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================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INNOFONE.COM, INCORPORATED
(Name of Small Business Issuer in its Charter)
Nevada 4813 98-020313
- ------------------------------ ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
---------------------
241 Applewood Crescent, Suite 4
Vaughan, Ontario
Canada
(416) 207-0046
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business )
---------------------
Larry Hunt
President and Chief Operating Officer
241 Applewood Crescent, Suite 4
Vaughan, Ontario
Canada
(416) 207-0046
(Name, Address, and Telephone number of Agent for Service)
Copies to:
James Berns, Esq.
Berns & Berns
One Rockefeller Plaza
Suite 210
New York, New York 10020
Approximate date of Proposed Sale to the Public: From time to time after the
effective date of this Registration Statement.
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 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, please check the following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
---------------------
CALCULATION OF REGISTRATION FEE
TITLE OF
EACH CLASS
OF
SECURITIES
OFFERING TO
BE
REGISTERED
- ----------
PROPOSED
COMMON MAXIMUM PROPOSED
STOCK, PAR DOLLAR OFFERING PRICE MAXIMUM AMOUNT OF
VALUE $.001 AMOUNT TO BE PER SHARE OF AGGREGATE REGISTRATION
PER SHARE REGISTERED COMMON STOCK OFFERING PRICE FEE
---------- ------------ -------------- ---
$501,100 $0.40 $944,300 $280
443,200
---------------------
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 this Registration Statement shall become
effective on such date or dates as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1
Alternative 2 [X]
================================================================================
<PAGE>
INNOFONE.COM, INCORPORATED
Common Stock
2,360,750 shares
This prospectus is being used in connection with the (i) offer and
sale, from time to time, by certain of our stockholders (the "Selling
Stockholders") of up to 1,108,000 shares of our common stock ("shares") which we
sold to investors in 1999, and (ii) issuance of 1,252,250 shares pursuant to the
conversion of $501,100 of convertible promissory notes into shares at the rate
of $0.40 per share, which we sold to investors in 1999 ("Conversion Shares").
The Selling Stockholders may sell shares either directly to purchasers
or through brokers, dealers or agents. We will receive no proceeds from (i) the
sale of shares by the Selling Stockholders, (ii) the conversion of the
convertible promissory notes into the Conversion Shares, or (iii) the subsequent
sale of any Conversion Shares.
Our shares are not traded on any securities exchange or the NASD OTC
Bulletin Board. There is only a very limited trading market in our shares on the
over-the-counter market in the United States.
Investment in our shares involves substantial risks. See "Risk Factors"
beginning on page ----.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
The securities covered by this registration statement may not be sold until the
registration statement covering the shares is declared effective by the
Securities and Exchange Commission. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state or foreign jurisdiction where the offer or sale is not permitted.
The date of this prospectus is January ___, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS.................................................................................................v
SUMMARY .........................................................................................................1
RISK FACTORS......................................................................................................2
General ................................................................................................2
We are a start-up business and are not profitable........................................................2
Our expenses are greater than our revenues...............................................................2
We need to raise additional financing....................................................................2
Your shares will probably be diluted.....................................................................2
The growth of our business is dependent upon the growth and performance of the Internet..................3
Our competition is significant...........................................................................3
We may be unable to achieve our operating and financial objectives if we cannot
manage our anticipated growth effectively.......................................................3
Uncertain Regulatory Climate.............................................................................4
Company's exclusive right to use the GLR(Trademark) software expires on October 27, 2000.................4
Inexperience of Management...............................................................................4
Dependence Upon and Retention of Key Personnel...........................................................4
Risks Associated With Currency Fluctuations..............................................................4
Control by Existing Shareholders; Anti-Takeover Effects..................................................4
Conflict of Interest of Management.......................................................................5
Shares Eligible for Future Sale..........................................................................5
Company Dependent Upon Services of Outside Contractors and Independent Sales
Representatives.................................................................................5
Regulatory and legal uncertainties relating to the Internet could have significant costs to
us or otherwise harm our business...............................................................6
Our shares will be diluted upon the sale or issuance of additional shares or instruments
exchangeable or convertible into shares.........................................................6
The substantial number of shares that will be eligible for sale in the future will
adversely affect the market price of our shares. ...............................................6
We do not foresee paying dividends on our shares.........................................................6
There is only a limited trading market for our shares and the price of our shares will
probably fluctuate significantly when, and if, trading volume increases.........................6
Trades in our shares are subject to the "penny stock" regulations which could limit
market liquidity of our shares. ...............................................................7
This prospectus includes forward-looking statements which could differ from actual
future results..................................................................................7
USE OF PROCEEDS...................................................................................................7
SELLING STOCKHOLDERS..............................................................................................8
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
PLAN OF DISTRIBUTION..............................................................................................9
DETERMINATION OF OFFERING PRICE..................................................................................10
DILUTION ........................................................................................................10
LEGAL PROCEEDINGS................................................................................................10
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS.....................................................................................11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................12
DESCRIPTION OF SECURITIES........................................................................................14
Series A Voting Convertible Preferred Stock.............................................................14
Dividends......................................................................................15
Redemption.....................................................................................15
Conversion Right...............................................................................15
Maximum Conversion Rate...............................................................15
When Conversion Rate Determinable by Board of Directors...............................16
Automatic Conversion at Minimum Conversion Rate.......................................16
Other Adjustments to Conversion Rates..........................................................16
Rights on Liquidation, Dissolution, or Winding Up..............................................17
Dividends......................................................................................17
Redemption.....................................................................................17
Voting ...............................................................................................17
Other Preferred Stock...................................................................................17
INTEREST OF NAMED EXPERTS AND COUNSEL............................................................................18
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.........................................................................................18
DESCRIPTION OF BUSINESS..........................................................................................18
General ...............................................................................................18
Supplying Long Distance Telephone Services..............................................................19
Billing ...............................................................................................20
Marketing...............................................................................................20
PLANNED BUSINESS OPERATIONS......................................................................................21
Hot Caller.Com Inc......................................................................................21
INDUSTRY BACKGROUND..............................................................................................22
The Company's Strategy..................................................................................22
</TABLE>
vi
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<TABLE>
<S> <C>
The Canadian Telecommunications Industry................................................................23
Long Distance Services Market...........................................................................24
Local Service Market....................................................................................24
Wireless Market.........................................................................................25
Competition.............................................................................................25
Corporate Development & Financing of the Company........................................................25
Acquisition of APC Telecom.....................................................................25
The Company's Option to Redeem Exchange Shares.................................................25
No Reverse Split...............................................................................26
Limit on Options or Warrants to be Issued......................................................26
No Excessive Parachute Awards..................................................................26
No Excessive Compensation......................................................................26
Series A Voting Convertible Preferred Stock....................................................26
Dividends......................................................................................27
Redemption.....................................................................................27
Conversion Right...............................................................................27
Maximum Conversion Rate........................................................................27
Voting ...............................................................................................28
Financing of the Company................................................................................28
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................................................28
PLAN OF OPERATIONS...............................................................................................29
Overview ...............................................................................................29
Raising Capital.........................................................................................29
Results of Operations...................................................................................29
Revenues ...............................................................................................29
Operating Expenses......................................................................................29
SG&A Costs.....................................................................................29
Cost of Services...............................................................................29
Sales and Cost of Sales........................................................................29
Selling, general and administrative expenses...................................................29
Amortization...................................................................................29
Interest and financing charges.................................................................29
Loss on sale of investment.....................................................................29
Liquidity and Capital Resources.........................................................................32
DESCRIPTION OF PROPERTY..........................................................................................32
EXECUTIVE COMPENSATION...........................................................................................33
Summary Compensation Table..............................................................................33
Option/SAR Grants in Last Fiscal Year...................................................................33
OPTIONS TO PURCHASE SECURITIES...................................................................................33
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Employee Stock Compensation Plan........................................................................34
Compensatory Stock Option Plan..........................................................................34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................35
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.....................................................................................35
OTC BULLETIN BOARD...............................................................................................35
DIVIDEND IN FORMATION............................................................................................36
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE..............................................................................................36
SECURITIES BEING OFFERED.........................................................................................37
Transfer Agent and Registrar............................................................................38
LEGAL MATTERS....................................................................................................38
EXPERTS ........................................................................................................38
WHERE YOU CAN FIND ADDITIONAL INFORMATION .......................................................................38
FINANCIAL STATEMENTS.............................................................................................F-1
PART II ........................................................................................................
INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................II-1
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION......................................................................II-1
RECENT SALES OF UNREGISTERED SECURITIES..........................................................................II-1
EXHIBITS ........................................................................................................II-2
UNDERTAKINGS.....................................................................................................II-3
SIGNATURES.......................................................................................................II-5
</TABLE>
viii
<PAGE>
SUMMARY
Innofone.Com, Incorporated ("Innofone" or the "Company") is in the
business of providing traditional telephone services at competitive rates in
Canada. Although we don't own telephone equipment, we are able to provide
telephone service through an arrangement we have with Canadian Telephone
Resellers Alliance ("CTRA"), which purchases telephone access and service from
major telephone companies in bulk at discounted rates and resells it to
companies such as Innofone. In addition, the Company plans to offer in the
future a range of low cost telecommunication services utilizing the Internet and
wireless technology.
All the major aspects of our business - supplying long distance
telephone service, billing and marketing - are primarily conducted for us by
other companies with which we have contracts.
We presently have approximately 5,500 subscribers for our traditional
long distance telephone services. We have also established five Internet
Gateways for our planned Internet-based telecommunications services offering.
We are not now providing any telecommunications services utilizing the Internet,
however.
We are not profitable and we may never become profitable. We need to
raise funds in order to sustain our operations and carry out our business plans.
We may be unable to raise the necessary funds for these purposes, in which case,
we could go out of business. For these and other reasons, we believe that an
investment in our shares is very risky. Please see "Risk Factors."
We will receive no proceeds from the sale of shares by the Selling
Stockholders or from the conversion of the convertible promissory notes and the
subsequent sale of the Conversion Shares.
Our principal offices are located at 241 Applewood Crescent Vaughan,
Ontario Canada. Our telephone number is (416) 207-0046. References herein to
"we," "us," and Innofone includes Innofone.Com Incorporated and Innofone Canada
Inc., unless the context otherwise requires.
The information on our website, www.Innofone.com, is not part of this
prospectus.
1
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RISK FACTORS
General
Investing in shares of our common stock ("shares") involves substantial
risk. You should carefully consider the risks described below and the other
information in this prospectus, including our financial statements and the
related notes, before you purchase any of our shares. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties, including those that we do not know about now or that we
currently deem immaterial, may also adversely affect our business. Our shares
should not be purchased by persons who cannot afford the loss of their entire
investment. Each one of the risks set forth below is important and could
seriously jeopardize our business, your investment in our shares, or both.
1. We are a start-up business and are not profitable. We first began
providing traditional long-distance telephone service in Canada in
1999. We are still in the process of making decisions on many very
important aspects of the business which makes it difficult for you to
evaluate our Company and its prospects. We are currently losing money.
We do not know when, or even if, we will become profitable.
2. Our expenses are greater than our revenues. Potential investors should
be aware of the difficulties, delays and expenses normally encountered
by new companies, including generating revenues, marketing costs,
competition and unanticipated costs and expenses, such as litigation.
Many of these factors are unpredictable and beyond our control. In
addition, it is possible that many of the assumptions we have made
about our business, including trends in the industry, potential for
regulation, our competition, difficulties in obtaining financing and
many other matters, could be wrong. Accordingly, the revenue and income
potential of our business is difficult to predict. In light of the
developing nature of our business and our marketing plans, we expect to
continue to sustain substantial operating expenses without generating
significant revenues for the foreseeable future.
3. We need to raise additional financing. Additional financing is required
to market our services, develop and support our business and sustain
operations. We may not be successful in rasing any additional money;
and if we are able to raise it, the terms that this money may be
available to us could be unattractive. If we don't raise enough money,
we could go out of business. We have no sources of financing currently
available.
4. Your shares will probably be diluted. Additional financing, if we are
even able to obtain it, will probably result in the dilution of equity
interests of current stockholders. We will try to raise additional
financing through equity offerings, joint ventures or other
collaborative relationships, loans and other sources. If we choose to
raise these additional funds by issuing equity securities, the
percentage ownership of the then current stockholders will be reduced
and the holders of the newly issued equity
2
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securities may have rights, preferences or privileges which are senior
to the rights of the then current stockholders.
5. The growth of our business is dependent upon the growth and performance
of the Internet. The increased use of the Internet for retrieving,
sharing and transferring information among businesses and consumers has
only recently begun to develop. Market acceptance of the Internet is
subject to a high level of uncertainty and is dependent on a number of
factors, including:
(a) ease of access, price of access, speed and reliability; and
(b) the development of technologies that facilitate interactive
communication between organizations and their targeted
audiences.
Additionally, issues relating to the commercial use of the Internet,
such as security, reliability, cost, ease of access and quality of
service remain unresolved. Our success will depend, in part, on the
continued growth of the Internet in and the resolution of issues
affecting it.
6. Our competition is significant. We are subject to substantial and
vigorous competition, which could even increase.
The telecommunications industry is one of the most competitive
industries in the world, marked by rapid technological change, an
unpredictable regulatory climate, an ever increasing array of
telecommunications services being offered and enormous capital
spending. Moreover, various cable TV operators in the United States
have begun (and others have announced their intention to begin)
offering telephone service through existing cable TV lines. These
companies pose a substantial threat to traditional telephone companies
because of the cable TV industry's superior technology enabling greater
transmission capacity, versatility and speed. The impact of cable TV
companies entering the telephone business will increase competition,
having unpredictable effects on the industry in general, and upon us,
in particular. These companies have substantial financial and marketing
resources which, could place the Company's present and planned business
operations at a serious competitive disadvantage. In addition,
companies currently offering an array of telecommunications services
via the Internet represent substantial additional competition to the
Company, its services, and proposed future services.
7. We may be unable to achieve our operating and financial objectives if
we cannot manage our anticipated growth effectively. If we are
successful in marketing our service, there will be additional strains
on our technical, customer service, sales, financial and administrative
resources. The strains caused by these demands will be increased by the
developmental nature of our operations and we cannot be sure that we
will successfully manage our growth.
3
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8. Uncertain Regulatory Climate. It is impossible to predict the
regulatory climate, controls, regulations and rules affecting
telephone, broadcast, and Internet-related businesses. We are presently
unaware of laws, regulations or rules that prevent or restrict us from
offering our services. It is possible, however, that with the
integration and merger of telecommunication, computing, television and
broadcast services, which some observers predict is inevitable, laws,
regulations and rules may be passed and promulgated that could prevent
or restrict us from pursuing our business. Furthermore, such events, if
not preventing or restricting our right to pursue our business, could
result in an increased competitive environment. Such occurrences would
have a materially adverse impact on our business.
9. Company's exclusive right to use the GLR(Trademark) software expires on
October 27, 2000. The Company's exclusive right to use the
GLR(Trademark) software expires on October 27, 2000. At that time, our
competitors will have the right to use GLR(Trademark), unless we are
able to renegotiate the terms of the license from Datex; and there is
no assurance that we will be able to negotiate an extension of this
license. Our business could be hurt if competitors are free to use
GLR(Trademark).
10. Inexperience of Management. Our Management has had limited experience
in management positions. No member of Management has ever held a senior
managerial role at a major corporation.
11. Dependence Upon and Retention of Key Personnel. We are heavily
dependent upon our senior management team. The continued availability
of this team will be a major contributing factor to future growth of
our Company. In the event that any member of senior management becomes
unavailable for any reason, we would be materially and adversely
affected. We do not maintain key-man life insurance on any member of
our senior management team.
Our ability to achieve our revenue and operating performance objectives
will depend in large part on our ability to attract and retain
qualified and highly skilled sales, consulting, marketing and
management personnel. We compete for all of our personnel with other
companies, where competition for such personnel is intense and is
expected to remain so for the foreseeable future. Failure to retain and
expand our key employees could adversely affect our business and
operating results.
12. Risks Associated With Currency Fluctuations. Our operations are
currently headquartered in Canada and all sales revenue is generated in
Canada. Since our financial results are reported in United States
dollars, fluctuations in the value of the United States dollar relative
to the Canadian dollar could materially affect the Company's results.
13. Control by Existing Shareholders; Anti-Takeover Effects. Our officers,
directors, and principal shareholders, in the aggregate, beneficially
own approximately 26.8% of the Company's outstanding shares and voting
rights to over 6.9 million shares of its
4
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capital stock through their ownership, comprised of shares and Series A
Voting Convertible Preferred Stock. As a result, these shareholders, if
acting together, would be able to exert substantial influence over our
Company and control most matters requiring shareholder approval,
including, without limitation, the election of directors, modification
of the Company's capital structure, adoption of stock option plans and
award of grants thereunder, terms and conditions of a merger or
consolidation of the Company with another company, and negotiation of
the terms and conditions of a tender offer for the Company's shares
made by another company. Such control could result in substantial
shareholder dilution and, in certain circumstances, prevent
shareholders from receiving a premium over the then current market
value for their shares.
14. Conflict of Interest of Management. Management and certain founding
shareholders has the right to earn a maximum of 15,000,000 shares
pursuant to certain conversion rights attached to the Series A Voting
Convertible Preferred Stock issued in connection with the acquisition
of APC in 1998 pursuant to the "Exchange Agreement." Holders of the
Series A Voting Convertible Preferred Stock have the right to convert
7,500,000 of these securities into shares upon the Company establishing
a minimum number of specified Gateways in a certain manner. Currently,
Management has caused the Company to establish Gateways thereby
triggering Management's right to convert 2,500,000 Series Voting
Convertible Preferred Stock into 7,500,000 shares. See "Corporate
Development & Financing."
15. Shares Eligible for Future Sale. Our shares are not traded on any
securities exchange or the NASD OTC Bulletin Board. There is only a
very limited trading market in our shares on the over-the-counter
market in the United States. Our shares have not traded on the NASD OTC
Bulletin Board since September 1, 1999. The Company has no plans to
list the shares on NASDAQ or on any securities exchange in the near
future. Moreover, the Company's shares do not qualify for a NASDAQ
listing, or listing on any major stock exchange. We plan to have our
shares quoted on the NASD OTC Bulletin Board, however.
Assuming conversion of the Series A Preferred Stock into shares, the
Company will have a total of 28,130,000 shares outstanding. A
substantial number of additional shares could be issued in connection
with the exercise of warrants, options and conversion rights.
16. Company Dependent Upon Services of Outside Contractors and Independent
Sales Representatives. All major facets of the Company's current
business operations, supplying long distance telephone services,
billing and marketing, are primarily managed by, and are dependent upon
the services and technologies of, outside contractors and independent
sales representatives. The failure of any of these parties to perform
in accordance with the terms and conditions of their contracts with the
Company or to achieve forecasted levels of performance, as the case may
be, would have a material adverse affect on our business. There can be
no assurance that we
5
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would be able, in any such events, to secure alternative parties to
carry out the Company's business operations and plans without any
interruptions in our routine business activities, or at all.
17. Regulatory and legal uncertainties relating to the Internet could have
significant costs to us or otherwise harm our business. There are
currently a number of legislative proposals being considered which may
have an impact on our business. Congress has recently passed
legislation regulating certain aspects of the Internet, including
copyright infringement, user privacy, taxation, access charges,
liability for third-party activities, transmission of sexually explicit
material and jurisdiction. There are also a number of legislative and
regulatory proposals to regulate the Internet that are being considered
by federal, state, local and foreign governmental organizations. Areas
of potential regulation include libel, pricing, quality of products and
services and intellectual property ownership. It is uncertain how
courts will interpret laws governing the Internet or how they will
apply existing laws regulating property ownership, libel and personal
privacy issues to the Internet. Additionally, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and
abroad, that may impose additional burdens on companies conducting
business online. Because of these uncertainties, we can not be certain
how new laws governing the Internet or other existing laws will affect
our business.
18. Our shares will be diluted upon the sale or issuance of additional
shares or instruments exchangeable or convertible into shares.
Stockholders do not have preemptive rights, that is, the right to buy
additional shares from the Company in order to maintain their current
percentage equity interest.
19. The substantial number of shares that will be eligible for sale in the
future will adversely affect the market price of our shares.
The market price of our shares will probably be adversely affected by
future sales of restricted shares by existing stockholders pursuant to
Rule 144 under the Securities Act.
We cannot make any predictions as to the effect, if any, that market
sales of these or other shares or the availability of these or other
shares for future sale will have on the market price of our shares
prevailing from time to time.
20. We do not foresee paying dividends on our shares. We intend to retain
any earnings to finance the expansion of our business; thus, we do not
anticipate paying any cash dividends on our shares in the foreseeable
future. There can be no assurance that our operations will result in
sufficient revenues to enable us to operate at profitable levels or to
generate positive cash flow. Investors who anticipate the need for
immediate income from dividends should not purchase our shares.
21. There is only a limited trading market for our shares and the price of
our shares
6
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will probably fluctuate significantly when, and if, trading volume
increases. We plan to seek quotation of our common stock on the
National Association of Securities Dealers Over the Counter Bulletin
Board, but there can be no assurance as to when, if ever, we will
complete that process. There can be no assurance that the market for
our shares will develop or will provide enough liquidity to enable
investors to dispose of any shares offered by this prospectus. The
marketplace will determine present and future prices for the shares and
such prices may be influenced by many factors, including:
o the limited liquidity of the market for our shares;
o our financial results;
o the offering of competitive services;
o investors' perceptions of us; and
o general economic, industry and market conditions.
The stock markets have experienced extreme price and volume
fluctuations that have particularly affected the market prices of
equity securities of many telecommunication technology companies and
that have often been unrelated or disproportionate to the operating
performance of such companies. There can be no assurance the shares
prices of any telecommunication company, including ours, will be
sustained.
22. Trades in our shares are subject to the "penny stock" regulations which
could limit market liquidity of our shares. These regulations require
additional disclosure and paperwork by brokers and dealers in
connection with trades of penny stocks, limiting market liquidity.
23. This prospectus includes forward-looking statements which could differ
from actual future results. Some of the statements in this prospectus
that are not historical facts are "forward-looking statements".
Forward-looking statements can be identified by the use of words such
as "estimates," "projects," "anticipates," "expects," "intends,"
"plans," "believes" or the negative thereof or other variations thereon
or by discussions of strategy that involve risks and uncertainties. We
caution you that all the forward-looking statements contained in this
prospectus are only estimates and predictions. Our actual results could
differ materially from those anticipated in the forward-looking
statements due to risks, uncertainties or actual events differing from
the assumptions underlying these statements. Such risks, uncertainties
and assumptions include, but are not limited to, those discussed in
this prospectus.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of shares made by
the Selling Stockholders or from the conversion of the convertible promissory
notes into shares.
7
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SELLING STOCKHOLDERS
The following table sets forth, as of December 23, 1999, certain
information regarding stockholders for whom we are registering for resale to the
public an aggregate of 1,108,000 shares. The table does not include any
Preferred Shares or shares that may be issued pursuant to conversion of the
Company's $501,000 of Convertible Debt.
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF SHARES AND
SHARES OWNED AMOUNT OF PERCENTAGE OF
RELATIONSHIP TO PRIOR TO SHARES COMPANY TO BE OWNED
NAME/1 COMPANY OFFERING/2 OFFERED AFTER THE OFFERING
------ ------- ---------- ------- ------------------
<S> <C> <C> <C> <C>
Rahim Suleman None 25,000 25,000 0
Farhan Jamal None 50,000 50,000 0
Nurali Jamani None 15,000 15,000 0
Riyaz Moledina None 15,000 15,000 0
Amir Kasam None 20,000 20,000 0
Roy Ruppert None 325,000 200,000 125,000
MCM Holdings None 225,625 110,000 115,625
Paul Volpe Father-in-law of Rick Quinney -
Executive Officer and
Director 328,125 250,000 78,125
Donald Leddy None 100,000 100,000 0
Primex Network Inc. None 15,000 15,000 0
Frank Volpe Brother-in-law of Rick Quinney -
Executive Officer and
Director 35,937 25,000 10,937
Denis Labrecque None 27,000 27,000 0
Guy Beland None 15,000 15,000 0
Lester St. Croix None 25,000 25,000 0
Tracey Hunt Wife of Larry Hunt - 70,000 70,000 0
Executive Officer and
Director
Ron Crowe Executive Officer and 95,000 70,000 25,000
Director
Rick Quinney Executive Officer and 695,000 70,000 625,000
Director
Jackie Dean Controller 68,500 6,000 62,500
</TABLE>
- --------
1/ The names of additional Selling Stockholders may be provided later
pursuant to Section 424 (c) of the Securities Act.
2/ Under the rules of the Securities and Exchange Commission, a person
is deemed to be the beneficial owner of a security if such person has or shares
the power to vote or direct the voting of such security or the power to dispose
or direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person may be
deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and investment
power with respect to the securities beneficially owned.
8
<PAGE>
PLAN OF DISTRIBUTION
Selling Stockholders, as well as owners of the Conversion Shares
(collectively, referred to herein as "Sellers") may from time to time offer and
sell shares directly to purchasers. They may also from time to time offer all or
any of the shares through brokers, dealers or agents. The Sellers and/or the
purchasers of the shares may offer discounts, concessions or commissions to
participating brokers, dealers or agents.
The Sellers and any brokers, dealers or agents who participate in the
distribution of the shares may be deemed to be "underwriters". Any profits on
the sale of the shares by them and any discounts, commissions or concessions
which they receive may be deemed to be underwriting discounts and commissions
under the Securities Act. If the Sellers are deemed to be underwriters they may
be subject to certain statutory liabilities under the Securities Act, including,
but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Securities Exchange Act.
The Sellers may sell the shares from time to time in one or more
transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
The shares may be sold by one or more of the following methods, without
limitation:
o a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchase by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
9
<PAGE>
o face-to-face transactions between sellers and purchasers without a
broker-dealer; and the writing of options.
In addition, subject to applicable state and foreign laws, the Sellers
may sell their shares outside the United States pursuant to Rules 903 and 904 of
Regulation S, in private transactions or under Rule 144, rather than pursuant to
this prospectus.
To the best of our knowledge, there are currently no plans,
arrangements or understandings between any of the Sellers and any broker,
dealer, agent or underwriter regarding the sale of shares by the Sellers. There
is no assurance that any Seller will sell any or all of the shares offered by it
pursuant to this prospectus or that any Seller will not transfer, devise or
donate such shares by means not described in this prospectus.
The Sellers and any other person participating in the offering will be
subject to applicable provisions of the Securities Exchange Act and the rules
and regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales. These restrictions may affect the marketability of the
shares and the ability of any person to engage in market-making activities with
respect to the shares.
We will pay substantially all of the expenses incidental to the
registration, offering and sale of our shares of common stock covered by this
prospectus, except expenses for commissions, fees and discounts of underwriters,
brokers, dealers and agents.
As used in this prospectus, reference to a Selling Stockholder includes
its pledgees who sell shares of common stock received from the Selling
Stockholder after the date of this prospectus.
Copies of this prospectus will be made available to the Selling
Stockholders. At or prior to the time of any sale of shares by a Selling
Stockholder pursuant to this prospectus, the Selling Stockholder must deliver a
copy of this prospectus to the purchaser.
DETERMINATION OF OFFERING PRICE
Not applicable.
DILUTION
Not applicable.
LEGAL PROCEEDINGS
None. The Company is unaware of any legal proceedings known to be
contemplated by any governmental authorities.
10
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
NAME AGE POSITION
- ---- --- --------
Ronald Crowe 60 Chairman of the Board of
Directors, Chief Executive
Officer
Larry Hunt 41 President, Director
Richard Quinney 50 Chief Financial Officer,
Director
Charles Blaquiere 40 President, Innofone Canada
Inc.
Directors were elected on June 16, 1998 and are expected to hold these
positions until the next Annual General Meeting of Shareholders, scheduled for
2000.
There are no arrangements or understandings among any of the directors
regarding their election as director. Ron Crowe is married to Rick Quinney's
sister and is Larry Hunt's uncle.
Ronald Crowe - In 1989, Mr. Crowe formed Metrowide Communications, a
company that offered a flat rate long distance service along with a per minute
long distance service primarily in the Greater Toronto Area. In 1995 Metrowide
Communications was sold to ACC Telecommunications. (ACC Telecommunications was
subsequently acquired by AT&T Canada) After the buyout, Mr. Crowe continued on
as a consultant to Metrowide to assist with the transition to the new owners
until the fall of 1995. As part of the sale of Metrowide, Mr. Crowe was subject
to a non-compete clause preventing him from doing business in the
telecommunications industry for a period of two years.
After leaving Metrowide, Mr. Crowe went into semi-retirement. In the
spring of 1996, he began working part-time on an internet related worldwide
yellow page directory project referred to as Yelp. Mr. Crowe worked on the Yelp
project with two other partners until the fall of 1997 when they decided to
abandon the project. After the the expiration of the non-compete clause, in
April 1998, Mr. Crowe, Larry Hunt and Richard Quinney started Innofone Canada
Inc.
Larry Hunt - From 1994 through 1996, he was the Director of Sales and
Marketing for DGI, located in Whitby, Ontario. From 1996 through 1997 he was the
President of Direct Quest Inc., a U.S. based Internet service which provided a
multilingual business direction for communities throughout North America. While
at Direct Quest, he assisted in establishing internet telephony operations in
Canada and the United States. From 1997 through the present, he has served as
President and Chief Executive Officer of APC Telecom, a subsidiary of the
Company. In October 1999 he stepped down as President of Innofone Canada.
11
<PAGE>
Richard Quinney - From 1972 through early 1998 Mr. Quinney was employed
by KPMG (and its predecessor Peat Marwick Mitchell) in various capacities,
becoming a partner in 1981. In February 1998 Mr. Quinney resigned from KPMG and
entered into an affiliation with Collins Barrow, Chartered Accountants, in order
to achieve flexibility to pursue other business interests.
Charles Blaquiere -Prior to joining the Company in October 1999, Mr.
Blaquiere was Manager, Methods & Standards for Sprint Canada where he was
responsible for planning and forecasting resources to achieve revenue goals for
Sprint's Enterprise Customer Canadian subscribers. Prior to his employment with
Sprint, Mr. Blaquiere was Director of Operations with eForce from May 1998 to
February 1999 where he developed business strategy and progress requirements for
a long distance telephone marketing company. Prior eForce, Mr. Blaquiere had a
18 year career with Sears Canada, spending the last four years of the developing
and managing the national Sears Phone Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The Company's authorized capital consists of (i) 100,000,000 shares
of common stock ("shares"), par value $.001 per share, and (ii) 25,000,000
shares of preferred stock, par value $.001 per share, of which 5,000,000 shares
have been designated as Series A Voting Convertible Preferred Stock. At December
10, 1999, there were 13,130,000 shares and 5,000,000 shares of Series A Voting
Convertible Preferred Stock outstanding.
The shareholdings of the Company's officers and directors and persons
owning at least five percent of the Company's outstanding Shares, and Series A
Voting Convertible Preferred Stock at such date were as follows:
SHARES
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ---------------- --------- -----
<S> <C> <C> <C>
Common Stock Larry Hunt 1,320,000 10.1
Ronald Crowe 25,000 ---
Richard Quinney 937,500/3 7.1
Angela Quinney/4 312,500 2.4
Merryl Crowe/5 879,688 6.7
Officers and Directors, as 3,474,688 26.5
a Group
</TABLE>
- ----------
1/ All addresses are in our care at our principal offices.
2/ Except as otherwise indicated in a footnote to this chart each
person named in the table has sole voting and dispositive power with respect to
the shares of common stock held by that person.
3/ Includes 312,500 Shares owned by a company owned by Richard Quinney
and his wife, Angela.
4/ Wife of Rick Quinney.
5/ Merryl Crowe is the wife of Ronald Crowe.
6/ Includes 312,500 Shares owned by a company owned by Richard Quinney
and his wife, Angela.
12
<PAGE>
There are no other classes of common stock outstanding.
There are 5,000,000 shares of Series A, Convertible Voting Preferred
Stock outstanding. Following are the shareholders owning at least 5% of the
outstanding Series A, Convertible Voting Preferred Stock. The Series A,
Convertible Voting Preferred Stock, depending upon certain factors, may be
converted into a maximum of 15 million shares, and a minimum of 2 million
shares. Reference is made to "Description of Securities."
SERIES A CONVERTIBLE VOTING PREFERRED STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL % OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ---------------- --------- -----
<S> <C> <C> <C>
Series A, Voting
Convertible Preferred
Stock Larry Hunt 1,250,000 25%
Ronald Crowe 25,000 .5%
Richard Quinney 937,500/6 19%
Angela Quinney 312,500 6.25%
Merryl Crowe 929,688 19%
Series A, Voting Officers and Directors, as a 3,429,688 69%
Convertible Preferred group
Stock
</TABLE>
- ----------
1/ All addresses are in our care at our principal offices.
2/ Except as otherwise indicated in a footnote to this chart each
person named in the table has sole voting and dispositive power with respect to
the shares of common stock held by that person.
3/ Includes 312,500 Shares owned by a company owned by Richard Quinney
and his wife, Angela.
4/ Wife of Rick Quinney.
5/ Merryl Crowe is the wife of Ronald Crowe.
6/ Includes 312,500 Shares owned by a company owned by Richard Quinney
and his wife, Angela.
13
<PAGE>
Mr. Douglas Burdon, a consultant to the Company, has the right to earn
a cash royalty calculated on the gross revenues generated from "major financial
institution client relationship and premium service providers" in accordance
with the terms of a November 30, 1999 Agreement. Please see "Exhibit Index,"
herein. Mr. Douglas Burdon has the right, exercisable on or before November 30,
2001 to exchange this cash royalty into a total of 5.5 million options to
purchase shares. The options would vest over four (4) years, and have an
exercise price of $0.50.
Management is unaware of any arrangements, the operation of which may
at a subsequent date result in a change in control of the Company.
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of (i) 100,000,000 shares of
common shares ("shares"), par value $.001 per share, and (ii) 25,000,000 shares
of preferred stock, par value $.001 per share, of which 5,000,000 shares have
been designated as Series A, Voting Convertible Preferred Stock.
Holders of shares are entitled to receive dividends in cash, property
or shares when and if dividends are declared by the Board of Directors out of
funds legally available therefor. The By-Laws impose no limitations on the
payment of dividends. A quorum for any meeting of shareholders is a majority of
shares then issued and outstanding and entitled to be voted at the meeting.
Holders of shares are entitled to one vote per share. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted can elect all of the directors then
being elected. Upon any liquidation, dissolution or winding up of the business
of the Company, any assets will be distributed to the holders of shares after
payment or provision for payment of all debts, obligations or liabilities of the
Company, including the liquidation preference to holders of the Series A, Voting
Convertible Preferred Stock.
There are no preemptive rights, subscription rights, conversion rights
or redemption provisions relating to the shares, and none of the shares carries
any liability for further calls. The rights of holders of shares may not be
modified other than by vote of two-thirds of the shares voting on such
modification.
Series A Voting Convertible Preferred Stock
The Company has outstanding a total of 5,000,000 shares of its Series A
Voting Convertible Preferred Stock. The following is a synopsis of the terms,
and preferences of the Series A Preferred Stock.
14
<PAGE>
Dividends. The holders of the Series A Voting Convertible Preferred
Stock are not entitled to receive any dividends thereon; provided, that, if a
dividend is declared on the shares or on any series of preferred stock ranking
equal or junior to the Series A Voting Convertible Preferred Stock, then the
holders of the Series A Voting Convertible Preferred Stock are entitled to
receive a proportional share of such dividend, based upon the proportion of the
number of shares of Series A Voting Convertible Preferred Stock then outstanding
to the total number of shares and preferred stock entitled to share in such
dividend.
Redemption. The shares of Series A Voting Convertible Preferred Stock
are not subject to redemption.
Conversion Right. Generally, each share of Series A Voting Convertible
Preferred Stock may, subject to the Company's articles of incorporation and
subject to adjustment as provided below, at any time after issuance, be
converted at the option of the holder into shares on the following terms and
conditions:
(a) Maximum Conversion Rate. Each share of Series A Voting Convertible
Preferred Stock may be converted into three (3) shares subject to the following
conversion conditions:
(i) one half (1/2) of the shares of Series A Voting
Convertible Preferred Stock held may be converted when the
Company has opened three (3) Gateways (defined below) that are
fully functional and capable of immediately commencing
commercial operations, as certified by an engineer qualified
to make such certification;
The term "Gateway" for purposes of clauses (i) and (ii)
immediately preceding shall mean a telephony gateway server
computer that serves as a bridge between the Public Switched
Telephone Network or Private Branch Exchanges and the
Internet, and converts analog voice or data transmissions to
digital data packets (or vice versa); provided, that five (5)
of the Gateways must have capacity to handle twenty-four (24)
phone lines and the Internet access to provide capacity of not
less than Two Hundred Fifty Thousand (250,000) minutes of talk
time per month; and one Gateway must have capacity to handle
twelve (12) phone lines and the Internet access to provide
capacity of not less than One Hundred Twenty-Five Thousand
(125,000) minutes of talk time per month.
(ii) one fourth (1/4) of the shares of Series A Voting
Convertible Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis achieved
an aggregate of Two Million Dollars ($2,000,000.00 Can.) in
bona fide total revenues from all sources, as reflected on
unaudited interim consolidated financial statements regularly
prepared for the Company and all subsidiaries;
(iv) one fourth (1/4) of the shares of Series A Voting
Convertible Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis achieved
an aggregate of Seven Million Dollars ($7,000,000 Can.) in
bona fide total revenues from all sources, including the
$2,000,000 Can. in bona fide total revenues required by clause
(iii) above;
15
<PAGE>
The four conversion conditions need not be satisfied in any
particular order, and the satisfaction of any conversion
condition not dependent upon the prior satisfaction of any
other conversion condition.
(b) When Conversion Rate Determinable by Board of Directors. The term
"Reorganization' includes any merger, consolidation, share exchange, or other
business. combination pursuant of and lease of all or substantially all of the
assets of the Company, and the term "Reorganization Agreement" a plan or
agreement with respect to a Reorganization. In the event the Company consummates
a Reorganization every share of Series A Voting Convertible Preferred Stock
issued and outstanding on the Reorganization's effective date shall on date be
converted into the number and kind of shares or other property that would be
received by a person holding the number of common shares of the Company into
which the shares of Series A Voting Convertible Preferred Stock would
convertible on the effective date.
If on a Reorganization's effective date all four of the required
conversion conditions have not been satisfied, then the immediately following
provision shall apply to the holders of the Series A Voting Convertible
Preferred Stock. In regard to any conversion conditions which at the time of
execution of the Reorganization Agreement not been satisfied, the Board of
Directors shall, prior to such effective date, in good faith determine the which
such remaining conversion conditions have been partially satisfied. The Board of
Directors shall then determine the number of shares into which the shares of
Series A Voting Convertible Preferred Stock may be converted, which shall be in
proportion to the extent the remaining conversion conditions have then been
partially satisfied. The determination of the Board of Directors in this matter
shall be final and binding for all purposes.
(c) Automatic Conversion at Minimum Conversion Rate. On the fifth (5th)
anniversary of the Issue Date of the Series A Voting Convertible Preferred
Stock, every share of Series A Voting Convertible Preferred Stock which has not
thereto have satisfied any of the conversion conditions and been converted to
shares shall automatically and without any requirement to satisfy any conversion
conditions and without of any further action on the part of holders of Series A
Voting Convertible Preferred Stock (except to surrender the Series A Preferred
Shares) be converted into, and thereafter represent, one (1/2) half a share.
Other Adjustments to Conversion Rates. The conversion rates set forth
above will be subject to further adjustment if the Company is reorganized,
merged, consolidated or party to a plan of exchange with another corporation
pursuant to which shareholders of the Company receive any shares of stock or
other securities, or in the event of any sale or transfer of all or
substantially all of the Company's assets, or in case of any reclassification of
the Shares. Holders of shares of the Series A Voting Convertible Preferred Stock
shall be entitled, after the occurrence of any such event, to receive on
conversion thereof the kind and amount of shares of stock or other securities,
cash or other property receivable upon such event a holder of the number of
shares into which the shares of Series A Preferred Stock might have been
converted immediately prior to occurrence of the event. In the event of a split
or combination, the number of shares issuable upon conversion shall be
appropriately adjusted.
16
<PAGE>
Rights on Liquidation, Dissolution, or Winding Up. In the event of any
voluntary or involuntary liquidation or dilution or winding-up of the Company,
the holders of shares of Series A Voting Convertible Preferred Stock shall be
subordinate to claims of the Company's creditors and to claims of the holders of
every series of the Company's preferred stock ranging from senior upon
liquidation to the Series A Voting Convertible Preferred Stock, but otherwise
are entitled to receive a liquidation preferred upon the amount of $.001 per
share, before any payment is made to any holder of shares or any series of
preferred shares ranking junior to the shares of Series A Voting Convertible
Preferred Stock. After the payment of such liquidation preference and
liquidation preferences payable to holders of any other series of preferred
shares, the holders of the shares of Series A Voting Convertible Preferred Stock
shall share ratably with the holders of shares and all series of preferred
ranking on a parity with or junior to the Series A Voting Convertible Preferred
Stock in the Company's assets available for distribution to shareholders.
Neither the consolidation or merger of the Company with or into any other
company nor the lease, exchange, sale or transfer of all or substantially all of
the Company's assets shall be deemed to be a liquidation, dissolution or up of
the Company's affairs, whether voluntary or otherwise.
Dividends. The holders of the shares of Series A Voting Convertible
Preferred Stock are not entitled to receive any dividends thereon; provided,
that, if a dividend is declared on the shares or on any series of preferred
hares ranking equal or junior to the Series A Voting Convertible Preferred
Stock, then the holders of the Series A Voting Convertible Preferred Stock will
be entitled to receive a proportional share of such dividend, based upon the
proportion of the number of shares of Series A Voting Convertible Preferred
Stock then outstanding to the total number of shares and preferred stock
entitled to share in such dividend.
Redemption. The shares of Series A Voting Convertible Preferred Stock
are not subject to redemption.
Voting. Each share of Series A Voting Convertible Preferred Stock
entitles the holder to cast one vote on every matter placed before shareholders.
Other Preferred Stock
The rights, powers and preferences of the remaining 20,000,000
authorized shares of preferred stock have not been designated. The Board of
Directors has the authority to issue these shares in one or more series and to
fix the voting powers, conversion rights, other special rights and
qualifications, limitations and restrictions of each series, without any further
vote or action by the shareholders. It is not possible to state the actual
effect of the authorization of any preferred stock upon the rights of holders of
the shares, until the Board of Directors determines the specific rights of the
holders of the preferred stock. However, the preferred stock may have adverse
effects upon the holders of the shares, including (i) restrictions on dividends
on the shares if dividends on the preferred stock have not been paid, (ii)
dilution of the voting power of the shares to the extent that the preferred
stock has voting rights, (iii) dilution of the equity interest of the shares to
the extent that the preferred stock is converted into shares, or (iv) the shares
not being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted the holders of the preferred
stock. It is possible that preferred stock may be issued to acquire a business
or properties.
17
<PAGE>
INTEREST OF NAMED EXPERTS AND COUNSEL
None.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by any
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act. We will be governed by the final adjudication
of such issue.
DESCRIPTION OF BUSINESS
General
Innofone.Com, Incorporated (the "Company") is in the business of
offering telecommunications services in Canada. The Company was essentially
inactive since its incorporation in Nevada on December 18, 1995/7 until June
1998. At that time the Company was activated and reorganized when it acquired
all of the outstanding capital stock (the "Exchange") of APC Telecom Inc., a
privately-held, federally chartered, Canadian corporation ("APC"),/8 through
which it presently conducts all of its operations. APC subsequently changed its
name to Innofone Canada Inc. on March 30, 1999. See "Corporate Development and
Financing," below.
- --------
7/ The Company was incorporated as Enefel 1001, Inc. on December 18,
1995; in 1996 it changed its name to ProPaint Systems Inc.; on June 18, 1998 it
changed its name to APC Telecommunications, Inc.; and on March 30, 1999 it
changed its name to Innofone.com, Incorporated.
8/ APC was incorporated on April 24, 1998 under the name Access Power
Canada, Inc.; its name was changed to APC Telecom Inc. on June 19, 1998.
18
<PAGE>
The Company's purpose in acquiring APC was to enter the Canadian
Internet-based telecommunications industry. At the time of the acquisition, APC
held rights to market certain Internet-based, telephone technology in Canada.
APC's rights to this technology terminated on December 11, 1998. Notwithstanding
the termination of these rights, the Company plans to expand its current
operations which presently consist of offering traditional long distance
telephone services in Canada to, eventually, include offering a full range of
traditional services throughout Canada and the United States and Internet-based
telecommunications worldwide. See "Planned Business Operations."
Presently, the Company's primary business activity involves the
offering of traditional long distance telephone service at competitive rates to
individual consumers and small businesses in Canada. In order to enter this
market aggressively, while controlling costs, all major facets of the business
operations - supplying long distance telephone service, billing and marketing -
are primarily conducted by third parties for the Company.
Supplying Long Distance Telephone Services
The Company supplies long distance telephone service to its customers
pursuant to an agreement dated March 3, 1999, between the Canadian Telecom
Resellers Alliance ("CTRA") and the Company ( the "CTRA Agreement"). CTRA was
purchased by Optel Communications Corporation on June 17, 1999. CTRA is in the
business of purchasing long distance telephone service from major carriers, such
as AT&T and Sprint, at bulk rates and reselling such service to the Company and
others at rates which are lower than the Company could otherwise negotiate from
the major carriers directly. Under the CTRA Agreement, the Company is permitted
to route its customers' long distance telephone calls through CTRA's carrier
networks. The CTRA Agreement's initial three (3) year terms expires March 20,
2002, and automatically renews every three (3) years unless either party
notifies the other at least thirty (30) days prior to the expiration of the term
that it does not wish to renew.
The Company has guaranteed that its monthly billings with CTRA on or
before December 31, 1999 will be not less than $50,000 Can. (the"Monthly
Minimum")./9 However, if the billings do not reach the Monthly Minimum by
December 31, 1999, the Company is obligated to pay CTRA only fifty (50%) percent
of the difference between actual billing and $50,000 Can. for each month actual
billings are less than $50,000 Can. for so long as CTRA Agreement continues.
- --------
9/ The following table sets forth the exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the past five years.
Average Low - High Year End
------- ---------- --------
1995 .7305 .7023 - .7527 .7323
1996 .7332 .7140 - .7472 .7301
1997 .7286 .7145 - .7513 .7233
1998 .6742 .6490 - .7020 .6521
1999 ----- ------------- -----
The exchange rates are based upon the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York.
- ----------
At January ____, 2000, one Canadian dollar, as quoted by Telerate and
other sources at 4 P.M. Eastern Time for New York foreign exchange selling rates
(for bank transactions of at least $1,000,000), equaled $.___ in U.S. dollars.
(Source: The Wall Street Journal.)
19
<PAGE>
The CTRA Agreement may be terminated by either party upon thirty (30)
days notice; if the Company exercises its right of termination, it is obligated
to pay CTRA $50,000 Can., as a "termination charge."
Billing
The Company's billing for the long distance telephone service it
provides to its customers is principally performed by Datex Communications
Corporation ("Datex") pursuant to a contract dated June 11, 1998 (the "Datex
Agreement") and proprietary CARS(Trademark) software developed by Datex for the
Company.
Pursuant to the Datex Agreement, the Company received a non-exclusive
license to use CARS(Trademark) integrated software program enabling it to
perform certain routine functions including order entry, customer service
functions, accounting, sales tracking and receipts processing functions. Datex
provides all other billing functions including invoice preparation and mailing,
and furnishes the Company monthly management reports which are comprised of
profit, loss, and margin reports, tax summaries, price per minute, rate program
and calling analyses, and other services. The term of the contract is twelve
(12) months; it automatically renews unless either party notifies the other of
its desire to terminate so at least sixty (60) days in advance of termination.
In addition, the Company has exclusive rights to Datex's GLR(Trademark) invoice
designs and billing until October 27, 2000.
Marketing
To date, virtually all of the Company's marketing efforts to obtain
customers were conducted through and by independent sales representatives in
Canada ("ISRs"). At November 30, 1999, the Company had over 40 ISRs who in the
aggregate, have obtained over 5,500 customers for the Company's long distance
telephone service in Canada.
ISRs are compensated by the Company primarily by a flat rate "sign on"
commission and a variable residual commission ranging from 2% - 3.5%, calculated
as a percentage of the monthly telephone billings of the customers introduced to
the Company by the ISRs.
In addition to marketing to residential customers and small businesses,
the Company is seeking to market its long distance service to larger commercial
customers. On November 30, 1999, the Company engaged the services of Mr. Douglas
Burdon to market this service to "major financial institutions." Mr. Douglas
Burdon will receive a royalty equal to 2% of gross revenues generated from any
accounts he facilitates in establishing for the Company. Mr. Douglas Burdon has
the right to exchange the royalty into stock options in shares of the Company on
or before November 30, 2001. See "Options to Purchase Securities."
