is
done primarily in one of two ways. The first involves our company placing ads in
the classified help-wanted sections in the city we have targeted, seeking
qualified sales representatives. We arrange to have them come to a
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training seminar we hold in their city and train them on how to market our
product to the particular business population we have identified and desire.
The second form of recruitment and training is by developing strategic
alliances with established sales groups who already have sales people out on the
street. We typically train the group's regional sales managers who subsequently
go out and train their sales representatives.
We have found that face-to-face selling is critical for successful
deployment of our scrip machines. We furnish our sales people with a list of
criteria for selecting potential merchant customers.
We plan to increase the number of independent selling agents to 141
over the next twelve months. To manage this increase we intend to hire two
additional regional managers within the next twelve months. Each manager will be
responsible for the recruitment and training of new sales representatives within
a specific geographic area.
During the next twelve months we intend to retain a graphic house to
produce color brochures to replace the existing black and white brochures we
currently offer. We also propose to develop a sales training video to aid the
independent sales representatives. Also, we expect to attend at least five trade
shows over the next twelve months. We also intend to conduct further market
research and to develop and conduct market surveys to improve our products and
service. In addition, we plan to increase our direct advertising efforts by
developing brochures for delivery door-to-door to businesses, through creation
of joint promotions with other businesses, by creating and placing signs on the
premises of current customers, an by inserting advertisements in invoices or
statements sent by various businesses. Finally, we intend to increase our
general advertising in industry publications, industry directories, national
business newspapers, and market specific magazines.
We also intend to promote our business through the development of a web
site on the Internet. On the site we intend to offer program information, basic
data about our business, suggestions on how to use our product more effectively,
advice on how to contact us, and pictures of our product. We have retained an
outside web site development firm to work with staff to create the web site. We
hope to have it completed by the second quarter of 2000.
In addition to seeking individual locations to place our scrip
machines, we also contact and negotiate with large franchise companies. If we
are successful in our negotiations, we will contact our independent sales
representatives who will call on individual franchisees who would typically not
permit placement of our scrip machines until the corporate headquarters had
approved use of the machines in the businesses.
We intend to offer value-added Benefits to our customers in the near
future. These additional services and benefits will include a pre-paid debit
card, a gift certificate program, a frequent user program, and pre-paid calling
cards.
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EQUIPMENT
We do not manufacture our scrip machines. We purchase the machines from
a single manufacturer. We download our own software program into the machine for
use by the merchants. We then bolt the machine to a stand which the merchant can
affix to a counter or utilize our freestanding model. We do not have a written
contract with our supplier to guaranty a constant supply of the machines.
However, we believe there are a number of alternate suppliers from whom we could
purchase similar machines at approximately the same price and terms. If we were
to lose our existing supplier, we believe that before we exhausted our inventory
of machines, we could engage a new supplier.
Our existing machines come with a one-year manufacturer's warranty,
which is not voided by the assembly process we employ. We do not maintain any
product liability insurance and do not believe that such insurance is necessary
in our business.
COMPETITION
In general, we compete with numerous ATM companies, including most
banks, and many point of sale debit machine companies. Most of these companies
are significantly larger and better financed than are we. We believe the
greatest risk from these segments of the industry is from banks or other large
companies already involved in the industry adding scrip machines to their
inventory of products and offering these to the same merchants targeted by us.
In the geographic areas where we currently offer our products, we
compete with several companies offering cash dispensing or point of sale debit
machines. These competitors include World Cash Providers, POS Systems
Management, Inc., and Universal ATM.
We believe we can compete successfully with our direct competition
based upon our experience in this segment of the industry, what we believe is a
superior product, and the quality of service we provide our merchants and
customers. Also, we believe there is only one other company that places the
scrip machines in business locations at no cost to the merchant. We feel that
being ability to place the machine at no cost to the merchant is a significant
advantage in negotiating for location contracts.
GOVERNMENT REGULATION
There are currently five states that do not permit surcharging on debit
transactions. We do not attempt to place our machines in these states.
OUR EMPLOYEES
In our pay telephone business we employed approximately twenty-six
people on a full-time basis at December 1, 1999. Of these employees, seven are
administrative, ten are clerical, and nine
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are in operations. With funds from this offering we intend to hire between
seven and fifteen new employees to be used primarily in customer services and
operations. None of our employees is subject to a collective bargaining
agreement. We offer our employees coverage in our company health plan, and
vacation and sick leave.
In our scrip business we employed nine people on a full-time basis at
December 1, 1999. Of these employees, two are administrative, two are clerical,
three are in operations, and two are in sales. None of our employees is subject
to a collective bargaining agreement. We offer our employees coverage in our
company health plan, and vacation and sick leave.
OUR FACILITIES
Our pay telephone business is headquartered at 1110 West Kettleman
Lane, Suite 48, Lodi, California 95240. We lease approximately 7,000 square feet
of office space at this location. Our lease expires in March 2000, with an
option for three more one-year leases. Annual lease payments for the space are
$93,660. We maintain property and casualty insurance, renter's insurance, and
liability insurance on the space
Our scrip business is headquartered at 3001 Coffee Road, Suite 2,
Modesto, California 95355. We lease approximately 3,000 square feet of office
space at this location. Our lease expires May 31, 2001. Annual lease payments
for the space are $30,600. We also lease approximately 4,000 square feet of
production space at 1307 N. Seventh Street, Suite B, Modesto, California 95354.
Our lease on this space expires April 30, 2000. Our annual lease payments are
$13,200.
REPORTS TO OUR SECURITY HOLDERS
Our fiscal year ends on December 31st. We do not presently intend to
furnish our shareholders annual reports. However, we intend to become a
reporting company and file annual, quarterly, and current reports, and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public on the SEC Internet site
at http\\www.sec.gov.
MANAGEMENT
GENERAL
The following table sets forth our current directors and executive
officers, their ages, and all offices and positions. Directors are elected for a
term of one year and until his successor is elected and qualified. Annual
meetings are to be scheduled by the Board of Directors. Officers are elected by
the Board of Directors and hold office until their successors are chosen and
qualified.
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<PAGE>
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
William D. Yotty 53 Director & CEO 1998
Jeff McKay 38 President --
Jim Chambas 45 Director & Secretary 1998
Harry Martin 59 Treasurer & CFO --
Clifford Goehring 70 Director 1998
</TABLE>
Set forth below is similar information for our two wholly owned
subsidiaries
PAYSTAR COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
William D. Yotty 53 Director & CEO 1998
Jeff McKay 38 President --
Jim Chambas 45 Director & Secretary 1998
Harry Martin 59 Treasurer & CFO --
Clifford Goehring 70 Director 1998
</TABLE>
U.S. CASH EXCHANGE, INC.
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
William D. Yotty 53 Director 1999
Jeff McKay 38 Director, President & CEO 1996
Thomas Howell 38 Director & Secretary 1999
</TABLE>
Set forth below is certain information concerning the business
experience of our executive officers and directors:
WILLIAM D. YOTTY has been the president of Quantum Telequip, Inc., a
communications sales enterprise, since 1989. Since 1985 he has been
self-employed as a communications consultant. From 1997 to 1998 he was the
president of 21st Century Communications, a pay telephone company. Mr. Yotty is
also a director of NetVoice Communications Corporation.
JEFF MCKAY was the owner of Pacific Communications, a pay telephone and
ATM company. From 1996 to the present he has been the president of U.S. Cash
Exchange, our wholly owned subsidiary, and from October 1, 1999 to the present,
he has been the president of PayStar Communications, Inc. and PayStar
Communications Corporation.
JIM CHAMBAS has been employed by Central Valley Communications since
1989. He has also been the president and CEO of Nationwide Hospitality, which
provides operator services, since 1997. He has been the president of CVC
Management Services, Inc., a pay telephone management company, since 1998. He
has also been a director of NetVoice Technologies Corporation since 1998. He has
also been the chairman and CEO of Worldwide Networks, Inc. since 1999.
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<PAGE>
HARRY MARTIN has been the chief financial officer of our parent company
and the pay telephone subsidiary since October 1999. From 1993 until 1995 he was
a vice president and the chief financial officer for Quality Transport, and from
1995 until October 1999 he was a partner in Sierra Financial, a financial
services company.
CLIFFORD GOEHRING has been the president of First Call Communications
since 1997. From 1990 to 1997 he was the vice-president of Quantum Network.
The Board of Directors has no nominating, auditing or compensation
committee. There are no arrangements or understandings between any of the
officers or directors and any other person(s) pursuant to which such officer or
director was selected as an officer or director. There are no family
relationships between any of our officers or directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate executive compensation
awarded to, earned by, or paid to the named executive officers for all services
rendered in all capacities to our company or any of its subsidiaries for the
years ended December 31, 1999, 1998, and 1997. All such compensation was paid by
our subsidiary, U.S. Cash Exchange, Inc., prior to our acquisition of the
subsidiary in October 1999.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Other Annual
Name and Principal Positions Year Salary Bonus Compensation
- ---------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
William D. Yotty, CEO 1999 -0- $203,416 -0-
1998 -0- -0- -0-
1997 -0- -0- -0-
Jeff McKay, President 1999 $17,107 $203,416 -0-
1998 -0- -0- -0-
1997 -0- -0- -0-
</TABLE>
Mr. Yotty received 7,500 shares from our pay telephone subsidiary prior
to the reorganization with our company in which he exchanged these shares for
1,500,000 shares. He also received 1,000 shares from our ATM subsidiary prior to
the reorganization with our company in which he exchanged these shares for
1,075,000 shares. Since the acquisition of our ATM subsidiary, Mr. Yotty has not
been paid, and will not receive, any compensation by our subsidiary, U.S. Cash
Exchange, Inc., or the parent or its pay telephone subsidiary.
We have entered into a three year employment contract with Mr. McKay
for his full-time employment which commenced on October 1, 1999. The agreement
will be renewed automatically for one year terms unless written notice of
termination is given 90 days before the end of the initial
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<PAGE>
or any renewal term. Mr. McKay receives a base salary of $300,000, plus a
bonus of between 1% and 4% of the net income of the combined companies, as
determined by the Board of Directors. He receives a monthly car allowance of
$800 and is entitled to participate in any pension, profit-sharing, stock
option, deferred compensation, savings, hospitalization, medical, disability,
and life insurance programs offered by us. His agreement also contains
confidentiality and non-competition provisions which require him to maintain
the confidentiality of non-public information about the company and which
prohibit him from competing with us in the area of the ATM scrip business for
a period of one year from the termination of the agreement.
We employed Mr. Martin as chief financial officer commencing October
15, 1999, at a monthly salary of $5,000. We also issued 25,000 shares to Mr.
Martin as a signing bonus for accepting the position of chief financial officer
and granted options to him under our stock option plan to purchase up to 25,000
shares at any time before October 15, 2002 at $1.00 per share. These options
vest 25% per quarter during the first year of his employment. We have also
agreed to pay his health insurance premiums.
COMPENSATION OF DIRECTORS
Directors are permitted to receive fixed fees and other compensation
for their services as directors, as determined by the Board of Directors. The
Board of Directors has not adopted any policy in regard to the payment of fees
or other compensation to directors, and no fees or compensation have been paid
to, or accrued by, any of the present directors.
STOCK OPTION PLAN
On November 3, 1998, we adopted a 1998 Employee Stock Option Plan (the
"Plan"), pursuant to which we are authorized to grant options each year to
purchase up to 2.5% of the total shares outstanding at the end of the prior
fiscal year to our key employees, officers, directors, and consultants. Awards
under the Plan will consist of both non-qualified options and options intended
to qualify as "Incentive Stock Options" under Section 422 of the Internal
Revenue Code of 1986, as amended.
The Plan is administered by the Board of Directors which will determine
the persons to whom awards will be granted, the number of awards to be granted
and the specific terms of each grant, including the vesting thereof, subject to
the provisions of the Plan.
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of our outstanding stock). The aggregate fair market value
of shares for which qualified stock options are exercisable for the first time
by such employee (or 10% shareholder) during any calendar year may not exceed
$100,000. Non-qualified stock options granted under the Plan may be granted at a
price determined by the
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<PAGE>
Board of Directors, not to be less than the fair market value of the common
stock on the date of grant.
The Plan also contains certain change in control provisions which could
cause options and other awards to become immediately exercisable. Payment of the
exercise price may be in cash, certified check, our common stock, or
cancellation of indebtedness.
As of December 21, 1999, we had granted 165,000 options under the Plan.
CERTAIN TRANSACTIONS
William D. Yotty, a director, officer, and principal shareholder, is
also the controlling shareholder of Quantum Network Services, Inc. which owns
858 of the pay telephones managed by us. This agreement was not entered into by
means of arms length negotiations.
Mr. Yotty, Mr. McKay, and Mr. Howell were the sole shareholders of U.S.
Cash Exchange, Inc. prior to the reorganization transaction with us. In that
transaction Mr. Yotty and Mr. McKay each received 1,075,000 shares, and Mr.
Howell, through his company, MIH Associates, Inc., received 550,000 shares.
Mr. Yotty, a director, officer, and principal shareholder, Mr. Chambas,
an officer and director, and Mr. Goehring, a director, were the sole
shareholders of PayStar Communications, Inc. prior to the reorganization with
us. In that transaction Mr. Yotty received 1,500,000 shares, Mr. Chambas
received 400,000 shares, and Mr. Goehring received 100,000 shares.
Intermountain Marketing Associates, LLC, a limited partnership managed
by Mr. Howell, an officer and director of U.S. Cash Exchange, Inc., has loaned
$1,062,500 to PayStar Communications, Inc. during the year ending December 31,
1999. He has also loaned $152,950 to U.S. Cash Exchange during this year. We
have issued a series of nine-month promissory notes to such entity.
Mr. Yotty advanced $20,000 to PayStar Communications, Inc. during this
year for working capital. These advances are not evidenced by a promissory note
and do not bear interest.
MARKET INFORMATION
Our shares have been quoted on the OTC Electronic Bulletin Board since
approximately May 10, 1999, with the trading symbol of "PYST." Based upon the
limited volume of trading, we do not believe that there exists an established
market for our stock. The table below sets forth for the periods indicated the
high and low bid quotations as reported by various private services on the
Internet. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
-32-
<PAGE>
<TABLE>
<CAPTION>
Quarter High Low
------- ---- ---
<S> <C> <C> <C>
FISCAL YEAR ENDING
DECEMBER 31, 1999 Second $ 3.00 $0.125
Third $ 2.625 $0.375
</TABLE>
At December 21, 1999, we had granted 165,000 options to purchase
shares. There are no other outstanding warrants or rights to purchase our
shares. None of the shares is being, nor have any shares proposed to be,
publicly offered by us. However, we have granted registration rights to the
selling shareholder to register up 15,000 of the outstanding restricted shares.
As of December 28, 1999, there were approximately 50 holders of record
of our shares as reported to us by our transfer agent.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
shares common stock ownership as of December 28, 1999, of each person who is
known to us to be the beneficial owner of more than five percent of our common
stock; by each of our executive officers and directors; and by executive
officers and directors as a group. Such information was furnished to us by such
persons or was obtained from information provided by the transfer agent.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
<S> <C> <C>
William D. Yotty 2,575,000 38.8%
1110 West Kettleman Ln
Suite 48
Lodi, CA 95240
Jeff McKay 1,075,000 16.2%
1110 West Kettleman Ln
Suite 48
Lodi, CA 95240
Harry Martin 31,250(1) *
1110 West Kettleman Ln
Suite 48
Lodi, CA 95240
James Chambas 400,000 6.03%
1110 West Kettleman Ln
Suite 48
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<PAGE>
Lodi, CA 95240
Clifford Goehring 100,000 1.51%
1110 West Kettleman Ln
Suite 48
Lodi, CA 95240
Executive officers and
directors as a group (5 persons) 4,156,250 62.57%
</TABLE>
- ----------------
*Less than 1%.
(1) This amount includes 6,250 options granted to Mr. Martin which are
presently exercisable.
SELLING SHAREHOLDERS
Up to 15,000 shares issued previously by us may be offered for resale
by Ronald N. Vance, P.C. We will not receive any of the proceeds from the sale
of these securities. Mr. Vance is acting as counsel for us in this offering and
the shares previously issued to him are for services rendered in connection with
this offering. Mr. Vance will not beneficially own any of our securities if
these shares are sold.
The sale of the shares by the selling security holder may be effected
from time to time in transactions (which may include block transactions by or
for the account of the selling security holders) in the over-the-counter market
or in negotiated transactions or otherwise. Sales may be made at fixed prices
which may be changed, at market prices, if any, prevailing at the time of sale,
or at negotiated prices.
The selling security holder may effect these transactions by selling
his shares directly to purchasers, through broker-dealers acting as agents for
him or to broker-dealers who may purchase the securities as principals and
thereafter sell the securities from time to time in the over-the-counter market,
if any, in negotiated transactions or otherwise. These broker-dealers, if any,
may receive compensation in the form of discounts, concessions or commissions
from the selling security holder or the purchasers for whom the broker dealers
may act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange
Act, any person engaged in the distribution of the selling security holder's
shares may not simultaneously engage in market making activities with respect to
any of our securities for a period of at least two (and possibly nine) business
days prior to the start of any distribution.
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<PAGE>
The selling security holder and broker-dealers, if any, acting in
connection with these sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
DESCRIPTION OF SECURITIES
PREFERRED STOCK
We are authorized to issue 10,000,000 shares of preferred stock, par
value $.001 per share. As of the date of this prospectus, no preferred shares
were outstanding. The board of directors has the authority to divide the
preferred stock into series, to establish and fix the distinguishing designation
of each series and the number of shares thereof and, within the limitations of
applicable law of the State of Nevada, to fix and determine the relative rights
and preferences of the shares of each series so established prior to the
issuance thereof. The board of directors has designated 5,500,000 of these
preferred shares as Series "A" Convertible $2.00 Preferred Stock. This series
has the following rights and preferences:
FACE VALUE
The face value of this series, or the value at which they can be sold,
is $2.00.
DIVIDENDS
We have agreed to pay dividends at the following rates:
- 11% through December 31, 2002;
- 10.5% from January 1, 2003 to December 31, 2003; and
- 10% from January 1, 2004.
CONVERSION RIGHTS
A holder of this series of preferred shares may convert the preferred
shares into shares of our common stock as follows:
- Through December 31, 2002, at the rate of one share of common
stock for each two shares of preferred stock surrendered for
conversion;
- From January 1, 2003, through December 31, 2003, at the rate
of one share of common stock for each three shares of
preferred stock surrendered for conversion; and
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<PAGE>
- Thereafter at the rate of one share of common stock for each
four shares of preferred stock surrendered for conversion.
Under certain circumstances, we may also force conversion of the
preferred shares into common stock based upon the trading value of our common
stock. We may require conversion at the following times and under the following
conditions:
- Through December 31, 2002, at the rate of one share of common
stock for each two shares of preferred stock, so long as the
closing price of our common stock is at least $6.00 per share
for twenty trading days within any period of thirty
consecutive trading days ending within ten calendar days;
- From January 1, 2003, through December 31, 2003, at the rate
of one share of common stock for each three shares of
preferred stock, so long as the closing price of our common
stock is at least $8.00 per share for twenty trading days
within any period of thirty consecutive trading days ending
within ten calendar days; and
- Thereafter at the rate of one share of common stock for each
four shares of preferred stock, so long as the closing price
of our common stock is at least $10.00 per share for twenty
trading days within any period of thirty consecutive trading
days ending within ten calendar days preceding the written
notice.
DEFAULT AND VOTING RIGHTS
The holders of the preferred shares have no voting rights, unless we
fail to pay any quarterly dividends. So long as such default persists, the
preferred stock holders will be able to vote as a separate class and to elect a
majority of the directors.
REDEMPTION
We have the option to redeem the preferred shares at the following
times and subject to the following conditions:
- From January 1, 2001, through December 31, 2002, at the rate
of $2.20 per share of preferred stock;
- From January 1, 2003, through December 31, 2003, at the rate
of $2.00 per share of preferred stock; and
- Thereafter at the rate of $1.80 per share of preferred stock.
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<PAGE>
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution, or winding up of our
affairs, whether voluntary or involuntary, the holders of the preferred stock
are entitled, before any distribution or payment is made to the holders of the
common shares or any other series of preferred shares, to be paid an amount
equal to $2.20 per share of preferred stock, plus all unpaid cumulative
dividends accrued to the date of liquidation.
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock, par
value $.001 per share. As of December 28, 1999, we had outstanding 6,636,200
shares. All common shares are equal to each other with respect to voting, and
dividend rights, and are equal to each other with respect to liquidations
rights. Special meetings of the shareholders may be called by the Chairman, the
Board of Directors, the President, the chief executive officer, or upon the
request of holders of at least one-tenth of the outstanding voting shares.
Holders of common shares are entitled to one vote at any meeting of the
shareholders for each common share they own as of the record date fixed by the
Board of Directors. At any meeting of shareholders, a majority of the
outstanding common shares entitled to vote, represented in person or by proxy,
constitutes a quorum. A vote of the majority of the common shares represented at
a meeting will govern, even if this is substantially less than a majority of the
common shares outstanding. Holders of shares are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro rata in
a distribution of assets available for such a distribution to shareholders.
There are no conversion, pre-emptive or other subscription rights or privileges
with respect to any share. Reference is made to our Articles of Incorporation
and Bylaws, as well as to the applicable statutes of the State of Nevada, for a
more complete description of the rights and liabilities of holders of shares.
The shares do not have cumulative voting rights, which means that the holders of
more than fifty percent of the common shares voting for election of directors
may elect all the directors if they choose to do so. In such event, the holders
of the remaining shares aggregating less than fifty percent will not be able to
elect directors.
REGISTRATION RIGHTS OF OUTSTANDING SHARES
In December 1999 we issued 15,000 shares to Ronald N. Vance, P.C., our
counsel, as partial consideration for preparation of this registration
statement. We agreed to include these shares in this registration statement.
TRANSFER AGENT
The transfer agent for our common stock is Interwest Transfer Company,
Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117. We intend to
appoint Interwest as the transfer agent for our preferred stock, as well.
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<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash dividends as yet on the common
stock. The Board of Directors intends to declare and pay dividends to the
holders of the preferred shares from funds legally available for such payments.
We have no plans to pay any dividends to the holders of our common stock.
PLAN OF DISTRIBUTION
This offering is being conducted by us, through our officers and
directors, on a 1,500,000 share minimum and 5,500,000 share maximum basis at an
offering price of $2.00 per preferred share. The stock may also be offered and
sold through participating brokers/dealers who are members of the NASD. We will
pay a maximum commission of 10% of the offering price for shares sold by these
broker/dealers. The minimum subscription is 1,000 shares. We will not pay a
commission to our officers or directors for sales made by them. We and
participating broker/dealers may further agree to indemnify each other against
certain liabilities, including liabilities arising under the Securities Act of
1933. No one, including us or any broker/dealer, has made any commitment to
purchase any or all of the shares offered hereby. Rather, the officers and
directors will use their best efforts to find purchasers for the shares until
sixty days following the date of this prospectus, subject to an extension in our
sole discretion for an additional period not to exceed thirty days.
All proceeds from subscriptions with respect to the first 1,500,000
preferred shares will be deposited promptly with Community Bank of San Joaquin,
as escrow agent for this offering pursuant to the terms of a funds escrow
agreement. All of the proceeds of this offering will be deposited in the escrow
account no later than noon of the business day next following receipt. In the
event that 1,500,000 preferred shares are not sold, on or before sixty days from
the date of this prospectus, subject to an additional period not to exceed
thirty days, all funds will be refunded promptly to subscribers in full without
deduction therefrom or interest thereon. If the minimum proceeds are received
before expiration of the offering period, we will hold an initial closing for
disbursement of funds. Subsequent closings may be held upon receipt of
additional subscriptions. During the offering period or any extension thereof,
no subscriber will be entitled to a refund of any subscription. We reserve the
right to accept or reject any subscription, in whole or in part.
We anticipate making sales of the shares to residents of the states of
California, Michigan and Nevada, as well as other persons resident in other
states who have expressed an interest in our company, or persons we believe may
be interested in purchasing our shares. We may sell shares to such persons only
if they reside in a state in which we are permitted to sell the shares. We are
not obligated to sell any shares to any such persons.
