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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
Xecom Corp.
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(Name of Small Business Issuer in Its Charter)
Nevada 33-0664567
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
069-730 Highway 111, Suite 101, Rancho Mirage, CA 92270
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(Address of Principal Executive Offices) (ZIP Code)
(619) 202-1555
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(Issuer's Telephone Number, Including Area Code)
Securities to be Registered under Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be Registered under Section 12(g) of the Act:
Common Stock
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10SB-1
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ITEM 1 - DESCRIPTION OF BUSINESS
Xecom Corp. (the "Company") was formed as a Nevada corporation
on May 2, 1985, under the name Montego Corporation for the purpose of conducting
a public stock offering and making business acquisitions without regard to any
specific business or industry.
On November 26, 1985, the Company closed the public sale of 18,571,666
shares of its $.001 par value Common Stock ("Common Stock") at the price of $.01
per share resulting in total proceeds of $185,717. After deducting underwriting
commissions and offering expenses, the Company received net proceeds of
approximately $140,000. The offering was registered with the U.S. Securities and
Exchange Commission ("Commission") on Form S-18 filed in the Denver, Colorado
Regional Office of the Commission.
On March 23, 1986, the Company acquired all of the issued and
outstanding shares of Common Stock of Calkins Equipment Company, Inc. ("CEC").
The Company issued 23,925,000 shares of restricted Common Stock as part of the
acquisition. In addition, the acquisition agreement provided for the subsequent
issuance of 12,000,000 shares of the Company's Common Stock after a 1 for 25
reverse stock split, name change and ratification of the transaction by the
shareholders of the Company. At the time of the acquisition of CEC by the
Company, its entire Board of Directors and all officers were replaced with those
persons serving as management of CEC, and the Company's offices were relocated
to Everett, Washington.
At a shareholders' meeting held May 12, 1986, the Company's
shareholders approved a corporation name change from Montego Corporation to
Calkins Industries, Incorporated ("CII"), the election of a new Board of
Directors, ratification of the transactions, and a 1 for 25 reverse stock split.
On December 12, 1990, at a Special Meeting of the Board of Directors, a
one for two reverse stock split was approved, as well as the issuance of an
additional 10,000,000 shares of restricted Company Stock to Richard Calkins to
satisfy a debt owed to Mr. Calkins by the Company.
At a Special Meeting of the Stockholders held on November 30, 1993, the
stockholders of the Company approved the acquisition of all of the issued and
outstanding stock of Compliance Signage of Washington, Inc. ("Compliance
Signage") in exchange for 154,005 shares of the Company's restricted Common
Stock. Compliance Signage was formed on July 28, 1993, for the purpose of
manufacturing and marketing signs in accordance with the guidelines of the
Americans with Disabilities Act. In addition, the
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stockholders approved 1 for 10 reverse stock split, and the change of the
Company name to Compliance Industries, Inc. ("Compliance").
On March 29, 1995, a majority of the stockholders of the Company,
specifically, Pakie Plastino ("Plastino") and Peter Wardle ("Wardle"), consented
to take certain corporate action without a meeting. The following corporate
action was approved: the election of Peter H. Wardle ("Wardle"), Clifford Casey,
Esq. and Dean Kalivas, as Directors, and the recommendation that Wardle and
Curtis M. Brennan ("Brennan") be nominated and elected as President and
Secretary/Treasurer, respectively; the change of the name of the Company to
Vintage Properties, Inc.; a 1 for 100 reverse split of the Company's Common
Stock, effective April 3, 1995; an increase in the total authorized Common Stock
of the Company to 50,000,000 shares, effective April l3, 1995; and the
disposition of the assets of Compliance Signage. Also, on March 29, 1995, the
Board of Directors of the Company elected Wardle as President and Brennan as
Secretary/Treasurer.
Subsequent to March 29, 1995, Plastino and Wardle sold their majority
stock ownership to MH&E, Inc., a Nevada corporation.
On September 8, 1995, in exchange for 1,000,000 shares of the Company's
restricted Common Stock, 1,000,000 shares of the Company's "to be issued" Series
"B" 10% Non-Voting cumulative convertible Preferred Stock ("Series "B" Preferred
Stock"; a $1,500,000 9% Demand Promissory Note which has been converted into
1,200,000 shares of 11% Series "A" and 700,000 shares of Series "B" Non-Voting
Preferred Stock; the Company acquired from Indian Wells Investment Company, a
Nevada corporation, ("IWIC") 70% of the issued and outstanding shares of the
Common Stock of SelecTel Corporation, a California corporation ("SelecTel"),
which corporation was organized on June 8, 1988, to engage in the business
telecommunication facilities management.
On October 23, 1995, at the Annual Meeting of Stockholders of the
Company, the stockholders elected Clifford Casey, Esq., James W. Truher
("Truher"), William F. Davis, Paul W. Andre, Dal N.R. Grauer, Billy Oliver and
Edgar Gentle as Directors of the Company. In addition, the stockholders approved
the acquisition of SelecTel and the issuance of 1,000,000 shares of restricted
Common Stock and 1,000,000 shares of Series "B" Non-Voting Preferred Stock on a
"to be issued" basis, as consideration therefor; the change of the name of the
Company from Compliance to Xecom Corp.; an increase of the authorized Common
Stock to 100,000,000 shares and, in that connection, the change of the par value
of the Common Stock to $.0001; the authorization of 50,000,000 shares of
Preferred Stock, $.0001 par value. Messrs. Oliver and Gentle have not accepted
their election as Directors.
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On December 19, 1995, the Company acquired all of the outstanding
Common Stock of Select Switch Systems, Inc. ("Select Switch") pursuant to a
Share Exchange Agreement whereby 940,000 shares of the Company's restricted
Common Stock were issued to the exchanging Select Switch stockholders.
On February 26, 1996, Allan King was elected a Director and Joseph C.
Vigliarolo ("Vigliarolo") was elected a director and Chief Financial Officer of
the Company. On May 1, 1996, Truher resigned as a Director and as President of
the Company, Vigliarolo was elected as President, in addition to his office as
Chief Financial Officer.
The Company provides facility management services, long distance, data,
network services, facsimile and related telecommunications-based equipment,
products and services on an integrated basis through its subsidiaries, SelectTel
(Costa Mesa, California) and Select Switch (Dallas, Texas). The Company is
uniquely positioned to be a single-source provider - the "one stop shop" for a
commercial user's entire range of telecommunications equipment and service
requirements.
SELECTEL CORPORATION
SelecTel Corporation is a provider of telecommunications facility
management and long distance, data and network services. The California-based
company has clients in 35 states and 17 foreign countries.
The major telecommunications carriers, including AT&T, MCI and Sprint,
have invested and continue to invest, billions of dollars to develop the most
advanced telecommunications networks in the world. Network capacity in the
United States continues to grow rapidly. This has been accomplished by
cooperation in the development and use of industry standards, growth in fiber
optic transmission systems, deployment of large scale digital switching systems,
development of sophisticated network management techniques and the use of high
speed data control networks This cooperative effort, together with the active
government support, has laid the foundation for the National Information
Infrastructure (NII), popularly referred to as the "Information Superhighway".
In order for the "Superhighway" to become a reality, the industry must
continue to develop additional capacity. As this occurs, interactive voice,
video and data services will become more and more commonplace. Merging
telecommunications and computer technologies along with alliance of telephone,
cable TV, cellular and broadcast companies, to name a few, will also be
necessary to satisfy the marketplace.
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As competition increased in the telecommunications industry during the
past two decades, owners of telecommunications facilities had to assume the
responsibility of making management decisions relating to their network system
and services. In assuming management responsibility, these owners are placed in
a most difficult situation. Most often, they lack the expertise to properly
evaluate, manage and effectively use telecom facilities, particularly when faced
with complex, technical decisions involving a large variety of equipment and
service vendors.
SelecTel has solved the telecom problem with a unique approach to the
marketplace. While other industry participants focus on providing individual
products and services to the entire marketplace, SelecTel focuses on providing a
total spectrum of products and services. Utilizing this approach, SelecTel
developed a comprehensive management and services delivery program that provides
complete telecommunications services and products competitive for each element.
The ability to provide a complete package lies in the Company's
co-marketing partnership with AT&T. This relationship gives SelecTel access to
highly discounted tariffs and a complete range of telecommunications products.
Additionally, this relationship includes AT&T's full support of all program
components among SelecTel's clients.
The demand for SelecTel's services is relatively recession-proof.
During tight economic times, facility owners typically look for ways to minimize
costs and to spend their telecommunications dollars more effectively. SelecTel
markets this package of products and services.
SelecTel has formed a strategic alliance with AT&T by which it
integrates telecommunications to complex problems and provides facilities
management where needed for two market sectors: the military lodging sector and
medium to large users, that is, more than $5,000,000 per month. In the military
market, SelecTel teams with AT&T in providing on-base exchange telecommunication
service for military personnel. AT&T provides capital, products and
construction, while SelecTel provides planning, integration and facilities
management. SelecTel minimizes its risk by having first-call revenues produced
in the military market to cover its costs. All long-distance traffic is carried
under SelecTel's Tariff 15 contracts with AT&T. Furthermore, SelecTel provides
additional telecommunications services and expanded facilities management to the
Navy Lodge Program.
The following summarizes client service accomplishments:
SelecTel provides a total Facility Management Service for the
telecommunications at 44 Navy Hotels worldwide, in addition to the
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Navy's reservation center in New Jersey. With locations in major U.S. Cities and
8 foreign countries, SelecTel is positioned to become the premier hospitality
provider in the U.S. SelecTel's Facility Management Program with the Navy Lodges
includes a central reservation center in Jacksonville, Florida. All design,
implementation, billing and coordination are through SelecTel and with AT&T's
support.
SelecTel designed, implemented and provides telecommunications services
to the newly established U.S. Army Centralized Reservation Center located
Huntsville, Alabama. This center, operational in May, 1995, will ultimately
provide room reservation service to all Army personnel who are billeted at over
100 locations worldwide. It is expected that over 100 people will be employed at
the center and that large operational savings will be achieved by the Army.
SelecTel provides International Call-Back Services for Meik Co., Ltd.,
a major provider of international calling services originating in Japan Meik, in
conjunction with SelecTel, provides Debit Cards, Travel Cards and other calling
card services. This international partnership was formed in early 1995 and plans
are underway to expand services to Japanese communities in the United States.
The California Lodging Industry Association ("CLIA") has endorsed
SelecTel as the exclusive provider of telecommunications equipment and services
to all CLIA members. A comprehensive program of services for the hospitality
industry has been developed in conjunction with CLIA. These services include
voice, data, equipment and software offerings.
In partnership with AT&T, SelecTel has installed complete
telecommunications systems at Fort Campbell, Kentucky. This installation
includes a 10 year contract with the United States of America to provide
personal communications services to all barracks rooms at Fort Campbell. The
installation with over 25,000 military personnel is a part of the U.S. military
plans to upgrade the "quality of life" for military personnel living in on-base
facilities worldwide. SelecTel teamed with AT&T for this program, who has
invested over $5 million in equipment and facilities at Fort Campbell. Initial
service began on May 31, 1995.
SELECT SWITCH SYSTEMS, INC.
Select Switch provides a variety of telecommunications services to
college ("Collegiate Program") and university dormitories, and U.S. Military
installations.
Select Switch also offers a unique program to the owners of
multi-tenant developments, the capability of providing telecommunications
services to residents without capital
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investment. In addition, it creates an added source of revenue to the property
owner.
COLLEGIATE PROGRAM
Small colleges and universities (defined as less than 1,500 resident
students) have limited resources when it comes to providing advanced
telecommunications systems to dormitory residents. Due to these limits and lack
of experience in the installation and operation of such systems, Select Switch
is poised to render these services.
Where Select Switch provides services, a contractual agreement is
entered into with the school. Subject to specific provisions contained in
certain college and university contracts, the college grants Select Switch an
exclusive right to provide telecommunications services to the student
dormitories of the college or university. The term of the contract is generally
for ten years and may contain renewal options. Payment of a user fee for each
student or other person or entity with access to Select Switch's system is paid
by the college. Generally, fees range from $12.00 to $25.00 per student per
month and the school guarantees revenue equal to the monthly dial tone fees
generated by a dormitory occupancy of 85%. Select Switch has the right to
designate the exclusive long-distance provider for the users of Select Switch's
telecommunications system. Certain college and university contracts provide for
Select Switch to pay the school a commission on long-distance, which is
typically 5% of the total student long-distance billings.
Select Switch believes that this Collegiate Program distinguishes
itself from competing entities providing telecommunications services to college
and university dormitories by:
1. Installing state-of-the-art Fujitsu F9600 business
communications systems telecommunications equipment.
2. Arranging favorable long-term communications services
contracts which provide a source of revenue to colleges and
universities.
3. Providing Sprint Communications L.P. ("Sprint")
long-distance service through the Company's telecommunications
services agreement with Sprint.
4. Utilizing Sprint's billing systems and being paid
commissions on long-distance usage
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without bearing the risk of bad debts or fraud.
5. Securing 100% lease financing from Fujitsu for all
installation costs and equipment installed.
6. Utilizing Sprint's Collegiate Division national
account managers to identify colleges and universities that
could benefit from the Company's telecommunications services.
7. Offering lower rates than the local public utility
providers for local and long-distance telephone service in
addition to providing superior customer service.
MILITARY PROGRAM
The Army and Air Force Exchange Service ("AAFES") has established a
ten-year exclusive contract to provide telecommunications services at various
Army and Air Force installations throughout the United States. Sprint was
selected to be the exclusive provider of telecommunications services to AAFES.
Select Switch was chosen by Sprint as its subcontractor to install and maintain
telephone switching equipment and voice mail systems. Where necessary cabling
and cable television infrastructure is included at AAFES installations.
Prior to the establishment of the AAFES contract, telecommunications
services, if any, were provided to Army and Air Force installation residents
through a regional operating company. AAFES did not earn revenue from the sale
of telecommunications services. Under the current AAFES contract, AAFES earns
36.39% commission on all dial-tone, installation, voice mail revenue, and
long-distance revenue. In addition, the telecommunications services provided by
Select Switch and Sprint offer greater convenience and customer service to
residents, through an on-site representative, and lower rates than those offered
by the local exchange carrier. The multi-tenant buildings covered by the AAFES
contract typically resemble dormitories or apartment complexes and house one to
three people per room. The residents of the multi-tenant buildings are typically
noncommissioned and junior officer level and reside at a particular installation
an average of nine months.
Initially, Select Switch and Sprint will provide telecommunications
services to 30 Army bases. In addition, AAFES plan to add additional Army and
Air Force installations as they become available through contract expirations or
as they become interested in providing this service. As installations are
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added, each location will be reviewed to determine the fee structure and length
of contract.
At each military site, the Select Switch will install, maintain and
operate a turnkey residential barracks telephone service. This will include
enhanced services such as call forwarding, call conferencing, redial, speed
dialing and wake-up service.
Select Switch will have completed installation of its systems at 16
military bases by May 31, 1996. Another fourteen base systems will be added by
August, 1996, bringing the total to 30 military bases with Xecom's full telecom
service operations in place. These bases average more than two thousand military
personnel per location.
COMPETITION
The telecommunications service business is highly competitive. In some
aspects of the business, there are no substantial barriers to entry, and the
Company expects that competition will intensify in the future. The Company
believes that the primary competitive factors for the provision of
telecommunications services are price, technical expertise and quality of
services, ease of use, variety of value-added services, reliability and security
for its network infrastructure, customer support, experience of the sup-plier,
geographic coverage and general economic trends. The Company's success in this
market will depend heavily upon its ability to provide high quality services and
value-added services. Other factors that will affect the Company's success in
this market include the Company's continued ability to attract additional
experienced marketing, sales and management talent, and the expansion of
worldwide support, training and field service capabilities.
The Company's current and prospective competitors generally may be
divided into the following three groups: (1) other value added service providers
and resells; (2) telecommunications companies such as AT&T, MCI, Sprint, and
various cable companies; and (3) imminent competition from the former AT&T
telephone subsidiaries (Bell Operating Companies). Many of these competitors
have greater market presence, engineering, customer support and marketing
capabilities, and financial, technological and personnel resources than those
available to the Company. As a result, they may be able to develop and expand
their communications and network infrastructures more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other
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opportunities more readily, and devote greater rescues to the marketing and sale
of their products than can the Company. The Company believes that additional new
competitors, which may include computer software and services, telephone, media,
publishing, cable television and other companies, also are likely to enter the
telecommunications services market.
Many of the Company's competitors possess financial resources
significantly greater than those of the Company and, accordingly, could initiate
and support prolonged price competition to gain market share. For example, the
communications carriers could significantly undercut the Company's pricing for
dialup and other services due to their existing investment in telecommunications
infrastructure. If significant price competition ere to develop, the Company
likely would be forced to lower its prices, possibly for a protracted period,
which would have a materially adverse effect on its financial donation and
results of operations and could threaten its financial viability. In addition,
the Company believes that the telecommunications, Internet access and on-line
services businesses are likely to encounter consolidation in the near future,
which could result in increased price and other competition in the industry and,
consequently, have an adverse impact on the Company's business, financial
position and results of operations.
GOVERNMENT REGULATORY POLICY
Data network access providers are generally not regulated under the
laws and regulations governing the telecommunications industry. Accordingly,
except for regulations governing the ability of the Company to disclose the
contents of communications by its customers, there are no government imposed
limitations or guidelines pertaining to customer privacy or the pricing, service
characteristics or capabilities, geographic distribution or quality control
features of Internet access services. There exists, however, the risk that a
U.S. governmental policy for the data network access industry could be
implemented by executive order, legislation or administrative order. If such a
policy is adopted, it could have a material adverse effect on the Company. The
Company cannot predict the impact, if any, that future regulation or regulatory
changes may have on its Internet access business. The Telecommunications Act of
1996 (the "1996 Telecommunications Act"), which became effective February 8,
1996, imposes criminal liability on persons sending or displaying in a manner
available to minors indecent material on an interactive computer service such as
the Internet. The 1996 Telecommunications Act also imposes criminal liability on
an entity knowingly permitting facilities under its control to be used for such
activities. Entities solely providing access to facilities not under their
control (including transmission,
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downloading, intermediate storage, access software and other incidental
capabilities) are exempted from liability, as are service providers that take
good faith, reasonable, effective and appropriate actions to restrict access by
minors to the prohibited communications. The constitutionality of these
provisions is being challenged in federal court, and the interpretation and
enforcement of them are uncertain. This legislation may decrease demand for
Internet access, chill the development of Internet content, or have other
adverse effects on Internet access providers such as the Company. In addition,
in light of the uncertainty attached to interpretation and application of this
law, there can be no assurance that the Company would not have to modify its
operations to comply with the statute, including prohibiting users from
maintaining home pages on the World Wide Web.
In January, 1995, the U.S. Federal Communications Commission (the
"FCC") ruled that telephone companies must charge a separate subscriber line
charge for each derived channel available in an ISDN bundle. An ISDN bundle
generally provides from three to 24 channels. This ruling may result in
increased costs being imposed on the Company and, consequently, could adversely
affect the Company's business, financial condition and results of operations.
The 1996 Telecommunications Act substantially alters the regulatory
framework for the telecommunications industry for domestic and U.S.
international telecommunications services. Although the Company is unable to
predict the ultimate effects of this legislation or any rulemakings the FCC is
required to undertake pursuant to the 1996 Telecommunications Act, the Company
does not believe that this legislation imposes substantial regulatory burdens on
the Company's Internet access operations. However, depending on the outcome of
FCC rulemakings required by the 1996 Telecommunications Act, the Company could
be subjected to additional regulatory requirements. In addition, the legislation
could result in increased competition and affect interconnections and costs. In
the event the Company's current long-distance service provider is not able to
provide the services it is presently providing or intends to provide, or use its
existing or contemplated transmission methods due to it inability to receive or
retain formal or informal approvals for such services or transmission methods,
or for whatever other reason related to regulatory compliance or the lack
thereof, the Company's business could be materially adversely affected. (See
"Business of the Company").
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion should be read in conjunction with the information contained in
the financial statements of the Company and notes thereto appearing elsewhere
herein.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994.
The following discussion of the Company's financial condition as of December 31,
1995 and results of operations for the years ended December 31, 1995 and 1994
should be read in conjunction with the consolidated financial statements and
notes appearing elsewhere in this registration statement.
The Company has limited operating history in its present business. The Company
conducted substantially no business prior to September 1995.
On September 8, 1995 the Company exchanged shares of restricted common stock and
"to be issued" preferred stock of the Company for 70% of the outstanding common
stock of SelecTel Corporation. For financial statement purposes the transaction
has been recorded under the Purchase Method, per Accounting Principal Board
Opinion 16. (ABP 16), "Accounting for Business Combinations", and as a reverse
capitalization of the Company due to the fact that SelecTel Corporation provides
substantially all of the historic and ongoing operations.
On December 12, 1995 the Company exchanged the restricted common stock of the
Company for 100% of the outstanding common stock of Select Switch Systems, Inc.
For financial statement purposes the transaction has been recorded under the
"Pooling of Interest" Method per APB 16.
The December 31, 1995 balance sheet and statement of operations and cash flows
for the period ending December 31, 1995 and 1994, reflect the consolidation of
the subsidiaries.
BUSINESS STRUCTURE
The Company provides facility management services on an integrated basis to
institutional telephone users in the US Military, hotel, hospital, college and
university, and other major markets. Services include installation and
maintenance of related telecommunications - based equipment, and products and
services such as long distance, data network and facsimile services.
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In September 1995, the Company acquired 70% of SelectTel Corporation through the
issuance of 1,000,000 shares of restricted common stock 1,000,000 shares of the
Company's "to be issued" 10% Series B, preferred stock and an $1,500,000, 9%
demand promissory note convertible into 1,200,000 shares of 11% Series A, and
700,000 shares of Series B preferred stock at the note holder's option. As of
December 31, 1995, the demand note conversion option had been exercised.
SelecTel was established in 1988 and has clients in 35 states, and 17
international countries. SelecTel is a nationwide telecommunication facility
management and integrated AT&T data and long distance service provider. As a
value added AT&T network services provider, the company provides a single source
service for the provisioning and management of a client's telecommunications
services and equipment.
In December 1995, the Company acquired 100% of the outstanding capital stock of
Select Switch Systems, Inc., in exchange for 940,000 shares of restricted common
stock.
Select Switch Systems Inc., provides a variety of telecommunications systems and
services to colleges and university dormitories and United States Army
Installations.
Since its inception in 1990, Select Switch has primarily concentrated on
developing the small college and university segment of residential multi-tenant
development market. At small colleges and universities, the Company contracts
with the school for the exclusive right to provide local dial tone and long
distance service at the school's dormitories for a ten year period. In addition,
if requested, the Company will install cabling to provide data transmission and
cable television to tenants.
Recently, Select Switch was awarded a ten-year exclusive contract by the Army
and Air Force Exchange Services ("AFFES"), through the prime contractor, Sprint
Communications Company L.P. ("Sprint"), to install, maintain and operate a
turnkey residential barracks telephone service, including wiring for cable
television, at 30 Army installations throughout the United States. These bases
comprise over 80,000 residents. In addition, the opportunity exists for the
subcontract to be expanded to cover an additional 40 Army and Air Force
installations totaling approximately 160,000 residents.
The Company is responsible for all costs and expenses associated with operating
and maintaining the telecommunications equipment installed at the school and
Army Bases. The telecommunications equipment remains the property of the
Company.
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RESULTS OF OPERATIONS
For the year ended December 31, 1995, the Company had a loss from operations of
$1,490,620 and a net loss of $1,690,793 [$0.45 per share] as compared to a loss
from operations of $259,661 and a net loss of $416,258 [$1,190 per share] for
the year ended December 31, 1994. The increase in the loss was primarily the
result of a decrease in the gross margins by 20% and an increase in operating
expenses of 58%.