20
<PAGE>
Management believes that the key selling point for its services is its
Guaranteed Lowest Rate service or GLR(Trademark). The Company's GLR(Trademark)
service guarantees that all customers, each month, are billed the lowest
telephone rates offered by the major Canadian telephone carriers, Bell, AT&T and
Sprint Canada. This is accomplished by utilization of Datex's CARs(Trademark)
software, which automatically prices long distance calls based upon selected
plans offered by the three major Canadian telephone companies and ensures that
the Company's GLR(Trademark) plan always is lower.
PLANNED BUSINESS OPERATIONS
Subject to securing adequate financing, of which these can be no
assurance, the Company plans eventually to expand its current operations of
providing traditional long distance telephone service in Canada to providing
local service in Canada, traditional telephone services in the United States and
a variety of telecommunication services through the Internet.
Telephone service routed over the Internet, or Internet telephony,
requires that customers be connected to the Internet. Internet connections are
provided through local telephone companies or so-called Internet service
providers (ISPs). Therefore, customers pay only for the cost of a local
telephone call for long distance calls routed over the Internet because the
Internet carries any data, including telephone calls, free all over the world.
Unlike traditional telephone service which is based upon a system
designed to handle principally voice and relies upon dedicated circuits which
connect callers from end-to-end, the Internet does not rely upon dedicated
circuits, having been established to handle only computer data. Accordingly, at
points where local, traditional traffic connects to the Internet, the traffic
must be converted to the protocol of the connecting system. The device which
performs such conversions are called Gateways.
After establishment of Gateways, and subject to obtaining the necessary
financing, which cannot be assured, Company will commence marketing Internet
Telephony services. Management anticipates it will cost at least $200,000 to
launch this service. Initially, the Company will offer PC to phone service. In
order to utilize the Company's services, it will be necessary for the customers
to download enabling software, provided to the Company from third parties
pursuant to non-exclusive licenses available free from the Company's website.
Hot Caller.Com Inc.
In 1999, the Company incorporated a new wholly-owned subsidiary, Hot
Caller.Com Inc. ("Hot Caller"). Hot Caller has developed a service enabling
subscribers connected to the Internet to make free long distance phone calls to
over 60 countries. This service has not been tested, however. The recipient of
the telephone call does not need a computer or an Internet connection.
21
<PAGE>
In order to place a free phone call, a subscriber is required to first
view advertisements on his PC. The duration of the subscribers' call is related
to the length of time the subscriber views the advertisement. The longer the
advertising viewing time by the subscriber, the longer the duration of the
telephone call. Management anticipates it will cost at least $2 million to
launch this service. Management does not have any plans to launch this service
at the present time. Its decision to launch this service will be based upon many
factors, including the Company's ability to arrange the necessary financing, of
which there can be no assurance. The Company may never launch the Hot Caller
service for this and other reasons.
Hot Callers sole source of revenue will be from the advertising
revenues it receives.
INDUSTRY BACKGROUND
Long distance telephone service has historically been offered through
public switched telephone networks (PSTN) which operate on dedicated
transmission circuits utilizing lines established for that purpose. The
Internet, on the other hand, was developed to transmit computer data and
operates on a different system referred to Internet protocol, or IP. However,
technological advances have made it possible for audio text, pictures, and even
video to be transmitted over the Internet.
These advances have established the Internet as a powerful
communications medium because of its versatility and cost. A user only pays for
the cost of a local telephone call, which connects into the Internet. Once
connected, the transmission travels free over the Internet anywhere in the
world. As a result, the nature of all communications is changing as the Internet
expands low cost communication possibilities.
The Company's Strategy
The Company's long range objective is to provide full-service,
one-stop shopping for telecommunications services.
The Company will seek to exploit the confusing, overcrowded
telecommunications systems and services which result in customers receiving
multiple services form multiple providers, and multiple bills. By offering a
full range of telecommunication services in a "bundle" which could include
o long distance telephone service,
o local telephone service,
o Internet telephony,
o paging service,
o mobile phone service,
o calling cards,
o mobile phone international access, and
o other services,
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<PAGE>
customers' telecommunications service choices and solutions are simplified. The
Company employs its proprietary GLR(Trademark) system which ensures that, on a
monthly basis, the customer is charged less for traditional long-distance
telephone services than he would have been charged under selected plans of the
major telephone carriers, Bell Canada, Sprint and AT&T.
Management believes that its strategy of bundling a complete range of
telecommunications services for which the customer receives only one monthly
itemized bill greatly simplifies the consumer's management of these services.
This, together with its GLR(Trademark) guaranty of the lowest competitive
billing rate could enable the Company to successfully compete in the intensely
competitive telecommunications industry.
Management believes that one of the keys to establishing successful,
profitable operations is to rapidly expand its customer base. Once a customer is
obtained for one of its telecommunications services, Management intends to offer
that customer additional services. The Company intends to aggressively market
its services to new customers, principally by utilizing independent sales
representatives ("ISRs"), and marketing organizations such as affinity groups
for loyalty card programs.
The Canadian Telecommunications Industry
Based on interim figures from Statistics Canada, Industry Canada
estimates that there were approximately 19.2 million local access lines in
Canada on December 3l, 1998. This is 32% higher than the year-end figure for
1997.
Between 1988 and 1997, the number of local access lines increased by
about 33%. During this same time period however, the revenues generated in the
local services segment by incumbent telecommunications carriers increased by 67%
- -- twice the rate of access line growth. This faster revenue growth is largely
attributed to the relatively faster rate of growth in business lines, growth in
the use of optional services, and to the effect of rate-balancing rate increases
in 1996 and 1997.
Based on Industry Canada estimates, in 1997 the Canadian
telecommunications service industry generated approximately $23.5 billion in
revenues. These revenues can be broken down into the following service market
segments:
o Wired local line revenues of $8.0 billion (33%)
o Wired and wireless long distance services revenues of $9.0
billion (38%)
o Cellular, paging and other wireless revenues of $3.0 billion
(13%) and,
o Other telecom related services revenues of $3.6 billion (16%)
The Canadian Stentor Alliance is a coalition of major provincial and
regional telephone service providers, which in 1997 generated revenues of $17.5
billion representing 74.6% of total telecommunication services revenues. These
carriers offer both local and long distance services, with long distance
services representing approximately $6.7 billion in revenues. Members of the
Stentor Alliance include Bell Canada, controlling approximately 55% of total
alliance revenue and serving Ontario and Quebec, BCT Telus with 23% of alliance
revenues and serving British Columbia, and other incumbent carriers such as
AtlanticCo, AGT, Saskatchewan Tel and Manitoba Tel controlling the balance.
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<PAGE>
Long Distance Services Market
In 1992 the Canadian Radio-television and Telecommunications Commission
(CRTC), which regulates the telecommunications industry in Canada, opened
avenues for long distance competition. CRTC Decision 92-12 eliminated the
incumbent telecommunications carriers' monopoly on the provision of public
inter-exchange voice services in Canada and paved the way for Equal Access in
1994.
The Canadian long distance market is estimated to have generated
revenues of close to $9 billion in 1997, up from $8.6 billion in 1996. The long
distance market is composed primarily of revenues earned from the provision of
inter-exchange communication services to residential and business customers.
Long distance revenues alone, however, do not reflect the significant
growth that has occurred in the long distance market since 1992, as a result of
competition, Recent submissions to the CRTC suggest that minutes of long
distance communication have grown on average by 10% per year since 1993.
Increased competition has also made a significant change in the
carriers long distance market share. In 1992, Bell and other incumbent telecom
carriers controlled 92% of the estimated long distance revenues of $7.94
billion. By 1997, Bell and the other incumbent carriers market share had
declined to 67% of the total estimated revenues of $9.0 billion. The new major
competitors to the Stentor companies are Sprint (14% market share), AT&T (10%
market share), cellular carriers (3% market share),and other smaller carriers
controlling the balance.
Local Service Market
As with the long distance market, local service in Canada is controlled
by the Stentor companies. Based on interim figures from Stat/st/cs Canada,
Industry Canada estimates that there were approximately 19.2 million local
access lines in Canada on December 31,1998. This is 3.2% higher than the
year-end figure for 1997.
Between 1988 and 1997, the number of local access lines increased by
about 33%. (industry Canada estimates based on information in Statistics Canada,
Catalogue No. 56-001, and Statistics Canada, Catalogue No. 56-203) During this
same period, however, the revenues generated in the local service segment by
incumbent telecommunications carriers increased by 67% or twice the rate of
access line growth. The overall growth in access lines has been driven by the
residential market, which in 1997 was 12.4 million lines, almost double that of
business lines. However, from 1988 to 1997, the total number of residential
lines increased by 21.5% as compared to business lines which increased by 65.7%,
In general, business line rates have been higher than residential line rates;
growth in business lines, therefore has had a larger incremental impact in
dollar terms. Additionally, growth in the use of optional services has bolstered
local service revenues. (Industry Canada, The Canadian Telecommunications
Service Industry: 1997-98, pg. 15)
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Wireless Market
Wireless Service Providers segment generated revenues of $3.3 billion
in 1997, an increase of 14% up from $2.9 billion in 1996, This segment includes
cellular/PCS licensees, Rogers Cancel, Mobility Canada, Clearnet Communications
Inc., and Microcell Telecommunications Inc. This segment also includes paging
companies and other radio common carriers such as mobile radio dispatch service
providers.
The cellular/PCS market has grown steadily throughout the 1990s, but
the growth rate of the industry revenues has declined since 1994, likely
reflective of the increased competition in the marketplace.
Competition
The Company competes with many companies in the increasingly
competitive telecommunications industry, including some of the largest
corporations in the world. In Eastern Canada, Bell Telephone, once holding a
monopoly position in supplying local telephone service, continues to dominate
the market. The other largest competitors are Sprint, ATT, MCI
Telecommunications Inc. and Worldcom, Inc.
Corporate Development & Financing of the Company
Acquisition of APC Telecom
On June 26, 1998, APC Telecom Inc., a federally chartered Canadian
company ("APC"), was acquired by the Company in a stock-for-stock exchange (the
"Exchange") pursuant to an Agreement and Plan of Reorganization dated June 12,
1998 among the Company, APC and the shareholders of APC ("Exchange Agreement").
As a result of the Exchange, APC became a wholly owned subsidiary of the
Company. The Exchange Agreement contains certain provisions, discussed below,
that are material to the Company's operations over the two-year period following
the closing of the Exchange (the "Period").
The Company's Option to Redeem Exchange Shares
The Company has the right during the Period to redeem all Shares issued
in the Exchange at a price of $.001 per share, to Larry Hunt, Ron Crowe and Rick
Quinney, the founders of APC and now officers, directors and significant
shareholders of the Company (the "Executives"), if an Executive's employment
with the Company or an affiliated company is terminated during the Period. Any
shareholder has the right to judicially enforce this provision at the Company's
expense.
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<PAGE>
No Reverse Split
During the Period, the Company is prohibited from effecting reverse
split or combination of its shares or any other action which has the effect of
changing the number of outstanding shares of the Company into a smaller number
of shares. Any shareholder has the right to judicially enforce this provision at
the Company's expense.
Limit on Options or Warrants to be Issued
During the first twelve months of the Period, no warrants, options or
other rights to acquire Shares, or any instrument exchangeable for or
convertible into Shares, may be granted to any Executive. If the Company's
consolidated, aggregate revenues from all sources for the first twelve full
months of the Period equal or exceed $1,500,000 Can., the Board of Directors may
during the second twelve months of the Period grant to one or more of the
Executives options to purchase an aggregate of not more than 500,000 Shares
pursuant to the Company's 1997 Compensatory Stock Option Plan.
No Excessive Parachute Awards
During the Period, no contract or understanding may be executed or
established between the Company or any affiliated company on the one hand and
any Executive on the other hand, which calls for any "Excessive Parachute
Award", whether in the form of money, money equivalents, stock or other property
or thing of value, to be paid to an Executive upon the firing or other voluntary
or involuntary termination of the Executive's employment. An Excessive Parachute
Award is one in which the cash amount or fair value of which exceeds $10,000
Can. at the time of award, excluding compensation and accrued or deferred
compensation already earned and due at the time of termination.
No Excessive Compensation
During the Period, no Executive may receive annual compensation in cash
or cash equivalents or in any other form with a cash value exceeding $60,000 in
amount, including salaries, bonuses, perquisites and the like, but excluding
commissions on sales customary in the telecommunications industry. In the second
year of the Period, annual compensation may be increased to an amount not
exceeding $100,000, providing certain sales targets, as defined by Management,
are met in the first year of the Period.
The full board of directors may, by unanimous vote, increase this
amount as to any Executive based upon extraordinary effort or results
benefitting the Company.
Series A Voting Convertible Preferred Stock
Pursuant to the Exchange, the Company issued an aggregate of 5,000,000
shares of its Series A, Voting Convertible Preferred Stock to the shareholders
of APC. The following is a synopsis of the terms, and preferences of the Series
A Voting Convertible Preferred Stock. The shares of Series A Voting Convertible
Preferred Stock are transferable.
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<PAGE>
Dividends. The holders of Series A Voting Convertible Preferred Stock
are not entitled to receive any dividends thereon; provided, that if a dividend
is declared on the Shares or on any series of preferred shares ranking equal or
junior to the Series A Voting Convertible Preferred Stock, then the holders of
the Series A Preferred Stock will be entitled to receive a proportional share of
such dividend, based upon the proportion of the number of shares of Series A
Voting Convertible Preferred Stock then outstanding to the total number of
Shares and preferred stock entitled to participate in such dividend.
Redemption. The Series A Voting Convertible Preferred Stock is not
subject to redemption.
Conversion Right. Generally, Series A Voting Convertible Preferred
Stock may, subject to the Company's articles of incorporation and subject to
adjustment as provided below, at any time after issuance, be converted at the
option of the holder thereof into fully paid shares.
Maximum Conversion Rate. Each share of Series A Voting Convertible
Preferred Stock may be converted into three (3) fully paid shares subject to the
following conversion conditions:
(i) one half (1/2) of the shares of Series A Voting
Convertible Preferred Stock held may be converted when the
Company has opened three (3) Gateways (defined below) that are
fully functional and capable of immediately commencing
commercial operations, as certified by an engineer qualified
to make such certification;
(ii) The term "Gateway" for purposes of clause (i) immediately
preceding shall mean a telephony gateway server computer that
serves as a bridge between the Public Switched Telephone
Network or Private Branch Exchanges, on the one hand, and the
Internet on the other hand, and converts analog voice or data
transmissions to digital data packets (or vice versa);
provided, that five (5) of the Gateways must have capacity to
handle twenty-four (24) phone lines and the Internet access to
provide capacity of not less than Two Hundred Fifty Thousand
(250,000) minutes of talk time per month; and one Gateway must
have capacity to handle twelve (12) phone lines and the
Internet access to provide capacity of not less than One
Hundred Twenty-Five Thousand (125,000) minutes of talk time
per month.
(iii) one fourth (1/4) of the Series A Voting Convertible
Preferred Stock held may be converted when the Company and all
subsidiaries have on a combined basis achieved an aggregate of
Two Million Dollars ($2,000,000) Can. in bona fide total
revenues from all sources, as reflected on unaudited interim
consolidated financial statements regularly prepared for the
Company and all subsidiaries;
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<PAGE>
(iv) one fourth (1/4) of the Series A Voting Convertible
Preferred Stock held may be converted when the Company and all
subsidiaries have on a combined basis achieved an aggregate of
Seven Million Dollars ($7,000,000) Can. in bona fide total
revenues from all sources, including the $2,000,000 Can. in
bona fide total revenues required by clause (iii) immediately
preceding this clause (iv), as reflected on unaudited interim
consolidated financial statements regularly prepared for the
Company and all subsidiaries;
The four conversion conditions of this Paragraph 4.1(a) need
not be satisfied in any particular order, nor is the
satisfaction of any conversion condition dependent upon the
prior satisfaction of any other conversion condition.
Voting. Each share of Series A Voting Convertible Preferred Stock entitles the
holder to cast one vote on all matters placed to a vote of shareholders.
Financing of the Company
From July 28, 1998 through October 14, 1998 the Company sold a total of
2,000,000 Units, at a price of $0.05 per Unit, netting the Company $100,000.
Each Unit consisted of (i) one share; (ii) One Class A common stock purchase
warrant exercisable until April 30, 1999, to purchase one share at a price of
$0.10 per Share; (iii) One Class B common stock purchase warrant exercisable
until April 30, 1999, to purchase one share at a price of $.14 per Share; and
(iv) One Class C common stock purchase warrant exercisable until April 30, 1999,
to purchase one share at a price of $0.20 per Share. A total of (i) 1,948,000
Class A Warrants were exercised, between December 23, 1998 and April 30, 1999,
netting the Company $194,800, (ii) 1,820,000 Class B Warrants were exercised,
between December 8, 1998 and April 30, 1999, netting the Company $254,800, and
(iii) 412,000 Class C Warrants were exercised, between April 10, 1999 and April
30, 1999, netting the Company $82,400. The Units were sold pursuant to the
exemption from registration set forth in Rule 504, promulgated under the
Securities Act; the shares issued pursuant to the exercise of the Class A, B,
and C Warrants were also issued pursuant to the exemption from registration set
forth in Rule 504, promulgated under the Securities Act.
In August 1999, the Company raised a total of U.S. $501,100 in a
private placement of its convertible promissory notes to 23 subscribers in
Canada. Each holder of the notes is entitled to convert the note plus accrued
interest with shares at the rate of U.S. $40. The notes are unsecured, bear
interest at the annual rate of 8% and are due on July 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION
INCLUDED ELSEWHERE IN THIS FILING.
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<PAGE>
PLAN OF OPERATIONS
Overview
Innofone.com, Incorporated's wholly owned subsidiary Innofone Canada
Inc. was formed to initially offer traditional long distance services through
its guaranteed lowest rate ("GLR(Trademark)") calling plan, and, later, offer
Internet-based communications products and services worldwide. It is presently
marketing its GLR(Trademark) long distance services and had approximately 5,000
subscribers at November 30, 1999. The Company has been testing two Internet
gateway servers in Toronto and Montreal in connection with its plan to offer
Internet-based products and services.
To date, the Company has not generated sufficient revenues from its
long distance telephone service to pay its operating expenses. Without securing
additional funding, the Company will be unable to carry out any of its expansion
or marketing plans, and it may be unable to continue operations.
Raising Capital
The Company does not currently have the funds required to fund its
operations over the next 12 months or undertake new projects, such as offering
Internet-based communications, products and services, including the Hot Caller
opportunity. Accordingly, the Company is dependent on securing additional
financing, of which there can be no assurance. To undertake the HotCaller
project, and other projects, as well as fund its continuing operations,
Management anticipates it will need approximately $5 million over the next
twelve months. There can be no assurance the Company will be successful in
raising all or a portion of these funds. During January 2000 the Company plans
to seek to raise $1 million through a convertible debt offering, although the
specific terms of any such offering have not been finalized. Any funds received
would be used to finance current operations. However, there can be no assurance
the Company will be able to raise any funds, or that the Company will ever
become profitable.
Results of Operations
Year Ended June 30, 1999 with comparative figures for 1998
On June 26, 1998, the shareholders of the Company approved a share
exchange takeover bid whereby, on June 26, 1998 the Company acquired all of the
outstanding shares of Innofone Canada, a private Company. Under the terms of the
transaction, the shareholders of Innofone Canada received 5,000,0000 common
shares and 5,000,0000 Series A, voting convertible preferred shares of the
Company. The result of these transactions is that the former shareholders of
Innofone Canada acquired 83% of the outstanding common shares of the Company on
a fully diluted basis. Since the former shareholders of Innofone Canada control
the Company subsequent to these transactions, the business combination of the
two companies has been accounted for as a reverse takeover of the Company by
Innofone Canada. Application of reverse takeover accounting results in the
consolidated financial statements of the combined entity are issued under the
name of the legal parent (the Company) but are considered a continuation of the
financial statements of the legal subsidiary, Innofone Canada. As Innofone
Canada is deemed to be the acquirer for accounting purposes, its assets and
liabilities are included in the consolidated financial statements at their
historical carrying values. In addition, control of the net assets and
operations is deemed to be acquired by Innofone Canada and for the purposes of
this transaction, the deemed consideration is the net book value of the Company
as at June 26, 1998. A result of the reverse takeover is that the continuing
entity is deemed to be the acquiring company which is the legal subsidiary.
Consequently, the comparative figures for the Statements of Operations and
Deficit and Changes in Financial Position are from the date of the subsidiary's
incorporation, being April 24, 1998 to the Company's first fiscal year ended
June 30, 1998.
Revenues
To date, the Company has generated its revenue primarily from the resale of long
distance voice services to residential and small and medium sized businesses. In
future periods, the Company expects to continue to expand its long distance
customer base while offering other bundled services including pagers, Internet
calling cards, prepaid calling cards, and cellular services. The Company also
anticipates generating advertising revenues from the HotCaller web site. The
advertising revenues will be generated from interactive advertisements which are
viewed over the Internet by a subscriber wishing to make a free long distance
call. Innofone Canada will be the carrier of the long distance call which will
be directed from the HotCaller web site to Innofone's gateway to local public
switched network. The Company's ability to implement these plans and commence
generating revenues from advertising is dependent upon its ability to raise
adequate financing, of which there can be no assurance.
Operating Expenses
The Company's operating costs consist of cost of services, selling,
general and administrative costs ("SG&A"), interest and financing costs and
amortization costs.
Cost of Services. Through June 30, 1999, cost of services consisted of
expenditures to the underlying carriers of the long distance services that
Innofone resells to its customers. The main carriers selling services to the
Company through the CTRA Agreement are Sprint Canada and AT&T Canada. For future
periods, cost of services will also include the cost of related bundled
communications services which the Company plans to offer, subject to it securing
financing.
Sales and Cost of Sales. The Company realized no revenues from its inception
through the end of fiscal 1998. For the year ended June 30, 1999, revenues
increased to $105,100 from the sale of traditional long-distance services and
cost of sales increased to $71,273 resulting in a gross operating profit of
$33,827 or 32% of sales. The Company carried out testing of its internet
gateways during the period but no revenues were generated. Related costs were
expensed to operations.
Selling, general and administrative expenses. Included in these expenses are
management and consulting fees of $180,000 as remuneration to three senior
officers, Mr. Rick Quinney, Mr. Ron Crowe and Mr. Larry Hunt. During this first
year of operations, these persons have agreed to accept payments of $104,000
with the balance of $76,000 being accrued in the accounts until cash flow
permits. Also included in these expenses are the following costs:
o management and consulting fees $180,000
o personnel costs to acquire and retain customers 83,498
o billing costs 61,391
o professional fees 51,866
o server maintenance costs 40,284
o telephone switching, network and internet costs 37,103
o printing and video kit costs 37,901
o travel and accommodation 30,085
o advertising 27,286
o write off of franchise fee 23,729
o rent 21,767
o compensation expense of options 112,470
o other operating expenses 119,380
-------
Total selling, general and administrative costs. $826,760
========
Amortization. Amortization expenses represents the amortization of capital costs
for computer equipment and software, leasehold improvements, furniture and
fixtures, and telephone and technical equipment for a total of $56,076 for the
fiscal year ended June 30, 1999.
Interest and financing charges. Interest on long term debt represents interest
on the bank loan for a total of $15,037 for the year. The Company also incurred
interest and bank charges of $8,732 for the year ended June 30,1999.
Loss on sale of investment. Effective June 17, 1999, the Company sold its
investment in Canadian Telecom Resellers Alliance Inc. ("CTRA"] to Optel
Communications Corp. ("Optel") and received 156,250 warrants to purchase 156,250
Class B non-voting shares in Optel. The warrants have been assigned no value and
consequently, a loss of $89,118 has been recorded on the sale of the investment.
The Company incurred losses of $961,895 for the year ended June 30,
1999 compared to a loss of $51,841 for the comparative period from the date of
inception to June 30, 1998. The Company has total cumulative losses to date of
$1,013,736.
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Quarter Ended September 30, 1999
Revenues and cost of sales. Revenues for the first quarter ending September 30,
1999 were $119,779, approximately 13% higher than revenues for the year ended
June 30, 1999. These revenues are primarily from the resale of long distance
voice services to residential and small and medium sized businesses. The company
does not anticipate generating advertising revenues from the sale of interactive
ads through its Hotcaller program until its third or fourth quarter depending on
its ability to raise adequate financing. The gross profit of $30,083 for the
quarter is slightly less than the gross profit for the year ended June 30, 1999.
The gross margin declined 32% in Fiscal 1998 to 25% for the quarter and is due
to a change in the GLR program which offered more competitive international
calling rates for subscribers.
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Selling general and administrative expenses. Selling general and administrative
expenses totaled $354,700 for the quarter ending September 31, 1999. The details
of these expenses as compared to the year ended June 30, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Year ended Quarter ended
June 30, 1999 September 30, 1999
------------- ------------------
<S> <C> <C>
Management and consulting fees $180,000 $ 64,367
personnel and customer acquisition costs 83,498 79,350
billing costs 61,391 9,226
professional fees 51,866 38,364
server maintenance costs 40,284 6,900
phone switching, network and internet costs 37,103 7,060
printing and video kit costs 37,901 16,098
travel and accommodation 30,085 5,890
advertising 27,286 31,615
write-off of franchise fee 23,729 --
rent 21,767 7,799
compensation expense of options 112,470 70,950
other operating expenses 119,380 17,081
--------- ---------
Total selling general and administrative costs $826,760 $354,700
========== =========
</TABLE>
Management and consulting fees include the management fees paid to a marketing
consultant as well as payment to the three principal officers of the company.
Personnel and customer acquisition costs are higher relative to last year,
primarily as a result of the increased sales activity of Adcom Solutions Canada
Inc. ("Adcom"), the direct sales team and the related costs of acquiring new
customers. Professional fees reflect additional costs accrued for the expenses
of the SEC filing. Advertising costs in the first quarter are primarily public
relation costs which were considerably less in the last fiscal year. The
compensation expense of options relates to the fair value attributed to options
which were given to senior management of Adcom Solutions Canada Inc., when the
sales agreement was signed with the Company.
Amortization. Amortization expense of $17,818 includes depreciation and
amortization of capital assets and is slightly higher relative to last years
expense due to the additional computer equipment acquired during the quarter.
The Company incurred losses of $347,334 during the quarter for cumulative losses
to date of $1,361,070.
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Liquidity and Capital Resources
Since its inception the Company has financed its operations through the
proceeds from the sale and issuance of equity securities, loans from
stockholders and from bank financing. The Company borrowed approximately
$170,000 from a bank in Canada for the acquisition of its initial five Internet
telephony gateways. The Company raised $632,000 in 1999 from the sale of common
stock and the subsequent exercise of common stock purchase warrants. As at June
30, 1999, the Company had borrowed $312,000 from investors and certain
stockholders. The company raised a further $501,000 in 1999 from a convertible
debt offering. Funds from these sources have been used for working capital to
fund the testing of the internet telephony gateways, its GLR(Trademark) long
distance telephone services, and for general corporate purposes.
The timing and amount of the Company's capital requirements will depend
on a number of factors, including the number of new customers that are signed,
the demand for the Company's products and services, and the number of gateways
that are added to its network. The Company believes it needs approximately
$5,000,000 over the next twelve months to upgrade its gateway technology, to
expand its customer base, to add the new prepaid calling card program, and to
cover its operating deficit. The Company has no commitment for such financing
and there can be no assurance that it will be able to raise that amount or any
part of it during that time period, or at all.
DESCRIPTION OF PROPERTY
The Company leases its headquarters, executive offices and customer
service center in facilities consisting of approximately 3,950 square feet
building, located at 241 Applewood Crescent, Vaughan, Ontario, Canada.
Approximately 1,000 square feet of the premises are not being used, and are
available for future expansion. The lease commenced in July 1998, and expires in
July 2003, unless the Company exercises an option to extend the lease for an
additional five years. Average monthly rental and associated expenses are $3,000
Can. Management believes that its existing facilities are adequate for the
Company's current and future needs.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation for all periods
indicated in respect of the individual who was, as of June 30, 1999, the chief
executive officer of the Company. No persons received in excess of $100,000 for
the year ended June 30, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricted
Shares or
Securities Restricted All other
Other Annual Under Share LTIP Compen-
Name and Salary Bonus Compensation Options Units Payouts sation
Principal Position Year ($) ($) ($) (#) ($) ($) ($)
- ------------------ ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald Crowe 1999 $60,000 0 0 250,000
CEO Can.
</TABLE>
Mr. Crowe, CEO of the Company, Mr. Larry Hunt, Chief Operating Officer,
and Mr. Rick Quinney, Chief Financial Officer, each are employed at annual
salaries of $90,000 Can. Effective July 1, 1999 Messrs. Crowe and Hunt, are each
receiving $7,000 Can. per month, and Mr. Quinney is receiving $6,000 Can. per
month, with the balance accruing until such time as the Company becomes
profitable and the Company's cash flow is sufficient. The determination of when
the Company is adequately profitable and cash flow is sufficient to pay the
accrued salaries will be made by Management.
Option/SAR Grants in Last Fiscal Year
OPTIONS TO PURCHASE SECURITIES
- --------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- --------------------------------------------------------------------------------
Ronald Crowe 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
Larry Hunt 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
Richard Quinney 250,000 30% 1.00 June 30, 2001
- --------------------------------------------------------------------------------
33
<PAGE>
Subsequent to year end, the Company has granted options to purchase
1,950,000 shares, none of which have been granted to officers and directors at
prices ranging from $.001 per share to $0.40 per share.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
VALUE FY-END (#) FY-END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- --- ------------- -------------
Ronald Crowe 250,000/0 $92,500
Larry Hunt 250,000/0 $92,500
Richard Quinney 250,000/0 $92,500
No executive officer exercised any options during the fiscal year ended
June 30, 1999.
Employee Stock Compensation Plan
The Company has adopted the 1997 Employee Stock Compensation Plan for
employees, officers, directors of the Company and advisors to the Company (the
"ESC Plan"). The Company has reserved a maximum of 1,000,000 shares to be issued
upon the grant of awards under the ESC Plan. Employees will receive taxable
income upon the grant of Common Stock equal to the fair market value of the
Common Stock on the date of the grant and the Company will recognize a
compensating deduction at such time. The ESC Plan will be administered by the
Board of Directors. No common shares have been awarded under the ESC Plan.
Compensatory Stock Option Plan
The Company has adopted the Compensatory Stock Option Plan for
officers, employees, directors and advisors (the "CSO Plan"). The Company has
reserved a maximum of 1,500,000 shares to be issued upon the exercise of options
granted under the CSO Plan. Options will be granted under the CSO Plan at
exercise prices to be determined by the Board of Directors or other CSO Plan
administrator. With respect to options granted pursuant to the CSO Plan,
optionees will not recognize taxable income upon the grant of options granted at
or in excess of fair market value. The Company will be entitled to a
compensating deduction (which it must expense) in an amount equal to any taxable
income realized by an optionee as a result of exercising the option. The CSO
Plan will be administered by the Board of Directors or a committee of directors.
Options totalling 1,480,000 shares have been granted under the CSO Plan.
34
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's shares traded on National Association of Securities
Dealers Over the Counter Bulletin Board ("OTC Bulletin Board") from October 1998
to September 1, 1999. The price range of trading in the shares, on a quarterly
basis, during that period was as follows:
OTC BULLETIN BOARD
1998
----
High Low
---- ---
4th Quarter .85 .54
1999
----
High Low
---- ---
1st Quarter .90 .3125
2nd Quarter .75 .125
3rd Quarter 1.40 .35
(through
August
31, 1999)
Note: OTC Bulletin Board Quotations - The OTC Bulletin Board quotations
represent inter-dealer prices, without mark-ups, commissions, etc., and they may
not necessarily be indicative of actual sales prices.
35
<PAGE>
On September 1, 1999 the Company's shares were delisted from the OTC
Bulletin Board for failure to become a reporting issuer with the SEC by such
date. Since that date, the Company's shares have traded on the over-the-counter
market in the United States. The price range of trading in the shares, on a
monthly basis, since that time, is as follows:
1999 High - Low
---- ----------
September 1.10 - .375
October 1.00 - .45
November .75 - .25
The closing price of the Shares on the over-the-counter market on
December 21, 1999 was $.45.
At December 21, 1999, the Company had 62 shareholders of record.
DIVIDEND INFORMATION
The Company has not paid any cash dividends to date, and no cash
dividends will be declared or paid on the Shares in the foreseeable future.
Payment of dividends is solely at the discretion of the Company's board of
directors.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
36
<PAGE>
SECURITIES BEING OFFERED
Our shares are the only securities being offered pursuant to this
prospectus.
Each share is identical in all respects and entitles the holder thereof
to the same rights and privileges enjoyed by other holders of shares and
subjects them to the same qualifications, limitations and restrictions to which
all such other holders are subject.
Holders of our shares are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of the
shares do not have cumulative voting rights. Accordingly, subject to the voting
rights that holders of preferred stock may then possess, holders of a plurality
of the shares present at a meeting at which a quorum is present are able to
elect all of the directors eligible for election in a given year. The holders of
a majority of the voting power of the issued and outstanding capital stock
constitutes a quorum.
The holders of shares are entitled to dividends when declared by our
board of directors from legally available funds. The holders of shares are also
entitled to share pro rata in any distribution to stockholders upon our
liquidation or dissolution. We do not anticipate declaring or paying any cash
dividends in the foreseeable future.
None of our shares:
o have preemptive voting rights;
o are redeemable;
o are liable for assessments or further calls;
o have conversion rights; or
o have sinking fund provisions.
37
<PAGE>
All of the shares being offered hereby are being offered for sale from
time to time by certain of our stockholders as indicated on the Selling
Stockholder chart beginning on page ___, or any supplement thereto.
Transfer Agent and Registrar
Our transfer agent and registrar is Interwest Transfer Company Inc.,
located at 1981 East 4800 South Street, Suite 100, Salt Lake City, Utah. Its
telephone number is (801) 272-9294.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
us by Berns & Berns, One Rockefeller Plaza, Suite 210, New York, New York 10020.
EXPERTS
Our financial statements at June 30, 1999, appearing in this prospectus
and the registration statement, have been audited by KPMG, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form SB-2 under
the Securities Act that we filed with the Securities and Exchange Commission
with respect to the securities offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedule filed with it. For further information about us and
the securities offered by this prospectus, reference is made to the registration
statement and the exhibits and schedule filed with it. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. A copy of the registration statement and the
exhibits and schedule filed therewith may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. Please call the Commission at 1-800-SEC-0330 for
further information about its public reference room. The Commission maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants, including us, that file electronically
with the Commission. The address of the site is http://www.sec.gov. Our
registration statement and the exhibits and schedules we filed electronically
with the Commission are available on this site.
38
<PAGE>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements for the Year ended June 30, 1999 and for the period from
April 24, 1998 to June 30, 1998.................................................................................F-3
Independent Auditors' Report....................................................................................F-4
Consolidated Balance............................................................................................F-5
Consolidated Statements of Operations...........................................................................F-6
Consolidated Statements Shareholders' Deficiency................................................................F-7
Consolidated Statements of Cash Flows...........................................................................F-8
Notes to Consolidated Financial Statements......................................................................F-9
Unaudited Financial Statements at September 30, 1999 With Comparative Figures
for the Year ended June 30, 1999:...............................................................................F-26
Consolidated Balance Sheet......................................................................................F-27
Consolidated Statements of Operations...........................................................................F-28
Consolidated Statements Shareholders' Deficiency................................................................F-29
Consolidated Statements of Changes in Financial Position........................................................F-30
Notes to Consolidated Financial Statements......................................................................F-31
</TABLE>
<PAGE>
Consolidated Financial Statements
(Stated in United States dollars)
INNOFONE.COM,
INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
A Development Stage Company
Year ended June 30, 1999 and the period
from April 24, 1998 to June 30, 1998
F-3
<PAGE>
[KPMG LOGO OMITTED]
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Innofone.com, Incorporated
(formerly APC Telecommunications, Inc.) as at June 30, 1999 and 1998 and the
consolidated statements of operations, shareholders' deficiency and cash flows
for the year ended June 30, 1999 and the period from April 24, 1998 to June 30,
1998. 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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1999 and
1998 and the results of its operations and its cash flows for the year ended
June 30, 1999 and the period from April 24, 1998 to June 30, 1998 in accordance
with United States generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
September 3, 1999, except as to note 19(b)
which is as of October 5, 1999
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING
DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 1(b) to the
financial statements. Our report to the shareholders dated September 3, 1999,
except as to note 19(b) which is as of October 5, 1999, is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
September 3, 1999, except as to note 19(b)
which is as of October 5, 1999
[GRAPHIC OMITTED]
F-4
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Balance Sheets
(Stated in United States dollars)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ -- $ 310,285
Term deposit 102,477 --
Accounts receivable, net of allowance for
doubtful accounts of nil (1998 - nil) 73,167 16,232
Prepaid expenses and deposits 18,792 50,738
-----------------------------------------------------------------------------
194,436 377,255
Fixed assets (note 3) 286,370 181,722
Franchise fee (note 4) -- 23,729
- ---------------------------------------------------------------------------------
$ 480,806 $ 582,706
- ---------------------------------------------------------------------------------
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ 28,816 $ --
Accounts payable and accrued liabilities 253,725 213,407
Advances from ultimate shareholders (note 5) 67,000 --
Current portion of long-term debt (note 6) 41,012 42,968
Obligation under capital lease 3,695 --
-----------------------------------------------------------------------------
394,248 256,375
Advances from ultimate shareholders (note 5) 245,405 229,388
Long-term debt (note 6) 89,176 127,541
Shareholders' deficiency:
Share capital (note 8) 765,308 20,838
Deficit accumulated during the development stage (1,013,736) (51,841)
Accumulated other comprehensive income 405 405
-----------------------------------------------------------------------------
(248,023) (30,598)
Commitment (note 10)
Contingency (note 18)
Subsequent events (note 19)
- ---------------------------------------------------------------------------------
$ 480,806 $ 582,706
- ---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Operations
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Cumulative total
1999 1998 since inception
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 105,100 $ - $ 105,100
Cost of sales 71,273 - 71,273
- ----------------------------------------------------------------------------------------------
Gross profit 33,827 - 33,827
Selling, general and administrative expenses 826,760 51,809 878,569
Loss on sale of investment (note 7) 89,118 - 89,118
Amortization 56,075 - 56,075
Interest on long-term debt 15,037 - 15,037
Interest and bank charges 8,732 32 8,764
- ----------------------------------------------------------------------------------------------
995,722 51,841 1,047,563
- ----------------------------------------------------------------------------------------------
Net loss $ (961,895) $ (51,841) $ (1,013,736)
- ----------------------------------------------------------------------------------------------
Basic net loss per common share (note 12) $ (0.11) $ (0.01)
- ----------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 9,197,500 10,074,600
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATION, INC.)
Consolidated Statements of Shareholders' Deficiency
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit
Common accumulated Accumulated
Additional share during other
Common Preferred paid-in purchase development comprehensive
shares shares capital warrants stage income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued in connection with:
Issuance of common shares for cash $ - $ - $ 563 $ - $ - $ - $ 563
Issuance of shares for reverse takeover
transaction (note 1) 6,000 5,000 437 9,838 - - 20,275
-----------------------------------------------------------------------------------------------------------------------------
6,000 5,000 1,000 9,838 - - 20,838
Net loss - - - - (51,841) - (51,841)
Other comprehensive income, net of tax:
Foreign currency translation adjustment - - - - - 405 405
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss - - - - (51,841) 405 (51,436)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 5,000 5,000 1,000 9,838 (51,841) 405 (30,598)
Shares issued in connection with:
Issuance of common shares for cash 2,000 - 98,000 - - - 100,000
Exercise of warrants for
common shares 4,130 - 527,870 (9,838) - - 522,162
Exercise of common share purchase
warrants for common shares 1,000 - 8,838 - - - 9,838
-----------------------------------------------------------------------------------------------------------------------------
7,130 - 634,708 (9,838) - - 632,000
Stock Options - - 112,470 - - - 112,470
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss - - - - (961,895) - (961,895)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $12,130 $5,000 $748,178 $ - $(1,013,736) $ 405 $(248,023)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Cash Flows
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Cumulative total
1999 1998 since inception
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in):
Operations:
Net loss $ (961,895) $ (51,841) $(1,013,736)
Items not involving cash:
Amortization 56,075 - 56,075
Write off of franchise fee 23,729 - 23,729
Loss on disposal of fixed asset 17,071 - 17,071
Loss on sale of investment 89,118 - 89,118
Compensation expense on stock options 112,470 - 112,470
Change in non-cash operating working capital:
Accounts receivable (56,900) (16,232) (73,132)
Prepaid expenses and deposits 32,049 (30,463) 1,586
Accounts payable and accrued liabilities 39,800 213,407 253,207
-------------------------------------------------------------------------------------------------
(648,483) 114,871 (533,612)
Financing:
Increase in bank indebtedness 28,816 - 28,816
Advances from ultimate shareholders 83,017 229,388 312,405
Proceeds on long-term debt - 170,509 170,509
Principal payments on long-term debt (40,321) - (40,321)
Principal payments on obligation
under capital lease (1,105) - (1,105)
Issuance of share capital 632,000 563 632,563
-------------------------------------------------------------------------------------------------
702,407 400,460 1,102,867
Investments:
Proceeds from disposal of fixed asset 106,330 - 106,330
Additions to fixed assets (285,963) (181,722) (467,685)
Purchase of term deposit (102,477) - (102,477)
Payment of franchise fee - (23,729) (23,729)
Investment in CTRA (89,118) - (89,118)
Proceeds on sale of investment in CTRA 40,000 - 40,000
Payment of note payable to CTRA (40,000) - (40,000)
-------------------------------------------------------------------------------------------------
(371,228) (205,451) (576,679)
Effect of exchange rate changes on cash 7,019 405 7,424
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (310,285) 310,285 -
Cash and cash equivalents, beginning of period 310,285 - -
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ 310,285 $ -
- -----------------------------------------------------------------------------------------------------
</TABLE>
Cash interest and income taxes paid for the year ended June 30, 1999 was $20,458
(1998 - $32) and $nil (1998 - $nil), respectively.
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. On March 30, 1999, the Company changed its name from APC
Telecommunications, Inc. to Innofone.com, Incorporated. The Company commenced
commercial operations in fiscal 1999, however, they are still considered to be
in the development stage due to the fact that there has been no significant
revenue derived from the operations. The Company, through its legal subsidiary
that operates in Canada, is engaged in the business of long distance telephone
and internet telephony. All of the Company's sales are to Canadian customers in
the residential and business sectors. The Company is not dependent on a single
customer. However, the Company uses only a few carriers of long distance
services that they are dependent on for the usage of their telephone lines.
1. Basis of presentation:
(a) Business combination of the Company and Innofone Canada Inc. ("Innofone
Canada") (formerly APC Telecom Inc.):
On June 26, 1998, the shareholders of the Company approved a share
exchange takeover bid whereby, on June 26, 1998, the Company acquired
all of the outstanding shares of Innofone Canada, a private company.
Under the terms of the transaction, the shareholders of Innofone Canada
received 5,000,000 common shares and 5,000,000 Series A, voting
convertible preferred shares of the Company. The result of this
transaction is that the former shareholders of Innofone Canada acquired
83% of the outstanding common shares of the Company on a fully diluted
basis.
Accounting for the business combination:
As former shareholders of Innofone Canada hold 83% of the outstanding
shares of the Company subsequent to these transactions, the business
combination of the two companies has been accounted for as a reverse
takeover of the Company by Innofone Canada.
Application of reverse takeover accounting results in the following:
(i) The consolidated financial statements of the combined entity are
issued under the name of the legal parent (the Company) but are
considered a continuation of the financial statements of the legal
subsidiary (Innofone Canada);
(ii) As Innofone Canada is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the consolidated
financial statements at their historical carrying values;
F-9
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(iii) Control of the net assets and operations of the Company is
deemed to be acquired by Innofone Canada. For purposes of this
transaction, the deemed consideration is considered to be
equivalent to the net book value of the Company as at June 26,
1998.
-------------------------------------------------------------------------
Deemed consideration $ 20,275
Assigned value of net assets:
Prepaid expenses and deposits $ 20,275
-------------------------------------------------------------------------
(b) Future operations:
These financial statements have been prepared on the going concern
basis, which assumes the realizations of assets and settlement of
liabilities in the normal course of operations, notwithstanding the
significant operating losses since incorporation, negative working
capital and deficiency in shareholders' equity at June 30, 1999 and
the Company's shares being delisted from the National Association of
Securities Dealers ("NASD") over-the-counter Bulletin Board (note
19(c)). Continued operations depend upon the Company's ability to
attain profitable operations and obtain sufficient cash from external
financing to meet the Company's liabilities as they become payable.
Management is of the opinion that sufficient working capital will be
obtained from operations and external financing to meet the Company's
liabilities and commitments as they become payable.
2. Significant accounting policies:
These consolidated financial statements have been prepared by
management in accordance with accounting principles generally accepted
in the United States, the more significant of which are outlined
below.
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Innofone Canada. All
significant intercompany transactions and balances have been
eliminated on consolidation.
F-10
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(b) Cash equivalents:
Cash equivalents are nil as at June 30, 1999 and 1998. For purposes
of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or
less to be cash equivalents.
(c) Fixed assets:
Fixed assets are recorded at cost and are amortized over the
estimated useful life of the asset using the following methods and
annual rates:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Asset Basis Rate
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer servers and software Declining balance 30%
Furniture and fixtures Declining balance 20%
Leasehold improvements Straight line Over the lease term
Telephone Declining balance 30%
Technical equipment Declining balance 30%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Use of estimates:
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
(e) Income taxes:
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-11
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Foreign currency translation:
For the year ended June 30, 1999, the Canadian dollar is the
functional currency, being the currency in which the Company
carries out most of its operations. The statement of
operations is translated into United States dollars using the
average exchange rates for the year. The balance sheet is
translated into United States dollars using the year-end
exchange rate for monetary items and at the rates of exchange
on the date of transaction for non-monetary items. The
translation gains or losses are included in the statement of
operations.
For the period from April 24, 1998 to June 30, 1998, the
United States dollar is both the reporting and functional
currency. Accordingly, the translation gains or losses is
deferred and continues to be deferred as a separate component
of the statements of shareholders' deficiency as accumulated
other comprehensive income.
(g) Comprehensive income:
On July 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income
consists of net loss and foreign currency translation
adjustments and is presented in the consolidated statements of
shareholders' deficiency and comprehensive income. The
statement requires only additional disclosures in the
consolidated financial statements; it does not affect the
Company's financial position or results of operations. Prior
year financial statements conform to the requirements of SFAS
No. 130.
(h) Stock option plan:
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, Accounting for Stock-Based
Compensation in accounting for its stock option plan. As such,
compensation expense is recorded on the date of grant based on
the value of the award and is recognized over the service
period.
F-12
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(i) Impairment of long-lived assets and long-lived assets to be
disposed of:
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell.
3. Fixed assets:
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------
Computer servers and software $ 267,378 $ 263 $ 267,115
Furniture and fixtures 13,526 1,087 12,439
Leasehold improvements 5,456 1,059 4,397
Telephone 1,654 248 1,406
Technical equipment 1,192 179 1,013
- --------------------------------------------------------------------------------
$ 289,206 $ 2,836 $ 286,370
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------
Computer servers and software $ 176,266 $ -- $ 176,266
Leasehold improvements 5,456 -- 5,456
- --------------------------------------------------------------------------------
$ 181,722 $ -- $ 181,722
- --------------------------------------------------------------------------------
F-13
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
4. Franchise fee:
On April 26, 1998, the Company signed a franchise agreement with Access
Power Inc. giving it exclusive rights to develop internet telephony
throughout Canada using the innovative technologies trademarked by
Access Power Inc. for a period of thirty years. On December 11, 1998,
this agreement was voluntarily terminated resulting in full mutual
releases for both parties to the agreement. Accordingly, the
capitalized franchise fee has been charged to current operations and is
included in selling, general and administrative expenses.
5. Advances from ultimate shareholders:
Advances from ultimate shareholders, classified as long term, are
unsecured, non-interest bearing providing the Company is not in default
of any payments required to be made starting July 1, 2003, and are
repayable in equal monthly installments beginning July 1, 2003 to 2018.
The current advances from ultimate shareholders are due on demand.
6. Long-term debt:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Bank loan bearing interest at the bank's prime
rate plus 3%, repayable in monthly principal
payments of $4,774 from October 1998 to
April 1999 and $3,418 commencing in May
1999, interest repayable monthly effective
upon inception of the loan $130,188 $170,509
Less current portion 41,012 42,968
- --------------------------------------------------------------------------------
$ 89,176 $127,541
- --------------------------------------------------------------------------------
The loan is secured by a first charge against the assets of the
Company. Certain shareholders have signed personal guarantees totalling
$42,500 to secure the loan.
