SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT X
FILED BY A PARTY OTHER THAN THE REGISTRANT O
Check the appropriate box:
x Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Under Rule 14a-12
ARC COMMUNICATIONS INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
o No fee required.
x Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
common stock, par value $.001 per share
(2) Aggregate number of securities to which transaction applies:
68,378,346
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
$.20
(4) Proposed maximum aggregate value of transaction:
$13,675,669.20
(5) Total fee paid:
$1,136.82
o Fee paid previously with preliminary materials.
x Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid: $1,052.56
(2) Form, Schedule or Registration Statement No.: Schedule 14A Preliminary
Proxy Statement
File No. 0-26213
(3) Filing Party: ARC Communications Inc.
(4) Date Filed: December 31, 2003
1
April __, 2004
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of ARC
Communications Inc. to be held on May __, 2004, at the offices of Westerman Ball
Ederer Miller & Sharfstein, LLP located at 170 Old Country Road, Mineola, New
York 11501. The meeting will begin promptly at 10:00 a.m., local time.
At the special meeting, you will be asked to consider and approve a series of
transactions involving the reorganization of ARC as follows:
o the merger of ARC with RoomLinX, Inc.;
o an amendment to ARC's certificate of incorporation to increase the
authorized common stock of ARC from 45,000,000 shares to 250,000,000
shares and change its name to "RoomLinX, Inc.";
o the reincorporation of ARC from a New Jersey corporation to a Nevada
corporation; and
o the adoption of a long-term incentive plan.
I have enclosed with this letter a Notice of Special Meeting, proxy statement,
proxy card and return envelope.
Under the terms of the Merger Agreement, RoomLinX will merge with ARC in
exchange for the issuance to the holders of common stock of RoomLinX of an
aggregate of (i) 68,378,346 shares of ARC common stock and (ii) options and/or
warrants to purchase 11,465,001 shares of ARC common stock. The number of shares
of ARC common stock and options and/or warrants to purchase shares of ARC common
stock to be issued to RoomLinX stockholders will represent approximately 65% of
the surviving corporation's issued and outstanding common stock on the effective
date of the merger, assuming the exercise of all outstanding options and/or
warrants to purchase common stock.
ARC's common stock is currently traded on the OTC Bulletin Board under the
symbol "ACOC" and on April __, 2004, the closing price of ARC's common stock was
$__ per share. Based on the market price of ARC common stock on that date, the
value of the ARC shares and options and/or warrants to be issued to RoomLinX
stockholders is $________.
In order to complete the merger, ARC's stockholders must approve an amendment to
ARC's certificate of incorporation to increase the number of shares of common
stock that ARC is authorized to issue so that ARC may issue the 68,378,346
shares of its common stock and options and/or warrants to purchase 11,465,001
shares of its common stock to RoomLinX stockholders. The amendment to ARC's
certificate of incorporation will also change ARC's name to RoomLinX, Inc. As a
result of the merger and the amendment to ARC's certificate of incorporation,
the stockholders, optionholders and warrantholders of each of ARC and RoomLinX
prior to the merger will be stockholders, optionholders and warrantholders of
the post-merger company.
Under New Jersey law, the affirmative vote of at least a majority of the votes
cast by the holders of common stock entitled to vote at the special meeting is
required to approve the merger, the amendment to ARC's certificate of
incorporation, the reincorporation and the adoption of the long-term incentive
plan. The board of directors of ARC has approved each of the proposed
transactions and recommends that you vote in favor of these transactions. The
accompanying proxy statement provides detailed information about the
transactions and the other matters to be voted upon at the special meeting.
Whether or not you plan to attend the special meeting in person, it is important
that your shares be represented and voted at the meeting. Please date, sign, and
return your proxy card promptly in the enclosed envelope to assure that your
shares will be represented and voted at the special meeting, even if you cannot
attend. You can change your vote at any time before the meeting by returning a
new proxy card or revoking a previously mailed proxy card by sending notice to
Peter A. Bordes, Jr., ARC's chief executive officer, at 401 Hackensack Avenue,
3rd Floor, Hackensack, New Jersey 07601. If you attend the special meeting, you
may vote your shares in person even though you have previously signed and
returned your proxy card.
On behalf of your board of directors, thank you for your continued support of
and interest in ARC Communications Inc.