The change in the elements of revenues and expenses in 1995 as compared to 1994
reflect the company's expansion into installing and maintaining telephone
switching equipment and voice mail systems including cabling at the colleges and
universities and Army and Air Force installations throughout the United States.
For the twelve months ended December 31, 1995, the Company's gross profit was
$1,081,066 or 17%, as compared to $1,363,980 or 23% in 1994. The Company
anticipates that the gross margin in 1996 will increase as the Company signs up
subscribers and provides enhanced services in the collegiate and Army-Air Force
programs.
Selling, general and administrative expenses for 1995 amounted to $2,244,831, or
36% of net sales, as compared to $1,510,436 or 26% of net sales in 1994.
General and administrative expenses in 1995 included compensation and related
payroll taxes of approximately $860,000 professional fees of $540,000, travel
and related costs of $200,000 and rent, insurance and related office expenses of
$585,000. For the 1994 twelve month period, operating expenses consisted of
compensation and related expenses of approximately $675,000, travel and related
costs $130,000, professional fees of $200,000, rent insurance and related office
expenses of $505,436.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company utilized $909,120 in operating
activities, utilized $1,580,893 investing activities and generated $2,316,870 in
financing activities. This represents a decrease of $173,143 in cash since
December 31, 1994. The funds utilized in operating activities were attributable
primarily to the $1,690,793 net loss for the period.
In September 1995 the Company acquired 70% of SelecTel Corporation through the
issuance of 1,000,000 shares of restricted common stock 1,000,000 shares of 10%
Series "B" preferred stock and a $1,500,000, 9% demand promissory note
convertible into 1,200,000 shares of 11% Series "A" and $700,000 shares of
Series B preferred stock at the note holder's option.
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As of December 31, 1995 the demand note conversion option had been exercised.
In December 1995, the Company acquired 100% of the outstanding capital stock of
Select Switch Systems Inc., in exchange for 940,000 shares of restricted common
stock.
The utilization of funds from investing activities was primarily attributable to
the purchase of telephone switching and cabling equipment and installation costs
associated with the college and university and Army base installations.
The Company generated $2,316,870 from financing activities during 1995. This was
attributable primarily to the proceeds from the issuance of preferred and common
stock which totalled $1,017,000 and $250,000, respectively, and proceeds of
$930,200 from related party debt.
For the year ended December 1994, the Company utilized $515,178 in operating
activities and $416,030 from investing activities and generated $1,188,151 from
financing activities. The utilization in operating activities was primarily
attributable to the net loss of $416,258. The utilization of funds from
investing activities was attributable to the purchase and installation costs of
telephone switching and cabling, associated with the college and university
program. The Company received proceeds of $405,279 from related party debt,
proceeds of $408,229 from the sale of a partnership interest and contributed
capital of $638,000.
The Company incurred net losses for the years ended December 1995 and 1994 and
has a negative working capital of $3,035,700. The Company's viable plans to meet
its obligations on the 10 year exclusive AAFES Project and fund future
operations and to increase its customer base is highly dependant on successfully
receiving net proceeds of approximately $6,475,000 from the proposed private
offering of the Company's preferred stock (private offering).
Where the Company provides long term telecommunication services to the colleges
and universities and to AAFES , the Company installs state of the art Fujitsu
Business Communications Systems Inc., telecommunications equipment. The Company
has available from 75% up to 100% lease financing from Fujitsu, through the CIT
Group for all installation costs and equipment installed at the colleges and
universities and AAFES installations.
In addition, the Company intends to pursue outside financing as a vehicle to
meet its working capital requirements. Although this pursuit may include loan
negotiations with lending institutions, the Company has not established any
sources of
14
<PAGE> 16
working capital financing. Where Fujitsu does not provide lease financing, the
Company must fund the project through revenues generated from operations, other
outside financing or proceeds from private equity or debt security offerings.
The Company's cash requirements have been, and will continue to be, significant.
The Company anticipates, that the proceeds from the proposed private offering,
combined with revenues generated from operations, will be sufficient to satisfy
its anticipated cash requirements for approximately 12 months. In the event that
these plans change or costs of operations prove greater than anticipated, the
Company could be required to modify its operations or seek additional financing
sooner than anticipated. However, there can be no assurance that additional
financing will be available to the Company. The Company generated proceeds of
$1,267,000 through the issuance of restricted preferred and common stock. Where
possible, the Company may issue restricted the Company securities in
consideration for services or debt. As of December 31, 1995, a $1,500,000 demand
promissory note was converted into 1,200,000 shares of Series "A" 11% preferred
stock, and 700,000 Shares of Series "B" 10% preferred stock. In lieu of monthly
payments totalling $1,620,000, the Company issued 1,620,000 shares or Series "B"
preferred stock to an investment banking company for services to be rendered
pursuant to a 3 year contract.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse effect on
revenues or income during that past periods.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. (CONTINUED)
Three Months ended March 31, 1996, compared with the three months ended March
31, 1995.
The following discussion of the Company's financial condition as of March 31,
1996 and results of operations for the three months ended March 31, 1996 and
1995, should be read in conjunction with the consolidated financial statements
and notes appearing elsewhere in this 10-QSB.
The Company has limited operating history in its present business. The Company
conducted substantially no business prior to September, 1995.
On September 8, 1995, the Company exchanged shares of restricted common stock
and "to be issued" preferred stock of the Company for 70% of the outstanding
common stock of SelecTel Corporation. For financial statement purposes, the
transaction has been recorded under the Purchase Method, per Accounting
Principal
15
<PAGE> 17
Board Opinion 16. (ABP 16), "Accounting for Business Combinations", and as a
reverse capitalization of the Company due to the fact that SelecTel Corporation
provides substantially all of the historic and ongoing operations.
On December 12, 1995, the Company exchanged the restricted common stock of the
Company for 100% of the outstanding common stock of Select Switch Systems, Inc.
For financial statement purposes, the transaction has been recorded under the
"Pooling of Interest" Method per APB 16.
The March 31, 1996 balance sheet and statement of operations and cash flows for
the period ending March 31, 1996 and 1995, reflect the consolidation of the
subsidiaries.
BUSINESS STRUCTURE
The Company provides facility management services on an integrated basis to
institutional telephone users in the U.S. Military, hotel, hospital, college and
university, and other major markets. Services include installation and
maintenance of related telecommunications - based equipment, and products and
services such as long distance, data network and facsimile services.
In September, 1995, the Company acquired 70% of SelecTel Corporation through the
issuance of 1,000,000 shares of restricted common stock, 1,000,000 shares of the
Company's "to be issued" 10% Series B, preferred stock and an $1,500,000, 9%
demand promissory note convertible into 1,200,000 shares of 11% Series A, and
700,000 shares of Series B preferred stock at the note holder's option. As of
December 31, 1995, the demand note conversion option had been exercised.
SelecTel Corporation was established in 1988, and has clients in 35 states, and
17 international countries. SelecTel is a nationwide telecommunication facility
management and integrated AT&T data and long distance service provider. As a
value added AT&T network services provider, the company provides a single source
service for the provisioning and management of a client's telecommunications
services and equipment.
In December, 1995, the Company acquired 100% of the outstanding capital stock of
Select Switch Systems, Inc., in exchange for 940,000 shares of restricted common
stock.
Select Switch Systems, Inc. provides a variety of telecommunications systems and
services to colleges and university dormitories and United States Army
installations.
16
<PAGE> 18
Since its inception in 1990, Select Switch Systems, Inc. has primarily
concentrated on developing the small college and university segment of
residential multi-tenant development market. At small colleges and universities,
the Company contracts with the school for the exclusive right to provide local
dial tone and long distance service at the school's dormitories for a ten year
period. In addition, if requested, the Company will install cabling to provide
data transmission and cable television to tenants.
Recently, Select Switch was awarded a ten-year exclusive contract by the Army
and Air Force Exchange Services ("AFFES"), through the prime contractor, Sprint
Communications Company L.P. ("Sprint"), to install, maintain and operate a
turnkey residential barracks telephone service, including, if requested, wiring
for cable television, at 30 Army installations throughout the United States.
These bases comprise over 80,000 residents. In addition, the opportunity exists
for the subcontract to be expanded to cover an additional 40 Army and Air Force
installations totalling approximately 160,000 residents.
The Company is responsible for all costs and expenses associated with operating
and maintaining the telecommunications equipment installed at the school and
Army Bases. The telecommunications equipment remains the property of the
Company.
RESULTS OF OPERATION
For the three months ended March 31, 1996, the Company had a loss from
operations of $537,187 and a net loss of $619,386 ($0.08 per share) as compared
to a loss from operations of $30,303 and a net loss of $87,174 ($249 per share)
for the same period in 1995.
The change in the elements of revenues and expenses in 1996 as compared to 1995
reflect the Company's expansion into installing and maintaining telephone
switching equipment and voice mail systems, including cabling at the colleges
and universities and Army and Air Force installations throughout the United
States.
For the three months ended March 31, 1996, the Company's gross profit was
$282,084 or 19%, as compared to $448,718 or 30% in 1995. The Company anticipates
that the gross margin in 1996 will increase as the Company signs up subscribers
and provides enhanced services in the collegiate and Army-Air Force programs.
Selling, general and administrative expenses for 1996 amounted to $665,799, or
46% of net sales, as compared to $427,069, or 28% of net sales in 1995.
General and administrative expenses in 1996 included compensation and related
payroll taxes of approximately $361,555 professional
17
<PAGE> 19
fees of $152,066 and rent, insurance and related office expenses of $152,178.
For the 1995 three month period, operating expenses consisted of compensation
and related expenses of ap proximately $204,929, travel and related costs
$34,100, professional fees of $42,282, rent, insurance and related office
expenses of $145,758.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1996, the Company utilized $887,889 in
operating activities, utilized $101,327 investing activities and generated
$970,994 in financing activities. This represents a decrease of $18,222 in cash
since December 31, 1995. The funds utilized in operating activities were
attributable primarily to the $619,386 net loss for the period.
In September, 1995, the Company acquired 70% of SelecTel Corporation through the
issuance of 1,000,000 shares of restricted common stock, 1,000,000 shares of 10%
Series B preferred stock and a $1,500,000, 9% demand promissory note convertible
into 1,200,000 shares of 11% Series A and 700,000 shares of Series B preferred
stock at the note holder's option. As of December 31, 1995, the demand note
conversion option had been exercised.
In December, 1995, the Company acquired 100% of the outstanding capital stock of
Select Switch Systems, Inc., in exchange for 940,000 shares of restricted common
stock.
The utilization of funds from investing activities was primarily attributable to
the purchase of telephone switching and cabling equipment and installation costs
associated with the college and university and Army base installations.
The Company generated $970,994 from financing activities during 1996. This was
attributable primarily to the proceeds from the issuance of preferred and common
stock which totalled $419,000 and $382,480, respectively, and proceeds of
$255,000 from related party debt.
For the three months ended March 31, 1995, the Company utilized $184,386 in
operating activities and $117,978 from investing activities and generated
$21,025 from financing activities. The utilization in operating activities was
primarily attributable to the net loss of $87,174. The utilization of funds from
investing activities was attributable to the purchase and installation costs of
telephone switching and cabling, associated with the college and university
program. The Company received proceeds of $60,000 from related party debt and
contributed capital of $125,000.
18
<PAGE> 20
The Company incurred net losses for the years ended December, 1995 and 1994 and
has a negative working capital of $6,899,957. The Company's viable plans to meet
its obligations on the 10 year exclusive AAFES Project and fund future
operations and to increase its customer base is highly dependent upon
successfully receiving net proceeds of approximately $6,475,000 from the
proposed private offering of the Company's preferred stock (private offering).
Where the Company provides long term telecommunication services to the colleges
and universities and to AAFES, the Company installs state of the art Fujitsu
Business Communications Systems, Inc. telecommunications equipment. The Company
has available from 75% up to 100% lease financing from Fujitsu, through the CIT
Group for all installation costs and equipment at the colleges and universities
and AAFES installations.
In addition, the Company intends to pursue outside financing as a vehicle to
meet its working capital requirements. Although this pursuit may include loan
negotiations with lending institutions, the Company has not established any
sources of working capital financing. Where Fijitsu does not provide lease
financing, the Company must fund the project through revenues generated from
operations, other outside financing or proceeds from private equity or debt
security offerings. The Company's cash requirements have been, and will continue
to be, significant. The Company anticipates that the proceeds from the proposed
private offering, combined with revenues generated from operations, will be
sufficient to satisfy its anticipated cash requirements for approximately 12
months. In the event that these plans change or costs of operations prove
greater than anticipated, the Company could be required to modify its operations
or seek additional financing sooner than anticipated. However, there can be no
assurance that additional financing will be available to the Company. The
Company generated proceeds of $801,480 through the issuance of restricted
preferred and common stock. Where possible, the Company may issue the Company's
restricted securities in consideration for services or debt. As of December 31,
1995, a $1,500,000 demand promissory note was converted into 1,200,000 shares of
Series "A" 11% preferred stock, and 700,000 shares of Series "B" 10% preferred
stock. In lieu of monthly payments totalling $1,620,000, the Company issued
1,620,000 shares of Series "B" preferred stock to an investment banking company
for services to be rendered pursuant to a contract.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material adverse effect on
revenues or income during that past periods.
19
<PAGE> 21
ITEM 3 - DESCRIPTION OF PROPERTY
DESCRIPTION OF PROPERTY
The Company currently leases office space in Las Vegas,
Nevada, consisting of approximately 1,200 square feet of office space.
The current lease expires April 15, 1997, and requires monthly payments
of approximately $1,800.00.
The Company's subsidiary, SelecTel, currently leases 6,990
square feet of office space in Costa Mesa, California, at the monthly
rental of $9,600. The Company looks to purchase a new facility by
January, 1997, and to open and to commence operations at such facility
in the summer of 1997.
The Company's subsidiary, Select Switch, leases 8,222 square
feet of office space in Dallas, Texas. The current lease expires in
June, 2000. The following monthly rental payments are applicable
through the term of the lease: March, 1996 through June, 1996 -
$9,871.56; July, 1996 through June, 1998 - $10,362.40; and, July, 1998
through June, 2000 - $11,047.56.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
Common Stock ownership as for April 26, 1996, of all Officers and Directors and
each person who is known to the Company to be the beneficial owner of more than
five percent of the Company's Common Stock: The Company had 8,264,892 common
shares outstanding on April 26, 1996.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF PREFERRED STOCK
---------------------- -------------------------
AMOUNT APPROXIMATE AMOUNT APPROXIMATE FULLY
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE (%) BENEFICIALLY PERCENTAGE (%) DILUTED
BENEFICIAL OWNER OWNED OF CLASS OWNED OF CLASS % BASIS
<S> <C> <C> <C> <C> <C>
Joseph C. Vigliarolo, President and C.F.O. 50,000 (1) .5% 50,000
William F. Davis, President/SelecTel, Dir. 200,000 (1) 2.34% 200,000
Alan King, President/Select Switch, Dir. 195,655 (1) 2.29% 195,655
Clifford Casey, Esq., Director 50,000 (1) .59% 50,000
Dal N. R. Grauer, Secretary, Director 50,000 (1) .59% 50,000
James W. Truher 500,000 (1) 5.85% 375,000 (3) 6.75% 1,250,000
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
Teletek, Inc. 1,200,000 (2) 21.60% 1,200,000
Indian Wells Investment Company 2,995,000 (3) 53.91% 5,990,000
Shangri La Investments, Ltd. 600,000 (3) 10.20% 1,200,000
Mardyne, Inc. 236,000 (3) 4.28% 472,000
Maesa Gaming Management, Inc. 500,000 5.85% 500,000
Native American Bank, Inc. 500,000 5.85% 500,000
</TABLE>
- --------------------------------
(1) Includes 50,000 shares of Common Stock issuable upon the exercise of
25,000 options at an exercise price of $1.00 and 25,000 options at an exercise
price of $2.50.
(2) Represent Series "A" Non-Voting Preferred Convertible into one share of
Common Stock.
(3) Represents Series "B" Non-Voting Preferred Convertible into two shares
of Common Stock.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Name Position Age
- ------------------------------------------------------------------------------
<S> <C> <C>
Joseph Vigliarolo President, Chief Financial Officer and Director 34
- ------------------------------------------------------------------------------
William F. Davis Director 64
- ------------------------------------------------------------------------------
Allan W. King Director 43
- ------------------------------------------------------------------------------
Dal N. R. Grauer Secretary and Director 50
- ------------------------------------------------------------------------------
Clifford Casey, Esq. Director 43
- ------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
MANAGEMENT
JOSEPH C. VIGLIAROLO, PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR
Mr. Vigliarolo, age 34, who joined the Company in February, 1996, was
Vice-President and Chief Financial Officer of New Day Beverage, Inc.
and was responsible for all financial and SEC reporting During his
tenure at New Day Beverage, Inc., Mr. Vigliarolo designed, documented
and implemented all financial accounting procedures, internal controls,
cash management, inventory management and sales reporting systems. At
Alliance Entertainment Corp. and its subsidiaries, Mr. Vigliarolo was
in charge of the team that performed due diligence for potential
acquisitions and to acquire assets of companies in liquidation. His
responsibilities included analyzing business operations, as well as
financial stability and feasibility. He was employed as a Manager at
Ernst & Young as a CPA where his duties consisted of planning,
supervising and administering full scale audit engagements for a
diverse client base, including SEC, small business and start-up
operations, wholesale, retail, manufacturing, non-profit organizations,
colleges and universities and financial audits of governmental
agencies. Mr. Vigliarolo holds a Bachelor of Science degree in
accounting from Boston College and is a Certified Public Accountant
DAL N. R. GRAUER, DIRECTOR
Mr. Grauer was elected Secretary and Director of the Company in July
1995. A graduate of Amherst College, Mr. Grauer, age 50, was a business
owner in Canada for many years. In the United States, he has been
involved with the entertainment industry in talent management and
independent production. Since 1991, he has also been a consultant to
small business executives throughout the country. Currently, he is
Corporate Manager for Ameri-Cana Capital Corporation in San Diego,
California.
WILLIAM F. DAVIS, DIRECTOR
Mr. Davis was elected a Director of the Company on October 23, 1995.
Prior to joining SelecTel, Mr. Davis, age 64, was President of the
Institutional Division of Value Added Communications, Inc. Prior to
VACI, Mr. Davis was Senior Vice President, Telematic Products, Inc.,
where he was a founder of the company and directed all operations for
the company, which developed and marketed a billing computer to the
Bell Operating Companies. From 1955 through 1983, Mr. Davis held a
variety of management positions with GTE, including Vice
President/General Manager GTE Telenet Systems, where in a two year
22
<PAGE> 24
period, he increased annual sales from $45 million to $75 million. Mr.
Davis was also Vice President/Corporate Planning for GTE, where he
developed GTE's first integrated strategic planning system and the
strategic plan for GTE's Telephone Operating Division. Mr. Davis holds
a Bachelor of Science Degree from UCLA and an MBA from the University
of Connecticut. He has lectured at Penn State University, University of
Kansas, University of Connecticut's Graduate School, American
Management Association in New York City; all on the subject of
Strategic Planning.
ALLAN W. KING, DIRECTOR
Mr. King was elected a Director of the Company in February 1996. Mr.
King, age 43, has over twenty years of experience in the management,
sales and administration of telecommunications businesses. Prior to
founding Select Switch Systems, Inc. in 1988, Mr. King owned and
operated U.S. Telecommunications of Houston, a marketing company
specializing in the resale of long-distance telephone services from
1984 to 1987. From 1979 to 1984, Mr. King founded and served as
President of King Communications, Inc., a firm that provided turn-key
electronic security systems. Prior to entering the private sector, Mr.
King was an Electronic Communications Specialist with the United States
Air Force for four years. Mr. King holds a Bachelor of Business
Administration from McNeese State University.
CLIFFORD CASEY, ESQ., DIRECTOR
Mr. Casey was elected a director of a company on March 29, 1995. Mr.
Casey has been a member of the California Bar since 1978. His practice
involves real estate matters, business litigation, and advising
California corporations. He serves on private corporate boards and is
active in his community. In addition to a law degree, Mr. Casey holds a
Master of Arts degree in public administration from Central Michigan
University.
The Executive Committee is comprised of Mr. William Davis, Allan W. King and Mr.
Joseph Vigliarolo. The Compensation Committee is comprised of Mr. Joseph
Vigliarolo, Mr. William Davis, and Mr. Allan King. The Audit Committee is
comprised of Mr. Cliff Casey and Mr. Dal Grauer.
ITEM 6 - EXECUTIVE COMPENSATION
Compensation is voted by the Board of Directors from time to time.
There are no health, profit sharing or pension plans.
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<PAGE> 25
COMPENSATION OF OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL COMPENSATION
- ------------------------------------------------------------------------------------
Name and Principal Position Year Salary Bonus Other Annual All Other
Compensation Compensation
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James W. Truher* 1995 $110,000 None None None
- ------------------------------------------------------------------------------------
Joseph Vigliarolo 1996 $120,000 None None None
- ------------------------------------------------------------------------------------
</TABLE>
* Mr. Truher resigned as President and Director on April 30, 1996.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 8 - LEGAL PROCEEDINGS
LITIGATION
The Company is a defendant in an Adversary Proceeding brought on
October 30, 1995, by AT&D, Inc., as Debtor-in-Possession in Chapter 11
Bankruptcy Action filed September 9, 1995, by AT&D, Inc., in the U.S. Bankruptcy
Court in Santa Ana, California. The principal issue in the Adversary Proceeding
is whether the statutory foreclosure and private sale of SelecTel stock by a
Director, stockholder and creditor of the Company to an unrelated third party of
the collateral (a stock certificate representing 100% of the capital stock of
SelecTel) securing a delinquent AT&D promissory note, constituted a preferential
and, therefore, voidable transfer of AT&D, Inc. assets under the Bankruptcy
Laws. Advice from counsel indicates that the legal claims in the Adversary
Proceeding are to be vigorously defended and all information to date reveals
that the Company maintains a reasonable probability of success in defeating the
claims brought.
ITEM 9 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Common Stock of the Company is currently publicly traded on the
NNOTC Bulletin Board, over-the-counter market.
As of April 26, 1996, there were 461 shareholders of record of the
Common Stock of the Company according to the records of the transfer agent,
Fidelity Transfer Co.
24
<PAGE> 26
BID INFORMATION
The following was obtained from trading and market services, The NASDAQ
Stock Market Inc.
<TABLE>
<CAPTION>
YEAR 1995
QUARTER5
HIGH LOW
---- ---
<C> <C> <C>
1st Quarter 3.875 1.25
2nd Quarter 4.625 3.00
3rd Quarter 5.125 0.625
4th Quarter 2.375 0.875
YEAR 1996
QUARTER
1st Quarter 2.25 1.25
</TABLE>
The stock did not trade in 1994. The above quotes reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.
ITEM 10 - RECENT SALES OF UNREGISTERED SECURITIES
On April 7, 1995 the Company sold 3,300,000 shares fo its common stock for
$33,000 to Native American Bank, Trustee. The Company sold the shares in
reliance on an exemption from regisstration contained in Rule 504 of regulation
D of the Securitees Act of 1933, as ammended ("Rule 504").
On July 31, 1995 the Company issued 1,400,000 shares of its common stock to the
following for cash:
<TABLE>
<S> <C>
MH&E, Inc. 150,000
Magnum Holdings Limited 200,000
Spring Gate Holdings 150,000
Profit Publications, Inc. 200,000
Rich Valley, Inc. 500,000
Mardyne, Inc. 200,000
</TABLE>
This 1,400,000 shares were issued at $98,000. The Company issued these shares in
reliance to an exemption from registration contained in Rule 504.
25
<PAGE> 27
On September 8, 1995 the Company for the purchase of a 70% interest in SelecTec
Corporation, issued 1,000,000 shares of common stock, 1,000,000 shares for
Series B preferred stock and a note for $1,500,000. The note was convertible
into 1,200,000 shares of Series A preferred stock and 700,000 shares of Series B
preferred stock. All of the above conversion have taken place. The Company
relied on section 4(2) of the 1933 Securities Act as Amended for sales not
involving a public offering.