F-14
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
Principal repayments are as follows:
- --------------------------------------------------------------------------------
2000 $ 41,012
2001 41,012
2002 41,012
2003 7,152
- --------------------------------------------------------------------------------
$ 130,188
- --------------------------------------------------------------------------------
7. Loss on sale of investment:
During fiscal 1999, the Company purchased a 12.5% investment in
Canadian Telecom Resellers Alliance Inc. ("CTRA"), a corporation
incorporated under the laws of the Province of Ontario for
consideration consisting of cash of $89,118 and a note payable to CTRA
for $40,000.
Effective June 17, 1999, the Company sold its investment in CTRA to
Optel Communications Corp. ("Optel") an arm's length Canadian
controlled private corporation and received $40,000 in cash to repay
the note payable to CTRA and 156,250 warrants to purchase 156,250 Class
B non-voting shares in Optel. The warrants have been assigned a value
of nil. Accordingly, a loss of $89,118 has been recorded on the sale of
the investment. The warrants are exercisable in four six month
intervals commencing June 17, 1999 at a price of Cdn. $2.00 per warrant
and expire on June 17, 2004. The Company is also entitled to exercise
up to 93,750 additional warrants at a price of Cdn. $2.00 per warrant
at any time after November 30, 2000 if CTRA meets certain business
targets during the period from June 17, 1999 until November 30, 2000.
The additional warrants expire on June 17, 2004. As of June 30, 1999,
no warrants have been exercised.
F-15
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital:
As described in note 1(a), Innofone Canada is deemed, for accounting
purposes, to have acquired the Company effective June 26, 1998.
As at June 26, 1998, the authorized share capital of Innofone Canada
consisted of an unlimited number of common shares. The change in share
capital of Innofone Canada for the period from April 24, 1998 (date of
incorporation) to June 26, 1998, the effective date of the business
combination with the Company was as follows:
- --------------------------------------------------------------------------------
Issued for cash $ 563
- --------------------------------------------------------------------------------
Share capital of Innofone Canada, June 26, 1998 $ 563
- --------------------------------------------------------------------------------
Additional paid-in capital was received in the amount of $437 cash. The
total of $563 and $437 represents total additional paid-in capital for
1,000,000 common shares at June 30, 1998. The 5,000,000 preferred and
5,000,000 common shares issued to effect the business combination on
June 26, 1998 were assigned a value of $5,000 each based on their par
value.
The ascribed share capital of the Company, the continuing consolidated
entity, as at June 30, 1999 for accounting purposes, is computed as
follows:
- --------------------------------------------------------------------------------
Existing share capital of Innofone Canada, June 26, 1998 $ 563
Ascribed value of the shares of the Company as a result
of business combination 10,000
Common share purchase warrants 9,838
Additional paid-in-capital 437
- --------------------------------------------------------------------------------
Share capital of the Company, June 30, 1998 20,838
Proceeds from sale of units 2,000
Warrants exercised 5,130
Common share purchase warrants exercised (9,838)
Additional paid-in-capital 747,178
- --------------------------------------------------------------------------------
Share capital of the Company, June 30, 1999 $765,308
- --------------------------------------------------------------------------------
F-16
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital (continued):
As a result of the business combination, Innofone Canada became a
wholly-owned subsidiary of the Company. For accounting purposes, at
June 26, 1998, the outstanding shares of the Company, the continuing
consolidated entity, consisted of the number of the Company shares
issued to date with an ascribed value equal to the share capital of the
continuing consolidated entity as computed above. The number of
outstanding common shares of the Company as at June 30, 1999 is
computed as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Common
share
Common Preferred purchase
shares shares warrants
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Existing outstanding shares and
warrants as at June 26, 1998 1,000,000 -- 1,000,000
Shares issued to effect the business
combination with Innofone Canada 5,000,000 5,000,000 --
- -----------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1998 6,000,000 5,000,000 1,000,000
Common share purchase warrants exercised 1,000,000 -- (1,000,000)
Sale of units 2,000,000 -- 6,000,000
Warrants exercised 4,130,000 -- (4,130,000)
Warrants expired -- -- (1,870,000)
- -----------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1999 13,130,000 5,000,000 --
- -----------------------------------------------------------------------------------------
</TABLE>
The Company's authorized share capital consists of 100,000,000 common
shares and 25,000,000 preferred shares each with a par value of $0.001
per share. The preferred shares are voting, convertible to common
shares on a 3 for 1 basis at the option of the holder based on certain
business targets being met and participate equally as to dividends with
each common share.
F-17
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
8. Share capital (continued):
On June 15, 1998, the Company issued 1,000,000 common share purchase
warrants to a shareholder of the Company as consideration for services
provided, related to the reverse take-over transaction (note 1). A
value of $9,838 was assigned to the common share purchase warrants.
Each common share purchase warrant was exercisable until June 30, 1999
to acquire one common share at $0.02 per share. On January 5, 1999, the
common share purchase warrants were exercised. Upon exercise of the
1,000,000 common share purchase warrants, 1,000,000 common shares were
issued at $0.02 per share. The payment for these shares was offset by a
$20,000 payable for services provided to the Company and the $9,838
value assigned to common share purchase warrants was reallocated $1,000
to common shares based on their par value and $8,838 as additional
paid-in capital.
On July 7, 1998, the Company made an offering of 2,000,000 units, under
rule 504 of Regulation D of the Securities Act of 1933, at a price of
$0.05 per unit. Each unit consisted of one common share, $0.001 par
value per share and three common share purchase warrants exercisable at
$0.10, $0.14 and $0.20 respectively, each of which was exercisable
until April 30, 1999. Cash in the amount of $100,000 was received on
the sale of the units and $2,000 was allocated to common shares based
on their par value and $98,000 to additional paid-in capital. As at
April 30, 1999, 4,130,000 share purchase warrants were exercised for
$532,000. This cash was allocated $4,130 to common shares based on
their par value and $527,870 to additional paid-in capital. The
remaining share purchase warrants expired.
9. Stock option plan:
In 1997, the Company adopted a Compensatory Stock Option Plan (the
"Plan") pursuant to which the Company's Board of Directors may grant
stock options to employees, consultants, advisors or directors of the
Company. The Plan authorizes grants of options to purchase up to
1,500,000 shares of authorized but unissued common stock. Stock options
are granted with an exercise price equal to or greater than 85% of the
stock's fair market value at the date of grant and the vesting period
is limited to no more than 10 years.
On August 11, 1998 and June 30, 1999, the Company granted 630,000 and
750,000 stock options respectively to consultants, a director and
employees of the Company pursuant to the Company's compensatory stock
option plan for the purchase of common shares ranging from $0.10 to
$1.00 per share, expiring from August 10, 2000 to June 30, 2001 and
vesting either on the date of grant or 6 months after date of grant. As
of June 30, 1999, no stock options were exercised.
F-18
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
9. Stock option plan (continued):
The following table summarizes the activity for the Plan:
-------------------------------------------------------------------------
Number of Weighted-average
options exercise price
-------------------------------------------------------------------------
Balance at April 24, 1998 and June 30, 1998 -- N/A
Granted 1,380,000 $ 0.64
Exercised -- N/A
Forfeited -- N/A
Expired -- N/A
Balance at June 30, 1999 1,380,000 $ 0.64
Options exerciseable at June 30, 1999 1,380,000 $ 0.64
-------------------------------------------------------------------------
The weighted average grant date fair value of options granted during the
year is summarized in the following table:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Weighted-average
Weighted-average grant date
exercise price fair value of options
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Options whose exercise price is at fair market value $ 0.10 $ 11,000
Options whose exercise price is greater than market value 0.73 101,470
---------------------------------------------------------------------------------------------------
Total weighted-average grant date fair value of options $ 112,470
---------------------------------------------------------------------------------------------------
</TABLE>
The weighted average remaining contractual life for all outstanding
options is 1.5 years.
The fair value of each option was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions
used for 1999: dividend yield of 0%, expected volatility of 100%,
risk-free interest rate of approximately 5% and expected life of 2
years. Compensation costs recorded under the 1997 Compensatory Stock
Option Plan in 1999 aggregated $112,470. The full amount was assigned
as additional paid-in capital.
In 1997, the Company also adopted an Employee Stock Option plan
pursuant to which the Company's Board of Directors may grant stock
options to employees of the Company. The plan authorizes grants of
options to purchase up to 1,000,000 shares of authorized but unissued
common stock. No stock options have been granted to employees under
this plan as of June 30, 1999.
F-19
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
10. Commitment:
The Company has entered into an operating lease agreement for its
premises for a five-year term expiring in June 2003. The Company has
the option to renew the lease for a further five-year period at then
market rates. The annual lease payments for the next four years are as
follows:
-----------------------------------------------------------------------
2000 $ 15,000
2001 16,000
2002 16,000
2003 17,000
-----------------------------------------------------------------------
$ 64,000
-----------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities:
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at June 30, 1999 and 1998.
The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than a forced or liquidation sale. These
estimates, although based on the relevant market information about the
financial instrument, are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
-----------------------------------------------------------------------
1999 1999
-----------------------------------------------------------------------
Carrying Fair
amount value
-----------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ -- $ --
Accounts receivable 73,167 73,167
Deposits 5,105 5,105
Financial liabilities:
Accounts payable and accrued liabilities 253,725 253,725
Long-term debt 130,188 130,188
Obligation under capital lease 3,695 3,695
Advances from ultimate shareholders 312,405 312,405
-----------------------------------------------------------------------
F-20
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
11. Fair value of financial assets and financial liabilities (continued):
-----------------------------------------------------------------------
1998 1998
-----------------------------------------------------------------------
Carrying Fair
amount value
-----------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 310,285 $ 310,285
Accounts receivable 16,232 16,232
Deposits 5,137 5,137
Financial liabilities:
Accounts payable and accrued liabilities 213,407 213,407
Long-term debt 170,509 170,509
Advances from ultimate shareholders 229,388 229,388
-----------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, deposits, accounts
payable and accrued liabilities.
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Long-term debt:
The fair value is estimated by discounting the future cash flows at
rates currently offered to the Company for similar debt instruments of
comparable maturity by the Company's bankers.
Advances from ultimate shareholders:
Imputed interest computed at comparable market rates on the interest
free advances from ultimate shareholders is not considered to be
material to the financial statements. Consequently, the financial
statements do not include a charge for imputed interest on the interest
free advances and the fair value is considered to be comparable to the
carrying value.
12. Basic net loss per share:
Basic net loss per share figures are calculated using the weighted
average number of common shares outstanding computed on a daily basis.
The effect of the conversion of the preferred shares on an if-converted
basis and stock options has an anti-dilutive effect.
F-21
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
13. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 1999 and 1998 are
presented below:
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 318,000 23,000
Net capital loss carryforwards 30,000 --
Capital assets, principally due to differences
in amortization 32,000 --
-----------------------------------------------------------------------
Total gross deferred tax assets 380,000 23,000
Less valuation allowance (380,000) (23,000)
-----------------------------------------------------------------------
Net deferred tax assets $ -- $ --
-----------------------------------------------------------------------
The valuation allowance for deferred tax assets as of July 1, 1998 and
April 24, 1998 was $23,000 and nil, respectively. The net change in the
total valuation allowance for the year ended June 30, 1999 and the
period from April 24, 1998 to June 30, 1998 was an increase of $357,000
and $23,000, respectively. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies
in making this assessment. In order to fully realize the deferred tax
asset, the Company will need to generate future taxable income of
approximately $656,000 and $50,500 prior to the expiration of the net
operating loss carryforwards in 2006 and 2005 respectively and future
taxable capital gains of approximately $67,000 to utilize the net
capital loss carryforward available indefinitely. Based upon the level
of historical taxable income and that the Company is considered a
development stage company, it cannot be reasonably estimated at this
time if its more likely than not the Company will realize the benefits
of the deferred tax assets. Consequently, the deferred tax assets have
been reduced by an equivalent valuation allowance. The valuation
allowance will be adjusted in the period that is determined with
reasonable certainty that it is more likely than not that some portion
or all of the deferred tax assets will be realized.
F-22
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
13. Income taxes (continued):
At June 30, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $656,000 and $50,500 (1998 -
$50,500) which are available to offset future taxable income, if any,
through 2006 and 2005, respectively. In addition, the Company has net
capital loss carryforwards for income tax purposes of approximately
$67,000 (1998 - nil) which are available to offset future taxable
capital gains.
14. Non-cash financing and investing activities:
(a) In 1999, a capital lease obligation of $4,800 was incurred
when the Company entered into a lease for furniture and
fixtures.
(b) In 1999, 1,000,000 shares of common stock were issued upon the
conversion of 1,000,000 common share purchase warrants to
settle an outstanding liability.
(c) In 1999, a note payable of $40,000 was issued when the Company
purchased an investment in CTRA.
(d) In 1998, a business combination with the Company and Innofone
Canada (note 1) was effected.
15. Segmented information:
(a) Reportable segment:
The Company has one reportable segment; resale of long
distance services. The resale of long distance services is
provided to residential and small to medium sized businesses.
This segment represents the result of operations for the
Company.
(b) Geographic information:
The Company derives all of its revenue from Canada and all of
its capital assets are physically located in Canada.
F-23
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
16. New US Accounting Standards:
(a) In April 1998, the American Institute of Certified Public
Accountants issued statement of position 98-5 (SOP 98-5)
"Reporting on the Costs of Start-Up Activities", which
requires costs of start-up activities to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998 and requires initial application to be
reported as the cumulative effect of a change in accounting
principle. Management has not determined the impact of
adoption of SOP 98-5 on its financial statements.
(b) In June 1998, the FASB issued SFAS No. 133 "Derivative
Instruments and Hedging Activities" effective for fiscal
quarters beginning after June 15, 2000. SFAS No. 133 requires
that the Company report all derivative instruments on the
balance sheet at fair value. Management has not determined the
impact of adoption of SFAS No. 133 on its financial
statements.
17. Comparative figures:
Certain of the 1998 comparative figures have been reclassified to
conform with the financial statement presentation adopted in 1999.
18. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effect of the Year
2000 Issue may be experienced before, on, or after January 1, 2000, and
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
F-24
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Year ended June 30, 1999 and the period from April 24, 1998 to June 30, 1998
- --------------------------------------------------------------------------------
19. Subsequent events:
(a) On July 13, 1999, the Company committed to grant 300,000 stock
options to consultants of the Company. As of September 3,
1999, no stock options have been granted.
(b) On August 5 and 6, 1999, the Company raised $501,100 through
the subscription of 8% unsecured convertible promissory notes
(amended on October 5, 1999) which are due July 31, 2000. The
notes are convertible into common shares of the Company with a
par value of $0.001 per share at a price of $0.40 per share.
As of September 3, 1999, no notes have been converted into
common shares.
(c) Effective September 1, 1999, the Company's shares were
delisted from the NASD over-the-counter Bulletin Board. The
Company is in the process of preparing a Registration
Statement to be filed with the United States Securities and
Exchange Commission in order for the Company's shares to be
eligible for trading in the United States on the NASD
over-the-counter Bulletin Board.
20. Other events:
On June 29, 1999, Hotcaller.com Inc. ("Hotcaller") was incorporated. No
shares have been issued to date. However, it is management's intention
that Hotcaller will be a wholly owned subsidiary of the Company.
F-25
<PAGE>
Consolidated Financial Statements
(Stated in United States dollars)
INNOFONE.COM,INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
For the period ended September 30, 1999
(Unaudited)
F-26
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Balance Sheets
(Stated in United States dollars)
(Unaudited)
September 30, 1999 with comparative figures for the year ended June 30, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
September 30, 1999 June 30,1999
- ----------------------------------------------------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 175,737 $ --
Term deposit -- 102,477
Accounts receivable, net of allowance for doubtful accounts
of nil 150,297 73,167
Prepaid expenses and deposits 19,567 18,792
- ----------------------------------------------------------------------------------------------------
345,601 194,436
Fixed assets (note 3) 326,482 286,370
- ----------------------------------------------------------------------------------------------------
$ 672,083 $ 480,806
- ----------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank indebtedness $ -- $ 28,816
Accounts payable and accrued liabilities 273,784 253,725
Advances from ultimate shareholders (note 5) -- 67,000
Current portion of long-term debt (note 6) 30,675 41,012
Obligation under capital lease 3,188 3,695
- ----------------------------------------------------------------------------------------------------
307,647 394,248
- ----------------------------------------------------------------------------------------------------
Advances from ultimate shareholders (note 5) 299,587 245,405
Long-term debt (note 6) 88,156 89,176
Convertible debt (note 7) 501,100 --
Shareholders' deficiency:
Share capital (note 9) 836,258 765,308
Deficit accumulated during the development stage (1,361,070) (1,013,736)
Accumulated other comprehensive income 405 405
- ----------------------------------------------------------------------------------------------------
(524,407) (248,023)
Commitment (note 10)
Contingency (note 18)
- ----------------------------------------------------------------------------------------------------
$ 672,083 $ 480,806
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Operations
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 with comparative figures for the year
ended June 30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
September 30, 1999 June 30,1999
- -----------------------------------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Sales $ 119,779 $ 105,100
Cost of sales 89,696 71,273
- -----------------------------------------------------------------------------------
Gross profit 30,083 33,827
Selling, general and administrative expenses 354,700 826,760
Loss on sale of investment -- 89,118
Amortization 17,818 56,075
Interest on long-term debt 3,037 15,037
Interest and bank charges 1,862 8,732
- -----------------------------------------------------------------------------------
377,417 995,722
- -----------------------------------------------------------------------------------
Net loss (347,334) (961,895)
Deficit, beginning of period (1,013,736) (51,841)
- -----------------------------------------------------------------------------------
Deficit, end of period $ (1,361,070) $ (1,013,736)
- -----------------------------------------------------------------------------------
Basic net loss per common share (note 8) $ (0.03) $ (0.11)
- -----------------------------------------------------------------------------------
Weighted average number of commonshares outstanding 13,180,000 9,197,500
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATION, INC.)
Consolidated Statements of Shareholders' Deficiency
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Common accumulated Accumulated
Additional share during other
Common Preferred paid-in purchase development comprehensive
shares shares capital warrants stage income Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued in connection with:
Issuance of common shares for cash $ -- $ -- $ 563 $ -- $ -- $ -- $ 563
Issuance of shares for reverse takeover
transaction (note 1) 5,000 5,000 437 9,838 -- -- 20,275
- -----------------------------------------------------------------------------------------------------------------------------------
5,000 5,000 1,000 9,838 -- -- 20,838
Net loss -- -- -- -- (51,841) -- (51,841)
Other comprehensive income, net of tax:
Foreign currency translation adjustment -- -- -- -- -- 405 405
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss -- -- -- -- (51,841) 405 (51,436)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 5,000 5,000 1,000 9,838 (51,841) 405 (30,598)
Shares issued in connection with:
Issuance of common shares for cash 2,000 -- 98,000 -- -- -- 100,000
Exercise of warrants for common shares 4,130 -- 527,870 (9,838) -- -- 522,162
Exercise of common share purchase
warrants for common shares 1,000 -- 8,838 -- -- -- 9,838
- -----------------------------------------------------------------------------------------------------------------------------------
7,130 -- 634,708 (9,838) -- -- 632,000
Net loss (961,895) (961,895)
Stock options -- -- 112,470 -- -- -- 112,470
- -----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 12,130 5,000 748,178 (1,013,736) (248,023)
Net loss -- -- -- -- (347,334) -- (347,334)
Stock options 70,950 70,950
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 12,130 $ 5,000 $ 819,128 $ -- $(1,361,070) $ 405 $(524,407)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Consolidated Statements of Changes in Financial Position
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 with comparative figures for the year
ended June 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
September 30, 1999 June 30,1999
- -------------------------------------------------------------------------------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Cash flows provided by (used in):
Operations:
Net loss $(347,334) $(961,895)
Items not involving cash:
Amortization 17,818 56,075
Write off of franchise fee -- 23,729
Loss on disposal of fixed asset -- 17,071
Loss on sale of investment -- 89,118
Compensation expense on stock options -- 112,470
Change in non-cash operating working capital (57,846) 14,949
- -------------------------------------------------------------------------------------------------------------------
(387,362) (648,483)
Financing:
Advances from ultimate shareholders (12,818) 83,017
Increase(decrease) in bank indebtedness (28,816) 28,816
Principal payments on long-term debt (11,357) (40,321)
Principal payments on obligationunder capital lease (507) (1,105)
Increase in convertible debt 501,100
Issuance of share capital 70,950 632,000
- -------------------------------------------------------------------------------------------------------------------
518,552 702,407
Investments:
Proceeds from disposal of fixed asset -- 106,330
Additions to fixed assets (57,930) (285,963)
Sale (purchase) of term deposit 102,477 (102,477)
Investment in CTRA -- (89,118)
Proceeds on sale of investment in CTRA -- 40,000
Payment of note payable to CTRA -- (40,000)
- -------------------------------------------------------------------------------------------------------------------
44,547 (371,228)
Effect of exchange rate changes on cash -- 7,019
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 175,737 310,285
Cash and cash equivalents, beginning of period -- 310,285
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 175,737 $ --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
Innofone.com, Incorporated (the "Company") is incorporated under the laws of the
State of Nevada. On March 30, 1999, the Company changed its name from APC
Telecommunications, Inc. to Innofone.com, Incorporated. The Company commenced
commercial operations in fiscal 1999, however, they are still considered to be
in the development stage due to the fact that there has been no significant
revenue derived from the operations. The Company, through its legal subsidiary
that operates in Canada, is engaged in the business of long distance telephone
and internet telephony. All of the Company's sales are to Canadian customers in
the residential and business sectors. The Company is not dependent on a single
customer. However, the Company uses only a few carriers of long distance
services that they are dependent on for the usage of their telephone lines.
1. Basis of presentation:
(a) Business combination of the Company and Innofone Canada Inc.
("Innofone Canada") (formerly APC Telecom Inc.):
On June 26, 1998, the shareholders of the Company approved a
share exchange takeover bid whereby, on June 26, 1998, the
Company acquired all of the outstanding shares of Innofone
Canada, a private company. Under the terms of the transaction,
the shareholders of Innofone Canada received 5,000,000 common
shares and 5,000,000 Series A, voting convertible preferred
shares of the Company. The result of this transaction is that
the former shareholders of Innofone Canada acquired 83% of the
outstanding common shares of the Company on a fully diluted
basis.
Accounting for the business combination:
As former shareholders of Innofone Canada hold 83% of the
outstanding shares of the Company subsequent to these
transactions, the business combination of the two companies
has been accounted for as a reverse takeover of the Company by
Innofone Canada.
Application of reverse takeover accounting results in the
following:
(i) The consolidated financial statements of the combined
entity are issued under the name of the legal parent
(the Company) but are considered a continuation of
the financial statements of the legal subsidiary
(Innofone Canada);
(ii) As Innofone Canada is deemed to be the acquirer for
accounting purposes, its assets and liabilities are
included in the consolidated financial statements at
their historical carrying values;
F-31
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
1. Basis of presentation (continued):
(iii) Control of the net assets and operations of the
Company is deemed to be acquired by Innofone Canada.
For purposes of this transaction, the deemed
consideration is considered to be equivalent to the
net book value of the Company as at June 26, 1998.
-----------------------------------------------------
Deemed consideration $ 20,275
Assigned value of net assets:
Prepaid expenses and deposits $ 20,275
-----------------------------------------------------
(b) Future operations:
These financial statements have been prepared on the going
concern basis, which assumes the realizations of assets and
settlement of liabilities in the normal course of operations,
notwithstanding the significant operating losses since
incorporation, negative working capital and deficiency in
shareholders' equity at June 30, 1999 and the Company's shares
being delisted from the National Association of Securities
Dealers ("NASD") over-the-counter Bulletin Board (note 19(c)).
Continued operations depend upon the Company's ability to
attain profitable operations and obtain sufficient cash from
external financing to meet the Company's liabilities as they
become payable. Management is of the opinion that sufficient
working capital will be obtained from operations and external
financing to meet the Company's liabilities and commitments as
they become payable.
2. Significant accounting policies:
These consolidated financial statements have been prepared by
management in accordance with accounting principles generally
accepted in the United States, the more significant of which
are outlined below.
(a) Basis of presentation:
The consolidated financial statements include the
accounts of the Company and its wholly owned
subsidiary, Innofone Canada. All significant
intercompany transactions and balances have been
eliminated on consolidation.
F-32
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(b) Cash equivalents:
Cash equivalents are nil as at June 30, 1999 and 1998. For
purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(c) Fixed assets:
Fixed assets are recorded at cost and are amortized over the
estimated useful life of the asset using the following methods
and annual rates:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Asset Basis Rate
-----------------------------------------------------------------------------
<S> <C> <C>
Computer servers and software Declining balance 30%
Furniture and fixtures Declining balance 20%
Leasehold improvements Straight line Over the lease term
Telephone Declining balance 30%
Technical equipment Declining balance 30%
-----------------------------------------------------------------------------
</TABLE>
(d) Use of estimates:
The preparation of financial statements in conformity with
United States generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ
from those estimates.
(e) Income taxes:
Income taxes are accounted for under the asset and liability
method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
F-33
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(f) Foreign currency translation:
For the period ended September 30, 1999, the Canadian dollar is the
functional currency, being the currency in which the Company carries
out most of its operations. The statement of operations is translated
into United States dollars using the average exchange rates for the
period. The balance sheet is translated into United States dollars
using the period-end exchange rate for monetary items and at the rates
of exchange on the date of transaction for non-monetary items. The
translation gains or losses are included in the statement of
operations.
For the period from April 24, 1998 to June 30, 1998, the United States
dollar is both the reporting and functional currency. Accordingly, the
translation gains or losses is deferred and continues to be deferred as
a separate component of the statements of shareholders' deficiency as
accumulated other comprehensive income.
(g) Comprehensive income:
On July 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. Comprehensive income consists of net loss and foreign
currency translation adjustments and is presented in the consolidated
statements of shareholders' deficiency and comprehensive income. The
statement requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements
conform to the requirements of SFAS No. 130.
(h) Stock option plan:
The Company applies the fair value based method of accounting
prescribed by SFAS No. 123, Accounting for Stock-Based Compensation in
accounting for its stock option plan. As such, compensation expense is
recorded on the date of grant based on the value of the award and is
recognized over the service period.
F-34
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(i) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
3. Fixed assets:
----------------------------------------------------------------------------
September 30, 1999
----------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
----------------------------------------------------------------------------
Computer servers and software $323,411 $ 16,963 $306,448
Furniture and fixtures 14,540 1,668 12,872
Leasehold improvements 6,275 1,348 4,927
Telephone 1,654 355 1,299
Technical equipment 1,192 256 936
----------------------------------------------------------------------------
$347,072 $ 4,268 $326,482
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, 1999
----------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
----------------------------------------------------------------------------
Computer servers and software $267,378 $ 263 $267,115
Furniture and fixtures 13,526 1,087 12,439
Leasehold improvements 5,456 1,059 4,397
Telephone 1,654 248 1,406
Technical equipment 1,192 179 1,013
----------------------------------------------------------------------------
$289,206 $ 2,836 $286,370
----------------------------------------------------------------------------
F-35
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
4. Franchise fee:
On April 26, 1998, the Company signed a franchise agreement with Access
Power Inc. giving it exclusive rights to develop internet telephony
throughout Canada using the innovative technologies trademarked by Access
Power Inc. for a period of thirty years. On December 11, 1998, this
agreement was voluntarily terminated resulting in full mutual releases for
both parties to the agreement. Accordingly, the capitalized franchise fee
has been charged to current operations and is included in selling, general
and administrative expenses.
5. Advances from ultimate shareholders:
Advances from ultimate shareholders, classified as long term, are unsecured,
non-interest bearing providing the Company is not in default of any payments
required to be made starting July 1, 2003, and are repayable in equal
monthly installments beginning July 1, 2003 to 2018. The current advances
from ultimate shareholders are due on demand.
6. Long-term debt:
- --------------------------------------------------------------------------------
September 30, 1999 June 30, 1999
- --------------------------------------------------------------------------------
Bank loan bearing interest at the
bank's prime rate plus 3%, repayable
in monthly principal payments of
$4,774 from October 1998 to April
1999 and $3,418 commencing in May
1999, interest repayable monthly
effective upon inception of the loan $118,831 $130,188
Less current portion 30,675 41,012
- --------------------------------------------------------------------------------
$ 88,156 $127,541
- --------------------------------------------------------------------------------
The loan is secured by a first charge against the assets of the Company.
Certain shareholders have signed personal guarantees totalling $42,500 to
secure the loan.
F-36
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
Principal repayments are as follows:
----------------------------------------------------------------------------
2000 $ 30,675
2001 41,012
2002 41,012
2003 6,132
----------------------------------------------------------------------------
$118,831
----------------------------------------------------------------------------
7. Convertible debt:
On August 5th and 6th, 1999, the Company raised $501,100 through the
subscription of 8% unsecured convertible promissory notes (amended October
5, 1999) which are due July 31, 2000. The notes are convertible into common
shares of the Company with a par value of $.001 per share at a price of $.40
per share. As of September 30, 1999, no notes have been converted.
8. Loss on sale of investment:
During fiscal 1999, the Company purchased a 12.5% investment in Canadian
Telecom Resellers Alliance Inc. ("CTRA"), a corporation incorporated under
the laws of the Province of Ontario for consideration consisting of cash of
$89,118 and a note payable to CTRA for $40,000.
Effective June 17, 1999, the Company sold its investment in CTRA to Optel
Communications Corp. ("Optel") an arm's length Canadian controlled private
corporation and received $40,000 in cash to repay the note payable to CTRA
and 52,083 warrants to purchase 52,083 Class B non-voting shares in Optel.
The warrants have been assigned a value of nil. Accordingly, a loss of
$89,118 has been recorded on the sale of the investment for the Company's
year ended June 30, 1999. The warrants are exercisable in four six month
intervals commencing June 17, 1999 at a price of Cdn. $6.00 per warrant and
expire on June 17, 2004. The Company is also entitled to exercise up to
31,250 additional warrants at a price of Cdn. $6.00 per warrant at any time
after November 30, 2000 if CTRA meets certain business targets during the
period from June 17, 1999 until November 30, 2000. The additional warrants
expire on June 17, 2004. As of September 30, 1999, no warrants have been
exercised.
F-37
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
9. Share capital:
As described in note 1(a), Innofone Canada is deemed, for accounting
purposes, to have acquired the Company effective June 26, 1998.
As at June 26, 1998, the authorized share capital of Innofone Canada
consisted of an unlimited number of common shares. The change in share
capital of Innofone Canada for the period from April 24, 1998 (date of
incorporation) to June 26, 1998, the effective date of the business
combination with the Company was as follows:
----------------------------------------------------------------------------
Issued for cash $ 563
----------------------------------------------------------------------------
Share capital of Innofone Canada, June 26, 1998 $ 563
----------------------------------------------------------------------------
Additional paid-in capital was received in the amount of $437 cash. The
total of $563 and $437 represents total additional paid-in capital for
1,000,000 common shares at June 30, 1998. The 5,000,000 preferred and
5,000,000 common shares issued to effect the business combination on June
26, 1998 were assigned a value of $5,000 each based on their par value.
The ascribed share capital of the Company, the continuing consolidated
entity, as at June 30, 1999 for accounting purposes, is computed as follows:
----------------------------------------------------------------------------
Existing share capital of Innofone Canada, June 26, 1998 $ 563
Ascribed value of the shares of the Company as a result
of business combination 10,000
Common share purchase warrants 9,838
Additional paid-in-capital 437
----------------------------------------------------------------------------
Share capital of the Company, June 30, 1998 20,838
Proceeds from sale of units 2,000
Warrants exercised 5,130
Common share purchase warrants exercised (9,838)
Additional paid-in-capital 747,178
----------------------------------------------------------------------------
Share capital of the Company, September 30, 1999 $765,308
----------------------------------------------------------------------------
F-38
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
9. Share capital (continued):
As a result of the business combination, Innofone Canada became a
wholly-owned subsidiary of the Company. For accounting purposes, at June 26,
1998, the outstanding shares of the Company, the continuing consolidated
entity, consisted of the number of the Company shares issued to date with an
ascribed value equal to the share capital of the continuing consolidated
entity as computed above. The number of outstanding common shares of the
Company as at September 30, 1999 is computed as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Common
- -------------------------------------------------------------------------------------
share
Common Preferred purchase
shares shares warrants
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Existing outstanding shares and
warrants as at June 26, 1998 1,000,000 - 1,000,000
Shares issued to effect the business
combination with Innofone Canada 5,000,000 5,000,000 -
- -------------------------------------------------------------------------------------
Outstanding shares and warrants
as at June 30, 1998 6,000,000 5,000,000 1,000,000
Common share purchase warrants exercised 1,000,000 - (1,000,000)
Sale of units 2,000,000 - 6,000,000
Warrants exercised 4,130,000 - (4,130,000)
Warrants expired - - (1,870,000)
- -------------------------------------------------------------------------------------
Outstanding shares and warrants
as at September 30, 1999 13,130,000 5,000,000 -
- -------------------------------------------------------------------------------------
</TABLE>
The Company's authorized share capital consists of 100,000,000 common shares
and 25,000,000 preferred shares each with a par value of $0.001 per share.
The preferred shares are voting, convertible to common shares on a 3 for 1
basis at the option of the holder based on certain business targets being
met and participate equally as to dividends with each common share.
F-39
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
9. Share capital (continued):
On June 15, 1998, the Company issued 1,000,000 common share purchase
warrants to a shareholder of the Company as consideration for services
provided, related to the reverse take-over transaction (note 1). A value of
$9,838 was assigned to the common share purchase warrants. Each common share
purchase warrant was exercisable until June 30, 1999 to acquire one common
share at $0.02 per share. On January 5, 1999, the common share purchase
warrants were exercised. Upon exercise of the 1,000,000 common share
purchase warrants, 1,000,000 common shares were issued at $0.02 per share.
The payment for these shares was offset by a $20,000 payable for services
provided to the Company and the $9,838 value assigned to common share
purchase warrants was reallocated $1,000 to common shares based on their par
value and $8,838 as additional paid-in capital.
On July 7, 1998, the Company made an offering of 2,000,000 units, under rule
504 of Regulation D of the Securities Act of 1933, at a price of $0.05 per
unit. Each unit consisted of one common share, $0.001 par value per share
and three common share purchase warrants exercisable at $0.10, $0.14 and
$0.20 respectively, each of which was exercisable until April 30, 1999. Cash
in the amount of $100,000 was received on the sale of the units and $2,000
was allocated to common shares based on their par value and $98,000 to
additional paid-in capital. As at April 30, 1999, 4,130,000 share purchase
warrants were exercised for $532,000. This cash was allocated $4,130 to
common shares based on their par value and $527,870 to additional paid-in
capital. The remaining share purchase warrants expired.
10. Stock option plan:
In 1997, the Company adopted a Compensatory Stock Option Plan (the "Plan")
pursuant to which the Company's Board of Directors may grant stock options
to employees, consultants, advisors or directors of the Company. The Plan
authorizes grants of options to purchase up to 1,500,000 shares of
authorized but unissued common stock. Stock options are granted with an
exercise price equal to or greater than 85% of the stock's fair market value
at the date of grant and the vesting period is limited to no more than 10
years.
On August 11, 1998, June 30, 1999, and July 13, 1999 the Company granted
630,000, 750,000 and 450,000 stock options respectively to consultants, a
director and employees of the Company pursuant to the Company's compensatory
stock option plan for the purchase of common shares ranging from $0.10 to
$1.00 per share, expiring from August 10, 2000 to June 30, 2001 and vesting
either on the date of grant or 6 months after date of grant. As of September
30, 1999, no stock options were exercised.
F-40
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
10. Stock option plan (continued):
The following table summarizes the activity for the Plan:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Number of Weighted-average
options exercise price
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at April 24, 1998 and June 30, 1998 - N/A
Granted 1,830,000 $ 0.62
Exercised - N/A
Forfeited - N/A
Expired - N/A
Balance at June 30, 1999 1,830,000 $ 0.62
Options exerciseable at September 30, 1999 1,830,000 $ 0.62
-------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of options granted during the
year is summarized in the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Weighted-average
Weighted-average grant date
exercise price fair value of options
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options whose exercise price is at fair market value $ 0.10 $ 11,000
Options whose exercise price is greater than market value 0.73 101,470
Options whose exercise price is less then market value 0.50 70,950
-------------------------------------------------------------------------------------------------------
Total weighted-average grant date fair value of options $ 183,420
-------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average remaining contractual life for all outstanding options
is 1.5 years.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
1999: dividend yield of 0%, expected volatility of 100%, risk-free interest
rate of approximately 5% and expected life of 2 years. Compensation costs
recorded under the 1997 Compensatory Stock Option Plan in 1999 aggregated
$183,420. The full amount was assigned as additional paid-in capital.
In 1997, the Company also adopted an Employee Stock Option plan pursuant to
which the Company's Board of Directors may grant stock options to employees
of the Company. The plan authorizes grants of options to purchase up to
1,000,000 shares of authorized but unissued common stock. No stock options
have been granted to employees under this plan as of September 30, 1999.
F-41
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
11. Commitment:
The Company has entered into an operating lease agreement for its premises
for a five-year term expiring in June 2003. The Company has the option to
renew the lease for a further five-year period at then market rates. The
annual lease payments for the next four years are as follows:
----------------------------------------------------------------------------
2000 $ 15,000
2001 16,000
2002 16,000
2003 17,000
----------------------------------------------------------------------------
$ 64,000
----------------------------------------------------------------------------
12. Fair value of financial assets and financial liabilities:
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at September 30, 1999 and June 30,
1999. The estimated fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
willing parties, other than a forced or liquidation sale. These estimates,
although based on the relevant market information about the financial
instrument, are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1999
---------------------------------------------------------------------------------------------------
Carrying Fair
amount value
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ - $ -
Accounts receivable 150,297 150,267
Deposits 19,567 19,567
Financial liabilities:
Accounts payable and accrued liabilities 224,783 224,783
Long-term debt 118,831 118,831
Obligation under capital lease 3,188 3,188
Advances from ultimate shareholders 299,587 299,587
---------------------------------------------------------------------------------------------------
</TABLE>
F-42
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
12. Fair value of financial assets and financial liabilities (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
June 30,1999 June 30,1999
- ----------------------------------------------------------------------------------------------
Carrying Fair
amount value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ - $ -
Accounts receivable 73,167 73,167
Deposits 5,105 5,105
Financial liabilities:
Accounts payable and accrued liabilities 253,725 253,725
Long-term debt 130,188 130,188
Obligation under capital lease 3,695 3,695
Advances from ultimate shareholders 312,405 312,405
- ----------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, deposits, accounts payable
and accrued liabilities.
The carrying amounts approximate fair value because of the short maturity of
these instruments.
Long-term debt:
The fair value is estimated by discounting the future cash flows at rates
currently offered to the Company for similar debt instruments of comparable
maturity by the Company's bankers.
Advances from ultimate shareholders:
Imputed interest computed at comparable market rates on the interest free
advances from ultimate shareholders is not considered to be material to the
financial statements. Consequently, the financial statements do not include
a charge for imputed interest on the interest free advances and the fair
value is considered to be comparable to the carrying value.
13. Basic net loss per share:
Basic net loss per share figures are calculated using the weighted average
number of common shares outstanding computed on a daily basis. The effect of
the conversion of the preferred shares on an if-converted basis and stock
options has an anti-dilutive effect.
F-43
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
14. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at June 30, 1999 and 1998 are presented
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
September 30, 1999 June 30, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 435,000 318,000
Net capital loss carryforwards 30,000 30,000
Capital assets, principally due to differences
in amortization 32,000 32,000
- --------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 497,000 380,000
Less valuation allowance (497,000) (380,000)
- --------------------------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
- --------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of June 30, 1999 was
$380,000. The net change in the total valuation allowance for the year ended
June 30, 1999 and the quarter ended September 30, 1999 was an increase of
$357,000 and $117,000, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers projected
future taxable income and tax planning strategies in making this assessment.
In order to fully realize the deferred tax asset, the Company will need to
generate future taxable income of approximately $1,100,000 prior to the
expiration of the net operating loss carryforwards in 2006 and future
taxable capital gains of approximately $67,000 to utilize the net capital
loss carryforward available indefinitely. Based upon the level of historical
taxable income and that the Company is considered a development stage
company, it cannot be reasonably estimated at this time if its more likely
than not the Company will realize the benefits of the deferred tax assets.
Consequently, the deferred tax assets have been reduced by an equivalent
valuation allowance. The valuation allowance will be adjusted in the period
that is determined with reasonable certainty that it is more likely than not
that some portion or all of the deferred tax assets will be realized.
F-44
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
14. Income taxes (continued):
At September 30, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $957,000 which are available to offset
future taxable income, if any, through 2006. In addition, the Company has
net capital loss carryforwards for income tax purposes of approximately
$67,000 which are available to offset future taxable capital gains.
15. Non-cash financing and investing activities:
(a) In 1999, a capital lease obligation of $4,800 was incurred when the
Company entered into a lease for furniture and fixtures.
(b) In 1999, 1,000,000 shares of common stock were issued upon the
conversion of 1,000,000 common share purchase warrants to settle an
outstanding liability.
(c) In 1999, a note payable of $40,000 was issued when the Company purchased
an investment in CTRA.
(d) In 1998, a business combination with the Company and Innofone Canada
(note 1) was effected.
16. Segmented information:
(a) Reportable segment:
The Company has one reportable segment; resale of long distance
services. The resale of long distance services is provided to
residential and small to medium sized businesses. This segment
represents the result of operations for the Company.
(b) Geographic information:
The Company derives all of its revenue from Canada and all of its
capital assets are physically located in Canada.
F-45
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
17. New US Accounting Standards:
(a) In April 1998, the American Institute of Certified Public Accountants
issued statement of position 98-5 (SOP 98-5) "Reporting on the Costs of
Start-Up Activities", which requires costs of start-up activities to be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998 and requires initial application to be reported
as the cumulative effect of a change in accounting principle. Management
has not determined the impact of adoption of SOP 98-5 on its financial
statements.
(b) In June 1998, the FASB issued SFAS No. 133 "Derivative Instruments and
Hedging Activities" effective for fiscal quarters beginning after June
15, 2000. SFAS No. 133 requires that the Company report all derivative
instruments on the balance sheet at fair value. Management has not
determined the impact of adoption of SFAS No. 133 on its financial
statements.
18. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effect of the Year 2000 Issue may
be experienced before, on, or after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from minor errors
to significant systems failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that
all aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers, or other third parties, will
be fully resolved.
F-46
<PAGE>
INNOFONE.COM, INCORPORATED
(FORMERLY APC TELECOMMUNICATIONS, INC.)
Notes to Consolidated Financial Statements (continued)
(Stated in United States dollars)
(Unaudited)
For the period ended September 30, 1999 and the year ended June 30, 1999
- --------------------------------------------------------------------------------
19. Other events:
(a) On June 29, 1999, Hotcaller.com Inc. ("Hotcaller") was incorporated. No
shares have been issued to date. However, it is management's intention that
Hotcaller will be a wholly owned subsidiary of the Company.
(b) Effective September 1, 1999, the Company's shares were delisted from the
NASD over-the-counter Bulletin Board. The Company is in the process of
preparing a Registration Statement to be filed with the United States
Securities and Exchange Commission in order for the Company's shares to be
eligible for trading in the United States on the NASD over-the-counter
Bulletin Board.
F-47
<PAGE>
PART II
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Nevada law, the Company's Certificate of Incorporation
provides that the Company will indemnify its officers and directors against
attorneys' fees and other expenses and liabilities they incur to defend, settle
or satisfy any civil or criminal action brought against them arising out of
their association with or activities on behalf of the Company unless, in any
such action, they are adjudged to have acted with gross negligence or to have
engaged in willful misconduct. The Company may also bear the expenses of such
litigation for any such persons upon their promise to repay such sums if it is
ultimately determined that they are not entitled to indemnification. Such
expenditures could be substantial and may not be recouped, even if the Company
is so entitled. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
believes that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's estimates of the expenses
to be incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
Securities and Exchange Commission registration fee $ 280
Fees and expenses of Registration _______*
Accounting fees and expenses _______*
Miscellaneous -------
Total $______
* Estimated
Item 26. RECENT SALES OF UNREGISTERED SECURITIES
1. On June 15, 1998, the Company issued 1,000,000 common share purchase
warrants to a shareholder of the Company as consideration for services
provided, related to the reverse take-over transaction with APC Telecom
Inc. described in paragraph 2. A value of $9,838 was assigned to the
common share purchase warrants. Each common share purchase warrant was
exercisable until June 30, 1999 to acquire one common share at $0.02
per share. On January 5, 1999, the common share purchase warrants were
exercised. Upon exercise of the 1,000,000 common share purchase
warrants, 1,000,000 common shares were issued at $0.02 per share. The
share purchase warrants and the shares issued upon exercise of the
warrants were issued pursuant to the exemptions from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), as a transaction not involving a public offering.
II-1
<PAGE>
2. On June 26, 1998, APC Telecom Inc., a federally chartered Canadian
company ("APC"), was acquired by the Company in a stock-for-stock
exchange (the "Exchange") pursuant to an Agreement and Plan of
Reorganization dated June 12, 1998 among the Company, APC and the
shareholders of APC ("Exchange Agreement"). As a result of the
Exchange, APC became a wholly owned subsidiary of the Company. The
Company issued to the shareholders of APC (i) 5,000,000 shares of its
common stock, par value $.001 per share ("Shares"), and (ii) 5,000,000
shares of Series A, Convertible Preferred Stock, pursuant to the
exemptions from registration set forth in Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), as a
transaction not involving a public offering.
3. From July 28, 1998 through October 14, 1998 the Company sold a total of
2,000,000 Units, at a price of $0.05 per Unit, to 13 investors located
in the Bahamas, Hong Kong, and Mexico, netting the Company $100,000.
Each Unit consisted of (i) one Share; (ii) One Class A common stock
purchase warrant exercisable April 30, 1999, to purchase one Share at a
price of $0.10 per Share; (iii) One Class B common stock purchase
warrant exercisable until April 30, 1999, to purchase one Share at a
price of $.14 per Share; and (iv) One Class C common stock purchase
warrant exercisable until April 30, 1999, to purchase one Share at a
price of $0.20 per Share. A total of (i) 1,948,000 Class A Warrants
were exercised, between December 23, 1998 and April 30, 1999, netting
the Company $194,800, (ii) 1,820,000 Class B Warrants were exercised,
between December 8, 1998 and April 30, 1999, netting the Company
$254,800, and (iii) 412,000 Class C Warrants were exercised, between
April 10, 1999 and April 30, 1999, netting the Company $82,400. The
Units were sold pursuant to the exemption from registration set forth
in Rule 504, promulgated under the Securities Act; the Shares issued
pursuant to the exercise of the Class A, B, and C Warrants were issued
pursuant to the exemption from registration set forth in Rule 504,
promulgated under the Securities Act.
4. During August through October 1999, the Company raised a total of
$501,1000 U.S. in a private placement of its convertible promissory
notes to 23 subscribers in Canada. Each holder of the notes is entitled
to convert the note plus accrued interest with shares at the rate of
$0.40 U.S. per share. The notes are unsecured, bear interest at the
annual rate of 8% and are due on July 31, 2000. The notes were sold
pursuant to the exemption from registration set forth in section 4(2)
of the Securities Act, as a transaction not involving a public
offering.
Item 27. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
*2.02 Agreement and Plan of Reorganization among Registrant,
APC Telecommunications Inc. ("APC"), and the Shareholders
of APC.
*3.01(i) Certificate of Incorporation of the Registrant.
II-2
<PAGE>
*3.01(ii) By-Laws of the Registrant.
**5.01 Opinion of Berns & Berns.
*10.01 Agreement dated March 3, 1999 between Canadian Telecom
Resellers Alliance and Registrant.
*10.02 Agreement dated June 11, 1998 between Datex
Communications Corporation and Registrant.
*10.03 Memorandum of Understanding dated November 30, 1999
between Registrant and Douglas Burdon.
*10.04 1997 Employee Stock Option Plan
*10.05 1997 Compensatory Stock Option Plan
*10.06 Joint Subscription Agreement to Innofone.com Incorporated
and Hot Caller Com Inc.
*10.07 Amending Agreement Between Innofone,com Incorporated, Hot
Caller.Com Inc., and Larry Hunt, Rick Quinney and Ron
Crowe
**11.01 Statement Regarding Computation of per share earnings.
*21.01 Subsidiaries of the Registrant.
**23.01 Consent of Berns & Berns (included in Exhibit 5)
**23.02 Consent of KPMG LLP
**27.01 Financial Data Schedule
- ----------
* Filed herewith
** To be filed by amendment.
Item 28. UNDERTAKINGS
The Company hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE>
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggre gate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) and to 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) that, for the purpose of determining any liability unes Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering;
(4) to provide to the Underwriter at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser;
(5) insofar as indemnification for liabilities arising under the Securities 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 Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue;
(6) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of pro
the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective;
(7) for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
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 OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF VAUGHAN,
ONTARIO, CANADA, ON JANUARY ___, 2000.