Sincerely,
{-S- PETER A. BORDES, JR.}
Peter A. Bordes, Jr.
Chairman and Chief Executive Officer
2
ARC COMMUNICATIONS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY __, 2004
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of ARC
Communications Inc. will be held at the offices of Westerman Ball Ederer Miller
and Sharfstein, LLP located at 170 Old Country Road, Mineola, New York 11501, on
May __, 2004, at 10:00 a.m., local time, for the following purposes:
o To approve the merger of ARC with RoomLinX, Inc.;
o To approve an amendment to ARC's certificate of incorporation to increase
the authorized common stock of ARC from 45,000,000 shares to 250,000,000
shares and change its name to "RoomLinX, Inc.";
o To approve the reincorporation of ARC from a New Jersey corporation to a
Nevada corporation;
o To approve and adopt a long-term incentive plan; and
o To transact such other business as may properly come before the meeting or
any adjournment thereof.
Only the holders of record of common stock of ARC at the close of business on
April __, 2004, are entitled to notice of and to vote at the special meeting and
any adjournment thereof. Each share outstanding on such date is entitled to one
vote at the special meeting. A list of stockholders as of the close of business
on April __, 2004 will be available at the special meeting for examination by
any stockholder, stockholder's agent, or stockholder's attorney.
ARC's board of directors has approved each of the proposals and recommends that
you vote FOR each of the proposals as described in the attached materials. Under
New Jersey law, the affirmative vote of at least a majority of the votes cast by
the holders of common stock entitled to vote at the special meeting is required
to approve each of proposed transactions.
Pursuant to Section 14A:11-1 of the New Jersey Permanent Statutes ("NJPS"),
stockholders who object to the merger or the reincorporation shall have the
right to dissent to such transactions and to demand to be paid in cash the fair
value of their shares of ARC common stock. Attached to this notice is a copy of
Sections 14A:11-1 through 14A:11-11 of the NJPS dealing with dissenters' rights.
Whether or not you plan to attend the special meeting in person, it is important
that your shares be represented and voted at the meeting. Please date, sign, and
return your proxy card promptly in the enclosed envelope to assure that your
shares will be represented and voted at the special meeting, even if you cannot
attend. Any proxy given by a stockholder may be revoked at any time before it is
exercised by returning a new proxy card or revoking a previously mailed proxy
card by sending notice to Peter A. Bordes, Jr., ARC's chief executive officer,
at 401 Hackensack Avenue, 3rd Floor, Hackensack, New Jersey 07601. If you attend
the special meeting, you may vote your shares in person even though you have
previously signed and returned your proxy card.
By Order of the Board of Directors, {-s- Peter A. Bordes, Jr.}
PETER A. BORDES, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Hackensack, New Jersey
April __, 2004
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TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
WHERE YOU CAN FIND MORE INFORMATION
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY TERM SHEET
Summary of the Merger
Interests of Officers and Directors of ARC in the Merger
ARC's Proposal to Increase the Number of Authorized Shares of Common Stock
ARC's Proposal to Change its Name to "RoomLinX, Inc."
ARC's Proposal to Reincorporate in the State of Nevada
ARC's Proposal to Adopt the Long-Term Incentive Plan Risk Factors
PROXYSTATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
Matters to be Considered at the Special Meeting
Quorum, Abstentions and Broker Non-Votes
Votes Required for Approval
How to Vote
Dissenters' Rights
RISK FACTORS
Risk Factors Relating to ARC
Risk Factors Relating to the Transactions
Risk Factors Relating to the Surviving Corporation After the Transactions
Risks Particular to RoomLinX, Inc.
Risks Particular to Our Industry
Risks Particular to Stock Price
THE COMPANIES
Arc Communications Inc.
General
Corporate History
ARC's Business
RL Acquisition, Inc.
RoomLinX, Inc.