On November 14, 1995 the Company sold 200,000 shares of its common stock for
$200,000. The Company issued the securities in reliance on Rule 504.
On December 15, 1995 the Company sold 400,000 shares of its common stock for
$300,000. The shares were issued to:
<TABLE>
<S> <C>
Mardyne, Inc. 350,000
William J. Hickey 50,000
</TABLE>
The Company issued the securities in reliance on Rule 504.
On December 12, 1995 the Company issued 940,000 shares of its common stock for
the acquisition of 100% of the stock of Select Switch Systems, Inc. The Company
relied on section 4(2) of the 1933 Securities Act as Amended for sales not
involving a public offering.
On January 5, 1996 the company sold 255,000 shares of its common stock as
follows:
<TABLE>
<S> <C>
Profit Publications, Inc. 55,000
T. Davis Capital 200,000
</TABLE>
The stock was sold for $383,000. The stock was issued in reliance on Rule 504.
On February 28, 1996 the Company issued stock to three employees for employment
compensation as follows:
<TABLE>
<S> <C>
Mr. Howe 5,000 Shares
Mr. Rainbolt 4,000
Ms. Billerey 1,000
</TABLE>
The securities were issued in a non public transaction in reliance on Section
4(2) of the 1933 Securities Act, as ammended.
ITEM 11 - DESCRIPTION OF SECURITIES
COMMON STOCK
26
<PAGE> 28
The Company is authorized to issue 100,000,000 shares of Common Stock, par value
$.0001 per share. As of April 26, 1996, the Company had outstanding 8,264,892
shares of Common Stock. All Common Shares are equal to each other with respect
to voting, and dividend rights, and subject to the rights of the preferred
shareholders described below, are equal to each other with respect to
liquidations rights Special meetings of the Shareholders may be called by the
officers, directors or upon the request of holders of at least ten percent of
the outstanding voting shares. Holders of Common Stock are entitled to one vote
at any meeting of the Shareholders for each Common Stock they own as of the
record date fixed by the Board of Directors. At any meeting of Shareholders, a
majority of the outstanding Common Shares of the Company entitled to vote,
represented in person or by proxy, constitutes a quorum. A vote of the majority
of the Common Shares represented at a meeting will govern, even if this is
substantially less than a majority of the Common Shares outstanding. Subject to
the rights of the Preferred Shareholders described below, holders of shares are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and upon liquidation, are entitled to
participate pro rata in a distribution of assets available for such a
distribution to Shareholders. There are no conversion, pre-emptive or other
subscription rights or privileges with respect to any share. Reference is made
to the Articles of Incorporation and Bylaws of the Company as well as to the
applicable statutes of the State of Nevada for a more complete description of
the rights and liabilities of holders of shares. It should be noted that the
Bylaws may be amended by the Board of Directors without notice to the
Shareholders. The shares of the Company do not have cumulative voting rights,
which means that the holders of more than fifty percent of the Common Shares
voting for election of Directors may elect all the Directors if they choose to
do so. In such event, the holders of the remaining shares aggregating less than
fifty percent will not be able to elect Directors.
TRANSFER AGENT
The Company has appointed FIDELITY TRANSFER CO. as the transfer agent
for the Company. The address of such transfer agent is 1800 Temple Street, Suite
301, Salt Lake City, UT 84115, telephone number (801) 484-7222.
PREFERRED STOCK
When Shares are issued pursuant to this offering, the Company will have
three series of Preferred Stock issued and outstanding.
Series "A" Non-Voting Preferred Stock has 1,200,000 shares issued and
outstanding, carries a dividend preference of 11% calculated on a stated value
of $2.00 per share, and is convertible into shares of the Common Stock of the
Company determined by dividing an amount equal to the Stated Value of the
Preferred Stock to be converted by an amount equal to the ten day average
trading Bid price immediately prior to the date of Notice of Conversion.
Series "B" Non-Voting Preferred Stock has 4,356,000 shares issued and
outstanding, of a total of 5,000,000 Shares authorized, carries a dividend
preference of 10% calculated on a Stated
27
<PAGE> 29
Value of $1.00 per share, and is convertible into two shares of the Common Stock
of the Company for each share of the Preferred Stock to be converted.
Series "C" 10% Non-Voting Preferred Stock. The Board of Directors has
designated 10,000,000 shares of the Preferred Stock as Series 1 Class "C"
Preferred Stock, with the rights and preferences set forth in this section.
Reference is made to the Certificate of Series 1 Class "B" 10% Preferred Stock
filed with the State of Nevada and the form of the certificate representing such
series for a more complete description of the rights and preferences of holders
of shares of such series.
All Series of Preferred Stock have: non voting, no pre-emptive rights;
a Liquidation Preference equal to the per share Stated Value plus any dividends
declared and unpaid; participate pro rata in any distribution of Company assets;
and are redeemable by the Company at any time after January 1, 1997, by paying
the holders of Preferred Stock an amount equal to 200% of the Liquidation
Preference.
So long as any shares of any Series of Preferred Stock, including
specifically the Shares, are outstanding, the approval of a majority of such
holders, voting as a class, is required in order for the Company to alter the
rights of such Series of Preferred Stock.
All of the Shares offered hereby will, upon issuance and payment, be
fully paid and non-assessable.
PREEMPTIVE AND VOTING RIGHTS
Holders of the Preferred Stock have no pre-emptive rights and no voting
rights.
ITEM 12 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEVADA LAW AND ARTICLES OF INCORPORATION PROVISIONS
The Articles of Incorporation contain provisions which eliminate the
personal liability of Directors for monetary damages resulting from breaches of
fiduciary duty other than liability for breaches of the duty of loyalty, actions
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or any transaction from which the Director derived an
improper personal benefit. The Bylaws contain provisions requiring the
indemnification of the Company's Directors and officers to the fullest extent
permitted by the Nevada law, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and refrain qualified persons as Directors and officers.
DIVIDEND POLICY
No cash dividends have been declared or paid as yet on the Common Stock
and the Board of Directors of the Company has not yet decided on a dividend
policy. Whether dividends will be
28
<PAGE> 30
paid will be determined by the Board of Directors of the Company and will
necessarily depend on the Company's earnings, financial condition, capital
requirements and other factors. The Board of Directors has no current plans to
declare any dividends in the foreseeable future. Nevada law limits the funds
from which dividends may legally be paid. There is no assurance that the Company
will generate sufficient funds in the future from which to pay dividends to the
shareholders. The Preferred Shares will have preferences over the Common Stock
for dividends. (See "Description of Securities").
ITEM 13 - FINANCIAL STATEMENTS
a) Audited Financial Statements for the years ended December 31,
1995, and 1994.
b) Unaudited Financial Statements for the three months ended
Marach 31, 1995 and 1994.
ITEM 14 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 15 - FINANCIAL STATEMENTS AND EXHIBITS
a). Audited Financial Statements for the fiscal years ended
December 1995 and 1994.
Unaudited Financial Statements for the three months ended
March 31, 1995 and 1994.
b) (2).Plan of Acquisition.
(i). SelecTec Corporation
(ii). Select Switch Systems, Inc.
(3)(i). Articles of Incorporation.
(ii). By-Laws.
29
<PAGE> 31
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
<PAGE> 32
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 1995 2
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1994 3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6 - 14
</TABLE>
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
XECOM CORP:
We have audited the accompanying consolidated balance sheet of Xecom Corp. (a
Nevada corporation) and its subsidiaries (Note A) as of December 31, 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the statement of operations, shareholders' equity or
cash flows of SelecTel Corporation, a majority owned subsidiary for the year
ended December 31, 1994, which statements reflect total revenues of $5,179,796.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
SelecTel Corporation for the year ended December 31, 1994, is based solely on
the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Xecom Corp. and subsidiaries as of
December 31, 1995, and the results of their operations and their cash flows for
the years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
/s/ Harlan & Boettgen
- -------------------------
San Diego, California
March 13, 1996
1
<PAGE> 34
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 141,209
Accounts receivable, less allowance for doubtful accounts
of $54,580 839,908
Due to affiliates 65,433
Other receivables 79,123
Investments, available-for-sale (Note D) 438,099
------------
TOTAL CURRENT ASSETS 1,563,772
PROPERTY AND EQUIPMENT, net (Note C) 3,626,642
GOODWILL AND INTANGIBLE ASSETS, net (Notes A and B) 3,416,319
PREPAID CONSULTING FEE (Note E) 1,620,000
OTHER ASSETS 77,246
------------
$ 10,303,979
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,320,566
Accrued liabilities 322,423
Customer advance 50,000
Related party debt - current portion (Note F) 1,701,242
Capital lease obligations - current portion (Note H) 205,241
------------
TOTAL CURRENT LIABILITIES 4,599,472
RELATED PARTY DEBT, net of current portion (Note F) 74,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note H) 844,807
MINORITY INTEREST 363,691
------------
TOTAL LIABILITIES 5,881,970
COMMITMENTS AND CONTINGENCIES (Note H)
SHAREHOLDERS' EQUITY (Note J)
Common stock, $.0001 par value, 100,000,000 shares
authorized, 7,939,892 shares issued and outstanding 794
Additional paid in capital - common stock 2,679,710
Less stock subscription receivable (400,000)
Preferred stock, $.0001 par value, 50,000,000 shares
authorized, 5,537,000 shares issued and outstanding 554
Additional paid in capital - preferred stock 5,057,581
Unrealized loss on securities available-for-sale (Note D) (562,400)
Retained deficit (2,354,230)
------------
TOTAL SHAREHOLDERS' EQUITY 4,422,009
------------
$ 10,303,979
================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 35
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
NET SALES $ 6,205,631 $ 5,735,852
COST OF SALES 5,124,565 4,371,872
----------- -----------
Gross Profit 1,081,066 1,363,980
OPERATING EXPENSES
Selling, general and administrative expenses 2,244,831 1,510,436
Depreciation and amortization 326,855 113,205
----------- -----------
TOTAL OPERATING EXPENSES 2,571,686 1,623,641
----------- -----------
LOSS FROM OPERATIONS (1,490,620) (259,661)
OTHER INCOME (EXPENSES)
Minority interests in consolidated subsidiaries, net loss 2,999 52,409
Interest expense (304,621) (46,948)
Loss on sale of assets -- (1,683)
Other expenses (96,682) (58,425)
----------- -----------
TOTAL OTHER EXPENSES, NET (398,304) (54,647)
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (1,888,924) (314,308)
Income taxes (Note G) (1,869) (1,950)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (1,890,793) (316,258)
----------- -----------
EXTRAORDINARY ITEM (Note K) 200,000 (100,000)
----------- -----------
NET LOSS $(1,690,793) $ (416,258)
=========== ===========
NET LOSS PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM $ (.50) $ (904)
EXTRAORDINARY ITEM .05 (286)
----------- -----------
NET LOSS PER COMMON SHARE $ (.45) $ (1,190)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING 3,791,780 350
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 36
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
------------ --------------- Paid-in
Shares Amounts Shares Amounts Capital
------ ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 350 $1,000 -- $ -- $ 100,000
Net loss -- -- -- -- --
Distributions to shareholders -- -- -- -- (40,210)
-------------------------------------------------------
BALANCE, DECEMBER 31, 1994 350 1,000 -- -- 59,790
Shares issued from private
placement 5,300,000 530 -- -- 616,470
Shares issued for investment 500,000 50 -- -- 999,950
Reverse acquisition of Xecom 1,199,892 120 1,000,000 100 1,983,419
Issuance of common stock for
acquired company 940,000 (906) -- -- 906
Effect of majority-owned
subsidiary equity transaction (350) -- -- -- (59,790)
Preferred stock issued for debt -- -- 1,900,000 190 1,499,810
Preferred stock issued for services -- -- 1,620,000 162 1,619,838
Net proceeds from private placement
of preferred stock -- -- 1,017,000 102 1,016,898
Less stock subscription receivable -- -- -- -- (400,000)
Change on unrealized loss on
securities available for sale -- -- -- -- --
Net loss -- -- -- -- --
-------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,939,892 $ 794 5,537,000 $554 $7,337,291
========= ====== ========= ==== ==========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Loss on
Securities Total
Available- Retained Shareholders'
For-Sale Deficit Equity
---------- -------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ -- $(1,284,697) $(1,183,697)
Net loss -- (416,258) (416,258)
Distributions to shareholders -- -- (40,210)
---------------------------------------
BALANCE, DECEMBER 31, 1994 -- (1,700,955) (1,640,165)
Shares issued from private
placement -- -- 617,000
Shares issued for investment -- -- 1,000,000
Reverse acquisition of Xecom -- (180,619) 1,803,020
Issuance of common stock for
acquired company -- -- --
Effect of majority-owned
subsidiary equity transaction -- 1,218,137 1,158,347
Preferred stock issued for debt -- -- 1,500,000
Preferred stock issued for services -- -- 1,620,000
Net proceeds from private placement
of preferred stock -- -- 1,017,000
Less stock subscription receivable -- -- (400,000)
Change on unrealized loss on
securities available for sale (562,400) -- (562,400)
Net loss -- (1,690,793) (1,690,793)
---------------------------------------
BALANCE, DECEMBER 31, 1995 $(562,400) $(2,354,230) $ 4,422,009
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 37
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,690,793) $ (416,258)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 326,855 113,205
Extraordinary item (200,000) --
Minority interest in subsidiary earnings (2,999) (52,409)
Loss on sale of assets -- 1,683
Changes in operating assets and liabilities:
Accounts receivable (218,859) 140,191
Due from affiliates 15,299 --
Other receivables (79,123) --
Other assets (8,877) (57,365)
Intangible assets -- (109,650)
Accounts payable 717,967 (159,090)
Accrued liabilities 181,410 24,515
Customer advances 50,000 --
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (909,120) (515,178)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,580,893) (416,030)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,580,893) (416,030)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party debt 930,200 405,279
Payments on related party debt (166,129) (200,453)
Decrease in additional paid in capital -- (40,210)
Payments under capital lease obligations (133,201) (22,694)
Proceeds from capital contribution 419,000 638,000
Proceeds from issuance of preferred stock 1,017,000 --
Proceeds from issuances of common stock 250,000 --
Proceeds from sale of partnership interest -- 408,229
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,316,870 1,188,151
----------- -----------
NET INCREASE (DECREASE) IN CASH (173,143) 256,943
CASH, BEGINNING OF YEAR 314,352 57,409
----------- -----------
CASH, END OF YEAR $ 141,209 $ 314,352
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 38
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation and Nature of Operations
The consolidated financial statements include the accounts of Xecom Corp.
(a Nevada corporation incorporated on May 2, 1985), its wholly owned
subsidiary, Select Switch Systems, Inc., and its majority owned subsidiary,
SelecTel Corporation, (together "the Company"). All significant
intercompany transactions and amounts have been eliminated in the
consolidating process.
On September 8, 1995 the Company purchased 70% of the outstanding common
stock of SelecTel Corporation. For financial statement purposes the
transaction has been recorded under the Purchase Method, per Accounting
Principle Board opinion 16. (APB 16), "Accounting for Business
Combinations," and as a reverse capitalization of the Company due to the
fact that SelecTel Corporation provides substantially all of the historic
and ongoing operations.
On December 12, 1995 the Company exchanged the common stock of the Company
for 100% of the outstanding common stock of Select Switch Systems, Inc. For
financial statement purposes the transaction has been recorded under the
Pooling of Interest Method per APB 16.
The Company provides facility management services on an integrated basis to
institutional telephone users in the U.S. military, hotel, hospital,
college and university, and other major markets. Services include
installation and maintenance of related telecommunications - based
equipment, and products and services such as long distance, data, network
and facsimile services.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Property and Equipment
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, which
range from five to ten years. Assets under capital leases are depreciated
by the straight-line method over the shorter of the lease term or the
useful lives of the assets. Maintenance, repairs and minor renewals are
charged to operations as incurred. Major replacements or betterments are
capitalized. When properties are retired or otherwise disposed, the related
cost and accumulated depreciation are eliminated from the respective
accounts and any gain or loss on disposition is reflected as income or
expense.
6
<PAGE> 39
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Goodwill
Amounts paid for securities of newly-acquired subsidiaries in excess of the
fair value of the net assets of such subsidiaries have been charged to
goodwill. Goodwill is related to revenues the Company anticipates realizing
in future years. These revenues are highly dependent upon current
management of the subsidiaries. The Company has decided to amortize its
goodwill over a period of up to 20 years under the straight-line method.
Accumulated amortization at December 31, 1995 was $60,114. The Company's
policy is to evaluate the periods of goodwill amortization to determine
whether later events and circumstances warrant revised estimates of useful
lives. The Company also evaluates whether the carrying value of goodwill
has become impaired by comparing the carrying value of goodwill to the
value of projected undiscounted cash flows from acquired assets or
businesses. Impairment is recognized if the carrying value of goodwill is
less than the projected undiscounted cash flow from acquired assets or
business.
Intangible Assets
Intangible assets consist of telecommunication agreements with certain
colleges and universities. Intangible assets are amortized using the
straight-line method over 10 years.
Revenue Recognition
Revenue derived from telephone services and usage fees are billed and
recorded monthly as the services are provided.
Net Loss Per Share
The net loss per share is computed by dividing the net loss by the weighted
average number of shares outstanding during the period. The effect of
convertible securities are excluded from the computation because the effect
on the net loss per common share would be anti-dilutive.
Income Taxes
Income taxes, are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
7
<PAGE> 40
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk include cash equivalents and accounts
receivable arising from its normal business activities. The Company places
its cash and cash equivalents with high credit quality financial
institutions. The Company periodically has money in a financial institution
that is subject to normal credit risk beyond insured amounts. The Company
believes that no significant concentration of credit risk exists with
respect to cash investments.
Regarding accounts receivable, the Company believes that credit risk is
limited due to the large number of entities comprising the Company's
customer base. In addition, the Company routinely assesses the financial
strength of its customers, and based upon factors surrounding the credit
risk of its customers, establishes an allowance for uncollectible accounts
and, as a consequence, believes that its accounts receivable credit risk
exposure beyond such allowances is limited.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
B. ACQUISITIONS:
In September 1995, the Company acquired 70% of SelecTel Corporation for a
purchase price of $3,270,000. The Company funded the acquisition through
the issuance of 1,000,000 shares of common stock, 1,000,000 shares of 10%
Series B, cumulative, convertible, nonparticipating preferred stock and a
$1,500,000, 9% demand promissory note convertible into 1,200,000 shares of
11% Series A cumulative, convertible, participating and 700,000 shares of
Series B cumulative, nondilutive, nonparticipating, convertible preferred
stock at the note holder's option. As of December 31, 1995, the demand note
conversion option had been exercised.
The Company has treated the acquisition as a reverse acquisition by
SelecTel Corporation and recorded the transaction under the Purchase Method
for Business Combinations. The transaction resulted in the recording of
goodwill of $3,382,217, representing the excess of cost over the fair value
of the net assets of SelecTel. The Company will amortize the goodwill using
the straight-line method over 20 years.
In December 1995, the Company acquired 100% of the outstanding common stock
of Select Switch Systems, Inc. for 940,000 shares of common stock. The
Company has recorded the transaction under the Pooling of Interest Method
for Business Combinations.
8
<PAGE> 41
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
C. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 is summarized as follows:
<TABLE>
<S> <C>
Machinery and equipment $ 2,463,315
Furniture & fixtures 128,502
Leasehold - inside/out plant 839,711
Materials and supplies 156,275
Construction in progress 464,204
-----------
4,052,007
Less accumulated depreciation (425,365)
-----------
Property and equipment, net $ 3,626,642
===========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994 was
$251,307 and $113,205, respectively.
D. INVESTMENTS:
Investments consist of 2,000,000 shares of Maesa Gaming Management, Inc.
acquired by the Company in 1995 for 500,000 shares of the Company's common
stock.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The Company's investment securities are
classified as "available-for- sale." Accordingly, unrealized gains and
losses and the related deferred income tax effects are excluded from
earnings and reported in a separate component of stockholders' equity.
Realized gains or losses are computed based on specific identification of
the securities sold.
SFAS No. 115 superseded SFAS No. 12, "Accounting for Certain Marketable
Securities," under which investment securities were generally carried at
the lower of aggregate market or amortized cost and unrealized gains were
not recognized. The effect of the adoption of SFAS No. 115 was to record an
unrealized loss on securities available for sale of $562,400 as a charge to
shareholders' equity.
E. PREPAID CONSULTING FEE:
The Company entered into a three year consulting agreement with an
investment banking company which is a shareholder of the Company and
expires December 1998. The investment banking company was issued 1,620,000
shares of Series B preferred stock as compensation in lieu of monthly
payments totaling $1,620,000. The Company will recognize consulting expense
over the life of the agreement.
<PAGE> 42
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
F. RELATED PARTY-DEBT:
Notes payable at December 31, 1995 are summarized as follows:
<TABLE>
<S> <C>
Notes payable to various investors, collateralized by security interests in
the Company's fixed assets, accounts receivable and telecommunication
agreements, interest payable at 12%, matures at various dates in 1995 and
1996, monthly interest only payments, all unpaid principal
and accrued interest due at due date $ 1,631,616
Notes payable to various investors, unsecured, interest payable ranging
from 12.0% to 18%, interest only monthly payments February, 1994 through
January 1996, principal and interest monthly payments commencing February
1996, final payment of remaining balance on maturity date 143,626
------------
1,775,242
Less current portion 1,701,242
------------
$ 74,000
============
</TABLE>
The notes payable contain certain covenants which include, but are not
limited to, requiring the Company to maintain a term life insurance payable
to the payee in amount sufficient to pay the principal and accrued interest
in the event of promisor's death. The Company was in compliance with this
covenant as of December 31, 1995. Substantially all of the notes are past
due as of December 31, 1995. The note holders have not demanded payment or
initiated formal action against the Company in regards to past due amounts
and accrued interest payable of $178,379.
Aggregate maturities of debt as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
Past Due $1,254,000
1996 447,242
1997 65,000
1999 9,000
------------
$1,775,242
==========
</TABLE>
<PAGE> 43
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
G. INCOME TAXES:
The provision for income taxes for the year ended December 31, 1995
consists solely of the minimum state taxes.
The Company's total deferred tax asset as of December 31, 1995 is as
follows:
<TABLE>
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $ 297,000
Allowance for doubtful debts 11,000
---------
308,000
Deferred tax liability:
Tax over book depreciation (33,000)
---------
Net deferred tax asset/(liability) 275,000
Valuation allowance (275,000)
---------
Net deferred tax assets $ -
=========
</TABLE>
As of December 31, 1995, the Company had net operating loss carryforwards,
before any limitations which expire as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Federal
------------ ---------
<S> <C>
2004 $ 39,500
2005 32,000
2006 7,500
2008 131,500
2009 297,500
2010 1,472,000
---------
$1,980,000
==========
</TABLE>
Pursuant to the Internal Revenue Code Section 382, use of the Company's net
operating loss will be limited due to a cumulative change in ownership of
more than 50%. The net operating loss available is estimated to be
approximately $88,000 per year and can be utilized at that rate until such
loss is fully utilized or expires, whichever is earlier.
<PAGE> 44
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
H. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases office facilities and equipment under operating leases
which expire at various dates through fiscal year 2000. The accompanying
statement of operations includes expenses from operating leases of $112,470
for 1995. Future minimum lease payments, due under noncancelable operating
leases as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 232,107
1997 138,162
1998 139,100
1999 136,529
2000 70,243
</TABLE>
The noncancelable operating leases provide that the Company pays for taxes,
licenses, insurance and certain other operating expenses applicable to the
leased items.
Capital Leases
The Company finances substantially all of its telecommunication equipment
purchases under capital lease agreements with The CIT Group. The leases
require monthly payments over a sixty month period. The following is an
analysis of the book value of the leased assets included in property and
equipment as of December 31, 1995.