PRICING THE PREFERRED STOCK
The offering price of our shares of preferred stock was determined
arbitrarily by us. In arriving at that price, our board of directors took into
account such factors as the current market
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<PAGE>
price of our common shares, our lack of significant history and operations,
our assets, plan of operation, and anticipated costs of our continued
development and operation. However, the offering price of the shares should
not be understood as an indication of the value of the shares offered or an
assurance that you will be able to resell these shares for an amount equal to
or more than the offering price. The offering price of the shares bears no
necessary relationship to the market price, our assets, book value, lack of
earnings, net worth or other recognized criterion of value.
In as much as we have not retained an underwriter or broker/dealer to
assist in this offering, the offering price has not been arrived at through a
process of arms-length negotiation. Accordingly, new investors bear a
disproportionate risk to that of existing shareholders attendant to the fact
that the offering price was arrived at arbitrarily, rather than by arms-length
bargaining.
DELIVERY OF PREFERRED STOCK CERTIFICATES
We intend to timely issue certificates for the shares after completion
of the offering and to forthwith mail such certificates directly to investors at
their addresses as set forth in their subscription agreements.
SHARES ELIGIBLE FOR FUTURE SALE
We have 6,636,200 outstanding common shares. Of those, the 15,000
shares being offered in this offering, will, subject to any applicable state law
restrictions on secondary trading, be freely tradeable without restriction under
the Securities Act, except that any shares purchased by "affiliates" (as that
term is defined in Rule 144 under the Securities Act) will be subject to the
resale limitations of Rule 144.
Of the remaining 6,621,200 shares 5,315,000 are "restricted" within the
meaning of Rule 144 under the Securities Act, and are not being registered for
resale. Of this number, 2,000,000 shares may be eligible for immediate sale in
the public market without restriction under Rule 144(k). The balance of
3,315,000 will be eligible for resale under Rule 144 between ninety and 365 days
after the date of this prospectus.
In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares for at least one year, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of our
then outstanding shares, or (ii) the average weekly trading volume of our stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Commission. Sales pursuant to Rule 144 are also
subject to certain requirements relating to manner of sale, notice and
availability of current public information about us. A person who is not deemed
to have been an affiliate at any time during the 90 days immediately preceding
the sale and whose restricted shares have been fully-paid for two years since
the later of the date they were acquired from us, or the date they were acquired
from one of our affiliates, may sell these restricted shares under Rule 144(k)
without regard to the limitations and requirements described above. Restricted
shares
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<PAGE>
may not be resold under Rule 144 until ninety days from the date of this
prospectus, regardless of when the one year holding period expires.
We cannot predict the effect, if any, that sales of shares under Rule
144 or the availability of shares for sale will have on the market price of our
common stock prevailing from time to time. We are unable to estimate the number
of shares that may be sold in the public market under Rule 144, because the
amount will depend on the trading volume in, and market price for, our stock and
other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that sales of these shares could occur, could
adversely affect the market price of our common stock.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
us by Ronald N. Vance, P.C., Attorney at Law, Salt Lake City, Utah. Mr. Vance is
the beneficial owner of 15,000 shares which were received as partial
consideration for representing us in the preparation of the registration
statement of which this prospectus is a part.
EXPERTS
Our financial statements for the year ended December 31, 1998, included
in this prospectus have been examined by Schvaneveldt & Company, Certified
Public Accountant. The financial statements examined by the Certified Public
Accountant have been included in reliance upon their audit report.
The financial statements of U.S. Cash Exchange, Inc. for the year ended
June 30, 1999, included in this prospectus have been examined by Andersen
Andersen & Strong, Certified Public Accountants. The financial statements
examined by the Certified Public Accountants have been included in reliance upon
their audit report.
FINANCIAL STATEMENTS
We have attached to this prospectus copies of our audited financial
statements as of December 31, 1998, consisting of a consolidated balance sheet
at December 31, 1998, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1998 and 1997. We have
also included unaudited financial statements for September 30, 1999, consisting
of a balance sheet as of September 30, 1999, and the related statements of
operations, stockholders' equity, and cash flows for the nine months ended
September 30, 1999.
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<PAGE>
Board of Directors
Paystar Communications Corporation and Subsidiaries
Lodi, California
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have compiled the accompanying consolidated balance sheet of Paystar
Communications Corporation and Subsidiaries at September 30, 1999 and the
related statement of income for the nine months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
December 28 1999
Salt Lake City, Utah
<PAGE>
Board of Directors
U. S. Cash Exchange, Inc.
Lodi, California
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheet of U. S. Cash Exchange, Inc, at
June 30, 1999, and the statement of operations, stockholders' equity, and cash
flows for the two years ended June 30, 1999. 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 audits.
We conducted our audits 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 over all financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U. S. Cash Exchange, Inc. at
June 30, 1999 and the results of operations, and cash flows for the two years
ended June 30, 1999, in conformity with generally accepted accounting
principles.
Salt Lake City, Utah
December 28, 1999
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
===============================================================================
<TABLE>
<CAPTION>
(UNAUDITED)
SEPT 30, DEC 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 756,347 $ 17,171
Accounts receivable - Note 2 102,147 5,083
Inventory - Note 2 94,300
------- ------
Total Current Assets 952,794 22,254
------- ------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 244,687 22,800
OTHER ASSETS ------- ------
Securities - available for sale - Note 3 100,000 100,000
Accounts receivable - related parties 129,923 -
Advance deposits 18,725 1,300
Provision for income taxes - benefit - Note 2 250,792 102,909
Deferred interest on notes payable - Note 5 106,101 -
------- -------
$ 1,803,022 $ 249,263
LIABILITIES AND STOCKHOLDERS' EQUITY ========= =======
CURRENT LIABILITIES
Contracts payable - current portion - Note 4 $ 306,695 $ -
Notes payable - Note 5 889,101 -
Accounts payable 263,389 62,219
--------- ------
Total Current Liabilities 1,459,185 62,219
--------- ------
OTHER LIABILITIES
Contracts payable - long term - Note 4 127,627 -
Accounts payable - related parties 20,287 -
STOCKHOLDERS' EQUITY ------- ------
Common stock
100,000,000 shares authorized, at $0.001 par value;
6,521,200 shares issued and outstanding on September 30;
3,581,200 shares on December 31 6,521 3,581
Capital in excess of par value 527,479 260,919
Deficit accumulated during the development stage (338,077) (77,456)
------- -------
Total Stockholders' Equity 195,923 187,044
------- -------
$ 1,803,022 $ 249,263
========= =======
</TABLE>
See accountants compilation report
The accompanying notes are an integral part of these financial statements
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
(UNAUDITED)
SEPT 30, DEC 31, DEC 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
REVENUES $ 3,346,225 $ 1,156,149 $ 252,332
COST OF SALES AND SERVICES 2,698,601 784,196
---------- -------- -------
Gross Profit 647,624 371,953 252,332
-------- -------- -------
EXPENSES
Administrative 816,617 509,577 279,321
Sales 179,393 35,123 99,608
Depreciation 37,970 3,331 -
Interest 48,595 - -
--------- ------- -------
1,082,575 548,031 378,929
--------- -------- -------
NET LOSS - before income taxes (434,951) (176,078) (126,597)
PROVISION FOR INCOME TAXES -
BENEFIT 147,883 59,866 43,043
-------- -------- -------
NET LOSS $ (287,068) $ (116,212) $ (83,554)
======== ======== =======
NET LOSS PER COMMON SHARE
Basic $ (0.07) $ (0.03) $ (0.08)
------ ------ ------
AVERAGE OUTSTANDING SHARES
Basic 3,821,200 3,539,500 1,081,200
---------- ---------- ----------
</TABLE>
See accountants compilation report
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1997 TO SEPTEMBER 30, 1999
===============================================================================
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
------ ------ --------- -------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997 1,081,200 $ 1,081 $ 21,644 $ -
Contributions to capital by officers -
expenses - - 5,640 -
Net operating loss for the year ended
December 31, 1997 - - - (83,554)
--------- ----- ------ --------
BALANCE DECEMBER 31, 1997 1,081,200 1,081 27,284 (83,554)
Issuance of common stock for all stock
of PayStar Communications Inc. - 2,000,000 2,000 (15,865) 122,310
October 12, 1998 - Note 6
Issuance of common stock for services
at $0.50 - December 1998 300,000 300 149,700 -
Issuance of common stock for 50,000 shares
Mezzanine Capital at $0.50 -
December 1998 200,000 200 99,800 -
Net operating loss for the year ended
December 31,1998 - - - (116,212)
--------- ----- ------- -------
BALANCE DECEMBER 31, 1998 3,581,200 3,581 260,919 (77,456)
Issuance of common stock for cash
at $ 1.00 - April 1999 240,000 240 239,760 -
Issuance of common stock for all stock of
U.S. Cash Exchange Inc. -
October 1, 1999 - Note 7 2,700,000 2,700 46,800 26,447
Net operating loss for the nine months
ended September 30, 1999 - - - (287,068)
--------- ----- ------- -------
BALANCE SEPTEMBER 30, 1999 6,521,200 $ 6,521 $ 547,479 $(338,077)
========= ===== ======= =======
</TABLE>
See accountants compilation report
The accompanying notes are an integral part of these financial statements
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
SEPT 30, DEC 31, DEC 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (287,068) $ (116,212) $ (83,554)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 37,970 3,331 -
Changes in inventory (94,300) - -
Changes in accounts receivable (226,987) (5,083) -
Changes in accounts payable 474,824 69,101 120,957
Provision for income tax - benefit (147,883) (59,866) (43,043)
Issuance of common capital stock
for expenses - 150,000 5,640
------- ------- -------
Net Increase (Decrease) in Cash
From Operations (243,444) 41,271 -
------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Deposits (17,425) (1,300) -
Purchase of office equipment (285,988) (22,800) -
-------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from loans 1,046,033 - -
Proceeds from issuance of common stock 240,000 - -
--------- ------- -------
Net Increase in Cash 739,176 17,171 -
Cash at Beginning of Period 17,171 - -
-------- ------- -------
Cash at End of Period $ 756,347 $ 17,171 $ -
======== ======= =======
</TABLE>
NON CASH OPERATING AND INVESTING ACTIVITIES
<TABLE>
<S> <C>
Contributions to capital $ 5,640
-----
Issuance of 300,000 shares common capital stock for services 150,000
-------
Issuance of 200,000 shares common capital stock for investment 100,000
-------
</TABLE>
See accountants compilation report
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. ORGANIZATION
The Company was incorporated under the laws of the state of Nevada on June 16,
1977 with authorized common stock of 100,000 shares with a par value of $.25 and
on September 11, 1997 the authorized common stock was increased from 100,000
shares to 100,000,000 shares with a par value of $0.001 in connection with a
name change to" Sun Source, Inc". from "Soterco, Inc." On October 12, 1998 the
name was changed to PayStar Communications Corporation as part of the
acquisition of PayStar Communications Inc. Note 6
On October 1, 1999 the Company acquired all of outstanding stock of U.S. Cash
Exchange, Inc.
On August 22, 1997 The Company completed a forward stock split of one share of
its outstanding stock for six shares and on November 30, 1998 a forward stock
split of one share of outstanding stock for two shares. This report has been
prepared showing after stock split shares from inception.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHODS
The Company recognizes income and expenses based on the accrual method of
accounting.
DIVIDEND POLICY
The Company has not yet adopted a policy regarding payment of dividends.
RECOGNITION OF INCOME
PayStar Communications Inc. - subsidiary
PayStar is in the business of maintaining and collecting cash from 2200 pay
telephones for their owners. The income is recognized after the cash is
collected and deposited. The amounts collected are then paid to the owners after
deducting a service fee.
U. S. Cash Exchange - subsidiary
US Cash has developed and marketed an ATM scrip machine, as a substitute for an
ATM cash-dispensing machine, which has been installed in various commercial
locations. The scrip machine functions in a similar manner as the ATM cash
machine except that after approval the user receives
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
RECOGNITION OF INCOME - continued
a scrip showing the amount the user has requested, as preset by the machine, and
that amount plus a transaction fee is charged against the users bank account.
The scrip can then be used to purchase merchandise in the store.
The transactions are processed through a clearing house and the service charge
is then paid to the participating entities. US Cash usually receives about 57%
of the services charges each month and is reported as income as received.
US Cash purchases the script machines and accessories and, after a contractual
agreement has been completed with a merchant, installs them in the commercial
locations. The completed location is then sold to an investor who then leases
the location back to US Cash. The sale by US Cash is recorded when the purchase
price is received from the investor.
The sale and leaseback is considered to be an operating lease by US Cash with no
excess profits being recognized.
PROVISION FOR DOUBTFUL ACCOUNTS RECEIVABLE
A provisions for doubtful accounts receivable is provided at the time it is
determined there is doubt as to the collection of accounts receivable. On
September 30, 1999 all accounts receivable are considered to collectable within
four months.
INVENTORY
Inventory consists of script machines installed in commercial locations ready
for sale. The costs of the installations in commercial locations are averaged
over all installations for the year and used to cost the ending inventory.
PROPERTY AND EQUIPMENT
The equipment consists of machines used in processing coins, accessories, and
office equipment. Depreciation is provided using the straight line method over
five years
<TABLE>
<CAPTION>
Sept 1999 Dec 1998
--------- --------
<S> <C> <C>
Cost 285,988 26,131
Accumulated Depreciation 41,301 3,331
--------- --------
Net 244,687 22,800
--------- --------
</TABLE>
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
INCOME TAXES
On September 30, 1999, the Company had a net operating loss carry forward of
$737,626. The tax benefit from the loss carry forward is $250,792 and is
computed with an average tax rate of 34% as shown in the statement of
operations.
The loss carryforward will expire starting in the year 2118 through 2020.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share amounts are computed based on the weighted average
number of shares actually outstanding in accordance with FASB No. 128.
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements shown in this report excludes the
historical operating information of the parent before October 12, 1998 and
includes the historical financial statements of the subsidiaries. The parent and
its subsidiary PayStar Communications Inc have a fiscal year of December 31 and
the subsidiary U. S. Cash Exchange, Inc. has a fiscal year of June 30. For
purposes of these consolidated financial statements the audited financial
statements of U.S. Cash Exchange Inc. at June 30, 1999 have been restated to
December 31 and the unaudited financial statements for the three months ended
September 30, 1999 have been added. All intercompany transactions have been
eliminated
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including the assets and
liabilities shown in the balance sheet, are carried at their cost, and are
considered by management to be their estimated fair values.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consists primarily of cash and account receivables.
Cash balances are maintained in accounts that are not federally insured for
amounts over $100,000 but are other wise in financial
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
CONCENTRATION OF CREDIT RISK - continued
institutions of high credit quality. Accounts receivable are unsecured and are
derived from revenues earned however management considers all accounts
receivable as currently collectable.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of the assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing these financial statements.
3. SECURITIES - AVAILABLE FOR SALE
The company owns 50,000 shares of Mezzanine Capital and is shown at cost which
is considered to be its current fair market value.
4. CONTRACTS PAYABLE
Contracts payable consist of amounts due for script cash machines installed in
commercial locations, coin counting machines and office equipment. The
installment payments due, with interest, are shown under current and long term
liabilities.
5. NOTES PAYABLE
The Company has outstanding loans, to related parties, of $ 889,101 due within
nine months with various due dates plus 13.5% interest. The loans can be renewed
for an additional nine months with the payment of current interest due.
A premium was added to the cash received which will be payable at maturity and
is shown in the financial statements as an asset under deferred interest on
notes payable. The deferred amount is being amortized to expense over eighteen
months.
6. ACQUISITION OF ALL OUTSTANDING STOCK OF PAYSTAR COMMUNICATIONS, INC.
On October 12, 1998 the Company (parent) completed the acquisition of all of the
outstanding stock of PayStar Communications Inc. (subsidiary), a California
corporation, by a stock for stock exchange in which the stockholders of PayStar
Communications Inc, received 65% of the outstanding stock of the company.
Following the acquisition the name of the parent "Sun
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
6. ACQUISITION OF ALL OUTSTANDING STOCK OF PAYSTAR COMMUNICATIONS, INC. -
continued
Source Inc.", was changed to "PayStar Communications Corporation". For reporting
purposes, the acquisition was treated as an acquisition of the Company by
PayStar Communications Inc. (reverse acquisition) and a recapitalization of
PayStar Communications Inc. The historical financial statements prior to October
12, 1998 are those of PayStar Communications Inc. except for the acquisition
outlined in note 7. There was no good will recognized from the acquisition.
7. ACQUISITION OF ALL OUTSTANDING STOCK OF U.S. CASH EXCHANGE, INC.
On October 1, 1999 the Company ( the parent) completed the acquisition of all
the outstanding stock of U.S. Cash Exchange, Inc.(the subsidiary) through a
stock for stock exchange in which the stockholders of U.S. Cash received
2,700,000 common shares of the parent, representing 41% of the parent, in
exchange for all of their shares in U.S. Cash. Prior to the exchange a common
stockholder and officer owned 39% of the outstanding stock of the parent and 40%
of U. S. Cash Exchange, Inc.
The acquisition has been reported, like a poolings of interest, and not a
purchase, in which the historical financial statements of each company are
combined.
U.S. Cash Exchange Inc. was organized in the state of California on June 24,
1996 for the purpose of conducting the business outlined in note 2.
8. EMPLOYEE STOCK OPTION PLAN
On November 3, 1998 the Company adopted an employee Stock Option Plan which
provides a plan for employees to purchase up to 2.5% of the total shares
outstanding at the end of the prior fiscal year to key employees, officers,
directors and consultants. No options had been granted at the balance sheet
date.
9. CONTINUING LIABILITIES
The Company has office and warehouse leases with the following terms; Office -
3000 square feet - annual lease $30,600 - lease expires May 31, 2001 Warehouse -
4000 square feet - annual lease $13,200 - lease expires April 30, 2000
10. RELATED PARTY TRANSACTIONS
Related parties have acquired 67% of the common stock issued by the Company.
Various related party transactions are shown in the balance sheet under accounts
receivable and accounts payable.
<PAGE>
PAYSTAR COMMUNICATIONS CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
11. GOING CONCERN
The Company will need additional working capital to be successful in its
activity and to service its current debt for the coming year and therefore
continuation of the Company as a going concern is dependent upon obtaining the
additional working capital necessary to accomplish its objective. Management has
developed a strategy, which it believes will accomplish this objective and is
presently engaged in seeking various sources of additional working capital
including additional loans from officers, equity funding through a private
placement, long term financing, and increased revenues from sales which will
enable the Company to operate for the coming year.
The accompanying financial statements do not include any adjustments to the
recorded assets or liabilities that might be necessary should the Company fail
in any of above objectives.
12. SUBSEQUENT EVENTS
After the balance sheet date the Company granted 165,000 options under the
Employee Stock Option Plan and issued 115,000 common shares for services.
An employment agreement was completed with an officer which provides for a base
salary of $300,000 per year.
<PAGE>
[OUTSIDE BACK COVER]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary
Risk Factors
Forward Looking Statements
Use of Proceeds
Dilution
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Business
Management
Certain Transactions
Market Information
Principal Shareholders
Selling Shareholders
Description of Securities
Dividend Policy
Plan of Distribution
Shares Eligible For Future Sale
Legal Matters
Experts
Financial Statements
</TABLE>
Until _____, 2000, (ninety days after the date of this prospectus) all
dealers that effect transactions in these securities may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
Nevada law expressly authorizes a Nevada corporation to indemnify its
directors, officers, employees, and agents against liabilities arising out of
such persons' conduct as directors, officers, employees, or agents if they acted
in good faith, in a manner they reasonably believed to be in or not opposed to
the best interests of the company, and, in the case of criminal proceedings, if
they had no reasonable cause to believe their conduct was unlawful. Generally,
indemnification for such persons is mandatory if such person was successful, on
the merits or otherwise, in the defense of any such proceeding, or in the
defense of any claim, issue, or matter in the proceeding. In addition, as
provided in the articles of incorporation, bylaws, or an agreement, the
corporation may pay for or reimburse the reasonable expenses incurred by such a
person who is a party to a proceeding in advance of final disposition if such
person furnishes to the corporation an undertaking to repay such expenses if it
is ultimately determined that he did not meet the requirements. In order to
provide indemnification, unless ordered by a court, the corporation must
determine that the person meets the requirements for indemnification. Such
determination must be made by a majority of disinterested directors; by
independent legal counsel; or by a majority of the shareholders.
Article VI of the bylaws of the Company provides that the corporation
shall indemnify its directors, officers, agents and other persons to the full
extent permitted by the laws of the State of Nevada.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Item 2. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the offering described in the registration statement:
<TABLE>
<S> <C>
Registration Fee $ 3,069
Blue Sky Fees 10,000
Accounting Fees and Expenses 7,000
Legal Fees and Expenses 20,000
Printing and Engraving 10,000
Transfer Agent Fees 2,500
Miscellaneous 12,431
------
Total Expenses $65,000
=======
</TABLE>
<PAGE>
Item 3. Undertakings
(a) The Company hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and (iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For the purpose of determining liability under the Securities Act
of 1933, treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time shall be
the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The Company will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the Company under Rule 424(b) (1) or (4) or 497(h) under the Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For any liability under the 1933 Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that the offering of
the securities at that time as the initial bona fide offering of those
securities.
<PAGE>
Item 4. Unregistered Securities Issued or Sold Within Three Years
In October 1998 the Company issued 2,000,000 shares of Common Stock of
the Company to the shareholders of PayStar Communications, Inc. The shares were
issued in a reverse acquisition transaction between the Company and PayStar, in
which such shareholders exchanged all of their shares for the shares of the
Company. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of Section
4(2) thereof, as transactions by an issuer not involving any public offering.
Each of the shareholders of PayStar delivered appropriate investment
representations to the Company with respect to such transaction and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance.
In December 1998 the Company issued 150,000 shares each to Baldwin
Investments Limited and Starling Securities Limited, foreign entities, for
professional consulting fees in connection with the reorganization between the
Company and the pay telephone subsidiary. These shares were issued pursuant to
Regulation S promulgated by the Securities and Exchange Commission. No
underwriting discounts or commissions were paid in connection with such
issuance.
Also in December 1998 the Company issued 200,000 shares to Mezzanine
Capital Ltd. for 50,000 shares of such entity. Such securities were issued
without registration under the Act by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof, as transactions by an issuer
not involving any public offering. Such entity delivered appropriate investment
representations to the Company with respect to such transaction and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance.
In April 1999 the Company issued 240,000 shares of Common Stock of the
Company for an aggregate of $240,000 to various persons without registration in
a limited public offering pursuant to Rule 504 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933 and Section 3(b)
thereunder. No underwriting discounts or commissions were paid in connection
with such issuances.
In October 1999 the Company issued 2,700,000 shares of Common Stock of
the Company to the shareholders of U.S. Cash Exchange, Inc. The shares were
issued in a reverse acquisition transaction between the Company and U.S. Cash,
in which such shareholders exchanged all of their shares for the shares of the
Company. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of Section
4(2) thereof, as transactions by an issuer not involving any public offering.
Each of the shareholders of PayStar delivered appropriate investment
representations to the Company with respect to such transaction and consented to
the imposition of restrictive legends upon the certificates evidencing such
securities. No underwriting discounts or commissions were paid in connection
with such issuance.
In December 1999 the Company issued 15,000 shares to Ronald N. Vance,
P.C. in connection with legal services provided by him. Such shares were issued
without registration under the Act by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof as
<PAGE>
transactions by an issuer not involving any public offering. Mr. Vance
delivered appropriate investment representations to the Company with respect
to such issuances and consented to the imposition of restrictive legends upon
the certificates evidencing such securities. No underwriting discounts or
commissions were paid in connection with such issuance.
Also in December 1999 the Company issued 50,000 shares to Jerry
Genschorck and 25,000 shares to Harry T. Martin, employees of the Company, in
connection with their employment agreements. Such shares were issued without
registration under the Act by reason of the exemption from registration afforded
by the provisions of Rule 701 promulgated by the Securities and Exchange
Commission. No underwriting discounts or commissions were paid in connection
with such issuances.
Also in December 1999 the Company issued 25,000 shares to Richard
Kelly, a former employee of the Company, in connection with his original
employment agreement. Such shares were issued without registration under the Act
by reason of the exemption from registration afforded by the provisions of Rule
701 promulgated by the Securities and Exchange Commission. No underwriting
discounts or commissions were paid in connection with such issuance.