Innofone,com, Incorporated
By: /Larry Hunt/
- ----------------
Larry Hunt,
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- ---------------------------------- ----------------
SIGNATURE TITLE DATE
- --------------------------------------- ---------------------------------- ----------------
/s/ Larry Hunt President, Chief Executive Jan. ___, 2000
- --------------------- Officer, Director (Principal
Larry Hunt Executive Officer)
- --------------------------------------- ---------------------------------- ----------------
/s/ Richard Quinney Chief Financial Officer, Director Jan. ___, 2000
- --------------------- (Principal Financial and
Richard Quinney Accounting Officer)
- --------------------------------------- ---------------------------------- ----------------
/s/ Ronald Crowe Director Jan.___ , 2000
- ---------------------
Ronald Crowe
- -----------------------------------------------------------------------------------------------------
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER
- ------- --------------------- ------------
<S> <C> <C>
*2.02 Agreement and Plan of Reorganization among Registrant, APC
Telecommunications Inc. ("APC"), and the Shareholders of APC.
*3.01(i) Certificate of Incorporation of the Registrant.
*3.01(ii) By-Laws of the Registrant.
**5.01 Opinion of Berns & Berns.
*10.01 Agreement dated March 3, 1999 between Canadian Telecom
Resellers Alliance and Registrant.
*10.02 Agreement dated June 11, 1998 between Datex Communications
Corporation and Registrant.
*10.03 Memorandum of Understanding dated November 30, 1999 between
Registrant and Douglas Burdon.
*10.04 1997 Compensatory Stock Option Plan
*10.05 1997 Employee Stock Option Plan
*10.06 Joint Subscription Agreement to Innofone.com Incorporated and
Hot Caller Com Inc.
*10.07 Amending Agreement Between Innofone,com Incorporated, Hot
Caller.Com Inc., and Larry Hunt, Rick Quinney and Ron Crowe
**11.01 Statement Regarding Computation of per share earnings.
*21.01 Subsidiaries of the Registrant.
**23.01 Consent of Berns & Berns (included in Exhibit 5)
**23.02 Consent of KPMG LLP
**27.01 Financial Data Schedule
</TABLE>
- ----------
* Filed herewith
** To be filed by amendment.
<PAGE>
Exhibit 2.02
Exhibit 2.02 Agreement and Plan of Reorganization among Registrant, APC
Telecommunications Inc. ("APC"), and the Shareholders of APC.
A G R E E M E N T A N D P L A N O F R E O R G A N I Z A T I O N
This Agreement ("Agreement") is made and entered into on June 12, 1998,
by and among PROPAINT SYSTEMS, INC., a Nevada corporation, as buyer (the
"Company"); ACCESS POWER CANADA, INC., a federally chartered Canadian
corporation, as the acquired company ("Acquired Company" or "APC"); and certain
persons executing this Agreement in their capacity as shareholders of APC (the
"APC Holders").
R E C I T A L S:
A. The APC Holders collectively own of record and beneficially all of
the 8,000,000 issued and outstanding shares of capital stock of APC (the "APC
Shares"): and
B. The APC Holders desire to sell to the Company, and the Company
desires to purchase from the APC Holders, all of the APC Shares, on the terms
and subject to the conditions of this Agreement; and
C. The respective boards of directors of APC and the Company have
approved the execution of this Agreement and performance of the parties'
respective obligations herein.
NOW THEREFORE, for and in consideration of the premises and the mutual
promises and undertakings contained herein, and for other good and valuable
consideration, and subject to the terms and conditions of this Agreement, the
parties hereto agree as follows:
1. THE EXCHANGE.
1.1 Sale and Purchase of the APC Shares. On the terms and subject to
conditions of this Agreement, at the Closing (defined below), the APC Holders
shall sell, transfer, assign, convey and deliver to the Company or the Company's
wholly owned subsidiary, free and clear of all adverse claims, security
interests, liens, claims and encumbrances (other than restrictions under
applicable securities laws or as expressly agreed to
1
<PAGE>
herein by the Company), and the Company or its subsidiary shall purchase, accept
and acquire all of the 8,000,000 APC Shares from the APC Holders, such purchase
and sale being herein sometimes referred to as the "Exchange." The Company shall
receive good and merchantable title to the APC Shares. It is intended among all
the parties that the Exchange shall constitute a tax free reorganization within
the meaning of Sections 351 and 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended ("Code").
1.2 Issuance of Exchange Shares. In full payment for the APC Shares,
the Company shall ratably issue and deliver to the APC Holders in proportion to
their respective ownership of the APC Shares, an aggregate of
(i) 5,000,000 shares of the Company's common stock, $.001 par
value per share (the "Common Exchange Shares"); and
(ii) 5,000,000 shares of the Company's "Series A, Voting
Convertible Preferred Shares," $.001 par value per share
(the "Preferred Exchange Shares"), the terms,
preferences and designations of which are set forth on
EXHIBIT A to this Agreement.
The Common Exchange Shares and Preferred Exchange Shares are sometimes
collectively referred to in this Agreement as the "Exchange Shares." The
Exchange Shares, which term includes the common shares of the Company into which
the Preferred Exchange Shares may be converted ("Conversion Shares"), will, when
issued, be validly issued, fully paid, and nonassessable; the sale, issuance and
delivery of the Exchange Shares on the terms herein contemplated has been
authorized by all requisite corporate action of the Company; and the Exchange
Shares and Conversion Shares will not be be subject to any preemptive rights,
options or similar rights on the part of any shareholder or creditor of the
Company or any other person. The Exchange Shares shall be issued to the APC
Holders in the respective denominations set forth on SCHEDULE 1.2 to this
Agreement.
1.3 Exchange Shares Not Registered. The Exchange Shares have not been
and will not be registered under the Securities Act of 1933, as amended ("Act"),
or the securities laws of any state or states, in reliance upon exemptions from
the Act's registration requirements and state law registration requirements as
set forth below:
(a) Exchange Shares Issuable to U.S. Persons. Exchange Shares
issuable to APC Holders resident in the U.S. or otherwise defined as "U.S.
Persons" in Regulation S under the Act shall be issued in reliance upon the
exemptions from registration provided by Section 4(2) of the Act and/or Rule 506
of Regulation D under the Act and under analogous state securities laws, on the
grounds that the Exchange does not involve any public offering. The Exchange
Shares issuable to U.S. Persons will be "restricted securities" as that term is
defined in Rule 144(a) of the General Rules and Regulations under the Act and
must be held indefinitely, unless they are subsequently registered under the Act
or an exemption from the Act's registration requirements is available for their
resale. The prior written consent of the Company will be necessary for any
transfer of any or all of the Exchange Shares, unless the shares have been duly
registered under the Act or the transfer is made in accordance with Rule 144 or
other available exemption under the Act. All certificates evidencing the
Exchange
2
<PAGE>
Shares issued to U.S. Persons shall, unless and until removed in accordance
with law, bear a restrictive legend substantially in the following form:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and are "restricted securities" as that term is defined in Rule 144
under the Act. These shares may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act."
(b) Exchange Shares Issuable to Non-U.S. Persons. Exchange
Shares issuable to APC Holders who are not resident in the United States of
America or otherwise "U.S. Persons" shall be issued in reliance upon the
exemption from registration provided by Regulation S under the Act, on the
grounds that the issuance and delivery of the Exchange Shares to such persons
does not involve the sale of a security within the meaning of Section 5 of the
Act. The Exchange Shares issuable to non-U.S. Persons will be "restricted
securities" as defined in Rule 902 of Regulation S and may not be resold in the
United States of America or to any U.S. Person during the one (1)-year
"distribution compliance period" following the Closing. Any resales of Exchange
Shares in the United States of America or to a U.S. Person following expiration
of such period must be made pursuant to registration under the Act or pursuant
to an available exemption from the Act's registration requirements. Any hedging
transactions involving Exchange Shares must be conducted in compliance with the
Act. All certificates evidencing the Exchange Shares issued to U.S. Persons
shall, unless and until removed after expiration of the distribution compliance
period, bear a restrictive legend substantially in the following form:
The shares evidenced by this certificate and any underlying common
shares have not been registered under the U.S. Securities Act of 1933
("Act") but have been offered and sold in reliance upon Regulation S
under the Act. Transfer of these securities is prohibited except in
accordance with the provisions of Regulation S, pursuant to
registration under the Act, or pursuant to an exemption from
registration under the Act. Any hedging transactions involving these
shares or any underlying common shares may not be conducted unless in
compliance with the Act.
1.4 Closing. Subject to the conditions precedent set forth herein, the
closing of all transactions herein contemplated ("Closing") shall take place on
or before June 23, 1998, at a place mutually agreed by APC and the Company
("Closing Date"). This Agreement shall be effective and binding when signed by
all parties.
1.5 Assignment of Exchange Shares. If any certificate for Exchange
Shares is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and that the person requesting such transfer pay any transfer or other
taxes payable by reason of the issuance of such new certificate in a name other
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of Survivor that such tax has been paid or is not payable.
3
<PAGE>
1.6 Officers and Directors of the Company. At the Closing, the current
officers and directors of the Company shall resign as necessary and the
appropriate persons shall be elected as the directors and executive officers of
the Company. Immediately following the Closing, the directors and officers of
the Company shall be:
Name Position
---- --------
Larry Hunt DIRECTOR, President, CEO
Ron Crowe DIRECTOR, Vice President for Operations
Richard Quinney DIRECTOR, Chief Financial Officer
Robert Clarke DIRECTOR
It is agreed by the parties that Robert Clarke shall serve on the board of
directors and all committees of the board for a period of three (3) years
following the Closing, and the APC Holders agree that he shall, during such
three-year period, be nominated for election to the board of directors at every
meeting of the shareholders at which directors are elected. The APC Holders
agree to affirmatively vote all of their shares of the Company entitled to vote
in the election of directors in favor of electing Robert Clarke to the board of
directors in all elections of directors during the three year period, whether
occurring at a shareholder meeting or by written consent or otherwise.
1.7 Further Assurances. APC and the APC Holders agree to execute all
documents and instruments and to take or to cause to be taken all actions which
the Company deems necessary or appropriate to complete the transactions
contemplated by this Agreement, whether before or after the Closing.
2. OTHER AGREEMENTS OF THE PARTIES.
2.1 The Company's Option to Redeem Exchange Shares. For purposes of
this Agreement, APC officers Ronald Crowe, Richard Quinney and Larry Hunt are
defined as the "Executives." The Company shall have the right for a period of
twenty-four (24) months following the Closing (the "Period") to redeem and shall
redeem all Exchange Shares at a price of One Cent (US$.01) per share, held by
any Executive or APC Holder which is an affiliate of an Executive whose
employment with the Company is, during the Period, voluntarily terminated by the
Executive or is involuntarily terminated by the Company for serious cause; and
the Company shall, in the event an Executive's employment with the Company is
involuntarily terminated for cause during the Period, have the right to redeem
and shall redeem only part of the Exchange Shares based upon proration through
the date of termination. Every Executive agrees to this redemption right in
favor of the Company and agrees to execute at the Closing an option in favor of
the Company in the form of EXHIBIT B to this Agreement. The Executives agree
that the terms and duration of the Period are reasonable. This redemption right
shall not apply if termination of an Executive's employment with the Company
occurs due to a merger, stock exchange or consolidation of the Company with, or
sale of the Company or all or substantially all of its assets to, another
company or persons then unaffiliated with the Company.
"Employment with the Company" as used in this Section shall include an
Executive's employment or relationship as an officer, employee, consultant or
adviser with the Company or
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any affiliated company, provided that the Executive renders regular services
averaging in any 90-day period not less than twenty (20) hours per week.
"Employment with the Company" as herein used shall not be affected by an
Executive's transfer of employment among the Company and any one or more
affiliated companies. An Executive's employment with the Company shall not be
deemed terminated by death, by bona fide permanent or temporary disability or
sick leave, by military leave or by leave (e.g., jury duty) required by law or
legal process; except that incarceration for a period exceeding nine months upon
conviction for any crime or for contempt of court will constitute termination of
employment with the Company. The term "affiliated company" means Survivor, any
other wholly or principally owned subsidiary of the Company, and any joint
venture or other business venture in which the Company or an affiliated company
owns at least twenty-five percent (25%) of the equity and net profits interest.
"Serious cause" is defined on SCHEDULE 2.1 to this Agreement. The term "cause"
means any reason for termination by the Company other than serious cause.
The Company is required to redeem Exchange Shares of any Executive
whose employment with the Company terminates during the Period, and this
redemption right shall not be waived, surrendered, forgiven or in any manner
given up by the Company. Any officer or director of the Company who does or
attempts to do so or who fails to vigorously pursue redemption when applicable
shall be liable to the Company. This Section is intended for the protection of
existing shareholders of the Company and persons who become shareholders of the
Company during the Period. The parties expressly agree that all shareholders of
the Company at the time an Executive's employment with the Company terminates
during the Period are and shall be third party beneficiaries of this provision.
Any one or more of such shareholders may bring an action to compel the Company
to redeem Exchange Shares when redemption is required by this Section and/or to
recover on the Company's behalf any damages suffered by failing to redeem
Exchange Shares when required hereunder. A shareholder prevailing in such action
shall be entitled to reimbursement from the Company for costs and reasonable
attorneys' fees incurred in bringing such action(s). Notwithstanding anything to
the contrary contained in this Section, the Company and its officers and
directors shall be excused from pursuing any redemption required by this Section
if redemption is excused by affirmative vote of a majority of the Company's
shareholders other than the Executives, who shall not vote or have the right to
vote on any such proposal. This Section 2.1 shall not constitute an employment
agreement, and no provision of this Section 2.1 shall in and of itself entitle
any Executive to continued employment with the Company.
2.2 Prohibited Recapitalizations. The parties acknowledge that,
following the Closing, the APC Holders when acting as a group will hold the
majority of the Company's voting power. It is expressly agreed among the parties
that during the Period, the Company shall not effect any "prohibited
recapitalization," defined as any reverse split or combination of its common
shares, or any reorganization, recapitalization or other action whatsoever which
has the effect of changing the number of outstanding common shares of the
Company into a smaller number of common shares. Each APC Holder expressly agrees
that, during the Period, he, she or it will not vote for or support any
prohibited recapitalization nor grant a proxy or other voting right to a person
other than an APC Holder to vote at any meeting or act by written consent on a
proposal to effect a prohibited recapitalization, and will affirmatively oppose
any attempt to effect a prohibited recapitalization during the Period unless
approved in a manner permitted by this Agreement. The term prohibited
recapitalization does not include an arm's
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length merger, exchange, consolidation or similar transaction with an entity
then unaffiliated with the Company or any APC Holder.
2.3 Options and Warrants Prohibited. Except for the Permitted Options
defined below, during the Period no stock, nor options, warrants or other rights
to acquire common stock of the Company, nor any instrument exchangeable for or
convertible into common stock or any right to acquire common stock of the
Company, shall be issued, awarded or granted to any Executive. During the second
twelve months of the Period, the Company's board of directors may, if the
Company's consolidated, aggregate revenues from all sources for the first twelve
(12) full months following the Closing equal or exceed C$1,500,000, grant to one
or more of the Executives options to purchase an aggregate of not more than
500,000 shares of the Company's common stock (the "Permitted Options") pursuant
to the Company's 1997 Compensatory Stock Option Plan, on terms determined by the
Company's board of directors; provided, that the price per share shall be the
greater of $1.00 per share or the fair value of the common stock on the date of
grant; "fair value" meaning the highest sale price of the common stock on the
date of award. If the common stock of the Company is split or (with shareholder
approval as herein provided) reverse split during the Period, the number of
shares subject to purchase under Permitted Options and the lowest permissible
exercise price per share as set forth in this Paragraph shall be adjusted
accordingly.
2.4 Excessive Parachute Awards Prohibited. During the Period, no
contract, agreement or understanding of any kind shall be executed or put into
place between the Company or any affiliated company on the one hand, and any
Executive on the other hand, which calls for any excessive parachute award,
whether in the form of money, money equivalents, stock or other property or
thing of value, to be paid to an Executive upon termination of the Executive's
employment with the Company as defined in this Agreement. An excessive parachute
award is one the cash amount or fair value of which exceeds $10,000 at the time
of award, excluding compensation and accrued or deferred compensation already
due at the time of termination.
2.5 Excessive Compensation Prohibited. During the first twelve months
of the Period, no Executive shall receive annual compensation in cash or cash
equivalents or in any other form with a cash value exceeding US$60,000 in
amount, including fees, salaries, bonuses, perquisites and the like, but
excluding commissions, overrides and bonuses on sales payable to sales managers
or persons managing sales functions, in amounts reasonably customary in APC's
industry. In the second twelve months of the Period, annual compensation may be
increased to an amount not exceeding US$100,000, if the Company's consolidated,
aggregate revenues from all sources for the first twelve (12) full months
following the Closing equal or exceed C$1,500,000. Notwithstanding the foregoing
provisions of this Section, the full board of directors may by unanimous vote
award extra compensation in excess of amounts permitted by this Section to an
Executive based on extraordinary effort or results benefitting the Company, in
an amount reasonably commensurate with the effort or results.
2.6 Right to Enforce Provisions. The provisions set forth in Paragraphs
2.2 through 2.5 are intended for the protection of persons who are and during
the Period become shareholders of the Company, and all parties agree that such
provisions and the duration of the Period are reasonable. Prohibited
recapitalizations and other things and acts prohibited in
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Sections 2.2 through 2.5 are referred to in this paragraph as "prohibited acts."
The parties expressly agree that all shareholders of the Company at the time of
the taking of a prohibited act are or shall be third party beneficiaries of such
provisions. Any one or more of such shareholders may bring an injunctive action
to prevent a prohibited act, an action to force the Company to revoke or rescind
a prohibited act as if it had never been effected, an action to recover on the
Company's behalf any damages suffered by effecting the prohibited act, or any
one or more of such actions, or may otherwise judicially enforce such
provisions. Any shareholder prevailing in such injunctive or other action shall
be entitled to reimbursement from the Company and all officers and directors
involved in effecting the prohibited act for costs and reasonable attorneys'
fees incurred in bringing such action(s). Notwithstanding anything contained in
Sections 2.2 through 2.5, however, a prohibited act may be effected during the
Period if (i) approved by the Board of Directors and placed by the Board of
Directors before the Company's shareholders for vote; and (ii) approved in
advance by affirmative vote of a majority of the Company's shareholders other
than the APC Holders, who shall not vote or have the right to vote on approval
of any prohibited act.
2.7 Change of the Company's Name. The parties agree that, as soon as
reasonably possible following the Closing, a special meeting of the Company's
shareholders shall be called for the purpose of voting upon a change of the
Company's name to APC TELECOMMUNICATIONS, INC. The APC Holders agree to vote
their Exchange Shares in favor of the name change.
2.8 The Company and APC to Obtain Financial Statements. The Company and
APC each shall, after the Closing, by July 31, 1998, provide financial
statements; as to the Company, including a balance sheet as of December 31,
1997, and statements of cash flows, operations and changes in stockholders' or
members' equity for the period from inception through December 31, 1997; and as
to APC, including balance sheet and the same statements through June 30, 1998;
in each case, together with all required footnotes and schedules, audited by
certified public accountants who are members of the SEC Practice Section of the
AICPA. Such statements shall be prepared in accordance with Item 310 of
Regulation S-B of the Securities and Exchange Commission and with generally
accepted accounting principles, applied on a consistent basis.
2.9 Franchise and Other Rights Held by APC. APC, as franchisee, has
executed a Master Franchise Agreement with Access Power, Inc., as franchisor,
and such agreement is in full force and effect and is valid and binding upon the
parties in accordance with its terms. An unredacted copy of the Master Franchise
Agreement will be provided to the Company prior to Closing, and the terms of
such agreement shall be reasonably satisfactory to the Company and its counsel.
APC may require that every person having access to such agreement on behalf of
the Company execute a confidentiality agreement prior to reviewing the
agreement.
2.10 Acknowledgment of APC Debt. The parties acknowledge that at the
Closing APC will have outstanding long-term debt in the form of promissory notes
aggregating approximately C$400,000 and a bank loan for equipment that will not
exceed C$250,000.
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3. CAPITALIZATION.
3.1 The Company's Capitalization at Closing. At the Closing, the
Company shall have issued and outstanding common stock and/or options and other
rights to purchase its common stock (the "Standing Options") totalling in the
aggregate not more than 2,000,000 shares of its common stock, including all
shares issued or issuable to settle all debts of the Company, but excluding any
common shares issued as part of the Units (defined below). Other than such
shares and shares underlying options, at the Closing the Company will not
without the prior written consent of APC have issued or outstanding any other
shares of stock, nor any options or other rights to purchase its common stock,
nor any instrument convertible into or exchangeable for its common stock. No
shareholder of the Company will have any preemptive right or similar right to
purchase the Exchange Shares or other stock of the Company.
3.2 Unit Offering. In addition to the 2,000,000 shares or options
outstanding as provided in the preceding paragraph, the Company shall create,
sell and issue 2,000,000 units ("Units") at a price of US$0.05 per Unit. Each
Unit shall consist of (i) one share of common stock, (ii) one Class A common
stock purchase warrant entitling the holder to purchase one share of the
Company's common stock at a price of US$0.10 per share until 5:00 o'clock p.m.
Eastern Time on April 30, 1999; (iii) one Class B common stock purchase warrant
entitling the holder to purchase one share of the Company's common stock at a
price of US$0.14 per share until 5:00 o'clock p.m. Eastern Time on April 30,
1999; and (iv) one Class C common stock purchase warrant entitling the holder to
purchase one share of the Company's common stock at a price of US$0.20 per share
until 5:00 o'clock p.m. Eastern Time on April 30, 1999. Such exercise prices
shall be subject to adjustment for certain corporate events, and the exercise
periods of any warrants may be extended. The Units shall be offered and sold in
reliance upon Rule 504 under the Act, and the Units and the component common
shares and warrants shall not be restricted. The Units may be sold at any time
after the Closing. The Company will use information provided by APC, such as
business plan, financial statements, financial projections and assumptions and
contracts in force, to offer and sell the Units.
4. APC's REPRESENTATIONS AND WARRANTIES. APC hereby represents and
warrants that the following are true and correct as of the date hereof and will
be true and correct through the Closing Date as if made on that date:
(a) Organization and Standing. APC is a federally chartered
corporation duly organized, validly existing and in good standing under the laws
of Canada, with all requisite power and authority to carry on the business in
which it is engaged, to own the properties and assets it owns, and is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its business makes such qualification
necessary.
(b) Capitalization. No other shares of capital stock are
authorized or have been issued. All of the 8,000,000 issued and outstanding
shares of capital stock of APC (the APC Shares) have been duly authorized,
validly issued, and are fully paid and nonassessable. APC does not have
outstanding any option, warrant or similar instrument and is not a party to or
bound by any agreement, instrument, arrangement, contract, obligation,
commitment or understanding of any character, whether written or oral, express
or implied, whereby APC is bound to issue shares of its capital stock or any
instrument or right convertible into or exchangeable for shares of its capital
stock, nor relating to the sale, assignment, encumbrance, conveyance, transfer
or delivery of any capital stock of APC of any type or class. APC has
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provided to the Company a certified shareholder list which sets forth the names
and addresses of the APC Holders and the number of APC Shares held by each,
which is the same as reflected on the signature page hereto.
(c) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting APC or
any of its properties or assets in any court or by or before any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
other instrumentality, domestic or foreign, or arbitration tribunal or other
forum which, if determined adversely to APC, would materially affect its
business, prospects, properties or financial condition or APC's right to conduct
its business as being conducted or expected to be conducted, except as disclosed
on SCHEDULE 4(c). There are no judgments, decrees, injunctions, writs, orders or
other mandates outstanding to which APC is a party or by which it is bound or
affected, except as disclosed on SCHEDULE 4(c). Copies of material pleadings
shall accompany such schedule.
(d) Estoppel. All statements made in this Agreement, or in any
Exhibit or Schedule hereto, or in any document or certificate executed and
delivered herewith, by APC are true, correct and complete as of the date of this
Agreement and will be so as of the Closing Date. All statements contained in any
certificate made by any official of APC and delivered to the Company shall be
deemed representations and warranties of APC.
(e) Compliance with Laws and Permits. APC has complied in all
material respects with its articles of incorporation and bylaws (each as amended
to date), all applicable laws, regulations and rules, all applicable orders,
judgments, writs, decrees or injunctions of federal, state and municipal
governments or any department, agency or other instrumentality thereof, domestic
or foreign, applicable to its business or properties, and has not done or
omitted to do any act or acts which singly or in the aggregate are in violation
of any of the foregoing. APC has obtained all federal, provincial and municipal
licenses and permits necessary to its properties and operations, is not in
violation of any such license or permit and has not received any notification
that any revocation or limitation thereof is pending or threatened.
(f) No Undisclosed Material Liabilities. APC has not incurred
any liabilities or obligations whatever (whether direct, indirect, accrued,
contingent, absolute, secured or unsecured or otherwise), including liabilities
as guarantor or surety or otherwise for the obligations of others and tax
liabilities due or to become due, except as described in SCHEDULE 4(f). There is
no basis for any material claim against APC's assets which involves an amount in
excess of $10,000, except as disclosed in writing to the Company. APC has no
creditors whose prior consent might be required by law to the Exchange.
(g) Material Transactions and Adverse Changes. Except as has
been disclosed in writing to the Company, APC has not and as of the Closing Date
will not have: (i) suffered any materially adverse change in its assets taken as
a whole; (ii) suffered any damage or destruction in the nature of a casualty
loss to any one or more of its assets, whether or not covered by insurance,
which singly or in the aggregate are materially adverse to the properties or
business of APC; (iii) made any change in any method of accounting or accounting
practice,
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including the revaluation of any of its assets; or (iv) agreed in writing or
otherwise to take any action prohibited in this Section.
(h) Taxes. All income, excise, unemployment, social security,
occupational, franchise, ad valorem and other taxes, duties, assessments or
charges levied, assessed or imposed upon APC by any federal, state or municipal
government or subdivision or instrumentality thereof have been duly paid or
adequately provided for, and all required tax returns or reports concerning any
such items have been duly filed. Adequate reserves have been established for all
income and other tax liabilities, except as otherwise disclosed on SCHEDULE
4(h). APC has not waived any statute of limitations with respect to any tax
liability whatever for any period prior to the date of this Agreement or agreed
to any extension of time with respect to a tax assessment or liability. No
consents have been filed by APC pursuant to Paragraph 341(f) of the Internal
Revenue Code of 1986, as amended.
(i) Contracts. Attached to this Agreement as SCHEDULE 4(i) is
a listing of all contracts to which APC is a party. With respect to each such
contract, except as disclosed in writing to the Company, APC is not in default,
the contract is legal, valid, binding, in full force and effect and enforceable
in accordance with its terms, and the contract will continue after the Closing
to be legal, valid, binding, in full force and effect in accordance with its
terms. Contracts or commitments described in any other Schedule need not be
disclosed in SCHEDULE 4(i).
(j) Indebtedness to and from Affiliates. Except as disclosed
on SCHEDULE 4(j), APC is not indebted to any officer, director, employee or
shareholder thereof as of the date of this Agreement, and no money or property
is owed to APC by any officer, director, employee or shareholder thereof, and
none will be owed as of the Closing Date.
(k) Documents Genuine. All originals and/or copies of APC's
articles of incorporation and bylaws, each as amended to date, and all minutes
of meetings and written consents in lieu of meetings of directors and
shareholders of APC, financial data, and any and all other documents, material,
data, files, or information which have been or will be furnished to the Company,
are and will be true, complete, correct and unmodified originals and/or copies
of such documents, information, data, files or material.
(l) Financial Statements and Records. APC will provide to the
Company its financial statements back to inception, and all such statements
shall fairly present the assets, liabilities and financial condition of APC as
of the respective dates thereof, and all shall have been prepared in conformity
with generally accepted accounting principles, consistently applied during the
periods covered. For purposes of this Agreement, such statements shall include
all notes thereto. APC also will furnish to the Company copies of its other
books, accounts and records.
(m) Employees and Salaries. APC will provide to the Company a
list of all its officers and employees, reflecting the job description and
salary of each person.
(n) Insurance. Attached hereto as SCHEDULE 4(n) is a list of
all insurance policies of APC in effect.
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(o) Authorization and Validity. The execution, delivery and
performance by APC of this Agreement and any other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by APC and all necessary approvals of the
shareholder(s) of APC will have been obtained by the Closing Date. This
Agreement and any other agreement contemplated hereby have been or will be as of
the Closing Date duly executed and delivered by APC and constitutes and will
constitute legal, valid and binding obligations of APC, enforceable against it
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(p) Consents; Approvals; Conflict. Except for compliance with
applicable federal and state securities laws, no consent, approval,
authorization or order of any court or governmental agency or other body is
required for the APC Holders to consummate the Exchange. Neither the execution,
delivery, consummation or performance of this Agreement shall conflict with, or
constitute a breach of, and no prior approval is necessary by or under, APC's
articles of incorporation, bylaws or any note, mortgage, indenture, deed of
trust, lease, obligation, or other agreement or instrument to which APC is a
party.
(q) Intellectual Property. Attached to this Agreement as
SCHEDULE 5(q) is a description of all registered trademarks, trademarks,
servicemarks, copyrights, trade names and licenses, owned or held by APC or any
shareholder or affiliate of APC intended to be used in APC's business, and
applications pending therefor. Copies of each such right or application shall be
furnished to the Company. APC has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any patent, trademark,
trade name, servicemark or copyright belonging to any third person, and APC has
never received any charge, complaint, claim, demand or notice alleging any such
interference, infringement or misappropriation. APC owns or holds adequate
licenses or other rights to use all patents, trademarks, trade names,
servicemarks and copyrights used in its business as now conducted, and such use
does not conflict with, infringe upon or violate the rights of any third party
in a manner which might have a materially adverse effect upon APC.
(r) Restrictive Covenants. Prior to the consummation of the
Exchange, APC shall conduct its business in the ordinary and usual course
without unusual commitments and in compliance with all applicable laws, rules,
and regulations. Furthermore, APC will not, without the prior written consent of
the Company, (i) make any changes in its capital structure, (ii) incur any
liability or obligation other than current liabilities incurred in the ordinary
and usual course of business, (iii) incur any material indebtedness for borrowed
money, (iv) make any loans or advances other than in the ordinary and usual
course of business, (v) declare or pay any dividend or make any other
distribution with respect to its capital stock, (vi) issue, sell, or deliver or
purchase or otherwise acquire for value any of its stock or other securities, or
(vii) mortgage, pledge, or subject to encumbrance any of its assets or
properties or sell or transfer any of its assets or properties, except in the
ordinary and usual course of business.
(s) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, the Company
has made no other representation or warranty to APC or any APC Holder in
connection with the Exchange. APC's decision to enter into the Exchange is based
upon its own independent judgment and
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investigation and not on any representations and warranties of the Company other
than those expressly stated in this Agreement and in the Schedules and Exhibits
hereto.
5. REPRESENTATIONS AND WARRANTIES OF THE APC HOLDERS. The APC Holders
each represent and warrant to the Company that the following are true and
correct as of the date hereof and will be true and correct through the Closing
Date as if made on that date:
(a) Each APC Holder owns of record and beneficially all the
APC Shares respectively shown next to his, her or its name on the signature page
to this Agreement; and his, her or its APC Shares are free and clear of all
liens, claims, rights or other encumbrances whatever and of all options and
similar rights of third persons; and no person has or will have any right in and
to such shares except as are created by force of law under any marital,
community property or similar rights. No third party has or at Closing will have
any right of first refusal, pre-emptive right, option or similar right to
acquire any of the APC Shares except as disclosed to the Company in writing
prior to the Closing.
(b) Each APC Holder has the full right, power and legal
capacity to enter into this Agreement and sell and deliver the APC Shares to the
Company. As to each APC Holder which is a corporation or other entity, all
requisite corporate or equivalent action has been taken necessary to approve the
execution and performance of this Agreement.
(c) Each APC Holder represents and warrants that he, she or it
is not now insolvent and will not be insolvent after selling and delivering the
APC Shares to the Company on the terms of this Agreement, and each APC Holder is
receiving new consideration at least equal to the full and fair value of the APC
Shares being sold.
(d) APC and the APC Holders understand and acknowledge that
the Company is a public shell with no current operations, revenues or assets,
that the Company does not have full-time or professional management, and that
the officers and directors of the Company after the Closing will be the current
officers and directors of APC. Each APC Holder recognizes that the Exchange
Shares are speculative and involve a high degree of risk, and that the prospects
and future success of the Company depend principally upon the APC Holders and
current APC management.
(e) Each APC Holder acknowledges and agrees that he, she or it
or his, her or its representatives have been furnished with substantially the
same kind of information regarding the Company and its business, assets,
financial condition and plan of operation as would be contained in a
registration statement and included prospectus prepared in connection with a
public offering of the Exchange Shares. Each APC Holder further represents that
he, she or it has had an opportunity to ask questions of and receive answers
from the Company regarding the Company and its business, assets, results of
operations, financial condition and plan of operation and the terms and
conditions of the issuance of the Exchange Shares.
(f) In connection with the issuance and delivery of the
Exchange Shares, each APC Holder understands and acknowledges that the Exchange
Shares have not been and will
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not be registered under the Act or any state laws in reliance upon exemptions
from registration and that such shares will be restricted and subject to
significant restrictions on transfer, as described in Section 1.3 of this
Agreement. Each APC Holder is acquiring the Exchange Shares for his, her or its
own account, and not for the account of any other person and not for
distribution, assignment or resale to others, or for pledge or hypothecation,
and no other person has or is intended to have a direct or indirect ownership or
contractual interest in the Exchange Shares except as may exist or arise under
marital property laws or otherwise by operation of law.
(g) The APC Holder, alone or together with the APC Holder's
adviser(s), has such knowledge and experience in financial, tax and business
matters as to enable APC Holder to utilize the information made available by the
Company, in connection with the Exchange and issuance of the Exchange Shares, to
evaluate the merits and risks of acquiring the Exchange Shares and to make an
informed investment decision with respect thereto.
(h) All information which each APC Holder has provided or will
provide to the Company is or will be correct and complete as of the date
furnished to the Company, and, if there should be any material change in such
information prior to the Closing as to an APC Holder, that APC Holder will
immediately provide the Company with such information.
(i) No APC Holder was solicited by the Company by any form of
general solicitation or general advertising, including but not limited to any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
made available over telephone lines by any information service, or any seminar
or meeting whose attendees had been invited by any means of general solicitation
or general advertising.
(j) Except as expressly set forth in this Agreement and the
Schedules and Exhibits hereto, the Company has not made any representation or
warranty to any APC Holder in connection with this Agreement. Each APC Holder's
decision to enter into the Exchange is based upon his, her or its own
independent judgment and investigation and not on any representations and
warranties of the Company other than those expressly stated in this Agreement
and in the Schedules and Exhibits hereto.
(k) To the best of the knowledge of each APC Holder, all of
the representations and warranties of APC set forth in this Agreement are
accurate and true.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Unless specifically
stated otherwise, the Company represents and warrants to the other parties that
the following are true and correct as of the date hereof and will be true and
correct through the Closing Date as if made on that date.
(a) Organization and Good Standing. The Company is and on the
Closing Date will be duly organized, validly existing and in good standing under
the laws of the State of Nevada. The Company has no assets or liabilities and
currently conducts no business in any state.
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(b) Authorized Capitalization. As provided in its Articles of
Incorporation, the authorized capital stock of the Company consists of
125,000,000 shares, of which 100,000,000 shares, par value $.001 per share, are
designated as common stock, of which 2,000,000 shares, giving effect to shares
issued and the Standing Option, are or will be issued and outstanding; and
25,000,000 shares, par value $.001 per share, are designated as preferred stock,
none of which are issued or outstanding.
(c) Outstanding Options, Warrants or Other Rights. Other than
the Standing Options, the Company does not have outstanding any option, warrant
or similar instrument and is not a party to or bound by any agreement,
instrument, arrangement, contract, obligation, commitment or understanding of
any character, whether written or oral, express or implied, whereby the Company
is bound to issue shares of its capital stock or any instrument or right
convertible into or exchangeable for shares of its capital stock, nor relating
to the sale, assignment, encumbrance, conveyance, transfer or delivery of any
capital stock of the Company of any type or class. The Company shall provide to
APC a list of all holders of the Company's capital stock, the number of shares
held by each and the number of each certificate held, duly certified by the
Secretary of the Company.
(d) Subsidiaries. The Company has and as of the Closing will
have no subsidiaries.
(e) Documents Genuine. All originals and/or copies of the
Company's articles of incorporation and bylaws, each as amended to date, and all
minutes of meetings and written consents in lieu of meetings of shareholders,
directors and committees of directors of the Company, financial data, and any
and all other documents, material, data, files, or information which have been
or will be furnished to APC, are and will be true, complete, correct and
unmodified originals and/or copies of such documents, information, data, files
or material.
(f) Litigation. There are no claims, actions, suits,
proceedings or investigations pending or threatened against or affecting the
Company in any court or by or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, or arbitration tribunal or other forum.
There are no judgments, decrees, injunctions, writs, orders or other mandates
outstanding to which the Company is a party or by which it is bound or affected.
(g) Compensation Plans. Except as described below, the Company
has not authorized and does not have in effect any stock option or stock
purchase plan, dividend reinvestment plan or similar plan pursuant to which any
person is entitled to acquire capital stock of the Company or any securities
convertible into or exchangeable for its capital stock. The Company has
delivered to APC a copy of each plan described below. No shares will be awarded
or issued pursuant to either such plan without the prior written authorization
of APC.
(i) The Company has in effect a 1997 Compensatory
Stock Option Plan, covering 1,000,000 shares of the Company's common
stock. No options have been granted or shares issued pursuant to this
plan, and none will be granted or issued prior to Closing.
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(ii) The Company has in effect a 1997 Employee Stock
Compensation Plan covering 1,500,000 of the Company's common shares,
pursuant to which the Company may award shares of common stock to
persons defined therein as employees. No shares have been awarded
pursuant to such plan or will be awarded prior to Closing.
(h) Authorization and Validity. The execution, delivery and
performance by the Company of this Agreement and any other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement and
any other agreement contemplated hereby have been or will be as of the Closing
Date duly executed and delivered by the Company and constitute and will
constitute legal, valid and binding obligations of the Company, enforceable
against it in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
(i) Financial Statements. The Company will provide to APC the
Company's financial books and records such audited and unaudited financial
statements of the Company, back to inception, as exist and as APC requests. All
such statements shall fairly present the assets, liabilities and financial
condition of the Company as of the respective dates thereof, and all shall have
been prepared in conformity with generally accepted accounting principles,
consistently applied during the periods covered. For purposes of this Agreement,
such statements shall include all notes thereto.
(j) No Undisclosed Material Liabilities. The Company has not
incurred any liabilities or obligations whatever (whether direct, indirect,
accrued, contingent, absolute, secured or unsecured or otherwise), which singly
or in the aggregate are material to it, except as disclosed in the Company's
financial statements or otherwise disclosed in writing to APC.
(k) Taxes. All income, excise, unemployment, social security,
occupational, franchise and other taxes, duties, assessments or charges levied,
assessed or imposed upon the Company by the United States or by any state or
municipal government or subdivision or instrumentality thereof have been duly
paid or adequately provided for, and all required tax returns or reports
concerning any such items have been duly filed or will be so filed.
(l) Indebtedness to or from Affiliates. The Company is not and
will not be indebted to any officer, director, employee or shareholder thereof
as of the Closing Date. No money or property is owed to the Company by any
officer, director, employee or shareholder thereof, and none will be owed as of
the Closing.
(m) Salaries. No person currently receives a salary or other
cash compensation from the Company, and no person will receive a salary or other
cash compensation from the Company prior to Closing.
(n) Insurance. The Company does not now have any insurance
policy in effect and will not obtain any insurance policy prior to Closing.
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<PAGE>
(o) Books, Records and Accounts. Except for the minute book
and accounting and corporate records of the Company furnished to APC, there are
no other books, records or accounts of the Company. APC shall have the right to
review and obtain the records, books and accounts of the Company, all and
sundry.
(p) Estoppel. All statements made herein, or in any Exhibit or
Schedule hereto, or in any document or certificate executed and delivered
herewith by the Company are true, correct and complete as of the date of this
Agreement and will be so as of the Closing. All statements contained in any
certificate made by any officer or director of the Company and delivered to APC
shall be deemed representations and warranties of the Company.
(q) Consents; Approvals; Conflict. No consent, approval,
authorization or order of any court or governmental agency or other body is
required for the Company to execute and perform its obligations under this
Agreement. Neither the execution, delivery, consummation or performance of this
Agreement shall conflict with, constitute a breach of the Company's articles of
incorporation and bylaws, as amended to date, or any note, mortgage, indenture,
deed of trust or other agreement of instrument to which the Company is a party
or by which it is bound nor, to the best of the Company's knowledge and belief,
any existing law, rule, regulation, or any decree of any court or governmental
department, agency, commission, board or bureau, domestic or foreign, having
jurisdiction over the Company.
(r) Restrictive Covenants. Prior to the consummation of the
proposed Exchange, the Company shall not engage in any business or activity
other than attempting to consummate the Exchange and offer and sell the Units.
Furthermore, the Company will not, without the prior written authorization of
APC, (i) make any changes in its capital structure, (ii) incur any liability or
obligation other than current liabilities incurred in the ordinary and usual
course, (iii) declare or pay any dividend or make any other distribution with
respect to its capital stock, (iv) issue, sell, or deliver or purchase or
otherwise acquire for value any of its stock or other securities, (v) make any
investment of a capital nature, or (vi) enter into any contract, agreement, or
other commitment which is material to the Company.
(s) Disclaimer of Further Warranties; Etc. Except as expressly
set forth in this Agreement and the Schedules and Exhibits hereto, APC has made
no other representation or warranty to the Company in connection with the
Exchange. The Company's decision to enter into the Exchange is based upon the
Company's own independent judgment and investigation and not on any
representations and warranties of APC other than those expressly stated in this
Agreement and in the Schedules and Exhibits hereto.
8. CONDITIONS TO OBLIGATIONS OF THE PARTIES; DELIVERIES. All
obligations of the parties under this Agreement are subject to the fulfillment,
prior to the Closing, of all conditions precedent and to performance of all
covenants and agreements and completion of all deliveries contemplated herein,
unless specifically waived in writing by the party entitled to performance or to
demand fulfillment of the covenant or delivery of the documents.
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8.1 Documents to be Delivered to the Company. At the Closing, the
following documents shall be delivered to the Company by APC or the APC Holders,
as the case may be, which documents shall be satisfactory in form and content to
the Company's counsel:
(a) Certificates executed by the chief executive officer and
the chief financial or accounting officer APC, dated the Closing Date,
certifying that the representations and warranties of APC, contained in this
Agreement and the information set forth in all Schedules and Exhibits of APC
hereto are then true and correct and that APC has complied with all agreements
and conditions required by this Agreement and all related agreements to be
performed or complied with by APC.
(b) A copy of the directors' resolution or the minutes of the
meeting of the directors of APC approving the execution and performance of this
Agreement.
(c) All certificates evidencing the APC Shares, each indorsed
on the reverse side for transfer or accompanied by a signed stock power in form
satisfactory to the Company.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
8.2 Documents to be Delivered to APC and the APC Holders. At the
Closing the following documents shall be delivered to APC and the APC Holders by
the Company, which documents shall be satisfactory in form and content to APC's
counsel:
(a) To the APC Holders, certificates evidencing the Exchange
Shares in the proper denominations.
(b) To APC, a certificate executed by the Company dated the
Closing Date, certifying that the representations and warranties of the Company
contained in this Agreement and the information set forth in all Schedules and
Exhibits of the Company are then true and correct and that the Company has
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it.
(c) To APC, a copy of the directors' resolution or the
mintutes of the meeting of the directors of the Company approving the execution
and performance of this Agreement.
(d) All Schedules, properly filled out, and all Exhibits
called for in this Agreement.
8.3 Conditions Precedent. The obligations of the parties under this
Agreement are subject to the satisfaction of the following conditions (in
addition to other conditions and terms of this Agreement), unless waived in
writing, on or prior to the Closing:
(a) Representations and Warranties Correct. The
representations and warranties of every party contained in this Agreement shall
be in all material respects true and correct on and as of the Closing Date as if
made on such date.
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(b) Compliance. The Company, APC and the APC Holders each
shall have performed all covenants and agreements, satisfied all conditions and
complied with all other terms and provisions of this Agreement to be
respectively performed, satisfied or complied with by it as of the Closing Date.
(c) No Errors or Misrepresentations. The Company shall not
have discovered any material error, misstatement or omission in or failure of
any representation or warranty made by any of the other parties, and APC shall
not have discovered any material error, misstatement or omission in or failure
of any representation or warranty made by the Company.
(d) Due Diligence Examination. The Company shall have
completed a due diligence examination of APC satisfactory to the Company
covering all books, records, contracts and other documents and all financial
affairs of APC. APC shall have completed a due diligence examination of the
Company satisfactory to APC covering all books, records, contracts and other
documents and all financial affairs of the Company.
(e) Legal Matters. All legal matters in connection with this
Agreement and the consummation of all transactions herein contemplated, and all
documents and instruments delivered in connection herewith shall be reasonably
satisfactory in form to each party.
(f) No Litigation or Proceedings. No injunction or restraining
order of any federal or state court is in effect which prevents the purchase of
the Assets or issuance and delivery of the Exchange Shares, and no lawsuit or
other proceeding has been filed by any person by the Closing Date contesting or
attempting to enjoin either action, and no action is taken and no law is passed
after the date of this Agreement which prevents the Exchange.
9. OTHER COVENANTS OF THE PARTIES. The parties agree that, prior to the
Closing:
(a) Effectuation of this Agreement. The parties hereto each
will use their best efforts to cause this Agreement and all related agreements
to become effective, and all transactions herein and therein contemplated to be
consummated, in accordance with its and their terms, to obtain all required
consents, waivers and authorizations of governmental entities and other third
parties, to make all filings and give all notices to those regulatory
authorities or other third parties which may be necessary or reasonably required
in order to effect the transactions contemplated in this Agreement, and to
comply with all federal, local and state laws, rules and regulations as may be
applicable to the contemplated transactions.
(b) Restriction on Action. The parties each agree that he or
it will not do any thing or act prohibited by this Agreement or any related
agreement, or fail to do any thing or act which he or it has undertaken to do in
this Agreement or any related agreement.
(c) Access and Information. To the extent each party deems
necessary for purposes of this Agreement and the transactions contemplated
hereby, APC and the Company each shall permit the other, its counsel,
accountants and other representatives to have full access, upon reasonable
notice and during regular business hours, throughout the period prior
18
<PAGE>
to Closing, to its equipment, assets, properties, books and records, and will
cause to be furnished to the requesting party and its representatives during
such period all information it or its representatives may reasonably request.[A
(d) No-Shop Provision. APC and the APC Holders agree that,
from the date hereof until Closing or termination of this Agreement, neither
will take any action, directly or indirectly, to solicit indications of interest
in, or offers for, any transaction similar to the Exchange or any investment
into APC from anyone other than the Company. APC agrees promptly to inform the
Company of any offers or solicitations for a similar transaction, including the
terms thereof, made by any third party, provided, that APC is not obligated to
inform the Company of casual oral offers or solicitations not formally
considered by APC. Violation by APC of any of the requirements of this paragraph
shall constitute a material breach of this Agreement.
(e) Confidentiality. APC and the Company covenant that they
each will not disclose any confidential information of the other party, except
to its officers, directors, attorneys, accountants, and employees involved in
these transactions, and only then on the condition that such individuals not
disclose the information disclosed to them. Notwithstanding the foregoing, the
terms of this Agreement, or of any of the transactions contemplated hereby, may
be disclosed following execution hereof, provided that each party will provide
at least twenty-four hours' notice to the other party prior to making the
initial public announcement regarding the transaction. In addition, either party
may disclose this Agreement or any part hereof to any third party at any time if
required to do so by law, this Agreement or other contractual obligation.
10. INDEMNIFICATION.
10.1 Indemnification by APC. APC agrees to defend, indemnify and hold
the Company, any subsidiary or affiliate thereof, and its respective successors,
officers, directors and controlling persons (the "Indemnified Company Group")
harmless from and against any and all losses, liabilities, damages, costs or
expenses (including reasonable attorney's fees, penalties and interest) payable
to or for the benefit of, or asserted by, any party resulting from, arising out
of, or incurred as a result of (a) the breach of any representation made by APC
or an APC Holder herein or in accordance herewith; (b) the breach of any
warranty or covenant made by APC or an APC Holder herein or in accordance
herewith; or (c) any claim, whether made before or after the date of this
Agreement, or any litigation, proceeding or governmental investigation, whether
commenced before or after the date of this Agreement, arising out of the
business of APC or arising out of any act or occurrence prior to, or any state
of facts existing as of the Closing.