General
Corporate History
RoomLinX's Business
Sales and Marketing
Marketing
Operations
Competition
Research and Development
Employees
SPECIAL FACTORS
Background of the Transactions
Recommendations of our Board of Directors and the Special Committee
No Financial Advisors
Factors Relevant to the Transactions
Board of Directors Considerations
Special Committee Considerations
Regulatory Approvals Relating to the Transactions
Interests of ARC Management and Directors in the Transactions
Interests of RoomLinX's Management and Directors in the Transactions
PROPOSAL 1 -- APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY
The Merger
Terms of the Merger Agreement
The Merger
Closing
Effective Date
Certificate of Incorporation and Bylaws of Surviving Corporation
Following the Merger
Board Reconstitution
Representations and Warranties
Conduct Prior to Effective Time
Indemnification
Conditions to the Merger
Termination
Dissenters' Rights
Accounting Treatment
Material Federal Income Tax Consequences of the Merger
Recommendation of our Board of Directors
PROPOSAL 2 -- AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK AND CHANGE NAME TO ROOMLINX, INC.
Description of Amendment
Reasons for the Amendments; Effect of the Amendment
Recommendation of our Board of Directors
PROPOSAL 3 - APPROVAL AND ADOPTION OF THE MERGER OF ARC INTO ITS WHOLLY-OWNED
SUBSIDIARY RL ACQUISITION FOR THE PURPOSE OF CHANGING ARC'S STATE OF
INCORPORATION FROM NEW JERSEY TO NEVADA
Terms of the Reincorporation
Comparison between New Jersey and Nevada Law
By-Laws
Dissenters' Rights
Recommendation of our Board of Directors
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PROPOSAL 4 - APPROVAL AND ADOPTION OF THE ROOMLINX LONG-TERM INCENTIVE PLAN
General
Terms of the Long-Term Incentive Plan
Federal Income Tax Matters
RoomLinX, Inc. Long-Term Incentive Plan
STOCKOWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Stock Ownership Prior to the Merger
Stock Ownership Following the Merger
EXECUTIVE COMPENSATION
Summary Compensation Table
Option Grants in Last Fiscal Year
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Equity Compensation Plan Information
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Section 16(a) Beneficial Ownership Reporting Compliance
SELECTED FINANCIAL DATA OF ROOMLINX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ROOMLINX
Overview Critical Accounting Policies and Estimates
Results of Operations Year Ended December 31, 2003 Compared to Seven Months
Ended December 31, 2002
Seven Months Ended December 31, 2002 Compared to Year Ended May 31, 2002
Liquidity and Capital Resources
ARC COMMUNICATIONS INC. SELECTED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF ARC COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
UNAUDITED PRO FORMA CONDENSED COBINED STATEMENT OF OPERATIONS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
COMPARATIVE PER SHARE DATA AND DIVIDEND INFORMATION
High and Low Stock Prices
OTHER MATTERS
Annual Report on Form 10-KSB
Proposals Intended to be Presented at the Next Annual Meeting
Other Matters
Expenses of Solicitation
INCORPORATION OF INFORMATION BY REFERENCE
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FIN-1
Annex A Agreement and Plan of Merger,
dated December 8, 2003, by and among RoomLinX, ARC and RL A-1
Annex B Form of Certificate of Amendment to Certificate
of Incorporation of ARC B-1
Annex C Article 14-A:11 of the New Jersey Permanent Statutes C-1
Annex D RoomLinX, Inc. Long-Term Incentive Plan D-1
Annex E Amendment to Merger Agreement E-1
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Except as otherwise specifically noted, references to "ARC," "we," "our," "us"
and similar words in this proxy statement refer to ARC Communications Inc.
References to "RL Acquisition" are to RL Acquisition, Inc., our wholly-owned
subsidiary. References to "RoomLinX" are to RoomLinX, Inc. References to the
"transactions" refer to the transactions contemplated by the merger, the
amendment to ARC's certificate of incorporation, the reincorporation and the
adoption of the long-term incentive plan.
FORWARD-LOOKING STATEMENTS
The information in this proxy statement contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements that
are not historical in nature, including statements about beliefs and
expectations, are forward-looking statements. Forward-looking statements include
statements preceded by, followed by or that include the words "may," "will",
"should", "estimates", "predicts", "potential", "continue", "strategy",
"believes", "anticipates", "plans", "expects", "intends" and similar
expressions. The forward-looking statements regarding RoomLinX and ARC in this
proxy statement include information relating to:
.. financial condition and results of operations of the applicable company,
including revenue and revenue visibility;
.. the market for RoomLinX's products and services, including selling
opportunities to potential and existing customers;
.. business strategies, competitive positions, growth opportunities for
existing services and products, and plans and objectives of management
including growth and other business plans;
.. the market for the securities of the surviving corporation;
.. use of third-party marketing sources; and
.. the financial and regulatory environment in which RoomLinX operates.