<TABLE>
<S> <C>
Cost $792,421
Accumulated depreciation (92,182)
-------
$701,239
========
</TABLE>
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996 $ 299,911
1997 299,911
1998 299,911
1999 267,895
2000
131,273
-----------
Total payments 1,298,901
Less amount representing interest (248,853)
-----------
1,050,048
Less current portion of capital leases (205,241)
-----------
$ 844,807
===========
</TABLE>
<PAGE> 45
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
H. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Litigation
The Company is a defendant in an Adversary Proceeding brought on October
30, 1995 by AT+D, Inc., as Debtor-in-Possession in Chapter 11 Bankruptcy
Action filed September 9, 1995 by AT+D, Inc. in the U.S. Bankruptcy Court
in Santa Ana, California. The principal issue in the Adversary Proceeding
is whether the statutory foreclosure and private sale of SelecTel stock by
a director, stockholder and creditor of the Company to an unrelated third
party of the collateral (a stock certificate representing 100% of the
capital stock of SelecTel) securing a delinquent AT+D promissory note,
constituted a preferential, and therefore a voidable transfer of AT+D, Inc.
assets under the Bankruptcy Laws. Advice from counsel indicates that the
legal claims in the Adversary Proceeding are to be vigorously defended and
all information to date reveals that the Company maintains a reasonable
probability of success in defeating the claims.
I. Supplemental Cash Flow Information:
Supplemental disclosures of cash flow information for the years ended
December 31, 1995, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Cash paid for interest and
income taxes:
Interest $ 64,362 $ 66,153
Income taxes 1,843 1,950
Noncash investing and financing activities:
Assets acquired by capital lease $ 471,403 $734,540
Assets acquired on credit 400,000 -
Related party debt forgiven 200,000 -
Investment acquired with stock issuance 1,000,000 -
Services acquired with stock issuance 1,620,000 -
Common stock subscribed 400,000 -
Reverse acquisition of Xecom Corp. 1,803,020 -
Change in minority interest 306,230 -
</TABLE>
<PAGE> 46
J. CAPITAL STOCK:
Common Stock
In October 1995, the Board of Directors and shareholders voted to amend the
Company's Articles of Incorporation and By-laws. The effect of the
restatement is (i) to change the authorized capital from 50,000,000 shares,
no par value common stock, to 100,000,000 shares, $.0001 par value common
stock and (ii) to authorize the issuance of 50,000,000 shares, $.0001 par
value preferred stock.
Preferred Stock
Of the 50,000,000 authorized shares of preferred stock, 1,200,000 shares
have been designated as 11% Series A, cumulative, participating, nonvoting,
convertible preferred stock, and 5,000,000 shares have been designated as
10% Series B, cumulative, nondilutive, nonparticipating, nonvoting,
convertible preferred stock.
K. EXTRAORDINARY ITEMS:
During 1995 an officer of the Company forgave a promissory note totaling
$200,000 dated October 19, 1994 that was due to him from the Company.
During 1994 it became evident that a disputed vendor balance which was
written off in a prior year, was written off in error. Accordingly, the
Company paid the disputed balance in 1994.
L. SUBSEQUENT EVENTS:
On February 1, 1996 the Company entered into a business agreement whereby
Fujitso Business Communication System, Inc. "FBCS" will finance 75% of the
construction costs relating to the Army/Air Force Exchange Services (AAFES)
projects.
On March 19, 1996, the Company entered into a supplemental agreement
whereby FBCS may finance more than the 75% of the AAFES construction costs
or approximately $9.6 million as set out in the business agreement and/or
elect to provide some of the financing during installation and construction
rather than only upon the conclusion of the installation and construction.
<PAGE> 47
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 122,987
Accounts receivable, less allowance for doubtful accounts
of $42,970 919,769
Due to affiliates 135,981
Other receivables 213,225
Investments, available-for-sale (Note D) 438,099
-----------
TOTAL CURRENT ASSETS 1,830,061
PROPERTY AND EQUIPMENT, net (Note C) 7,825,792
GOODWILL AND INTANGIBLE ASSETS, net (Notes A and B) 3,356,104
PREPAID CONSULTING FEE (Note E) 1,515,000
OTHER ASSETS 223,175
-----------
TOTAL ASSETS $14,750,132
===========
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 48
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 4,746,932
Accrued liabilities 444,925
Dividend Payable 141,900
Customer advance 113,027
Related party debt -- current portion (Note F) 1,956,242
Capital lease obligations -- current portion (Note H) 196,503
Note payable 1,272,389
------------
TOTAL CURRENT LIABILITIES 8,871,918
RELATED PARTY DEBT, net of current portion (Note F) 74,000
CAPITAL LEASE OBLIGATIONS, net of current portion (Note H) 1,015,893
MINORITY INTEREST 326,118
------------
TOTAL LIABILITIES
10,287,929
COMMITMENTS AND CONTINGENCIES (Note H)
SHAREHOLDERS' EQUITY (Note J)
Common stock, $.0001 par value, 100,000,000 shares
authorized, 8,194,892 shares issued and outstanding 819
Preferred stock, $.0001 par value, 50,000,000 shares
authorized, 5,556,000 shares issued and outstanding 556
Additional paid in capital 8,138,744
Unrealized loss on securities available-for-sale (Note D) (562,400)
Retained deficit (3,115,516)
------------
TOTAL SHAREHOLDERS' EQUITY 4,462,203
------------
TOTAL LIABILITITES AND SHAREHOLDERS' EQUITY $ 14,750,132
============
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 49
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
-----------------------------
1996 1995
---- ----
<S> <C> <C>
NET SALES $ 1,452,652 $ 1,500,809
COST OF SALES 1,170,568 1,052,091
----------- -----------
Gross Profit 282,084 448,718
OPERATING EXPENSES
Selling, general and administrative expenses 665,799 427,069
Depreciation and amortization 153,472 51,952
----------- -----------
TOTAL OPERATING EXPENSES 819,271 479,021
----------- -----------
LOSS FROM OPERATIONS (537,187) (30,303)
OTHER INCOME (EXPENSES)
Minority interests in consolidated subsidiaries 8,433 (2,317)
Interest expense (89,969) (54,849)
Other expenses (663) 295
----------- -----------
TOTAL OTHER EXPENSES, NET (82,199) (56,871)
----------- -----------
LOSS BEFORE INCOME TAXES (619,386) (87,174)
Income taxes (Note G) -- --
NET LOSS $ (619,386) $ (87,174)
=========== ===========
NET LOSS PER COMMON SHARE $ (.08) $ (249)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING 8,178,079 350
=========== ===========
</TABLE>
(See Notes to Consolidated Financial Statements)
<PAGE> 50
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
COMMON STOCK PREFERRED STOCK ADDITIONAL SECURITIES TOTAL
PAID AVAILABLE RETAINED SHAREHOLDERS'
SHARES AMOUNTS SHARES AMOUNTS IN CAPITAL FOR SALE DEFICIT EQUITY
-------------------- --------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - Jan 1, 1996 7,939,892 $794 5,537,000 $554 $7,337,291 $(562,400) $(2,354,230) $4,422,009
Shares Issued from 255,000 25 19,000 2 401,453 --- --- 401,480
Private Placements
Proceeds from Stock --- --- --- --- 400,000 --- --- 400,000
Subscription
Dividends on --- --- --- --- --- --- (141,900) (141,900)
Preferred Stock
Net Loss for the --- --- --- --- --- --- (619,386) (619,386)
Three Months Ended March
31, 1996
Balance March 31, 1996 8,194,892 $819 556,000 $556 $8,138,744 $(562,400) $(3,115,516) $4,462,203
========= ==== ========= ==== ========== ========= =========== ==========
</TABLE>
(See Notes to Consolidated Financial Statements)
18
<PAGE> 51
XECOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(619,386) $ (87,174)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 153,374 51,952
Compensation expense on issuance of Preferred Stock 105,000 --
Minority interest in subsidiary earnings (8,433) 2,317
Changes in operating assets and liabilities:
Accounts receivable (79,861) (224,436)
Due from affiliates (70,548) 104,557
Other receivables (134,102) --
Other assets (145,929) (67,820)
Accounts payable (273,533) 87,897
Accrued liabilities 122,502 (51,679)
Customer advances 63,027 --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (887,889) (184,386)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (101,327) (117,978)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (101,327) (117,978)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party debt 255,000 60,000
Payments on related party debt -- (136,949)
Proceeds from stock subscription 400,000 --
Payments under capital lease obligations (56,346) (27,026)
Proceeds from capital contribution -- 125,000
Proceeds from issuance of preferred stock 19,000 --
Proceeds from issuance of common stock 382,480 --
Payments to Minority Interest in Partnerships (29,140) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 970,994 21,025
--------- ---------
NET INCREASE (DECREASE) IN CASH (18,222) (281,339)
CASH, BEGINNING OF YEAR 141,209 314,352
--------- ---------
CASH, END OF YEAR $ 122,987 $ 33,013
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 52
XECOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying interim financial statements are unaudited and have been
prepared in accordance with the requirements of Regulation S-B and Form 10-QSB
and, therefore, do not include all information and footnotes required by
generally accepted accounting principles; however, in the opinion of the
management of the Company, all adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of financial position, results of
operations and cash flows for the three months ended March 31, 1996 and 1995,
have been made. The results of operations for any interim period are not
necessarily indicative of the results of the full year. These financial
statements should be read in conjunction with the financial statements and notes
thereto, contained in the annual report for the year ended December 31, 1995.
A. Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
The consolidated financial statements include the accounts of Xecom Corp., (a
Nevada corporation incorporated on May 2, 1985), its wholly-owned subsidiary,
Select Switch Systems, Inc. and its majority owned subsidiary, SelecTel
Corporation, (collectively referred to as "the Company"). All significant
intercompany transactions and amounts have been eliminated in the
consolidating process.
On September 8, 1995, the Company purchased 70% of the outstanding common
stock of SelecTel Corporation. For financial statement purposes, the
transaction has been recorded under the Purchase Method, per Accounting
Principle Board opinion 16. (APB 16), "Accounting for Business Combinations",
and as a reverse capitalization of the Company due to the fact that SelecTel
Corporation provides substantially all of the historic and ongoing operations.
On December 12, 1995, the Company exchanged the common stock of the Company
for 100% of the outstanding common stock of Select Switch Systems, Inc. For
financial statement purposes, the transaction has been recorded under the
Pooling of Interest Method per APB 16.
The Company provides facility management services on an integrated basis to
institutional telephone users in the U.S. military, hotel, hospital, college
and university, and other major markets. Services include installation and
maintenance of related telecommunications - based equipment, and products and
services such as long distance, data, network and facsimile services.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to prepare
and present financial statements which conform to generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
20
<PAGE> 53
A. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, which
range from five to ten years. Assets under capital leases are depreciated by
the straight-line method over the shorter of the lease term or the useful
lives of the assets. Maintenance, repairs and minor renewals are charged to
operations as incurred. Major replacements or betterments are capitalized.
When properties are retired or otherwise disposed, the related cost and
accumulated depreciation are eliminated from the respective accounts and any
gain or loss on disposition is reflected as income or expense.
Goodwill
Amounts paid for securities of newly-acquired subsidiaries in excess
of the fair value of the net assets of such subsidiaries have been
charged to goodwill. Goodwill is related to revenues the Company
anticipates realizing in future years. These revenues are highly
dependent upon current management of the subsidiaries. The Company has
decided to amortize its goodwill over a period of up to 20 years under
the straight-line method. Accumulated amortization at March 31, 1996
was $120,228. The Company's policy is to evaluate the periods of
goodwill amortization to determine whether later events and
circumstances warrant revised estimates of useful lives. The Company
also evaluates whether the carrying value of goodwill has become
impaired by comparing the carrying value of goodwill to the value of
projected undiscounted cash flows from acquired assets or businesses.
Impairment is recognized if the carrying value of goodwill is greater
than the projected undiscounted cash flow from acquired assets or
business.
Intangible Assets
Intangible assets consist of telecommunication agreements with certain
colleges and universities. Intangible assets are amortized using the
straight-line method over 10 years.
Revenue Recognition
Revenue derived from telephone services and usage fees are billed and recorded
monthly as the services are provided.
Net Loss Per Share
The net loss per share is computed by dividing the net loss by the weighted
average number of shares outstanding during the period. The effect of
convertible securities are excluded from the computation because the effect on
the net loss per common share would be anti-dilutive.
A. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk include cash equivalents and accounts receivable arising from
its normal business activities.
21
<PAGE> 54
The Company places its cash and cash equivalents with high credit quality
financial institutions. The Company periodically has money in a financial
institution that is subject to normal credit risk beyond insured amounts. The
Company believes that no significant concentration of credit risk exists with
respect to cash investments.
Regarding accounts receivable, the Company believes that credit risk is
limited due to the large number of entities comprising the Company's customer
base. In addition, the Company routinely assesses the financial strength of
its customers, and based upon factors surrounding the credit risk of its
customers, establishes an allowance for uncollectible accounts and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowances is limited.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
B. Acquisitions
In September, 1995, the Company acquired 70% of SelecTel Corporation for a
purchase price of $3,270,000. The Company funded the acquisition through the
issuance of 1,000,000 shares of common stock, 1,000,000 shares of 10% Series B
cumulative, convertible nonparticipating preferred stock and a $1,500,000, 9%
demand promissory note convertible into 1,200,000 shares of 11% Series A
cumulative, convertible participating and 700,000 shares of Series B
cumulative, nondilutive, nonparticipating, convertible preferred stock at the
note holder's option. As of December 31, 1995, the demand note conversion
option had been exercised.
The Company has treated the acquisition as a reverse acquisition by SelecTel
Corporation and recorded the transaction under the Purchase Method for
Business Combinations. The transaction resulted in the recording of goodwill
of $3,382,217, representing the excess of cost over the fair value of the net
assets of SelecTel Corporation. The Company will amortize the goodwill using
the straight-line method over 20 years.
In December, 1995, the Company acquired 100% of the outstanding common stock
of Select Switch Systems, Inc. for 940,000 shares of common stock. The Company
has recorded the transaction under the Pooling of Interest Method for Business
Combinations.
C. Property and Equipment
Property and equipment at March 31, 1996, is summarized as follows:
<TABLE>
<S> <C>
Machinery $5,788,971
Furniture and fixtures 222,153
Leasehold - inside/out plant 2,283,018
Materials and supplies 50,275
----------
8,344,417
Less accumulated depreciation (518,625)
----------
Property and equipment, net $7,825,792
==========
</TABLE>
22
<PAGE> 55
Depreciation expense for the period ended March 31, 1996 and 1995 was $93,260
and $51,952, respectively.
D. Investments
Investments consist of 2,000,000 shares of Maesa Gaming Management, Inc.
acquired by the Company in 1995 for 500,000 shares of the Company's common
stock.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company's investment securities are
classified as "available-for-sale". Accordingly, unrealized gains and losses
and the related deferred income tax effects are excluded from earnings and
reported in a separate component of stockholders' equity. Realized gains or
losses are computed based on specific identification of the securities sold.
SFAS No. 115 superseded SFAS No. 12, "Accounting for Certain Marketable
Securities", under which investment securities were generally carried at the
lower of aggregate market or amortized cost and unrealized gains were not
recognized. The effect of the adoption of SFAS No. 115 was to record an
unrealized loss on securities available for sale of $562,400 as a charge to
shareholders' equity.
E. Prepaid Consulting Fee
The Company entered into a consulting agreement with an investment banking
company which is a shareholder of the Company and expires December, 1998. The
investment banking company was issued 1,620,000 shares of Series B preferred
stock as compensation in lieu of monthly payments totalling $1,620,000. The
Company will recognize consulting expense over the life of the agreement. For
the period ended March 31, 1996, the Company recorded $105,000 as compensation
expense.
F. Related Party-Debt
Notes payable at March 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Notes payable to various investors, collateralized by security interests in
the Company's fixed assets, accounts receivable and telecommunication
agreements, interest payable at 12%, matures at various dates in 1995 and
1996, monthly interest only payments, all unpaid principal and accrued
interest due at due date $1,631,616
Notes payable to various investors, unsecured, interest payable ranging from
12% to 18%, interest only monthly payments February, 1995 through January,
1996, principal and interest monthly payments commencing February, 1996, final
payment of
remaining balance on maturity date 398,626
----------
2,030,242
Less current portion 1,956,242
----------
$ 74,000
==========
</TABLE>
23
<PAGE> 56
The notes payable contain certain covenants which include, but are not limited
to, requiring the Company to maintain a term life insurance payable to the
payee in amount sufficient to pay the principal and accrued interest in the
event of promisor's death. The Company was in compliance with this covenant as
of March 31, 1996. Substantially all of the notes are past due as of March 31,
1996. The note holders have not demanded payment or initiated formal action
against the Company in regards to past due amounts and accrued interest
payable of $231,635.
Aggregate maturities of debt as of March 31, 1996, is as follows:
<TABLE>
<CAPTION>
March 31
--------
<S> <C>
Past Due $1,254,000
1997 702,242
1998 65,000
1999 9,000
----------
$2,030,242
==========
</TABLE>
24
<PAGE> 57
G. Income Taxes
No provision for income taxes has been made for 1996 and 1995 in the
accompanying consolidated financial statements because the Company incurred
losses for both financial reporting and income tax purposes. As of December
31, 1995, the Company had a net operating loss carryforward of approximately
$1,980,000 that is scheduled to expire between 2007 and 2008. Future tax
benefits related to those losses have not been recognized because their
realization is not assured.
The Company adopted the method of accounting for income taxes pursuant to
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS No.
109). FAS No. 109 requires the asset and liability method for financial
accounting and reporting for income taxes. The impact of adopting FAS No. 109
was not significant to the Company's financial position or results of
operations.
Pursuant to the Internal Revenue Code Section 382, use of the Company's net
operating loss will be limited due to a cumulative change in ownership of more
than 50%. The net operating loss available is estimated to be approximately
$88,000 per year and can be utilized at that rate until such loss is fully
utilized or expires, whichever is earlier.
H. Commitments and Contingencies
Operating Leases
The Company leases office facilities and equipment under operating leases
which expire at various dates through fiscal year 2000. The accompanying
statement of operations includes expenses from operating leases of $58,026 for
the period ending March 31, 1996. Future minimum lease payments, due under
noncancellable operating leases as of March 31, 1996, are as follows:
<TABLE>
<S> <C>
1996 $208,621
1997 138,397
1998 138,457
1999 137,518
2000 35,122
</TABLE>
The noncancellable operating leases provide that the Company pays for taxes,
licenses, insurance and certain other operating expenses applicable to the
leased items.
H. Commitments and Contingencies (continued)
Capital Leases
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments as of March 31, 1996, are as follows:
<TABLE>
<S> <C>
1996 $ 357,137
1997 357,137
1998 357,137
</TABLE>
25
<PAGE> 58
<TABLE>
<S> <C>
1999 289,621
2000 149,024
----------
Total Payments 1,510,056
Less amount representing interest (297,660)
----------
1,212,396
Less current portion of capital leases (196,503)
----------
$1,015,893
==========
</TABLE>
On February 1, 1996, the Company entered into a business agreement whereby
Fujitso Business Communication System, Inc. ("FBCS") will finance 75% of the
construction costs relating to the Army/Air Force Exchange Services ("AAFES")
projects.
On March 19, 1996, the Company entered into a supplemental agreement whereby
FBCS may finance more than the 75% of the AAFES construction costs or
approximately $9.6 million as set out in the business agreement and/or elect
to provide some of the financing during installation and construction rather
than only upon the conclusion of the installation and construction.
Litigation
The Company is a defendant in an Adversary Proceeding brought on October 30,
1995 by American Telephone & Data, Inc. ("AT&D"), as Debtor-in-Possession in
Chapter 11 Bankruptcy Action filed September 9, 1995, by AT&D in the U.S.
Bankruptcy Court in Santa Ana, California. The principal issue in the
Adversary Proceeding is whether the statutory foreclosure and private sale of
SelectTel Corporation's stock by a director, stockholder and creditor of the
Company to an unrelated third party of the collateral (a stock certificate
representing 100% of the capital stock of SelecTel Corporation) securing a
delinquent AT&D promissory note, constituted a preferential and, therefore, a
voidable transfer of AT&D assets under the Bankruptcy Laws. Advice from
counsel indicates that the legal claims in the Adversary Proceeding are to be
vigorously defended and all informtion to date reveals that the Company
maintains a reasonable probability of success in defeating the claims.
I. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information for the year ended March 31,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid for interest and
income taxes
Interest $ 36,713 $27,326
Income taxes -- --
Noncash investing and financing activities:
Assets acquired by capital lease $ 218,694 --
Assets acquired on credit 3,972,389 --
Accrued Dividends 141,900
</TABLE>
26
<PAGE> 59
J. Capital Stock
Common Stock
In October, 1995, the Board of Directors and shareholders voted to amend the
Company's Articles of Incorporation and Bylaws. The effect of the restatement
is (I) to change the authorized capital from 50,000,000 shares, no par value
common stock, to 100,000,000 shares, $.0001 par value common stock and (ii) to
authorize the issuance of 50,000,000 shares, $.0001 par value preferred stock.
Preferred Stock
Of the 50,000,000 shares of preferred stock, 1,200,000 shares have been
designated as 11% Series A, cumulative, participating, nonvoting, convertible
preferred stock, and 5,000,000 shares have been designated as 10% Series B,
cumulative, nondilutive, non-participating, nonvoting, convertible preferred
stock.
27
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company has duly caused this disclosure statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
XECOM CORP.
Dated: June 1, 1996 By/Joseph C. Vigliarolo
-----------------------
JOSEPH C. VIGLIAROLO
President
28
<PAGE> 1
EXHIBIT 2(i)
AGREEMENT OF PURCHASE AND SALE OF STOCK
This agreement is made as of this 8th day of September 1995, at Palm
Desert, California, by and between, COMPLIANCE INDUSTRIES, INC., a Nevada
corporation, doing business as VINTAGE PROPERTIES, INC. ("Buyer"), and INDIAN
WELLS INVESTMENT COMPANY ("Seller"), a Nevada corporation.
RECITALS
WHEREAS, Seller represents that it has purchased from JAMES W. TRUHER
("Truher"), an individual, free and dear of all liens and encumbrances, Five
Hundred (500) shares, or One Hundred Percent (100%) of the issued and
outstanding voting capital stock of SELECTEL CORPORATION ("SelecTel"), a
California corporation (the "Capital Stock") engaged in the business of
telecommunications facilities management with its principal office located at
125 East Baker Street, Suite 120W, Costa Mesa, California, 92714;
WHEREAS, Buyer desires to purchase from Seller, for the consideration
recited herein, and Seller desires to sell to Buyer, Three Hundred Fifty (350)
shares of the Capital Stock of SelecTel (the "Shares") described hereinabove.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE ONE
1.0 SALE AND TRANSFER OF SHARES
1
<PAGE> 2
Subject to the terms and conditions set forth in this Agreement, on the
Closing Date, Seller will sell, assign and transfer the Shares to Buyer, and
Buyer will purchase the Shares from Seller.
1.1 CONSIDERATION FROM BUYER AT CLOSING
As full payment for the sale, assignment and transfer of the Shares by
Seller to Buyer, at Closing, as herein defined, Seller will sell, assign and
transfer to Buyer Three Hundred Fifty (350) shares of the Capital Stock of
SelecTel in consideration for the following: (a) Issuance by Buyer to Seller,
and/or Seller's nominees, of One Million ( 1,000,000) shares of the restricted
common stock, $.001 par value, of Buyer ("Buyer's Stock"); (b) The issuance by
Buyer to Seller, when authorized and issued, of One Million (1,000,000) shares
of Buyer's Series B 10% restricted cumulative convertible preferred stock; (c)
the execution and delivery by Buyer to Seller of a demand Corporate Promissory
Note ("Note") in the principal amount of One Million Five Hundred Thousand
dollars ($1,500,000), a copy of which is attached hereto, by the terms of which,
among other things interest is calculated at the rate of nine percent (9%) per
annum payable in quarterly installments which shall provide, inter alia, that,
in the sole discretion of Seller: (i) Eight Hundred Thousand dollars ($800,000)
of the principal amount of the Note will be convertible into One Million Two
Hundred Thousand (1,200,000) shares of Series A 10% restricted cumulative
convertible preferred stock of Buyer; when authorized and issued, and (ii) Seven
Hundred Thousand Dollars ($700,000) of the principal amount
2
<PAGE> 3
of the Note will be convertible into Seven Hundred Thousand (700,000) shares of
Series B 10% restricted cumulative convertible preferred stock of Buyer, when
authorized and issued.