10.2 Indemnification by the Company. The Company agrees to defend,
indemnify and hold APC, any subsidiary or affiliate thereof, and its respective
successors, officers, directors and controlling persons (the "Indemnified APC
Group") harmless from and against any and all losses, liabilities, damages,
costs or expenses (including reasonable attorney's fees, penalties and interest)
payable to or for the benefit of, or asserted by, any party resulting from,
arising out of, or incurred as a result of (a) the breach of any representation
made by the
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Company herein or in accordance herewith; (b) the breach of any warranty or
covenant made by the Company herein or in accordance herewith; or (c) any claim,
litigation, proceeding or governmental investigation, whether commenced before
or after the date of this Agreement, arising out of any act or occurrence prior
to, or any state of facts existing as of the Closing.
10.3 Survival of Covenants and Warranties. The representations,
warranties, covenants and agreements made by APC on the one hand, and the
Company on the other hand, shall survive the Closing and shall be fully
enforceable at law or in equity against such other party and its successors and
assigns for a period of one year after the Closing Date. Any investigation at
any time made by or on behalf of (or any disclosure to ) any party hereto shall
not diminish in any respect whatsoever its right to rely on the representations
and warranties of the other party hereto.
10.4 Notice of Claims. The Company and APC each agree to give prompt
written notice to the other of any claim against the party giving notice which
might give rise to a claim by it against the other party hereto based upon the
indemnity provisions contained herein, stating the nature and basis of the claim
and the actual or estimated amount thereof; provided, however, that failure to
give such notice will not affect the obligation of the indemnifying party to
provide indemnification in accordance with the provisions of this Paragraph 10
unless, and only to the extent that, such indemnifying party is actually
prejudiced thereby. In the event that any action, suit or proceeding is brought
against any member of the Indemnified APC Group or the Indemnified Company Group
with respect to which any party hereto may have liability under the
indemnification provisions contained herein, the indemnifying party shall have
the right, at its sole cost and expense, to defend such action in the name of or
on behalf of the indemnified party and, in connection with any such action, suit
or proceeding, the parties hereto agree to render to each other such assistance
as may reasonably be required in order to ensure the proper and adequate defense
of any such action, suit or proceeding; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
because of actual or potential differing interests between such indemnified
party and any other party represented by such counsel. Neither party hereto
shall make any settlement of any claim which might give rise to liability of the
other party under the indemnification provisions contained herein without the
written consent of such other party, which consent such other party covenants
shall not be unreasonably withheld.
11. TERMINATION OF THIS AGREEMENT.
11.1 Grounds for Termination. This Agreement shall terminate:
(a) By mutual written consent of the Company and APC;
(b) By APC or the Company, if:
(i) all the conditions precedent to its respective
obligations hereunder have not been satisfied or waived prior to the
Closing Date, as it may be accelerated or extended, or if any APC
Holder refuses to execute this Agreement;
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(ii) any party shall have defaulted or refused to
perform in any material respect under this Agreement, or if the Company
or APC should have reasonable cause to believe there has been a
material representation concerning, or failure or breach of, any
representation or warranty by the other party, or if it appears that
either APC or the Company has committed any unlawful acts affecting the
other party;
(iii) the transactions contemplated in this Agreement
and related agreements have not been consumated on the Closing Date, as
it may be mutually accelerated or extended, OR
(iv) either the Company or APC shall reasonably
determine that the transactions contemplated in this Agreement have
become inadvisable by reason of the institution or threat by any
federal, state or municipal governmental authorities or by other person
whatever of a formal investigation or of any action, suit or proceeding
of any kind against either or both parties which in one party's
reasonable belief is material in light of the other party's business,
prospects, properties or financial condition;
11.2 Manner of Termination. Any termination of this Agreement (other
than an automatic termination) shall be made in accordance with the above listed
grounds and, if terminated by APC or the Company, shall be accompanied by a copy
of the resolution of the terminating party's board of directors. Written notice
of termination shall be given to the other party as required in this Agreement
as promptly as is practical under the circumstances. Upon a party's receipt of
such termination notice, this Agreement shall terminate and the transactions
herein contemplated shall be abandoned without further action by the parties.
11.3 Survival of Confidentiality Provisions. Upon termination of this
Agreement for any reason, (i) the covenants of the parties concerning the
confidentiality and proprietary nature of all docuemnts and other information
furnished hereunder shall remain in force except as to information which has
otherwise become public knowledge, and (ii) each party shall promptly return all
documents received from the other party in connection with this Agreement. This
Paragraph constitutes a mutual covenant of the parties, and either may
judicially enforce it.
12. MISCELLANEOUS PROVISIONS.
(a) Assignment. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto without the written
consent of the party not seeking assignment, except that the Company may direct
such an assignment to a wholly owned subsidiary corporation. No such assignment
shall relieve the assignor of any obligations created under this Agreement.
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(b) Parties in Interest; No Third Party Beneficiaries. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Neither this Agreement nor
any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder, except as expressly set forth in this Agreement.
(c) Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
(d) Severability. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Further, in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid and enforceable.
(e) Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of all parties contained herein shall
survive the Closing, and all statements contained in any certificate, exhibit or
other instrument delivered by or on behalf of the Company or APC, as the case
may be, and, notwithstanding any provision in this Agreement to the contrary,
shall survive the Closing.
(f) Interpretation. This Agreement shall be governed by and
construed under the laws of the State of Nevada and shall be interpreted as if
both parties participated equally in its drafting. The captions in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect any of the terms or provisions hereof. Whenever the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and plural. Use
of the words "herein", "hereof", "hereto" and the like in this Agreement shall
be construed as references to this Agreement as a whole and not to any
particular provision in this Agreement, unless otherwise noted.
(g) Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, by telefax
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<PAGE>
transmission or by delivery by use of a messenger which regularly retains its
delivery receipts. Such notice shall be deemed received on the date on which it
is delivered to the addressee. For purposes of notice, the addresses of the
parties shall be, if to an APC Holder, sent to APC for forwarding, and:
If to APC: 241 Applewood Crescent
Suite No. 4
Vaughan, Ontario L4K 4E6, Canada
ATTN: Larry Hunt, President
If to the Company: 90 Madison Street, Suite 707
Denver, Colorado 80206
John D. Brasher Jr., Vice Pres.
(h) No Finders. Each party represents and warrants to the
others and agrees that it has not employed or engaged, and will not employ or
engage, any person as a finder or broker in connection with the transactions
contemplated herein, and that no person is entitled to compensation as a finder
or broker. Each party hereby indemnifies the other parties and holds the other
parties harmless from and against any claims of any third persons claiming to
have acted as a finder or broker in connection with the transactions herein
contemplated, and such indemnity shall include all expenses, costs and damages
arising from or related to such claims, including reasonable attorneys fees.
(i) Expenses. Except as otherwise provided in this letter, the
Company and APC shall bear their own fees and expenses incurred in connection
with the transactions contemplated herein.
(j) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Execution and delivery of
this Agreement by exchange of facsimile copies bearing facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
(k) Prevailing Party Clause. In the event of any litigation or
proceeding arising as a result of the breach of this Agreement or the failure to
perform hereunder, or failure or untruthfulness of any representation or
warranty herein, the party or parties prevailing in such litigation or
proceeding shall be entitled to collect the costs and expenses of bringing or
defending such litigation or proceeding, including reasonable attorneys' fees,
from the party or parties not prevailing.
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(l) Relationship of the Parties. Nothing in this Agreement is
intended to be construed so as to suggest that the parties hereto are partners
or joint venturers, or that any party or its employees is the employee or agent
of the other. Neither APC nor the Company has any express or implied right or
authority under this Agreement to assume or create any obligations on behalf of
or in the name of the other party to any contract, agreement, arrangement,
understanding or undertaking with any third party.
(m) Exhibits, Schedules, etc. Each Exhibit to this Agreement
shall be initialled by APC and the Company, and and each Schedule shall be
initalled by the party providing it. Any Schedule provided by APC Holders shall
be initialled by all of the APC Holders. If a Schedule does not apply, it must
nonetheless be furnished and marked "not applicable." The information contained
in every Schedule shall be updated as necessary as of a date as close as
possible to the Closing Date and must be accurate and complete as of the Closing
Date. Each party signing this Agreement represents and warrants, to all other
parties, by such signature that he, she or it has carefully read this Agreement
in its entirety and understands the provisions of this Agreement.
(n) No Advice Given. APC and the APC Holders acknowledge and
agree that they have neither asked for nor received any legal or tax advice from
the Company or John D. Brasher Jr. or any other person associated with the
Company, in regard to this Agreement or the transactions herein contemplated,
and have instead relied on advice and counsel furnished by their own legal or
other advisers in order to satisfy themselves as to the tax and other legal
implications to them of the Exchange and issuance of the Exchange Shares.
(o) Warranty Regarding Approval of APC Holders. APC represents
and warrants that the APC Holders all have executed documents consenting to the
Exchange and empowering the officers of APC to execute this Agreement and
consummate the Exchange, and that the APC Holders' execution of such documents
constitutes a written consent to the Exchange in lieu of a meeting of the
shareholders of APC, as permitted by governing Canadian law. APC shall at
Closing provide an opinion of Canadian counsel to that effect.
IN WITNESS WHEREOF, all parties have executed this Agreement, and APC
and the Company have initialled every preceding page hereof, as of the dates
respectively indicated below.
ACCESS POWER CANADA, INC. PROPAINT SYSTEMS, INC.
By /s/ Ron Crowe By /s/ John D. Brasher Jr.
------------------------------- ---------------------------------
Ron Crowe, Vice President John D. Brasher Jr., Vice President
DATED: June 12, 1998 DATED: June 12, 1998
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SHAREHOLDERS' SIGNATURE PAGE
to Agreement and Plan of Reorganization
MERICO PERSONAL, INC. 1276579 ONTARIO LIMITED (L&T)
1,437,500 Shares 2,000,000 Shares
X /s/ Ron Crowe X /s/ Larry Hunt
- ----------------------------- ------------------------------
Ron Crowe, Vice President Larry Hunt, President
GQ & ASSOCIATES, INC. RICK QUINNEY
500,000 Shares 1,000,000 Shares
X /s/ Rich Quinney
- ----------------------------- -------------------------------
Rick Quinney, President Signature
ANGELA QUINNEY
500,000 Shares
X /s/ Angela Quinney
- ----------------------------- -------------------------------
Angela Quinney, President Signature
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EXHIBIT A
to
Agreement and Plan of Reorganization among ProPaint Systems, Inc.,
Access Power Canada, Inc. and certain shareholders of Access Power
Canada, Inc.
Summary of terms and preferences of Series A, Voting Convertible Preferred Stock
of ProPaint Systems, Inc. (the "Company"):
1. Designation and Consideration.
A total of 5,000,000 shares of the Company's authorized but
unissued shares of preferred stock, $.001 par value per share, shall be
designated as the SERIES A, VOTING CONVERTIBLE PREFERRED STOCK (the "Series A
Preferred Stock"). Each share of Series A Preferred Stock shall be issued for
such consideration as the Board may determine (whether cash, property or other
assets). Once duly issued for the consideration herein called for, shares of the
Series A Preferred Stock shall be deemed fully paid and nonassessable.
2. Dividends.
The holders of the shares of Series A Preferred Stock shall
not be entitled to receive any dividends thereon; provided, that, if a dividend
is declared on the common shares of the Company or on any series of preferred
shares ranking equal or junior to the Series A Preferred Stock, then in such
event the holders of the Series A Preferred Stock shall be entitled to receive a
proportional share of such dividend, based upon the proportion of the number of
shares of Series A Preferred Stock then outstanding to the total number of
shares of common and preferred stock entitled to share in such dividend.
3. Redemption.
The shares of Series A Preferred Stock shall not be subject to
redemption.
4. Conversion Right.
4.1 Conversion into Common Stock. Each share of Series A
Preferred Stock may, subject to all terms and conditions of this Section 4 and
subject to adjustment as provided below, at any time after issuance, be
converted at the option of the holder thereof into fully paid, nonassessable
common stock of the Company, $.001 par value per share.
(a) Maximum Conversion Rate. Each share of Series A Preferred
Stock may be converted into three (3) fully paid, nonassessable shares of common
stock of the Company, subject to the following conversion conditions:
(i) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and any subsidiaries have on a combined basis
opened a total of three (3) Gateways (defined below)
that are fully functional and capable of immediately
commencing commercial operations, as certified by an
engineer qualified to make such certification;
(ii) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and any subsidiaries have on a combined basis
opened a total of six (6) Gateways (defined below),
including the four Gateways required by clause (i)
26
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immediately preceding this clause (ii), that are
fully functional and capable of immediately
commencing commercial operations, as certified by
an engineer qualified to make such certification;
The term "Gateway" for purposes of clauses (i) and
(ii) immediately preceding shall mean a telephony
gateway server computer that serves as a bridge
between the Public Switched Telephone Network or
Private Branch Exchanges, on the one hand, and the
Internet on the other hand, and converts analog voice
or data transmissions to digital data packets (or
vice versa); provided, that five (5) of the Gateways
must have capacity to handle twenty-four (24) phone
lines and the Internet access to provide capacity of
not less than Two Hundred Fifty Thousand (250,000)
minutes of talk time per month; and one Gateway must
have capacity to handle twelve (12) phone lines and
the Internet access to provide capacity of not less
than One Hundred Twenty-Five Thousand (125,000)
minutes of talk time per month.
(iii) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis
achieved an aggregate of Two Million Dollars
(C$2,000,000.00) in bona fide total revenues from all
sources, as reflected on unaudited interim
consolidated financial statements regularly prepared
for the Company and all subsidiaries;
(iv) one fourth (1/4th) of the shares of Series A
Preferred Stock held may be converted when the
Company and all subsidiaries have on a combined basis
achieved an aggregate of Seven Million Dollars
(C$7,000,000.00) in bona fide total revenues from all
sources, including the C$2,000,000 in bona fide total
revenues required by clause (iii) immediately
preceding this clause (iv), as reflected on unaudited
interim consolidated financial statements regularly
prepared for the Company and all subsidiaries;
The four conversion conditions of this Paragraph
4.1(a) need not be satisfied in any particular order,
nor is the satisfaction of any conversion condition
dependent upon the prior satisfaction of any other
conversion condition.
(b) When Conversion Rate Determinable by Board of Directors.
For purposes of this Section 4, the term "Reorganization" includes any merger,
consolidation, share exchange, or other business combination pursuant to which
the Company is not the surviving corporation after the effective date of the
Reorganization, and any sale or lease of all or substantially all of the assets
of the Company, and the term "Reorganization Agreement" shall mean a plan or
agreement with respect to a Reorganization. In the event the Company consummates
a Reorganization, every share of Series A Preferred Stock issued and outstanding
on the Reorganization's effective date shall on such date be converted into the
number and kind of shares or other property that would be received by a person
holding the number of common shares of the Company into which the shares of
Series A Preferred Stock would be convertible on the effective date.
If on a Reorganization's effective date all four of the conversion
conditions set forth in subparagraph 4.1(a) have not been satisfied, then the
immediately following sentence shall apply to the holders of the Series A
Preferred Stock. In regard to any conversion conditions which at the time of
execution of the Reorganization Agreement have not been satisfied, the Board of
Directors shall, prior to such effective date, in good faith determine the
extent to which such remaining conversion conditions have been partially
satisfied. [For example, achieving C$1,000,000 in total revenues would satisfy
one-fifth of the subparagraph 4.1(a)(iii) conversion condition and one-seventh
of subparagraph 4.1(a)(iv) conversion condition, respectively.] The Board of
Directors shall then determine the number of shares of the Company's common
stock into which the shares of Series A Preferred Stock may be converted,
27
<PAGE>
which shall be in proportion to the extent the remaining conversion conditions
have then been partially satisfied. The determination of the Board of Directors
in this matter shall be final and binding for all purposes.
(c) Automatic Conversion at Minimum Conversion Rate. On the
fifth (5th) anniversary of the Original Issue Date of the Series A Preferred
Stock, every share of Series A Preferred Stock which has not theretofore
satisfied any of the foregoing conversion conditions in this Section 4 and been
converted to common stock shall, automatically and without any requirement to
satisfy any conversion conditions of this Section 4 and without need of any
further action on the part of holders of Series A Preferred Stock except to
surrender the Series A Preferred Stock certificates to the Company's Secretary
for conversion, be converted into and thereafter represent one half (1/2) of a
share of the common stock of the Company (the "Minimum Conversion Rate").
(d) Other Matters Relating to Conversion. The common shares of
the Company into which shares of Series A Preferred Stock are converted
("Conversion Shares") will not be registered under the Securities Act of 1933,
as amended ("Act"), but shall be issued in reliance upon Section 4(2) of the Act
or Rule 505 or 506 of Regulation D under the Act, or Regulation S under the Act,
or other available exemption from registration under the Act. Conversion shall
be deemed to occur on the date a certificate evidencing shares of Series A
Preferred Stock being converted is presented to the Company or to the Company's
transfer agent and registrar, properly endorsed and accompanied by the proper
fee payable for issuance of the Conversion Shares. Each certificate evidencing
Series A Preferred Shares or Conversion Shares shall be subject to such
restrictions, conditions and limitations, and shall bear such restrictive
legends, if any, as are required by applicable laws, rules and regulations.
4.2 Other Adjustments to Conversion Rates. The conversion
rates set forth in Paragraph 4.1 above will be subject to further adjustment if
the Company is reorganized, merged, consolidated or party to a plan of exchange
with another corporation pursuant to which shareholders of the Company receive
any shares of stock or other securities, or in the event of any sale or other
transfer of all or substantially all of the Company's assets, or in case of any
reclassification of the Common Stock. Holders of shares of the Series A
Preferred Stock shall be entitled, after the occurrence of any such event, to
receive on conversion thereof the kind and amount of shares of stock or other
securities, cash or other property receivable upon such event by a holder of the
number of Common Shares into which the shares of Series A Preferred Stock might
have been converted immediately prior to occurrence of the event. In the event
of a split or combination, the number of Conversion Shares issuable shall be
appropriately adjusted. For purposes of this Paragraph, the term "shareholder"
means a holder of Common Stock.
4.3 No Fractional Shares Issuable. No fractional share of
Common Stock, or scrip or other instrument representing a fractional Common
Share, shall be issued upon conversion of any share of Series A Preferred Stock.
If any such conversion results in a fractional share of Common Stock being
issuable, the Company issue a whole share if the fraction is one half (0.50) or
more, and the converting holder shall forfeit the fraction if less than one half
(0.50).
5. Rights on Liquidation, Dissolution, or Winding Up.
5.1 Payment of Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
the holders of shares of Series A Preferred Stock shall be subordinate to all
claims of the Company's creditors and to claims of the holders of every series
of the Company's preferred stock ranking senior upon liquidation to the Series A
Preferred Stock, but otherwise are entitled to receive a liquidation preference
in the amount of $.001 per share, before any payment is made to any holder of
common shares or any series of preferred shares ranking junior to the shares of
Series A Preferred Stock. After the payment of such liquidation preference and
any liquidation preferences payable to holders of any other series of preferred
shares, the holders of the shares of Series A Preferred Stock shall share
ratably with the holders of the Company's common stock and all series of
preferred stock ranking on a parity with or junior to the Series A Preferred
Stock in the Company's assets available for distribution to its shareholders.
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<PAGE>
5.2 Effective Reorganization. Neither the consolidation or
merger of the Company with or into any other company nor the lease, exchange,
sale or transfer of all or substantially all of the Company's assets shall be
deemed to be a liquidation, dissolution or winding up of the Company's affairs,
whether voluntary or otherwise, within the meaning of this Section 5.
6. Voting Rights.
The shares of Series A Preferred Stock shall have the right to
vote in elections of directors and on other matters generally as to which
shareholders of the Company may vote. Each share of Series A Preferred Stock
shall be entitled to cast one (1) vote on every matter placed before
shareholders for consideration. The shares of Series A Preferred Stock shall
vote with the common shares and not as a separate class. Any matter which
requires the approval of the holders of the Series A Preferred Stock shall
require only the affirmative vote of a majority of the votes cast by the holders
of such shares, voting as a separate class, at any lawful meeting of such
holders which commences with a quorum; or if such shares vote by means of
written consent in lieu of a meeting, the concurrence of only a majority of the
holders of the Series A Preferred Stock shall be necessary.
7. Certain Corporate Actions.
The Company shall not amend its articles or certificate of
incorporation without the prior approval of the holders of the Series A
Preferred Stock, voting as a separate class, if such amendment would directly or
indirectly effect any adverse change in any of the rights, preferences or
privileges of, or limitations provided for herein for the benefit of, the
holders of Series A Preferred Stock. Without limiting the generality of the
foregoing, no such amendment may be effected without such approval if such
amendment would:
(a) Reduce the amount payable to the holders of Series A
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, or change the seniority of
the liquidation preferences of the holders of Series A Preferred Stock
relative to the rights upon liquidation, dissolution or winding up of
the holders of any other class or series of the Company's shares; or
(b) Cancel or modify the right of holders of Series A
Preferred Stock to convert such shares to Common Shares of the Company,
all as set forth herein.
8. Rank of Series A Preferred Stock.
The shares of the Series A Preferred Stock shall rank junior
to all series of preferred stock of the Company hereafter created, unless such
subsequently created series expressly ranks on a parity with or subordinate to
the Series A Preferred Stock. The Company may issue other shares of another
class or series of preferred stock after the Original Issue D which rank on a
parity with or senior to the Series A Preferred Stock.
9. Status of Certain Shares.
Shares of Series A Preferred Stock which (i) have been
redeemed, converted, exchanged, purchased, retired or surrendered to the
Company, or (ii) have been reacquired in any other manner, or (iii) have not
been sold or issued and which by determination of the Board of Directors shall
not be sold or issued as Series A Preferred Stock, shall have the status of
authorized and unissued preferred shares and may be reissued by the Board of
Directors as shares of Series A Preferred Stock or any other series of preferred
stock. In any such event, the Board of Directors may but shall not required to
file an amendment to the Company's articles of incorporation with the Nevada
Secretary of State to reflect any such fact.
29
<PAGE>
10. Tax Matters.
The holders of Series A Preferred Stock shall be solely liable
for and shall pay any and all taxes and other governmental charges, of every
kind, that may be imposed in respect of the issue or delivery of Common Shares
upon redemption or conversion of Series A Preferred Stock. The Company may
withhold certain of such Common Shares in order to satisfy the Company's tax
withholding obligations or take similar steps to ensure that such taxes and
charges are duly paid. If the Company becomes liable for or pays any such taxes
due to acts of a Series A Preferred Stock holder, it may, in order to recoup the
amount of such tax or tax liability:
(i) withhold the amount of such tax or tax liability from any
funds whatever in or coming into the Company's possession and belonging
to such holder, including dividends declared on the Series A Preferred
Stock and payable to such holder; and/or
(ii) cancel and reissue in the Company's name such number of
shares of Series A Preferred Stock, based upon the original issue price
per share, as will equal the amount of the tax paid or tax liability
incurred.
11. No Limit Imposed on Corporate Powers.
Except to the extent expressly set forth herein, the issuance
and existence of the Series A Preferred Stock shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any and
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures or other indebtedness, or the
dissolution or liquidation of the Company, or any sale, exchange or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
- - - - - END OF EXHIBIT A - - - - -
EXHIBIT B
to
Agreement and Plan of Reorganization among ProPaint Systems, Inc.,
Access Power Canada, Inc., and certain individuals
O P T I O N T O R E D E E M E X C H A N G E S T O C K
Option Agreement dated this June ____, 1998, among the person or entity
executing this Option as "Grantor" and PROPAINT SYSTEMS, INC., a Nevada
corporation and its successors and assigns as the optionee (the "Company"), the
parties agreeing as follows:
SECTION 1. RECITALS.
Grantor and Optionee are parties to that certain Agreement and Plan of
Reorganization dated June 12, 1998 ("Exchange Agreement"), among the Company,
ACCESS POWER CANADA, INC.,
30
<PAGE>
a federally chartered Canadian corporation ("Access Power"), and the
shareholders of Access Power, including Grantor, who executed the Exchange
Agreement as a "Shareholder." Upon the completion of the merger contemplated in
the Exchange Agreement ("Exchange"), certain shares of the Series A, Voting
Convertible Preferred Stock of the Company were issued to Grantor in the
aggregate number set forth in Section 2 of this Option (the "Exchange Shares").
Pursuant to Section 2.1 of the Exchange Agreement, the Company has the right to
redeem the Exchange Shares upon the occurrence of certain events. The Exchange
Agreement, together with all exhibits and schedules, is incorporated by
reference into this Option as if fully set forth here.
SECTION 2. EXCHANGE SHARES.
__________________ shares of the Company's common stock and
_______________ shares of Series A, Voting Convertible Preferred Stock of the
Company (the "Preferred Shares"), and all common shares of the Company into
which the Preferred Shares are converted during the Option Period, all of which
shares are collectively referred to in this Option as the "Exchange Shares" and
subject to this Option.
SECTION 3. GRANT OF OPTION.
Grantor hereby grants to the Company, for valuable consideration, the
receipt and sufficiency of which Grantor hereby acknowledges, an option (the
"Option") to purchase the Exchange Shares at a price of One Cent (US$0.01) per
share (the "Exercise Price") commencing on the date of this Option and expiring
on April 30, 2000 (the "Option Period") in the event that, during the Option
Period, Grantor voluntarily terminates his employment with the Company or his
employment with the Company is involuntarily terminated for cause or serious
cause. However, in the event Grantor's employment with the Company is terminated
for cause, then the number of Exchange Shares purchasable by the Company under
this Option shall be prorated, based on the portion of the Option Period then
lapsed. Grantor agrees that the Exercise Price and the duration of the Option
Period are reasonable. This redemption right shall not apply if termination of a
Member's employment with the Company occurs due to a merger, stock exchange or
consolidation of the Company with, or sale of the Company or all or
substantially all of its assets to, another company or persons then unaffiliated
with the Company.
SECTION 4. DEFINITIONS.
The term "employment with the Company" as used in this Option shall
include Grantor's employment or relationship as an officer, employee, consultant
or adviser with the Company or any affiliated company, provided that the Grantor
renders regular services averaging in any 90-day period not less than fifteen
(15) hours per week. "Employment with the Company" as herein used shall not be
affected by Grantor's transfer of employment among the Company and any one or
more affiliated companies. The term "affiliated company" means Survivor, any
other wholly or principally owned subsidiary of the Company, and any joint
venture or other business venture in which the Company or an affiliated company
owns at least twenty-five percent (25%) of the equity and net profits interest.
Grantor's employment with the Company shall not be deemed terminated by death,
by bona fide permanent or temporary disability or sick leave, by military leave
or by leave (e.g., jury duty) required by law or legal process other than
incarceration due to conviction of a felony crime. "Serious cause" as used in
this Option shall have the same meaning as set forth on Schedule 3.1 to the
Exchange Agreement. "Cause" as used in this Option means any reason for
termination other than serious cause.
SECTION 5. EXERCISE, PAYMENT AND DELIVERY OF EXCHANGE SHARES.
The Company may only exercise this Option by written notice to Grantor,
accompanied by payment of the Exercise Price by means of cashier's or bank
check, money order, or certified check. Notice of exercise of this Option may be
made by first class mail, postage prepaid, overnight courier service, telegram
or cable, or by any
31
<PAGE>
messenger service which regularly retains its delivery receipts. Exercise shall
be deemed made when notice of exercise and payment of the Exercise Price are
dispatched to Grantor.
Upon due exercise of this Option as provided in this paragraph, all
rights whatever of Grantor in and to the Exchange Shares, including ownership,
voting rights and the right to receive dividends, shall cease and shall belong
to the Company. Upon Grantor's receipt of the Exercise Price, Grantor shall
within five (5) business days deliver to the Company all certificates evidencing
the Exchange Shares (or if the Exchange Shares have been changed or converted
into any other securities, certificates evidencing such other securities), each
endorsed by Grantor with signature medallion guaranteed or accompanied by stock
powers executed by Grantor, each signature being medallion guaranteed. Upon
Grantor's failure to deliver such certificates properly endorsed or accompanied
by signature- guaranteed stock powers, the Company shall have the right to
compel their delivery by judicial action, at the sole cost of Grantor.
SECTION 6. COMBINATIONS, RECAPITALIZATIONS, ETC.
The Exchange Shares are shares of the common stock of the Company as
currently constituted. If, prior to exercise of this Option, the Company shall
one or more times effect any subdivision or consolidation of shares or other
capital readjustment, a stock split or combination of shares (reverse stock
split), or recapitalization or other increase or reduction of the number of
shares of its common stock which has the effect of changing the Exchange Shares
into a different number of shares of the Company, then the shares into which the
Exchange Shares are changed shall be subject to this Option in lieu of the
Exchange Shares.
If the Company is reorganized, merged, consolidated or party to a plan
of exchange with another corporation pursuant to which shareholders of the
Company receive any shares of stock or other securities, there shall be
substituted for the Exchange Shares subject to this Option the appropriate
number of shares of each class of stock or other securities which were
distributed to the Grantor in respect of the Exchange Shares.
SECTION 7. LITIGATION.
In the event of any litigation or proceeding arising as a result of any
alleged breach or violation of this Agreement, Grantor's failure to deliver the
Exchange Shares upon proper exercise of this Option, or the failure of any
representation or warranty herein of Grantor, the party or parties prevailing in
such litigation or proceeding shall be entitled to collect all costs and
expenses thereof, including reasonable attorneys' fees, from the party or
parties therein not prevailing. The parties expressly agree that all
shareholders of the Company at the time Grantor's employment with the Company
terminates during the Option Period are and shall be third party beneficiaries
of this provision, and any one or more of such shareholders may bring an action
to compel the Company to redeem the Exchange Shares if this Option becomes
exercisable during the Option Period.
SECTION 8. MISCELLANEOUS PROVISIONS.
This Option shall terminate only upon due exercise of this Option and
delivery of the Exchange Shares or expiration of the Option Period without such
exercise. This Option is binding on the parties and their respective successors,
assigns, heirs, legatees and legal representatives. Otherwise, neither party may
assign this Option or any obligations or rights hereunder. The transfer agent
and registrar of the Company may rely on a copy of this Option as its authority
for the transfer of the Exchange Shares following exercise and may rely on the
written statement of the Company that this Option has been duly exercised.
Grantor is fully authorized and has all legal right and power to grant and
perform as required under this Option.
32
<PAGE>
IN WITNESS WHEREOF, Grantor and the Company have executed this Option
and initialled each preceding page hereof, on the date first above indicated.
GRANTOR: PROPAINT SYSTEMS, INC.
X
- -----------------------------
By
- -----------------------------
Signature Authorized Officer
Name
- -----------------------------
SCHEDULE 4(c)
to
Agreement and Plan of Reorganization
among ProPaint Systems, Inc.,
Access Power Canada, Inc., and certain individuals
LITIGATION INVOLVING ACCESS POWER CANADA, INC.:
NONE
33
<PAGE>
Exhbit 3.01(i)
Exhibit 3.01 Certificate of Incorporation of the Registrant
CERTIFICATE OF INCORPORATION
of
ENEFEL 1001, INC.
(A Nevada Corporation)
FIRST. The name of this corporation is ENEFEL 1001, Inc.
SECOND. The Corporation's Registered Office in the State of Nevada is
located at 2533 N. Carson Street, Carson City, Nevada 89706. The Corporation's
Resident Agent at this address is Laughlin Associates, Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Nevada. The Corporation may conduct all or any part of its business, and
may hold, purchase, mortgage, lease and convey real and personal property,
anywhere in the world. The Corporation shall have perpetual duration.
FOURTH. The name and mailing address of the Incorporator is:
Name Mailing Address
Mark Cooper 3773 Cherry Creek North Drive, Suite 615
Denver, Colorado 80209
Upon the filing of this Certificate of Incorporation the powers of the
Incorporator shall terminate. The name and address of the person who is to serve
as the one director until the first annual meeting of shareholders or until his
successor is duly elected and has qualified is:
Name Mailing Address
J. R. Nelson 6521 W. Calhoun Place
Littleton, Colorado 80123
{CAPITAL STOCK}
FIFTH. The aggregate number of shares of capital stock of all classes
which the Corporation shall have authority to issue is TWENTY-ONE MILLION
(21,000,000), of which TWENTY MILLION (20,000,000) shares having a par value of
$.001 per share shall be of a class designated "Common Stock" (or "Common
Shares") and ONE MILLION (1,000,000) shares having a par value of $.001 per
share shall be of a class designated "Preferred Stock" (or "Preferred Shares").
All shares of the Corporation shall be issued for such consideration or
considerations as the Board of Directors may from time to time determine. The
designations, voting powers, preferences, optional or other special rights and
qualifications, limitations, or restrictions of the above classes of stock shall
be as follows:
1
<PAGE>
I. PREFERRED STOCK
(a) Issuance in Class and Series. Shares of Preferred Stock may be
issued in one or more classes or series at such time or times as the Board of
Directors may determine. All shares of any one series shall be of equal rank and
identical in all respects.
(b) Authority of Board for Issuance. Authority is hereby expressly
granted to the Board of Directors to fix from time to time, by resolution or
resolutions providing for the issuance of any class or series of Preferred
Stock, the designation of such classes and series and the powers, preferences
and rights of the shares of such classes and series, and the qualifications,
limitations or restrictions thereof, including the following:
1. The distinctive designation and number of shares comprising such
class or series, which number may (except where otherwise provided by the Board
of Directors in creating such class or series) be increased or decreased (but
not below the number of shares then outstanding) from time to time by action of
the Board of Directors;
2. The rate of dividend, if any, on the shares of that class or series,
whether dividends shall be cumulative and, if so, from which date or dates, the
relative rights of priority, if any, of payment of dividends on shares of that
class or series over shares of any other class or series;
3. Whether the shares of that class or series shall be redeemable at
the option of the Corporation or of the holder of the shares or of another
person or upon the occurrence of a designated event and, if so, the terms and
conditions of such redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and different
redemption dates;
4. Whether that class or series shall have a sinking fund for the
redemption or purchase of shares of that class or series and, if so, the terms
and amounts payable into such sinking fund;
5. The rights to which the holders of the shares of that series shall
be entitled in the event of voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Corporation, relative rights of
priority; if any, of payment of shares of that class or series;
6. Whether the shares of that class or series shall be convertible into
or exchangeable for shares of stock of any class or any other series of
Preferred Stock and, if so, the terms and conditions of such conversion or
exchange, including the method of adjusting the rates of conversion or exchange
in the event of a stock split, stock dividend, combination of shares or similar
event;
7. Whether the issuance of any additional shares of such class or
series, or of any shares of any other class or series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or rights of any
such other class or series;
8. Any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions of such class or series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions of the
Corporation's Charter, as from time to time amended, and to the full extent now
or hereinafter permitted by the laws of Nevada.
(c) Dividends. Payment of dividends shall be as follows:
1. The holders of Preferred Stock of each class or series, in
preference to the holders of Common Stock, shall be entitled to receive, as and
when declared by the Board of Directors out of funds legally available therefor,
all dividends, at the rate for such class or series fixed in accordance with the
provisions of this Article FIFTH and no more;
2
<PAGE>
2. Dividends may be paid upon, or declared or set aside for, any class
or series of Preferred Stock in preference to the holders of any other class or
series of Preferred Stock in the manner determined by the resolutions of the
Board of Directors authorizing and creating such class or series;
3. So long as any shares of Preferred Stock shall be outstanding, in no
event shall any dividend, whether in cash or in property, be paid or declared
nor shall any distribution be made, on the Common Stock, nor shall any shares of
Common Stock be purchased, redeemed or otherwise acquired for value by the
Corporation, unless all dividends on all cumulative classes and series Preferred
Stock with respect to all past dividend periods, and unless all dividends on all
classes and series of Preferred Stock for the then current dividend period shall
have been paid or declared, and provided for, and unless the Corporation shall
not be in default with respect to any of its obligations with respect to any
sinking fund for any class or series of Preferred Stock. The foregoing
provisions of this subparagraph (3) shall not, however, apply to any dividend
payable in Common Stock;
4. No dividend shall be deemed to have accrued on any share of
Preferred Stock of any class or series with respect to any period prior to the
date of the original issue of such share or the dividend payment date
immediately preceding or following such date of original issue, as may be
provided in the resolutions of the Board of Directors creating such class or
series. Preferred Stock shall not be entitled to participate in any dividends
declared and paid on Common Stock, whether payable in cash, stock or otherwise.
Accruals of dividends shall not pay interest.
(d) Dissolution or Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution of assets or winding-up of the Corporation,
the holders of the shares of each class or series of Preferred Stock then
outstanding shall be entitled to receive out of the net assets of the
Corporation, but only in accordance with the preferences, if any, provided for
such series, before any distribution or payment shall be made to the holders of
Common Stock, the amount per share fixed by the resolution or resolutions of the
Board of Directors to be received by the holder of each such share on such
voluntary or involuntary liquidation, dissolution, distribution of assets or
winding-up, as the case may be. If such payment shall have been made in full to
the holders of all outstanding Preferred Stock of all classes and series, or
duly provided for, the remaining assets of the Corporation shall be available
for distribution among the holders of Common Stock as provided in this Article
FIFTH. If upon any such liquidation, dissolution, distribution of assets or
winding-up, the net assets of the Corporation available for distribution among
the holders of any one or more classes or series of Preferred Stock which (i)
are entitled to a preference over the holders of Common Stock upon such
liquidation, dissolution, distribution of assets or winding-up, and (ii) rank
equally in connection therewith, shall be insufficient to make payment for the
preferential amount to which the holders of such shares shall be entitled, then
such assets shall be distributed among the holders of each such series of
Preferred Stock ratably according to the respective amounts to which they would
be entitled in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. Neither the
consolidation nor merger of the Corporation, nor the exchange, sale, lease or
conveyance (whether for cash, securities or other property) of all,
substantially all or any part of its assets, shall be deemed a liquidation,
dissolution, distribution of assets or winding-up of the Corporation within the
meaning of this provision.
(e) Voting Rights. Except to the extent otherwise required by law or
provided in the resolution of the Board of Directors adopted pursuant to
authority granted in this Article FIFTH, the shares of Preferred Stock shall
have no voting power with respect to any matter whatsoever. The Board of
Directors may determine whether the shares of any class or series shall have
limited, contingent, full or no voting rights, in addition to the voting rights
provided by law and, if so, the terms of such voting rights. Whenever holders of
Preferred Stock are entitled to vote on a matter, each holder of record of
Preferred Stock shall be entitled to one vote for each share standing in his
name on the books of the Corporation and entitled to vote.
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II. COMMON STOCK
(a) Issuance. The Common Stock may be issued from time to time in one
or more classes or series in any manner permitted by law, as determined by the
Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any.
(b) Voting Powers. The Common Stock may have such voting powers (full,
limited, contingent or no voting powers), such designations, preferences and
relative, participating, optional or other special rights, and be subject to
such qualifications, limitations and restrictions, as the Board of Directors
shall determine by resolution or resolutions. Unless otherwise resolved by the
Board of Directors at the time of issuing Common Shares, (i) each Common Share
shall be of the same class, without any designation, preference or relative,
participating, optional or other special rights, and subject to no
qualification, limitation or restriction, and (ii) Common Shares shall have
unlimited voting rights, including but not limited to the right to vote in
elections for directors, and each holder of record of Common Shares entitled to
vote shall have one vote for each share of stock standing in his name on the
books of the Corporation and entitled to vote.
(c) Dividends. After the requirements with respect to preferential
dividends, if any, on Preferred Stock, and after the Corporation shall have
complied with all requirements, if any, with respect to the setting aside of
sums in a sinking fund for the purchase or redemption of shares of any class or
series of Preferred Stock, then and not otherwise, the holders of Common Stock
shall receive, to the extent permitted by law, such dividends as may be declared
from time to time by the Board of Directors.
(d) Dissolution or Liquidation. After distribution in full of the
preferential amount, if any, to be distributed to the holders of Preferred
Stock, in the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Corporation, the holders of Common
Stock shall be entitled to receive all the remaining assets of the Corporation
of whatever kind available for distribution to shareholders ratably in
proportion to the number of shares of Common Stock respectively held by them.
III. GENERAL MATTERS
(a) Capital. The portion of the consideration received by the
Corporation upon issuance of any of its shares that shall constitute "capital"
within the meaning of the General Corporation Law of Nevada shall be (1) in the
case of par-value shares, the par value thereof, and (2) in the case of shares
without par value, the stated value of such shares as determined by the Board of
Directors at the time of issuance; provided, that if no stated value is
determined at the time that shares without par value are issued, the entire
consideration to be received for the shares shall constitute capital.
(b) Fully Paid and Nonassessable. Any and all shares of Common or
Preferred Stock issued by the Corporation for which not less than the portion of
the consideration to be received determined to be "capital" has been paid to the
Corporation, provided the Corporation has received a promissory note or other
binding legal obligation of the purchaser to pay the balance thereof, shall be
deemed fully paid and nonassessable shares.
(c) Amendment of Shareholder Rights. So long as no shares of any class
or series established by resolution of the Board of Directors have been issued,
the voting rights, designations, preferences and relative, optional,
participating or other rights of these shares may be amended by resolution of
the Board of Directors.
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(d) Status of Certain Shares. Shares of Preferred or Common Stock which
have redeemed, converted, exchanged, purchased, retired or surrendered to the
Corporation, or which have been reacquired in any other manner, shall have the
status of authorized and unissued shares and may be reissued by the Board of
Directors as shares of the same or any other series, unless otherwise provided
herein or in the resolution authorizing and establishing the shares.
(e) Denial of Preemptive Rights. No holder of any shares of the
Corporation shall be entitled as a matter of right to subscribe for or purchase
any part of any new or additional issue of stock of any class or of securities
convertible into or exchangeable for stock of any class, whether now or
hereafter authorized or whether issued for money, for a consideration other than
money, or by way of dividend.
(f) Convertibility. Common Shares or other shares of any class or
series, and notes, debentures, bonds and other debt instruments issued by the
Corporation or any affiliated company, may be made convertible into or
exchangeable for, at the option of the Corporation or the holder or upon the
occurrence of a specified event, shares of any other class or classes or any
other series of the same or any other class or classes of shares of the
Corporation, at such price or prices or at such rate or rates of exchange and
with such adjustments as shall be set forth in the resolution or resolutions
providing for the issuance of such convertible or exchangeable shares adopted by
the Board of Directors.
(g) Redeemability. Common Shares may be made redeemable at the option
of the Corporation or upon the occurrence of a designated event, if and to the
extent now or subsequently allowed by the General Corporation Law of Nevada, as
such law may subsequently be amended, and the terms and conditions of
redemption, including the date or dates upon or after which they shall be
redeemable, the amount per share payable in case of redemption and any variance
in the amount or amounts payable, among other terms, conditions and limitations
which may be imposed, may be fixed and established by the Board of Directors in
the resolution or resolutions authorizing the issuance of redeemable Common
Shares.
{VOTING OF SHAREHOLDERS}
SIXTH. The following provisions are hereby adopted for the purpose of
regulating certain matters relating to the voting of shareholders of the
Corporation:
(a) Definitions. Whenever the term "total voting power" appears in this
Charter, it shall mean all shares of the Corporation entitled to vote at a
meeting or on a question presented for shareholder approval, and of every class
or series of shares entitled to vote by class or series. Whenever the term
"votes cast" appears in this Charter, it shall mean the total number of voting
shares out of the total voting power which were unequivocally voted in favor of
or against a director standing for election or a matter presented for
shareholder approval at a legal meeting which commenced with a quorum.
(b) Quorum. A majority of the total voting power, or where a separate
vote by class or series is required, a majority of the voting shares of each
such class or series, represented in person or by proxy, shall constitute a
quorum at any meeting of the Corporation's shareholders.
(c) Vote Required. Any action to be taken by the Corporation's
shareholders at any valid meeting which commenced with a quorum shall require
the affirmative vote only of a majority of the votes cast, except where this
Charter or the Corporation's Bylaws then in effect requires the affirmative vote
of a higher proportion of the votes cast or requires the affirmative vote of a
proportion of the total voting power, and except where the Nevada General
Corporation Law specifically requires the affirmative vote of a majority of all
the votes entitled to be cast. Directors shall be elected by plurality vote.
Abstentions from voting shall not be considered in the tallying of votes.
Nothing
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contained in this Article SIXTH shall affect the voting rights of holders of any
class or series of shares entitled to vote as a class or by series. The Bylaws
may provide for the vote necessary at any adjournment of a duly called meeting
for which a quorum was not obtained. Cumulative voting shall not be allowed in
the election of directors.
(d) Manner of Voting; Etc. The vote of shareholders may be taken at a
meeting by a show of hands or other method authorized by the Board of Directors.
Written ballots shall be used only upon authorization of the Board of Directors
or as provided in the Corporation's Bylaws. Cumulative voting shall not be
allowed in the election of directors.
(e) Action Without Meeting. Any action by the shareholder may be taken
by written consent, in lieu of a meeting and without prior notice or vote, by
the holders of a majority of the total voting power, except where a higher
proportion of the total voting power is expressly required herein to authorize
such action. The manner of obtaining any such written consent shall be governed
by the Corporation's Bylaws.
(f) Shareholder Ratification. Any contract, transaction, or act of the
Corporation or of the directors which shall be ratified by vote of the
shareholders at any annual meeting, or at any special meeting called for such
purpose, or by means of a written consent of shareholders in lieu of a meeting,
shall so far as permitted by law be as valid and as binding as though ratified
by every shareholder of the Corporation.
{CONCERNING SHAREHOLDERS, DIRECTORS AND OFFICERS}
SEVENTH. The following provisions are hereby adopted for the purpose of
defining, limiting, and regulating the powers of the Corporation and of the
directors, officers and shareholders:
(a) Number of Directors. The number of Directors shall be as fixed in
the Bylaws. In the absence of such provision in the Bylaws, the Corporation
shall have one (1) Directors. Directors shall be elected by plurality vote and
need not be elected by written ballot, except as provided in the Bylaws.
(b) Removal of Directors. A director of the Corporation, or the entire
Board of Directors of the Corporation, may be removed by the shareholders, with
or without cause, only upon the affirmative vote of the holders of not less than
two-thirds (2/3) of the total voting power, without considering the vote of the
director or directors sought to be removed.
As used herein, "cause" for the removal of a director shall be deemed
to exist of (A) there has been a finding by not less than 2/3 of the entire
Board of Directors that cause exists and the directors have recommended removal
to the shareholders, or (B) an other cause defined by law.
(c) Removal of Officers and Employees. Unless the Bylaws otherwise
provide, any officer or employee of the Corporation may be removed at any time
with or without cause by the Board of Directors or by any committee or superior
officer upon whom such power of removal may be conferred by the Bylaws or by
authority of the Board of Directors, without prejudice, however, to existing
contractual rights.
(d) Corporate Opportunities. The officers, directors and other members
of management of the Corporation shall be subject to the doctrine of "corporate
opportunities" only insofar as it applies to any business opportunity (i) of a
type falling within the regular business or operations of the Corporation, or
(ii) in which the Corporation has expressed an interest as determined from time
to time by the Corporation's Board of Directors as evidenced by resolutions
appearing in the Corporation's minutes. All such business opportunities which
come to
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the attention of the officers, directors, and other members of management of the
Corporation shall be disclosed promptly to the Corporation and made available to
it. The Board of Directors may reject any business opportunity presented to it,
and only thereafter may any officer, director or other member of management
avail himself of such opportunity. The provisions of this paragraph shall not be
construed to release any employee of the Corporation from any fiduciary duties
which he may have to the Corporation.
{BYLAWS}
EIGHTH. The initial Bylaws of the Corporation shall be adopted by its
Board of Directors. The power to alter, amend or repeal the Bylaws or adopt new
Bylaws shall be vested in the Board of Directors, subject to the right of the
shareholders to alter, amend or repeal such Bylaws or adopt new Bylaws. The
Bylaws may contain any provisions for the regulation and management of the
affairs of the Corporation not inconsistent with law or this Charter.
{INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS}
NINTH. The following provisions are hereby adopted for the purpose of
defining and regulating certain rights of directors, officers and others in
respect of indemnification and related matters.
(a) Actions, Suits or Proceedings Other than by or in the Right of the
Corporation. The Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that he is or was or has agreed to become a director, officer, employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges, expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation or that, with respect to
any criminal proceeding, he had reasonable cause to believe that his conduct was
unlawful.
(b) Actions or Suits by or in the Right of the Corporation. The
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges and expenses (including amounts
paid in settlement and attorney's fees) actually and reasonably incurred by him
or on his behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation. No indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom to be liable to the
Corporation or for amounts paid in settlement to the Corporation unless and only
to the extent that the court in which such action or suit was brought
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or other court of competent jurisdiction shall determine upon application that,
despite the adjudication of such liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
costs, charges and expenses which the court shall deem proper.