You should not place undue reliance on forward-looking statements, which speak
only as of the date of this proxy statement. These statements are based upon
current expectations. We undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of future events, new
information or otherwise. All forward-looking statements are subject to risks
and uncertainties that could cause actual events to differ materially from those
projected. Important factors that might cause or contribute to such a
discrepancy include, but are not limited to:
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.. the risk of whether the transactions close;
.. the effect of the transactions on the market price of our common stock;
.. the ability of RoomLinX to continue as a going concern, including the
ability to continue as a going concern following the transactions;
.. the fact that neither RoomLinX nor ARC has achieved profitability on a
quarterly basis;
.. the ability to retain RoomLinX's customers after the transactions and the
ability to increase revenues after the transactions;
.. the effects of vigorous competition with larger and better-established
companies in the markets in which RoomLinX operates;
.. the market position, financial condition and resources of RoomLinX's
customers and potential customers;
.. the impact of technological change on the business of RoomLinX, and new
entrants and alternative technologies in RoooLinX's market and business;
.. the low price and volatility of our common stock;
.. the impact of the change in management following the closing of the
transactions; and
.. the factors discussed under "Risk Factors," beginning on page 16.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Why am I receiving this proxy statement and proxy card?
You are receiving a proxy statement and proxy card because you own shares of
common stock of ARC Communications Inc. This proxy statement describes the
issues on which we would like you, as a stockholder, to vote. It also gives you
information on these issues so that you can make an informed decision.
What am I voting on?
You are being asked to vote on the following matters:
o the merger of ARC with RoomLinX, Inc.;
o an amendment to ARC's certificate of incorporation to increase the
authorized common stock of ARC from 45,000,000 shares to 250,000,000
shares and change its name to "RoomLinX, Inc.";
o the reincorporation of ARC from a New Jersey corporation to a Nevada
corporation; and
o the adoption of a long-term incentive plan.
Each of the merger, the amendment to ARC's certificate of incorporation, the
reincorporation and the adoption of the long-term incentive plan is conditioned
upon our receipt of stockholder approval. If we do not obtain stockholder
approval of each of these proposals, we will not be able to consummate the
merger.
Why is ARC merging with RoomLinX?
In the past several years, ARC has incurred net losses and has continued to have
a working capital deficit. ARC's net sales since the year ended 2000 have
continued to decline. Given the declining operating performance of ARC and the
cost of remaining a public company, it has become necessary for ARC to go into
another line of business. ARC looked for a buyer for its remaining assets for
the better course of a year and no one was found. Certain members of ARC
management expressed an interest in purchasing ARC's remaining assets, but upon
the performance of their due diligence, it was determined that, as an operating
business, ARC had become valueless. It was concluded that ARC is worth more as a
shell company for a private entity to become a public company than an operating
business. Accordingly, the merger of ARC with RoomLinX will allow ARC and its
stockholders to obtain value for its status as a public company and to move into
a new line of business. Currently, ARC is not generating any revenue nor is it
expected to in the near future. Should the merger not close, there will be no
ongoing business.
What will RoomLinX stockholders receive in the merger?
In the merger, RoomLinX stockholders will receive an aggregate of (i) 68,378,346
shares of ARC common stock and (ii) options and/or warrants to purchase
11,465,001 shares of ARC common stock. The number of shares of common stock,
options and warrants to be issued to RoomLinX stockholders will represent
approximately 65% of the surviving corporation's common stock issued and
outstanding on the effective date of the merger, assuming the exercise of all
outstanding options and warrants to purchase common stock, having a market value
of approximately $_________.
How will ARC stockholders be affected by the merger?
ARC stockholders will continue to own the same number of shares of common stock
that they owned immediately prior to the merger except that such shares will
represent ownership in the surviving corporation and each share of common stock
will represent a smaller ownership percentage of the surviving corporation.
What are the United States tax consequences of the transactions to ARC and ARC
stockholders?
8
For federal income tax purposes, ARC expects the merger to qualify as a
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. It is,
therefore, expected that there will be no material tax consequences from the
merger for our continuing stockholders and that stockholders will recognize no
gain or loss as a result of the merger. ARC has not requested a ruling from the
Internal Revenue Service or an opinion of counsel with respect to the federal
income tax consequences of the merger. The basis for our analysis is the
informal review of the relevant tax laws by our legal counsel and tax advisors.