1.2 ADDITIONAL CONSIDERATION
As additional consideration for the sale, assignment and transfer of
the Shares, Buyer undertakes that Seller shall be entitled to designate two (2)
persons to serve on the Board of Directors of Vintage Properties, Inc.
ARTICLE TWO
2.0 REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants that the authorized voting Capital Stock of
SelecTel consists of 50,000,000 shares of common stock, no par value, of which
500 shares are issued and outstanding. All the shares of capital stock are
validly issued, fully paid, and nonassessable, and such shares have been so
issued in full compliance with all federal and state securities laws. There are
no outstanding subscriptions, options, rights, warrants, convertible securities,
or other agreements or commitments obligating Seller to issue or to transfer
from treasury any additional shares of its capital stock of any class.
2.1 TITLE TO ASSETS
Seller has good and marketable title to all the Shares.
2.2 AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION
The consummation of the transactions contemplated by this Agreement
will not result in or constitute the creation or imposition of any lien, charge,
or encumbrance on the Shares.
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2.3 AUTHORITY AND CONSENTS
Seller has the right, power, legal capacity, and authority to enter
into, and perform its obligations under this Agreement; and no approvals or
consents of any persons other than Seller are necessary in connection with it.
2.4 CORPORATE DOCUMENTS
Seller has furnished to Buyer for its examination (a) copies of the
articles of incorporation and bylaws of SelecTel containing all records required
to be set forth of all proceedings, consents, actions, and meetings of the
SelecTel and board of directors of SelecTel; (b) the stock transfer books of
SelecTel setting forth all transfers of any capital stock which books and
records will be delivered to Buyer at Closing.
2.5 FULL DISCLOSURE
None of the representations and warranties made by Seller, or made in
any certificate or memorandum furnished or to be furnished by it or on its
behalf, contains, or will contain any untrue statement of a material fact, or
omits to state any material fact necessary to make the statements made, in the
light of the circumstances under which they were made, not misleading.
ARTICLE THREE
3.0 BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants that:
(a) Buyer is a corporation duly organize i, existing, and in good
standing under the laws of Nevada. The execution and delivery
of this Agreement and the consummation of this
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transaction by Buyer has been duly authorized, and no further
corporate authorization is necessary on the part of Buyer.
(b) No consent, approval, or authorization of, or declaration,
filing, or registration with any United States federal or
state governmental or regulatory authority is required to be
made or obtained by Buyer in connection with the execution,
delivery, and performance of this Agreement and the
consummation of the transactions contemplated by this
Agreement.
ARTICLE FOUR
4.0 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
All representations and warranties of Seller set forth in this
Agreement and in any written statements delivered to Buyer by Seller under this
Agreement will also be true and correct as of the Closing Date as if made on
that date.
ARTICLE FIVE
5.0 CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to purchase the Shares under this Agreement
are subject to the satisfaction, at or before the
Closing, of all the conditions set out below in this Article Five. Buyer may
waive any or all of these conditions, in whole or in part, without prior notice;
provided, however, that no such waiver of a condition shall constitute a waiver
by Buyer of any of its other rights or remedies, at law or in equity, if Seller
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shall be in default of any of its representations, warranties, or covenants
under this Agreement.
5.1 ACCURACY OF SELLER'S REPRESENTATIONS AND WARRANTIES
Except as otherwise permitted by this Agreement, all representations
and warranties by the Seller in this Agreement, or in any written statement that
shall be delivered to Buyer by it under this Agreement, shall be true in all
material respects on and as of the Closing Date as though made at that time.
5.2 PERFORMANCE BY SELLER
Seller shall have performed, satisfied, and complied in all material
respects with all covenants, agreements, and conditions required by this
agreement to be performed or complied with by it on or before the Closing Date.
5.3 CERTIFICATION BY SELLER
Buyer shall have received a certificate, dated the Closing Date, signed
and verified by Seller certifying, in such detail as Buyer and its counsel may
reasonably request, that to the best of its knowledge the conditions specified
in paragraphs 2.1 to 2.5 have been fulfilled.
5.4 ABSENCE OF LITIGATION
No action, suit, or proceeding before any court or any governmental
body or authority, pertaining to the transaction contemplated by this Agreement
or to its consummation, shall-have been instituted or threatened on or before
the Closing Date.
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5.5 APPROVAL OF DOCUMENTATION
The form and substance of all certificates, instruments, opinions, and
other documents delivered by Buyer under this Agreement shall be satisfactory in
all reasonable respects to Buyer and its counsel.
ARTICLE SEVEN
6.0 CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller to sell and transfer the Shares to Buyer
under this Agreement are subject to the satisfaction, at or before the Closing,
of all the following conditions. Seller may waive any or all of these conditions
in whole or in part without prior notice, provided, however, that no such waiver
of a condition shall constitute a waiver by Seller of any of it's other rights
or remedies, at law or in equity, if Buyer should be in default of any of its
representations, warranties, or covenants under this Agreement.
6.1 ACCURACY OF BUYER'S REPRESENTATIONS AND WARRANTIES
All representations and warranties by Buyer contained in this Agreement
or in any written statement delivered by Buyer under this Agreement shall be
true on, and as of the Closing Date as though such representations and
warranties were made on and as of that date.
6.2 BUYER'S PERFORMANCE
Buyer shall have performed and complied with all covenants and
agreements and satisfied all conditions that it is required by this Agreement to
perform, comply with, or satisfy before or at the Closing.
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7.0 CLOSING
ARTICLE SEVEN
The sale and transfer of the Shares by Seller to Buyer (the Closing)
shall take place at the offices of Buyer, 74-900 Highway 111, Suite 115, Indian
Wells, California, 92210, at 11:15 a.m. PST on September 8, 1995 (the "Closing
Date").
7.1 SELLER'S DELIVERIES
At the Closing, Seller shall deliver to Buyer the following
instruments, in form and substance satisfactory to Buyer and its counsel,
against delivery of the items specified in paragraph 7.2:
(a) Certificate(s) representing the Shares, registered in the name
of Buyer;
(b) A certificate executed by Seller, dated the Closing Date,
certifying that the Seller's representations and warranties in
this Agreement are true and correct at and as of the Closing
Date, as though each representation and warranty had been made
on that date.
7.2 BUYER'S DELIVERIES TO SELLER
At the Closing. Buyer shall deliver to Seller the following instruments
and documents against delivery of the items:
(a) Certificate(s) representing Two Million (2,000,000) shares of
Buyer's stock.
(b) A fully executed Note.
(c) Certified resolutions of Buyer's Board of Directors, in a form
satisfactory to counsel for Seller, authorizing the
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execution and performance of this Agreement and all actions to
be taken by Buyer under this Agreement; and,
(d) A certificate executed by the president or vice president and
the secretary of Buyer certifying that all Buyer's
representations and warranties under this Agreement are true
as of the Closing Date, as though each of those
representations and warranties had been made on that date.
ARTICLE EIGHT
8.0 COSTS
Each party represents and warrants that it has not dealt with any
broker or finder in connection with any transaction contemplated by this
Agreement, and, as far as it knows, no broker or other person is entitled to any
commission or finder's fee in connection with any of these transactions.
8.1 EXPENSES
Each party shall pay all costs and expenses incurred or to be incurred
by it in negotiating and preparing this Agreement and in closing and carrying
out the transactions contemplated by this Agreement.
ARTICLE NINE
9.0 FORM OF AGREEMENT
The subject heading of the paragraphs and subparagraphs of this
Agreement are included for convenience only and shall not affect the
construction or interpretation of any of its provisions.
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9.1 MODIFICATION; WAIVER
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by all the parties. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
ARTICLE TEN
10.0 EXCLUSIVE RIGHTS TO PARTIES
Nothing in this Agreement, whether express or implied, is intended to
confer any rights of remedies under or by reason of this Agreement on any person
other than the parties to it and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provision give any third persons any right of subrogation or action over against
any party to this Agreement.
10.1 BINDING EFFECT
This Agreement shall be binding on, and shall inure to the benefit of,
the parties to it and their respective successors and assigns; provided,
however, that Buyer may not assign any of its rights under this Agreement,
except to a wholly owned subsidiary
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of Buyer. No such assignment by Buyer to its wholly owned subsidiary shall
relieve Buyer of any of its obligations or duties under this Agreement.
ARTICLE ELEVEN
11.0 NOTICES
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the second day after mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Seller at: P.O. Box 4205
Palm Desert, California 92261
To Buyer at: 74-900 Highway 111, Suite 115
Indian Wells, California 92210
ARTICLE TWELVE
12.0 GOVERNING LAW
This Agreement shall be construed in accordance with, and governed by,
the laws of the State of California as applied to contracts that are executed
and performed entirely in California.
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SIGNATURES
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the
day and year first above written.
Compliance Industries, Inc.
d/b/a Vintage Properties, Inc.
By:______________________________________
Dal N. Grauer
President
Indian Wells Investment Company
"Seller"
By:______________________________________
Joe A. Lanza
President
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EXHIBIT 2(ii)
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (the "Agreement") is dated December 12,
1995, and between XECOM CORP., a Nevada corporation (the "Company") and SELECT
SWITCH SYSTEMS, INC., a Texas corporation ("Select").
RECITALS
WHEREAS, the shareholders of Select ("Shareholders") own the shares of
capital stock of Select as set forth in Schedule 1 attached hereto, constituting
all of the issued and outstanding capital stock of Select (the "Select Shares");
WHEREAS, the Company desires to acquire all of the Select Shares held
by the Shareholders, and the Shareholders desire to exchange all of the Select
Shares, except as indicated on Schedule 1 hereto, for shares of voting
restricted common stock of the Company, in a transaction that qualifies under
Section 368 (a)(1)(B) of the Internal Revenue Code of 1986, as amended (the
"Code").
AGREEMENT
NOW, WHEREFORE, in consideration of the mutual covenants and agreements
contained herein and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows:
I. EXCHANGE OF THE SHARES AND CONSIDERATION
1.01 SHARES BEING EXCHANGED. Effective at the closing of this Agreement
(the "Closing"), and subject to the terms and conditions of the Agreement the
Shareholders shall assign,
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transfer and deliver to the Company all of the Select Shares which they own,
except as indicated on Schedule 1 hereto.
1.02 CONSIDERATION. Subject to the terms and conditions of this
Agreement and in consideration of the assignment and delivery of Select Shares
to the Company, the Company shall at Closing issue to the Shareholders that
number of shares of voting restricted common stock, $.0001 par value per share
(the "Company Shares"), equal to the number of shares set forth opposite the
Shareholder's name on Schedule 1 attached hereto, or a total of One Million
(1,000,000) Company Shares.
1.03 CLOSING. The Closing of the transaction contemplated by this
Agreement (the "Closing") shall; take place on a day within 15 days after this
Agreement is duly executed, or such later time as may be mutually agreed upon by
the parties.
1.04 DELIVERIES. Concurrently with the execution and delivery of this
Agreement, the parties are delivering the items and documents set forth in
Sections 1.01 and 1.02.
II REPRESENTATIONS AND WARRANTIES OF SELECT
Select represents and warrants to the Company as follows, as of the
date of this Agreement and as of the Closing:
2.01 ORGANIZATION.
2.01(a). Select is a company duly organized, validly existing
and in good standing under the laws of the state of Texas; Select has the power
and authority to carry on its business as presently conducted; and Select is
qualified to do business in all jurisdictions where the failure to be so
qualified would have a materials adverse effect on its business.
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2.01(b) The copies of the Articles of Incorporation and all
amendments thereto of Select as certified by the state of Texas, and the copy of
the Bylaws as certified by the Secretary of Select, which have been delivered to
the Company, are complete and correct copies of such Articles of Incorporation
and Bylaws, as amended, and in effect on the date hereof. All minutes of
meetings and actions in writing without a meeting of the Board of Directors and
Shareholders of Select are contained in the minute book of Select heretofore
delivered to the Company for examination, and no minutes or actions in writing
have been included in such minute book since such delivery to the Company that
have not also been delivered to the Company.
2.02 CAPITALIZATION.
2.02(a) The authorized capital stock and the issued and
outstanding shares of Select is as set forth on Exhibit 2,02(a). All of the
issued and outstanding shares of Select are duly authorized, validly issued,
fully paid and nonassessable.
2.02(b) Except as set forth in Exhibit 2.02(b), there are no
outstanding options, warrants or rights to purchase any securities of Select.
2.03 SUBSIDIARIES AND INVESTMENTS. Select does not own any capital
stock or have any interest in any corporation, partnership or other form of
business organization, except as described in Exhibit 2.03 attached hereto.
2.04 FINANCIAL STATEMENTS. The unaudited financial statements of Select
and its predecessor or sole proprietorship as of and for the period from
inception to December 31, 1994, including the
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unaudited balance sheet as of December 31, 1994 and the related unaudited
statements of operations, retained earnings and cash flows for the period from
inception to December 31, 1994 (the "Financial Statements") present fairly the
financial position and results of operations of Select, on a consistent basis.
The financial records of Select are of such character and quality that an
unqualified (except as to going concern) audit of the Select Financial
Statements may be performed within 75 days of the Closing.
2.05 NO UNDISCLOSED LIABILITIES. Other than as described in Exhibit
2.05 hereto, Select is not subject to any material liability or obligation of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due, which is not reflected or reserved against in the Financial
Statements, except those incurred in the normal course of business.
2.06 ABSENCE OF MATERIAL CHANGES. Since December 31, 1994, except as
described in any Exhibit hereto or as required or permitted under this
Agreement, there has not been:
2.06(a) any material change in the condition (financial or
otherwise) of the properties assets, liabilities or business of Select, except
changes in the ordinary course of business which, individually and in the
aggregate, have not been materially adverse;
2.06(b) any redemption, purchase or other acquisition of any
shares of the capital stock of Select, or any issuance of any shares of capital;
stock or the granting, issuance or exercise of
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any rights, warrants, options or commitments by Select relating to its
authorized or issued capital stock; and,
2.06(c) any change or amendment to the Articles of
Incorporation or Bylaws of Select.
2.07. LITIGATION. Except as set forth in Exhibit 2.07 hereto, there is
no litigation, proceeding or investigation pending or threatened against Select
affecting any of its properties or assets against any officer, director or
stockholder of Select that might result, wither in any case or in the aggregate,
in any material adverse change in the business, operations, affairs or condition
of Select or its properties or assets, or that might call into question the
validity of this Agreement, or any action taken or to be taken pursuant hereto.
2.08. TITLE TO ASSETS. Select has good and marketable title to all its
assets and properties now carried on its books, including those reflected in the
balance sheets contained in the Financial Statements, free and clear of all
liens, claims, charges, security interests or other encumbrances, except as
described in Exhibit 2.08 hereto, or any other Exhibit.
2.09. CONTRACTS AND UNDERTAKINGS. Except as listed on Exhibit 2.09
hereto, Select is not in material default, or alleged to be in material default,
under any contract, agreement, lease, license, commitment, instrument or
obligation and no other party to any contract, agreement, lease, license,
commitment, instrument or obligation to which Select is a party is in default
thereunder nor does there exist any condition or event which, after notice or
lapse of time or both, would constitute a default
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by any party to any such contract, agreement, lease, license, commitment,
instrument or obligation.
2.10. UNDERLYING DOCUMENTS. Copies of all documents described in any
Exhibit hereto (or summary of any such contract, agreement or commitment, if
oral) have been made available to the Company and are complete and correct and
include all amendments, supplements or modifications thereto which the Company
hereby acknowledges having received and read.
2.11. TRANSACTIONS WITH AFFILIATES. Directors and Shareholders. Except
as set forth in Exhibit 2.11 hereto, there are and have been no contracts,
agreements, arrangements or other transactions between Select and any officer,
director or shareholder of Select, or an corporation or other entity controlled
by the Shareholders, a member of the Shareholders' families, or any affiliate of
the Shareholders.
2.12. NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any term or provision of, or constitute a default under,
the Articles of Incorporation or Bylaws of Select, or any agreement, contract or
instrument to which Select is a party or by which it or any of it assets are
bound.
2.13. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS. Select owns or has
valid right or license to use all patents, patent rights, trade secrets,
trademarks, trademark rights, trade names, trade name rights, copyrights and
other intellectual property rights (collectively referred to as "Intellectual
Property Rights")
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which are necessary to operate its business as now operated and as now proposed
to be operated. A brief description of such Intellectual Property Rights is set
forth in Exhibit 2.13 hereto. Except as set forth in Exhibit 2.13, Select done
not have any obligation to compensate any person, firm, corporation or other
entity for the use of any such Intellectual a property Rights, nor has Select
granted to any person, firm corporation or other entity any license or other
rights to use in any manner, or waived its rights with respect to any
Intellectual Property Rights of Select.
2.14. DISCLOSURE. To the actual knowledge of Select, neither this
Agreement, the Financial Statements nor any other agreement, document,
certificate or written or oral statement furnished to the Company by or on
behalf of Select in connect with the transaction contemplated hereby, contained
any untrue statement of a material fact or when taken as a whole omits to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
2.15. AUTHORITY. Select has full power and authority to enter into this
Agreement and to carry out the transactions contemplated herein. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, have been duly authorized and approved by the Board of
Directors of Select and no other corporate proceedings on the part of select are
necessary to authorize this Agreement and the transactions contemplated hereby.
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III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Select and Shareholders
as follows, as of the date of this Agreement and as of Closing:
3.01 ORGANIZATION.
3.01(a). The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Nevada; has the
power and authority to carry on its business as presently conducted; and is
qualified to do business in all jurisdictions where the failure to be so
qualified would have a materials adverse effect on its business.
3.01(b) The copies of the Articles of Incorporation, and all
amendments thereto, of the Company as certified by the state of Nevada, and the
copy of the Bylaws as certified by the Secretary of the Company, which have been
delivered to Select, are complete and correct copies of such Articles of
Incorporation and Bylaws, as amended, and in effect on the date hereof. All
minutes of meetings and actions in writing without a meeting of the Board of
Directors and Shareholders of the Company are contained in the minute book of
the Company heretofore delivered to the Select for examination, and no minutes
or actions in writing have been included in such minute book since such delivery
to Select that have not also been delivered to Select.
3.02 CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of common stock $.0001 par value per share of
which there are 5,749,892 shares issued and
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outstanding; and, 50,000,000 shares of preferred stock, $.0001 par value per
share, none of which has been issued.
3.03 SUBSIDIARIES AND INVESTMENTS. The Company does not have any
interest in any corporation, partnership or other form of business organization,
except as described in Exhibit 3.03 attached hereto.
3.04 FINANCIAL STATEMENTS. The audited financial statements of the
Company and its predecessor as of and for the period from January 1, 1992 to
December 31, 1994, including the audited balance sheet as of December 31, 1994
and the related audited statements of operations, retained earnings and cash
flows for the period from January 1, 1992 to December 31, 1994 (the "Financial
Statements") present fairly the financial position and results of operations of
the Company, on a consistent basis. As of the Closing, the Company shall have no
material undisclosed liabilities.
3.05 NO UNDISCLOSED LIABILITIES. Other than as described in Exhibit
3.05 hereto, the Company is not subject to any material liability or obligation
of any nature, whether absolute, accrued, contingent or otherwise and whether
due or to become due.
3.06 ABSENCE OF MATERIAL CHANGES. Since December 31, 1994, except as
described in any Exhibit hereto or as required or permitted under this
Agreement, there has not been:
3.06(a) any material change in the condition (financial or
otherwise) of the properties assets, liabilities or business of the Company,
except changes in the ordinary course of business
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which, individually and in the aggregate, have not been materially adverse;
3.06(b) any redemption, purchase or other acquisition of any
shares of the capital stock of Select, or any issuance of any shares of capital;
stock or the granting, issuance or exercise of any rights, warrants, options or
commitments by the Company relating to its authorized or issued capital stock;
and,
3.06(c) any change or amendment to the Articles of
Incorporation or Bylaws of the Company
3.07. LITIGATION. Except as set forth in Exhibit 3.06 hereto, there is
no litigation, proceeding or investigation pending or threatened against the
Company affecting any of its properties or assets against any officer, director
or stockholder of the Company that might result, wither in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or condition of the Company or its properties or assets, or that might call into
question the validity of this Agreement, or any action taken or to be taken
pursuant hereto.
3.08. AUTHORITY. Company has full power and authority to enter into
this Agreement and to carry out the transactions contemplated herein. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized and approved by the
Board of Directors of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement and the transactions
contemplated hereby.
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3.09. UNDERLYING DOCUMENTS. Copies of all documents described in any
Exhibit hereto (or summary of any such contract, agreement or commitment, if
oral) have been made available to the Select and are complete and correct and
include all amendments, supplements or modifications thereto which Select hereby
acknowledges having received and read.
IV. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants of the Company and Select
contained herein shall survive the consummation of the transactions contemplated
herein and remain in full force and effect.
V. CONDITIONS TO CLOSING
5.01 CONDITIONS TO OBLIGATION OF SELECT. The obligations of Select and
Shareholders under this Agreement shall be subject to each of the following
conditions:
5.01(a) REPRESENTATIONS AND WARRANTIES OF COMPANY TO BE TRUE.
The representations and warranties of Company herein contained shall be true in
all material respects at the Closing with the same effect as though made at such
time. Company shall have performed in all material respects all obligations and
complied in all material respects, to its actual knowledge, with all covenants
and conditions required by this Agreement to be performed or complied with by it
at or prior to Closing.
5.01(b) NO LEGAL PROCEEDINGS. No injunction or restraining
order shall be in effect, and no action or proceeding shall have been instituted
and, at what would otherwise have been the
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Closing, remain pending before a court to restrain or prohibit the transactions
contemplated by this Agreement.
5.01(c) STATUTORY REQUIREMENTS. All statutory requirements for
the valid consummation by Company of the transactions contemplated by this
Agreement shall have been fulfilled. All authorizations, consents and approvals
of all Governments and other persons required to be obtained in order to permit
consummation by Company of the transactions contemplated by this Agreement to
continue unimpaired in all material respects immediately following the Closing
shall have been obtained.
5.01(d) CLOSING DOCUMENTS. Company shall have executed and
delivered all documents required to be executed and delivered by Company
pursuant to Section 1.04.
5.02 CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of Company
under this Agreement shall be subject to the following conditions:
5.02(a) REPRESENTATIONS AND WARRANTIES OF SELECT TO BE TRUE.
The representations and warranties of Select herein contained shall be true in
all material respects as of the Closing, and shall have he same effect as though
made at the Closing. Purchaser shall have performed in all material respects all
obligations and complied in all material respects, to its actual knowledge, with
all covenants and conditions required by this Agreement to be performed or
complied with by it prior to the Closing.
5.02(b) NO LEGAL PROCEEDINGS. No injunction or restraining
order shall be in effect prohibiting this Agreement, and no
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action or proceeding shall have been instituted and, at what would otherwise
have been the Closing, remain pending before the court to restrain or prohibit
the transactions contemplated by this Agreement.
5.02(c) STATUTORY AND OTHER REQUIREMENTS. All statutory
requirements for the valid consummation by Select of the transactions
contemplated by this Agreement shall have been fulfilled: all authorizations,
consents and approvals of all Governmental agencies and authorities to be
obtained in order to permit consummation by Select of the transactions
contemplated by this Agreement shall have been obtained.
5.02(d) EXECUTION AND DELIVERY. Select shall have executed and
delivered all documents required to be executed and delivered by Select pursuant
to Section 1.04.