From May through December 1999, U.S. Cash Exchange, Inc. and PayStar
Communications, Inc. issued a series of nine-month promissory notes to
Intermountain Marketing Associates, LLC, a limited liability company managed by
Thomas Howell, a director of U.S. Cash Exchange, Inc. and one of the
shareholders of the Company. Such shares were issued without registration under
the Act by reason of the exemption from registration afforded by the provisions
of Section 4(2) thereof as transactions by an issuer not involving any public
offering. Each of the notes bears a restrictive legend pursuant to Rule 144. No
underwriting discounts or commissions were paid in connection with such
issuance.
Item 5. Exhibits
The exhibits set forth in the following index of exhibits are filed as a part
of this registration statement.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Location
----------- ---------------------- --------
<S> <C> <C>
1.1 Funds Escrow Agreement (To be filed with next amendment) --
1.2 Form of Subscription Agreement
2.1 Reorganization Agreement with PayStar Communications, Inc., as
amended
2.2 Reorganization Agreement with U.S. Cash Exchange, Inc.
3.1 Articles of Incorporation, as amended
3.2 By-Laws of the Company currently in effect
4.1 Form of certificate evidencing shares of Common Stock
4.2 Form of Certificate evidencing Preferred Stock
5.1 Opinion re Legality
10.1 1998 Employee Stock Option Plan
<PAGE>
10.2 Form of Stock Grant with Schedule of Grantees
10.3 Employment Agreement with Jeff McKay (To be filed with next amendment) --
10.4 Pay Telephone Services Agreement with Quantum Network
Services, Inc.
10.5 Form of Promissory Note to Intermountain Marketing Associates,
LLC, together with schedule of notes
21.1 List of Subsidiaries
23.1 Consent of Schvaneveldt & Company
23.2 Consent of Andersen Andersen & Strong
23.3 Consent of Ronald N. Vance (contained in Exhibit 5.1 above.) --
</TABLE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of Lodi,
State of California, on the 28th day of December 1999.
PayStar Communications Corporation
By: /s/ Jeff McKay, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<S> <C>
Date: December 28, 1999 /s/ William D. Yotty, Director and CEO
Date: December 28, 1999 /s/ Harry Martin, Chief Financial
Officer and Principal Accounting
Officer
Date: December 28, 1999 /s/ James Chambas, Director
Date: December 28, 1999 /s/ Clifford Goehring, Director
</TABLE>
<PAGE>
EXHIBIT 1.2
SUBSCRIPTION FOR PAYSTAR COMMUNICATIONS CORPORATION
- ------------------------------------- -------------------------------------
Purchaser SS or Employer Id. Number
- ------------------------------------- -------------------------------------
Residence or Principal Address Telephone
- -------------------------------------------------------------------------------
City, State, and Zip Code
The undersigned subscribes for the purchase of ________ Shares of Series "A"
Convertible $2.00 Preferred Stock (par value $.001) of PayStar Communications
Corporation, a Nevada corporation, as described in the Prospectus dated
________, 2000. The purchase price per Share is $2.00. All checks shall be
made payable to "_______ Bank" as escrow agent. The total purchase price is
$________.
The undersigned hereby represents and warrants that he/she/it has received
and a copy of and read the Prospectus dated ____________, 2000.
The issuer is instructed to issue stock certificates as follows:
Name(s) No. of Shares
--------------------------- --------------------
--------------------------- --------------------
THE UNDERSIGNED PURCHASER/SUBSCRIBER HEREBY DECLARES AND AFFIRMS THAT HE HAS
READ THE FOREGOING INSTRUMENT AND UNDERSTANDS THE CONTENTS AND REPRESENTATIONS
THEREOF, AND AGREES TO THE SAME.
If the undersigned is an INDIVIDUAL, complete the following:
- ------------------------------------- -------------------------------------
Print Name of Individual Signature of Individual
If the undersigned is a PARTNERSHIP, CORPORATION or TRUST, complete the
following:
- -------------------------------------------------------------------------------
Type or Print Name of Partnership, Corporation, or Trust
- ------------------------------------- -------------------------------------
Type or print name of Individual Signature of Individual Signing
Signing on Behalf of Partnership, on Behalf of Partnership, Corporation
Corporation or Trust or Trust
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement"), entered
into this 12th day of October 1998, is by, between, and among Sun Source,
Inc., a publicly held Nevada corporation (hereinafter the "Purchaser"),
PayStar Communications, Inc., a privately-held Nevada corporation
(hereinafter the "Private Company"), and the shareholders of the Private
Company whose names and signatures are set forth upon the signature page of
this Agreement (the "Shareholders").
RECITALS:
WHEREAS, the Purchaser wishes to acquire, and the Shareholders are
willing to sell, all of the outstanding stock of the Private Company in
exchange solely for a part of the voting stock of the Purchaser whereby the
Shareholders would acquire a controlling interest of the Purchaser; and
WHEREAS, the parties hereto intend to qualify such transaction as a
tax-free exchange pursuant to Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, based upon the stated premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements set forth herein, the mutual benefits to the parties to be derived
herefrom, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Purchaser, the Private Company, and the
Shareholders approve and adopt this Agreement and Plan of Reorganization and
mutually covenant and agree with each other as follows:
1. Shares to be Transferred and Shares to be Issued.
1.1 On the Closing Date the Shareholders shall transfer to the
Purchaser certificates for the number of shares of the common stock of the
Private Company described in Schedule "A," attached hereto and incorporated
herein, which in the aggregate shall represent all of the issued and
outstanding shares of the common stock of the Private Company.
1.2 In exchange for the transfer of the common stock of the
Private Company pursuant to subsection 1.1. hereof, the Purchaser shall on
the Closing Date and contemporaneously with such transfer of the common stock
of the Private Company to it by the Shareholders issue and deliver to the
Shareholders the number of shares of common stock of the Purchaser specified
on Schedule "A" hereof such that the Shareholders shall own approximately 68%
of the outstanding common stock of the Purchaser.
2. Representations and Warranties of the Shareholders. Each of the
Shareholders, for himself, herself, or itself, and not for any other
Shareholder, represents and warrants to the Purchaser as set forth below.
These representations and warranties are made as an inducement for the
Purchaser to enter into this Agreement and, but for the making of such
representations and warranties and their accuracy, the Purchaser would not be
a party hereto.
<PAGE>
2.1 Ownership of Stock.
a. Each of the Shareholders is the record and beneficial
owner and holder of the number of fully paid and nonassessable shares of the
common stock of the Private Company listed in Schedule "A" hereto as of the
date hereof and will continue to own such shares of the common stock of the
Private Company until the delivery thereof to the Purchaser on the Closing
Date and all such shares of common stock are or will be on the Closing Date
owned free and clear of all liens, encumbrances, charges and assessments of
every nature and subject to no restrictions with respect to transferability.
Each of the Shareholders currently has, and will have at Closing, full power
and authority to dispose, assign, and transfer his, her, or its shares of the
Private Company in accordance with the terms hereof. Each of the
Shareholders currently has, and will have at Closing, full power and
authority to vote his, her, or its shares of the Private Company, without
restriction of any kind.
b. Except for this Agreement, there are no outstanding
options, contracts, calls, commitments, agreements or demands of any
character relating to the common stock of the Private Company listed in
Schedule "A" and owned by each of the Shareholders.
2.2 Accuracy of All Statements Made by the Shareholders. No
representation or warranty by the Shareholders in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of the Shareholders pursuant to this Agreement, nor
any document or certificate delivered to the Purchaser by the Shareholders
pursuant to this Agreement or in connection with actions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits or
shall omit a material fact necessary to make the statements contained therein
not misleading.
3. Representations and Warranties of the Private Company. The Private
Company represents and warrants to the Purchaser as set forth below. These
representations and warranties are made as an inducement for the Purchaser to
enter into this Agreement and, but for the making of such representations and
warranties and their accuracy, the Purchaser would not be a party hereto.
3.1 Organization and Authority. The Private Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada with full power and authority to enter into and
perform the transactions contemplated by this Agreement.
3.2 Capitalization. As of the date of the Closing, the Private
Company will have a total of no more than 10,000 shares of common stock
issued and outstanding. All of the shares will have been duly authorized and
validly issued and will be fully paid and nonassessable. There are no
options, warrants, conversion privileges, or other rights presently
outstanding for the purchase of any authorized but unissued stock of the
Private Company.
3.3 Performance of This Agreement. The execution and performance
of this Agreement and the transfer of stock contemplated hereby have been
authorized by the board of directors of the Private Company.
<PAGE>
3.4 Financials. True copies of the financial statements of the
Private Company for the period ended July 31, 1998, (unaudited) have been
furnished to the Purchaser. Said financial statements are true and correct
in all material respects and present an accurate and complete disclosure of
the financial condition of the Private Company as of July 31, 1998, and the
earnings for the periods covered, in accordance with generally accepted
accounting principles applied on a consistent basis.
3.5 Liabilities. There are no material liabilities of the Private
Company, whether accrued, absolute, contingent or otherwise, which arose or
relate to any transaction of the Private Company, its agents or servants
occurring prior to July 31, 1998, which are not disclosed by or reflected in
said financial statements. As of the date hereof, there are no known
circumstances, conditions, happenings, events or arrangements, contractual or
otherwise, which may hereafter give rise to liabilities, except in the normal
course of business of the Private Company.
3.6 Absence of Certain Changes or Events. Except as set forth in
this Agreement, since July 31, 1998, there has not been (i) any material
adverse change in the business, operations, properties, level of inventory,
assets, or condition of the Private Company, or (ii) any damage, destruction,
or loss to the Private Company (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties,
assets, or conditions of the Private Company.
3.7 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving the Private Company or its subsidiaries, if
any, or their assets, properties, or business, nor does the Private Company
or its subsidiaries know, or have reasonable grounds to know, of any basis
for any such proceedings, investigations or inquiries, product liability or
other claims, judgments, injunctions or restrictions. In addition, there are
no material proceedings existing, pending or reasonably contemplated to which
any officer, director, or affiliate of the Private Company or as to which any
of the Shareholders is a party adverse to the Private Company or any of its
subsidiaries or has a material interest adverse to the Private Company or any
of its subsidiaries.
3.8 Taxes. All federal, state, foreign, county and local income,
profits, franchise, occupation, property, sales, use, gross receipts and
other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by the Private Company, and there are no unpaid taxes
which are, or could become a lien on the properties and assets of the Private
Company, except as provided for in the financial statements of the Private
Company, or have been incurred in the normal course of business of the
Private Company since that date. All tax returns of any kind required to be
filed have been filed and the taxes paid or accrued.
3.9 Hazardous Materials. No hazardous material has been released,
placed, stored, generated, used, manufactured, treated, deposited, spilled,
discharged, released, or
<PAGE>
disposed of on or under any real property currently or previously owned or
leased by the Private Company or any of its subsidiaries.
3.10 Accuracy of All Statements Made by the Private Company. No
representation or warranty by the Private Company in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of the Private Company pursuant to this Agreement,
nor any document or certificate delivered to the Purchaser by the Private
Company pursuant to this Agreement or in connection with actions contemplated
hereby, contains or shall contain any untrue statement of material fact or
omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Private Company and to the Shareholders as set
forth below. These representations and warranties are made as an inducement
for the Private Company and the Shareholders to enter into this Agreement
and, but for the making of such representations and warranties and their
accuracy, the Private Company and the Shareholders would not be parties
hereto.
4.1 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada with full power and authority to enter into and
perform the transactions contemplated by this Agreement.
4.2 Capitalization. As of the date of the Closing, the Purchaser
will have a total of no more than 1,040,600 shares of common stock issued and
outstanding (excluding the shares to be issued pursuant to this Agreement).
All of the shares will have been duly authorized and validly issued and will
be fully paid and nonassessable. Except for the Purchaser's obligations
hereunder with respect to the shares to be issued pursuant to subsection 1.2
hereof, there are no options, warrants, conversion privileges, or other
rights presently outstanding for the purchase of any authorized but unissued
stock of the Purchaser. As of the Closing, the Articles of Incorporation, as
amended, of the Purchaser (the "Purchaser Articles") and as currently in
effect shall be in the form previously furnished to the Private Company and
the Shareholders. The rights, preferences, and privileges of the common
stock shall be as set forth in the Purchaser Articles.
4.3 Performance of This Agreement. The execution and performance
of this Agreement and the issuance of stock contemplated hereby have been
authorized by the board of directors of the Purchaser.
4.4 Financials. True copies of the financial statements of the
Purchaser consisting of the balance sheets as of the fiscal years ended
December 31, 1997 and 1996 (audited) and the period ended April 30, 1998
(unaudited), and statements of income, cash flow and changes in stockholder's
equity for each of the periods then ended, have been delivered by the
Purchaser to the Private Company. These statements have been examined and
certified by Andersen Andersen & Strong, L.C., Certified Public Accountant.
Said financial statements are true and correct in all material respects and
present an accurate and complete disclosure of the
<PAGE>
financial condition of the Purchaser as of April 30, 1998, and the earnings
for the periods covered, in accordance with generally accepted accounting
principles applied on a consistent basis.
4.5 Liabilities. There are no material liabilities of the
Purchaser, whether accrued, absolute, contingent or otherwise, which arose or
relate to any transaction of the Purchaser, its agents or servants which are
not disclosed by or reflected in said financial statements. As of the date
hereof, there are no known circumstances, conditions, happenings, events or
arrangements, contractual or otherwise, which may hereafter give rise to
liabilities, except in the normal course of business of the Purchaser.
4.6 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving the Purchaser or its subsidiaries, if any,
or their assets, properties, or business, nor does the Purchaser or its
subsidiaries know, or have reasonable grounds to know, of any basis for any
such proceedings, investigations or inquiries, product liability or other
claims, judgments, injunctions or restrictions. In addition, there are no
material proceedings existing, pending or reasonably contemplated to which
any officer, director, or affiliate of the Purchaser is a party adverse to
the Purchaser or any of its subsidiaries or has a material interest adverse
to the Purchaser or any of its subsidiaries.
4.7 Taxes. All federal, state, foreign, county and local income,
profits, franchise, occupation, property, sales, use, gross receipts and
other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by the Purchaser, and there are no unpaid taxes which
are, or could become a lien on the properties and assets of the Purchaser,
except as provided for in the financial statements of the Purchaser, or have
been incurred in the normal course of business of the Purchaser since that
date. All tax returns of any kind required to be filed have been filed and
the taxes paid or accrued.
4.8 Hazardous Materials. No hazardous material has been released,
placed, stored, generated, used, manufactured, treated, deposited, spilled,
discharged, released, or disposed of on or under any real property currently
or previously owned or leased by the Purchaser or any of its subsidiaries.
4.9 Legality of Shares to be Issued. The shares of common stock
of the Purchaser to be issued by the Purchaser pursuant to this Agreement,
when so issued and delivered, will have been duly and validly authorized and
issued by the Purchaser and will be fully paid and nonassessable.
4.10 Accuracy of All Statements Made by the Purchaser. No
representation or warranty by the Purchaser in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by the Purchaser pursuant to this Agreement, nor any document or
certificate delivered to the Private Company or the Shareholders pursuant to
this Agreement or in connection with actions contemplated hereby, contains or
shall contain any
<PAGE>
untrue statement of material fact or omits to state or shall omit to state a
material fact necessary to make the statements contained therein not
misleading.
5. Covenants of the Parties.
5.1 Corporate Records.
a. Simultaneous with the execution of this Agreement by the
Private Company, if not previously furnished, such entity shall deliver to
the Purchaser copies of the articles of incorporation, as amended, and the
current bylaws of the Private Company, and copies of the resolutions duly
adopted by the board of directors of the Private Company approving this
Agreement and the transactions herein contemplated.
b. Simultaneous with the execution of this Agreement by the
Purchaser, if not previously furnished, such entity shall deliver to the
Private Company copies of the Purchaser Articles, and the current bylaws of
the Purchaser, and copies of the resolutions duly adopted by the board of
directors of the Purchaser approving this Agreement and the transactions
herein contemplated.
5.2 Access to Information.
a. The Purchaser and its authorized representatives shall
have full access during normal business hours to all properties, books,
records, contracts, and documents of the Private Company, and the Private
Company shall furnish or cause to be furnished to the Purchaser and its
authorized representatives all information with respect to its affairs and
business as the Purchaser may reasonably request. The Purchaser shall hold,
and shall cause its representatives to hold confidential, all such
information and documents, other than information that (i) is in the public
domain at the time of its disclosure to the Purchaser; (ii) becomes part of
the public domain after disclosure through no fault of the Purchaser; (iii)
is known to the Purchaser or any of its officers or directors prior to
disclosure; or (iv) is disclosed in accordance with the written consent of
the Private Company. In the event this Agreement is terminated prior to
Closing, the Purchaser shall, upon the written request of the Private
Company, promptly return all copies of all documentation and information
provided by the Private Company hereunder.
b. The Private Company and its authorized representatives
shall have full access during normal business hours to all properties, books,
records, contracts, and documents of the Purchaser, and the Purchaser shall
furnish or cause to be furnished to the Private Company and its authorized
representatives all information with respect to its affairs and business the
Private Company may reasonably request. The Private Company shall hold, and
shall cause its representatives to hold confidential, all such information
and documents, other than information that (i) is in the public domain at the
time of its disclosure to the Private Company; (ii) becomes part of the
public domain after disclosure through no fault of the Private Company; (iii)
is known to the Private Company or any of its officers or directors prior to
disclosure; or (iv) is disclosed in accordance with the written consent of
the Purchaser. In the event this Agreement is terminated prior to Closing,
the Private Company shall, upon the written request of the
<PAGE>
Purchaser, promptly return all copies of all documentation and information
provided by the Purchaser hereunder.
5.3 Actions Prior to Closing. From and after the date of this
Agreement and until the Closing Date:
a. The Purchaser and the Private Company shall each carry on
its business diligently and substantially in the same manner as heretofore,
and neither party shall make or institute any unusual or novel methods of
purchase, sale, management, accounting or operation.
b. Neither the Purchaser nor the Private Company shall enter
into any contract or commitment, or engage in any transaction not in the
usual and ordinary course of business and consistent with its business
practices.
c. Neither the Purchaser nor the Private Company shall amend
its articles of incorporation or bylaws or make any changes in authorized or
issued capital stock, except as provided in this Agreement.
d. The Purchaser and the Private Company shall each use its
best efforts (without making any commitments on behalf of the company) to
preserve its business organization intact.
e. Neither the Purchaser nor the Private Company shall do
any act or omit to do any act, or permit any act or omission to act, which
will cause a material breach of any material contract, commitment, or
obligation of such party.
f. The Purchaser and the Private Company shall each duly
comply with all applicable laws as may be required for the valid and
effective issuance or transfer of stock contemplated by this Agreement.
g. Neither the Purchaser nor the Private Company shall sell
or dispose of any property or assets, except products sold in the ordinary
course of business.
h. The Purchaser and the Private Company shall each promptly
notify the other of any lawsuits, claims, proceedings, or investigations that
may be threatened, brought, asserted, or commenced against it, its officers
or directors involving in any way the business, properties, or assets of such
party.
5.4 Shareholders' Approval. The Purchaser shall promptly submit
this Agreement and the transactions contemplated hereby for the approval of
its stockholders by majority written consent or at a meeting of stockholders
and, subject to the fiduciary duties of the Board of directors of the
Purchaser under applicable law, shall use its best efforts to obtain
stockholder approval and adoption of this Agreement and the transactions
contemplated hereby. In connection with such written action by, or meeting
of, stockholders, the Purchaser shall
<PAGE>
prepare a proxy or information statement to be furnished to the shareholders
of the Purchaser setting forth information about this Agreement and the
transactions contemplated hereby. The Private Party shall promptly furnish
to the Purchaser all information, and take such other actions, as may
reasonably be requested in connection with any action to be taken by the
Purchaser in connection with the immediately preceding sentence. The Private
Company shall have the right to review and provide comments to the proxy or
information statement prior to mailing to the shareholders of the Purchaser.
5.5 No Covenant as to Tax or Accounting Consequences. It is
expressly understood and agreed that neither the Purchaser nor its officers
or agents has made any warranty or agreement, expressed or implied, as to the
tax or accounting consequences of the transactions contemplated by this
Agreement or the tax or accounting consequences of any action pursuant to or
growing out of this Agreement.
5.6 Indemnification. The Private Company and the Shareholders,
severally and not jointly, shall indemnify Purchaser for any loss, cost,
expense, or other damage (including, without limitation, attorneys' fees and
expenses) suffered by Purchaser resulting from, arising out of, or incurred
with respect to the falsity or the breach of any representation, warranty, or
covenant made by the Private Company or the Shareholders herein, and any
claims arising from the operations of the Private Company prior to the
Closing Date. Purchaser shall indemnify and hold the Private Company and the
Shareholders harmless from and against any loss, cost, expense, or other
damage (including, without limitation, attorneys' fees and expenses)
resulting from, arising out of, or incurred with respect to, or alleged to
result from, arise out of or have been incurred with respect to, the falsity
or the breach of any representation, covenant, warranty, or agreement made by
Purchaser herein, and any claims arising from the operations of Purchaser
prior to the Closing Date. The indemnity agreement contained herein shall
remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any party and shall survive the
consummation of the transactions contemplated by this Agreement.
5.7 Publicity. The parties agree that no publicity, release, or
other public announcement concerning this Agreement or the transactions
contemplated by this Agreement shall be issued by any party hereto without
the advance approval of both the form and substance of the same by the other
parties and their counsel, which approval, in the case of any publicity,
release, or other public announcement required by applicable law, shall not
be unreasonably withheld or delayed.
5.8 Expenses. Except as otherwise expressly provided herein, each
party to this Agreement shall bear its own respective expenses incurred in
connection with the negotiation and preparation of this Agreement, in the
consummation of the transactions contemplated hereby, and in connection with
all duties and obligations required to be performed by each of them under
this Agreement.
5.9 Further Actions. Each of the parties hereto shall take all
such further action, and execute and deliver such further documents, as may
be necessary to carry out the transactions contemplated by this Agreement.
<PAGE>
5.10 Spin-Off of Subsidiary. On or before the Closing Date, the
Purchaser shall duly sell, transfer, or otherwise dispose of the common stock
of Sun Source Corp., a Utah corporation and wholly owned subsidiary of the
Purchaser, and shall provide a duly executed release from such entity, in
form satisfactory to counsel to the Private Company, that no obligations are
due and owing to such entity, or its affiliates, by the Purchaser.
5.11 Amendment to Bylaws. On or before the Closing Date, the
Purchaser shall duly amend its Bylaws to provide that such Bylaws may be
amended or repealed by the Board of Directors at any meeting or by the
stockholders at any meeting.
5.12 No Assets or Liabilities. On or before the Closing Date, the
Purchaser shall dully dispose of all assets and satisfy all liabilities such
that as of the Closing the Purchaser shall have no assets or liabilities,
contingent or otherwise. At the Closing the Purchaser shall provide to the
Private Company releases, in form satisfactory to counsel for the Private
Company, executed by Mr. Albrechtsen, Ms. Long, their affiliates, and any
other members of management of the Purchaser after the date hereof through
Closing, representing that nothing is due or owning, directly or indirectly,
to such persons, their associates, or affiliates by the Purchaser. In
addition, at Closing the Purchaser shall provide to the Private Company an
opinion of counsel, in form satisfactory to counsel to the Private Company,
that the Purchaser has no liability in connection with the prior joint
venture mining operation of the Purchaser in connection with the Suitcase
Mine, or any other mining activity of the Purchaser or any subsidiary of the
Purchaser.
6. Conditions Precedent to the Purchaser's Obligations. Each and
every obligation of the Purchaser to be performed on the Closing Date shall
be subject to the satisfaction prior thereto of the following conditions:
6.1 Truth of Representations and Warranties. The representations
and warranties made by the Private Company and the Shareholders in this
Agreement or given on their behalf hereunder shall be substantially accurate
in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made or given on and
as of the Closing Date.
6.2 Performance of Obligations and Covenants. The Private Company
and the Shareholders shall have performed and complied with all obligations
and covenants required by this Agreement to be performed or complied with by
them prior to or at the Closing.
6.3 Officer's Certificate. The Purchaser shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to the Purchaser), executed by an executive
officer of the Private Company, certifying to the fulfillment of the
conditions specified in subsections 6.1 and 6.2 hereof.
6.4 No Litigation or Proceedings. There shall be no litigation or
any proceeding by or before any governmental agency or instrumentality
pending or threatened against any party hereto that seeks to restrain or
enjoin or otherwise questions the legality or
<PAGE>
validity of the transactions contemplated by this Agreement or which seeks
substantial damages in respect thereof.