(c) Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article NINTH, to the extent
that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Sections (a) and (b) of this Article NINTH, or in
defense of any claim, issue or matter therein, he shall be indemnified against
all costs, charges and expenses (including attorney's fees) actually and
reasonably incurred by him or on his behalf in connection therewith.
(d) Determination of Right to Indemnification. Any indemnification
under Sections (a) and (b) of this Article NINTH (unless ordered by a court)
shall be paid by the Corporation unless a determination is made (i) by a
disinterested majority of the Board of Directors who were not parties to such
action, suit or proceeding, or (ii) if such disinterested majority of the Board
of Directors so directs or cannot be obtained, by independent legal counsel in a
written opinion, or (iii) by the shareholders, that indemnification of the
director or officer is not proper in the circumstances because he has not met
the applicable standard of conduct set forth in Sections (a) and (b) of this
Article NINTH.
(e) Advances of Costs, Charges and Expenses. Costs, charges and
expenses (including attorney's fees) incurred by a person referred to in
Sections (a) or (b) of this Article NINTH in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding; provided, however, that
the payment of such costs, charges and expenses incurred by a director or
officer in his capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such person while a director or officer)
in advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article, accompanied by evidence
satisfactory to the Board of Directors of ability to make such repayment. Such
costs, charges and expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the majority of the Directors
deems appropriate. The majority of the Directors may, in the manner set forth
above, and upon approval of such director, officer, employee or agent of the
Corporation, authorize the Corporation's counsel to represent such person, in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
(f) Procedure for Indemnification. Any indemnification under Sections
(a), (b) and (c), or advance of costs, charges and expenses under Section (e) of
this Article NINTH, shall be made promptly, and in any event within 60 days,
upon the written request of the director or officer. The right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction if the
Corporation denies such request, in whole or in part, or if no disposition
thereof is made within 60 days. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section (e) of this
Article NINTH where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Sections (a) or (b) of this Article NINTH, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel and its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections (a)
or (b) of this Article NINTH, nor the fact that there
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has been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel and its shareholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(g) Settlement. If in any action, suit or proceeding, including any
appeal, within the scope of Sections (a) or (b) of this Article NINTH, the
person to be indemnified shall have unreasonably failed to enter into a
settlement thereof, then, notwithstanding any other provision hereof, the
indemnification obligation of the Corporation to such person in connection with
such action, suit or proceeding shall not exceed the total of the amount at
which settlement could have been made and the expenses by such person prior to
the time such settlement could reasonably have been effected.
(h) Other Rights; Continuation of Right to Indemnification. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which any director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the Corporation, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs, executors and
administrators of such person. All rights to indemnification under this Article
shall be deemed to be a contract between the Corporation and each director or
officer of the Corporation who serves or served in such capacity at any time
while this Article NINTH is in effect. Any repeal or modification of this
Article NINTH or any repeal or modification of relevant provisions of the
General Corporation Law of Nevada or any other applicable laws shall not in any
way diminish any rights to indemnification of such director, officer, employee
or agent or the obligations of the Corporation arising hereunder. This Article
NINTH shall be binding upon any successor corporation to this Corporation,
whether by way of acquisition, merger, consolidation or otherwise.
(i) Exceptions to Indemnification Right. Notwithstanding any other
language in this Charter, the Corporation shall not be obligated pursuant to the
terms of this Charter:
(1) Claims Initiated by Indemnitee. To indemnify or advance
expenses to any person with respect to proceedings or claims
initiated or brought voluntarily by him or her and not by way of
defense, expect with respect to proceedings brought to establish or
enforce a right to indemnification under this Charter or any other
statue or law or otherwise as required under the General
Corporation Law of Nevada, but such indemnification or advancement
of expenses may be provided by the Corporation in specific cases if
the Board of Directors finds it to be appropriate; or
(2) Lack of Good Faith. To indemnify any person for any expenses
incurred by him or her with respect to any proceeding instituted by
him or her to enforce or interpret this Agreement, if a court of
competent jurisdiction determines that each of the material
assertions made by him or her in such proceeding was not made in
good faith or was frivolous;
(3) Insured Claims. To indemnify any person for expenses or
liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) which have been paid directly to him or her by an
insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Corporation.
(4) Claims Under Section 16(b). To indemnify any person for
expenses or the payment of profits arising from the purchase and
sale by him or her of securities in violation of Section 16(b) of
the Securities Exchange Act of 1934, as amended, or any similar or
successor statute.
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(j) Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article NINTH; provided, however, that such insurance is available on acceptable
terms, which determination shall be made by a vote of a majority of the
Directors.
(k) Savings Clause. If this Article NINTH or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation (i) shall nevertheless indemnify each director and officer of the
Corporation and (ii) may nevertheless indemnify each employee and agent of the
Corporation, as to any cost, charge and expense (including attorney's fees),
judgment, fine and amount paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
an action by or in the right of the Corporation, to the full extent permitted by
any applicable portion of this Article NINTH that shall not have been
invalidated and to the full extent permitted by applicable law.
(l) Amendment. No amendment, termination or repeal of this Article
NINTH shall affect or impair in any way the rights of any director or officer of
the Corporation to indemnification under the provisions hereof with respect
to any action, suit or proceeding arising out of, or relating to, any actions,
transactions or facts occurring prior to the final adoption of such amendment,
termination or appeal.
(m) Subsequent Legislation. If the General Corporation Law of Nevada is
amended after adoption of this Charter to further expand the indemnification
permitted to directors, officers, employees or agents of the Corporation, then
the Corporation shall indemnify such persons to the fullest extent permitted by
the General Corporation Law of Nevada, as so amended.
(n) Restriction. Notwithstanding any other provision hereof whatsoever,
no person shall be indemnified under this Article NINTH who is adjudged liable
for (i) a breach of duty to the Corporation or its shareholders that resulted in
personal enrichment to which he was not legally entitled, (ii) intentional fraud
or dishonesty or illegal conduct, or (iii) for any other cause prohibited by
applicable state or federal law, unless a court determines otherwise.
{EXCLUSION OF DIRECTOR LIABILITY}
TENTH. As authorized by Section 78.037(1) of the General Corporation
Law of Nevada, no director or officer of the Corporation shall be personally
liable to the Corporation or any shareholder thereof for monetary damages for
breach of his fiduciary duty as a director or officer, except for liability for
(a) any acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (b) any payment of dividends in violation of
Section 78.300 of the General Corporation Law of Nevada, as it now exists or may
hereafter be amended. This Article TENTH shall apply to a person who has ceased
to be a director or officer of the Corporation with respect to any breach of
fiduciary duty which occurred when such person was serving as a director or
officer. This Article TENTH shall not be construed to limit or modify in any way
any director's or officer's right to indemnification or other right whatsoever
under this Charter, the Corporation's Bylaws or the General Corporation Law of
Nevada.
If the General Corporation Law of Nevada hereafter is amended to
authorize the further elimination or limitation of the liability of directors or
officers generally, then the liability of the Corporation's directors and
officers, in addition to the limitation on personal liability provided herein,
shall be limited to the fullest extent permitted by the General Corporation Law
of Nevada as so amended. Any repeal or modification of this Article
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TENTH by the shareholders shall be prospective only and shall not adversely
affect any limitation on the personal liability of any director or officer
existing at the time of such repeal or modification. The affirmative vote of at
least a majority of the total voting power shall be required to amend or repeal,
or adopt any provision inconsistent with, this Article TENTH.
{AMENDMENT}
ELEVENTH. The Corporation reserves the right to amend, restate or
repeal any provision contained in this Charter, in the manner now or hereafter
prescribed by statute, and all rights conferred on shareholders are granted
subject to this reservation. The affirmative vote of a majority of the votes
cast is necessary to amend or restate provisions of this Charter, except such
provisions which expressly require a higher proportion of the votes case or
require a proportion of the total voting power. The affirmative vote of a
majority of the total voting power is necessary to repeal this Charter in its
entirety and adopt a new charter in its stead.
{CERTAIN POWERS RESERVED TO DIRECTORS}
TWELFTH. The corporation hereby reserves solely to the Board of
Directors the power and authority to borrow from time to time on behalf and in
the name of the Corporation and to determine the amount, terms, provisions and
conditions of any such borrowing, and in connection therewith to create, issue
and deliver instruments containing such terms, provisions and conditions as the
Board of Directors deems necessary or adivsable in its sole discretion.
In connection with the creation, issuance or delivery of any such form
or evidence of indebtedness, there is also reserved solely to the Board of
Directors the power and authority to create, enter into and execute indentures
of trust, conveyances, mortgages and similar instruments containing such terms,
provisions and conditions as the Board of Directors deems necessary or advisable
in its sole discretion; and, without need or prior or subsequent shareholder
approval, to pledge, mortgage or convey any or all property, assets, rights,
privileges or franchises now or hereafter belonging to the Corporation in order
to secure the payment when due of the principal, interest and other charges due
upon any such promissory notes, bonds or debentures or other obligations or
evidences of indetedness of the Corporation; and to create, issue and deliver
additional amounts or series of obligations under the terms of any such
indebtedness authorized by the Board of Directors may be made convertible into
Common Stock or other securities of the Corporation and may be made redeemable
at such time and on such terms (including the use of a sinking fund or similar
arrangement) as the Board of Directors deems necessary or advisable in its sole
discretion.
The affirmative vote of a majority of the total voting power shall be
required to amend, repeal or adopt any provision inconsistent with this Article
TWELFTH.
{INAPPLICABILITY OF CONTROL SHARE ACQUISITION STATUTE}
THIRTEENTH. The Corporation expressly elects not to be governed by
Sections 78.378 through 78.3793 of the General Corporation Law of Nevada
(concerning acquisitions of controlling interest in corporations), as it now
exists or may hereafter be amended, or any successor statute. The affirmative
vote of at least a majority of the total voting power shall be required to
amend, repeal or adopt any provision inconsistent with this Article THIRTEENTH.
IN WITNESS WHEREOF, the undersigned, being the Incorporator named
above, for the purpose of forming a corporation pursuant to the General
Corporation Law of Nevada, does hereby make and file this Certificate of
Incorporation for ENEFEL 1001, Inc.
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DATED: November 17, 1995
INCORPORATOR:
X
-------------------------------------
Mark Cooper
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
On this day the 17th day of November, 1995, before me, John D. Brasher
Jr., the above signed incorporated, personally appeared Mark Cooper, known to me
(or satisfactorily proven) to be the person whose name is subscribed to the
within instrument and acknowledged that he executed the same for the purposes
therein contained. In witness whereof, I hereunto set my hand and official seal.
(SEAL) /s/ Mark Cooper
--------------------------------------
Notary Public
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
PROPAINT SYSTEMS, INC.
(A Nevada Corporation)
12
<PAGE>
PROPAINT SYSTEMS, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of Nevada, DOES HEREBY CERTIFY THAT:
A. The Board of Directors of this corporation by the unanimous written
consent of its members, filed with the minutes of the Board, duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the corporation to amend the first paragraph of Article FIFTH
in order to increase the number of common shares and preferred shares authorized
issuable, declaring such amendments to be advisable and directing that the
proposal be placed before the shareholders of the corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article FIFTH of the Certificate of Incorporation of
this corporation be amended to provide as follows:
"FIRST. The name of this corporation is PROPAINT SYSTEMS, INC.
FIFTH. The aggregate number of shares of capital stock of all classes
which the Corporation shall have authority to issue is ONE HUNDRED TWENTY-FIVE
MILLION (125,000,000), of which ONE HUNDRED MILLION (100,000,000) shares having
a par value of $.001 per share shall be of a class designated "Common Stock" (or
"Common Shares") and TWENTY-FIVE MILLION (25,000,000) shares having a par value
of $.001 per share shall be of a class designated "Preferred Stock" (or
"Preferred Shares"). All shares of the Corporation shall be issued for such
consideration or considerations as the Board of Directors may from time to time
determine. The designations, voting powers, preferences, optional or other
special rights and qualifications, limitations, or restrictions of the above
classes of stock shall be as follows:"
B. Other than the amendment to the first paragraph of Article FIFTH,
there are no amendments to the Certificate of Incorporation.
C. Pursuant to resolution of the corporation's Board of Directors, the
foregoing Certificate of Amendment was duly approved by affirmative vote of the
holders of a majority of the Corporation's 1,000,000 shares of capital stock
outstanding and entitled to vote on the proposed amendment, and therefore
sufficient for approval, all in accordance with the General Corporation Law of
Nevada and the existing Certificate of Incorporation and bylaws of the
Corporation.
D. This amendment was duly adopted in accordance with the provisions of
Section 78.390 of the General Corporation Law of Nevada.
IN WITNESS WHEREOF, PROPAINT SYSTEMS, INC. has caused this Certificate
of Amendment to be signed by its Vice President, and attested by its Secretary,
as of the date below.
13
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DATED: June 5, 1998 PROPAINT SYSTEMS, INC.
By /s/ John D. Brasher
-----------------------------------
John D. Brasher Jr., Vice President
By /s/ Elisabeth M. Crosse
--------------------------------
Elisabeth M. Crosse, Secretary
14
<PAGE>
ACKNOWLEDGMENTS
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I HEREBY CERTIFY that before me, a Notary Public duly commissioned and
qualified in and for the above jurisdiction, personally came and appeared John
D. Brasher Jr., the Vice President of PROPAINT SYSTEMS, INC., who after being
duly sworn declared that he executed the foregoing Certificate of Amendment as
his free act and deed and that the statements therein set forth are true and
correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on June 5,
1998.
..................................... My
NOTARY PUBLIC Commission
Expires____________________________
(SEAL)
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I HEREBY CERTIFY that before me, a Notary Public duly commissioned and
qualified in and for the above jurisdiction, personally came and appeared
Elisabeth M. Crosse, the Secretary of PROPAINT SYSTEMS, INC., who after being
duly sworn declared that she executed the foregoing Certificate of Amendment as
her free act and deed and that the statements therein set forth are true and
correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on June 5,
1998.
..................................... My
NOTARY PUBLIC Commission
Expires____________________________
(SEAL)
15
<PAGE>
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
APC TELECOMMUNICATIONS, INC.
(A Nevada Corporation)
APC TELECOMMUNICATIONS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of Nevada, DOES HEREBY
CERTIFY THAT:
A. The Board of Directors of this corporation by the unanimous written
consent of its members, filed with the minutes of the Board, duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the corporation to change the name of the corporation from APC
TELECOMMUNICATIONS, INC. to INNOFONE.COM, INCORPORATED, declaring such amendment
to be advisable and directing that the proposal be placed before the
shareholders of the corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that Article FIRST of the Certificate of Incorporation of
this corporation be amended to provide as follows:
"FIRST. The name of this corporation is INNOFONE.COM, INCORPORATED."
B. Other than the change of the corporation's name, there are no
amendments to the Certificate of Incorporation.
C. Pursuant to resolution of the corporation's Board of Directors, the
foregoing Certificate of Amendment was duly approved by affirmative vote of the
holders of a majority of the Corporation's 9,885,000 shares of common stock
outstanding and entitled to vote and the holders of a majority of the
Corporation's 5,000,000 shares of Series A, Voting Convertible Preferred Stock
outstanding and entitled to vote on the proposed amendment, and therefore
sufficient for approval, all in accordance with the General Corporation Law of
Nevada and the existing Certificate of Incorporation and bylaws of the
Corporation.
D. This amendment was duly adopted in accordance with the provisions of
Section 78.390 of the General Corporation Law of Nevada.
16
<PAGE>
IN WITNESS WHEREOF, APC TELECOMMUNICATIONS, INC. has caused this
Certificate of Amendment to be signed by its President, and attested by its
Assistant Secretary, as of the date below.
DATED: March 23, 1999 APC TELECOMMUNICATIONS, INC.
By /s/ Larry Hunt
-----------------------------------
Larry Hunt, President
By /s/ John D. Brasher Jr.
--------------------------------
John D. Brasher Jr.,
Assistant Secretary
ACKNOWLEDGMENTS
STATE OF ONTARIO )
) ss.
COUNTY OF YORK REGION )
I HEREBY CERTIFY that before me, a Notary Public duly commissioned and
qualified in and for the above jurisdiction, personally came and appeared Larry
Hunt, the President and Chief Executive Officer of APC TELECOMMUNICATIONS, INC.,
who after being duly sworn declared that he executed the foregoing Certificate
of Amendment as his free act and deed and that the statements therein set forth
are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on March 23,
1999.
..................................... My
NOTARY PUBLIC Commission
Expires____________________________
(SEAL)
18
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
I HEREBY CERTIFY that before me, a Notary Public duly commissioned and
qualified in and for the above jurisdiction, personally came and appeared JOHN
D. BRASHER JR., the Assistant Secretary of APC TELECOMMUNICATIONS, INC., who
after being duly sworn declared that he executed the foregoing Certificate of
Amendment as his free act and deed and that the statements therein set forth are
true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on March 23,
1999.
..................................... My
NOTARY PUBLIC Commission
Expires____________________________
(SEAL)
<PAGE>
Exhibit 3.01(ii)
BYLAWS
of
PROPAINT SYSTEMS, INC.
(A Nevada Corporation)
ARTICLE I
General
1.01 Applicability. These Bylaws provide rules for conducting the
business of this corporation (the "Company"). Every shareholder and person who
subsequently becomes a shareholder, the Board of Directors, Committees and
Officers of the Company shall comply with these Bylaws, as amended from time to
time. All bylaws and resolutions heretofore adopted by the Board of Directors
are hereby repealed, to the extent in conflict with the provisions of these
Bylaws.
1.02 Offices. The principal office of the Company shall be selected by
the Board of Directors from time to time and may be within or without the State
of Nevada. The Company may have such other offices, within or without the State
of Nevada, as the Board of Directors may, from time to time, determine. The
registered office of the Company required by the General Corporation Law of
Nevada to be maintained in Nevada may be, but need not be, identical with the
principal office if in Nevada, and the address of the registered office may be
changed from time to time by the Board of Directors.
1.03 Definition of Terms. Terms defined in the Company's Certifcate of
Incorporation, as amended and restated from time to time (the "Charter"), shall
have the same meanings when used in these Bylaws.
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ARTICLE II
Stock Certificates
2.01 Stock Certificates. The shares of the Company's capital stock
shall be represented by consecutively numbered certificates signed by the
President or a Vice President and the Secretary or Assistant Secretary of the
Company, and sealed with the seal of the Company, or a facsimile thereof. If
certificates are signed by a transfer agent and registrar other than the Company
or an employee thereof, the signatures of the officers of the Company may be
facsimile. In case any officer who has signed (by real or facsimile signature) a
certificate shall have ceased to hold such office before the certificate is
issued, it may be issued by the Company with the same effect as if he continued
to hold such office on the date of issue. Each certificate representing shares
shall state upon the face thereof: (i) that the Company is organized under the
laws of the State of Nevada; (ii) the name of the person to whom issued; (iii)
the number, class and series (if any) of shares which such certificate
represents; and (iv) the par value, if any, of the shares represented by such
certificate, or a statement that the shares have no par value.
If any class or series of shares is subject to special powers,
designations, preferences or relative, participating or other special rights,
then such (together with all qualifications, limitations or restrictions of such
preferences or rights) shall be set forth in full or summarized on the
certificate representing such class or series. Moreover, each certificate shall
state that the Company will furnish, without charge, to the registered holder of
the shares represented by such certificate who so requests a statement setting
forth such information in full.
Each certificate also shall set forth restrictions upon transfer, if
any, or a reference thereto, as shall be adopted by the Board of Directors or by
the shareholders, or as may be contained in this Article II. Any shares issued
without registration under the Securities Act of 1933, as amended ("Act"), shall
bear a legend restricting transfer unless such shares are registered under such
act or an exemption from registration is available for a proposed transfer.
2.02 Consideration for Shares. Shares of the Company shall be issued,
and treasury shares may be disposed of, for such consideration or considerations
as shall be fixed from time to time by the Board of Directors. No shares shall
be issued for less than the par value thereof. The consideration for the
issuance of shares may be paid, in whole or in part, in money, in other
property, tangible or intangible, or in labor or services actually performed for
the Company, or as permitted in the Charter.
2.03 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, and the Board of Directors when authorizing
such issue of a new certificate or certificates may in its discretion, and as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates or his legal representative to advertise
the same in such manner as it shall require, and/or furnish to the Company a
bond in such sum as it may direct, as indemnity against any claim that may be
made against the Company. Except as hereinabove in this section provided, no new
certificate or certificates evidencing shares of stock shall be issued unless
and until the old certificate or certificates, in lieu of which the new
certificate or certificates are issued, shall be surrendered for cancellation.
2.04 Registered Holder as Owner. The Company shall be entitled to treat
the registered holder of any shares of the Company as the owner of such shares,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such shares or rights deriving from such shares, unless and until such
purchaser, assignee, transferee or other person becomes the registered holder of
such shares, whether or not the Company shall have either actual or constructive
notice of the interests of such purchaser, assignee, or transferee or other
person. The purchaser, assignee, or transferee of any of the shares of the
Company shall not be entitled: to receive notice of the meetings of the
shareholders; to vote at such meetings; to examine a list of the shareholders;
to be paid dividends or
2
<PAGE>
other sums payable to shareholders; or to own, enjoy and exercise any other
property or rights deriving from such shares against the Company, until such
purchaser, assignee, or transferee has become the registered holder of such
shares.
2.05 Reversions. Cash, property or share dividends, shares issuable to
shareholders in connection with a reclassification of stock, and the redemption
price of redeemed shares, which are not claimed by the shareholders entitled
thereto within TWO years after the dividend or redemption price became payable
or the shares became issuable, despite reasonable efforts by the Company to pay
the dividend or redemption price or deliver the certificate(s) for the shares to
such shareholders within such time shall, at the expiration of such time, revert
in full ownership to the Company, and the Company's obligation to pay any such
dividend or redemption price or issue such shares, as the case may be, shall
thereupon cease; provided, that the Board of Directors may at any time and for
any reason satisfactory to it, but need not, authorize (i) payment of the amount
of cash or property dividend or (ii) issuance of any shares, ownership of which
has reverted to the Company pursuant to this Section of Article II, to the
person or entity who or which would be entitled thereto had such reversion not
occurred.
2.06 Returned Certificates. All certificates for shares changed or
returned to the Company for transfer shall be marked by the Secretary
"CANCELLED," with the date of cancellation, and the transaction shall be
immediately recorded in the certificate book opposite the memorandum of their
issue. The returned certificate may be inserted in the certificate book.
2.07 Transfer of Shares. Upon surrender to the Company or to a transfer
agent of the Company of a certificate of stock endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and such
documentary stamps as may be required by law, it shall be the duty of the
Company to issue a new certificate, upon payment by the transferee of such
nominal charge therefor as the Company or its transfer agent may impose. Each
such transfer of stock shall be entered on the stock book of the Company.
Respecting any securities issued in reliance upon Rule 903 of Regulation S under
the Act at any time when the Company is not a "reporting issuer" as
defined in Rule 902 of Regulation S, no transfer of such securities shall be
registered unless made in accordance with the provisions of Regulation S.
2.08 Transfer Agent. The Board of Directors shall have power to appoint
one or more transfer agents and registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates
shall be countersigned and registered by one or more of such transfer agents and
registrars. Any powers or duties with respect to the transfer and registration
of certificates may be delegated to the transfer agent and registrar.
ARTICLE III
Meetings of the Shareholders
3.01 Annual Meeting. The annual meeting of the shareholders shall be
held between the 90th and 180th day after the tax year end, at such date and
time and at such place, within or without the State of Nevada, as is designated
from time to time by the Board of Directors and stated in the notice of the
meeting. At each annual meeting the shareholders shall elect a Board of
Directors in accordance with the Charter and shall transact such other business
as may properly be brought before the meeting.
3.02 Special Meetings. Unless otherwise proscribed by law, the Charter
or these Bylaws, special meetings of the shareholders may be called by the
Chairman of the Board, the President, or a majority of the Board of Directors,
or by persons who as of the date of calling the meeting are the holders of not
less than ten percent (10%) of the total voting power. Requests for special
meetings shall state the purpose or purposes of the proposed meeting.
3
<PAGE>
3.03 Notice of Meetings. Except as otherwise provided by law, the
Charter or these Bylaws, written notice of any annual or special meeting of the
shareholders shall state the place, date, and time thereof and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given to each shareholder of record entitled to vote at such meeting not
fewer than 10 nor more than 60 days prior to the meeting by any means permitted
in Article IX hereof. No business other than that specified in the notice of a
special meeting shall be transacted at any such special meeting.
3.04 Record Date. In order that the Company may determine shareholders
of record who are entitled (i) to notice of or to vote at any shareholders
meeting or adjournment thereof, (ii) to express written consent to corporate
action in lieu of a meeting, (iii) to receive payment of any dividend or other
distribution, or (iv) to allotment of any rights or to exercise any rights in
respect of any change, conversion or exchange of stock, or in order that the
Company may make a determination of shareholders of record for any other lawful
purpose, the Board of Directors may fix in advance a date as the record date for
any such determination. Such date shall not be more than 60 days, and in case of
a meeting of shareholders, not less than 10 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken,
and in no event may the record date precede the date upon which the Directors
adopt a resolution fixing the record date.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is given (as defined in Article IX hereof) or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of the
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this Section such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjournment.
3.05 Voting List. At least 10 days but nor more than 60 days before any
meeting of shareholders, the officer or transfer agent in charge of the
Company's stock transfer books shall prepare a complete alphabetical list of the
shareholders entitled to vote at such meeting, which list shows the address of
each shareholder and the number of shares registered in his or her name. The
list so prepared shall be maintained at the corporate offices of the Company and
shall be open to inspection by any shareholder, for any purpose germane to the
meeting, at any time during usual business hours during a period of no fewer
than 10 days prior to the meeting. The list shall also be produced and kept open
at any shareholders meeting and, except as otherwise provided by law, may be
inspected by any shareholder or proxy of a shareholder who is present in person
at the meeting. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine the list of shareholders and
to vote at any meeting of shareholders.
3.06 Quorum; Adjournments. (a) The holders of a majority of the total
voting power at any shareholders meeting present in person or by proxy shall be
necessary to and shall constitute a quorum for the transaction of business at
all shareholders meetings, except as otherwise provided by law or by the
Articles.
(b) If a quorum is not present in person or by proxy at any
shareholders meeting, a majority of the voting shares present or represented
shall have the power to adjourn the meeting from time to time to the same or
another place within 30 days thereof and no further notice of such adjourned
meeting need be given if the time and place thereof are announced at the meeting
at which the adjournment is taken.
(c) Even if a quorum is present in person or by proxy at any
shareholders meeting, a majority of the voting shares present or represented
shall have the power to adjourn the meeting from time to time, for good cause,
without notice of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjourment is taken, until a new date
which is not more than 30 days after the date of the original meeting.
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(d) Any business which might have been transacted at a shareholders
meeting as originally called may be transacted at any meeting held after
adjournment as provided in this Section 3.06 at which reconvened meeting a
quorum is present in person or by proxy. Anything in paragraph (b) of this
Section to the contrary notwithstanding, if an adjournment is for more than 30
days, or if after an adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote thereat.
(e) The shareholders present at a duly called meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
3.07 Proxies. At all meetings of shareholders, a shareholder may vote
by proxy, executed in writing by the shareholder or by his duly authorized
attorney in fact. Any proxyholder shall be authorized to sign, on the
shareholder's behalf, any written consent for shareholder action taken in lieu
of a meeting. Such proxy shall be filed with the Secretary of the Company before
or at the time of the meeting. No proxy shall be valid after the expiration of
six (6) months from the date of its execution, unless coupled with an interest,
or unless the person executing it specifies therein the length of time for which
it is to continue in force, which in no case shall exceed three (3) years from
the date of its execution.
3.08 Voting of Shares. At any shareholders meeting every shareholder
having the right to vote shall be entitled to vote in person or by proxy. Except
as otherwise provided by law, by the Articles or in the Board resolution
authorizing the issuance of shares, each shareholder of record shall be entitled
to one vote (on each matter submitted to a vote) for each share of capital stock
registered in his, her or its name on the Company's books. Except as otherwise
provided by law or by the Articles, all matters submitted to the shareholders
for approval shall be determined by a majority of the votes cast (not counting
abstentions) at a legal meeting commenced with a quorum.
3.09 Voting of Shares by Certain Holders. Neither treasury shares, nor
shares of its own stock held by the Company in a fiduciary capacity, nor shares
held by another corporation if the majority of the shares entitled to vote for
the election of directors of such other corporation is held by the Company,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of such
corporation may prescribe, or, in the absence of such provision, as the board of
directors of such corporation may determine.
Shares held by an administrator, executor, personal representative,
guardian, or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
5
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3.10 Chairman. The Chairman of the Board of Directors of the Company,
if there is one, or in his absence, the President, shall act as chairman at all
meetings of shareholders.
3.11 Manner of Shareholder Voting. Voting at any shareholders' meeting
shall be oral or by show of hands; provided, however, that voting shall be by
written ballot if such demand is made by any shareholder present in person or by
proxy and entitled to vote.
3.12 Informal Action by Shareholders; Record Date. Any action required
or permitted to be taken at a meeting of the shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by shareholders holding at
least a majority of the voting power, except that if a different proportion of
voting power is required for such an action at a meeting, then that proportion
of written consents is required. Such a consent must be filed with the minutes
of the proceedings of shareholders and shall have the same force and effect as a
vote of the shareholders, and may be stated as such in any document filed with
the Secretary of State of Nevada under the General Corporation Law of Nevada.
Written notice of such action shall be given to all shareholders who have not
consented in writing to the action taken. The record date for determining
shareholders entitled to consent to corporate actions in writing without a
meeting (the "consent record date") shall not precede, and shall not be more
than ten (10) days after, the date upon which the resolution fixing the record
date was adopted. However, if no consent record date is fixed, the consent
record date shall be, respectively, (i) if prior action by the Board of
Directors is required under the General Corporation Law of Nevada for the
consent to be validly taken, the close of business on the day on which the Board
of Directors adopts the resolution taking such prior action; and (ii) if prior
action by the Board of Directors is not required, the first date on which a
properly signed and dated consent setting forth the action taken or proposed to
be taken is delivered as required above.
3.13 Presiding Officers; Order of Business. (a) Shareholders meetings
shall be presided over by the Chairman of the Board; or if the Chairman (and
Vice Chairman) is not present, by the President; or if the President is not
present, by a Vice President; or if a Vice President is not present, by such
person chosen by the Board of Directors; or if none, by a chairperson to be
chosen at the meeting by shareholders present in person or by proxy who own a
majority of the voting power present. The Secretary of a shareholders meeting
shall be the Secretary of the Company; or if the Secretary is not present, an
Assistant Secretary; or if an Assistant Secretary is not present, such person as
may be chosen by the Board of Directors; or if none, by such person who is
chosen by the chairperson at the meeting.
(b) The following order of business, unless otherwise ordered at the
shareholders meeting by the chairperson thereof, shall be observed as far as
practicable and consistent with the purposes of the meeting:
1. Calling of the shareholders' meeting to order.
2. Presentation of proof of mailing of the notice of
the meeting and, if a special meeting, the call thereof.
3. Presentation of proxies.
4. Determination and announcement that a quorum is present.
5. Reading and approval (or waiver thereof) of the
minutes of the previous meeting of shareholders.
6. Reports, if any, of officers.
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7. Election of directors, if the meeting is an annual
meeting or a meeting called for such purpose.
8. Consideration of the specific purpose or purposes
for which the meeting has been called, other than election of
directors.
9. Transaction of such other business as may properly
come before the meeting.
10. Adjournment.
3.14 Annual Report. The President of the Company shall prepare an
annual report which will set forth a statement of affairs of the Company as of
the end of its last fiscal year, including a balance sheet, an income statement
and a statement of changes in financial position, which need not be audited, and
present them at the annual meeting of shareholders. Failure to prepare or
present an annual report shall not affect the validity of any shareholder
meeting. No such report need be prepared or presented for any fiscal year in
which the Company was inactive. This Section shall not apply as to any fiscal
year if the Company (i) was at the year end subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, and
subsequently furnishes to the shareholders an annual report or report on Form
10-K under such Act covering such fiscal year, or (ii) furnishes to shareholders
an Information Statement which conforms to the requirements of Rule 15c2-11 of
the Securities and Exchange Commission.
ARTICLE IV
Directors, Powers and Meetings
4.01 General Powers. All corporate powers shall be exercised, and the
Company's business and affairs shall be managed, by or under the authority of
its Board of Directors, except as otherwise provided in the General Corporation
Law of Nevada or the Charter.
4.02 Number, Tenure and Qualifications. The Company's Board of
Directors shall consist of not less than one (1) and not more than seven (7)
Directors, as resolved from time to time by the Board of Directors. If such
number is not so fixed, the Company shall have one Director. Directors shall be
elected at each annual meeting of shareholders, except as otherwise provided
below. Each Director shall hold office until the next annual meeting of
shareholders and thereafter until his successor shall have been elected and duly
qualified. Directors need not be residents of Nevada or shareholders of the
Company. Directors shall be elected by plurality vote. At least one-fourth in
number of the Directors must be elected annually. No decrease in the number of
Directors shall shorten the term of any incumbent Director.
4.03 Vacancies; Resignation. (a) Any vacancy occurring in the Board of
Directors, except resulting from an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining Directors, though
less than a quorum, or by a sole remaining Director. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors shall be filled by the affirmative vote of a majority of the entire
board or by a majority of the total voting power at any annual meeting or at a
special meeting of shareholders called for that purpose, or by means of written
shareholder consents taken in lieu of a meeting. Every director chosen to fill a
vacancy as provided in this Section shall hold office until the next annual
meeting of shareholders or until his successor has been elected and qualified.
(b) Any Director may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the Company.
Unless otherwise specified in such written notice, a
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resignation shall take effect upon delivery to the Board or the designated
officer. A resignation need not be accepted in order for it to be effective.
4.04 Removal of Directors. Any Director may be removed only by the
shareholders in the manner provided in the Company's Charter and, if no such
provision appears therein, then as provided by law. Such action may be taken at
any special meeting called for that purpose or by means of written shareholder
consents. In case any vacancy so created shall not be filled by the shareholders
at such meeting or in the written consent effecting removal, such vacancy may be
filled by a majority of the Board of Directors.
4.05 Place of Meetings. The Board of Directors may hold both regular
and special meetings either within or without the State of Nevada, at such place
as the Board of Directors from time to time deems advisable.
4.06 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than these Bylaws immediately after and at
the same place as the annual meeting of shareholders. The Board of Directors may
provide by resolution the time and place for the holding of additional regular
meetings without other notice than such resolution; provided, that any Director
not present when any such resolution is passed is given notice of the
resolution.
4.07 Special Meetings. A special meeting of the Board of Directors
shall be held without other notice than these Bylaws immediately after and at
the same place as every special meeting of shareholders. Special meetings of the
Board of Directors also may be called by or at the request of the Chairman of
the Board, the President, or any two Directors upon two days' notice to each
director if such notice is delivered personally or sent by telegram, or upon
five days' notice if sent by mail.
4.08 Telephonic Meetings. One or more members of the Board of Directors
or any committee designated by the Board may participate in a meeting of the
Board of Directors or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear one another at the same time. Such participation shall constitute presence
in person at the meeting. All participants in any meeting of Directors, by
virtue of their participation and without further action on their part, shall be
deemed to have consented to the recording of such meeting by electronic device
or otherwise, and to the making of a written transcript thereof, in order that
minutes thereof shall be available for the Company's records.
4.09 Notice. Except as otherwise provided above, notice of the time,
date and place, of every special meeting of Directors or any committee thereof
shall be given. Any Director may waive notice of any meeting. 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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
4.10 Quorum; Adjournments. A majority of the number of directors then
in office, present in person or by means of conference telephone or similar
equipment, shall constitute a quorum for the transaction of business at every
Board meeting, and the act of the majority of the Directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors, except
as may otherwise specifically be provided by law, the Charter or these Bylaws.
If a quorum is not present at any Board meeting, the directors present may
adjourn the meeting, from time to time, without notice other than announcement
of the meeting, until a quorum is present.
4.11 Compensation. Directors shall be entitled to such compensation for
their services as directors as from time to time may be fixed by the Board and
shall be entitled to reimbursement of all reasonable expenses incurred by them
in attending Board meetings. A director may waive compensation for any Board
meeting. No
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director who receives compensation as a director shall be barred from serving
the Company in any other capacity or from receiving compensation and
reimbursement of reasonable expenses for any or all such other services.
4.12 Presumption of Assent. A Director of the Company who is present at
a meeting of the Board of 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 or certified mail, first class, postage prepaid, to the Secretary of
the Company, provided such mailing is postmarked within ten calendar days after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
4.13 Action by Directors Without Meeting. Any action required to be
taken at a meeting of the Directors of the Company or of a committee of
Directors or any action which may be taken at such a meeting, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the Directors entitled to vote with respect to the
subject matter therof. A consent shall be sufficient for this Section if it is
executed in counterparts, in which event all of such counterparts, when taken
together, shall constitute one and the same consent.
4.14 Bank Accounts, etc. Anything herein to the contrary
notwithstanding, the Board of Directors may, except as may otherwise be required
by law, authorize any officer or officers, agent or agents, in the name of and
on behalf of the Company, to sign checks, drafts, or other orders for the
payment of money or notes or other evidences of indebtedness, to endorse for
deposit, deposit to the credit of the Company at any bank or trust company or
banking institution in which the Company may maintain an account or to cash
checks, notes, drafts, or other bankable securities or instruments, and such
authority may be general or confined to specific instances, as the Board of
Directors may elect.
4.15 Inspection of Records. Every Director shall have the absolute
right at any reasonable time to inspect all books, records, documents of every
kind, and the physical properties, of the Company and of its subsidiaries. Such
inspection may be made personally or by an agent and includes the right to make
copies and extracts.
4.16 Executive Committee. (a) The Board of Directors may, by resolution
adopted by a majority of the whole Board, appoint two or more of its members to
constitute an Executive Committee. One of such directors shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director, or until his earlier resignation from the Executive Committee, in
either case unless sooner removed as a director or member of the Executive
Committee by any means authorized by the Charter or herein.
(b) The Executive Committee shall have and may exercise, to the extent
provided in such resolution and except as prohibited by law, all of the rights,
power and authority of the Board of Directors.
(c) The Executive Committee shall fix its own rules of procedure and
shall meet at such times and at such place or places as may be provided by its
rules. The Chairman of the Executive Committee, or in the absence of the
Chairman, a member of the Executive Committee chosen by a majority of the
members present, shall preside at all meetings of the Executive Committee, and
another member thereof chosen by the Executive Committee shall act as Secretary.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the members
thereof shall be required for any action of the Executive Committee. The
Executive Committee shall keep minutes of its meetings and deliver such minutes
to the Board of Directors.
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4.17 Other Committees. The Board of Directors may, by resolution duly
adopted by a majority of directors at a meeting at which a quorum is present,
appoint an audit committee, compensation committee, and such other committee or
committees as it shall deem advisable and with such limited authority as the
Board of Directors shall from time to time determine.
4.18 Other Provisions Regarding Committees. (a) The Board of Directors
shall have the power at any time to fill vacancies in, change the membership of,
or discharge any committee. The members of any committee present at any meeting
of a committee, whether or not they constitute a quorum, may appoint a director
to act in the place of an absent member.
(b) Members of any committee shall be entitled to such compensation for
their services as such as from time to time may be fixed by the Board of
Directors and in any event shall be entitled to reimbursement of all reasonable
expenses incurred in attending committee meetings. Any member of a committee may
waive compensation for any meeting. No member of a committee who receives
compensation as a member of one or more committees shall be barred from serving
the Company in any other capacity or from receiving compensation and
reimbursement of reasonable expenses for any or all such other services.
(c) Unless otherwise prohibited by law, the provisions above concerning
action by written consent of directors and meetings of directors by telephonic
or similar means shall apply to all committees from time to time created by the
Board of Directors.
ARTICLE V
Officers and Agents
5.01 Positions. The Company's officers generally shall be chosen by the
Board of Directors and shall consist of a Chairman of the Board, a President,
one or more Vice Presidents if desired, a Secretary and a Treasurer. The Board
of Directors may appoint one or more other officers, assistant officers and
agents as it from time to time deems necessary or appropriate, who shall be
chosen in such manner and hold their offices for such terms and have such
authority and duties as from time to time may be determined by the Board of
Directors. The Board may delegate to the Chairman of the Board the authority to
appoint any officer or agent of the Company and to fill a vacancy other than the
Chairman of the Board or President. Any two or more offices may be held by the
same person, except that no person may simultaneously hold the offices of
President and Secretary and of President and Vice President. In all cases where
the duties of any officer, agent or employee are not prescribed by these bylaws
or by the Board of Directors, such officer, agent or employee shall follow the
orders and instructions of the President.
5.02 Term of Office; Removal. Each officer of the Company shall hold
office at the pleasure of the Board and any officer may be removed, with or
without cause, at any time by the affirmative vote of a majority of the
directors then in office; provided, that any officer appointed by the Chairman
of the Board pursuant to authority delegated by the Board may be removed, with
or without cause, at any time by the Chairman whenever the Chairman in his or
her absolute discretion shall consider that the Company's best interests shall
be served by such removal. Removal of an officer by the Board (or the Chairman,
as the case may be) shall not prejudice the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not in
itself create contract rights.
5.03 Vacancies. A vacancy in any office, however occurring, may be
filled by the Board or the Executive Committee, for the unexpired portion of the
term by majority vote of its members, or by the Chairman of the Board in the
case of a vacancy occurring in an office to which the Chairman has been
delegated authority to make appointments.
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5.04 Compensation. The salaries of all officers of the Company shall be
fixed from time to time by the Board, and no officer shall be prevented from
receiving a salary by reason of the fact that he also receives compensation from
the Company in any other capacity.
5.05 Chairman of the Board. The Chairman of the Board ("Chairman"), if
such officer shall be chosen by the Board of Directors, shall preside at all
meetings of the Board of Directors and meetings of shareholders at which he is
present and shall exercise general supervision and direction over the
implementation of Board policy affecting the affairs of the Company. Any act
which may be performed by the Chief Executive Officer or President may be
performed by the Chairman.
5.06 Chief Executive Officer; Chief Operating Officer. The Chairman of
the Board shall, unless the Board determines otherwise, serve as the Chief
Executive Officer ("CEO") of the Company. If the Chairman is not designated the
CEO, then the President shall serve as CEO. The Board may, from time to time,
designate from among the executive officers of the Company an officer to serve
as Chief Operating Officer ("COO") of the Company. If the Chairman serves as the
CEO, then the President shall serve as COO. If the President is designated CEO,
then the Executive Vice President (or if there is none, then the next most
senior Vice President) shall serve as COO. A person designated to serve in the
capacity of CEO or COO shall serve at the pleasure of the Board.
A person designated Chief Executive Officer (CEO) shall have primary
responsibility for and active charge of the management and supervision of the
Company's business and affairs. The CEO may execute in the name of the Company
authorized corporate obligations and other instruments, shall perform such other
duties as may be prescribed by the Board (or Chairman, as the case may be) from
time to time and, in the absence or disability of the President, shall exercise
all of the duties and powers of the President. In the event that the President
is not the CEO, then the CEO shall supervise the performance of the President
and shall be responsible for the execution of the policies and directives of the
Board. The CEO shall report directly to the Board. The CEO shall perform such
other duties as may be assigned by the Board (or Chairman, as the case may be).
The CEO may perform any act which might be performed by the President.
A person designated Chief Operating Officer (COO) shall be responsible
for the day-to-day management of the Company's operations, subject to the
authority of the CEO. The COO shall report directly to the CEO of the Company
and shall consult with the CEO on all matters of corporate policy and material
business activities of the Company. The COO shall perform such other duties as
may be assigned by the Board or the CEO.
5.07 President. The President shall have general active management of
the business of the Company, subject to the authority of the Chief Executive
Officer if the President is not designated as such, and general supervision of
its officers, agents and employees. In the absence of the Chairman and Chief
Executive Officer, he shall preside at all meetings of the shareholders and of
the Board. In the absence of a designated Chief Executive Officer he shall see
that all policies and directives of the Board are carried into effect.
He shall, unless otherwise directed by the Board of Directors, attend
in person or by substitute appointed by him, or shall execute in behalf of the
Company written instruments appointing a proxy or proxies to represent the
Company, at all meetings of the stockholders of any other company in which the
Company shall hold any stock. He may, on behalf of the Company, in person or by
substitute or by proxy, execute written waivers of notice and consents with
respect to any such meetings. At all such meetings and otherwise, the President,
in person or by substitute or proxy as aforesaid, may vote the stock so held by
the Company and may execute written consent and other instruments and power
incident to the ownership of said stock, subject however to the instructions, if
any, of the Chairman or the Board of Directors. The President shall have custody
of the Treasurer's bond, if any.
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5.08 Executive Vice President. The Executive Vice President shall
assist the President in the discharge of surpervisory, managerial and executive
duties and functions. In the absence of the President or in the event of his
death, or inability or refusal to act, the Executive Vice President shall
perform the duties of the President and when so acting shall have the duties and
powers of the President. He shall perform such other duties as from time to time
may be assigned to him by the President, Chairman or Board of directors.
5.09 Vice Presidents. The Vice Presidents, if any, shall assist the
President and Executive Vice President and shall perform such duties as may be
prescribed by the Board, the Chairman or the President. Vice Presidents in the
order of their seniority shall, in the absence or disability of the Chairman and
President, exercise all of the duties and powers of such officers. The Executive
Vice President, if any, shall be the most senior of Vice Presidents, and the
Senior Vice President, if any, shall be the next most senior of Vice Presidents.
In regard to other Vice Presidents, they shall have the respective ranks
designated by the Board of Directors, or if none has been so designated, as
designated by the Chairman, or if none has been so designated by the Chairman,
they shall rank in the order of their respective elections to such office. The
execution of any instrument on the Company's behalf by a Vice President shall be
conclusive evidence, as to third parties, of his authority to act in the stead
of the President and Executive Vice President.
5.10 Secretary. The Secretary shall: (i) keep the minutes of the
proceedings of the shareholders and the Board of Directors and record all votes
and proceedings thereof in a book kept for that purpose; (ii) see that all
notices are duly given in accordance with the provisions of these Bylaws or as
required by law; (iii) be custodian of the corporate records and of the seal of
the Company and affix the seal to all documents when authorized by the Board of
Directors; (iv) keep at its registered office or principal place of business
within or outside Delaware a record containing the names and addresses of all
shareholders and the number and class of shares held by each, unless such a
record shall be kept at the office of the Company's transfer agent or registrar;
(v) sign with the President, or a Vice President, certificates for shares of the
Company, the issuance of which shall have been authorized by resolution of the
Board of Directors; (vi) have general charge of the stock transfer books of the
Company, unless the Company has a transfer agent; and (vii) 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 the Board of Directors.
The Board of Directors may give general authority to officers other than the
Secretary or any Assistant Secretary to affix the Company's seal and to attest
the fixing thereof by his or her signature.
5.11 Assistant Secretary. The Assistant Secretary, if any (or if there
is more than one, the Assistant Secretaries in the order designated, or in the
absence of any designation, in the order of their appointment), in the absence
or disability of the Secretary, shall perform the duties and exercise the powers
of the Secretary. The Assistant Secretary(ies) shall perform such other duties
and have such other powers as from time to time may be prescribed by the Board,
the Chairman or the Chief Executive Officer. The Chairman may appoint one or
more Assistant Secretary(ies) to office.
5.12 Treasurer. The Treasurer shall, unless the Board otherwise
resolves, be the principal financial officer and principal accounting officer of
the Company and shall have the care and custody of all funds, securities,
evidence of indebtedness and other valuable effects of the Company, shall keep
full and accurate accounts of receipts and disburesments in books belonging to
the Company and shall deposit all money and other valuable effects of the
Company in the name and to the credit of the Company in such depositories as
from time to time may be designated by the Board. The Treasurer shall disburse
the funds of the Company in such manner as may be ordered by the Board from time
to time and shall render to the Chairman of the Board, the President and the
Board, at regular Board meetings or whenever any of them may so require, an
account of all transactions and of the Company's financial condition.
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5.13 Assistant Treasurer. The Assistant Treasurer, if any (or if there
is more than one, the Assistant Treasurers in the order designated, or in the
absence of any designation, in the order of their appointment), in the absence
or disability of the Treasurer, shall perform the duties and exercise the powers
of the Treasurer. The Assistant Treasurer(s) shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board, the
Chairman or the Chief Executive Officer. The Chairman may appoint one or more
Assistant Treasurer(s) to office.
5.14 Resignations. Any officer may resign at any time by giving written
notice to the Board or to the Chairman. Such resignation shall take effect at
the time specified therein and, unless specified therein, no acceptance of the
resignation shall be required for the resignation to be effective.