VI. TERMINATION OF OBLIGATIONS AND WAIVERS OF CONDITIONS; PAYMENT OF
EXPENSES.
6.01 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding this Agreement, may be terminated at any time before the Closing
as follows and in no manner:
(a) MUTUAL CONSENT. By mutual consent of Select and Company.
(b) EXPIRATION DATE. By either Select or Company if the
Closing shall not have taken place by December 15, 1995, which date may be
extended by mutual agreement of Select and Company.
6.02 PAYMENT OF EXPENSES; WAIVER OF CONDITIONS. In the event that this
Agreement shall be terminated pursuant to Section 6.01, all obligations of the
parties under this Agreement shall
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terminate and there shall be no liability of either party to the other. Each
party hereto will pay all costs and expenses incident to its negotiation and
preparation of this Agreement and performance of and compliance with all
agreements and conditions contained herein or therein on its part to be
performed or complied with, including the fees, expenses and disbursements of
counsel. If any of the conditions specified in Section 5.01 hereof has not been
satisfied Select may nevertheless, at the election of Select, proceed with the
transactions contemplated hereby and if any of the conditions specified in
Section 5.02 hereof has not been satisfied, Company may nevertheless, at its
election, proceed with the transactions contemplated hereby. In the event that
the Closing shall be consummated, each party hereto will pay all of its costs
and expenses in connection therewith.
VII MISCELLANEOUS.
7.01. FINDER'S FEES. Investment Banking Fees. Neither Select nor the
Company have retained or used the services of any person, firm or corporation in
such manner as to require the payment of any compensation as a finder or a
broker in connection with the transactions contemplated herein, except pursuant
to Section 1.04.
7.02. TAX TREATMENT. The transaction contemplated hereby is intended to
qualify as a so-called "tax-free reorganization under the provisions of Section
368 of the Internal Revenue Code. Company and Select acknowledge, however, that
they each have been represented by their own tax advisors in connection with
this
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transaction; that neither has made any representation or warranty to the other
with respect to the treatment of such transaction or the effect thereof under
applicable tax laws, regulations, or interpretations; and that no attorney's
opinion or private revenue ruling has been obtained with respect to the effects
thereof under the Internal Revenue Code of 1986, as amended.
7.03. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
7.04. PARTIES IN INTEREST. Except as otherwise expressly provided
herein, all of the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
7.05. ENTIRE AGREEMENT: AMENDMENTS. This Agreement, including the
Schedules, Exhibits and other documents and writing referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only
15
<PAGE> 16
by a written instrument duly executed by the parties or their respective
successors and assigns.
7.06. HEADINGS. ETC. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretations of this Agreement.
7.07. PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to the masculine, the feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
7.08. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.09. GOVERNING LAW. This Agreement shall be governed by the laws of
the state of Nevada applicable to contracts to be performed in the state of
Nevada.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
parties hereto as the date first above written.
XECOM CORP. SELECT SWITCH SYSTEM INC.,
By: By:
----------------------------- -----------------------
Name: James W. Truher Name: Allan King
Title: President Title: President
*William J. Hickey as attorney-in-fact for James W. Truher, Chairman of the
Board and President of Xecom Corp., as provided by the Nevada Revised Statutes,
as amended.
16
<PAGE> 1
EXHIBIT 3(i)
ARTICLES OF INCORPORATION
OF
MONTEGO CORP.
THE UNDERSIGNED natural persons of the age of twenty-one (21) years or more,
acting as incorporates of a corporation under the Nevada Business Corporation
Act, adopt the following Articles of Incorporation for such corporation.
ARTICLE 1 - NAME
The name of the corporation is Montego Corp.
ARTICLE II - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged are:
a) To engage in the specific business of making investments, including
investment in, purchase and ownership of any and all kinds of property, assets
or business, whether alone or in conjunction with others. Also, to acquire,
develop, explore and otherwise deal in and with all kinds of real and personal
property and all related activities, and for any and all other lawful purposes.
b) To acquire by purchase, exchange, gift, bequest, subscription, or otherwise:
and to hold, own, mortgage, pledge, hypothecate, sell, assign, transfer,
exchange, or otherwise dispose of or deal in or with its own corporate
securities or stock or other securities including, without limitations, any
shares of stock, bonds, debentures, notes, mortgages, or other obligations, and
any certificates, receipts or other instruments
1
<PAGE> 2
representing receipts or other instruments representing rights or interests
therein on any property or assets created or issued by any person, firm,
associate, or corporation, or instrumentality's thereof: to make payment
therefor its unreserved earned surplus for the purchase of its own shares, and
to exercise as owner or holder of any securities, and all rights, powers, and
privileges in respect thereof.
c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may, at any time, appear conducive to
or expedient for the protection or benefit of this corporation, and to do said
acts as fully and to the same extent as natural persons might, or could do in
any part of the world as principals, agents, partners, trustees, or otherwise,
either alone or in conjunction with any other person, association, or
corporation.
d) The foregoing clauses shall be construed both as purposes and powers and
shall not be held to limit or restrict in any manner the general powers of the
corporation, and the enjoyment and exercise thereof, as conferred by the laws of
the State of Nevada: and it is the intention that the purposes and powers
specified in each of the paragraphs of this Article III shall be regarded as
independent purposes and powers.
ARTICLES IV - STOCK
The aggregate number of shares which this corporation shall have
authority to issue is 50,000,000 shares of Common Stock having a par value of
$0.01 per share. All stock of the corporation shall be of the same class,
common, and shall have the same rights and preferences. Fully-paid stock of this
2
<PAGE> 3
corporation shall not be liable to any further call or assignment.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote
of a "majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDER RIGHTS
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
ARTICLE VII - CAPITALIZATION
This corporation will not commence business until consideration of a
value of at least $1,000 has been received for the issuance of said shares.
ARTICLE VIII - INITIAL OFFICE AND AGENT
The Corporate Trust Company of Nevada
One East First Street
Reno, Nevada 85901
ARTICLE IX - DIRECTORS
The directors are hereby given the authority to do any act on behalf of
the said corporation by law and in each instance where the Business Corporation
Act provides that the directors may act in such action by the directors, the
directors are hereby given authority to act in such instances without
specifically numerating such potential action or instance herein.
The directors are specifically given the authority to mortgage or
pledge any or all assets of the business without stockholders approval.
3
<PAGE> 4
The number of directors constituting the initial Board of Directors of
this corporation is three. The names and addresses of persons who are to serve
as Directors until the first annual meeting of stockholders or until their
successors are elected and qualify, are:
NAME: ADDRESS:
Siegfreid Kocj Jr 80 No 970 West
Orem UT 84057
Mark C. Hewlett 907 So Valley View Road
Fruit Heights, UT 84037
Michael D. Burbidge 1535 Chapel Oaks Circle
Sandy UT 84092
ARTICLE X - INCORPORATORS
The name and address of each incorporator is:
Thomas G. Kimble 311 So State # 440
Salt Lake City UT 84111
Jody York 311 So State #440
Salt Lake City UT 84111
Van Butler 311 So State #440
Salt Lake City UT 84111
ARTICLE XI
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one
or more of its directors or any one or more of its directors or any other
corporations, firm, association, or entity in which one or more of its directors
or officers are financially interested, shall be either void or violable because
of such
4
<PAGE> 5
relationship or interest, or because such director or directors are present at
the meeting of the Board of Directors, or a committee thereof, which authorizes,
approves, or ratifies such contract or transaction, or because his or their
votes are counted for such purpose if: (a) the fact of such relationship or
interest is disclosed or known tot he Board of Directors or committee which
authorizes, approves, or ratifies the contract or transaction by vote or consent
sufficient for the purpose without counting the votes or consents of such
interested director: or (b) the fact of such relationship or interest is
disclosed or known to the stockholders entitles to vote and they authorize,
approve, or ratify such contract or transaction by vote or written consent, or
(c) the contract or transaction is fair and reasonable to the corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorizes, approves, or ratifies such contract or transaction.
Under penalties of perjury, we declare tat these Articles of
Incorporation have been examined by us and are, to the best of our knowledge and
belief, true, correct and complete. DATED this 26th day of April, 1985.
Thomas G. Kimble
Jody York
Van L. Butler
State of Utah )
ss:.
County of Salt Lake )
On this 26th day of April, 1985, personally appeared before me, Thomas
G. Kimble, Jody York, and Van L. Butler who duly
5
<PAGE> 6
acknowledged to me that they signed the foregoing Articles of Incorporation.
My Commission Expires: NOTARY PUBLIC
December 7, 1988 Patty Fout
Residing At: Salt Lake County
By: Warnock And Hurd
2 Exchange Place
Suite 404
Salt Lake City UT 84111
Filing Fee: $50.00
6
<PAGE> 7
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF MONTEGO CORPORATION
Pursuant to the applicable provisions of the Nevada Business
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to it s Articles of Incorporation by stating the following:
FIRST: The present name of the corporation is Montego Corporation.
SECOND: The following amendments to its Articles of Incorporation were
adopted by the shareholders of the corporation on May 12, 1986, at 10:00 o'clock
am at 3800 Hudson Bend Road, Austin, Texas 78734, in the manner prescribed by
Nevada Law.
Article I is amended as follows:
ARTICLE I - NAME
The name of the corporation is Calkins Industries, Inc.
THIRD: The number of shares of the Corporation outstanding at the
time of the adoption of said amendment was 49,996,666 and the number of shares
entitled to vote thereon was 49,996,666.
FOURTH: The number of shares in attendance at the meeting either in
person or by proxy was 33,066,666 the number of shares which voted for such
amendment was 33,066,666 and the number voted against such amendment was none.
DATED: this 24th day of June 1986.
MONTEGO CORPORATION
President: Richard Cohen
ATTEST:
Anne A. Calkins, Secretary
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<PAGE> 8
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(after issuance of stock)
Filed by: Dal N.R. Grauer
74900 Hwy 111, Suite 115
Indian Wells CA 92211
COMPLIANCE INDUSTRIES INC.
Name of Corporation
We the undersigned James W. Truher, Present and Dal N.R. Grauer, Secretary of
Compliance Industries, Inc., do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened and
held on the October 6, 1995, adopted resolutions to amend the original articles
as follows:
Article I is hereby amended and read as follows:
The name of the corporation is Xecom Corporation.
Article IV is hereby amended to read as follows:
(a) Common Stock and Preferred Stock. The corporation is authorized to
issue two classes of shares designated "Common Stock" and "Preferred Stock"
respectively. The number of shares of Common Stock authorized to be issued is
100,000,000 shares, $.0001 par value. The number of shares of Preferred Stock to
be issued is 50,000,000 shares, $.0001 par value.
(b) Rights, Preferences, Provisions and Restrictions. The Board of
Directors will have authority to cause the issuance, from time to time, of
preferred stock and one or more series thereof, for any proper purpose, without
further stockholder approval, except where, because of the particular
circumstances under which any of such shares will be issued, stockholder
approval is required by law. Each series, of preferred stock is required to be
distinctly titled and shall consist of the number of shares designated by the
Board of Directors. The Board of Directors is expressly vested with the rights
to determine with respect to the preferred stock, and each series thereof, the
following: (a) whether such shares shall be granted voting rights, and if so, to
what extent and upon what terms and conditions; (b) the rates and times at
which, and the terms and condition on which, dividends (if any) on such shares
shall be paid, and any dividend preferences or rights of accumulation; (c) the
liquidation rights (if any) of such shares, including whether such shares shall
enjoy any liquidation preference over common stock, and if so, to what extent;
and, (f) the other designations, preferences, relative rights, and limitations
(if any) attaching to such shares.
Article IX is hereby amended to read as follows:
"The Directors are hereby given the authority to do any act on behalf of the
corporation by law and in each instance where Business Corporation Act provides
that the directors may act in certain instances where the Articles of
Incorporation authorize such action by directors, the directors are hereby given
2
<PAGE> 9
authority to act in such instances without specifically numerating such
potential action or instance herein.
"The directors are specifically given the authority to mortgage or pledge any
and all assets of the business without stockholders approval.
"The number of directors constituting the Board of Directors of this corporation
shall no less than five (5) and no more than fifteen (15).
The number of shares of the corporation outstanding and entitled to vote on an
amendment change to the Articles of Incorporation is 5,749,892; that the said
changes and amendments have been consented to and approved by a majority of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
James W. Truher,
President
Dal N.R. Grauer,
Serrate
State of California )
)ss.
County of Orange )
On October 25th 1995, personally appeared before me, a Notary Public, James W.
Truher and Dal N.R. Grauer who acknowledged that they executed the above
instrument.
William J. Hickey,
Notary
STATE OF NEVADA
Secretary of State
I Hereby certify that this is a
true and complete copy of
the document as filed in the
office.
OCT 30, 95'
DEAN HELLER
Secretary of State
VERIFICATION
State of Washington )
)ss:
County of )
The undersigned being first duly sworn, deposes and states; that he is the
Secretary of Montego Corporation that he has the read the Articles of Amendment
and knows the contents thereof and that the same contains a truthful statement
of the amendment duly adopted by the stockholders of the corporation.
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<PAGE> 10
Anne A. Caulking
State of Washington )
)ss:
County of )
Before me the undersigned Notary Public in and for the said County and
State, Personally appeared the President and Secretary of Montego Corporation, a
Nevada Corporation, and signed the foregoing Articles of Incorporation of
Amendment as their own free and voluntary act and deed pursuant to a corporate
resolution for the uses and purposes set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th day
of June 1986.
Notary Public: Janice L. O'Mally
Besiding at:
My Commission Expires: 08/16/86
CERTIFICATE OF AMENDMENT
At a special stockholders meeting held on February 12th, 1994 with 80%
of the stockholders present, the following resolution was passed:
RESOLVED, that the name of Caulkins Industries Inc., be changed to
Compliance Industries Inc., effective this date.
I certify the above resolution was passed.
PATRICK E. LYDON, PRESIDENT
JAMES L. MCAFEE, SECRETARY
On this date, Patrick E. Lydon personally appeared before me known as
President of Compliance Industries Inc., February 14, 1994.
Kim LaFrombos
Notary Public in and for the
STATE OF WASHINGTON
King County, WA
On this date, James L. McAfee personally appeared before me to be known
as the Secretary of Compliance Industries Inc., February 14, 1994.
Kim LaFrombos
Notary Public in and for the
STATE OF WASHINGTON
King County, WA
4
<PAGE> 11
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF
PREFERRED STOCK
of
Xecom Corp.,
a Nevada corporation
-----------------
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 78.195(1) OF THE
NEVADA REVISED STATUTES, AS AMENDED
Xecom Corp., a Nevada corporation (the "Corporation"), pursuant to
Section 78.195(1) of the Nevada Revised Statutes, as amended, certifies that the
Board of Directors of the Corporation duly adopted the resolutions attached
hereto as Appendix I providing for the issuance of a class of stock to be
designated Series A Preferred Stock and to consist of One MillionTwo Hundred
Thousand (1,200,000) shares on December 10, 1995, and that the authorized number
of shares of Preferred Stock is Fifty Million (50,000,000), of which shares none
have been issued.
The undersigned, Joseph C. Vigiliarolo and Dal N. R. Grauer, do hereby
certify that they are the duly elected and acting President and Secretary,
respectively, of the Corporation.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Joseph C. Vigliarolo, its President, and attested by Dal N. R. Grauer,
its Secretary, this 20th day of May, 1996.
Xecom Corp.
By: ________________________
Its: President
ATTEST:
By: __________________________
Its: Secretary
<PAGE> 12
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF
PREFERRED STOCK
of
Xecom Corp.,
a Nevada corporation
-----------------
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 78.195(1) OF THE
NEVADA REVISED STATUTES, AS AMENDED
Xecom Corp., a Nevada corporation (the "Corporation"), pursuant to
Section 78.195(1) of the Nevada Revised Statutes, as amended, certifies that the
Board of Directors of the Corporation duly adopted the resolutions attached
hereto as Appendix I providing for the issuance of a class of stock to be
designated Series A Preferred Stock and to consist of One MillionTwo Hundred
Thousand (1,200,000) shares on December 10, 1995, and that the authorized number
of shares of Preferred Stock is Fifty Million (50,000,000), of which shares have
been issued.
The undersigned, Joseph C. Vigiliarolo and Dal N. R. Grauer, do hereby
certify that they are the duly elected and acting President and Secretary,
respectively, of the Corporation.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Joseph C. Vigliarolo, its President, and attested by Dal N. R. Grauer,
its Secretary, this 20th day of May, 1996.
Xecom Corp.
By: ________________________
Its: President
ATTEST:
By: __________________________
Its: Secretary
<PAGE> 13
APPENDIX I
WHEREAS, the Articles of Incorporation of the Corporation (i) authorize
a class of stock designated Preferred Stock, $.0001 par value (the "Preferred
Stock"), that such Preferred Stock may be issued from time to time in one or
more series, and (ii) authorize the Board of Directors of the Corporation to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and the number of
shares constituting any such series and the designation thereof;
WHEREAS, the Articles of Incorporation of the Corporation authorize a
class of stock designated Common Stock, $.0001 par value, comprising One Hundred
Million (100,000,000) shares. The term "Common Stock" when used in this
resolution shall mean Common Stock of the Corporation, $.0001 par value, and any
stock into which such Common Stock may thereafter have been changed, and, when
otherwise used in these resolutions, shall also include stock of the Corporation
of any other class, whether now or hereafter authorized, which ranks, or is
entitled to a participation, as to the distribution of assets or the payment of
dividends, substantially on a parity with such existing Common Stock or other
class of stock into which such Common Stock may have been changed; and
WHEREAS, the Corporation has not heretofore issued any Preferred Stock
and it is the desire of the Board of Directors to determine the rights,
preferences, privileges, restrictions and other matters relating to a first
series of One Million Two Hundred Thousand (1,200,000) shares of Preferred
Stock;
NOW, THEREFORE, BE IT RESOLVED that the Corporation create and issue a
series of Preferred Stock of the Corporation consisting of One Million Two
Hundred Thousand (1,200,000) shares, and that the Board of Directors does hereby
fix and determine the rights, preferences, privileges, restrictions and other
matters relating to such Preferred Stock as follows:
1. DESIGNATION. This first series of Preferred shares shall be
designated and known as "Series A Preferred Stock." The number of shares
constituting the Series A Preferred Stock shall be One Million Two Hundred
Thousand (1,200,000) shares. The stated value of the Series A Preferred Stock
shall be $1.00 per share.
2. DIVIDENDS. The holders of shares of Series A Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, prior, and in preference to, any declaration or payment of any
dividend (payable other than in Common Stock of this Corporation) on the Common
Stock of this Corporation. Dividends on each share of Series A Preferred stock
shall be at the rate of Eleven
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<PAGE> 14
percent (11%) per annum, payable quarterly on January 1, April 1, July 1 and
October 1 of each year out of the funds legally available therefor, when and as
declared by the Board of Directors. Commencing on January 1, 1996 such dividends
shall accrue and be deemed to accrue from day to day, whether or not earned or
declared, and shall be cumulative so that any time after January 1, 1996
dividends accrued after that date on the Series A Preferred Stock shall be paid
or declared and set apart for payment before any dividend shall be paid on or
declared or set apart on shares of Common Stock. Any such cumulative but unpaid
dividends on the Series A Preferred Stock shall not bear interest.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, the holders of the shares of the Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution of assets shall be made
with respect to the Common Stock or junior stock, an amount equal to the stated
value per share plus any dividends on the Series A Preferred Stock theretofore
declared and unpaid. If upon liquidation, dissolution or winding-up of the
Corporation, the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Preferred Stock
(including the holders of the Series A Preferred Stock) the full amounts to
which they respectively shall be entitled, then the holders of the Preferred
Stock shall share ratability in any such distribution of assets of the
Corporation according to the respective amounts that would be payable in respect
of the shares of Preferred Stock held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) The merger of the Corporation with another
Corporation, or the sale, transfer or lease of all or substantially all of the
assets of the Corporation, shall not be deemed a liquidation, dissolution or
winding-up of the Corporation as those terms are used in this Section 3.
(c) In the event the Corporation shall propose to take
any action of the types described in subparagraph (a) of this Section 3, the
Corporation shall, within ten (10) days after the date the Board of Directors
approves such action, or twenty (20) days prior to any stockholders' meeting
called to approve such action, whichever is earlier, give each holder of shares
of the Series A Preferred Stock initial written notice of the proposed action.
Such initial written notice shall describe the material terms and conditions of
such proposed action, including a description of the stock, cash and property to
be received by the holders of shares of the Series
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<PAGE> 15
A Preferred Stock upon consummation of the proposed action and the date of
delivery thereof. If any material change in the facts set forth in the initial
notice shall occur, the Corporation shall promptly give written notice to each
holder of shares of the Series A Preferred Stock of such material change.
(d) The Corporation shall not consummate any proposed
action of the type described in subparagraph (a) of this Section 3 before the
expiration of thirty (30) days after the mailing of the initial notice or ten
(10) days after the mailing of any subsequent written notice, whichever is
later; provided that any such 30-day or 10-day period may be shortened upon the
written consent of the holders of all of the outstanding shares of the Series A
Preferred Stock.
(e) In the event the Corporation shall propose to take
any action of the types described in subparagraph (a) of this Section 3 which
will involve the distribution of assets other than cash, the value of the assets
to be distributed to the holders of shares of the Series A Preferred Stock shall
be the fair market value of such assets as determined, in good faith, by the
Board of Directors.
4. CONVERSION. The holders of Series A Preferred Stock have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall
be convertible, until not later than the close of business on the fifth (5th)
business day prior to the date fixed for redemption in any notice of redemption,
at the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for such
shares, into one (1) fully paid and non assessable share of Common Stock
("Conversion Ratio.)
(b) MECHANICS OF CONVERSION. Before any holder of shares
of Series A Preferred Stock shall be entitled to convert the same into full
shares of Common Stock pursuant to Section 4 (a), the holder shall surrender the
certificate or certificates thereof, duly endorsed, at the office of the
Corporation or of any transfer agent for such Series A Preferred Stock, and
shall give written notice to the Corporation at such office that the holder
elects to convert the same and shall state therein the holder's name or the name
or names of the holder's nominees in which the holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder,
or to the holder's nominee or nominees, a Common Stock to which the holder shall
be entitled as aforesaid. Conversion pursuant to Section 4 (a) shall be deemed
to have occurred immediately prior to the close of business on the date of such
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<PAGE> 16
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Upon any conversion
pursuant to Sections 4 (a), cumulative dividends as provided in Section 2,
accrued and unpaid on the Series A Preferred Stock shall be disregarded and not
paid.
(c) ADJUSTMENTS TO CONVERSION RATIO.
(I) SPECIAL DEFINITION. For purposes of this
Section 4 (c), the following definition shall apply: ORIGINAL ISSUE DATE" shall
mean, for Series A Preferred Stock, the original date on which a share of Series
A Preferred Stock was first issued.
(ii) ADJUSTMENT FOR STOCK SPLITS AND
COMBINATIONS. If the Corporation shall at any time, or from time, to time after
the Original Issue Date applicable to Series A Preferred Stock effect a
subdivision of the outstanding Common Stock, the applicable Conversion Ratio
then in effect immediately before that subdivision shall be proportionately
decreased and, conversely, if the Corporation shall at any time or from time to
time after the Original Issue Date applicable to Series A Preferred Stock
combine the outstanding shares of Common Stock, the applicable Conversion Ratio
then in effect immediately before the combination shall be proportionately
increased. Any adjustments under this Section 4 (c) (ii) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.
(iii) ADJUSTMENT FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time, or from time to time
after the Original Issue Data applicable to Series A Preferred Stock, shall
make, or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in shares of
Common Stock, then and in each such event the applicable Conversion Raatio then
in effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the applicable Conversion Ratio then in effect by a
fraction:
(A) The numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(B) The denominator of which shall be
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or
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<PAGE> 17
the close of business on such record date, plus the number of shares of Common
Stock issuable in payment of such dividend or distribution provided, however, if
such record date shall have been fixed and such dividend is not fully paid or is
such distribution is not fully made on the date fixed therefore, the applicable
Conversion Ratio shall be recomputed accordingly as of the close of business on
such record date and thereafter such Conversion Ratio shall be adjusted pursuant
to this Section 4 (c) (iii) as of the time of actual payment of such dividends
or distributions.