6.5 No Material Adverse Change. As of the Closing Date there
shall not have occurred any material adverse change, financially or
otherwise, which materially impairs the ability of the Private Company to
conduct its business or the earning power thereof on the same basis as in the
past.
6.6 Shareholders' Approval. The holders of not less than a
majority of the outstanding common stock of the Purchaser shall have voted
for authorization and approval of this Agreement and the transactions
contemplated hereby.
6.7 Shareholders' Execution of Agreement. This Agreement shall
have been duly executed and delivered by each of the parties owning in the
aggregate all of the outstanding stock of the Private Company as of the
Closing Date.
7. Conditions Precedent to Obligations of the Private Company and the
Shareholders. Each and every obligation of the Private Company and the
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction prior thereto of the following conditions:
7.1 Truth of Representations and Warranties. The representations
and warranties made by the Purchaser in this Agreement or given on its behalf
hereunder shall be substantially accurate in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date.
7.2 Performance of Obligations and Covenants. The Purchaser shall
have performed and complied with all obligations and covenants required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
7.3 Officer's Certificate. The Private Company shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to the Private Company), executed by an
executive officer of the Purchaser, certifying to the fulfillment of the
conditions specified in subsections 7.1 and 7.2 hereof.
7.4 No Litigation or Proceedings. There shall be no litigation or
any proceeding by or before any governmental agency or instrumentality
pending or threatened against any party hereto that seeks to restrain or
enjoin or otherwise questions the legality or validity of the transactions
contemplated by this Agreement or which seeks substantial damages in respect
thereof.
7.5 No Material Adverse Change. As of the Closing Date there
shall not have occurred any material adverse change, financially or
otherwise, which materially impairs the ability of the Purchaser to conduct
its business.
<PAGE>
8. Securities Law Provisions.
8.1 Restricted Securities. Each of the parties hereto, severally
and not jointly, represents that he, she, or it is aware that the shares
issued or transferred to him, her, or it will not have been registered
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), or any
state securities act, and thus will be restricted securities as defined in
Rule 144 promulgated by the Securities and Exchange Commission (the "SEC").
Therefore, under current interpretations and applicable rules, he, she, or it
will probably have to retain such shares for a period of at least one year
and at the expiration of such one year period his, her, or its sales may be
confined to brokerage transactions of limited amounts requiring certain
notification filings with the SEC and such disposition may be available only
if the issuer is current in its filings with the SEC under the Securities
Exchange Act of 1934, as amended, or other public disclosure requirements.
8.2 Non-distributive Intent. Each of the parties hereto,
severally and not jointly, covenants and warrants that the shares received
are acquired for his, her, or its own account and not with the present view
towards the distribution thereof and he, she, or it will not dispose of such
shares except (i) pursuant to an effective registration statement under the
1933 Act, or (ii) in any other transaction which, in the opinion of counsel
acceptable to the issuer, is exempt from registration under the 1933 Act, or
the rules and regulations of the SEC thereunder. In order to effectuate the
covenants of this subsection, an appropriate legend will be placed upon each
of the certificates of common stock issued or transferred pursuant to this
Agreement, and stop transfer instructions shall be placed with the transfer
agent for the securities.
8.3 Evidence of Compliance with Private Offering Exemption. Each
of the parties hereto, severally and not jointly, hereby represents and
warrants that he, she, or it, either individually or together with his, her,
or its representative, has such knowledge and experience in business and
financial matters that he, she, or it is capable of evaluating the risks of
this Agreement and the transactions contemplated hereby, and that the
financial capacity of such party is of such proportion that the total cost of
such person's commitment in the shares would not be material when compared
with his, her, or its total financial capacity. Each of the Shareholders
hereby acknowledges receipt of the following documents pertaining to the
Purchaser and this transaction: The Purchaser's broker-dealer due diligence
package pursuant to Rule 15c2-11 dated February 13, 1998, with exhibits.
Upon the written request of the issuer of the securities issued or
transferred pursuant to this Agreement, any party hereto shall provide such
issuer with evidence of compliance with the requirements of any federal or
state exemption from registration. The Purchaser and the Private Company
shall each file, with the assistance of the other and its respective legal
counsel, such notices, applications, reports, or other instruments as may be
deemed by each of them to be necessary or appropriate in an effort to
document reliance on such exemptions, unless an exemption requiring no filing
is available in the particular jurisdiction, all to the extent and in the
manner as may be deemed by such parties to be appropriate.
9. Change of Management. Upon and as a condition of Closing this
Agreement:
9.1 Prior to Closing the Purchaser will present to its
shareholders for approval the election of William Yotty, Jim Chambas, and
Clifford Goehring as directors of the Purchaser
<PAGE>
effective immediately following the Closing of this Agreement. Prior to
Closing the Private Company will furnish material information of William
Yotty, Jim Chambas, and Clifford Goehring as nominees to be elected by the
shareholders of the Purchaser. Purchaser reserves the right to refuse to
cause the nomination of any or all such persons as directors of Purchaser if,
after review of the foregoing information concerning said persons, it is the
opinion of Purchaser that the election of such persons would not be in the
best interests of Purchaser.
9.2 The Private Company reserves the right to terminate this
Agreement if nominees selected by it are not elected or appointed as set
forth above.
10. Closing.
10.1 Time and Place. The Closing of this transaction ("Closing")
shall take place at 57 West 200 South, Suite 310, Salt Lake City, Utah, at
10:00 am, on October 30, 1998, or at such other time and place as the parties
hereto shall agree upon. Such date is referred to in this Agreement as the
"Closing Date."
10.2 Documents To Be Delivered by the Private Company and the
Shareholders. At the Closing the Private Company and the Shareholders shall
deliver to the Purchaser the following documents:
a. Certificates for the number of shares of common stock of
the Private Company in the manner and form required by subsection 1.1 hereof.
b. The certificate required pursuant to subsection 6.3
hereof.
c. Such other documents of transfer, certificates of
authority, and other documents as the Purchaser may reasonably request.
10.3 Documents To Be Delivered by the Purchaser. At the Closing
the Purchaser shall deliver to the Private Company and the Shareholders the
following documents:
a. Certificates for the number of shares of common stock of
the Purchaser as determined in sub-section 1.2 hereof.
b. The certificate required pursuant to subsection 7.3
hereof.
c. The release required pursuant to subsection 5.10 hereof.
d. The opinion and releases required pursuant to subsection
5.12 hereof.
e. Such other documents of transfer, certificates of
authority, and other documents as the Private Company and the Shareholders
may reasonably request.
<PAGE>
11. Termination. This Agreement may be terminated by the Purchaser or
the Private Company by notice to the other if, (i) at any time prior to the
Closing Date any event shall have occurred or any state of facts shall exist
that renders any of the conditions to its or their obligations to consummate
the transactions contemplated by this Agreement incapable of fulfillment, or
(ii) on October 31, 1998, if the Closing shall not have occurred. Following
termination of this Agreement no party shall have liability to another party
relating to such termination, other than any liability resulting from the
breach of this Agreement by a party prior to the date of termination.
12. Miscellaneous.
12.1 Notices. All communications provided for herein shall be in
writing and shall be deemed to be given or made when served personally or
when deposited in the United States mail, certified return receipt requested,
addressed as follows, or at such other address as shall be designated by any
party hereto in written notice to the other party hereto delivered pursuant
to this subsection:
Purchaser: Ray H. Albrechtsen, President
1920 East 7130 South
Salt Lake City, UT 84121
With Copy to: J. Garry McAllister
Attorney at Law
1487 East Thistle Downs Drive
Sandy, UT 84092
Private Company
and Shareholders: William Yotty
1110 West Kettleman Lane
Suite 48
Lodi, CA 95240
With Copy to: Ronald N. Vance
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, UT 84101
12.2 Default. Should any party to this Agreement default in any of
the covenants, conditions, or promises contained herein, the defaulting party
shall pay all costs and expenses, including a reasonable attorney's fee,
which may arise or accrue from enforcing this Agreement, or in pursuing any
remedy provided hereunder or by the statutes of the State of Utah.
<PAGE>
12.3 Assignment. This Agreement may not be assigned in whole or in
part by the parties hereto without the prior written consent of the other
party or parties, which consent shall not be unreasonably withheld.
12.4 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, their heirs, executors,
administrators, successors and assigns.
12.5 Partial Invalidity. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder
of this Agreement or application of such term or provision to persons or
circumstances other than those as to which it is held to be invalid or
unenforceable shall not be affected thereby and each term, covenant,
condition, or provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law.
12.6 Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all negotiations, representations, prior discussions,
letters of intent, and preliminary agreements between the parties hereto
relating to the subject matter of this Agreement.
12.7 Interpretation of Agreement. This Agreement shall be
interpreted and construed as if equally drafted by all parties hereto.
12.8 Survival of Covenants, Etc. All covenants, representations,
and warranties made herein to any party, or in any statement or document
delivered to any party hereto, shall survive the making of this Agreement and
shall remain in full force and effect until the obligations of such party
hereunder have been fully satisfied.
12.9 Further Action. The parties hereto agree to execute and
deliver such additional documents and to take such other and further action
as may be required to carry out fully the transactions contemplated herein.
12.10 Amendment. This Agreement or any provision hereof may
not be changed, waived, terminated, or discharged except by means of a
written supplemental instrument signed by the party or parties against whom
enforcement of the change, waiver, termination, or discharge is sought.
12.11 Full Knowledge. By their signatures, the parties
acknowledge that they have carefully read and fully understand the terms and
conditions of this Agreement, that each party has had the benefit of counsel,
or has been advised to obtain counsel, and that each party has freely agreed
to be bound by the terms and conditions of this Agreement.
12.12 Headings. The descriptive headings of the various
sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
<PAGE>
12.13 Counterparts. This Agreement may be executed in two or
more partially or fully executed counterparts, each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto executed the foregoing Agreement
and Plan of Reorganization as of the day and year first above written.
PURCHASER: Sun Source, Inc.
By /s/ Ray H. Albrechtsen, President
PRIVATE COMPANY: PayStar Communications, Inc.
By /s/ Jim Chambas, Vice-President
SHAREHOLDERS: /s/ William Yotty, Individually
/s/ Jim Chambas, Individually
/s/ Clifford Goehring, Individually
SCHEDULE "A"
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
NAME OF THE PRIVATE COMPANY THE PURCHASER
SHAREHOLDER TO BE TRANSFERRED TO BE ISSUED
- ----------- ----------------- ------------
<S> <C> <C>
William Yotty 7,500 1,500,000
Jim Chambas 2,000 400,000
Clifford Goehring 500 100,000
------ ---------
TOTAL 10,000 2,000,000
------ ---------
</TABLE>
<PAGE>
AMENDMENT TO THE
AGREEMENT AND PLAN OF REORGANIZATION
This Pre-Closing Amendment is to the Agreement and Plan of
Reorganization (the "Agreement") dated October 12, 1998, by, between, and
among Sun Source, Inc., a publicly held Nevada corporation (hereinafter the
"Purchaser"), PayStar Communications, Inc., a privately-held Nevada
corporation (hereinafter the "Private Company"), and the shareholders of the
Private Company whose names and signatures are set forth upon the signature
page of this Agreement (the "Shareholders"). The parties mutually agree to
amend the designated provisions of the Agreement as follows:
1. Subsection 1.2 of the Agreement is amended to read as follows:
In exchange for the transfer of the common stock of the Private
Company pursuant to subsection 1.1. hereof, the Purchaser shall on the
Closing Date and contemporaneously with such transfer of the common stock
of the Private Company to it by the Shareholders issue and deliver to the
Shareholders the number of shares of common stock of the Purchaser
specified on Schedule "A" hereof such that the Shareholders shall own
approximately 65% of the outstanding common stock of the Purchaser.
2. Subsection 4.2 of the Agreement is amended to read as follows:
Capitalization. As of the date of the Closing, the Purchaser will
have a total of no more than 540,600 shares of common stock issued and
outstanding (excluding the shares to be issued pursuant to this Agreement).
All of the shares will have been duly authorized and validly issued and
will be fully paid and nonassessable. Except for the Purchaser's
obligations hereunder with respect to the shares to be issued pursuant to
subsection 1.2 hereof, there are no options, warrants, conversion
privileges, or other rights presently outstanding for the purchase of any
authorized but unissued stock of the Purchaser. As of the Closing, the
Articles of Incorporation, as amended, of the Purchaser (the "Purchaser
Articles") and as currently in effect shall be in the form previously
furnished to the Private Company and the Shareholders. The rights,
preferences, and privileges of the common stock shall be as set forth in
the Purchaser Articles.
3. Subsection 5.13 is added to the Agreement to read as follows:
Forward Stock Split. Following the Closing new management of
Purchaser shall effect a two-for-one forward split of the outstanding
shares of common stock of Purchaser, including the shares to be issued to
the Shareholders.
4. Schedule "A" to the Agreement is amended to read as follows:
<PAGE>
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF
NAME OF THE PRIVATE COMPANY THE PURCHASER
SHAREHOLDER TO BE TRANSFERRED TO BE ISSUED
- ----------- ----------------- ------------
<S> <C> <C>
William Yotty 7,500 750,000
Jim Chambas 2,000 200,000
Clifford Goehring 500 50,000
------ ---------
TOTAL 10,000 1,000,000
------ ---------
</TABLE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment this
22nd day of October 1998.
PURCHASER: Sun Source, Inc.
By /s/ Darwin Long, President
PRIVATE COMPANY: PayStar Communications, Inc.
By /s/ Jim Chambas, Vice-President
SHAREHOLDERS: /s/ William Yotty, Individually
/s/ Jim Chambas, Individually
/s/ Clifford Goehring, Individually
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement"), entered
into this 30th day of September, 1999, is by, between, and among PayStar
Communications Corporation., a publicly held Nevada corporation (hereinafter
the "Purchaser"), U.S. Cash Exchange, Inc., a privately held California
corporation (hereinafter the "Private Company"), and the shareholders of the
Private Company whose names and signatures are set forth upon the signature
page of this Agreement (the "Shareholders"),
RECITALS:
WHEREAS, the Purchaser wishes to acquire, and the Shareholders are
willing to sell, all of the outstanding stock of the Private Company in
exchange solely for a part of the voting stock of the Purchaser whereby the
Shareholders would acquire a controlling interest of the Purchaser; and
WHEREAS, the parties hereto intend to qualify such transaction as a
tax-free exchange pursuant to Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, based upon the stated premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements set forth herein, the mutual benefits to the parties to be derived
herefrom, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Purchaser, the Private Company, and the
Shareholders approve and adopt this Agreement and Plan of Reorganization and
mutually covenant and agree with each other as follows:
1. Shares to be transferred and Shares to be Issued
1.1 On the Closing Date the Shareholders shall transfer to the
Purchaser certificates for the number of shares of the common stock of the
Private Company described in Schedule "A", attached hereto and incorporated
herein, which in the aggregate shall represent all of the issued and
outstanding shares of the common stock of the Private Company.
1.2 In exchange for the transfer of the common stock of the
Private Company pursuant to subsection 1.1. hereof, the Purchaser shall on
the Closing Date and contemporaneously with such transfer of the common stock
of the Private Company to it by the Shareholders issue and deliver to the
Shareholders the number of shares of common stock of the Purchaser specified
on Schedule "A" hereof,
2. Representations and Warranties of the Shareholders. Each of the
Shareholders, for himself, herself, or itself, and not for any other
Shareholder, represents and warrants to the Purchaser as set forth below.
These representations and warranties are made as an inducement for the
Purchaser to enter into this Agreement and, but for the making of such
representations and Warranties and their accuracy, the Purchaser would not be
a party hereto.
<PAGE>
2.1 Ownership of Stock
a. Each of the Shareholders is the record and beneficial
owner and holder of the number of fully paid and nonassessable shares of the
common stock of the Private Company listed in Schedule "A" hereto as of the
date hereof and will continue to own such shares of the common stock of the
Private Company until the delivery thereof to the Purchaser on the Closing
Date and all such shares of common stock are or will be on the Closing Date
owned free and clear of all liens, encumbrances, charges and assessments of
every nature and subject to no restrictions with respect to transferability.
Each of the Shareholders currently has, and will have at Closing, full power
and authority to dispose, assign, and transfer his, her, or its shares of the
Private Company in accordance with the terms hereof. Each of the
Shareholders currently has, and will have at Closing, full power and
authority to vote his, her, or its shares of the Private Company, without
restriction of any kind.
b. Except for this Agreement there are no outstanding
options, contracts, calls, commitments, agreements or demands of any
character relating to the common stock of the Private Company listed in
Schedule "A" and owned by each of the Shareholders.
2.2 Accuracy of All Statements Made by the Shareholders. No
representation or warranty by the Shareholders in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of the Shareholders pursuant to this Agreement, nor
any document or certificate delivered to the Purchaser by the Shareholders
pursuant to this Agreement or in connection with actions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits or
shall omit a material fact necessary to make the statements contained therein
not misleading.
3. Representations and Warranties of the Private Company. The
Private Company represents and warrants to the Purchaser as set forth below.
These representations and warranties are made as an inducement for the
Purchaser to enter into this Agreement and, but for the making of such
representations and warranties and their accuracy, the Purchaser would not be
a party hereto.
3.1 Organization and Authority. The Private Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California with full power and authority to enter into
and perform the transactions contemplated by this Agreement.
3.2 Capitalization. As of the date of the Closing, the Private
Company will have a total of no more than Two Thousand five hundred (2,500)
shares of common stock issued and outstanding. All of the shares will have
been duly authorized and validly issued and will be fully paid and
nonassessable. There are no options, warrants, conversion privileges, or
other rights presently outstanding for the purchase of any authorized but
unissued stock of the Private Company,
<PAGE>
3.3 Performance of This Agreement. The execution and
performance of this Agreement and the transfer of stock contemplated hereby
have been authorized by the board of directors of the Private Company.
3.4 Financials. True copies of the financial statements of the
Private Company for the period ended September 30, 1999, (unaudited) have
been furnished to the Purchaser. Said financial statements are true and
correct in all material respects and present an accurate and complete
disclosure of the financial condition of the Private Company as of September
30, 1999, and the earnings for the periods covered, in accordance with
generally accepted accounting principles applied on a consistent basis.
3.5 Liabilities. There are no material liabilities of the
Private Company, whether accrued, absolute, contingent or otherwise, which
arose or relate to any transaction of the Private Company, its agents or
servants occurring prior to September 30, 1999, which are not disclosed by or
reflected in said financial statements. As of the date hereof, there are no
known circumstances, conditions, happenings, events or arrangements,
contractual or otherwise, which may hereafter give rise to liabilities,
except in the normal course of business of the Private Company.
3.6 Absence of Certain Changes or Events. Except as set forth
in this Agreement, since September 30, 1999, there has not been (i) any
material adverse change in the business, operation properties, level of
inventory, assets, or condition of the Private Company, or (ii) any damage,
destruction, or loss to the Private Company (whether or not covered by
insurance) materially and adversely affecting the business, operations,
properties, assets, or conditions of the Private Company.
3.7 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving the Private Company or its subsidiaries, if
any, or their assets, properties, or business, nor does the Private Company
or its subsidiaries know, or have reasonable grounds to know, of any basis
for any such proceedings, investigations or inquiries, product liability or
other claims, judgments, injunctions or restrictions. In addition, there are
no material proceedings existing, pending or reasonably contemplated to which
any officer, director, or affiliate of the Private Company or as to which any
of the Shareholders is a party adverse to the Private Company or any of its
subsidiaries or has a material interest adverse to the Private Company or any
of its subsidiaries.
3.8 Taxes. All federal, state, foreign, county and local
income, profits, franchise, occupation, property, sales, use, gross receipts
and other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by the Private Company, and there are no unpaid taxes
which are, or could become a lien on the properties and assets of the Private
Company, except as provided for in the financial statements of the Private
Company, or have been incurred in the normal course of business of the
Private Company since that date. All tax returns of any kind required to be
filed have been filed and the taxes paid or accrued.
<PAGE>
3.9 Hazardous Materials. No hazardous material has been
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released, or disposed of on or under any real property
currently or previously owned or leased by the Private Company or any of its
subsidiaries.
3.10 Accuracy of All Statements Made by the Private Company. No
representation or warranty by the Private Company in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by or on behalf of the Private Company pursuant to this Agreement,
nor any document or certificate delivered to the Purchaser by the Private
Company pursuant to this Agreement or in connection with actions contemplated
hereby, contains or shall contain any untrue statement of material fact or
omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Private Company and to the Shareholders as set
forth below. These representations and warranties are made as an inducement
for the Private Company and the Shareholders to enter into this Agreement
and, but for the making of such representations and warranties and their
accuracy, the Private Company and the Shareholders would not be parties
hereto.
4.1 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada with full power and authority to enter into and
perform the transactions contemplated by this Agreement.
4.2 Capitalization. As of the date of the Closing, the
Purchaser will have a total of no more than 3,321,200 shares of common stock
issued and outstanding (excluding the shares to be issued pursuant to this
Agreement). All of the shares will have been duly authorized and validly
issued and will be fully paid and nonassessable. Except for the Purchaser's
obligations hereunder with respect to the shares to be issued pursuant to
subsection 1.2 hereof, there are no options, warrants, conversion privileges,
or other rights presently outstanding for the purchase of any authorized but
unissued stock of the Purchaser. As of the Closing, the Articles of
Incorporation, as amended, of the Purchaser (the "Purchaser Articles") and as
currently in effect shall be in the form previously furnished to the Private
Company and the Shareholders. The rights, preferences, and privileges of the
common stock shall be as set forth in the Purchaser Articles.
4.3 Performance of This Agreement. The execution and
performance of this Agreement and the issuance of stock contemplated hereby
have been authorized by the board of directors of the Purchaser.
4.4 Financials. True copies of the financial statements of the
Purchaser consisting of the audited financial statements as of the periods
ended December 31, 1996, December 31, 1997 and April 30, 1998, examined and
certified by Andersen Andersen & Strong, L.C., Certified Public Accountant,
the audited financial statements of period ended December 31, 1998, examined
and certified by Schvaneveldt & Co., Certified Public Accountant, and the
<PAGE>
unaudited financial Statements of the Purchaser as of the period ended June
30, 1999, have been delivered by the Purchaser to the Private Company. Said
financial statements are true and correct in all material respects and
present an accurate and complete disclosure of the financial condition of the
Purchaser as of June 30, 1999, and the earnings for the periods covered, in
accordance with generally accepted accounting principles applied on a
consistent basis.
4.5 Liabilities. There are no material liabilities of the
Purchaser, whether accrued, absolute, contingent or otherwise, which arose or
relate to any transaction of the Purchaser, its agents or servants which are
not disclosed by or reflected in said financial statements. As of the date
hereof, there are no known circumstances, conditions, happenings, events or
arrangements, contractual or otherwise, which may hereafter give rise to
liabilities, except in the normal course of business of the Purchaser.
4.6 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries, product liability or other claims,
judgments, injunctions or restrictions, either threatened, pending, or
outstanding against or involving the Purchaser or its subsidiaries, if any,
or their assets, properties, or business, nor does the Purchaser or its
subsidiaries know, or have reasonable grounds to know, of any basis for any
such proceeding, investigations or inquiries, product liability or other
claims, judgments, injunctions or restrictions. In addition, there are no
material proceedings existing, pending or reasonably contemplated to which
any officer, director, or affiliate of the Purchaser is a party adverse to
the Purchaser or any of its subsidiaries or has a material interest adverse
to the Purchaser or any of its subsidiaries.
4.7 Taxes. All federal, state, foreign, county and local
income, profits, franchise, occupation, property, sales, use, gross receipts
and other taxes (including any interest or penalties relating thereto) and
assessments which are due and payable have been duly reported, fully paid and
discharged as reported by the Purchaser, and there are no unpaid taxes which
are, or could become a lien on the properties and assets of the Purchaser,
except as provided for in the financial statements of the Purchaser, or have
been incurred in the normal course of business of the Purchaser since that
date. All tax returns of any kind required to be filed have been filed and
the taxes paid or accrued.
4.8 Hazardous Materials. No hazardous material has been
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released, or disposed of on or under any real property
currently or previously owned or leased by the Purchaser or any of its
subsidiaries.