We note that state, local or foreign income tax consequences to stockholders may
vary from the federal tax consequences described above. Each stockholder is
encouraged to consult with his, her or its own tax advisor for a full
understanding of the tax consequences of the merger.
What stockholder votes are needed to approve the merger?
The affirmative vote of at least a majority of the votes cast by the holders of
common stock entitled to vote at the special meeting is required to approve and
adopt the Merger Agreement and the merger.
Why is ARC proposing to amend its charter to increase the number of authorized
shares of common stock?
ARC intends to acquire RoomLinX stockholders' common shares by issuing
68,378,346 shares of ARC common stock and options and/or warrants to purchase
11,465,001 shares of ARC common stock. ARC is surrently authorized to issue up
to 45,000,000 shares of its common stock, and as of the record date, ARC had
approximately __________ shares of common stock outstanding, 655,000 shares of
common stock reserved for issuance upon exercise of options and 8,333,333 shares
of common stock reserved for issuance upon the exercise of warrants to purchase
shares of ARC common stock. As a result, ARC does not have enough shares of
authorized common stock available for issuance to RoomLinX stockholders in
connection with the merger unless the proposed amendment to ARC's certificate of
incorporation is approved. As part of the merger, ARC is also required to adopt
a long-term incentive plan to issue stock options and other stock-based awards
to purchase an aggregate of ____ shares of common stock of the surviving
corporation, effective as of the closing of the merger. In order to provide the
board of directors with sufficient shares to meet its obligations under the
Merger Agreement and the long-term incentive plan, ARC is asking its
stockholders to approve the proposed amendment to ARC's certificate of
incorporation to increase the number of authorized shares of common stock from
45,000,000 to 250,000,000.
Why is ARC proposing to amend its charter to change its name to "RoomLinX,
Inc."?
As a result of the merger, ARC will wind down its existing business and the
business of the surviving corporation will be the business of RoomLinX. As such,
the parties to the Merger Agreement have determined it to be in the best
interests of the surviving corporation's business to have the name RoomLinX,
Inc. In order to allow the surviving corporation to have the name RoomLinX,
Inc., ARC is asking it stockholders to approve the proposed amendment to change
ARC's name from ARC Communications Inc. to RoomLinX, Inc.
What happens if ARC stockholders do not approve the amendment to its charter to
increase the number of authorized shares of common stock and to change its name
to "RoomLinX, Inc."?
In the event that ARC does not receive stockholder approval of the amendment to
its certificate of incorporation to increase the number of authorized shares of
common stock and change its name to RoomLinX, Inc., then ARC will be unable to
consummate the merger.
What stockholder votes are needed to approve the proposed amendments to ARC's
certificate of incorporation?
The affirmative vote of at least a majority of the votes cast by the holders of
common stock entitled to vote at the special meeting is required to approve and
adopt the proposals to amend ARC's certificate of incorporation.
Why is ARC proposing to reincorporate in the State of Nevada?
ARC is proposing to reincorporate in the State of Nevada because Nevada has
adopted, construed and implemented comprehensive, flexible corporate laws
responsive to the legal and business needs of corporations organized under its
laws. Nevada corporate law will provide the surviving corporation with a more
advanced and flexible corporate statute than exists in the State of New Jersey.
9
What stockholder votes are needed to approve the reincorporation of ARC in the
State of Nevada?
The affirmative vote of at least a majority of the votes cast by the holders of
common stock entitled to vote at the special meeting is required to approve the
reincorporation of ARC in the State of Nevada.
Why is ARC proposing to adopt a long-term incentive plan?
ARC is proposing to adopt a long-term incentive plan to take effect following
the merger because the parties to the merger have determined that the surviving
corporation should have a long-term incentive plan for future stock option
grants to offer eligible employees of the surviving corporation the opportunity
to acquire or increase their proprietary interest in the surviving corporation,
adding to their incentive to contribute to the performance and growth of the
company.
What stockholder votes are needed to approve and adopt the long-term incentive
plan?
The affirmative vote of at least a majority of the votes cast by the holders of
common stock entitled to vote at the special meeting is required to approve and
adopt the long-term incentive plan.
When do you expect the transactions to be completed?