5.15 Delegation of Duties. In the event of the absence or disability of
any officer of the Company, or for any other reason the Board shall deem
sufficient, the Board may temporarily designate the powers and duties, or
particular powers and duties, of such officer to any other officer, or to any
director.
5.16 Fidelity Bonds. The Board of Directors shall have the power, to
the extent permitted by law, to require any officer, agent or employee of the
Company to give bond for the faithful discharge of his duties in such form and
with such surety or sureties as the Board deems advisable.
ARTICLE VI
Indemnification
Every Director, officer, employee and agent of the Company, and every
person serving at the Company's request as a director, officer (or in a position
functionally equivalent to that of officer or director), employee or agent of
another corporation, partnership, joint venture, trust or other entity, shall be
indemnified to the extent and in the manner provided by the Company's Charter,
as it may be amended, and in the absence of any such provision therein, in
accordance with Nevada law.
ARTICLE VII
Execution of Instruments and Deposit of Corporate Funds
7.01 Execution of Instruments Generally. The Chairman of the Board, the
President, any Vice President, the Secretary or the Treasurer, subject to the
approval of the Board of Directors,may enter into any contract or execute and
deliver any instrument in the name and on behalf of the Company. The Board of
Directors may authorize any officer or officers, or agent or agents, to enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Company, and such authorization may be general or confined to
specific instances.
7.01 Borrowing. Unless and except as authorized by the Board of
Directors, no loans or advances shall be obtained or contracted for, by or on
behalf of the Company, and no negotiable paper shall be issued in its name. Such
authorization may be general or confined to specific instances. Any officer or
agent of the Company thereunto so authorized may attain loans and advances for
the Company and for such loans and advances may make, execute and deliver any
promissory notes, bonds, or other evidences of indebtedness of the Company. Any
officer or agent of the Company so authorized may pledge, hypothecate or
transfer as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Company, any and all stocks, bonds other
securites and other personal property at any time held by the Company, and to
that end may endorse, assign and deliver the same and do every act and thing
necessary or proper in connection therewith.
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7.03 Deposits. All funds of the Company not otherwise employed shall be
deposited from time to time to its credit in such banks or trust companies or
with such bankers or other depositaries as the Board of Directors may select, or
as may be selected by any officer or officers or agent or agents authorized to
do so by the Board of Directors. Endorsements for deposit to the credit of the
Company in any of its duly authorized depositaries shall be made in such manner
as the Board of Directors from time to time may determine.
7.04 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, and all notes or other evidence of indebtedness issued in the
name of the Company, shall be signed by such officer or officers or agent or
agents of the Company and in such manner as the Board of Directors from time to
time may determine.
7.05 Proxies. Proxies to vote with respect to shares of stock of other
corporations owned by, or standing in the name of, the Company may be executed
and delivered from time to time on behalf of the Company by the Chairman of the
Board, the President or any Vice President or by any other person or persons
thereunto authorized by the Board of Directors.
ARTICLE VIII
Miscellaneous
8.01 Declaration of Dividends. The Board of Directors at any regular or
special meeting may declare dividends payable, whenever in the exercise of its
discretion it may deem such declaration advisable and such is permitted by law.
Such dividends may be paid in cash, property, or shares of the Company.
8.02 Benefit Plans. Directors shall have the power to install and
authorize any pension, profit sharing, stock option, stock award or stock bonus,
insurance, welfare, educational, bonus, health and accident or other benefit
program which the Board deems to be in the interest of the Company, at the
expense of the Company, and to amend or revoke any plan so adopted. Any such
plan may adopted and have full force and effect by resolution of the Board of
Directors, except where applicable laws, rules or regulations require prior
approval of the Company's shareholders of such plan in order for the plan to be
valid.
8.03 Seal. The corporate seal of the Company shall be circular in form
and shall contain the name of the Company, the year incorporated and the words
"Seal" and "Nevada".
8.04 Fiscal Year. The Board of Directors shall have the power to fix,
and from time to time change, the fiscal year of the Company. Any such adoption
of or change in a fiscal year shall not constitute or require an amendment to
these Bylaws.
8.05 Amendment of Bylaws. These Bylaws may be amended or repealed in
the manner provided for in the Charter, or if none is there provided: by
majority vote of the Board of Directors, taken at any meeting or by written
consent, subject to the shareholders' right to change or repeal any Bylaws so
made or adopt new Bylaws by vote of at least a majority of the total voting
power. Bylaws amendments may be proposed by any Director or shareholder. Any
action duly taken by the Board or the shareholders which conflicts or is
inconsistent with these Bylaws (as they may be amended) shall constitute an
amendment of the Bylaws, if the action was taken by such number of directors or
shares voting as would be sufficient for amendment of the Bylaws.
8.06 Gender. The masculine gender is used in these Bylaws as a matter
of convenience only and shall be interpreted to include the feminine and neuter
genders as the circumstances indicate.
8.07 Conflicts. In the event of any irreconcilable conflict between
these Bylaws and either the Company's Charter or applicable law, the latter
shall control.
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8.08 Definitions. Except as these Bylaws otherwise specifically
provide, all terms used in these Bylaws shall have the definitions given them in
the Company's Charter or the Nevada General Corporation Law.
ARTICLE IX
Notices
9.01 Receipt of Notices by the Company. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Company when they are actually received: (i) at the
registered office of the Company in Nevada; (ii) at the principal office of the
Company (as designated in the most recent document filed by the Company with the
Nevada Secretary of State designating a principal office) addressed to the
attention of the Secretary of the Company; (iii) by the Secretary of the Company
wherever the Secretary may be found; or (iv) by any other person authorized from
time to time by the Board of Directors or the President to receive such
writings, wherever such person is found.
9.02 Giving of Notice. Exept as otherwise provided by the General
Corporation Law of Nevada, these Bylaws, the Charter or resolution of the Board
of Directors, every meeting notice or other notice, demand, bill, statement or
other communication (collectively, "Notice") from the Company to a Director,
Officer or shareholder shall be duly given if it is written or printed and is
(i) sent by first class or express mail, postage prepaid, (ii) sent by any
commercial overnight air courier service, such as DHL, Federal Express, Emery,
Airborne, UPS or similar service, (iii) sent by telegraph, cablegram, telex,
telecopier, facsimile or similar transmission, (iv) delivered by any commercial
messenger service which regularly retains its receipts, or (v) personally
delivered, provided a receipt is obtained reflecting the date of delivery.
Notice shall not be duly given unless all delivery or postage charges are
prepaid. Notice shall be given to an addressee's most recent address as it
appears on the Company's records or to such other address as has been provided
in writing to the Secretary. A Notice shall be deemed "given" when dispatched
for delivery, when personally delivered, when transmitted electronically, or if
mailed, on the date postmarked. This Section shall not have the effect of
shortening any notice period provided for in these Bylaws.
9.03 Waiver of Notice. Any Notice required or permitted by the General
Corporation Law of Nevada, the Charter or these Bylaws may be waived in writing
at any time by the person entitled to the Notice, and such waiver shall be
equivalent to the giving of notice. Notice of any shareholders' meeting shall be
waived by attendance, in person or by proxy, at the meeting, unless any question
of lack of or defect in a Notice is raised prior to conclusion of the meeting. A
waiver of Notice of a special meeting of shareholders shall state the purpose
for which the meeting was called or the business to be transacted thereat.
APPROVED AND ADOPTED by the Board of Directors as of December 20, 1995.
<PAGE>
Exhibit 10.01
Exhibit 10.01 Agreement dated March 3, 1999 between Canadian Telecom
Resellers Alliance and Registrant.
Agreement No. 9904
CUSTOMER SERVICE AGREEMENT
BETWEEN:
Canadian Telecom Resellers Alliance, an Ontario
business corporation, having its registered office at
7101 Syntex Drive, in the City of Mississauga, ON L5N
6H5,
(hereafter called "CTRA"),
AND:
APC Telecom Inc. _____________, a corporation
duly constituted under the laws of Canada having its
principal place of business at 241 Applewood Crescent
Suite 4 , in the city of Vaughan ON L4K 4E6
(hereafter called the "Customer").
1. The Service
1.1 Customer, a purchaser and supplier of telecommunications
services, hereby requests CTRA and CTRA hereby agrees to
provide a telecommunications termination service (hereinafter
referred to as the "Service") to Customer, allowing Customer
to route its clients' long distance phone calls through CTRA's
underlying carrier networks, under the terms and conditions
specified herein.
1.2 Customer shall not use the Service, nor shall allow the use of
the Service by others, for any illegal purposes, or in a
manner that violates the law, or for annoying any person, or
in a manner which interferes with the use of the Service by
others users. Customer shall not be excused from paying CTRA
for the Service, or any portion thereof, on the basis that a
fraudulent or an unauthorized use comprised a corresponding
portion of such Service.
1.3 In order to obtain the Service, Customer must first comply
with the procedures outlined in Schedule A and its Annexes I
and 2 appended hereto and made a part hereof.
2. Rates, Charges and Taxes
2.1 Customer agrees to and shall be responsible for paying CTRA
for all calls and data transmissions made or received over
CTRA's underlying carrier networks via the means made
available to Customer and its sub-users to access CTRA's
underlying carrier networks, on the basis of the set
per-minute rates and the various non-recurring charges
outlined in Schedule B attached hereto and made a part hereof
2.2 Customer further agrees to and shall be responsible for paying
CTRA all applicable federal, provincial and local taxes which
shall be added to the amounts payable by Customer to CTRA
hereunder.
3. Duration and Renewal
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3.1 This agreement is for a term of Three (3) years, starting on
March 21, 1999, and ending at noon, Eastern Standard Time,
March 20 2002 (hereinafter referred to as the "initial term").
3.2 This agreement will renew automatically for an equivalent term
at the end of the initial term or each renewal unless Customer
or CTRA advises the other in writing of its intention not to
renew the agreement at least thirty (30) days prior to the end
of the initial term or renewal.
4. Terms of Payment and Billing
4.1 Customer shall be invoiced by CTRA on a monthly basis and each
invoice is due and payable thirty (30) days from the date of
the invoice.
4.2 Invoices not paid when due shall accrue interest at a monthly
rate of 1.5% compounded monthly (19.56% per annum) and
computed on a daily basis from the date the invoice was due
until payment is received by CTRA.
4.3 In order to be considered, any billing discrepancies shall be
submitted to CTRA with reasonable details, in writing, within
thirty (30) days of the date of the invoice. Failing such
submission within the stated delay, CTRA shall be entitled to
disregard any such discrepancy.
4.4 If Customer's payment by cheque is returned for insufficiency
of funds or cannot otherwise be processed for payment,
Customer shall be liable for and subject to a Fifteen Dollar
($15.00) charge, applicable each time a cheque is returned or
not processed.
4.5 The rates and charges mentioned in clauses 4.2 and 4.4 above
are subject to change from time to time upon notice by CTRA to
Customer, without giving effect to the opting out provisions
of clause 14.
4.6 Termination, interruption or suspension of Service to Customer
shall not affect Customer's obligation to pay any amount owing
to CTRA hereunder or otherwise.
4.7 Customer guarantees that their monthly billing (i.e.: the
amount charged to Customer by CTRA) will amount to not less
than Fifty Thousand Dollars ($ 50,000.00) net of taxes, on or
before December 31st, 1999 and will not be less than this
amount for the remainder of the term.
4.8 If by December 31st, 1999 the Customer does not reach the
billing level specified in clause 4.7, the Customer shall pay
forthwith to CTRA one half of the difference between Fifty
Thousand Dollars ($ 50,000.00) and the actual level of billing
(net of taxes) for each month where the commitment of clause
4.7 is not met during the rest of the present term or the
renewal item.
1. Security
4.1 deleted
5.2 Any deposit required pursuant to clause 5.1 shall be held by
CTRA without interest to Customer. CTRA shall have the right
to apply the deposit against any outstanding balance in
Customer's account. In the event that there is no outstanding
balance or it is less than the
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amount deposited, the deposit or the remainder of the
deposit shall be refunded to Customer upon termination of
this agreement.
5.3 Customer hereby grants, as of the execution of this agreement,
and binds itself to execute simultaneously a document to that
effect on the form provided by CTRA as an essential condition
of this agreement, a first ranking security on all Customer's
accounts receivable, lists of clients and other goodwill, to
the benefit of CTRA, in order to secure all the obligations of
Customer hereunder. Where the law requires the said security
to be for a fixed amount, such amount will be set at an amount
equal to the equivalent of one (1) year estimated billing for
the Service. In order to give effect to the foregoing,
Customer will do all things and execute all additional
instruments useful or necessary to effectively assign its
accounts receivable, lists of clients and other goodwill to
CTRA.
5.4 CTRA shall have the right to request at all times and receive
forthwith from the Customer a copy of the last annual or
quarterly financial statements of Customer.
6. Service or Equipment Failure
6.1 CTRA does not warrant uninterrupted Service, nor the
continuous availability or working of its equipment, or the
transmission services, systems or equipment of any other
telecommunications or telephone company or carrier whose
services, equipment or systems are used by CTRA, or by
Customer or any of its users in connection with the Service.
6.2 For the purposes of this agreement, "interruption" shall mean
the inability to complete calls due to network, system or
equipment malfunction or human errors.
6.3 In addition to the provisions of clause 10.3, it is expressly
understood that Service may be temporarily suspended or
interrupted without any liability being incurred by CTRA.
Furthermore, no compensation, credit, allowance or adjustment
will be made to amounts otherwise owing by Customer by reason
of any such suspensions or interruptions.
6.4 No credit will be given for Service difficulties such as
(without limiting the generality of the foregoing) low dial
tone, circuits busy or other network or switching capacities
shortages, interruptions caused by the failure of any services
or facilities provided by a carrier or other entity other than
CTRA, interruptions caused by Customer's fault, negligence or
wilful act or interruptions caused by failure of Customer's
equipment or systems, or interruption by CTRA due to
Customer's failure to pay any amount due to CTRA or any breach
of this agreement by Customer.
7. Confidential Information
7.1 Customer states and acknowledges that all information
mentioned herein or otherwise transmitted to CTRA or its
underlying carriers, is true and exact. Customer warrants that
it has been authorized to transmit such information to CTRA
and that CTRA is authorized to receive and to hold such
information. Furthermore, Customer acknowledges it was
informed upon giving said information, that:
7.1.1 the information will be used for the purpose of
obtaining the Service, for the management of its
Customer file and, among other things, for reasons of
credit, billing and collection; and
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7.1.2 the information contained in its Customer file is
available only where necessary, to employees or
agents of CTRA for the purposes of this agreement;
and
7.1.3 its Customer file will be stored in the Customers
Service Department of CTRA's underlying carriers
where Customer will forward in writing any request to
access or to rectify said information.
7.2 Customer agrees to advise CTRA's underlying carriers without
delay of any change to such information supplied by Customer
for the purposes of this agreement.
7.3 Customer further states and acknowledges that all information
contained in this agreement and the Schedules hereto are
confidential.
8. Liability and Indemnification
8.1 CTRA, its directors, officers, employees, contractors or
agents shall not be liable to Customer, the latter's clients,
employees, representatives or any other user of the Service or
any other person or entity for:
8.1.1 any mistakes, omissions, errors, delays or defect in
transmissions, or failure to transmit, or
interruptions of Service;
8.1.2 any damages including direct, indirect, special
consequential, exemplary or punitive damages,
including, without limitation, any interruption of
business, any loss of data, goodwill, profits,
earnings and business opportunities or other losses,
resulting directly or indirectly out of or in
connection with this agreement or the provision of or
failure to provide the Service or other use of CTRA's
communications services, facilities, equipment or
systems, or the use of same by others, even if CTRA
has been advised in advance of the possibility
thereof;
8.1.3 any acts or omissions of any connecting, underlying
or local exchange telecommunications carrier whose
facilities, equipment or systems are used in
providing inter-connection for or termination of, the
Service;
8.1.4 claims for libel, defamation, slander, harassment,
invasion of privacy, illegal or improper use of
telecommunications services or facilities,
infringement of copyright or unauthorized use of or
infringement of trade-mark or trade-name or
infringement of other intellectual property rights,
arising out of the material data or information
transmitted or received over CTRA's underlying
carriers' services, facilities, equipment or systems;
claims for patent infringement arising from combining
or connecting Customer provided facilities, equipment
or systems with CTRA's underlying carriers' services
facilities, equipment or systems;
8.1.5 claims by those to whom Customer may provide
telecommunications or other services;
8.1.6 all other claims arising out of any act or omission
of Customer or any person utilizing Customer's
telephone numbers, access lines, access codes,
authorization codes, calling cards or other means to
access CTRA's underlying carriers' network
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with or without the consent of Customer in
connection with any services, facilities, equipment
or systems, whether provided by CTRA or by Customer;
8.1.7 any defacement of or damage to, the premises of
Customer resulting from the attachment of any
equipment, apparata or associated wiring or
instruments supplied by CTRA on such Customer's
premises or by the installation or removal thereof;
or
8.1.8 any breach of the provisions of this agreement due to
force majeure or any other cause or event beyond
their reasonable control.
8.2 Without limiting the generality of the foregoing, CTRA's total
and only liability under this agreement is absolutely limited
to an amount equal to that of the security provided for in
clause 5.1 above.
8.3 There is no express or implied warranty or condition, whether
of merchantability, fitness for a particular purpose, or
otherwise, with respect to the Service or any product or
equipment provided by CTRA hereunder.
8.4 Customer hereby waives as against CTRA, its directors,
officers, employees, contractors and agents and shall
indemnify and hold all of them harmless from and against all
claims, damages, penalty or fine and acts or omissions as
described in clauses 8.1.1 to 8.1.8 inclusive, made by
Customer's directors, officers, employees, contractors or
agents, or by any third party.
8.5 Customer shall further indemnify and hold CTRA harmless from
and against any penalty or fine ordered or imposed by any
government authority or agency pursuant to finding CTRA guilty
of misleading or fraudulent practices in activating clients of
Customer on CTRA's underlying carriers' network. In addition,
Customer shall pay to CTRA all amounts that are due by such
clients, the applicable dispute charges as incurred and a
penalty of one hundred dollars ($100.00) per complaint to
cover the costs of investigation and administration thereof.
All matters concerning such unauthorized activations will be
referred to the local telephone company's Carrier Services
group which investigates all such disputes. The burden of
proof will be on Customer to prove its client did in fact
choose Customer as its long distance service provider.
9. Responsibility of Customer
9.1 Customer shall notify CTRA's underlying carriers within two
(2) business days whenever any of its own clients or sub-users
ceases to use the Service, either because the said client or
sub-user has chosen a preferred inter-connection carrier other
than CTRA or has had its service agreement with Customer
interrupted or terminated for any reason.
9.2 Where Customer so notifies CTRA's underlying carriers to
discontinue the Service to specific sub- user(s) or telephone
number(s), CTRA shall diligently discontinue the Service as
requested, but in any event, no later than three (3) business
days after the receipt of said notification, without liability
to the Customer beyond the expiration of said three (3) days'
delay.
9.3 CTRA's underlying carriers will provide Customer with regular
or occasional lists of Customer's clients. CTRA's underlying
carriers will also promptly notify Customer of any PIC Care
transactions indicating that one or more of Customer's clients
or sub-users have selected another carrier. Customer shall
have two (2) business days following the receipt of such list
or notice to notify CTRA's underlying carriers that some
clients are not Customer's clients any more and that the
Service should not be provided to them through CTRA's
underlying carriers' network.
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9.4 If Customer fails to so notify CTRA's underlying carriers,
Customer shall be responsible for the payment of all amounts
due by such clients or sub-users utilizing the Service beyond
the expiration of said two (2) day delay.
10. Termination
10.1 Except where otherwise specified, this agreement may be
terminated by either party upon thirty (30) days written
notice.
10.2 Should this agreement be terminated by Customer before the
expiry of the term or any renewal thereof, Customer will owe
CTRA, and will be billed a termination charge of Fifty
Thousand Dollars ($50,000.00).
10.3 Customer agrees that CTRA may suspend, disconnect or terminate
the Service in whole or in part and this agreement, if
Customer:
10.3.1 fails to pay any invoice when due or any other amount
owed to CTRA;
10.3.2 fails to abide by the terms and conditions as
specified in the agreement or provides false or
misleading information to CTRA in connection with an
application or agreement for Service;
10.3.3 fails to provide or maintain a security deposit or
other alternative when required to do so pursuant to
this agreement; or
10.3.4 intentionally or de facto transfers or assigns in
whole or in part CTRA's Service without the express
written authorization of CTRA, which shall be deemed
a fraudulent use of the Service.
10.4 Prior to such suspension or termination, CTRA will provide
Customer with reasonable notice of the suspension or
termination date, the reason(s) for the proposed suspension
or termination and any amount owing.
10.5 Notwithstanding anything herein contained, this agreement
shall terminate forthwith automatically if Customer:
10.5.1 uses CTRA's underlying carriers Service, facilities,
equipment or systems in a manner that adversely
affects CTRA's underlying carriers' operations or the
use of CTRA's underlying carriers' services by other
customers; or
10.5.2 commits an act of bankruptcy within the meaning of
the Bankruptcy and Insolvency Act (Canada); if any
bankruptcy or insolvency proceedings are taken by or
against the Customer; if Customer passes a resolution
to or makes any voluntary assignment for the benefit
of its creditors; if a receiver takes possession of
any of Customer's property; if Customer ceases to
carry on business in the normal course; if Customer
is liquidated or wound up, or avails itself of the
Companies' Creditors Arrangement Act (Canada).
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11. Access to Site and Disconnection
The employees of CTRA may enter the site where the Service is provided
at all reasonable hours to install, inspect, repair, maintain, replace
and disconnect all lines, and remove from the site CTRA's facilities
and equipment.
12. Notices
Any notices required or permitted to be given hereunder shall be in
writing and shall be deemed to have been received five (5) business
days after the post-marked date thereof if sent by mail, the next
business day following transmission if sent by facsimile, or at the
time of delivery if hand-delivered. Any notices shall be addressed as
follows:
12.1 to CTRA: CTRA Communications Inc.
7101 Syntex Drive
Mississauga ON L5N 6H5
Attn: Erle Stephens
Fax No: (905) 542-0470
11.2 to Customer: APC Telecom Inc.
241 Applewood Inc.
Suite 4
Vaughan ON L4K 4E6
13. Legal Costs
Customer shall be responsible for all costs, expenses, collection
agency fees, legal fees and disbursements incurred by CTRA to
recuperate any sums owing by Customer hereunder, including fees on an
solicitor/client basis in connection with any legal or other
proceedings where judgement against Customer or its clients is awarded
in favour of CTRA, or for, the creation and registration of the
security mentioned in clause 5.3 hereof.
14. Changes to Agreement
The terms and conditions, the rates, charges or other fees associated
with the Service are subject to changes from time to time. Upon
notification of any such changes, Customer becomes liable for all new
rates, charges or fees and is deemed to have accepted all new
applicable changes in the relevant terms and conditions, unless,
subject to the reserve of clause 4.5, Customer terminates the agreement
within one (1) week from the receipt of such notification.
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15. Assignment
Neither this agreement nor any right thereunder may be assigned,
transferred or otherwise disposed of in whole or in part by Customer
without the prior written consent of CTRA, which consent shall not be
unreasonably withheld. Without restricting the generality of the
foregoing, Customer shall be deemed to have assigned, transferred or
disposed of this agreement upon a change in the direct or indirect
control of Customer, including a sale of all or a substantial part of
its assets. In such case, Customer shall diligently notify CTRA and
provide it with the relevant information including but not limited to
the new controlling party's name and address.
16. Precedence and Governing Law
16.1 This agreement supersedes all prior verbal or written
agreements between the parties concerning the matters
dealt with herein, including any tender, quotation,
offer of services or purchase order.
16.2 This Agreement and the rights and obligations and
relations of the parties hereto shall be governed by
and construed in accordance with the laws of the
Province of Ontario and the federal laws of Canada
applicable therein (but without giving consideration
to any conflict of laws rules). The parties hereto
agree that the Courts of Ontario shall have exclusive
jurisdiction to entertain any action or other legal
proceedings based on any provisions of this
Agreement. Each party hereto does hereby attorn to
the jurisdiction of the Courts of the Province of
Ontario.
16.3 No waiver of any of the provisions of this agreement
shall be deemed to be a waiver of any other
provisions (whether similar or not) nor shall such a
waiver constitute a continuing waiver, unless
otherwise expressly provided for in writing and duly
executed by the party to be bound thereby.
16.4 If any clause or part thereof in this agreement be
illegal or unenforceable, it shall be considered
separate and severable from the agreement and the
remaining provisions shall remain in full force and
effect and shall be binding upon the parties as
though the said clause or part thereof had never been
included, providing that the agreement as thus
modified remains operable.
16.5 Customer has requested that this agreement and its
ancillary documents be drafted in English. Le Client
a exige que cet accord et ses documents connexes
soient rediges en langue anglaise.
17. Governmental Approvals
This agreement, together with all attachments and all covenants,
undertakings and obligations made herein, shall be conditional upon
both parties obtaining and maintaining all necessary governmental
licenses, consents, permits, authorizations and approval as are by law
necessary. Each party shall use its best reasonable efforts to seek and
maintain such authority as may be required.
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18. Credit Approval
This agreement will not become binding upon CTRA until final credit
approval by CTRA. If credit approval is denied to Customer, this
agreement will become null and void and will be deemed never to have
existed.
IN WITNESS WHEREOF the parties have executed this agreement on the ________ day
of ___________, 199____.
Customer:
By: By:
----------------------------- -----------------------------
Name:
Title: President
CTRA:
By: By:
----------------------------- -----------------------------
Name: Name:
---------------------- -----------------------
Title: Title:
---------------------- -----------------------
- --------------------------------------------------------------------------------
Date: Authorized signature:
- --------------------------------------------------------------------------------
Customer Service Agreement No: 9904
SCHEDULE A
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No: ____
Customer Service Agreement
ANNEX I TO
SCHEDULE A
STANDARD FORM OF
LETTER OF AUTHORIZATION
(LOA)
English Version:
Your signature below authorizes ( ) to notify your local telephone company of
your decision to subscribe to ( ) long distance telephone services under the
terms of Equal Access. Equal Access means your long distance calls are routed
automatically over ( ) network every time you dial "1" plus the long distance
telephone number. Only calls made from the phone number(s) listed above will be
the object of this subscription.
Signature: Date (y/m/d):
---------------------------- ----------------------
Signature: Date (a/m/j)
---------------------------- ----------------------
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PROCEDURES
PRECEDENT TO OBTAINING THE SERVICE
1. In order to obtain the Service, Customer must first:
1.1 obtain a standard CTRA Letter of Authorization
(hereinafter referred to as "LOA") or a third party
verification from each of its clients, detailing
which telephone number(s) the clients to be converted
to the Service. (The standard form of the LOA is
appended hereto as Annex 1 and the standard text of
the third party verification is appended hereto as
Annex 2); and
1.2 supply CTRA with a copy of the signed LOA or the
completed third party verification. It is understood
that only orders accompanied by one of such documents
will be considered and processed by CTRA
2. As soon as reasonably possible after the receipt of the
documents mentioned above, CTRA's underlying carriers will
process the Service orders submitted on behalf of Customer.
3. Service orders submitted to CTRA will direct the routing of
all "1+" or "011+" calls to CTRA's underlying carriers
network.
4. As and when Service orders are processed, Customer's clients
will have the opportunity to call a "1-700" number to
determine if activation of the Service has occurred. The
"1-700" number will have a CTRA underlying carrier voice
prompt.
5. Service orders will be processed on a first come, first served
basis.
6. Under normal conditions, and subject to having received all
prerequisite documentation complete and in order, CTRA will
process Service orders within nine (9) working days on the
average. However, CTRA will not assume nor incur any liability
for delays in processing such Service orders.
7. The billing cycle will end on the last day of each month, or
on such other date as may be determined by CTRA and notified
to Customer.
8. Billing will be provided on paper or magnetic media. The
following formats are permissible for the latter: 9 track
magnetic tape; 3 1/2" or 5 1/2" disk DOS; 3 1/2" disk
Macintosh.
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Customer Service Agreement No: 9901
No: _____
SCHEDULE B
SERVICE RATES AND CHARGES
Rates to be 105% of CTRA carrier cost. Effective with he commencement of the
term of this agreement the rates charged to Customer were as per the attached
chart.
SEE ATTACHED RATE CHART
Schedule B
Service Rates and Charges
Definitions:
Peak Rates: Monday to Friday 8:00 AM to 5:00 PM
Off Peak Rates: Monday to Friday 5:00 PM to 8:00 AM
All day Saturdays, Sundays and statutory holidays
Tier 1: Area Codes 416,418, 514, 450, 250, 403, 519, 604, 613,
705, 780, 807, 819, 905
Rest of Canada: All other area codes in Canada not listed above
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Outbound Rates: (per minute rates, 30 second minimum 6 second increments)
Canadian Termination (Tier 1 origination) Peak $ 0.05775
Off-peak $ 0.04725
U.S. Termination Peak $ 0.07875
Off-peak $ 0.06825
Rest of Canada Termination (Non Tier 1 Origination) Peak $ 0.105
Off Peak $ .0945
Calling Cards (North America origination only)
Peak $ 0.168 Off-peak $ 0.168
Inbound Rates:
Canadian Origination: Peak $ .0840
Off-peak $ .0840
U.S. Origination Peak $ .0840
Off-peak $ 0.840
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Exhibit 10.02
Contract:
THIS AGREEMENT made the 11th day of June, 1998
Between
Access Power Canada Inc. Phone: 416-207-0046
241 Applewood Crescent #4 Fax: 416-207-0334
Concord, Ontario L4K 4E6 e-mail:
Herein called "Customer"
&
Datex Communications Corporation Phone: 905-842-7200
115 Trafalgar Road Fax: 905-842-7444
Oakville, Ontario L6J 3G3 e-mail:
Herein called "Datex"
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Terms Of The Agreement:
1.0 General Overview
Datex, as an independent contractor agrees to provide certain software
and perform certain services for the Customer, at a defined cost as
outlined in the following under the terms herein set forth.
2.0 Software - CARS* Integrated Software Package
Datex to provide the Customer a license for the use of the CARS*
integrated software program at a set cost as outlined below. The CARS*
software to perform many of the day to day operations and billing
requirements of the Customer. Performance items to include all routine
order entry, customer service functions, accounting, sales tracking and
receipts processing functions. A one time set-up fee will cover all
costs incurred in the configuration, customization and design of the
standard CARS* program. Set up fee to cover the following initial costs
of billing structure design.
- rate table consulting and structuring
- standard invoice creation and layout
- French / English and bilingual (if
required) standard invoice design
- design and implementation of the
costing and invoicing engine
- network installation and configuration
- installation of the CARS* software
- Customer to Datex information
interface design / implementation
- Datex to Customer information
interface design / implementation
- initial software training /
orientation session
- set up of communication network and
monthly system flow
- 90 days unlimited local support
- set up of internet configuration
between Customer network and Datex
- one follow-up software training /
orientation session
BASE SET UP FEE TOTAL $10,000.00
- "Custom" set up $20,000.00
----------
TOTAL SET FEE $30,000.00
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3.0 Base Monthly Software Monthly $1,200.00
- cost as outlined in "Schedule A"
attached
- complete and ongoing I.T. support of
the basic software
- 2 hours monthly telephone training /
support
- includes all basic version upgrades
Base Monthly Service Bureau Fee
4.0 Equal Access data - processing / set up /
maintenance Monthly $1,000.00
- fee based on a per billing cycle cost
- call data conversion and preparation
from one data source
- additional data stream analysis on a
quotation basis only
- call rating using three rate tables
- special maintenance of Custom Business
& Residential rates Monthly $1,250.00
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- customer information preparation
- call data analysis and allocation (by
customer)
- Customer notification of all
unallocated calls
- updated customer information
preparation
4.1 Product, Line, Feature, Service - data processing /
set up / maintenance Monthly $ 600.00
- fee based on a per billing cycle cost
- includes up to 300 individual items if
required
- additional items @ $2.00 each if
required
4.2 Datex to provide the Customer standard monthly
management reports
- profit / loss / margin reports
- tax summary
- price per minute analysis
- provincial revenue analysis / cost
analysis
- rate program report
- calling analysis / product summary
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4.3 Datex to provide the Customer CD ROM back
up storage
- prepare data on CD Rom Monthly $ 75.00
- Label / store and index information Monthly $ 75.00
4.4 Datex to provide the Customer additional rate table
implementation
- Datex to provide Customer an Excel
spread sheet format for new or change
rate plans
- Customer to input all new and changed
rate table numbers into Datex supplied
Excel spread sheet and e-mail to Datex
prior to the 25th of the month for
next billing cycle implementation
- Customer acknowledges that Excel input
errors are the sole responsibility of
the Customer and that any reprints,
mailings or Datex time spent on fixing
Customer input errors will be invoiced
in full to the Customer.
- Customer acknowledges that new or
changed rates tables received after
the 25th of the month are subject to a
quoted extra charge if entry required
in the upcoming bill run.
- additional $100.00 (first month)
$50.00 ongoing per month surcharge on
base fee per rate table for monthly
analysis and auditing.
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5.0 Services - Invoice Preparation / Processing /
Printing / Inserting
Datex to provide the Customer with invoice
preparation, printing and mailing services as per
sections 4.1, 4.2. & 4.3. Customer agrees to
purchase /supply at fair market value #2 booklet
envelopes, return envelopes (optional) along with
the supply of Customer letterhead for invoice cover
page from Datex's assigned print house. Customer
acknowledges that all Customer supplied print
material will conform 100% to Datex specifications
or an additional processing charge will be applied
(quoted) to use such material.
5.1 Invoice Preparation (per invoice) Each $1.10
- standard invoice calculations /
information
- name address, change of - custom marketing
address message box
- product - call summary by
summaries product
- remittance stub with
address
- accounts receivable bar code
information
- previous balance, payments, credits,
now due
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5.2 Invoice Processing
- per call record $ 0.003
- per product $ 0.03
5.3 Invoice Printing (600 DPI Laser)
- per page fee $ 0.0125
- per print impression $ 0.05
5.4 Invoice Folding and Inserting
- # 2 booklet envelope per piece labor $ 0.35
charge
- 9 X 12 envelope etc.,label and $ 1.00
business reply envelope
- for use with oversized multiple page
invoices
5.5 Invoice Reprints
- Standard Customer invoice reprints,
each includes 50 pages of single $ 10.00
sided print, additional pages @ $0.008
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5.6 CD ROM Data
- Monthly invoice data to customer on CD
for BillView facility (each) $ 50.00
6.0 CallView Program - End User Call Record Facility
6.1 callVIEW Software
- per single customer, user license set
up fee $ 125.00
6.2 CallView Data
- diskette (each) $ 10.00
- CD ROM (each) $ 50.00
6.0 Receipts Processing
- One time set up fee $1,000.00
- Set up of software interface to
process Customer's receipts at Datex
- Set up Oakville P.O. Box
- Set up banking relationship for
deposit entries
- Set up and train Customer on receipts
processing interface
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6.1 Base Monthly Fee $ 250.00
- one time per week pick up of mail from
Oakville P.O. Box
- one time per week deposit to
Customer's account @ xxxxxxxx
- update Customer data base with receipt
entries
6.2 Automatic Base Monthly Fee Increases
- @ 1001+ pieces per month processed
(2XWeek P.O.Box & Bank) $ 500.00
- @ 2001+ pieces per month processed
(3XWeek P.O.Box & Bank) $ 750.00
- @ 3001+ pieces per month processed
(4XWeek P.O.Box & Bank) $1,000.00
- @ 4001+ pieces per month processed
(5XWeek P.O.Box & Bank) $1,250.00
6.3 Weekly Service Provided
- open all envelops $0.65/item
- enter customer #, invoice # and check
amount into CARS* system
- enter all amounts into bank deposit
system
- photo copy and file all checks
received
- unallocated checks, remittance stubs
forwarded to customer
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7.0 Term
This contract is for the term of 12 months and will be automatically
renewed at the end of the term at the same terms and conditions as
outlined in this contract unless notice to terminate is given by either
Datex or the Customer in writing 60 days prior to the date of
termination.
8.0 Designation of Duties
Customer to provide Datex with a charge account number of a courier
company of their choice for all Customer courier packages executed by
Datex. Customer to provide Datex with Vendor Data Table Updates after
Customer verifies unallocated numbers. Datex will complete the billing
cycle within five business days after receipt and verification of the
carrier data and the Customers Data Table Updates, excluding unknown
software issues.
9.0 Indemnity
Customer shall indemnify and hold harmless Datex, it's officers and
employees against all losses, claims, liabilities, damages and expenses
of any nature, directly or indirectly arising out of or as a result of
any act or omission by Datex, it's employees, or agents in the
performance of this agreement.
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10.0 Payment Of Services
Customer agrees to pay Datex a security deposit equivalent to two
months average billing services to be adjusted on a quarterly basis to
reflect Customers growth / decline in billing.
Customer acknowledges that Datex will produce an invoice upon the
completion of a billing cycle or any quoted work. Customer acknowledges
that all invoices are due upon receipt of invoice and that any
outstanding invoices over 30 days will be subject to a monthly finance
charge of 1.5%.
Customer acknowledges that Datex will not proceed with any work of any
kind while the Customers accounts receivable balance with Datex is more
than one billing month in arrears.
11.0 Confidentiality
Datex agrees to implementation of a standard non-disclosure pertaining
to formats, techniques or any other technologies developed by Datex on
behalf of the Customer and of any and all proprietary information
regarding the Customers business operations.
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12.0 Warranty
Datex services will be performed in accordance with generally and
accepted consultant/contract business principals and practices. This
warranty is in lieu of all other warranties either expressed or
implied.
13.0 Prohibition and Assignment
It is a condition of this agreement that Datex shall not assign this
agreement without the prior expressed written consent of the Customer.
14.0 Applicable Law
This agreement in and schedule of costs hereto shall be interpreted in
accordance with the laws of the Province of Ontario.
15.0 Severability
The invalidity of any particular provision of the agreement shall not
affect any other provision thereof, but the agreement shall be
continued as if such invalid provision were omitted.
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16.0 Courier Services
Customer acknowledges that all Customer courier charges incurred in the
normal course of processing the monthly billing cycle will be the sole
responsibility of the Customer. The Customer will supply Datex with a
courier account number and instructions on Customers courier
requirements.
17.0 Taxes
Customer acknowledges that all quoted charges contained in this
agreement are net of taxes and that all final invoices from Datex to
the Customer will include all taxes, customs, duties, levies and
similar charges payable to any jurisdiction or authority.
18.0 Entire Agreement
This agreement supersedes any prior written or oral agreements and
constitutes the entire agreement between Datex and the Customer which
shall not be varied by any oral agreement or representation of
otherwise, except in writing and duly executed by both parties.
19.0 Headings
The headings in this agreement are for convenience purposes only and do
not form part of this agreement and are not intended to interpret,
define or limit the scope, extent or intent of this agreement or any
provision hereof.
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IN THE WITNESS WHEREOF the parties have hereunto set their hands of the
date first written above.
- ---------------------------------- ------------------------------------
Witness
Accepted by Datex Communications Corporation this 11th day of June,
1998.
- ---------------------------------- ------------------------------------
Datex Communications Corporation Witness
RECEIPT OF ACCEPTED COPY OF AGREEMENT ACKNOWLEDGED this 11th day of June,1998
<PAGE>
Exhibit 10.03
Exhibit 10.03 Memorandum of Understanding dated November 30, 1999 between
Registrant and Douglas Burdon.
November 30, 1999
Mr. Douglas Burdon
27677 Briones Court
Los Altos Hills, CA 94022
Re: Memorandum of Understanding
Dear Doug,
This letter outlines and confirms the details of our business arrangements
regarding your development of "major financial institution client relationships
and program service providers", on behalf of and acceptable to Innofone.Com and
resulting in a substantial increase in Innofone's subscriber base on or before
March 31, 2000 (herein the property).
Innofone proposes to acquire the property through offering you a convertible
license/royalty fee of 2% of gross sales. (Gross sales being defined as any and
all amounts billed to customers that are part of the above programs except for
taxes). Further, Innofone offers you the opportunity to exchange this
license/royalty fee for Innofone stock options as detailed in Annex A attached
hereto. You may elect to exchange the license/royalty fee at any time prior to
November 30, 2001 into Innofone Stock options as outlined and specified in Annex
A attached hereto. The license/royalty fee will not be paid to you but shall
accrue and bear interest at Bank Prime rate throughout the term of this
agreement or until you make your decision regarding the Innofone options. At
your sole discretion, you shall decide which one of either the license/royalty
or the stock options is to be paid to you. In either event you shall surrender
your right to the options on November 30, 2001, in the event you have not prior
to, given us your election. In this event you will be deemed to have accepted
the royalties and these will be paid to you. It is understood and agreed that in
the event you elect the license/royalty approach, then this 2% payment shall
continue for the life of the program or any evolution thereof or in the event of
a sale of the program.
In addition, Innofone wants you to work on developing additional business
opportunities. In return, you agree to offer Innofone a right of First refusal
on any and all other telecommunications re-biller 'business opportunities' that
you develop. Innofone undertakes that in the event that it wants to pursue any
of these opportunities that it will fully and adequately fund and support them.
Innofone undertakes that it will offer you the same licensing/royalty fee of 2%
and Innofone will offer you an additional number of Innofone stock options
regarding any new business opportunity. While you have the right to accept or
decline Innofone's offer re the number of additional stock options you agree
that you will not unreasonably withhold your approval in regard to this
provision. All the same terms and conditions regarding the principle of your
right to convert the licensing/royalty fee shall apply to any of these new
business opportunities. In the event that Innofone does not wish to pursue the
new business opportunity or if you and Innofone can not come to an agreement re
the additional number of Innofone stock options then you shall be at liberty to
pursue the development of such business opportunities with any other
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party. Innofone.Com shall have 45 days from receipt of an executive summary and
financial projections prepared by Burdon, to accept or reject any and all new
business opportunities.
You shall pursue your strategic advisory and business development role on a part
time basis and as an independent contractor. Innofone shall not provide you with
any benefits of any type that may otherwise possibly characterize our
relationship in any other form such as an employee We will however, reimburse
you for any pre-approved expenses that you may incur from time to time.
You acknowledge that the strategic advisor fee has been and shall be $8,250 USD
per month from August 15, 1999 until the earlier of the execution of the Primary
and Secondary contract agreements or March 31, 2000. This strategic advisor fee
shall be considered an advance against the license/royalty fee and shall be
forfeited by you upon your election to exchange the license/royalty fee into
Innofone.Com stock options. The Primary and Secondary contract agreements shall
mean the dates on which the contracts have been completed as provided in Annex
A.
We mutually acknowledge and agree that the relationship between us in regard to
the matters outlined in this letter is fiduciary in nature and one of mutual
trust and reliance and that they owe each other a duty of utmost loyalty and
good faith. We further mutually acknowledge that we each have and may have
access to information and knowledge, including confidential information,
relating to all aspects of each other's individual affairs. The unauthorized
disclosure of any of which to the competitors, customers, or the general public
may be highly detrimental to the best interests of either of us.
This letter and Annex A attached hereto details our understanding. To
acknowledge your acceptance of our agreement I would ask that you sign and
return a copy of this letter and initial Annex A.
Yours truly,
/s/ Larry Hunt
- ---------------------------
Larry Hunt
Acknowledged and accepted this _____ day of ____________1999.
/s/ Douglas Burdon
- ---------------------------
Douglas Burdon
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Annex A
DOUGLAS BURDON or designate
Options shall be granted by Innofone Canada's parent company
Innofone.com Incorporated at a price of $0.50USD and shall be granted
as follows:
Innofone.com Incorporated is an U.S. Public Corporation
Primary Contracts
Amount Grant
1,000,000 Upon completion of the Primary Contracts, consisting of;
Internet, Cellular, Long Distance Carrier, Home
Security and Data Storage
Secondary Contracts
Amount Grant
2,250,000 Upon execution of a 1st Agreement with
respect of the property;
2,250,000 Upon execution of a 2nd Agreement with
respect of the property Vesting
Vesting
The vesting period for each individual grant shall be on a quarterly
basis and shall be divided over a 24-month period. The vesting period
will begin the first quarter following the Qualification for the grant.
As per the following example
Grant December 1999 Vest
1,000,000 125,000 March, 2000
125,000 June 2000
125,000 September 2000
125,000 December 2000
125,000 March 2001
125,000 June 2001
125,000 September 2001
125,000 December 2001
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Exhibit 10.04
Exhibit 10.04 1997 Compensatory Stock Option Plan
PROPAINT SYSTEMS, INC.
1 9 9 7 C O M P E N S A T O R Y S T O C K O P T I O N P L A N
1. Purpose of this Plan.
This Compensatory Stock Option Plan ("Plan") is intended as an
employment incentive, to aid in attracting and retaining in the employ or
service of PROPAINT SYSTEMS, INC. ("Company"), a Nevada corporation, and any
Affiliated Company, persons of experience and ability and whose services are
considered valuable, to encourage the sense of proprietorship in such persons,
and to stimulate the active interest of such persons in the development and
success of the Company. This Plan provides for the issuance of non-statutory
stock options ("CSOs" or "Options") which are not intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"). Certain other terms also are defined
in Paragraph 17 and elsewhere of this Plan.
2. Administration of this Plan.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee ("Committee") of the Board
which shall consist of at least two members of the Board who are Non-Employee
Directors as defined in Rule 16b-3 under the Exchange Act. At any time that the
Committee is not duly constituted, the Board itself shall have and fulfill the
duties herein allocated to the Committee. The Committee shall have full power
and authority to designate Plan participants, to determine the provisions and
terms of respective CSOs (which need not be identical as to number of shares
covered by any CSO, the method of exercise as related to exercise in whole or in
installments, or otherwise), including the CSO price, and to interpret the
provisions and supervise the administration of this Plan. The Committee may in
its discretion provide that certain CSOs not vest (that is, become exercisable)
until expiration of a certain period after issuance or until other conditions
are satisfied, so long as not contrary to this Plan.
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A majority of the members of the Committee shall consititue a quorum.
All decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. Each Option shall be evidenced by a written
agreement containing terms and conditions established by the Committee
consistent with the provisions of this Plan.
3. Designation of Participants.
Only Employees shall be eligible for participation in this Plan. The
Committee shall have full power to designate, from among eligible individuals,
the persons to whom CSOs may be granted. A person who has been granted a CSO
hereunder may be granted an additional CSO or CSOs, if the Committee shall so
determine. Persons eligible under this Plan additionally may be granted one or
more options under any other compensation or stock option plan or awarded shares
under any other benefit plan of the Company. No Option shall confer any right
upon the Optionee with respect to the continuation of his employment (or his
position as an officer, director, employee or consultant) with the Company or
any Affiliated Company, and shall not interfere with the right of the Company or
any Affiliated Company to terminate such relationship(s) at any time in
accordance with law and any agreements then in force.
4. Stock Reserved for this Plan.
Subject to adjustment as provided in Paragraph 9 below, a total of
1,500,000 shares of Common Stock of the Company ("Option Stock" or "Option
Shares") shall be subject to this Plan. The Option Stock subject to this Plan
shall consist of unissued shares of Common Stock or previously issued shares of
Common Stock reacquired and held by the Company or any Affiliated Company, and
such number of Option Shares shall be and is hereby reserved for sale for such
purpose. Any Option Shares which may remain unsold and which are not subject to
outstanding CSOs at the termination of this Plan shall cease to be reserved for
the purpose of this Plan, but until termination of this Plan the Company shall
at all times reserve a sufficient number of shares to meet the requirements of
this Plan. Should any CSO expire or be cancelled prior to its exercise in full,
the unexercised Option Shares theretofore subject to such CSO may again be
subjected to a CSO under this Plan.
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5. Option Exercise Price.
The purchase (exercise) price of each share of Option Stock made
subject to an Option shall not be less than one hundred percent (100%) of the
Fair Market Value of a share of Common Stock on the date the Option is granted.
For purposes of this Plan, the "Fair Market Value" of a share of the Company's
Common Stock as of a given date shall be: (i) the last sale price of a share of
the Company's Common Stock on the principal exchange, NASDAQ system, NASDAQ
Small Cap Market, or other quotation medium, on which shares of the Company's
Common Stock are then trading or quoted, or (ii) if the Company's Common Stock
is not publicly traded, the fair market value established by the Committee
acting in good faith. The cash proceeds from the sale of Option Stock are to be
added to the general funds of the Company.
6. Exercise Period; Vesting. (a) An Option shall have a term of not more
than ten (10) years from the date of grant and shall automatically
terminate:
(i) Upon termination of the Optionee's employment with
the Company for cause;
(ii) At the expiration of a period to be determined by the
Committee at the time of grant which is not to exceed
twelve (12) months following the date of termination
of the Optionee's employment with the Company without
cause for any reason other than death; provided, that
if no such period is specified in the Option, the
Option shall automatically terminate thirty (30) days
following termination of Optionee's employment;
provided, further, that if the Optionee dies within
such period, subclause (iii) below shall apply; or
(iii) At the expiration of twelve (12) months after the
date of death of the Optionee; provided, that the
Committee may in its discretion provide that any
Option not be exercisable after the Optionee's death
or may be exercised for a period less than twelve
months.