4.9 Legality of Shares to be Issued. The shares of common
stock of the Purchaser to be issued by the Purchaser pursuant to this
Agreement, when so issued and delivered, will have been duly and validly
authorized and issued by the Purchaser and will be fully paid and
nonassessable.
4.10 Accuracy of All Statements Made by the Purchaser. No
representation or warranty by the Purchaser in this Agreement, nor any
statement, certificate, schedule, or exhibit hereto furnished or to be
furnished by the Purchaser pursuant to this Agreement, nor any
<PAGE>
document or certificate delivered to the Private Company or the Shareholders
pursuant to this Agreement or in connection with actions contemplated hereby,
contains or shall contain any untrue statement of material fact or omits to
state or shall omit to state a material fact necessary to make the statements
contained therein not misleading.
5. Covenants of the Parties.
5.1 Corporate Records.
a. Simultaneous with the execution of this Agreement by
the Private Company, if not previously furnished, such entity shall deliver
to the Purchaser copies of the articles of incorporation, as amended, and the
current bylaws of the Private Company, and copies of the resolutions duly
adopted by the board of directors of the Private Company approving this
Agreement and the transactions herein contemplated.
b. Simultaneous with the execution of this Agreement by
the Purchaser, if not previously furnished, such entity, shall deliver to the
Private Company copies of the Purchaser Articles, and the current bylaws of
the Purchaser, and copies of the resolutions duly adopted by the board of
directors of the Purchaser approving this Agreement and the transactions
herein contemplated.
5.2 Access to Information.
a. The Purchaser and its authorized representatives
shall have full access during normal business hours to all properties, books,
records, contracts, and documents of the Private Company, and the Private
Company shall furnish or cause to be furnished to the Purchaser and its
authorized representatives all information with respect to its affairs and
business as the Purchaser may reasonably request. The Purchaser shall hold,
and shall cause its representatives to hold confidential, all such
information and documents, other than information that (i) is in the public
domain at the time of its disclosure to the Purchaser; (ii) becomes part of
the public domain after disclosure through no fault of the Purchaser; (iii)
is known to the Purchaser or any of its officers or directors prior to
disclosure; or (iv) is disclosed in accordance with the written consent of
the Private Company. In the event this Agreement is terminated prior to
Closing, the Purchaser shall, upon the written request of the Private
Company, promptly return all copies of all documentation and information
provided by the Private Company hereunder.
b. The Private Company and its authorized
representatives shall have full access during normal business hours to all
properties, books, records, contracts, and documents of the Purchaser, and
the Purchaser shall furnish or cause to be furnished to the Private Company
and its authorized representatives all information with respect to its
affairs and business the Private Company may reasonably request. The Private
Company shall hold, and shall cause its representatives to hold confidential,
all such information and documents, other than information that (i) is in the
public domain at the time of its disclosure to the Private Company; (ii)
becomes part of the public domain after disclosure through no fault of the
Private Company; (iii) is known to the Private Company or any of its officers
or directors prior to disclosure; or
<PAGE>
(iv) is disclosed in accordance with the written consent of the Purchaser.
In the event this Agreement is terminated prior to Closing, the Private
Company shall, upon the written request of the Purchaser, promptly return all
copies of all documentation and information provided by the Purchaser
hereunder.
5.3 Actions Prior to Closing. From and after the date or this
Agreement and until the Closing Date:
a. The Purchaser and the Private Company shall each carry
on its business diligently and substantially in the same manner as
heretofore, and neither party shall make or institute any unusual or novel
methods of purchase, sale, management, accounting or operation.
b. Neither the Purchaser nor the Private Company shall
enter into any contract or commitment, or engage in any transaction not in
the usual and ordinary course of business and consistent with its business
practices.
c. Neither the Purchaser nor the Private Company shall
amend its articles of incorporation or bylaws or make any changes in
authorized or issued capital stock, except as provided in this Agreement,
d. The Purchaser and the Private Company shall each use
its best efforts (without making any commitments on behalf of the company) to
preserve its business organization intact.
e. Neither the Purchaser nor the Private Company shall
do any act or omit to do any act, or permit any act or omission to act, which
will cause a material breach of any material contract, commitment, or
obligation of such party.
f. The Purchaser and the Private Company shall each duly
comply with all applicable law as may be required for the valid and effective
issuance or transfer of stock contemplated by this Agreement.
g. Neither the Purchaser nor the Private Company shall
sell or dispose of any property or assets, except products sold in the
ordinary course of business.
h. The Purchaser and the Private Company shall each
promptly notify the other of any lawsuits, claims, proceedings, or
investigations that may be threatened, brought, asserted, or commenced
against it, its officers or directors involving in any way the business,
properties, or assets of such party.
5.4 Shareholders' Approval, The Purchaser shall promptly submit
this Agreement and the transactions contemplated hereby for the approval of
its stockholders by majority written consent or at a meeting of stockholders
and, subject to the fiduciary duties of the Board of directors of the
Purchaser under applicable law, shall use its best efforts to obtain
stockholder approval and adoption of this Agreement and the transactions
contemplated hereby.
<PAGE>
In connection with such written action by, or meeting of, stockholders, the
Purchaser shall prepare a proxy or information statement to be furnished to
the shareholders of the Purchaser setting forth information about this
Agreement and the transactions contemplated hereby. The Private Party shall
promptly furnish to the Purchaser all information, and take such other
actions, as may reasonably be requested in connection with any action to be
taken by the Purchaser in connection with the immediately preceding sentence.
The Private Company shall have the right to review and provide comments to
the proxy or information statement prior to mailing to the shareholders of
the Purchaser.
5.5 No Covenant as to Tax or Accounting Consequences. It is
expressly understood and agreed that neither the Purchaser nor its officers
or agents has made any warranty or agreement, expressed or implied, as to the
tax or accounting consequences of the transactions contemplated by this
Agreement or the tax or accounting consequences of any action pursuant to or
growing out of this Agreement.
5.6. Indemnification. The Private Company and the Shareholders,
severally and not jointly, shall indemnify Purchaser for any loss, cost,
expense, or other damage (including, without limitation, attorneys' fees and
expenses) suffered by Purchaser resulting from, arising out of, or incurred
with respect to the falsity or the breach of any representation, warranty, or
covenant made by the Private Company or the Shareholders herein, and any
claims arising from the operations of the Private Company prior to the
Closing Date. Purchaser shall indemnify and hold the Private Company and the
Shareholders harmless from and against any cost, expense, or other damage
(including, without limitation, attorneys' fees and expenses) resulting from,
arising out of, or incurred with respect to, or alleged to result from, arise
out of or have been incurred with respect to, the falsity or the breach of
any representation, covenant, warranty, or agreement made by Purchaser
herein, and any claims arising from the operations of Purchaser prior to the
Closing Date. The indemnity agreement contained herein shall remain
operative and in full force and effect, regardless of any investigation made
by or on behalf of any party and shall survive the consummation of the
transactions contemplated by this Agreement.
5.7 Publicity. The parties agree that no publicity, release,
or other public announcement concerning this Agreement or the transactions
contemplated by this Agreement shall be issued by any party hereto without
the advance approval of both the form and substance of the same by the other
parties and their counsel, which approval, in the case of any publicity,
release, or other public announcement required by applicable law, shall not
be unreasonably withheld or delayed.
5.8 Expenses. Except as otherwise expressly provided herein,
each party to this Agreement shall bear its own respective expenses incurred
in connection with the negotiation and preparation of this Agreement, in the
consummation of the transactions contemplated hereby, and in connection with
all duties and obligations required to be performed by each of them under
this Agreement.
<PAGE>
5.9 Further Actions. Each of the parties hereto shall take all
such further actions and execute and deliver such further documents, as may
be necessary to carry out the transactions contemplated by this Agreement.
6. Conditions Precedent to the Purchaser's Obligations. Each and
every obligation of the Purchaser to be performed on the Closing Date shall
be subject to the satisfaction prior thereto of the following conditions:
6.1 Truth of Representations and Warranties. The
representations and warranties made by the Private Company and the
Shareholders in this Agreement or given on their behalf hereunder shall be
substantially accurate in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been
made or given on and as of the Closing Date.
6.2 Performance of Obligations and Covenants. The Private
Company and the Shareholders shall have performed and complied with all
obligations and covenants required by this Agreement to be performed or
complied with by them prior to or at the Closing.
6.3 Officer's Certificate. The Purchaser shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to the Purchaser), executed by an executive
officer of the Private Company, certifying to the fulfillment of the
conditions specified in subsections 6.1 and 6.2 hereof.
6.4 No Litigation or Proceedings. There shall be no litigation
or any proceeding by or before any governmental agency or instrumentality
pending or threatened against any party hereto that seeks to restrain or
enjoin or otherwise questions the legality or validity of the transactions
contemplated by this Agreement or which seeks substantial damages in respect
thereof.
6.5 No Material Adverse Change. As of the Closing Date there
shall not have occurred any material adverse change, financially or
otherwise, which rnateriafly impairs the ability of the Private Company to
conduct its business or the earning power thereof on the same basis as in the
past.
6.6 Shareholders' Approval. The holders of not less than a
majority of the outstanding common stock of the Purchaser shall have voted
for authorization and approval of this Agreement and the transactions
contemplated hereby.
6.7 Shareholders' Execution of Agreement. This Agreement shall
have been duly executed and delivered by each of the parties owning in the
aggregate all of the outstanding stock of the Private Company as of the
Closing Date.
7. Conditions Precedent to Obligations of the Private Company and
the Shareholders. Each and every obligation of the Private Company and the
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction prior thereto of the following conditions:
<PAGE>
7.1 Truth of Representations and Warranties. The
representations and warranties made by the Purchaser in this Agreement or
given on its behalf hereunder shall be substantially accurate in a material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the
Closing Date.
7.2 Performance of Obligations and Covenants. The Purchaser
shall have performed and complied with all obligations and covenants required
by this Agreement to be performed or compiled with by it prior to or at the
Closing.
7.3 Officer's Certificate. The Private Company shall have been
furnished with a certificate (dated as of the Closing Date and in form and
substance reasonably satisfactory to the Private Company), executed by an
executive officer of the Purchaser, certifying to the fulfillment of the
conditions specified in subsections 7.1 and 7.2 hereof.
7.4 No Litigation or Proceedings. There shall be no litigation
or any proceeding by or before any governmental agency or instrumentality
pending or threatened against any party hereto that seeks to restrain or
enjoin or otherwise questions the legality or validity of the transactions
contemplated by this Agreement or which seeks substantial damages in respect
thereof.
7.5 No Material Adverse Change. As of the Closing Date there
shall not have occurred any material adverse change, financially or
otherwise, which materially impairs the ability of the Purchaser to conduct
its business.
7.6 Employment of Jeff McKay. On or before the Closing Date,
and upon and as a condition of Closing this Agreement, the Purchaser and Jeff
McKay will execute an employment agreement subject only to the Closing of
this Agreement, which will, inter alia, employ Jeff McKay as the President of
Purchaser for thirty six (36) months at an annual salary of $300,000, plus an
auto allowance of $800 per month, bonus compensation, and such other benefits
as are standard for senior management of the Purchaser.
8. Securities Law Provisions.
8.1 Restricted Securities. Each of the parties hereto,
severally and not jointly, represents that he, she, or it is aware that the
shares issued or transferred to him, her, or it will not have been registered
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), or any
state securities act, and thus will be restricted securities as defined in
Rule 144 promulgated by the Securities and Exchange Commission (the "SEC").
Therefore, under current interpretations and applicable rules, he, she, or it
will probably have to retain such shares for a period of at least one year
and at the expiration of such one year period his, her, or its sales may be
confined to brokerage transactions of limited amounts requiring certain
notification filings with the SEC and such disposition may be available only
if the issuer is current in its filings with the SEC under the Securities
Exchange Act of 1934, as amended, or other public disclosure requirements.
<PAGE>
8.2 Non-distributive Intent. Each of the parties hereto,
severally and not jointly, covenants and warrants that the shares received
are acquired for his, her, or its own account and not with the present view
towards the distribution thereof and he, she, or it will not dispose of such
shares except (i) pursuant to an effective registration statement under the
1933 Act, or (ii) in any other transaction which, in the opinion of counsel
acceptable to the issuer, is exempt from registration under the 1933 Act, or
the rules and regulations of the SEC thereunder. In order to effectuate the
covenants of this subsection, an appropriate legend will be placed upon each
of the certificates of common stock issued or transferred pursuant to this
Agreement, and stop transfer instructions shall be placed with the transfer
agent for the securities.
9. Closing.
9.1 Time and Place. The Closing of this transaction
("Closing") shall take place at 1110 W. Kettleman Lane, Suite 48, Lodi, CA at
10:00 am, on October 1, 1999, or at such other time and place as the parties
hereto shall agree upon. Such date is referred to in this Agreement as the
"Closing Date."
9.2 Documents To Be Delivered by the Private Company and the
Shareholders. At the Closing the Private Company and the Shareholders shall
deliver to the Purchaser the following documents:
a. Certificates for the number of shares of common stock
of the Private Company in the manner and form required by subsection 1.1
hereof.
b. The certificate required pursuant to subsection 6.3
hereof.
c. Such other documents of transfer, certificates of
authority, and other documents as the Purchaser may reasonably request.
9.3 Documents to be Delivered by the Purchaser. At the Closing
the Purchaser shall deliver to the Private Company and the Shareholders the
following documents:
a. Certificates for the number of shares of common stock
of the Purchaser as determined in subsection 1.2 hereof
b. The certificate required pursuant to subsection 7.3
hereof,
c. The employment agreement for Jeff McKay pursuant to
subsection 7.6 hereof.
d. Such other documents of transfer, certificates of
authority, and other documents as the Private Company and the Shareholders
may reasonably request.
10. This Agreement may be terminated by the Purchaser or the Private
Company by notice to the other if, (i) at any time prior to the, Closing Date
any event shall have occurred or
<PAGE>
any state of facts shall exist that renders any of the conditions to its or
their obligations to consummate the transactions contemplated by this
Agreement incapable of fulfillment, or (ii) on October 30, 1999, if the
Closing shall not have occurred. Following termination of this Agreement no
party shall have liability to another party relating to such termination,
other than any liability resulting from the breach of this Agreement by a
party prior to the date of termination.
11. Miscellaneous.
11.1 Notices. All communications provided for herein shall be
in writing and shall be deemed to be given or made when served personally or
when deposited in the United States mail, certified return receipt requested,
addressed as follows, or at such other address as shall be designated by any
party hereto in written notice to the other party delivered pursuant to this
subsection:
Purchaser: William Yotty
1110 West Kettleman Lane
Suite 48
Lodi, CA 95240
With Copy to: Ronald N. Vance
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, UT 84101
Private Company
and Shareholders: Jeff McKay
3001 Coffee Rd., Suite 2
Modesto, CA 95355
11.2 Default. Should any party to this Agreement default in any
of the covenants, conditions, or promises contained herein, the defaulting
party shall pay all costs and expenses, including a reasonable attorney's
fee, which may arise or accrue from enforcing this Agreement, or in pursuing
any remedy provided hereunder or by the statutes of the State of Utah.
11.3 Assignment. This Agreement may not be assigned in whole or
in part by the parties hereto without the prior written consent of the other
party or parties, which consent shall not be unreasonably withheld.
11.4 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, their heirs,
executors, administrators, successors and assigns.
11.5 Partial Invalidity. If any term, covenant, condition, or
provision of this Agreement or the application thereof to any person or
circumstance shall to any extent be invalid
<PAGE>
or unenforceable, the remainder of this Agreement or application of such term
or provision to persons or circumstances other than those as to which it is
held to be invalid or unenforceable shall not be affected thereby and each
term, covenant, condition, or provision of this Agreement shall be valid and
shall be enforceable to the fullest extent permitted by law.
11.6 Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all negotiations, representations, prior discussions,
letters of intent, and preliminary agreements between the parties hereto
relating to the subject matter of this Agreement.
11.7 Interpretation of Agreement. This Agreement shall be
interpreted and construed as if equally drafted by all parties hereto.
11.8 Survival of Covenants, Etc. All Covenants,
representations, and warranties made herein to any party, or in any statement
or document delivered to any party hereto, shall survive the making of this
Agreement and shall remain in full force and effect until the obligations of
such party hereunder have been fully satisfied.
11.9 Further Action. The Parties hereto agree to execute and
deliver such additional documents and to take such other and further action
as may be required to carry out fully the transaction contemplated herein.
11.10 Amendment. This Agreement or any provision hereof may not
be changed, waived, terminated, or discharged except by means of a written
supplemental instrument signed by the party or parties against whom
enforcement of the change, waiver, termination, or discharge is sought.
11.11 Full Knowledge. By their signatures, the parties
acknowledge that they have carefully read and fully understand the terms and
conditions of this Agreement, that each party has had the benefit of counsel,
or has been advised to obtain counsel, and that each party has freely agreed
to be bound by the terms and conditions of this Agreement.
11.12 Headings. The descriptive headings of the various sections
or parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
11.13 Counterparts. This Agreement may be executed in two or
more partially or fully executed counterparts, each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed the foregoing
Agreement and Plan of Reorganization as of the day and year first above
written.
PURCHASER: PayStar Communications Corporation
By /s/ William D. Yotty, President
PRIVATE COMPANY: U.S. Cash Exchange, Inc.
By /s/ Jeff McKay, President
SHAREHOLDERS: /s/ William Yotty, Individually
/s/ Jeff McKay, Individually
/s/ Michele Howell
MIH Associates, Inc.
SCHEDULE "A"
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
<TABLE>
<CAPTION>
NAME OF NO. OF SHARES OF NO. OF SHARES OF
SHAREHOLDER THE PRIVATE COMPANY THE PURCHASER
TO BE TRANSFERRED TO BE ISSUED
<S> <C> <C>
William Yotty 1,000 1,075,000
Jeff McKay 1,000 1,075,000
MIH Associates, Inc. 500 550,000
------ ----------
TOTAL 2,500 2,700,000
</TABLE>
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SOTERCO, INC.
For the purpose of forming this corporation under the laws of the State of
Nevada, the undersigned incorporators hereby state:
ARTICLE FIRST
Name
The name of the corporation is:
Soterco, Inc.
ARTICLE SECOND
Purposes and Duration
The purposes for which the corporation is formed are:
(a) To engage in any lawful business activity from time to time authorized
or approved by the board of directors of this corporation;
(b) To act as principal, agent, partner or joint venturer or in any other
legal capacity in any transaction;
(c) To do business anywhere in the world; and
(d) To have and exercise all rights and powers from time to time granted
to a corporation by law.
The above purpose clauses shall not be limited by reference to or inference
from one another, but each purpose clause shall be construed as a separate
statement conferring independent purposes and powers upon the corporation.
The duration of this corporation shall be perpetual.
ARTICLE THIRD
Location
The county in the State of Nevada where the principal office for the
transaction of the business of the corporation is located is the County of
Clark, and the address of the principal office is: 3890 South Swenson, Suite
100, Las Vegas, Nevada, 89109.
ARTICLE FOURTH
Directors
The number of directors of the corporation is three until changed by an
amendment of these Articles of Incorporation or a by-law duly adopted by the
shareholders of the corporation.
<PAGE>
ARTICLE FIFTH
Names of First Directors and Incorporators
The names and addresses of the persons who are appointed to act as first
directors of the corporation, who are also the incorporators, are:
Joseph R. Laird, Jr.
3890 South Swenson, Suite 100
Las Vegas, Nevada 89109
Kenneth J. Fisher
3890 South Swenson, Suite 100
Las Vegas, Nevada 89109
Patricia J. Laird
3890 South Swenson, Suite 100
Las Vegas, Nevada 89109
ARTICLE SIXTH
Stock
The corporation is authorized to issue only one class of stock, which shall
be designated Capital Stock.
The total number of shares of Capital Stock that the corporation is
authorized to issue is 100,000 shares. The aggregate par value of all of
said shares is $25,000.00, and the par value of each such share is $0.25.
IN WITNESS WHEREOF, the undersigned incorporators, who are also the
first directors of the corporation, have executed these Articles of
Incorporation on June 7, 1977.
/s/ Joseph R. Laird, Jr.
/s/ Kenneth J. Fisher
/s/ Patricia J. Laird
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On this 7th day of June, 1977, before me, the undersigned, a Notary
Public in and for the said County and State, residing therein, duly
commissioned and sworn, personally appeared Joseph R. Laird, Jr., Kenneth J.
Fisher, and Patricia J. Laird, known to me to be the persons
<PAGE>
whose names are subscribed to the within Articles of Incorporation, and
acknowledged to me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ K. Edward Smith
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF SOTERCO, INC.
We the undersigned, Ray H. Albrechtsen, President, and Margaret Bullick,
Secretary of Soterco, Inc., do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 22nd day of August, 1997 adopted a resolution to amend the original
articles as follows:
Article I which presently reads as follows:
ARTICLE FIRST
Name
The name of the corporation is: Soterco, Inc.
Is hereby amended to read as follows:
The name of the corporation is: Sun Source, Inc.
Article IV which presently reads as follows:
ARTICLE FOURTH
Directors
The number of directors of the corporation is three until changed by an
amendment of these Articles of Incorporation or a by-law duly adopted by the
shareholders of the corporation.
Is hereby amended to read as follows:
ARTICLE FOURTH
Directors
The Directors are hereby granted the authority to do any act on behalf of
the Corporation as may be allowed by law. Any action taken in good faith, shall
be deemed appropriate and in each instance where the Business Corporation Act
provides that the Directors may act in certain instances where the Articles of
Incorporation so authorize, such action by the Directors, shall be deemed to
exist in these Articles and the authority granted by said Act shall be imputed
hereto without the same specifically having been enumerated herein.
<PAGE>
The Board of Directors may consist of from one (1) to nine (9) directors,
as determined, from time to time, by the then existing Board of Directors.
Article VI which presently reads as follows:
ARTICLE SIXTH
Stock
The corporation is authorized to issue only one class of stock, which shall
be designated Capital Stock.
The total number of shares of Capital Stock that the corporation is
authorized to issue is 100,000 shares. The aggregate par value of all of said
shares is $25,000.00, and the par value of each such share is $0.25.
Is hereby amended to read as follows:
ARTICLE VI
Authorized Capital Stock
The total authorized capital stock of the Corporation is 100,000,000 shares
of Common Stock, with a par value of $0.001 (1 mil). All stock when issued
shall be deemed fully paid and non-assessable. No cumulative voting, on any
matter to which Stockholders shall be entitled to vote, shall be allowed for any
purpose.
The authorized stock of this corporation may be issued at such time, upon
such terms and conditions and for such consideration as the Board of Directors
shall, from time to time, determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this Corporation.
THE FOLLOWING NEW ARTICLES ARE HEREBY ADOPTED
ARTICLE VII
Common Directors
As provide by Nevada Revised Statutes 78.140, without repeating the section
in full here, the same is adopted and no contract or other transaction between
this Corporation and any of its officers, agents or directors shall be deemed
void or voidable solely for that reason. The balance of the provisions of the
code section cited, as it now exists, allowing such transactions, is hereby
incorporated into this Article as though more fully set-forth, and such Article
shall be read and interpreted to provide the greatest latitude in its
application.
ARTICLE VIII
Liability of Directors and Officers
No Director, Officer or Agent, to include counsel, shall be personally
liable to the Corporation or its Stockholders for monetary damage for any breach
or alleged breach of
<PAGE>
fiduciary or professional duty by such person acting in such capacity. It
shall be presumed that in accepting the position as an Officer, Director,
Agent or Counsel, said individual relied upon and acted in reliance upon the
terms and protections provided for by this Article. Notwithstanding the
foregoing sentences, a person specifically covered by this Article, shall be
liable to the extent provided by applicable law, for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or for
the payment of dividends in violation of NRS 78.300
ARTICLE IX
Election Regarding NRS 78.378 - 78.3793 and 78.411-78.444
This Corporation shall NOT be governed by nor shall the provisions of NRS
78.378 through and including 78.3793 and NRS 78.411 through and including 78.444
in any way whatsoever affect the management, operation or be applied in this
Corporation. This Article may only be amended by a majority vote of not less
than 90% of the then issued and outstanding shares of the Corporation. A quorum
of outstanding shares for voting on an Amendment to these articles shall not be
met unless 95% or more of the issued and outstanding shares are present at a
properly called and noticed meeting of the Stockholders. The super-majority set
forth in these Articles only applies to any attempted amendment to these
Articles.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 96,307; that the said changes
and amendments have been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Ray H. Albrechtsen
President
/s/ Margaret Bullick
Secretary/Treasurer
State of Utah
County of Salt Lake
On September 2, 1997, personally appeared before me, a Notary Public, Ray H.