(iv) ADJUSTMENT FOR OTHER DIVIDEND AND
DISTRIBUTIONS. In the event the Corporation, at any time or from time to time
after the Original Issue Date of Series A Preferred Stock, shall make, or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in such event provisions
shall be made so that the holders of Series A Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation which they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the conversion date, retained such
securities (together with any distributions payable thereon during such period)
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series A Preferred Stock.
(v) ADJUSTMENT FOR RECLASSIFICATION EXCHANGE, OR
SUBSTITUTION. If the Common Stock issuable upon the conversion of the Preferred
Stock at any time or from time to time after the Original Issue Date applicable
to Series A Preferred Stock shall be changed into the same or different number
of shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividends provided for in Section 4 (c) (A) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
4 (c) (vi), then, and in each event, provisions shall be made (by adjustment to
the Conversion Ratio or otherwise) so that the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such of Series A Preferred Stock might have
been converted immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
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(vi) ADJUSTMENT FOR REORGANIZATION, MERGER,
CONSOLIDATION OR SALES OF ASSETS. If at any time or from time to time after the
Original Issue Date of the Series A Preferred Stock there shall be a capital
reorganization of the Corporation (other than a subdivision, combination
reclassification, exchange or substitution of shares provided for in Section 4
(c) (ii) and (v) or a merger or consolidation of the Corporation with or into
another Corporation, or the sale of all or substantially all of this
Corporation's properties and assets to any other person), then as a part of such
reorganization, merger, consolidation, or sale, provision shall be made (by
adjustment to the applicable Conversion Ratio or otherwise) so that the holders
of the Series A Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock, the number of shares of stock or
other securities or property of the Corporation, or of any successor Corporation
resulting from such merger or consolidation or sale, to which a holder of Common
stock deliverable upon conversion of such shares would have been entitled on
such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 (c) with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation, or sale to the
end that the provisions of this Section 4 (c) (including adjustment of the
applicable Conversion Ratio then in effect, and the number of shares of stock or
other securities deliverable upon conversion of the Series A Preferred Stock)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(d) NO IMPAIRMENT . The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times, in good faith, assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Ratio pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
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time or any holder of such affected Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Ratio at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of such Series A Preferred Stock.
(f) NOTICE OF RECORD DATE. In the event that: (i) this
Corporation shall set a record date for the purpose of entitling the holders of
its shares of Common Stock to receive a dividend, or other distribution, payable
otherwise than in cash; or (ii) this corporation shall set a record date for the
purpose of entitling the holders of its shares of Common Stock to subscribe for
or purchase any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization
of this Corporation, reclassification of the shares of this Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of this Corporation with or into another Corporation, or
conveyance of all, or substantially all, of the assets of this Corporation to
another Corporation; or (iv) there shall occur a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation; then, and in any
such case, this Corporation shall cause to be mailed to the holders of record of
the outstanding shares of the Series A Preferred Stock, at least fifteen (15)
days prior to the date hereinafter specified, a notice stating (a) the date
which (x) has been set as the record date for the purpose of such dividend,
distribution, or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up is to
take place; and, (b) the record date as of which holders of Common Stock of
record shall be entitled to other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(g) NOTICES. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A Preferred Stock
shall be in writing and may be delivered by personal service or sent by
telegraph or cable or sent by registered or certified mail, return receipt
requested, with postage thereon fully prepaid. All such communications shall be
addressed to each holder of record at its address appearing on the books of this
Corporation. If sent by telegraph or cable, a conformed copy of such telegraphic
or cabled notice shall promptly be sent by mail (in the manner provided above)
to the holders. Service of any such communication made only by mail shall be
deemed complete on the date of actual delivery as shown by the addressee's
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registry, or certification receipt, or at the expiration of the fourth (4th)
business day after the date of mailing, whichever is earlier in time.
(h) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up or round down such factional shares to the nearest
whole share.
(I) RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all shares of Series A Preferred Stock from time to time
outstanding. The Corporation shall, from time to time, in accordance with the
laws of the State of Nevada, increase the authorized number of shares of Common
Stock remaining unissued in the event number of such shares of Common Stock
shall not be sufficient to permit the conversion of all of the Series A
Preferred Stock at the time outstanding.
(j) RETIREMENT OF PREFERRED STOCK CONVERTED. No shares of
Series A Preferred Stock that have been converted shall ever again be reissued,
and all such shares so converted shall, upon such conversion, cease to be a part
of the authorized shares of the Corporation.
5. NO PREEMPTIVE RIGHTS. Except as provided in Section 4 hereof,
no holder of the Series A Preferred Shares and Common Stock shall be entitled as
of right to subscribe for, purchase, or receive any part of any new or
additional shares of any class, whether now or hereafter authorized, or of
bonds, debentures, or other evidences or indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional shares of
any class, or bond, debentures, or other evidences or indebtedness convertible
into or exchangeable for shares, may be issued and disposed of by the Board of
Directors on such terms and for such person or persons as the Board of Directors
in their absolute discretion may deem advisable.
6. REDEMPTION.
(a) At any time after January 1, 1997, this Corporation
may, at the option of the Board of Directors upon satisfaction of the terms and
conditions as stated herein, from any source of funds legally available
therefor, redeem in whole or in part the Series A Preferred Stock by paying in
cash therefor a sum equal to two hundred percent (200%) of the per share amounts
set forth in Section 3(a) in the same manner
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<PAGE> 21
as if there had occurred a liquidation of this Corporation on the date of the
redemption under this Section 4 (such total amount is hereinafter referred to as
the "Redemption Price").
(b) Less than all of the Series A Preferred Stock at any
time outstanding may not be redeemed until all cumulative dividends, if any,
accrued and unpaid on all shares of Series A Preferred Stock outstanding shall
have been paid for all past dividend periods occurring after January 1, 1996,
and until full cumulative dividends, if any, for the then current dividend
period shall have been paid or declared on all shares of Series A Preferred
Stock then outstanding, other than the shares to be redeemed, and the full
amount thereof set apart for payment. Redemption of less than all of the
outstanding Series A Preferred stock shall be affected pro rata, by lot, or by
such other equitable method as may be determined by the Board of Directors.
(c) At least thirty (30) but not more than sixty (60)
days prior to the date fixed for any redemption of Series A Preferred Stock (the
"Redemption Date"), written notice shall be mailed, postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of Series A Preferred Stock to be redeemed, at
the address last shown on the records of this Corporation for such holder or
given by the holder to this Corporation for the purpose of notice or if no such
address appears or is given at the place where the principal executive office of
this Corporation is located, notifying such holder of the election of this
Corporation to redeem such shares, specifying the Redemption Date, the place at
which payment may be obtained and calling upon such holder to surrender to this
Corporation, in the manner and at the place designated, his or her certificate
or certificates representing the shares to be redeemed (the "Redemption
Notice"). On or after the Redemption Date, each holder of Series A Preferred
Stock to be redeemed shall surrender to this Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by and such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(d) From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all dividends on
the Series A Preferred Stock designated for redemption in the Redemption Notice
shall cease to accrue, all rights of the holders of such shares as holders of
Series A Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their
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<PAGE> 22
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of this Corporation or
be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A Preferred
Stock on any Redemption Date are insufficient to redeem all shares of Series A
Preferred Stock designated to be redeemed on such date, those funds that are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The shares of
Series A Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein. At any time thereafter, when
additional funds of the Corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that the Corporation has become obligated to
redeem on any Redemption Date, but which it has not redeemed.
(e) If on or prior to the Redemption Date, the
Corporation deposits the Redemption Price of all outstanding shares of Series A
Preferred Stock designated for redemption in the Redemption Notice and not yet
redeemed or converted with a bank or trust company in California as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed with irrevocable instructions and authority to
such bank or trust company to pay, on and after the date fixed for redemption or
prior thereto, the Redemption Price of the shares of Series A Preferred Stock to
the respective holders upon surrender of their certificates, then, from and
after the date of the deposit (although prior to the Redemption Date), the
shares so called shall be redeemed as of, and dividends on those shares shall
cease to accrue after, the Redemption Date. The deposit shall constitute full
payment of the shares to their holders and from and after the date of deposit
the shares shall no longer be outstanding and the holders thereof shall cease to
be stockholders with respect to such shares and shall have no rights with
respect thereto except the right to receive from the bank or trust company
payment of the Redemption Price of the shares, without interest, upon the
surrender of their certificates therefor. The balance of any moneys deposited by
the Corporation pursuant to this paragraph remaining unclaimed at the expiration
of one (1) year following the Redemption Date shall thereafter be returned to
the Corporation upon its request expressed in a resolution of its Board of
Directors, after which the holders of shares called for redemption shall be
entitled to receive payment of the Redemption Price only, without any interest,
from the Corporation.
(f) Except as provided in this Section 4, the Series A
Preferred Stock shall not be subject to any other right of redemption.
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7. VOTING RIGHTS. Except as otherwise provided herein or by law,
the shares of the Series A Preferred Stock shall not be entitled to vote with
the shares of the Corporation's Common Stock at any annual or special meeting of
the stockholders of the Corporation.
8. NOTICES. Any notice required by the provisions hereof to be
given to the holders of shares of the Series A Preferred Stock shall be deemed
given when deposited in the United States mail, postage prepaid, and addressed
to each holder of record at his address appearing on the books of the
Corporation.
9. PROTECTIVE PROVISIONS. So long as any shares of Series A
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the total number of shares of Series A
Preferred Stock outstanding:
(a) alter or change the rights, preferences or privileges
of the Series A Preferred Stock so as to materially adversely affect the
Preferred Stock; or
(b) increase the authorized number of shares of Series A
Preferred Stock; or
(c) create any new class of shares having preferences
over or being on a parity with the Series A Preferred Stock as to payment of
dividends or distribution of assets, unless the purpose of the creation of such
class is, and the proceeds to be realized from the sale and issuance thereof are
to be used for, the retirement of all Series A Preferred Stock then outstanding.
10. REDEEMED STOCK. In the event any of the Series A Preferred
Stock shall be redeemed pursuant to Section 4 hereof, or otherwise acquired by
the Corporation, the shares so redeemed or acquired shall be canceled, retired
and eliminated from shares which the Corporation is authorized to issue. The
Articles of Incorporation of the Corporation shall be appropriately amended to
effect the corresponding reduction in the Corporation's authorized capital
stock.
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<PAGE> 24
CERTIFICATE OF DESIGNATION OF POWERS,
PREFERENCES AND RIGHTS OF
PREFERRED STOCK
of
Xecom Corp.,
a Nevada corporation
-----------------
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTION 78.195(1) OF THE
NEVADA REVISED STATUTES, AS AMENDED
Xecom Corp., a Nevada corporation (the "Corporation"), pursuant to
Section 78.195 (1) of the Nevada Revised Statutes, as amended, certifies that,
on December 15, 1995, the Board of Directors of the Corporation duly adopted the
resolutions attached hereto as Appendix I providing for the issuance of a class
of stock to be designated Series B Preferred Stock and to consist of Five
Million (5,000,000) shares, and that the authorized number of shares of
Preferred Stock is Fifty Million (50,000,000), of which 1,200,000 shares have
been previouly issued.
The undersigned, Joseph C. Vigliarolo and Dal N. R. Grauer, do hereby
certify that they are the duly elected and acting President and Secretary,
respectively, of the Corporation.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by James W. Truher, its President, and attested by Dal N. R. Grauer, its
Secretary, this 20th day of May, 1996.
Xecom Corp.
By:________________________
Its: President
ATTEST:
By: __________________________
Its: Secretary
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APPENDIX I
WHEREAS, the Articles of Incorporation of the Corporation (i) authorize
a class of stock designated Preferred Stock, $.0001 par value (the "Preferred
Stock"), that such Preferred Stock may be issued from time to time in one or
more series, and (ii) authorize the Board of Directors of the Corporation to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and the number of
shares constituting any such Series and the designation thereof;
WHEREAS, the Articles of Incorporation of the Corporation authorize a
class of stock designated Common Stock, $.0001 par value, comprising One Hundred
Million (100,000,000) shares. The term "Common Stock" when used in this
resolution shall mean Common Stock of the Corporation, $.0001 par value, and any
stock into which such Common Stock may thereafter have been changed, and, when
otherwise used in these resolutions, shall also include stock of the Corporation
of any other class, whether now or hereafter authorized, which ranks, or is
entitled to a participation, as to the distribution of assets or the payment of
dividends, substantially on a parity with such existing Common Stock or other
class of stock into which such Common Stock may have been changed; and
WHEREAS, the Corporation has heretofore issued 1,200,000 shares of
Series A 11% cumulative, convertible Preferred Stock; and,
WHEREAS, it is the desire of the Board of Directors to determine the
rights, preferences, privileges, restrictions and other matters relating to a
second series of Five Million (5,000,000) shares of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED that the Corporation create and issue a
series of Preferred Stock of the Corporation consisting of Five Million
(5,000,000) shares, and that the Board of Directors does hereby fix and
determine the rights, preferences, privileges, restrictions and other matters
relating to such Preferred Stock as follows:
1. DESIGNATION. This first series of Preferred shares shall be
designated and known as "Series B Preferred Stock." The number of shares
constituting the Series B Preferred Stock shall be Five Million (5,000,000)
shares. The stated value of the Series B Preferred Stock shall be $1.00 per
share.
2. DIVIDENDS. The holders of shares of Series B Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, prior, and in preference to, any declaration or payment of any
dividend (payable other than in Common Stock of this Corporation) on the Common
Stock of this Corporation. Dividends on each share
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of Series B Preferred stock shall be at the rate of ten percent (10%) per annum,
payable quarterly on January 1, April 1, July 1 and October 1 of each year out
of the funds legally available therefor, when and as declared by the Board of
Directors. Commencing on January 1, 1996 such dividends shall accrue and be
deemed to accrue from day to day, whether or not earned or declared, and shall
be cumulative so that any time after January 1, 1996 dividends accrued after
that date on the Series B Preferred Stock shall be paid or declared and set
apart for payment before any dividend shall be paid on or declared or set apart
on shares of Common Stock. Any such cumulative but unpaid dividends on the
Series B Preferred Stock shall not bear interest.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, the holders of the shares of the Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution of assets shall be made
with respect to the Common Stock or junior stock, an amount equal to the stated
value per share plus any dividends on the Series B Preferred Stock theretofore
declared and unpaid. If upon liquidation, dissolution or winding-up of the
Corporation, the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Preferred Stock
(including the holders of the Series B Preferred Stock) the full amounts to
which they respectively shall be entitled, then the holders of the Preferred
Stock shall share ratability in any such distribution of assets of the
Corporation according to the respective amounts that would be payable in respect
of the shares of Preferred Stock held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) The merger of the Corporation with another
Corporation, or the sale, transfer or lease of all or substantially all of the
assets of the Corporation, shall not be deemed a liquidation, dissolution or
winding-up of the Corporation as those terms are used in this Section 3.
(c) In the event the Corporation shall propose
to take any action of the types described in subparagraph (a) of this Section 3,
the Corporation shall, within ten (10) days after the date the Board of
Directors approves such action, or twenty (20) days prior to any stockholders'
meeting called to approve such action, whichever is earlier, give each holder of
shares of the Series B Preferred Stock initial written notice of the proposed
action. Such initial written notice shall describe the material terms and
conditions of such proposed action, including a description of the stock, cash
and
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property to be received by the holders of shares of the Series B Preferred Stock
upon consummation of the proposed action and the date of delivery thereof. If
any material change in the facts set forth in the initial notice shall occur,
the Corporation shall promptly give written notice to each holder of shares of
the Series B Preferred Stock of such material change.
(d) The Corporation shall not consummate any
proposed action of the type described in subparagraph (a) of this Section 3
before the expiration of thirty (30) days after the mailing of the initial
notice or ten (10) days after the mailing of any subsequent written notice,
whichever is later; provided that any such 30-day or 10-day period may be
shortened upon the written consent of the holders of all of the outstanding
shares of the Series B Preferred Stock.
(e) In the event the Corporation shall propose
to take any action of the types described in subparagraph (a) of this Section 3
which will involve the distribution of assets other than cash, the value of the
assets to be distributed to the holders of shares of the Series B Preferred
Stock shall be the fair market value of such assets as determined, in good
faith, by the Board of Directors.
4. CONVERSION. The holders of Series B Preferred Stock have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred Stock shall
be convertible, until not later than the close of business on the fifth (5th)
business day prior to the date fixed for redemption in any notice of redemption,
at the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for such
shares, into such number of fully paid and non assessable shares of Common Stock
as is determined by multiplying the number of shares of Series B Preferred Stock
to be converted by two (2) (the "Conversion Ratio"), e.g.: 100 shares of Series
B Preferred Stock when surrendered for conversion will be converted into two (2)
shares of the Corporation's Common Stock, provided, however, that in no event
may that number of shares of Preferred Stock be converted where,as a result of
such conversion, or otherwise, the holder of such shares of Preferred Stock
would be the legal or beneficial owner of more than four and ninety-nine one
hundreths percent (4.99%) of the issued and outstanding shares of Common Stock
of the Corporation on the date of such conversion.
(b) MECHANICS OF CONVERSION. Before any holder of shares
of Series B Preferred Stock shall be entitled to convert the same into full
shares of Common Stock pursuant to Section 4 (a), the holder shall surrender the
certificate or
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<PAGE> 28
certificates thereof, duly endorsed, at the office of the Corporation or of any
transfer agent for such Series B Preferred Stock, and shall give written notice
to the Corporation at such office that the holder elects to convert the same and
shall state therein the holder's name or the name or names of the holder's
nominees in which the holder wishes the certificate or certificates for shares
of Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder, or to the holder's
nominee or nominees, a Common Stock to which the holder shall be entitled as
aforesaid. Conversion pursuant to Section 4 (a) shall be deemed to have occurred
immediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date. Upon any conversion pursuant to Sections 4 (a),
cumulative dividends as provided in Section 2, accrued and unpaid on the Series
B Preferred Stock shall be disregarded and not paid.
(c) ADJUSTMENTS TO CONVERSION RATIO.
(I) SPECIAL DEFINITION. For purposes of this
Section 4 (c), the following definition shall apply: ORIGINAL ISSUE DATE" shall
mean, for Series B Preferred Stock, the original date on which a share of Series
B Preferred Stock was first issued.
(ii) ADJUSTMENT FOR STOCK SPLITS AND
COMBINATIONS. If the Corporation shall at any time, or from time, to time after
the Original Issue Date applicable to Series B Preferred Stock effect a
subdivision of the outstanding Common Stock, the applicable Conversion Ratio
then in effect immediately before that subdivision shall be proportionately
decreased and, conversely, if the Corporation shall at any time or from time to
time after the Original Issue Date applicable to Series B Preferred Stock
combine the outstanding shares of Common Stock, the applicable Conversion Ratio
then in effect immediately before the combination shall be proportionately
increased. Any adjustments under this Section 4 (c) (ii) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.
(iii) ADJUSTMENT FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time, or from time to time
after the Original Issue Data applicable to Series B Preferred Stock, shall
make, or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in shares of
Common Stock, then and in each such event the applicable Conversion Raatio then
in effect shall be decreased
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as of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
applicable Conversion Ratio then in effect by a fraction:
(A) The numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(B) The denominator of which shall be
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date,
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution provided, however, if such record date shall have been fixed and
such dividend is not fully paid or is such distribution is not fully made on the
date fixed therefore, the applicable Conversion Ratio shall be recomputed
accordingly as of the close of business on such record date and thereafter such
Conversion Ratio shall be adjusted pursuant to this Section 4 (c) (iii) as of
the time of actual payment of such dividends or distributions.
(iv) ADJUSTMENT FOR OTHER DIVIDEND AND
DISTRIBUTIONS. In the event the Corporation, at any time or from time to time
after the Original Issue Date of Series B Preferred Stock, shall make, or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in such event provisions
shall be made so that the holders of Series B Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation which they
would have received had their Series B Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the conversion date, retained such
securities (together with any distributions payable thereon during such period)
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series B Preferred Stock.
(v) ADJUSTMENT FOR RECLASSIFICATION EXCHANGE, OR
SUBSTITUTION. If the Common Stock issuable upon the conversion of the Preferred
Stock at any time or from time to time after the Original Issue Date applicable
to Series B Preferred Stock shall be changed into the same or different number
of shares of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividends provided for in Section 4 (c) (A) and (iii), or a
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<PAGE> 30
reorganization, merger, consolidation, or sale of assets provided for in Section
4 (c) (vi), then, and in each event, provisions shall be made (by adjustment to
the Conversion Ratio or otherwise) so that the holder of each share of Series B
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such of Series B Preferred Stock might have
been converted immediately prior to such reorganization, reclassification, or
change, all subject to further adjustment as provided herein.
(vi) ADJUSTMENT FOR REORGANIZATION, MERGER,
CONSOLIDATION OR SALES OF ASSETS. If at any time or from time to time after the
Original Issue Date of the Series B Preferred Stock there shall be a capital
reorganization of the Corporation (other than a subdivision, combination
reclassification, exchange or substitution of shares provided for in Section 4
(c) (ii) and (v) or a merger or consolidation of the Corporation with or into
another Corporation, or the sale of all or substantially all of this
Corporation's properties and assets to any other person), then as a part of such
reorganization, merger, consolidation, or sale, provision shall be made (by
adjustment to the applicable Conversion Ratio or otherwise) so that the holders
of the Series B Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series B Preferred Stock, the number of shares of stock or
other securities or property of the Corporation, or of any successor Corporation
resulting from such merger or consolidation or sale, to which a holder of Common
stock deliverable upon conversion of such shares would have been entitled on
such capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 (c) with respect to the rights of the holders of the Series B
Preferred Stock after the reorganization, merger, consolidation, or sale to the
end that the provisions of this Section 4 (c) (including adjustment of the
applicable Conversion Ratio then in effect, and the number of shares of stock or
other securities deliverable upon conversion of the Series B Preferred Stock)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(d) NO IMPAIRMENT . The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times, in good faith, assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be
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necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Ratio pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
such Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time or any holder of such affected Series B Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Ratio at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of such Series B Preferred Stock.
(f) NOTICE OF RECORD DATE. In the event that: (i) this
Corporation shall set a record date for the purpose of entitling the holders of
its shares of Common Stock to receive a dividend, or other distribution, payable
otherwise than in cash; or (ii) this corporation shall set a record date for the
purpose of entitling the holders of its shares of Common Stock to subscribe for
or purchase any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization
of this Corporation, reclassification of the shares of this Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of this Corporation with or into another Corporation, or
conveyance of all, or substantially all, of the assets of this Corporation to
another Corporation; or (iv) there shall occur a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation; then, and in any
such case, this Corporation shall cause to be mailed to the holders of record of
the outstanding shares of the Series B Preferred Stock, at least fifteen (15)
days prior to the date hereinafter specified, a notice stating (a) the date
which (x) has been set as the record date for the purpose of such dividend,
distribution, or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up is to
take place; and, (b) the record date as of which holders of Common Stock of
record shall be entitled to other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
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(g) NOTICES. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series B Preferred Stock
shall be in writing and may be delivered by personal service or sent by
telegraph or cable or sent by registered or certified mail, return receipt
requested, with postage thereon fully prepaid. All such communications shall be
addressed to each holder of record at its address appearing on the books of this
Corporation. If sent by telegraph or cable, a conformed copy of such telegraphic
or cabled notice shall promptly be sent by mail (in the manner provided above)
to the holders. Service of any such communication made only by mail shall be
deemed complete on the date of actual delivery as shown by the addressee's
registry, or certification receipt, or at the expiration of the fourth (4th)
business day after the date of mailing, whichever is earlier in time.
(h) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of Series B Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up or round down such factional shares to the nearest
whole share.