(iv) Unless otherwise specified in the Option, if
termination is due to the Optionee's "permanent and
total disability" within the meaning of Section
422(c)(6) of the Code, an Option may be exercised at
any time within twelve (12) months following
termination of employment or relationship as a
consultant or director.
(b) "Employment with the Company" as used in this Plan shall include
employment or relationship as a consultant, adviser or director with the Company
or any Affiliated Company in any such capacity, even if employment or engagement
in another capacity ceases. Options granted under this Plan shall not be
affected by an employee's transfer of employment among the Company and any one
or more Affiliated Companies. An Optionee's employment with the Company shall
not be deemed interrupted or terminated by a bona fide leave of absence (such as
sabbatical leave or employment by the Government) duly approved, military leave
or sick leave.
(c) Each Option may be made exercisable (that is, vest) in whole or in
nstallments, cumulative or otherwise, during its term, or subject to other
restrictions or limitations. Unless otherwise set forth in the granting
resolution, an Option shall vest immediately upon grant. If an Option is made to
vest over time, any portion not vested at the time of termination of employment
or relationship as a director or consultant with the Company shall lapse as if
never granted. Nothing contained in this Section shall be construed to extend
the term of any Option or to permit anyone to exercise an Option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any Option is exercisable from the amount exercisable on the
date of termination of the Optionee's employment or relationship as a consultant
or director.
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7. Exercise of Options.
(a) The Committee, in granting CSOs, shall have discretion to determine
the terms upon which CSOs shall be exercisable, subject to applicable provisions
of this Plan. Once available for purchase, unpurchased Option Shares shall
remain subject to purchase until the CSO expires or terminates in accordance
with Paragraph 6 above. Unless otherwise provided in the CSO, a CSO may be
exercised in whole or in part, one or more times, but no CSO may be exercised
for a fractional share. Resulting fractions shall be rounded up or down, as
appropriate.
(b) CSOs may be exercised solely by the Optionee or a permitted
transferee during his lifetime or by a spouse or former spouse pursuant to a
qualified domestic relations order, or if the Option permits, after his death
(with respect to the number of shares which the Optionee could have purchased at
the time of death) by the person or persons entitled thereto under the
decedent's will or the laws of descent and distribution.
(c) The purchase price of the Option Shares as to which a CSO is
exercised shall be paid or delivered in full at the time of exercise and no
Option Shares shall be issued until full payment is made therefor. Payment shall
be made by any one or more of the following means:
(i) in cash, represented by bank or cashier's check,
certified check or money order, or made by bank wire
transfer;
(ii) by offsetting against the purchase price a cash
obligation of the Company which is both liquidated
(meaning the dollar amount is fixed and known or
easily determinable) and uncontested;
(iii) with the prior approval of the Committee, by
delivering shares of the Company's Common Stock which
have been beneficially owned by the Optionee, the
Optionee's spouse or both of them, for a period of at
least six (6) months prior to the time of exercise
(the "Delivered Stock"), the Delivered Stock to be
valued by the Committee in good faith at its Fair
Market Value on the date of exercise;
(iv) with the prior approval of the Committee, by delivery
of shares of corporate stock which are freely
tradeable without restriction and which are part of a
class of securities which has been listed for trading
on the Nasdaq National Market System, the Nasdaq
Small Cap Market or a national securities exchange,
with an aggregate Fair Market Value on the date of
exercise equal to or greater than the exercise price
of the Option Shares being purchased under the Option
("Other Shares"); or
(v) with the prior approval of the Committee, by
delivering to the Company the Optionee's personal
recourse promissory note, adequately secured by
property other than the Option Shares thereby
purchased, containing such terms and conditions as
the Committe shall determine.
(d) An Option shall be deemed exercised when written notice thereof,
accompanied by the appropriate payment in full, is received by the Company. No
holder of an Option shall be, or have any of the rights and privileges of, a
shareholder of the Company in respect of any Option Shares purchasable upon
exercise of an Option unless and until certificates evidencing such shares shall
have been issued by the Company to him, her or it.
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(e) An Option may, but need not, provide that the Optionee may at any
time when and to the extent the Option is exercisable, effect an Option
Exchange, provided the then market price of the Common Stock exceeds the
Option's exercise price. To effect an Option Exchange, the Optionee must
surrender the Option at the Company's principal offices stating the intent to
effect the Option Exchange and the number of Option Shares being exchanged, and
the Option Exchange shall be deemed to take place on the date of the Company's
receipt thereof or such later date as the Optionee specifies in writing. In
connection with any Option Exchange, an Option shall represent the right to
subscribe for and acquire the number of Option Shares equal to [i] the number of
Option Shares specified by the Optionee in its notice of exchange (the "Total
Number") LESS [ii] the number of Option Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the exercise price by (B) the
current Fair Market Value of a share of the Common Stock on the date of
exchange, or if such date is not a trading day, on the trading day preceding.
One or more certificates for the Option Shares issuable and, if applicable, a
new Option of like tenor evidencing the balance of the Option Shares remaining
subject to the Option, shall be issued as of the exercise date.
8. Non-Transferability of Options.
No Option shall be assignable or otherwise transferable except by will
or by operation of law, pursuant to a qualified domestic relations order (as
defined in Rule 16b-3 of the Securities and Exchange Commission, or any
successor rule), or pursuant to Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or rules thereunder. No CSO shall be
pledged or hypothecated in any manner, whether by operation of law or otherwise,
nor be subject to execution, attachment or similar process. The same
restrictions on transfer or assignment shall apply to any heirs, devisees,
beneficiaries, legal representatives or other persons acquiring this Option or
an interest herein under such an instrument or by operation of law. Any attempt
to transfer or otherwise dispose of an Option in contravention of its terms
shall void the Option.
9. Reorganizations and Recapitalizations of the Company.
(a) No Limit Imposed on Corporate Powers. The existence of this Plan
and Options granted hereunder shall not affect in any way the right or power of
the Company or its shareholders to make or authorize any and all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures or other indebtedness, or any preferred or prior
preference stocks senior to or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale, exchange or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) Certain Adjustments to be Made. The Option Shares with respect to
which Options may be granted hereunder are shares of the Common Stock of the
Company as currently constituted. In certain instances, the number of shares
purchasable upon exercise of Options and the exercise price shall be adjusted as
provided herein. All adjustments and made under this Section shall be made by
the Committee in good faith in its sole discretion. Every adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised portion of the Option but with a corresponding adjustment in
the exercise price per share and number (and if applicable, kind) of shares
purchasable.
(c) Stock Splits, Stock Combinations, Etc. If, and whenever, prior to
delivery by the Company of all of the Option Shares which are subject to Options
granted hereunder, the Company shall effect a split or combination of the Common
Stock or other capital readjustment, the payment of a Common Stock dividend, or
recapitalization, reclassification or other increase or reduction of the number
of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then the number of Option Shares
available under this Plan and the number of Option Shares with respect to which
Options granted hereunder may thereafter be exercised shall (i) in the event of
an increase in the number of outstanding shares of Common Stock, be
proportionately increased, and the cash consideration payable per share shall be
proportionately reduced; and (ii) in the event of a reduction in the number of
outstanding shares of Common Stock, be proportionately reduced, and the cash
consideration payable per share shall be proportionately increased.
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(d) Certain Other Changes In the Common Stock. If the outstanding
Common Stock shall be hereafter increased or decreased, or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation, by reason of reorganization, merger,
consolidation, share exchange or other business combination in which the Company
is the surviving parent corporation, appropriate adjustment shall be made by the
Committee in the number and kind of shares for which Options may be granted
under the Plan. In addition, the Committee shall make appropriate adjustment in
the number and kind of shares as to which outstanding and unexercised Options
shall be exercisable, to the end that the proportionate interest of the holder
of the Option shall, to the extent practicable, be maintained as before the
occurrence of such event.
(e) Certain Defined Reorganizations. For purposes of this Section, the
term "Reorganization" shall mean any reorganization, merger, consolidation,
share exchange, or other business combination pursuant to which the Company is
not the surviving parent corporation after the effective date of the
Reorganization, or any sale or lease of all or substantially all of the assets
of the Company, and the term "Reorganization Agreement" shall mean a plan or
agreement with respect to a Reorganization. Nothing herein shall require the
Company to adopt a Reorganization Agreement, or to make provision for the
adjustment, change, conversion, or exchange of any Options, or the shares
subject thereto, in any Reorganization Agreement which it does adopt. In the
event of a Reorganization (as hereinafter defined), then,
(i) If there is no Reorganization Agreement, or if the
Reorganization Agreement does not specifically
provide for the adjustment, change, conversion, or
exchange of the outstanding and unexercised options
for cash or other property or securities of another
corporation, then any outstanding and unexercised
options shall terminate as of a future date to be
fixed by the Committee; or,
(ii) If there is a Reorganization Agreement, and the
Reorganization Agreement specifically provides for
the adjustment, change, conversion, or exchange of
the outstanding and unexercised options for cash or
other property or securities of another corporation,
the Committee shall adjust the shares under such
outstanding and unexercised options, and shall adjust
the shares remaining under the Plan which are then
available for the issuance of options under the Plan
if the Reorganization Agreement for the adjustment,
change, conversion, or exchange of such options and
shares.
(iii) The Committee shall provide to each Optionee then
holding an outstanding and unexercised Option not
less than thirty (30) calendar Days' advance written
notice of any date fixed by the Committee pursuant to
this Section 13 and of the terms of any
Reorganization Agreement providing for the
adjustment, change, conversion, or exchange of
outstanding and unexercised Options. Except as the
Committee may otherwise provide, each Optionee shall
have the right during such period to exercise his
Option only to the extent that the Option was
exercisable on the date such notice was provided to
the Optionee.
(f) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, any outstanding and unexercised options shall
terminate as of a future date to be fixed by the Committee.
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(g) No Adjustments to be Made. Except as expressly provided above, the
Company's issuance of shares of its capital stock of any class, or securities
convertible into shares of its capital stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option Shares subject to
CSOs granted hereunder or the purchase price of such shares.
10. Purchase for Investment.
Unless the Option Shares covered by this Plan have been registered
under the Act prior to issuance, each person exercising a CSO under this Plan
may be required by the Company to give a representation in writing that he is
acquiring such shares for his or her own account for investment and not with a
view to, or for sale in connection with, the distribution of any part thereof.
11. Effective Date and Expiration of this Plan.
This Plan shall be effective as of January 18, 1997, the date of its
adoption by the Board, and no CSO shall be granted pursuant to this Plan after
its expiration. This Plan shall expire on January 17, 2007 except as to CSOs
then outstanding, which shall remain in effect until they have expired or been
exercised.
12. Amendments or Termination.
The Committee or Board may amend, alter or discontinue this Plan at any
time in such respects as it shall deem advisable in order to conform to any
change in any other applicable law, or in order to comply with the provisions of
any rule or regulation of the Securities and Exchange Commission required to
exempt this Plan or any CSOs granted thereunder from the operation of Section
16(b) of the Exchange Act or in any other respect not inconsistent with Section
16(b) of the Exchange Act; provided, that no amendment or alteration shall be
made which would impair the rights of any participant under any CSO theretofore
granted, without his consent (unless made solely to conform such CSO to, and
necessary because of, changes in the foregoing laws, rules or regulations), and
except that no amendment or alteration shall be made without the approval of
shareholders which would increase the total number of shares reserved for the
purposes of this Plan (except as provided in Paragraph 9) or extend the
expiration date of this Plan as set forth in Paragraph 11.
13. Government Regulations.
This Plan, and the granting and exercise of CSOs hereunder, and the
obligation of the Company to sell and deliver Option Shares under such CSOs,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
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14. Liability.
No member of the Board of Directors or the Committee, nor any officers,
employees or agents of the Company or any Affiliated Company shall be personally
liable for any action, omission or determination made in good faith in
connection with this Plan.
15. Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term
of this Plan, grant new options to an employee under this Plan or any other
stock option plan of the Company on the condition that such employee shall
surrender for cancellation one or more outstanding options which represent the
right to purchase (after giving effect to any previous partial exercise thereof)
a number of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted options. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Company as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Company, or the acquisition by the
Company or an Affiliated Company of the assets of the employing corporation, or
the acquisition by the Company or an Affiliated Company of stock of the
employing corporation as the result of which such other corporation becomes an
Affiliated Company.
16. Withholding Taxes.
Pursuant to applicable federal and state laws, the Company may be
required to collect withholding taxes upon the exercise of a CSO. The Company
may require, as a condition to the exercise of a CSO, that the Optionee
concurrently pay to the Company the entire amount or a portion of any taxes
which the Company is required to withhold by reason of such exercise, in such
amount as the Committee or the Company in its discretion may determine. In lieu
of part or all of any such payment, the Optionee may elect to have the Company
withhold from the shares to be issued upon exercise of the option that number of
shares having a Fair Market Value equal to the amount which the Company is
required to withhold.
17. Other Definitions.
Whenever used in this Plan, except where the context might clearly
indicate otherwise, the following terms shall have the meanings set forth below:
a. "Act" means the U.S. Securities Act of 1933, as amended.
b. "Affiliated Company" means any Parent or Subsidiary of the
Company.
c. "Award" or "grant" means any grant of a CSO (Option) made
under this Plan.
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d. "Board of Directors" means the Board of Directors of the
Company. The term "Committee" is defined in Section 2 of this
Plan.
e. "Common Stock" or "Common Shares" means the common stock,
$.001 par value per share, of the Company, or in the event
that the outstanding Common Shares are hereafter changed into
or exchanged for different shares or securities of the Company
or any other issuer, such other shares or securities.
f. "Date of Grant" means the day the Committee authorizes the
grant of a CSO or such later date as may be specified by the
Committee as the date a particular grant will become
effective.
g. "Employee" means and includes the following persons: (i)
executive officers, officers and directors (including advisory
and other special directors) of the Company or an Affiliated
Company; (ii) full-time and part-time employees of the Company
or an Affiliated Company; (iii) persons engaged by the Company
or an Affiliated Company as a consultant, advisor or agent;
and (iv) a lawyer, law firm, accountant or accounting firm, or
other professional or professional firm engaged by the Company
or an Affiliated Company.
h. "Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended.
i. "Optionee" means an Employee to whom a CSO is granted.
j. "Parent" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of
another corporation qualifying as a Parent within this
definition.
k. "Subsidiary" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company
or by another corporation qualifying as a Subsidiary within
this definition.
18. Litigation.
In the event that any Optionee or Optionee's successor should bring any
lawsuit or other action or proceeding ("Action") against the Company or an
Affiliated Company based upon or arising in relation to an Option, an Optionee,
or successor, as the case may be, not prevailing in such Action shall be
required to reimburse the Company or Affiliated Company's costs and expenses,
including reasonable attorneys' fees, incurred in defending such action and
appealing any award by a lower court.
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19. Miscellaneous Provisions.
The place of administration of this Plan shall be in the State of
Colorado (or subsequently, wherever the Company's principal executive offices
are located), and the validity, construction, interpretation and effect of this
Plan and of its rules, regulations and rights relating to it, shall be
determined solely in accordance with the laws of the State of Nevada or
subsequent state of domicile, should the Company be redomiciled. Without
amending this Plan, the Committee may issue Options and Options Shares to
employees of the Company who are foreign nationals or employed outside the
United States, or both, on such terms and conditions different from those
specified in this Plan but consistent with the purpose of this Plan, as it deems
necessary and desirable to create equitable opportunities given differences in
tax laws in other countries. All expenses of administering this Plan and issuing
Option and Option Shares shall be borne by the Company.
* * *
By signature below, the undersigned officers of the Company hereby
certify that the foregoing is a true and correct copy of the 1997 Compensatory
Stock Option Plan of the Company.
DATED: January 18, 1997
PROPAINT SYSTEMS, INC.
(SEAL)
By
------------------------------
Authorized Officer
By
------------------------------------
Secretary or Assistant Secretary
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PROPAINT SYSTEMS, INC.
-------------------------
C E R T I F I C A T I O N O F P L A N A D O P T I O N
-------------------------
I, the undersigned Secretary or assistant secretary of this
Corporation, hereby certify that the foregoing Compensatory Stock Option Plan of
this corporation was duly approved by the requisite number of holders of the
issued and outstanding common stock of this corporation as of the date below.
Date of Approval: ____________________, 19______
X
------------------------------
Signature
(SEAL)
<PAGE>
Exhibit 10.05
Exhibit 10.05 1997 Employee Stock Option Plan
PROPAINT SYSTEMS, INC.
1 9 9 7 E M P L O Y E E S T O C K C O M P E N S A T I O N P L A N
1. Purpose of the Plan.
This 1997 Employee Stock Compensation Plan ("Plan") is intended to
further the growth and advance the best interests of PROPAINT SYSTEMS, INC., a
Nevada corporation (the "Company"), and Affiliated Corporations, by supporting
and increasing the Company's ability to attract, retain and compensate persons
of experience and ability and whose services are considered valuable, to
encourage the sense of proprietorship in such persons, and to stimulate the
active interest of such persons in the development and success of the Company
and Affiliate Corporations. This Plan provides for stock compensation through
the award of the Company's Common Stock.
2. Definitions.
Whenever used in this Plan, except where the context might clearly
indicate otherwise, the following terms shall have the meanings set forth in
this section:
a. "Act" means the U.S. Securities Act of 1933, as amended.
b. "Affiliated Corporation" means any Parent or Subsidiary of the
Company.
c. "Award" or "grant" means any grant or sale of Common Stock made
under this Plan.
d. "Board of Directors" means the Board of Directors of the Company.
The term "Committee" is defined in Section 4 of this Plan.
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Common Stock" or "Common Shares" means the common stock, $.001 par
value per share, of the Company, or in the event that the
outstanding Common Shares are hereafter changed into or exchanged
for different shares or securities of the Company, such other
shares or securities.
g. "Date of Grant" means the day the Committee authorizes the grant of
Common Stock or such later date as may be specified by the
Committee as the date a particular award will become effective.
h. "Employee" means and includes the following persons: (i) executive
officers, officers and directors (including advisory and other
special directors) of the Company or an Affiliated
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Corporation; (ii) full-time and part-time employees of the Company
or an Affiliated Corporation; (iii) natural persons engaged by the
Company or an Affiliated Corporation as a consultant, advisor or
agent; and (iv) a lawyer, law firm, accountant or accounting firm,
or other professional or professional firm engaged by the Company
or an Affiliated Corporation.
i. "Parent" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of another
corporation qualifying as a Parent within this definition.
j. "Participant" means an Employee to whom an Award of Plan Shares has
been made.
k. "Plan Shares" means shares of Common Stock from time to time
subject to this Plan.
l. "Subsidiary" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company or by
another corporation qualifying as a Subsidiary within this
definition.
3. Effective Date of the Plan.
The effective date of this Plan is January 18, 1997. No Plan Shares may
be issued after January 17, 2002.
4. Administration of the Plan.
The Compensation Committee of the Board of Directors ("Committee"),
and in default of the appointment or continued existence of such Committee the
Board of Directors, will be responsible for the administration of this Plan, and
will have sole power to award Common Shares under this Plan. Subject to the
express provisions of this Plan, the Committee shall have full authority and
sole and absolute discretion to interpret this Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations which it believes to be necessary or advisable in administering
this Plan. The determination of those eligible to receive an award of Plan
Shares shall rest in the sole discretion of the Committee, subject to the
provisions of this Plan. Awards of Plan Shares may be made as compensation for
services rendered, directly or in lieu of other compensation payable, as a bonus
in recognition of past service or performance or may be sold to an Employee as
herein provided. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in this Plan in such manner and to such extent it
shall deem necessary to carry it into effect. Any decision made, or action
taken, by the Committee arising out of or in connection with the interpretation
and administration of this Plan shall be final and conclusive.
5. Stock Subject to the Plan.
The maximum number of Plan Shares which may be awarded under this Plan
is 1,000,000 shares.
6. Persons Eligible to Receive Awards.
Awards may be granted only to Employees (as herein defined).
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<PAGE>
7. Grants or Awards of Plan Shares.
Except as otherwise provided herein, the Committee shall have complete
discretion to determine when and to which Employees Plan Shares are to be
granted, and the number of Plan Shares to be awarded to each Employee. A grant
to an Employee may be made for cash, property, services rendered or other form
of payment constituting lawful consideration under applicable law; Plan Shares
awarded other than for services rendered shall be sold at not less than the fair
value thereof on the date of grant. No grant will be made if, in the judgment of
the Committee, such a grant would constitute a public distribution with the
meaning of the Act or the rules and regulations promulgated thereunder.
8. Delivery of Stock Certificates.
As promptly as practicable after authorizing an award of Plan Shares,
the Company shall deliver to the person who is the recipient of the award, a
certificate or certificates registered in that person's name, representing the
number of Plan Shares that were granted. Unless the Plan Shares have been
registered under the Act, each certificate evidencing Plan Shares shall bear a
legend to indicate that such shares represented by the certificate were issued
in a transaction which was not registered under the Act, and may only be sold or
transferred in a transaction that is registered under the Act or is exempt from
the registration requirements of the Act. In the absence of registration under
the Act, any person awarded Plan Shares may be required to execute and deliver
to the Company an investment letter, satisfactory in form and substance to the
Company, prior to issuance and delivery of the shares. An award may be made
under this Plan wherein the Plan Shares may be issued only after registration
under the Act.
9. Assignability.
An award of Plan Shares may not be assigned. Plan Shares themselves may
be assigned only after such shares have been awarded, issued and delivered, and
only in accordance with law and any transfer restrictions imposed at the time of
award.
10. Employment not Conferred.
Nothing in this Plan or in the award of Plan Shares shall confer upon
any Employee the right to continue in the employ of the Company or Affiliated
Corporation nor shall it interfere with or restrict in any way the lawful rights
of the Company or any Affiliated Corporation to discharge any Employee at any
time for any reason whatsoever, with or without cause.
11. Laws and Regulations.
The obligation of the Company to issue and deliver Plan Shares
following an award under this Plan shall be subject to the condition that the
Company be satisfied that the sale and delivery thereof will not violate the Act
or any other applicable laws, rules or regulations.
3
<PAGE>
12. Withholding of Taxes.
If subject to withholding tax, the Company or any Affiliated
Corporation may require that the Employee concurrently pay to the Company the
entire amount or a portion of any taxes which the Company or Affiliated
Corporation is required to withhold by reason of granting Plan Shares, in such
amount as the Company or Affiliated Corporation in its discretion may determine.
In lieu of part or all of any such payment, the Employee may elect to have the
Company or Affiliated Corporation withhold from the Plan Shares issued hereunder
a sufficient number of shares to satisfy withholding obligations. If the Company
or Affiliated Corporation becomes required to pay withholding taxes to any
federal, state or other taxing authority as a result of the granting of Plan
Shares, and the Employee fails to provide the Company or Affiliated Corporation
with the funds with which to pay that withholding tax, the Company or Affiliated
Corporation may withhold up to 50% of each payment of salary or bonus to the
Employee (which will be in addition to any required or permitted withholding),
until the Company or Affiliated Corporation has been reimbursed for the entire
withholding tax it was required to pay in respect of the award of Plan Shares.
13. Reservation of Shares.
The stock subject to this Plan shall, at all times, consist of
authorized but unissued Common Shares, or previously issued shares of Common
Stock reacquired or held by the Company or an Affiliated Corporation equal to
the maximum number of shares the Company may be required to issue as stated in
Section 5 of this Plan, and such number of Common Shares hereby is reserved for
such purpose. The Committee may decrease the number of shares subject to this
Plan.
14. Amendment and Termination of the Plan.
The Committee may suspend or terminate this Plan at any time or from
time to time, but no such action shall adversely affect the rights of a person
granted an Award under this Plan prior to that date. Otherwise, this Plan shall
terminate on the earlier of the terminal date stated in Section 3 of this Plan
or the date when all Plan Shares have been issued. The Committee shall have
absolute discretion to amend this Plan, subject only to those limitations
expressly set forth herein; however, the Committee shall have no authority to
extend the term of this Plan, to increase the number of Plan Shares subject to
award under this Plan or to amend the definition of "Employee" herein.
15. Delivery of Plan.
A copy or description (for which a prospectus registering the Plan
Shares will serve) of this Plan shall be delivered to every person to whom an
award of Plan Shares is made. The Secretary of the Company may, but is not
required to, also deliver a copy of the resolution or resolutions of the
Committee authorizing the award.
4
<PAGE>
16. Liability.
No member of the Board of Directors, the Committee or any other
committee of directors, or officers, employees or agents of the Company or any
Affiliated Corporation shall be personally liable for any action, omission or
determination made in good faith in connection with this Plan.
17. Miscellaneous Provisions.
The place of administration of this Plan shall be in the State of
Colorado (or subsequently, wherever the Company's principal executive offices
are located), and the validity, construction, interpretation and effect of this
Plan and of its rules, regulations and rights relating to it, shall be
determined solely in accordance with the laws of the State of Nevada or
subsequent state of domicile, should the Company be redomiciled. Without
amending this Plan, the Committee may issue Plan Shares to employees of the
Company who are foreign nationals or employed outside the United States, or
both, on such terms and conditions different from those specified in this Plan
but consistent with the purpose of this Plan, as it deems necessary and
desirable to create equitable opportunities given differences in tax laws in
other countries. All expenses of administering this Plan and issuing Plan Shares
shall be borne by the Company.
18. Reorganizations and Recapitalizations of the Company.
(a) The shares of Common Stock subject to this Plan are shares of the
Common Stock of the Company as currently constituted. If, and whenever, the
Company shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a Common Stock dividend, a stock split, combination
of shares (reverse stock split) or recapitalization or other increase or
reduction of the number of shares of the Common Stock outstanding without
receiving compensation therefor in money, services or property, then the number
of shares of Common Stock subject to this Plan shall (i) in the event of an
increase in the number of outstanding shares, be proportionately increased; and
(ii) in the event of a reduction in the number of outstanding shares, be
proportionately reduced.
(b) Except as expressly provided above, the Company's issuance of
shares of Common Stock of any class, or securities convertible into shares of
Common Stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into or exchangeable for shares of Common Stock or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to this Plan.
By signature below, the undersigned officers of the Company hereby
certify that the foregoing is a true and correct copy of the 1997 Employee Stock
Compensation Plan of the Company.
DATED: January 18, 1997 PROPAINT SYSTEMS, INC.
(SEAL) By.......................................
Authorized Officer
5
<PAGE>
By....................................................
Secretary or Assistant Secretary
PROPAINT SYSTEMS, INC.
===============================
C E R T I F I C A T I O N O F P L A N A D O P T I O N
===============================
I, the undersigned Secretary or assistant secretary of this
Corporation, hereby certify that the foregoing Employee Stock Compensation Plan
of this corporation was duly approved by the requisite number of holders of the
issued and outstanding common stock of this corporation as of the date below.
Date of Approval: ____________________, 19______
X......................................
Signature
(SEAL)
6
<PAGE>
Exhibit 10.06
Exhibit 10.06 Joint Subscription Agreement to Innofone.com
Incorporated and Hot Caller Com Inc.
J O I N T S U B S C R I P T I O N A G R E E M E N T
============
INNOFONE.com INCORPORATED
HOT CALLER.COM INC.
DATED:______________________
INNOFONE.com INCORPORATED
HOT CALLER.COM INC.
241 Applewood Crescent
Suite 4
Vaughan L4K 4E6 Ontario, Canada US$_________________________
(Amount of Notes Subscribed)
Gentlemen:
1. Subscription. I, the undersigned individual or entity
("Subscriber"), hereby irrevocably subscribe as of the above date to purchase
(i) the above stated dollar amount of the 8% Unsecured Convertible Promissory
Notes Due July 31, 2000 ("Notes") of INNOFONE.com INCORPORATED, a Nevada
corporation ("Company"), together with (ii) certain stock purchase warrants
described in the following sentence, the subscription price being payable in
lawful monies of the United States of America. This subscription includes a
warrant (the "Warrants") entitling the holder thereof to purchase one (1) share
of the no-par value common stock of HOT CALLER.COM INC., a corporation organized
under the Canadian Business Corporations Act ("Hot Caller") and wholly owned by
the Company, at a purchase price of CDN$2.00 per share (the "Warrant Shares"),
for each US$0.80 of Notes purchased. As an example, the purchase of US$10,000 of
Notes would carry Warrants to purchase 12,500 shares of Hot Caller at CDN $2.00
per share( 10,000 div by 0.80). The principal amount of, and all interest and
other charges accrued on, the Notes shall be convertible at any time or from
time to time into fully paid and non-assessable shares of the common stock,
US$.001 par value per share, of the Company at a price of US$0.80 per share (the
"Conversion Shares"). This joint subscription for Notes and Warrants is made in
accordance with and is subject to the terms of this Agreement and the Company's
Certificate of Incorporation and Bylaws, each as amended to date. The term
"Units" used herein refers to the Notes and Warrants subscribed for and
purchased and includes the Conversion Shares and Warrant Shares. Attached
1
<PAGE>
hereto as schedule "A", is the subscription agreement with respect to the
warrants, (the warrant agreement). The warrant agreement shall be read in
conjunction with the within joint subscription agreement.
2. Acceptance of Subscription. This subscription does not constitute an
offer by the Company to sell any Units to me, nor a solicitation of any offer
from me to buy Units, and shall be deemed accepted by the Company only when
countersigned by an executive officer of the Company. The Company may reject
this subscription, in whole or in part, for any reason in its sole discretion.
3. The Company's Representations, Warranties and Agreements. The
Company hereby represents and warrants to Subscriber and agrees with Subscriber
that:
(a) The Company is duly organized under the laws of the State
of Nevada, in good standing, duly authorized to carry on its current operations
where and in the manner currently conducted. The Company's common shares are
quoted on the OTC Bulletin Board under symbol "INNF," and are traded in the
over-the-counter market. Hot Caller is a newly organized company with limited
assets and no current operations that is privately held by the Company.
(b) The Company will promptly issue the Notes and Warrants
following acceptance of this subscription and receiving due payment, and shall
promptly issue the Conversion Shares upon due conversion of the Notes and issue
the Warrant Shares upon proper exercise of the Warrants. The Notes and Warrants,
and Conversion Shares and Warrant Shares, when issued to Subscriber against due
payment therefor or proper conversion, will be duly authorized, validly issued
and fully paid and non-assessable.
4. Subscriber's Representations, Warranties and Agreements. With full
knowledge that the Company and its officers, directors and controlling persons
will be relying upon the following, among other things, in determining whether a
sale of Units to me will be exempt from the registration requirements of the
U.S. Securities Act of 1933, as amended ("Act"), I represent and warrant to the
Company and agree with the Company that:
(a) I have received and carefully reviewed such information
provided to me in writing by the Company and Hot Caller, or information from
books and records of the Company, as I have requested in making a decision to
subscribe for the Units. I understand that additional information concerning the
Company and Hot Caller has been made available for inspection by me and my
attorney, accountant or other adviser, and that the books and records of the
Company and Hot Caller will be available, upon reasonable notice, for inspection
by subscribers during reasonable business hours at its above-stated place of
business. I and my advisers have had a reasonable opportunity to ask questions
of and receive answers from the Company, or a person or persons acting on its
behalf, concerning the offering of the Units, and all such questions have been
answered to my full satisfaction. No oral representations have been made or oral
information furnished to me or my adviser(s) in connection with the offering of
the Units which were in any way inconsistent with written information provided.
I acknowledge and agree that I have been furnished with substantially the same
information regarding the Company and Hot Caller and their respective current
(or in the case of Hot Caller, proposed) operations, assets, financial condition
and plan of operation as would be contained in a registration statement and
included prospectus prepared in connection with a public offering of the Units,
or that such information has been made freely available to me by the Company.
(b) I understand that the Notes and Conversion Shares have not
been registered under the Act but will be issued in reliance upon Regulation S
of the U.S. Securities and Exchange Commission, an exemption from the
registration requirements of the Act for sales of securities made solely
2
<PAGE>
outside the United States of America, which term includes its territories and
possessions ("USA") to persons who are not "U.S. Persons." I understand that the
Notes and Conversion Shares may not be offered or sold by me in the USA or to
any U.S. Person during the 1-year "distribution compliance period" following
completion of the offering of the Notes. I agree not to engage in any hedging
transactions during the distribution compliance period involving the Notes or
Conversion Shares except in compliance with the Act. I understand and agree that
a stop transfer order affecting the Notes shall be placed in the Company's
records, and a stop transfer order affecting the Conversion Shares shall be
placed with the Company's transfer agent, in each case preventing the transfer
thereof except as permitted by law.
(c) I have not been solicited to purchase the Units while
present in the USA, and I was outside the USA at the time of executing this
Agreement. The funds utilized for the purchase of the Units were not been
obtained from any U.S. Person.
(d) I am not a "U.S. Person", and I am purchasing the Units
for my own account and not on behalf of or for the account of any U.S. Person.
I, alone or together with my adviser(s), have such knowledge and experience in
financial, tax and business matters as to enable me to utilize the information
made available to me in order to evaluate the merits and risks of purchasing the
Units and to make an informed investment decision with respect thereto.
(e) I have not engaged in any act intended to precondition the
U.S. market for the resale of the Notes, Conversion Shares, Warrants or Warrant
Shares. I am not acting as a "distributor" of the Units or any components of the
Units. However, if I should be deemed to be a distributor prior to reselling the
Units to a non-U.S. Person during the restricted period, I will send a notice to
each new purchaser of the Units or component parts of the Units that he is
subject to the restrictions of Regulation S during the 1-year distribution
compliance period.
(f) I understand and agree that any and all instruments which
are issued representing the Notes shall, unless and until removed upon
registration under the Act or in accordance with applicable law, contain a
legend substantially in the following form:
"This promissory note and the common shares issuable
upon conversion have not been registered under the U.S. Securities Act
of 1933 ("Act") but have been offered and sold in reliance upon
Regulation S under the Act. Transfer of this note or such shares is
prohibited except in accordance with the provisions of Regulation S,
pursuant to registration under the Act, or pursuant to an exemption
from registration under the Act. Any hedging transactions involving
this note or the underlying common shares may not be conducted unless
in compliance with the Act."
(g) I understand and agree that any and all certificates which
may be issued representing Conversion Shares not already registered under the
Act prior to issuance upon Note conversion shall, unless and until removed upon
registration under the Act or in accordance with applicable law, contain a
legend substantially in the following form:
"These shares have not been registered under the U.S.
Securities Act of 1933 ("Act") but have been offered and sold in
reliance upon Regulation S under the Act. Transfer of these shares is
prohibited except in accordance with the provisions of Regulation S,
pursuant to
3
<PAGE>
registration under the Act, or pursuant to an exemption from
registration under the Act. Any hedging transactions involving these
shares may not be conducted unless in compliance with the Act."
(i) The Warrants and all certificates evidencing the Warrant
Shares shall bear such legends or restrictions as may be required by applicable
laws, rules or regulations of Canada or any province or other governmental unit
thereof. Subscriber agrees to the placement of all such legends and restrictions
on the Warrants and Warrant Share certificates and agrees to the placement of a
stop transfer order in the transfer records of Hot Caller preventing the
transfer of the Warrants and Warrant Shares except in accordance with law.
(j) If Subscriber is a corporation or other entity, Subscriber
has full power and authority to execute this Agreement, to make all
representations, warranties and covenants set forth herein and to acquire and
hold the Units, and has its principal office at the place set forth on the
signature page hereof. If Subscriber is an individual, Subscriber is at least 21
years of age and resides at the place set forth on the signature page hereof.
All information which Subscriber has provided to the Company is correct and
complete as of the date set forth above and, if there should be any adverse
change in such information prior to this subscription being accepted, Subscriber
will immediately provide the Company with such information.
(k) Subscriber has not been solicited by the Company or anyone
on its behalf by any form of general solicitation or general advertising,
including but not limited to (i) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or made available over telephone lines by any
information service, or (ii) any seminar or meeting whose attendees had been
invited by any means of general solicitation or general advertising.
4. Miscellaneous.
(a) I agree not to transfer or assign this Agreement, or any
of my interest herein, and further agree that any transfer or assignment of the
Units acquired pursuant hereto shall be made only in accordance with this
Agreement and all applicable laws. I agree that I may not cancel, terminate or
revoke this Agreement or any agreement made by me hereunder. This Agreement
constitutes the entire agreement between the parties hereto and may be amended
only by a writing executed by both parties. This Agreement shall be enforced,
governed and construed in all respects in accordance with the laws of the State
of Nevada.
(b) Notwithstanding any of the representations, warranties,
acknowledgements or agreements made herein by me, I do not thereby or in any
other manner waive any rights granted to me under applicable securities laws. I
stipulate and agree, however, that the operation of this Agreement will not
result in a waiver of such rights. All representations, warranties, covenants
and undertakings made by me in this Agreement shall survive the Company's
acceptance of this Agreement and the issuance and delivery of the Units.
(c) Wherever the pronouns he, his or him appear in this
Agreement, they shall include the feminine and neuter genders as well as the
masculine and apply equally to individual and entity subscribers, unless the
context clearly requires otherwise.
(d) Notices between the parties shall be effective only if in
writing and delivered: if to the Company, to the address on the first page
hereof; and if to me, to the address on the signature page hereof; or to any
subsequent address provided in writing by either party.
4
<PAGE>
(e) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, administrators, executors,
legal representatives, successors and assigns. By executing this Agreement, I
represent that I have carefully read it in its entirety.
6. Payment for Units. The purchase price of the Units shall be paid in
United States dollars, by cash, personal or business check, bank or cashier's
check, or money order.
7. Definitions. The terms "distributor," "distribution compliance
period," "United States of America" and "U.S. Person" used in this Agreement
shall have the meanings given them in Rule 902 of Regulation S under the Act.
The term "affiliate" shall have the meaning given it in Rule 144(a) under the
Act.
8. Registration Rights. As promptly as practicable following the
purchase and payment for all of the Units, the Company shall cause a
registration statement on Form SB-2 or other appropriate form to be filed with
the U.S. Securities and Exchange Commission for the purpose of registering the
Conversion Shares under the Act for resale to the public. The holder or holders
of the Conversion Shares at the time of such registration ("Holder") shall have
the right pursuant to such registration to sell the Conversion Shares at
prevailing market prices in the over-the-counter market or on any exchange where
the Company's Common Shares then are listed, as the case may be, or in
negotiated transactions, all in accordance with the Act and other applicable
law. Each Holder shall, in connection with such registration, make such
representations and warranties to the Company and furnish such information as
the Company shall reasonably request.
No demand, request or other action by any Holder shall be necessary for
inclusion of his or her Conversion Shares in the registration, and such
inclusion shall be automatic. The Company shall use its best efforts to cause
such registration to become effective as soon as practicable. All expenses of
registering the Conversion Shares, other than selling expenses, shall be borne
by the Company. The Company shall furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Conversion Shares owned by them.
5
<PAGE>
Signature Page
In Witness Whereof, I have executed this Subscription Agreement and
initialled every preceding page hereof on the date first above written.
INDIVIDUAL SUBSCRIBERS ONLY:
(Not Corporations, Partnerships, Trusts or other entities)
Signature X.................................................................
Print Name (of all subscribers) _______________________________________________
Residence Address _____________________________________________________________
_________________________________________________ Fax No. ( ) -
----------------------------
Home Telephone No. ( ) - Work Telephone No. ( ) -
------- ------------- ------- --------
Social Security Number _______________________________________________________
(First listed person's number, if more than
person is subscribing)
COMPANY OR OTHER ENTITY SUBSCRIBERS ONLY:
Print Name of Subscriber (Company/Entity Name) _________________________________
Auth. Person's Signature X....................................................
6
<PAGE>
Authorized Person's Name & Title (Print) _____________________________________
Address of Principal Office ___________________________________________________
_______________________________________________________________________________
Organized under laws of State of _______________________________________________
Telephone ( ) - Fax No. ( ) -
------- ------------------- -------- ---------------------------
Federal Tax I.D. Number ________________________________________________________
Subscriber: Do Not Write Below This Line
Accepted: _______
X.......................................................
Signature
Rejected: _______ Name:__________________________________________
DATED: ____________________________ , 19___ Title:_____________________________
7
<PAGE>
Exhibit 10.07
Exhibit 10.07 Amending Agreement Between Innofone.com Incorporated, Hot
Caller.Com Inc., and Larry Hunt, Rick Quinney and Ron Crowe
AMENDING AGREEMENT
B E T W E E N:
INNOFONE.com INCORPORATED,
(herein the "Borrower")
-and-
HOT CALLER.COM INC.
(herein "Hot Caller")
-and-
(herein the "Noteholder")
-and-
LARRY HUNT, RICK QUINNEY and
RON CROWE
(herein the "Principals")
WHEREAS:
1. The Borrower, Hot Caller and the Noteholder entered into a joint Subscription
Agreement (herein the "Subscription Agreement") in or about the month of August,
1999;
1
<PAGE>
2. The Subscription Agreement provided inter alia that:
(i) the Noteholder advanced a certain loan to the Borrower which
loan was documented by an "8% unsecured convertible Promissory
Note" (herein the "Promissory Note") due July
31st, 2000;
(ii) the Promissory Note provided that the loan could be discharged
by "Conversion" at the option of the Noteholder in accordance
with the conversion provisions set forth therein;
(iii) each Noteholder would be entitled to a warrant entitling the
holder thereof to purchase one (1) share of the no-par value
common stock of Hot Caller, a corporation organized under The
Canada Business Corporations Act, at a certain purchase price
as set forth in the Subscription Agreement;
(iv) the Principals were entitled to certain warrants as set forth
in the Subscription Agreement.
3. The parties hereto wish to effect certain amendments to the Subscription
Agreement and the Promissory Note which amendments shall be effective as if made
on the date of execution of the Subscription Agreement by the parties and the
date of execution of the Promissory Note by the Borrower.
NOW THEREFORE in consideration of the premises and mutual agreements herein
contained and of other good and valuable consideration (the receipt and
sufficiency of which are acknowledged by each party) the parties agree with one
another as follows:
1. Confirmation:
1.1 The parties hereto confirm the truth and accuracy of the recitals set
forth herein.
2. Noteholder:
2.1 The Noteholder hereby confirms and agrees as follows:
(i) the Subscription Agreement shall be amended by deleting
therefrom any and all references to the entitlement to the
Noteholder of warrants of Hot Caller, as more specifically set
forth in Schedule "A" of the Subscription Agreement;
2
<PAGE>
(ii) the Noteholder shall not be entitled to receive warrants
and/or on subscription thereof, any common stock of Hot
Caller;
(iii) the Noteholder agrees to the amendments set forth in this
Agreement with respect to the Promissory Note and in
particular the conversion rights of the Noteholder and the
entitlements to common stock of the Borrower in the event of
conversion.
2.2 The Noteholder has had the benefit of independent legal representation
and enters into this Agreement freely, voluntarily and without any
duress or undue influence.
2.3 The Noteholder hereby nominates, constitutes and appoints the President
of the Borrower to execute any and all documents and do any and all
things necessary for and on behalf of the Noteholder to give effect to
the provisions of this Agreement.
2.4 The Noteholder upon execution of this Agreement hereby surrenders the
Promissory Note issued in consideration of the Borrower re-issuing a
Promissory Note incorporating the original loan and the amendments
herein.
3. Borrower/Hot Caller:
3.1 The Borrower and Hot Caller confirm and agree as follows:
(i) Hot Caller shall become a wholly owned subsidiary of the
Borrower and the Borrower shall own all of the common stock of
Hot Caller;
(ii) the Subscription Agreement shall be amended by deleting
therefrom any and all reference or entitlements to the
Noteholder of warrants to acquire common stock of Hot Caller
and in particular, Schedule "A" of the Subscription Agreement
shall be deleted in its entirety;
3
<PAGE>
(iii) the Subscription Agreement shall be read from the date of its
execution by the parties, as if no provision with respect to
Warrants of Hot Caller existed; and
(iv) the Promissory Note issued to the Noteholder by the Borrower
shall be amended by deleting therefrom the following
paragraph:
"2. CONVERSION. The outstanding principal amount of this Note and all
interest and other charges accrued hereunder may, at any time or from time to
time, be converted at the option of the Noteholder into fully paid,
nonassessable shares of Common Stock of the Borrower, $.001 par value per share
(the "Conversion Shares"), at price of Eighty Cents (US$0.80) per share (the
"Conversion Price"). If at the time of a conversion the Conversion Shares
issuable have not been registered under the U.S. Securities Act of 1933 as
amended ("Act"), the Conversion Shares issued shall be deemed restricted
securities and may not be resold or transferred except in accordance with the
provisions of Regulation S under the Act, upon registration under the Act, or
pursuant to an exemption from registration under the Act and in such event the
certificate(s) evidencing such Conversion Shares shall bear a customary form of
investment legend restricting transfer of the shares. Conversion shall be deemed
to occur on the date this Note is presented to the Company's Secretary with the
conversion form on the reverse side properly completed and signed. Upon any
conversion duly made of less than all sums owed under this Note, Borrower shall
execute a new Note of like tenor for the balance of the principal amount of this
Note and accrued interest and charges not converted and shall deliver such new
Note to Noteholder. Borrower shall bear all expenses and charges of issuing and
delivering the Conversion Shares."
And the paragraph so deleted shall be replaced with the following
provision which shall be incorporated into the Promissory Note and shall be
effective the date of issuance of the Promissory Note by the Borrower, and
being:
"2. CONVERSION. The outstanding principal amount of this Note and all
interest and other charges accrued hereunder may, at any time or from time to
time, be converted at the option of the Noteholder and/or the Borrower, into
fully paid, nonassessable shares of Common Stock of the Borrower, $.001 par
value per share (the "Conversion Shares"), at price of Forty Cents (US$0.40) per
share (the "Conversion Price"). If at the time of a conversion the Conversion
Shares issuable have not been registered under the U.S. Securities Act of 1933
as amended ("Act"), the Conversion
Shares issued shall be deemed restricted securities and may not be resold or
transferred except in accordance with the provisions of Regulation S under the
Act, upon registration under the Act, or pursuant to an exemption from
registration under the Act and in such event the certificate(s) evidencing such
Conversion Shares shall bear a customary form of investment legend restricting
transfer of the shares. Conversion shall be deemed to occur
4
<PAGE>
on the date this Note is presented to the Company's Secretary with the
conversion form on the reverse side properly completed and signed. Upon any
conversion duly made of less than all sums owed under this Note, Borrower shall
execute a new Note of like tenor for the balance of the principal amount of this
Note and accrued interest and charges not converted and shall deliver such new
Note to Noteholder. Borrower shall bear all expenses and charges of issuing and
delivering the Conversion Shares."
3.2 The Borrower hereby undertakes to re-issue a Promissory Note incorporating
the terms of the original loan as amended by this Agreement.
4. Principals
4.1 The parties hereto acknowledge that the Principals have the option to
acquire common shares of Hot Caller pursuant to the terms of the Subscription
Agreement. The principals hereby release any and all rights, claims or
entitlements to any compensation from, or common stock of Hot Caller.
5. Further Assurances
5.1 Each party agrees that upon the written request of any other party, it will
do all such acts and execute all such further documents, conveyances, deeds,
transfers and the like and will cause the doing of all such acts and will cause
the execution of all such further documents as are within its power to cause the
doing or execution of, as the other party may from time to time reasonably
request to be done, and/or executed as may be required to consummate the
transaction contemplated under this Agreement or as may be necessary or
desirable toe effect the purpose of this Agreement or any document, agreement or
instrument delivered under this Agreement and to carry out their provisions or
to better or more properly or fully evidence or give effect to the transaction
contemplated under this Agreement.
6. Assignment/Successos and Assigns
6.1 Neither this Agreement nor any rights or obligations under this agreement
shall be assignable by any party without the prior written consent of the other
parties. Subject to that condition, this Agreement shall enure to the benefit of
and be binding upon the parties and their respective heirs, executors,
administrators, successors and permitted assigns.
7. Applicable Law
7.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable in the
Province of Ontario and as well in accordance with the laws of the United States
of America as the case may be.
5
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed the within
Agreement this day of , 1999.
) INNOFONE.com INCORPORATED
) Per: ________________________
) Larry Hunt, A.S.O.
)
) HOT CALLER.COM INC.
) Per: ________________________
) Larry Hunt, A.S.O.
)
- ------------------------------------ ) ------------------------------
as to the signature of ) Noteholder
)
- ------------------------------------ ) ------------------------------
as to the signature of Larry Hunt ) LARRY HUNT
)
- ------------------------------------ ) ------------------------------
as to the signature of Rick Quinney ) RICK QUINNEY
)
- ------------------------------------ ) ------------------------------
as to the signature of Ron Crowe ) RON CROWE
InnfHotCallerAmenAgr:mydocagr:jla
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<PAGE>
Exhibit 21.01
Exhibit 21.01 Subsidiaries of the Registrant.
APC Telecom Inc., a federally chartered, Canadian corporation