Albrechtsen and Margaret Bullick who acknowledged that they executed the above
instrument.
/s/ Denise M. Williams
Notary Public
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
SUN SOURCE, INC.
The Undersigned, constituting the President and Secretary of Sun Source,
Inc., hereby certify that pursuant to the provisions of NRS 78.385 the following
action was taken:
<PAGE>
1. That the Board of Directors of said corporation by unanimous consent
dated November 3, 1998, adopted a resolution to amend Article I of the Articles
of Incorporation to read as follows: "The name of the Corporation shall be:
PayStar Communications Corporation."
2. The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation was 1,540,600; that the
said change(s) and amendment has been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Dated this 4th day of November 1998.
/s/ William Yotty, President
Attest:
/s/ Jim Chambas, Secretary
State of California )
) ss
County of San Joaquin )
On the 5th day of November 1998, personally appeared before me, a Notary
Public, William Yotty, who executed the foregoing Certificate of Amendment to
the Articles of Incorporation of Sun Source, Inc.
/s/ Viola Prickett
Notary Public
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
PAYSTAR COMMUNICATIONS CORPORATION
The Undersigned, constituting the President and Secretary of PayStar
Communications Corporation (the "Company"), hereby certify that pursuant to the
provisions of NRS 78.385 the following action was taken:
1. That the Board of Directors of the Company by unanimous consent dated
December 21, 1999, adopted a resolution to amend Article VI of the Articles of
Incorporation to read as follows:
Section 1. The stock of the corporation is divided into two classes,
namely: common stock in the amount of one hundred million (100,000,000)
shares of the par value of $.001 each and preferred stock in the amount of
ten million (10,000,000) shares of the par value of $.001 each. The board
of directors shall have authority, by resolution or resolutions, to
<PAGE>
divide the preferred stock into series, to establish and fix the
distinguishing designation of each such series and the number of shares
thereof (which number, by like action of the board of directors from time
to time thereafter, may be increased except when otherwise provided by the
board of directors in creating such series, or may be decreased but not
below the number of shares thereof then outstanding) and, within the
limitations of applicable law of the State of Nevada or as otherwise set
forth in this article, to fix and determine the relative rights and
preferences of the shares of each series so established prior to the
issuance thereof.
Section 2. All stock when issued shall be deemed fully paid and
non-assessable. No cumulative voting, on any matter to which Stockholders
shall be entitled to vote, shall be allowed for any purpose.
Section 3. The authorized stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the
Board of Directors shall, from time to time, determine. Shareholders shall
not have pre-emptive rights to acquire unissued shares of the stock of this
Corporation.
2. The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation was 6,521,000; that the
said change(s) and amendment has been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
3. That the Board of Directors of said corporation by unanimous
consent dated December 21, 1999, adopted a series of preferred stock, the
distinguishing designation of which new series is "Series 'A' Convertible
$2.00 Preferred Stock" (the "Preferred Stock") consisting of 5,500,000 of the
authorized preferred shares. Such series shall be established upon the terms
set forth below:
a. Face Value of Shares. The face value of the Preferred Stock is $2.00
per share.
b. Accrual and Cumulation of Preferred Dividends. The holders of the
Preferred Stock are entitled to receive, when and as declared by the board
of directors, yearly dividends from funds legally available therefor at the
rates set forth below, payable quarterly on the first days of January,
April, July, and October, with proper adjustment for any dividend period
which is less than a full quarter. The rates of such dividends shall be
eleven percent (11%) per annum through and including December 31, 2002; ten
and one-half percent (10 1/2%) per annum from and including January 1,
2003, through and including December 31, 2003; and ten percent (10%) per
annum thereafter. Such dividends are payable before any dividends are paid
upon, or set apart for, the common shares, or any other preferred shares,
of the Company and are cumulative, so that if in any quarterly dividend
period, dividends at the foregoing rates shall not have been paid upon or
set apart for the Preferred Stock, the deficiency (but without interest)
shall be fully paid or set apart for payment, before any dividends shall be
paid upon, or set apart for, the common shares or any other preferred
shares. The dividends on the Preferred Stock are
<PAGE>
cumulative from the date of issuance of a certificate for such Preferred
Stock. The holders of the Preferred Stock are not, as such, entitled to
receive any other or further dividends of any kind whatsoever.
c. Record and Payment Dates. The record date for determining
shareholders entitled to receive quarterly dividends on the Preferred Stock
shall be the last business day of the quarter. Quarterly dividend payments
hereunder shall be made by the Company within thirty (30) days following
the end of such quarter.
d. Conversion. Shares of the Preferred Stock may be converted into
common stock of the Company at rates and times and subject to terms and
conditions as follows:
i. Schedule of Conversion Rates for Optional Conversion. Any holder
of the Preferred Stock may, from time to time at his option, convert
any or all of such shares held by him into fully paid and
nonassessable shares of common stock at any time from issuance through
and including December 31, 2002, at the rate of one (1) share of
common stock for each two (2) shares of Preferred Stock surrendered
for conversion; from and including January 1, 2003, through and
including December 31, 2003, at the rate of one (1) share of common
stock for each three (3) shares of Preferred Stock surrendered for
conversion; and thereafter at the rate of one (1) share of common
stock for each four (4) shares of Preferred Stock surrendered for
conversion. For purposes of this paragraph the conversion date shall
be the date the notice of conversion is actually received by the
Company. Any such conversion may be effected by holders of the
Preferred Stock by giving written notice of election to convert shares
of said stock, the number of shares and the certificate numbers, and
presenting said shares to the Company, accompanied by the deposit and
surrender of the certificates for such stock duly endorsed in blank
for transfer. In the event that any of the Preferred Stock shall be
called for redemption, the right of conversion shall expire at the
close of business on the redemption date.
ii. Company Conversion Option. The Company may, from time to time at
its option, on not less than thirty (30) days prior written notice,
require conversion of any or all of the outstanding shares of
Preferred Stock into fully paid and nonassessable shares of common
stock of the Company at any time through and including December 31,
2002, at the rate of one (1) share of common stock for each two (2)
shares of Preferred Stock, provided that the closing price of the
common stock issuable upon such conversion shall equal or exceed $6.00
per share for twenty (20) trading days within any period of thirty
(30) consecutive trading days ending within ten (10) calendar days
preceding the written notice; from and including January 1, 2003,
through and including December 31, 2003, at the rate of one (1) share
of common stock for each three (3) shares of Preferred Stock, provided
that the closing price of the common stock issuable upon such
conversion shall equal or exceed $8.00 per share for twenty (20)
trading days within any period of thirty (30) consecutive trading days
ending within ten (10)
<PAGE>
calendar days preceding the written notice; and thereafter at the
rate of one (1) share of common stock for each four (4) shares of
Preferred Stock, provided that the closing price of the common stock
issuable upon such conversion shall equal or exceed $10.00 per share
for twenty (20) trading days within any period of thirty (30)
consecutive trading days ending within ten (10) calendar days
preceding the written notice.
iii. Adjustment of Conversion Value. The basic conversion rates, to
wit, the rates specified hereinabove in subsections (i) and (ii) of
this Section, shall be subject to adjustment from time to time in the
following manner:
(1) If the Company shall at any time subdivide its outstanding
shares of common stock by recapitalization, reclassification or
split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of common stock to its
stockholders, the number of shares of common stock into which the
Preferred Stock is convertible immediately prior to such
subdivision shall be proportionately increased in each instance,
and if the Company shall at any time combine the outstanding
shares of common stock by recapitalization, reclassification or
combination thereof, the number of shares of common stock into
which the Preferred Stock is convertible immediately prior to
such combination shall be proportionately decreased in each
instance.
(2) If the Company shall distribute to all of the holders of its
common stock any security (except as provided in the preceding
paragraph) or other assets (other than a distribution permissible
hereunder and made as a dividend payable out of earnings or out
of any earned surplus legally available for dividends under the
laws of the jurisdiction of incorporation of the Company), the
Board of Directors shall be required to make such equitable
adjustment in the conversion rate in effect immediately prior to
the record date of such distribution as may be necessary to
preserve to the Preferred Stock holder's rights substantially
proportionate to those enjoyed hereunder by such holder
immediately prior to the happening of such distribution. Any
such adjustment shall become effective as of the day following
the record date for such distribution.
(3) Whenever the number of shares of common stock issuable upon
conversion is required to be adjusted as provided herein, the
rate of conversion shall be adjusted to the nearest share in each
instance by multiplying such conversion rate immediately prior to
such adjustment by a fraction (x) the numerator of which shall be
the number of shares of common stock issuable upon the conversion
of the Preferred Stock immediately prior to such adjustment, and
(y) the denominator of which shall be the number of shares of
common stock so issuable upon conversion.
<PAGE>
(4) In case of any reclassification of the outstanding shares of
common stock, other that a change covered by paragraph (1) above
or which solely affects the par value of such shares of common
stock, or in the case of any merger or consolidation of the
Company with or into another corporation (other that a
consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or
capital reorganization of the outstanding shares of common
stock), or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company
is dissolved, the holder of this Preferred Stock shall have the
right thereafter to receive upon the conversion thereof, for the
same aggregate conversion rate hereunder immediately prior to
such event, the kind and amount of shares of stock or other
securities or property receivable upon such reclassification,
capital reorganization, merger or consolidation, or upon the
dissolution following any sale or other transfer, which a holder
of the number of shares of common stock of the Company would
obtain upon conversion of the Preferred Stock immediately prior
to such event; and if any classification also results in a change
in shares of common stock covered by paragraph (1) above, then
such adjustment shall be made pursuant to both paragraph (1)
above and this paragraph (4). The provisions of this paragraph
(4) shall similarly apply to successive reclassifications, or
capital reorganizations, mergers or consolidations, sales or
other transfers.
iv. Subscription Rights to Common Stock. In case the Company shall
at any time offer to the holders of its common stock any right to
subscribe for additional shares of any class of the Company, then the
Company shall give written notice thereof to the registered holder of
the Preferred Stock not less than thirty (30) days prior to the date
on which the books of the Company are closed or a record date fixed
for the determination of stockholders entitled to such subscription
rights. Such notice shall specify the date as to which the books
shall be closed or record date be fixed with respect to such offer or
subscription, and that the right of the holders of Preferred Stock to
participate in such offer or subscription shall terminate if their
Preferred Stock shall not be converted on or before the date of such
closing of the books or such record date.
v. No Fractional Shares. The Company shall not issue fractional
shares of its common stock in satisfaction of the conversion privilege
hereinbefore provided, but in lieu of fractional shares it shall
issued the cash value of such factional shares as set by the Board of
Directors.
vi. Canceled Stock. All certificates of Preferred Stock surrendered
for conversion by the holder, or converted by the Company, as
hereinbefore provided, shall be canceled and retired and no further
Preferred Stock shall be issued in lieu thereof.
<PAGE>
vii. Reserved Shares. An amount of authorized common stock sufficient
to provide for the conversion of Preferred Stock from time to time
outstanding as aforesaid shall at all times be reserved for the
purpose of effecting the conversion thereof.
e. Default. A default (hereinafter an "Event of Default") shall occur if
the Company shall fail to pay any quarterly dividend as set forth in
Section 2 above, whether or not such dividends are declared and whether or
not funds are legally available. The sole effect of the occurrence and
continuance of any Event of Default shall be the adjustment of voting
rights of the holders of the Preferred Stock as provided in Section (g)
below. An Event of Default shall be deemed to continue until such time as
the Company shall have declared, and paid, such aggregate amount as would
have been theretofore required to have been declared and paid on all past
quarterly dividend dates.
f. Redemption. Shares of the Preferred Stock are redeemable, in whole or
in part, by the Company at the following times and prices on not less than
thirty (30) days prior written notice: at any time from and including
January 1, 2001, through and including December 31, 2002, at the rate of
$2.20 per share of Preferred Stock; from and including January 1, 2003,
through and including December 31, 2003, at the rate of $2.00 per share of
Preferred Stock; and thereafter at the rate of $1.80 per share of Preferred
Stock. If the Company shall elect to redeem shares of the Preferred Stock,
notice of redemption shall be given to the holders of all outstanding
shares of Preferred Stock to whom the redemption shall apply by mailing by
first-class mail a notice of such redemption, not less than thirty (30) nor
more than sixty (60) days prior to the date fixed for redemption, to their
last addresses as they shall appear upon the registry books, but failure to
give such notice by mailing to the holder of any shares of Preferred Stock,
or any defect therein, shall not affect the legality or validity of the
proceedings for the redemption of any other shares of Preferred Stock. The
notice of redemption to each holder of Preferred Stock shall specify the
date fixed for redemption and the redemption price at which the shares of
Preferred Stock are to be redeemed, and shall state that payment of the
redemption price of the Preferred Stock will be made at the office of the
redemption agent appointed by the Company upon presentation and surrender
of such Preferred Stock, and shall also state that the right to convert the
Preferred Stock so redeemed will terminate as provided herein (stating the
date of such termination) and shall state the then current conversion
ratio. If the giving of notice of redemption shall have been completed as
above provided, and if funds sufficient for the redemption of the Preferred
Stock shall have been deposited with the redemption agent for such purpose,
the right to convert the Preferred Stock shall terminate at the close of
business on the business day proceeding the date fixed for redemption, and
the holder of each share of Preferred Stock shall thereafter be entitled
upon surrender of his Preferred Stock only to receive the redemption price
thereof, without interest. Upon the giving of proper notice of redemption
as set forth herein, and the deposit of sufficient funds for redemption,
the Preferred Stock shall be canceled and the holders of the Preferred
Stock shall have no further rights thereunder, except for the payment of
the redemption price therefor.
<PAGE>
g. Voting Rights. The holders of the Preferred Stock will have no right
to vote such shares, either at elections of directors or in any other
corporate proceedings or meetings, except as required by the statutes of
the State of Nevada or except as otherwise expressly herein provided,
unless an Event of Default as set forth in Section (e) above shall occur.
If an Event of Default shall occur, and so long as such Event of Default
shall continue, the holders of the Preferred Stock will be entitled to
notice of and to vote as a separate class at all meetings of shareholders
and, to the exclusion of the holders of the common stock, to elect a
majority only of the Board of Directors of the Company. The holders of the
common stock shall, during such period of default, have the right to vote
as a separate class at all meetings of the shareholders and to elect the
remaining directors. Vacancies in the Board of Directors shall be filled
only by the remaining directors nominated and elected by the class of
shares which nominated and elected the director whose office as such
director has so become vacant. During such default period each holder of
Preferred Stock shall be entitled to one (1) vote in person or by proxy for
each share of Preferred Stock held by such person. In the event that the
holders of the Preferred Stock shall become entitled to voting rights
because of an Event of Default, the president of the Company shall call a
special meeting of the shareholders to permit the holders of the Preferred
Stock to remove and elect a majority of the directors as set forth herein
to serve for the remainder of the terms of the persons so removed.
Whenever the right of the holders of the Preferred Stock to vote their
shares shall cease, the president of the Company shall call a special
meeting of the shareholders at which the holders of the common stock may
remove any or all members of the Board of Directors elected by the holders
of the Preferred Stock and to elect others in the places of the persons so
removed, to serve for the remainder of their respective terms.
h. Changes to Rights. While any shares of Preferred Stock are
outstanding, the Company, without first obtaining the consent, either
expressed in writing or by the affirmative vote at a meeting called for
that purpose, of the holders of a majority of shares of Preferred Stock
then outstanding, will not:
i. Consolidate or merge into or with any other entity in which the
Company is not the continuing corporation or which results in any
reclassification or capital reorganization of the outstanding shares
of common stock of the Company;
ii. Sell all or substantially all of its property or assets, or
permit any majority owned subsidiary to sell all or substantially all
of its property or assets;
iii. Amend or restate the articles of incorporation of the Company;
iv. Change or alter the rights, preferences or privileges of the
Preferred Stock; or
v. Permit any majority owned subsidiary to issue or sell (and,
unless such consent is given, will take steps to prevent any
subsidiary from issuing and selling) any shares of its stock except to
the Company itself or to another subsidiary.
<PAGE>
i. Liquidation Preference. In the event of any liquidation, dissolution,
or winding up of the affairs of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock are entitled, before any
distribution or payment shall be made to the holders of the common shares
or any other series of preferred shares, to be paid an amount equal to
$2.20 per share of Preferred Stock, plus all unpaid cumulative dividends
accrued to the date of liquidation. After payment to the holders of the
Preferred Stock of the amounts to which they are entitled as stated, the
balance, if any, shall be paid to the holders of shares subordinated to the
Preferred Stock according to their respective rights. In case the net
assets of the Company are insufficient to pay to holders of all outstanding
shares of Preferred Stock the full amount to which they are, respectively,
entitled, the entire net assets of the Company remaining will be
distributed ratably to the holders of all outstanding shares of the
Preferred Stock in proportion to the full amounts to which they are
respectively entitled. The consolidation or merger of the Company into or
with any other corporation or corporations pursuant to the applicable
statutes providing for consolidation or merger will not be deemed a
liquidation, dissolution, or winding up of the affairs of the Company
within the meaning of any of these provisions.
Dated this 21st day of December 1999.
/s/ Jeff McKay, President
Attest:
/s/ Jim Chambas, Secretary
<PAGE>
EXHIBIT 3.2
BY-LAWS
ARTICLE I - OFFICES
The principal office of the corporation in the State of Utah shall be
located at 1920 East 7130 South of Salt Lake City, County of Salt Lake. The
corporation may have such other offices, either within or without the State of
incorporation as the board of directors may designate or as the business of the
corporation may from time to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the 1st day of
July in each year, beginning with the year 1978 at the hour 2:00 o'clock P.M.,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the president or by
the directors, and shall be called by the president at the request of the
holders of not less than 45 per cent of all the outstanding shares of the
corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the
State unless otherwise prescribed by statute, as the place of meeting for any
annual meeting or for any special meeting called by the directors. A waiver
of notice signed by all stockholders entitled to vote at a meeting may
designate any place, either within or without the state unless otherwise
prescribed by statute, as the place for holding such meeting. If no
designation is made, or if a special meeting be otherwise called, the place
of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than 10 nor more than 45 days
before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at
<PAGE>
his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to make
a determination of stockholders for any other proper purpose, the directors
of the corporation may provide that the stock transfer books shall be closed
for a stated period but not to exceed, in any case, 5 days. If the stock
transfer books shall be closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books
shall be closed for at least 3 days immediately preceding such meeting. In
lieu of closing the stock transfer books, the directors may fix in advance a
date as the record date for any such determination of stockholders, such date
in any case to be not more than 5 days and, in case of a meeting of
stockholders, not less than 3 days prior to the date on which the particular
action requiring such determination of stockholders is to be taken. If the
stock transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting
of stockholders, or stockholders entitled to receive payment of a dividend,
the date on which notice of the meeting is mailed or the date on which the
resolution of the directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least 3 days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
5 days prior to such meeting, shall be kept on file at the principal office
of the corporation and shall be subject to inspection by any stockholder at
any time during usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder during the whole time of the meeting. The
original stock transfer book shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at
the meeting of stockholders.
7. QUORUM.
At any meeting of stockholders 80% of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number
of the outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without
further notice. 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 as originally notified. The
<PAGE>
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before
or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled
to vote held by such stockholders. Upon the demand of any stockholder, the
vote for directors and upon any question before the meeting shall be by
ballot. All elections for directors shall be decided by plurality vote; all
other questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its
board of directors. The directors shall in all cases act as a board, and
they may adopt such rules and regulations for the conduct of their meetings
and the management of the corporation, as they may deem proper, not
inconsistent with these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be one to nine (1-9).
Each director shall hold office until the next annual meeting of stockholders
and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other notice
than this by-law immediately after, and at the same place as, the annual
meeting of stockholders. The directors may provide, by resolution, the time
and place for the holding of additional regular meetings without other notice
than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any two directors. The person or persons authorized to call
special meetings of the directors may fix the place for holding any special
meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least 10 days previously
thereto by written notice delivered personally, or by telegram or mailed to
each director at his business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors, a majority shall constitute a quorum
for the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
<PAGE>
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the
removal of directors without cause may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled
by vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the
unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without
cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance
at each regular or special meeting of the board may be authorized. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in
the minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
<PAGE>
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
directors. Each such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a vice-president, a
secretary and a treasurer, each of whom shall be elected by the directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or, any other proper officer of
the corporation thereunto authorized by the directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts, or other
instruments which the directors have authorized to be executed, except in
cases where the signing and execution thereof shall be expressly delegated by
the directors or by these by-laws 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
<PAGE>
to the office of president and such other duties as may be prescribed by the
directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, the vice-president 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-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these by-laws
or as required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder,
have general charge of the stock transfer books of the corporation and in
general perform all duties incident to the office of secretary and such other
duties as from time to time may be assigned to him by the president or by the
directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with these by-laws and in general perform all of the duties
incident to the office of treasurer and such other duties as from time to
time may be assigned to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be general or
confined to specific instances.
<PAGE>
2. LOANS.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall
be signed by such officer or officers, agent or agents of the corporation and
in such manner as shall from time to time be determined by resolution of the
directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. Such certificates shall be
signed by the president and by the secretary or by such other officers
authorized by law and by the directors. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
stockholders, the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have
been surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued there for upon such terms and
indemnity to the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) 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, assignment or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, and cancel the old certificate; every such transfer shall
be entered on the transfer book of the corporation which shall be kept at its
principal office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound
to recognize any equitable or other
<PAGE>
claim to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, except as expressly
provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January
in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by a vote of the stockholders representing a majority of all the
shares issued and outstanding, at any annual stockholders' meeting or at any
special stockholders' meeting when the proposed amendment has been set out in
the notice of such meeting.
<PAGE>
EXHIBIT 4.1
[Front of Certificate]
Not valid unless countersigned by transfer agent
Incorporated Under the Laws of the State of Nevada
CUSIP NO. 70453V 10 6
PAYSTAR COMMUNICATIONS
CORPORATION.
Number Shares
Authorized common stock: 100,000,000 shares
Par Value: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of PAYSTAR COMMUNICATIONS CORPORATION Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
Dated:
/s/ Jim Chambas /s/ William Yotty
Secretary President
Paystar Communication Corporation
Corporate
Seal
Nevada
Interwest Transfer Co., Inc., P.O. Box 17136/Salt Lake City, Utah 84117
Countersigned & Registered
[Back of Certificate]
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations.
TEN COM as tenants in common UNI GIFT MIN ACT . . . . Custodian . . .
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act . . . . . . . . . . . . .
<PAGE>
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________________ hereby sell, assign and transfer
unto
Please insert social security or other
identifying number of assignee
------------------------------------------------------------------------
(Please print or typewrite name and address,
including zip code, of assignee)
------------------------------------------------------------------------
------------------------------------------------------------------------
______________________________________________________ Shares of the
capital stock represented by the within certificate, and do hereby irrevocably
constitute and appoint _________________ Attorney to transfer the said stock on
the books of the within named Corporation with full power of substitution in the
premises.
Dated
Notice: The signature of this assignment must correspond with the name as
written upon the face of the certificate in every particular
without alteration or enlargement or any change whatever
<PAGE>
EXHIBIT 4.2
Number ___ ____ Shares
PAYSTAR COMMUNICATIONS CORPORATION
(A Nevada Corporation)
Series "A" Convertible $2.00 Preferred Stock (Par Value $.001)
5,000,000 Shares Authorized
THIS CERTIFIES that ____________ is the owner of _________________ fully
paid and non-assessable shares of Series "A" Convertible $2.00 Preferred
Stock (hereinafter the "Preferred Stock") of PayStar Communications
Corporation, a Nevada corporation (the "Company") transferable only on the
books of the Company by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed. The shares of
Preferred Stock issued by the Company are subject to the following terms:
1. Face Value of Shares. The face value of the Preferred Stock is
$2.00 per share.