(I) RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series B Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all shares of Series B Preferred Stock from time to time
outstanding. The Corporation shall, from time to time, in accordance with the
laws of the State of Nevada, increase the authorized number of shares of Common
Stock remaining unissued in the event number of such shares of Common Stock
shall not be sufficient to permit the conversion of all of the Series B
Preferred Stock at the time outstanding.
(j) RETIREMENT OF PREFERRED STOCK CONVERTED. No shares of
Series B Preferred Stock that have been converted shall ever again be reissued,
and all such shares so converted shall, upon such conversion, cease to be a part
of the authorized shares of the Corporation.
5. NO PREEMPTIVE RIGHTS. Except as provided in Section 4 hereof,
no holder of the Series B Preferred Shares and Common Stock shall be entitled as
of right to subscribe for, purchase, or receive any part of any new or
additional shares of any class, whether now or hereafter authorized, or of
bonds, debentures, or other evidences or indebtedness convertible into or
exchangeable for shares of any class, but all such new or additional shares of
any class, or bond, debentures, or other evidences or indebtedness convertible
into or exchangeable for shares, may be issued and disposed of
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by the Board of Directors on such terms and for such person or persons as the
Board of Directors in their absolute discretion may deem advisable.
6. REDEMPTION.
(a) At any time after January 1, 1997, this Corporation
may, at the option of the Board of Directors upon satisfaction of the terms and
conditions as stated herein, from any source of funds legally available
therefor, redeem in whole or in part the Series B Preferred Stock by paying in
cash therefor a sum equal to two hundred percent (200%) of the per share amounts
set forth in Section 3(a) in the same manner as if there had occurred a
liquidation of this Corporation on the date of the redemption under this Section
4 (such total amount is hereinafter referred to as the "Redemption Price").
(b) Less than all of the Series B Preferred Stock at any
time outstanding may not be redeemed until all cumulative dividends, if any,
accrued and unpaid on all shares of Series B Preferred Stock outstanding shall
have been paid for all past dividend periods occurring after January 1, 1996,
and until full cumulative dividends, if any, for the then current dividend
period shall have been paid or declared on all shares of Series B Preferred
Stock then outstanding, other than the shares to be redeemed, and the full
amount thereof set apart for payment. Redemption of less than all of the
outstanding Series B Preferred stock shall be affected pro rata, by lot, or by
such other equitable method as may be determined by the Board of Directors.
(c) At least thirty (30) but not more than sixty (60)
days prior to the date fixed for any redemption of Series B Preferred Stock (the
"Redemption Date"), written notice shall be mailed, postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of Series B Preferred Stock to be redeemed, at
the address last shown on the records of this Corporation for such holder or
given by the holder to this Corporation for the purpose of notice or if no such
address appears or is given at the place where the principal executive office of
this Corporation is located, notifying such holder of the election of this
Corporation to redeem such shares, specifying the Redemption Date, the place at
which payment may be obtained and calling upon such holder to surrender to this
Corporation, in the manner and at the place designated, his or her certificate
or certificates representing the shares to be redeemed (the "Redemption
Notice"). On or after the Redemption Date, each holder of Series B Preferred
Stock to be redeemed shall surrender to this Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
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certificate shall be canceled. In the event less than all the shares represented
by and such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(d) From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all dividends on
the Series B Preferred Stock designated for redemption in the Redemption Notice
shall cease to accrue, all rights of the holders of such shares as holders of
Series B Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series B Preferred Stock on any Redemption Date are
insufficient to redeem all shares of Series B Preferred Stock designated to be
redeemed on such date, those funds that are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed. The shares of Series B Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter, when additional funds of the Corporation are
legally available for the redemption of shares of Series B Preferred Stock, such
funds will immediately be used to redeem the balance of the shares that the
Corporation has become obligated to redeem on any Redemption Date, but which it
has not redeemed.
(e) If on or prior to the Redemption Date, the
Corporation deposits the Redemption Price of all outstanding shares of Series B
Preferred Stock designated for redemption in the Redemption Notice and not yet
redeemed or converted with a bank or trust company in California as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed with irrevocable instructions and authority to
such bank or trust company to pay, on and after the date fixed for redemption or
prior thereto, the Redemption Price of the shares of Series B Preferred Stock to
the respective holders upon surrender of their certificates, then, from and
after the date of the deposit (although prior to the Redemption Date), the
shares so called shall be redeemed as of, and dividends on those shares shall
cease to accrue after, the Redemption Date. The deposit shall constitute full
payment of the shares to their holders and from and after the date of deposit
the shares shall no longer be outstanding and the holders thereof shall cease to
be stockholders with respect to such shares and shall have no rights with
respect thereto except the right to receive from the bank or trust company
payment of the Redemption Price of the shares, without interest, upon the
surrender of their certificates therefor. The balance of any moneys deposited by
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<PAGE> 35
the Corporation pursuant to this paragraph remaining unclaimed at the expiration
of one (1) year following the Redemption Date shall thereafter be returned to
the Corporation upon its request expressed in a resolution of its Board of
Directors, after which the holders of shares called for redemption shall be
entitled to receive payment of the Redemption Price only, without any interest,
from the Corporation.
(f) Except as provided in this Section 4, the Series B
Preferred Stock shall not be subject to any other right of redemption.
7. VOTING RIGHTS. Except as otherwise provided herein or by law,
the shares of the Series B Preferred Stock shall not be entitled to vote with
the shares of the Corporation's Common Stock at any annual or special meeting of
the stockholders of the Corporation.
8. NOTICES. Any notice required by the provisions hereof to be
given to the holders of shares of the Series B Preferred Stock shall be deemed
given when deposited in the United States mail, postage prepaid, and addressed
to each holder of record at his address appearing on the books of the
Corporation.
9. PROTECTIVE PROVISIONS. So long as any shares of Series B
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the total number of shares of Series B
Preferred Stock outstanding:
(a) alter or change the rights, preferences or privileges
of the Series B Preferred Stock so as to materially adversely affect the
Preferred Stock; or
(b) increase the authorized number of shares of Series B
Preferred Stock; or
(c) create any new class of shares having preferences
over or being on a parity with the Series B Preferred Stock as to payment of
dividends or distribution of assets, unless the purpose of the creation of such
class is, and the proceeds to be realized from the sale and issuance thereof are
to be used for, the retirement of all Series B Preferred Stock then outstanding.
10. REDEEMED STOCK. In the event any of the Series B Preferred
Stock shall be redeemed pursuant to Section 4 hereof, or otherwise acquired by
the Corporation, the shares so redeemed or acquired shall be canceled, retired
and eliminated from shares which the Corporation is authorized to issue. The
Articles of Incorporation of the Corporation
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shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized capital stock.
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EXHIBIT 3(ii)
BY-LAWS OF XECOM CORP.
OFFICES
Section 1. The principal office of the Corporation shall be located at 125
East Baker Street, Suite 120-W, Costa Mesa, California 92626. The Corporation
may have such other offices, either within or without the state of Nevada as the
Board of Directors may designate or as the business of the Corporation may
require from time to time.
The registered office of the Corporation required by the Nevada Business
Corporation Act to be maintained in the State of Nevada may be, but need not be,
identical with the principal offices in the State of Nevada, and the address of
the registered office may be changed, from time to time, by the Board of
Directors. The registered office of the Corporation is located as One East First
Street, Reno, Nevada 89501.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders shall be held
at the principal office of the Corporation at 125 East Baker Street, Suite
120-W, Costa
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Mesa, California 92626, or at such other places on the 1st Saturday in July or
at such other times as the Board of Directors may, from time to time, determine.
If the day so designated falls upon a legal holiday then the meeting shall be
held upon the first business day thereafter. The Secretary shall serve
personally or by mail a written notice thereof, not less than ten (10) nor more
than fifty (50) days previous to such meeting, addressed to each stockholder at
his address as it appears on the stock book; but at any meeting at which all
stockholders not present have waived notice in writing, the giving of notice as
above required may be dispensed with.
Section 2. Special Meetings. Special meetings of stockholders other than
those regulated by statute, may be called at any time by a majority of the
Directors. Notice of such meeting, stating the place, day and hour and the
purpose for which it is called, shall be served personally or by mail, not less
than ten (10) days before the date set for such meeting. If mailed, it shall be
directed to a stockholder at the stockholder's address as it appears on the
stock book; but at any meeting at which all stockholders not present have waived
notice in writing, the giving of notice as above described will not be
necessary. The Board of Directors shall also, in like manner, call a special
meeting of stockholders whenever so requested in writing by stockholders
representing ownership of not less than ten
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percent (10%) of the capital stock of the Corporation entitled to vote such a
meeting. The President may, in his discretion, call a special meeting of
stockholders upon ten (10) days prior written notice.
Section 3. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining stockholders entitled to receive notice of or to vote at
any meeting of stockholders or any adjournment thereof, or stockholders entitled
to receive payment of any dividend; or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix, in advance, a date as the
record date for any such determination of stockholders, such date in any case to
be not more than thirty (30) days, and in case of a meeting of stockholders, not
less than ten (10) days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken. If the stock
transfer books are not closed, and no record date is fixed for the determination
of stockholders entitled to receive notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on
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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 as
to stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
Section 4. Voting. At all meetings of the stockholders of record
having the right to vote, subject to the provisions of Section 3, each
stockholder of the Corporation is entitled to one (1) vote for each share of
stock having voting power standing in the name of such stockholder on the books
of the Corporation. Votes may be cast in person or by written authorized proxy.
Section 5. Proxy. Each proxy must be executed in writing by the
stockholder of the Corporation or his duly authorized attorney. Such proxy shall
be filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after the expiration of eleven (11) months from
the date of its execution unless it shall have specified therein its duration.
Every proxy shall be revocable at the discretion of the person
executing it or of his personal representatives or assigns.
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Section 6. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by such officer, agent or proxy
as the by-laws 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, guardian or conservator may be
voted by such representative either in person or by proxy without a transfer of
such shares into the name of such representative. Shares standing in the name of
a trustee may be voted by such trustee, either in person or by proxy, but no
trustee shall be entitled to vote shares held by such trustee without a transfer
of such shares into the name of the trustee.
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 the name of the receiver if authority
so to do be contained in an appropriate order of the Court by which such
receiver was appointed.
A stockholder 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.
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Shares of its own stock belonging to the Corporation or held by it in a
fiduciary capacity shall not be noted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 7. Election of Directors. At each election for Directors, every
stockholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by such stockholder for as many
persons as there are Directors to be elected. The stockholders of the
Corporation shall not have the right to cumulative voting.
Section 8. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the stockholders.
If a quorum shall not be present or represented, the stockholders entitled
to vote thereat, present in person or by proxy, shall have the power to adjourn
the meeting, from time to time, until a quorum shall be present or represented.
At such rescheduled meeting at which a quorum is present, specified items of
business may be transacted which might have been transacted at the meeting as
originally notified.
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The number of votes or consents of the holders of any class of stock having
voting power which shall be necessary for the transaction of any business, or
any specified item of business at any meeting of stockholders, or the giving of
any consent, shall be a majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy.
Section 9. Informal Action by Stockholders. Any action required to be taken
at a meeting of the stockholders, or any other action which may be taken at a
meeting of the stockholders, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
stockholders entitled to vote with respect to the subject matter thereof.
ARTICLE III DIRECTORS
Section 1. Number. The affairs and business of this Corporation shall be
managed by a Board of Directors. The first Board of Directors shall consist of a
number of (5) five and a maximum of (15) fifteen members. Directors need not be
residents of the State of Nevada and need not be stockholders of the
Corporation.
Section 2. Election. The Directors shall be elected at each annual meeting
of the stockholders, but if any such
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annual meeting is not held, or the Directors are not elected thereat, the
Directors may be elected at any special meeting of the stockholders held for
that purpose.
Section 3. Term of Office. The term of office of each of the Directors shall be
one (l) year, which shall continue until his successor has been elected and
qualified.
Section 4. Duties. The Board of Directors shall have the control and
general management of the affairs and business of the Corporation. Such
Directors shall in all cases act as a Board, except as herein provided in
Section 11, regularly convened, by a majority of such Directors, and may adopt
such rules and regulations for the conduct of meetings and the management of the
Corporation, as may be deemed proper, so long as they are not inconsistent with
these Bylaws and the Laws of the State of Nevada.
Section 5. Directors' Meetings. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the stockholders, and
at such other time and places as the Board of Directors may determine. Special
meetings of the Board of Directors may be called by the President, or by the
Secretary upon the written request of two (2) Directors.
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Section 6. Notice of Meetings. Notice of meetings, other than the regular
annual meeting, shall be given by service upon each Director in person, or by
mailing to him at his last known address, at least three (3) days before the
date therein designated for such meeting, including the day of mailing, of a
written or printed notice thereof specifying the time and place of such meeting
and the business to be brought before the meeting, and no business other than
that specified in such notice shall be transacted at any special meeting. At any
Directors' meeting at which a quorum of the Board of Directors shall be present
(although held without notice), any and all business may be transacted which
might have been transacted if the meeting had been duly called if a quorum of
the Directors waive or are willing to waive the notice requirements of such
meeting.
Any Directors may waive notice of any meeting under the provisions of
Article XII. The attendance of a Director at a meeting shall constitute a waiver
of notice of such meeting except when a Director attends a meeting for the
expressed purpose of objecting to the transaction of any business because the
meeting is not lawfully convened or called.
Section 7. Voting. At all meetings of the Board of Directors, each Director
is to have one (1) vote. The act of a majority of the directors present at a
meeting at which a
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quorum is present shall be the act of the Board of Directors.
Section 8. Vacancies. Vacancies on the Board of Directors occurring between
annual meetings shall be filed, for the unexpired portion of the term, by a
majority of the remaining Directors.
Section 9. Removal of Directors. Any one or more of the Directors may be
removed, with or without cause, at any time, by a vote of the stockholders
holding a majority of the stock, at any special meeting called for that purpose.
Section 10. Quorum. The number of Directors who shall be present at any
meeting of the Board of I)irectors in order to constitute a quorum for the
transaction of any business or any specified item of business shall be a
majority.
The number of votes of Directors that shall be necessary for the
transaction of any business of any specified item of business at any meeting of
the Board of Directors shall be a majority.
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If a quorum shall not be present at any meeting of the Board of Directors,
those present may adjourn the meeting, from time to time, until a quorum shall
be present.
Section 11. Executive Committee. By resolution of the Board of Directors,
and at their option, the Directors may designate an Executive Committee which
includes at least three (3) Directors, to manage and direct the daily affairs of
the Corporation. Said Executive Committee shall have, and may exercise, all of
the authority that is vested in the Board of Directors as if the Board of
Directors were regularly convened, except that the Executive Committee shall not
have authority to amend these Bylaws.
At all meetings of the Executive Committee, each member of said
committee shall have one (1) vote and the act of a majority of the members
present at a meeting at which a quorum is present shall be the act of the
Executive Committee.
The number of Executive Committee members who shall be present at any
meeting of the Executive Committee in order to constitute a quorum for the
transaction of business or any specified item of business shall be a majority.
The number of votes of Executive Committee members that shall be
necessary for the transaction of any business or
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any specified item of business at any meeting of the Executive Committee shall
be a majority.
Section 12. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors, and each may be paid a stated salary or stipend as
Directors No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 13. Presumption of Assent. A Director of the Corporation 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 is 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
Certified mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ARTICLE IV OFFICERS
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Section 1. Number. The officers of the Corporation shall be: President,
Vice President, Chief Financial Officer, Secretary and such assistant
Secretaries as the President shall determine. An officer may hold more than one
(1) office.
Section 2. Election. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately following the
meeting of Stockholders, and shall hold office for the term of one (1) year or
until their successors are duly elected. Officers need not be employees of the
Corporation or members of the Board of Directors.
The Board may appoint such other officers, agents and employees as it shall
deem necessary who shall have such authority and shall perform such duties as,
from time to time, shall be prescribed by the Board.
Section 3. Duties of Officers. The duties and powers of the officers of the
Corporation shall be as follows:
PRESIDENT
The President shall, when present, preside at all meetings of the stockholders
and Directors. He shall present at each annual meeting of the stockholders and
Directors, a report
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of the condition of the business of the Corporation. He shall cause to be called
regular and special meetings of the stockholders and Directors in accordance
with these Bylaws. He shall appoint and remove, employ and discharge, and fix
the compensation of all agents, employees, and clerks of the corporation other
than the duly appointed officers, subject to the approval of the Board of
Directors. He shall sign and make all contracts and agreements in the name of
the Corporation, subject to the approval of the Board of Directors. He shall see
that the books, reports, statements and certificates required by law are
properly kept, made and filed according to applicable statutes and regulations.
He shall sign all certificates of stock, notes, drafts, or bills of exchange,
warrants or other orders for the payment of money duly drawn by the Treasurer;
and he shall enforce these Bylaws and perform all the duties incident to the
position and office, and those which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and perform his
duties or exercise his powers, as set forth in these Bylaws or in the acts under
which the Corporation is organized, the same shall be performed and exercised by
the Vice-President; and when so acting, he shall have all the
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powers and be subject to all the responsibilities hereby given to or imposed
upon such President.
SECRETARY
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the stockholders in appropriate books, provided for that
purpose. He shall give and serve all notices of the Corporation. He shall be
custodian of the records and of the corporate seal and affix the latter when
required. He shall keep the stock and transfer books in the manner prescribed in
the Bylaws, so as to show at all times the amount of capital stock issued and
outstanding; the manner and the time compensation for the same was paid; the
names of the owners thereof, alphabetically arranged; the number of shares owned
by each; the time at which each person became such owner; and the amount paid
thereon; and keep such stock and transfer books open daily during the business
hours of the office of the corporation, subject to the inspection of any
stockholder of the corporation, and permit such stockholder to make extracts
from said books to the extent prescribed in the Bylaws. He shall sign all
certificates of stock. He shall present to the Board of Directors at their
stated meetings all communications addressed to him officially by the President
or any officer or stockholder of the Corporation;
15
<PAGE> 16
and he shall attend to all correspondence and perform all the duties incident to
the office of Secretary.
CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall have the care and custody of, and be
responsible for, all the funds and securities of the Corporation, and deposit
all such funds in the name of the Corporation in such bank or banks, trust
company or trust companies or safe depositories as the Board of Directors may
designate. He shall exhibit at all reasonable times his books and accounts to
any Director or stockholder of the Corporation upon application at the office of
the Corporation during business hours. He shall render a statement of the
conditions of the finances of the Corporation at each regular meeting of the
Board of Directors, and at such other times as shall be required of him, and a
full financial report at the annual meeting of the Stockholders. He shall keep,
at the office of the Corporation, correct books of account of all its business
and transactions and such other books of account as the Board of Directors may
require. He shall do and perform all duties appropriate to the office of Chief
Financial Officer. The Chief Financial Officer shall, if required by the Board
of Directors, give to the Corporation such security or bond for the faithful
discharge of his duties as the Board may direct. He shall perform such other
duties as from time to
16
<PAGE> 17
time may be assigned to him by the President or by the Directors.
Section 4. Bond. The Chief Financial Officer shall, if required by the
Board of Directors, give to the Corporation such security for the faithful
discharge of his duties as the Board may direct.
Section 5. Vacancies, How Filled. All vacancies in any office shall be
filled by the Board of Directors without undue delay, either at its regular
meeting or at a meeting specifically called for that purpose. In the case of the
absence of any officer of the Corporation, or for any reason that the Board of
Directors may deem sufficient, the Board may, except as specifically otherwise
provided in these Bylaws, delegate the power or duties of such officers to any
other officer or Director for the time being; provided, a majority of the entire
Board concur therein.
Section 6. Compensation of Officers. The officers shall receive such salary
or compensation as may be determined by the Board of Directors.
Section 7. Removal of Officers. The Board of Directors may remove any
officer, by a majority vote, at any time with or without cause.
17
<PAGE> 18
ARTICLE V
---------
CERTIFICATES OF STOCK
---------------------
Section 1. Description of Stock Certificates. The certificates of stock
representing shares shall be in such form as shall be determined by the
Directors and shall be numbered and registered in the order in which they are
issued. They shall be bound in a book and shall be issued in consecutive order
therefrom, and in the margin thereof shall be entered the name of the person
owning the shares therein represented, with the number of shares and the date
thereof. Such certificates shall exhibit the holder's name, number of shares and
date of issue. They shall be signed by the President or Vice-President, and
countersigned by the Secretary or Treasurer and sealed with the Seal of the
Corporation.
Section 2. Transfer of Stock. The stock of the Corporation shall be
assignable and transferable on the books of the Corporation only by the person
in whose name it appears on said books, his legal representatives or by his duly
authorized agent. In case of transfer by attorney, the power of attorney, duly
executed and acknowledged, shall be deposited with the Secretary. In all cases
of transfer, the former certificate must be surrendered up and canceled before a
new certificate may be issued. No transfer shall be
18
<PAGE> 19
made upon the books of the corporation within ten (10) days next preceding the
annual meeting of the stockholders.
Section 3. Lost Certificates. If a stockholder shall claim to have lost or
destroyed a certificate or certificates of stock issued by the Corporation, the
Board of Directors may, at its discretion, direct a new certificate or
certificates to be issued, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed, and upon the
deposit of a bond or other indemnity in such form and with such securities, if
any, that the Board may require.
ARTICLE VI
----------
SEAL
----
Section 1. Seal. The seal of the Corporation shall be as follows:
ARTICLE VII
DIVIDENDS
---------
Section 1. When Declared. The Board of Directors shall by vote
declare dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
19
<PAGE> 20
Section 2. Reserve. The Board of Directors may set aside, out of the net
profits of the Corporation available for dividends, such sum or sums (before
payment of any dividends) as the Directors, in their absolute discretion, think
proper as a reserve fund, to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and they may abolish or modify any such reserve in the manner which
it was created.
ARTICLE VIII
INDEMNIFICATION
- ---------------
Section 1. Any person made a party to or involved in any civil, criminal or
administrative action, suit or proceeding by reason of the fact that he, or in
the case of a decedent,his personal representative is or was a Director,
officer, or employee of the Corporation, or of any corporation which he, or the
case of a decedent, served as such at the request of the Corporation, shall be
idemnified by the Corporation against expenses reasonably incurred by him or
imposed on him in connection with, or resulting from, the defense of such
action, suit, or proceeding and in connection with or resulting from any appeal
thereon, except with respect to matters as to which it is adjudged in such
action, suit or proceeding that such officer, Director, or
20
<PAGE> 21
employee was liable to the Corporation, or to such other corporation, for
negligence of misconduct in the performance of his duty. As used herein the term
"expense" shall include all obligations incurred by such person for the payment
of money, including without limitation, attorneys' fees, judgments, awards,
fines, penalties, and amounts paid in satisfaction of judgment or in settlement
of any such action, suit, or proceedings, except amounts paid to the Corporation
or such other corporation by a judgment or conviction whether based on plea of
guilty or nolo contendere or its equivalent, or after trial, shall not of itself
be deemed an adjudication that such Director, officer or Directors as fully as
though each person had been Director, officer or employee of the Corporation.
ARTICLE X
AMENDMENTS
- ----------
Section 1. How Amended. These Bylaws may be altered, amended, repealed or
added to by the vote of the Board of Directors of the Corporation at any regular
meeting of said Board, or at a special meeting of Directors called for that
purpose, provided a quorum of the Directors as provided by law and by the
Articles of Incorporation, are present at such regular meeting or special
meeting. These Bylaws and amendments thereto and new Bylaws added by the
Directors may
21
<PAGE> 22
be amended, altered or replaced by the stockholders at any annual or special
meeting of the stockholders.
ARTICLE XI
FISCAL YEAR
-----------
Section 1. Fiscal Year. The fiscal year shall begin January 1 and end
December 31.
ARTICLE XII
WAIVER OF NOTICE
----------------
Section 1. Whenever any notice is required to be given to any
shareholders or Directors of the Corporation under the provisions of these
Bylaws or under the Articles of Incorporation.
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