2. Accrual and Cumulation of Preferred Dividends. The holders of the
Preferred Stock are entitled to receive, when and as declared by the board of
directors, yearly dividends from funds legally available therefor at the
rates set forth below, payable quarterly on the first days of January, April,
July, and October, with proper adjustment for any dividend period which is
less than a full quarter. The rates of such dividends shall be eleven
percent (11%) per annum through and including December 31, 2002; ten and
one-half percent (10 1/2%) per annum from and including January 1, 2003,
through and including December 31, 2003; and ten percent (10%) per annum
thereafter. Such dividends are payable before any dividends are paid upon,
or set apart for, the common shares, or any other preferred shares, of the
Company and are cumulative, so that if in any quarterly dividend period,
dividends at the foregoing rates shall not have been paid upon or set apart
for the Preferred Stock, the deficiency (but without interest) shall be fully
paid or set apart for payment, before any dividends shall be paid upon, or
set apart for, the common shares or any other preferred shares. The
dividends on the Preferred Stock are cumulative from the date of issuance of
a certificate for such Preferred Stock. The holders of the Preferred Stock
are not, as such, entitled to receive any other or further dividends of any
kind whatsoever.
3. Record and Payment Dates. The record date for determining
shareholders entitled to receive quarterly dividends on the Preferred Stock
shall be the last business day of the quarter. Quarterly dividend payments
hereunder shall be made by the Company within thirty (30) days following the
end of such quarter.
4. Conversion. Shares of the Preferred Stock may be converted into
common stock of the Company at rates and times and subject to terms and
conditions as follows:
a. Schedule of Conversion Rates for Optional Conversion. Any
holder of the Preferred Stock may, from time to time at his option, convert
any or all of such shares held by him into fully paid and nonassessable
shares of common stock at any time from issuance through and
<PAGE>
including December 31, 2002, at the rate of one (1) share of common stock for
each two (2) shares of Preferred Stock surrendered for conversion; from and
including January 1, 2003, through and including December 31, 2003, at the
rate of one (1) share of common stock for each three (3) shares of Preferred
Stock surrendered for conversion; and thereafter at the rate of one (1) share
of common stock for each four (4) shares of Preferred Stock surrendered for
conversion. For purposes of this paragraph the conversion date shall be the
date the notice of conversion is actually received by the Company. Any such
conversion may be effected by holders of the Preferred Stock by giving
written notice of election to convert shares of said stock, the number of
shares and the certificate numbers, and presenting said shares to the
Company, accompanied by the deposit and surrender of the certificates for
such stock duly endorsed in blank for transfer. In the event that any of the
Preferred Stock shall be called for redemption, the right of conversion shall
expire at the close of business on the redemption date.
b. Company Conversion Option. The Company may, from time to time
at its option, on not less than thirty (30) days prior written notice,
require conversion of any or all of the outstanding shares of Preferred
Stock into fully paid and nonassessable shares of common stock of the Company
at any time through and including December 31, 2002, at the rate of one (1)
share of common stock for each two (2) shares of Preferred Stock, provided
that the closing price of the common stock issuable upon such conversion
shall equal or exceed $6.00 per share for twenty (20) trading days within any
period of thirty (30) consecutive trading days ending within ten (10)
calendar days preceding the written notice; from and including January 1,
2003, through and including December 31, 2003, at the rate of one (1) share
of common stock for each three (3) shares of Preferred Stock, provided that
the closing price of the common stock issuable upon such conversion shall
equal or exceed $8.00 per share for twenty (20) trading days within any
period of thirty (30) consecutive trading days ending within ten (10)
calendar days preceding the written notice; and thereafter at the rate of one
(1) share of common stock for each four (4) shares of Preferred Stock,
provided that the closing price of the common stock issuable upon such
conversion shall equal or exceed $10.00 per share for twenty (20) trading
days within any period of thirty (30) consecutive trading days ending within
ten (10) calendar days preceding the written notice.
c. Adjustment of Conversion Value. The basic conversion rates,
to wit, the rates specified hereinabove in subsections (a) and (b) of this
Section, shall be subject to adjustment from time to time in the following
manner:
i. If the Company shall at any time subdivide its outstanding
shares of common stock by recapitalization, reclassification or split-up
thereof, or if the Company shall declare a stock dividend or distribute
shares of common stock to its stockholders, the number of shares of common
stock into which the Preferred Stock is convertible immediately prior to
such subdivision shall be proportionately increased in each instance, and
if the Company shall at any time combine the outstanding shares of common
stock by recapitalization, reclassification or combination thereof, the
number of shares of common stock into which the Preferred Stock is
convertible immediately prior to such combination shall be proportionately
decreased in each instance.
<PAGE>
ii. If the Company shall distribute to all of the holders of its
common stock any security (except as provided in the preceding paragraph)
or other assets (other than a distribution permissible hereunder and made
as a dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of incorporation
of the Company), the Board of Directors shall be required to make such
equitable adjustment in the conversion rate in effect immediately prior to
the record date of such distribution as may be necessary to preserve to the
Preferred Stock holder's rights substantially proportionate to those
enjoyed hereunder by such holder immediately prior to the happening of such
distribution. Any such adjustment shall become effective as of the day
following the record date for such distribution.
iii. Whenever the number of shares of common stock issuable upon
conversion is required to be adjusted as provided herein, the rate of
conversion shall be adjusted to the nearest share in each instance by
multiplying such conversion rate immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of common
stock issuable upon the conversion of the Preferred Stock immediately prior
to such adjustment, and (y) the denominator of which shall be the number of
shares of common stock so issuable upon conversion.
iv. In case of any reclassification of the outstanding shares of
common stock, other that a change covered by paragraph (1) above or which
solely affects the par value of such shares of common stock, or in the case
of any merger or consolidation of the Company with or into another
corporation (other that a consolidation or merger in which the Company is
the continuing corporation and which does not result in any
reclassification or capital reorganization of the outstanding shares of
common stock), or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially
as an entirety in connection with which the Company is dissolved, the
holder of this Preferred Stock shall have the right thereafter to receive
upon the conversion thereof, for the same aggregate conversion rate
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or upon
the dissolution following any sale or other transfer, which a holder of the
number of shares of common stock of the Company would obtain upon
conversion of the Preferred Stock immediately prior to such event; and if
any classification also results in a change in shares of common stock
covered by paragraph (1) above, then such adjustment shall be made pursuant
to both paragraph (1) above and this paragraph (4). The provisions of this
paragraph (4) shall similarly apply to successive reclassifications, or
capital reorganizations, mergers or consolidations, sales or other
transfers.
d. Subscription Rights to Common Stock. In case the Company
shall at any time offer to the holders of its common stock any right to
subscribe for additional shares of any class of the Company, then the Company
shall give written notice thereof to the registered holder of the Preferred
Stock not less than thirty (30) days prior to the date on which the books of
the Company are closed or a record date fixed for the determination of
stockholders entitled to such subscription rights. Such notice shall specify
the date as to which the books shall be closed or
<PAGE>
record date be fixed with respect to such offer or subscription, and that the
right of the holders of Preferred Stock to participate in such offer or
subscription shall terminate if their Preferred Stock shall not be converted
on or before the date of such closing of the books or such record date.
e. No Fractional Shares. The Company shall not issue fractional
shares of its common stock in satisfaction of the conversion privilege
hereinbefore provided, but in lieu of fractional shares it shall issued the
cash value of such factional shares as set by the Board of Directors.
f. Canceled Stock. All certificates of Preferred Stock
surrendered for conversion by the holder, or converted by the Company, as
hereinbefore provided, shall be canceled and retired and no further Preferred
Stock shall be issued in lieu thereof.
g. Reserved Shares. An amount of authorized common stock
sufficient to provide for the conversion of Preferred Stock from time to time
outstanding as aforesaid shall at all times be reserved for the purpose of
effecting the conversion thereof.
4. Default. A default (hereinafter an "Event of Default") shall occur
if the Company shall fail to pay any quarterly dividend as set forth in
Section 2 above, whether or not such dividends are declared and whether or
not funds are legally available. The sole effect of the occurrence and
continuance of any Event of Default shall be the adjustment of voting rights
of the holders of the Preferred Stock as provided in Section 7 below. An
Event of Default shall be deemed to continue until such time as the Company
shall have declared, and paid, such aggregate amount as would have been
theretofore required to have been declared and paid on all past quarterly
dividend dates.
5. Redemption. Shares of the Preferred Stock are redeemable, in whole
or in part, by the Company at the following times and prices on not less than
thirty (30) days prior written notice: at any time from and including January
1, 2001, through and including December 31, 2002, at the rate of $2.20 per
share of Preferred Stock; from and including January 1, 2003, through and
including December 31, 2003, at the rate of $2.00 per share of Preferred
Stock; and thereafter at the rate of $1.80 per share of Preferred Stock. If
the Company shall elect to redeem shares of the Preferred Stock, notice of
redemption shall be given to the holders of all outstanding shares of
Preferred Stock to whom the redemption shall apply by mailing by first-class
mail a notice of such redemption, not less than thirty (30) nor more than
sixty (60) days prior to the date fixed for redemption, to their last
addresses as they shall appear upon the registry books, but failure to give
such notice by mailing to the holder of any shares of Preferred Stock, or any
defect therein, shall not affect the legality or validity of the proceedings
for the redemption of any other shares of Preferred Stock. The notice of
redemption to each holder of Preferred Stock shall specify the date fixed for
redemption and the redemption price at which the shares of Preferred Stock
are to be redeemed, and shall state that payment of the redemption price of
the Preferred Stock will be made at the office of the redemption agent
appointed by the Company upon presentation and surrender of such Preferred
Stock, and shall also state that the right to convert the Preferred Stock so
redeemed will terminate as provided herein (stating the date of such
termination) and shall state the then current conversion ratio. If the
giving of notice of
<PAGE>
redemption shall have been completed as above provided, and if funds
sufficient for the redemption of the Preferred Stock shall have been
deposited with the redemption agent for such purpose, the right to convert
the Preferred Stock shall terminate at the close of business on the business
day proceeding the date fixed for redemption, and the holder of each share of
Preferred Stock shall thereafter be entitled upon surrender of his Preferred
Stock only to receive the redemption price thereof, without interest. Upon
the giving of proper notice of redemption as set forth herein, and the
deposit of sufficient funds for redemption, the Preferred Stock shall be
canceled and the holders of the Preferred Stock shall have no further rights
thereunder, except for the payment of the redemption price therefor.
6. Voting Rights. The holders of the Preferred Stock will have no
right to vote such shares, either at elections of directors or in any other
corporate proceedings or meetings, except as required by the statutes of the
State of Nevada or except as otherwise expressly herein provided, unless an
Event of Default as set forth in Section 5 above shall occur. If an Event of
Default shall occur, and so long as such Event of Default shall continue, the
holders of the Preferred Stock will be entitled to notice of and to vote as a
separate class at all meetings of shareholders and, to the exclusion of the
holders of the common stock, to elect a majority only of the Board of
Directors of the Company. The holders of the common stock shall, during such
period of default, have the right to vote as a separate class at all meetings
of the shareholders and to elect the remaining directors. Vacancies in the
Board of Directors shall be filled only by the remaining directors nominated
and elected by the class of shares which nominated and elected the director
whose office as such director has so become vacant. During such default
period each holder of Preferred Stock shall be entitled to one (1) vote in
person or by proxy for each share of Preferred Stock held by such person. In
the event that the holders of the Preferred Stock shall become entitled to
voting rights because of an Event of Default, the president of the Company
shall call a special meeting of the shareholders to permit the holders of the
Preferred Stock to remove and elect a majority of the directors as set forth
herein to serve for the remainder of the terms of the persons so removed.
Whenever the right of the holders of the Preferred Stock to vote their shares
shall cease, the president of the Company shall call a special meeting of the
shareholders at which the holders of the common stock may remove any or all
members of the Board of Directors elected by the holders of the Preferred
Stock and to elect others in the places of the persons so removed, to serve
for the remainder of their respective terms.
7. Changes to Rights. While any shares of Preferred Stock are
outstanding, the Company, without first obtaining the consent, either
expressed in writing or by the affirmative vote at a meeting called for that
purpose, of the holders of a majority of shares of Preferred Stock then
outstanding, will not:
a. Consolidate or merge into or with any other entity in which
the Company is not the continuing corporation or which results in any
reclassification or capital reorganization of the outstanding shares of
common stock of the Company;
b. Sell all or substantially all of its property or assets, or
permit any majority owned subsidiary to sell all or substantially all of its
property or assets;
<PAGE>
c. Amend or restate the articles of incorporation of the Company;
d. Change or alter the rights, preferences or privileges of the
Preferred Stock; or
e. Permit any majority owned subsidiary to issue or sell (and,
unless such consent is given, will take steps to prevent any subsidiary from
issuing and selling) any shares of its stock except to the Company itself or
to another subsidiary.
8. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the affairs of the Company, whether voluntary
or involuntary, the holders of the Preferred Stock are entitled, before any
distribution or payment shall be made to the holders of the common shares or
any other series of preferred shares, to be paid an amount equal to $2.20 per
share of Preferred Stock, plus all unpaid cumulative dividends accrued to the
date of liquidation. After payment to the holders of the Preferred Stock of
the amounts to which they are entitled as stated, the balance, if any, shall
be paid to the holders of shares subordinated to the Preferred Stock
according to their respective rights. In case the net assets of the Company
are insufficient to pay to holders of all outstanding shares of Preferred
Stock the full amount to which they are, respectively, entitled, the entire
net assets of the Company remaining will be distributed ratably to the
holders of all outstanding shares of the Preferred Stock in proportion to the
full amounts to which they are respectively entitled. The consolidation or
merger of the Company into or with any other corporation or corporations
pursuant to the applicable statutes providing for consolidation or merger
will not be deemed a liquidation, dissolution, or winding up of the affairs
of the Company within the meaning of any of these provisions.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
signed by its duly authorized officers this ______ day of _____________ 2000.
- ------------------------------ --------------------------------------------
Secretary President
For value received, the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________________
Shares represented by the within Certificate, and hereby irrevocably
constitutes and appoints ___________________________________ Attorney to
transfer the said shares on the books of the Company with full power of
substitution in the premises.
Dated__________________ 199____
----------------------------------------
<PAGE>
EXHIBIT 5.1
RONALD N. VANCE, P.C.
Attorney at Law
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
September 16, 1999
William D. Yotty, President
PayStar Communications Corporation
1110 West Kettleman Lane, Suite 48
Lodi, CA 95240
Re: Registration Statement on Form SB-2
Dear Mr. Yotty:
You have requested my opinion as to whether or not the securities to be
issued by PayStar Communications Corporation (the "Company") in the
above-referenced registration statement will be legally issued and, when
issued, will be fully paid and non-assessable shares of the Company. In
connection with this engagement I have examined the form of the registration
statement to be filed by the Company; the Articles of Incorporation of the
Company; the By-laws of the Company currently in effect; and the minutes of
the Company relating to the registration statement and the issuance of the
shares of preferred stock by the Company.
Based upon the above-referenced examination, I am of the opinion that
pursuant to the corporate laws of the State of Nevada, the shares of
preferred stock to be issued by the Company and to be registered pursuant to
said registration statement will be legally issued and, when issued, will be
fully paid and non-assessable.
I hereby consent to being named in the registration statement as having
rendered the foregoing opinion and as having represented the Company in
connection with the registration statement.
Sincerely,
/s/ Ronald N. Vance
<PAGE>
EXHIBIT 10.1
SUN SOURCE, INC.
1998 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the Sun Source, Inc. ("Sun Source" or the "Company") 1998
Employee Stock Option Plan (hereinafter referred to as the "Plan") is,
through the opportunity for greater stock ownership, to provide officers,
consultants, directors and other key employees (all such persons hereinafter
referred to as "Key Persons") of Sun Source and its subsidiaries with an
additional annual incentive to continue and increase their efforts with
respect to Sun Source and to develop a personal and active interest in the
broader growth and greater financial success of Sun Source. The Plan may
grant such Key Persons "Incentive" and "Non-qualified" options for the
acquisition of common shares (the "Shares" or "Option Shares") of Sun Source.
Options granted under the Plan may be either options which are intended
to be incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision("Incentive Options") or options that do not qualify as incentive
stock options under the Code ("Non-qualified Options"). The Company may
provide for the exercise of options in installments or otherwise and for such
periods from the date of grant as it may in its discretion determine;
provided, however, that any incentive stock option granted under the Plan
shall be exercisable for a period of not more than ten years from the date of
grant.
In the event common shares of the Company are registered pursuant to the
Securities Act 1933, as amended (the "Act"), Shares under the Plan may be
unrestricted ("unrestricted shares"), alternatively, Shares under the Plan
maybe subject to restrictions imposed for common shares that have not been
registered under the Act, ("restricted shares"). Grants under the Plan may be
subject to such other terms and conditions, not inconsistent with the Plan,
as may be determined by Sun Source.
ARTICLE II
RESERVATION OF SHARES
a) The total number of Shares of the Company which may be issued in
any year under the Plan shall be two and a half percent (2.5%) of the issued
and outstanding common stock of the Company at the end of the Company's prior
fiscal year. The Shares to be optioned under the Plan may be unissued shares
or treasury shares. Shares subject to an option which remain unpurchased at
the expiration, termination or cancellation of an option shall again be
available for use under the Plan.
b) No Shares shall be issued until all of the terms and conditions
pursuant to the option granting such Shares have been satisfied. A holder of
an option shall have none of the rights of a shareholder of the Company until
the Shares are issued to such person.
<PAGE>
ARTICLE III
ADMINISTRATION
a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee of directors of the Company (the
"Committee") which shall be appointed by the Board and which shall consist of
two or more disinterested directors. In the event two or more disinterested
directors are not available to be elected to the Committee, the Board shall
act in place of the Committee. Vacancies in the Committee shall be filled by
the Board.
b) The Board or, to the extent authorized by the Board, the Committee
shall, to the extent not inconsistent with the Plan, have the power to select
Key Persons to whom options shall be granted; determine the number of
restricted or unrestricted Shares to be granted; determine the other terms
and conditions, if any, to which any grant of Shares or options shall be
subject and to amend, modify or waive any terms or conditions of any such
grant (provided, however, that no such amendment or modification shall impair
any outstanding right of any participant without the consent of such
participant, except to the extent permitted under the terms and conditions of
such grant as then in effect); and authorize any action of or make any
determination by the Company and prescribe such provisions and
interpretations in connection with the Plan as the Board or the Committee
shall deem necessary or advisable for carrying out the purposes of the Plan.
Each member of the Board or Committee, and, to the extent provided by the
Board or the Committee, any other person to whom duties or powers shall be
delegated in connection with the Plan, shall incur no liability with respect
to any action taken or omitted to be taken in connection with the Plan and
shall be fully protected in relying in good faith upon the advice of counsel,
to the fullest extent permitted under applicable law.
ARTICLE IV
ELIGIBILITY
An option may be granted to any officer or other Key Person, provided
that any person to whom an option is granted shall be a Key Person to the
Company at the time an option is granted. An Incentive Stock Option shall be
granted only to an employee of the Company.
ARTICLE V
PRICE
a) The option exercise price per Share with respect to each option
shall be based on the fair market value of such stock on the date an option
to purchase the same is granted. In making such determination, the Board or
Committee may rely on market quotations, if available, and upon independent
appraisals of the stock or such other information deemed appropriate by the
Board or Committee.
b) Any Incentive Option granted under the Plan must provide for an
exercise price of not less than 100% of the fair market value of the
underlying shares on the date of such grant; provided, however, that the
exercise price of any Incentive Option granted to an eligible employee owning
more than 10% of the outstanding Common Stock of the Company must not be less
than 110% of such fair market value as determined on the date of the grant.
<PAGE>
ARTICLE VI
CHANGES IN PRESENT STOCK
In the event the common shares of the Company are changed into a different
number of securities by reason of stock dividends, split-ups, recapitalizations,
mergers, consolidations, combinations or exchanges of shares and the like, the
optionee of any option granted under the Plan shall receive, upon exercise of
his option, the new number of securities recorded by the Company on account of
any such change.
ARTICLE VII
EXERCISE OF OPTIONS
An optionee shall exercise an option by delivery of a signed, written
notice to the Company, specifying the number of Shares to be acquired, the date
the acquisition is to be consummated, together with payment of the full purchase
price for the Shares. The Company may accept payment from a broker on behalf of
the optionee and may, upon receipt of signed, written instructions from the
optionee, deliver the Shares directly to the broker. The date of receipt by the
Company of the final item required under this paragraph shall be the date of
exercise of the option.
ARTICLE VIII
OPTION PROVISIONS
Each option granted under the Plan shall be in such form as the Board or
Committee may from time to time approve. All options under the Plan are
intended to be granted as "incentive" or "non-qualified" stock options. All
options granted under the Plan shall be subject to the following terms and
conditions unless otherwise varied by the Board or Committee:
a) DOLLAR LIMITATIONS. Each Incentive Option grant shall constitute a
"qualified" stock option eligible for favorable tax treatment under Section
422 of the Code, provided that no more than $100,000 of such options (based
upon the fair market value of the underlying shares as of the date of grant)
can first become exercisable for any employee in any calendar year. To the
extent any option grant exceeds the $100,000 limitation, it shall constitute
a non-qualified stock option. Each stock option agreement shall specify as to
whether it is an incentive and/or a non-qualified stock option. For purposes
of this paragraph, options granted under all plans of the Company and
affiliated companies which are qualified under Section 422 of the Internal
Revenue Code shall be included.
b) PAYMENT. The full purchase price of the Shares acquired upon the
exercise of any option shall be paid in cash, by certified or cashier's
check, by common stock of the Company, or by cancellation of indebtedness of
the Company.
c) EXERCISE PERIOD. The period for exercising an option shall commence
not earlier than one (1) week from the date of grant and shall end no more
than ten years from the date of grant, provided however, an Incentive Option
granted to an eligible employee owning more than 10% of the Common Stock,
shall end no more than five years after the date of the grant. Outstanding
options shall become immediately exercisable in full in the event that the
Company is acquired by merger,
<PAGE>
purchase of all or substantially all of the Company's assets, or purchase of
a majority of the outstanding stock by a single party or group acting in
concert.
d) RIGHTS OF OPTIONEE BEFORE EXERCISE. The holder of an option shall
not have the right of a stockholder with respect to the Shares covered by his
or her option until such Shares have been issued to him or her upon exercise
of an option.
e) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing herein shall be construed
to confer upon any optionee any right to continue in the employ of the
Company or to interfere in any way with the right of the Company as an
employer to terminate his or her employment at any time, nor to derogate from
the terms of any written employment agreement between the Company and the
optionee.
f) NON-TRANSFERABILITY OF OPTION No option shall be transferable by
the optionee otherwise than by will or by the laws of decent and
distribution, and each option shall be exercisable during the optionee's
lifetime only by the optionee.
g) DATE OF GRANT. The date on which the Board or Committee approves
the granting of an option shall be considered the date on which such option
is granted.
ARTICLE IX
RESTRICTIONS ON TRANSFER
During any period in which the offering of the Shares under the Plan is not
registered under federal and state securities laws, the optionee shall agree in
the Stock Option Agreements that they are acquiring the Shares under the Plan
for investment purposes, and not for resale, and that the Shares cannot be
resold or otherwise transferred except pursuant to registration or unless, in
the opinion of counsel for the Company, registration is not required.
Any restrictions upon Shares acquired upon exercise of an option pursuant
to the Plan and the Stock Option Agreement shall be binding upon the optionee
and his or her heirs, executors, and administrators. Any stock certificate
issued under the Plan which is subject to restrictions shall be endorsed so as
to refer to the restrictions on transfer imposed by the Plan and by applicable
securities laws.
ARTICLE X
RELATIONSHIP TO OTHER PLANS
Nothing in this Plan shall prevent the Company or any subsidiary from
adopting or continuing other or additional compensation arrangements,
including without limitation plans providing for the granting of
restricted or unrestricted stock options and cash or common stock performance
bonuses. Grants under the Plan may form a part of or otherwise be related to
such other or additional compensation arrangements.
<PAGE>
ARTICLE XI
AMENDMENT AND DISCONTINUANCE
The Board shall have the right at any time and from time to time to
amend, modify, or discontinue the Plan, except that (a) no such amendment,
modification, or discontinuance shall revoke or alter the terms of any valid
option previously granted in accordance with the Plan, without the consent of
the holder of the option, and (b) no action of the Board may, without
approval by the affirmative vote of a majority of the vote of the
stockholders cast at a meeting at which a quorum is present, (i) increase the
maximum number of shares subject to the Plan, or (ii) materially increase the
benefits accruing to participants under the Plan or materially modify the
requirements for eligibility under the Plan.
ARTICLE XII
GOVERNMENT REGULATION
The Plan and the grant of options thereunder shall be subject to all
applicable governmental rules and regulations; and, any other provisions of this
Plan to the contrary notwithstanding, the Board may in its discretion and
without any shareholder action, make such changes in the Plan as may be
required, in its opinion, to conform the Plan to such rules and regulations.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
The Plan shall become effective on such date as the Board shall determine,
but subject to the approval by the affirmative vote of the holders of a majority
of the shares of the Company. The Plan will terminate ten years from its
effective date unless sooner terminated by the Board.
CERTIFICATE OF ADOPTION
The undersigned, duly elected and acting Secretary of Sun Source, Inc.,
hereby certifies that the Board of Directors and a majority of the shareholders
of the Company adopted the foregoing Plan on November 3, 1998.
/s/ James H. Chambas, Secretary
<PAGE>
EXHIBIT 10.2
FORM OF
SUN SOURCE, INC.
STOCK OPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, Sun Source, Inc., a Nevada
corporation, hereby irrevocably grants to the Key Person named below a stock
option (the "Option") to purchase any part or all of the specified number of
shares of its Common Stock upon the terms and subject to the conditions set
forth in the Sun Source, Inc. 1998 Employee Stock Option Plan at the
specified purchase price per share without commission or other charge.
Social Security Number: ________________________
Number of Shares covered by Option __________ (___________)
(the "Option Shares"):
Purchase Price Per Option Share: __________ ($__________)
__________ ($__________)
[ ] Incentive Option [ ] Non-qualified Option
Minimum Number of Option Shares Per Partial
Exercise (unless Optionee exercises all of the
Option then exercisable): One hundred (100)
The period for exercising this option shall commence on __________________
and end on ___________________. (Commence not earlier than one (1) week from
the date of grant and shall end no more than ten years from the date of
grant, provided however, an Incentive Option granted to an eligible employee
owning more than 10% of the Common Stock, shall end no more than five years
after the date of the grant. Outstanding options shall become immediately
exercisable in full in the event that the Company is acquired by merger,
purchase of all or substantially all of the Company's assets, or purchase of
a majority of the outstanding stock by a single party or group acting in
concert.)
Date of this Agreement: __________________
SUN SOURCE, INC.
By:
----------------------------- ------------------------------------
Key Person's Signature
Its
------------------------
Residence Address:
------------------------------------
------------------------------------
<PAGE>
SCHEDULE OF GRANTEES
1. Harry T. Martin
Number of options granted: 25,000
Purchase price per share: $1.00
Type of option: Non-qualified
Vesting date: Quarterly beginning October 15, 1999
Expiration date: October 15, 2002
2. Jay Whitmore
Number of options granted: 40,000
Purchase price per share: $1.00
Type of option: Non-qualified
Vesting date: Quarterly beginning October 1, 1999
Expiration date: October 1, 2002
3. Jerry Genschorek
Number of options granted: 100,000
Purchase price per share: 50,000 at $1.00
50,000 at $2.00
Type of option: Non-qualified
Vesting date: October 1, 1999 for 50,000
October 1, 2000 for 50,000
Expiration date: October 1, 2002
<PAGE>
EXHIBIT 10.4
PAY TELEPHONE SERVICES AGREEMENT
THIS AGREEMENT, made this 1st day of May, 1999, by and between QUANTUM
NETWORK SERVICES, INC., a California Corporation, (hereafter referred to as
"QUANTUM"), located at 1110 W. Kettleman Lane, Suite 48, Lodi, California 95240,
and PAYSTAR COMMUNICATIONS, INC., a Nevada Corporation, (hereafter referred to
as "PAYSTAR"), located at 1110 W. Kettleman Lane, Suite 46, Lodi, California
95240, all of whom shall constitute the "Parties" of this Agreement.
WITNESSETH:
WHEREAS, PAYSTAR services and operates private pay telephone(s)
(collectively, the "Telephone(s)") for various owners and at various
locations; and
WHEREAS, QUANTUM desires to utilize the services of PAYSTAR in
connection with the operation of Telephone(s) and PAYSTAR desires to render
such services, upon the terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the foregoing recitals, all of which
are incorporated herein by reference, and of the mutual covenants contained
herein, QUANTUM and PAYSTAR agree as follows:
SECTION I
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
respective meanings indicated below:
(a) Capital Improvements: any alteration or addition to, or
rebuilding or renovation of the Telephone(s), the cost of which is not
charged to repairs, maintenance or other operating expenses.
(b) Gross Revenues: all receipts of a Telephone from all sources,
except proceeds from the sale of assets (Telephones).
(c) Legal Requirements: all laws, statutes, ordinances, orders,
rules, regulations, permits, licenses, authorizations, directions and
requirements of all governments and governmental authorities, which now or
hereafter, may be applicable to the Telephone(s), or any Telephone(s) and the
operation thereof.
(d) Operating Vendors: Vendors of all services required in the
operation of the Telephone(s), including all lessors, local and long distance
carriers, operator service providers and other carriers.
<PAGE>
(e) Net Revenues: Gross Revenues, less the payment of all vendor
invoices relating to telephone usage, including, but not limited to, all fees
and taxes due and owing to local and long distance telephone carriers, site
owners, and operator service providers, the cost of ordinary and necessary
new or serviceable parts not covered by the manufacturer's warranty required
to repair the Telephone(s), and the cost of all ordinary and necessary
service calls to repair the Telephone(s) at a rate of twenty dollars ($20.00)
each occurrence.
(f) Sites: The physical location which each Telephone is or will
be installed.
SECTION II
TERM
2.1 Term. The term of this Agreement shall be one (1) year, commencing on
the date hereof and ending at midnight on the first (1st) anniversary of the
date hereof. Unless terminated by a ninety (90) day written notice, via
Certified Mail, this Agreement shall automatically renew on the same terms and
conditions for successive terms.
2.2 Termination. Anything contained in this Agreement to the contrary
notwithstanding QUANTUM, at its sole discretion, shall have the right to
terminate this Agreement, without default by PAYSTAR, as hereinafter defined in
Section 8.2, after one hundred twenty (120) days written notice of termination
to PAYSTAR, at which time this Agreement shall be defined null and void.
2.3 Acquisition. QUANTUM will be solely responsible for the acquisition
of each of the Telephone(s), including the purchase of Capital Improvements
required for the Telephone(s), and the acquisition or lease of the Sites.
SECTION III
OPERATION OF THE TELEPHONES
3.1 PAYSTAR's Duties and Responsibilities. During the Operating
Period, PAYSTAR, on behalf and at the sole expense of QUANTUM, is hereby
authorized to and shall perform the services indicated in Exhibit B, and with
respect to the services described in Sections L1-L3, as expressly authorized
by QUANTUM.
3.2 Standard of Services. PAYSTAR agrees that its services hereunder
shall be performed by competent personnel. All obligations of PAYSTAR
hereunder shall be subject to and contingent upon (a) the provision by
QUANTUM of sufficient funds (if not otherwise available from the operations
of the Telephone(s)) to permit PAYSTAR to comply with, and (b) the commission
by Quantum of no act which prevents PAYSTAR from complying with such
obligations. At the request of either, PAYSTAR and QUANTUM shall meet to
discuss any aspect of the operation of the Telephone(s) or any operating
problem which warrants a modification of any operating policy or
<PAGE>
procedure. QUANTUM acknowledges and agrees that PAYSTAR is not a guarantor
of the financial success of the Telephone(s).
3.3 Funding. From time to time throughout the term hereof as and when
requested by PAYSTAR upon at least fifteen (15) days prior written notice,
QUANTUM shall provide working capital by way of cash or through bank credit,
such working capital to be in amounts sufficient to constitute normal working
capital for PAYSTAR to perform the services described in Sections L1-L3 of
Exhibit "B", to the extent such services are authorized by QUANTUM. PAYSTAR
shall in no event be required to advance any of its own funds for the
operation of the Telephone(s).
SECTION IV
REMUNERATION AND REIMBURSEMENT OF PAYSTAR
4.1 Monthly Fee. During the Operating Period, QUANTUM shall pay to
PAYSTAR with respect to each Telephone(s) a thirty-two dollar ($32.00) monthly
fee as set forth in Exhibit "B" attached hereto.
4.2 Payment of Telephone Revenue and Monthly Fees. Unless otherwise
requested by QUANTUM, all Telephone revenues shall be collected and paid weekly.
SECTION V
PAYSTAR TO ACT SOLELY AS AGENT FOR QUANTUM
5.1 In the performance of its duties hereunder, PAYSTAR shall act
solely as agent of QUANTUM. Nothing herein shall constitute or be construed
to be or create a partnership or joint venture between QUANTUM and PAYSTAR,
nor shall the execution and delivery of this Agreement by PAYSTAR constitute
the offer or sale to QUANTUM of an investment contract or other security. As
to debts and liabilities of QUANTUM, PAYSTAR shall not be liable for any such
debts or liabilities by reason of its maintenance, supervisions, direction or
operation of the Telephone(s) for QUANTUM. PAYSTAR may so inform third
parties with whom it deals on behalf of QUANTUM and may take any other
reasonable steps to carry out the intent of this Section. QUANTUM further
agrees to indemnify, defend and hold PAYSTAR and its officers, employees,
shareholders, and affiliates, harmless from any and all liabilities, debts,
claims or expenses (including reasonable attorney's fees and other expenses
in connection with the defense of same) of Telephone(s) incurred in
accordance herewith.
SECTION VI
INSURANCE AND LOSSES
6.1 QUANTUM acknowledges and agrees that it shall be solely responsible
for obtaining and keeping in force with respect to the Telephone(s), in
amounts determined by QUANTUM (a) fire and extended coverage and business
interruption insurance; (b) liability and excess liability insurance
<PAGE>
for loss, damage or injury to property or persons which might arise out of
the operation of the Telephone(s); (c) any worker's compensation and employer
liability coverage as required by statute; and (d) any other coverage desired
by QUANTUM.
SECTION VII
INDEMNIFICATION
7.1 QUANTUM and PAYSTAR agree to protect, indemnify and hold each other
harmless from and against any and all losses, costs, expenses, claims,
demands, judgments, orders, decrees, damages or liabilities (including
without limitation, costs of litigation and reasonable attorneys' fees)
arising out of any tortuous conduct on the part of the indemnifying party or
related in any way to the failure or refusal of the indemnifying party to
comply timely and fully with each of its obligations, promises and covenants
set forth herein.
SECTION VIII
DEFAULT
8.1 Default by QUANTUM. QUANTUM shall be in default hereunder if any
one or more of the following shall occur or exists; (a) QUANTUM shall fail to
provide funds, after request by PAYSTAR pursuant to Section 3.3, sufficient
to permit timely payment of any amount due to PAYSTAR hereunder and such
failure shall continue for seven (7) days after written notice thereof has
been given to QUANTUM by PAYSTAR; or (b) QUANTUM shall neglect or fail to
perform any of its duties or obligations hereunder or shall neglect or fail
to comply with any of the provisions hereof (other than as referred to in
subsection (a) of this Section 8.1 and shall fail to remedy the same within
fourteen (14) days after PAYSTAR shall have given QUANTUM written notice
specifying such neglect or failure or if such failure cannot reasonably be
cured within said fourteen (14) days and QUANTUM shall not have commenced to
cure such failure within such period and shall not thereafter with reasonable
diligence and good faith cure such failure.
8.2 Default by PAYSTAR. PAYSTAR shall be in default hereunder if
PAYSTAR shall neglect or fail to perform any of its duties or obligations
hereunder or shall neglect or fail to comply with any of the provisions
hereof and shall fail to remedy the same within thirty (30) days after
QUANTUM shall have given PAYSTAR written notice specifying such neglect or
failure or if such failure cannot reasonably be cured within said thirty (30)
days and PAYSTAR shall not have commenced to cure such failure within such
period and shall not thereafter with reasonable diligence and good faith cure
such failure.
8.3 Remedies Upon Default. Upon the occurrence of any default under
Section 8.1 or Section 8.2, the non-defaulting party may, in addition to and
without prejudice to any other right or remedy available to it law or in
equity, terminate this Agreement by written notice of termination given to
the defaulting party.
<PAGE>
SECTION IX
ASSIGNMENT
9.1 Either PAYSTAR or QUANTUM may voluntarily, by operation of law or
otherwise, assign any of its rights or delegate any of its duties hereunder.
SECTION X
NOTICES
10.1 All notices, statements, consents, approvals, requests and demands
shall be in writing, duly executed by an authorized officer or agent, and shall
be delivered personally or sent by certified or registered Unites States mail,
postage prepaid, return receipt requested, addressed to QUANTUM as set forth in
the signature page of this Agreement and to PAYSTAR as follows:
If to PAYSTAR: WILLIAM D. YOTTY, President
PAYSTAR COMMUNICATIONS, INC.
1110 W. Kettleman Lane, #46
Lodi, California 95240
If to QUANTUM: CLIFFORD GOEHRING, Vice-President
QUANTUM NETWORK SERVICES, INC.
1110 W. Kettleman Lane, #48
Lodi, California 95240
Any notice, statement, consent, approval, request, demand or other
communication, if delivered personally, shall be deemed to be given upon
delivery to the entities specified above; and, if sent by mail, shall be
deemed to have e been given three (3) days after being deposited in the
United States mail, postage prepaid, properly addressed as provided above.
Either party may change either or both the address and person to which
notices thereafter shall be sent by giving notice to the other party in the
manner provided above.
SECTION XI
MISCELLANEOUS
11.1 Copies of Notices. QUANTUM and PAYSTAR shall each promptly furnish
the other with copies of all notices received concerning a Telephone(s), and
especially notices relating to any claimed failure to perform obligations
with respect to a Telephone(s), including, without limitation, notices from
governmental authorities and from third parties asserting rights to recover
damages for personal injury or property damage, breach of contract or any
other claim.
11.2 Headings. The headings to the articles and sections of this
Agreement are inserted for convenience of reference only and shall in no way
affect the interpretation of this Agreement.
<PAGE>
11.3 Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties concerning the subject matter hereof
and supersedes all prior and contemporaneous negotiations, correspondence,
memoranda and agreements, whether oral or written.
11.4 Amendment. Except as specifically provided otherwise herein, this
Agreement may be amended, modified, altered or waived, in whole or in part,
only by a written instrument signed by the party to be bound by such
amendment, modification, alteration or waiver.
11.5 Waivers. The waiver of any of the terms and conditions of this
Agreement on any occasion shall not be deemed a waiver of such terms and
conditions on any future occasion.
11.6 Severability. If any term or provision of this Agreement or the
application of that term or provision to any person or circumstance is
illegal, invalid or unenforceable to any extent, then the remainder of the
Agreement and the application of that term or provision to persons or
circumstances other than those as to which it is held illegal, invalid or
unenforceable, shall not be affected thereby. It is also the intention of
the parties to this Agreement that in lieu of each term or provision of this
Agreement that is illegal, invalid or unenforceable, there be added as a part
of this Agreement a term or provision as similar in terms to such illegal,
invalid or unenforceable term or provision as may be possible and be legal,
valid and enforceable.
11.7 Binding Effect. This Agreement shall bind and inure to the
benefit of QUANTUM and PAYSTAR and their respective successors and assigns.
11.8 Applicable Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California. If any
suit or action (including any appeal) is brought to enforce or interpret any
one or more of the terms and provisions of this Agreement, the prevailing
party shall be entitled to reasonable attorney fees and all costs of such
action from the other party.
11.9 Impossibility of Performance. Neither QUANTUM nor PAYSTAR shall be
liable for loss or damage or deemed to be in breach of this Agreement if its
failure to perform its obligations results from: (1) the unavailability of
suitable Operating Vendors; (2) compliance with Legal Requirements; (3) acts
of God; (4) acts of omissions of the other party; (5) fires, strikes,
embargoes, war, or riot; or (6) any other similar event or cause beyond the
control of the non-performing party. Any delay resulting from any of said
causes shall extend performance accordingly or excuse performance, in whole
or in part, as may be reasonable, but with respect only to the relevant
Telephone(s), except that said causes shall not excuse payments of amounts
owed at the time of such occurrence.
<PAGE>
IN WITNESS WHEREOF, QUANTUM has duly executed this Agreement as of this
1st, day of May, 1999.
QUANTUM NETWORK SERVICES, INC. PAYSTAR COMMUNICATIONS, INC.
CLIFFORD GOEHRING, Vice-President WILLIAM D. YOTTY, President
QUANTUM NETWORK SERVICES, INC. PAYSTAR COMMUNICATIONS, INC.
1110 W. Kettleman Ln, Suite 48 1110 W. Kettleman Ln, Suite 46
Lodi, California 95240 Lodi, California 95240
/s/ Clifford Goehring /s/ William D. Yotty
(Signature) (Signature)
- ---------------------------------- ----------------------------------
(Title) (Title)
- ---------------------------------- ----------------------------------
(Telephone) (Telephone)
- ---------------------------------- ----------------------------------
(SSN/FIEN NO.) (SSN/FIEN NO.)
- ---------------------------------- ----------------------------------
(Date) (Date)
<PAGE>
EXHIBIT B
PAY TELEPHONE SERVICES
Monthly Fees
During the term of this Agreement, QUANTUM shall pay to PAYSTAR with respect
to each Telephone(s) a monthly fee ("Monthly Fee*") based on the following
level of services provided by Company:
L1 - "Level One Services" Twenty dollars ($20.00) to collect monthly
revenue generated by the Telephone(s), and forward same to QUANTUM in
accordance with QUANTUM's written direction to PAYSTAR, less the Monthly
Fee.
INITIALS /s/ WY
L2 - "Level Two Services" Twenty-eight dollars ($28.00) combined with
services set forth in Section L1, at QUANTUM's expense, pay commissions and
fees to operating Vendors;
INITIALS /s/ WY
L3 - "Level Three Services" Thirty-two dollars ($32.00) combined with
services set forth in Sections L1 and L2 above, in consultation with
QUANTUM, provide for the repair of the Telephone(s) including parts and
labor and maintain the Telephone(s) in a neat and clean condition and in
compliance with all Legal Requirements, and with QUANTUM's prior written
approval, make Capital Improvements, as necessary.
INITIALS /s/ WY
*Such fees may be adjusted by PAYSTAR with ninety (90) days notice.
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
[DATE]
Modesto, CA
The undersigned, ____________________, a _________ corporation
("Maker"), promises to pay Intermountain Marketing Associates, LLC a Utah
limited liability company or holder ("Payee"), the principal sum of
_________________ and no/100 Dollars ($_______) with initial simple interest
at the rate of 13.35% per annum, on the outstanding principal balance only,
commencing on the date of closing and continuing on the first day of each
quarter during the term until fully paid. All principal and unpaid and
accrued interest is due and payable in nine (9) months from the date of the
issuance of this Secured Note (the "Maturity Dates").
1. Payment of Principal and Interest. All principal and unpaid
accrued interest on this Secured Note will be due and payable (i) on the
Maturity Date, or (ii) upon an event of default. In the event of default,
the Noteholder may declare the entire outstanding balance of the Secured Note
immediately due and payable, due to such event of default.
2. Right of Prepayment. This note may not be prepaid prior to
maturity unless authorized by the Securities Laws of the specific state. If
prepayment is requested, and made, the Payee shall forfeit all accrued and
unpaid interest.
3. Security. The Secured Note is secured in part by a perfected
security interest in revenues from various telecommunication and income
opportunities, and title documents of Equipment (the Collateral). The
security interest is perfected by possession of documents comprising the
Collateral by the Payee. In the event of default, the Payee may, among other
actions, perform, collect and enforce the terms and conditions of the
Contracts until the Secured Notes have been paid in full.
4. Event of Default Acceleration. Maker's failure to make any
payments, and/or give notice of its intention to extend the term and maturity
date of this Secured Note, within twenty-one (21) days after the due date for
such payment or notice shall result in a default. In the event of default,
the Noteholder shall have the right to declare the entire principal, and
accrued but unpaid interest on the Secured Note immediately due and payable.
5. Secured Note is Non Recourse. In the event of Maker's default,
Payee shall look to the Contracts and not to assets of the Maker or Trustee,
or any of the shareholders, officers, or directors of the Trustee or Maker.
6. Amendments. This Secured Note may not be amended without the prior
written consent of the Noteholder, provided that, no amendment reducing the
interest or principal, or extending the Maturity Date, may be made without
prior written consent of the Payee who is affected by the amendment.
<PAGE>
7. Costs of Collection. Payee shall be entitled to collect reasonable
attorney's fees and costs from the Maker, as well as other costs and expenses
reasonably incurred, in curing any default or attempting collection of any
payments due on this Secured Note.
8. Inspection Rights and Reports. The Payee, individually or through
his agent, shall have the right, upon reasonable notice and at his expense,
to review and inspect the books and records of the Maker at Maker's office
during reasonable business hours.
9. Payment. This Secured Note shall be payable in lawful money of the
Unites States.
10. Governing Law/Jurisdiction/Venue. This note has been made and is
to be performed in the State of California, and the rights and obligations of
the parties shall be interpreted and enforced in accordance with the laws
thereof.
11. Arbitration. Any controversy or dispute arising out of, or
relating to the Note, or the breach thereof, shall be settled by arbitration.
Such arbitration shall be effected by arbitrators selected as hereinafter
provided, and shall be conducted in Stanislaus County, Modesto, California,
in accordance with the Rules of the American Arbitration Association existing
at the date thereof.
The dispute shall be submitted to three arbitrators who are listed on
the securities panels of the American Arbitration Association, one arbitrator
shall be selected by Payee and Maker. In the event that Maker and Payee,
within ten (10) days hereunder, shall not have selected its arbitrator and
given notice thereof to the other, such arbitrator shall be selected by the
American Arbitration Association.
Judgment may be entered on any decision rendered by the arbitrators in
the Federal or State Court located within the County of Stanislaus, State of
California. Payee and Maker shall each bear costs of the fees and expenses
of the arbitrators selected by or for it.
12. Transferability. This Note may be transferred or assigned by Payee
as Payee wishes or as is applicable under contractual agreement.
13. Limited Offering. THIS NOTE IS A SECURITY THAT HAS NOT BEEN
REGISTERED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933.
IN WITNESS WHEREOF, Maker has executed this Secured Promissory Note as
of the day first herein above written.
<PAGE>
SCHEDULE OF NOTES
<TABLE>
<CAPTION>
Date of Note Amount Maker
<S> <C> <C>
May 13, 1999 $57,500 U.S. Cash Exchange, Inc.
June 12, 1999 $95,450 U.S. Cash Exchange, Inc.
July 8, 1999 $50,000 PayStar Communications, Inc.
July 15, 1999 $50,000 PayStar Communications, Inc.
July 19, 1999 $50,000 PayStar Communications, Inc.
August 4, 1999 $50,000 PayStar Communications, Inc.
August 17, 1999 $230,000 PayStar Communications, Inc.
September 30, 1999 $287,500 PayStar Communications, Inc.
November 10, 1999 $115,000 PayStar Communications, Inc.
December 1, 1999 $57,500 PayStar Communications, Inc.
December 10, 1999 $115,000 PayStar Communications, Inc.
December 15, 1999 $57,500 PayStar Communications, Inc.
</TABLE>
<PAGE>
EXHIBIT 21.1
PayStar Communications Corporation has two wholly owned subsidiaries:
PayStar Communications, Inc., a Nevada corporation, and U.S. Cash Exchange,
Inc., a California corporation.
<PAGE>
EXHIBIT 23.1
Schvaneveldt and Company
Certified Public Accountant
275 E. South Temple, Suite 300
Salt Lake City, UT 84111
(801) 521-2392
Consent of Darrell T. Schvaneveldt
Independent Auditor
I consent to the use of our report dated April 19, 1999, on the financial
statements of PayStar Communications Corporation, dated December 31, 1998,
included in the Form SB-2 herein and to the reference made to me.
/s/ Darrell Schvaneveldt
Salt Lake City, Utah
December 28, 1999
<PAGE>
EXHIBIT 23.2
Andersen Andersen & Strong, L.C. 941 East 3300 South, Suite 202
Certified Public Accountants and Business Consultants Salt Lake City, UT 84106
Member SEC Practice Section of the AICPA Telephone 801-486-0096
Fax 801-486-0098
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
U.S. Cash Exchange, Inc.
We hereby consent to the use of our report dated December 28, 1999, for the
period ended June 30, 1999 included in the form SB-2 herein and to the
reference made to us.
/s/ L. R. Andersen
Andersen Andersen and Strong L.L.C.
December 30, 1999
Salt Lake City,Utah