We are working to complete the transactions as soon as possible after the
special meeting, subject to the approval of our stockholders.
Does the board of directors of ARC recommend approval of the transactions and
the other proposals to be considered at the special meeting?
Yes. After careful consideration, our board of directors recommends that our
stockholders vote FOR each of the transactions.
Are ARC's stockholders entitled to appraisal or dissenters' rights?
Under New Jersey law, ARC stockholders who object to the merger or the
reincorporation have the right to dissent to such transactions and to demand to
be paid in cash the fair value of their shares by following the procedures
prescribed under New Jersey law. You should carefully review the summary under
the heading Proposal 1 - Dissenters' Rights beginning on page 37 and the
provisions of New Jersey law set forth in Annex C attached to this proxy
statement for a description of the procedures required to be followed by
dissenting stockholders to obtain such fair value for your shares.
What do I need to know now?
After carefully reading and considering the information in this proxy statement,
please complete, date and sign your proxy card and promptly return it in the
accompanying envelope. If you receive more than one proxy card, it means that
you have multiple accounts at the transfer agent and/or with brokers. Please
sign and return all proxy cards to ensure that your shares are voted. By marking
your voting instructions on the proxy card, your shares will be voted as you
instruct. If you just sign your proxy card with no further instructions, your
shares will be counted as a vote "FOR" all of the proposals. You may also attend
the special meeting and vote your shares in person rather than voting by proxy.
If my broker holds my shares in street name, will my broker vote my shares for
me?
If your shares are held in street name, your brokerage firm may vote your shares
under certain circumstances. These circumstances include certain "routine"
matters, such as the election of directors, but do not include other matters,
including the transactions described in this proxy statement. Your broker should
provide instructions to you on how to direct your broker to vote your shares.
Broker non-votes (meaning proxies submitted by brokers as holders of record on
behalf of their customers that do not indicate how to vote on the proposal) are
counted only for purposes of establishing a quorum.
10
Can I change my vote after I have mailed my signed proxy?
Yes. You may revoke your proxy and change your vote at any time before the polls
close at the special meeting. You may do this by: (i) sending written notice to
Peter A. Bordes, Jr., at 401 Hackensack Avenue, 3rd Floor, Hackensack, New
Jersey 07601; (ii) signing another proxy with a later date and delivering the
proxy to Mr. Bordes; or(iii) voting again at the special meeting. If you have
instructed a broker to vote your shares, you must follow the directions from
your broker on how to change that vote.
What risks should I consider in evaluating the transactions?
We have listed in the section entitled "Risk Factors," beginning on page __, the
risks that you should consider in deciding whether to vote for the proposals
described in this proxy statement.
Who can help answer my questions about the transactions?
If you have additional questions about these transactions, you should contact
Mr. Peter A. Bordes, Jr., ARC's chief executive officer, at 401 Hackensack
Avenue, 3rd Floor, Hackensack, New Jersey 07601.
11
SUMMARY TERM SHEET
The following points highlight selected terms and features of the proposals that
are set forth in this proxy statement, and may not contain all the information
that is important to you. To better understand the merger and the other matters
discussed in this proxy statement, you should read this entire document
carefully, including the Merger Agreement, attached as Annex A, the Amendment to
Merger Agreement, attached as Annex E, and the other documents to which we
refer. We have included cross-references to direct you to the more detailed
discussions of the topics presented in this summary.
SUMMARY OF THE MERGER (See "Proposal 1 - The Merger" and "- Terms of the Merger
Agreement")
The Merger Agreement and the Amendment to Merger Agreement are the main legal
documents that govern the merger transaction and are attached to this proxy
statement as Annex A and Annex E, respectively. These agreements provide the
terms and conditions that govern the merger of ARC with RoomLinX. We encourage
you to read the Merger Agreement and the Amendment to Merger Agreement
carefully.
In the merger, RoomLinX will merge into ARC's wholly-owned subsidiary RL
Acquisition, Inc., with RL Acquisition continuing as the surviving corporation.
Under the terms of the Merger Agreement, RoomLinX will merge with ARC in
exchange for the issuance to the holders of common stock of RoomLinX of an
aggregate of 68,378,346 shares of ARC common stock and options and/or warrants
to purchase 11,465,001 shares of common stock. The number of shares of common
stock, options and warrants to be issued to RoomLinX stockholders will represent
approximately 65% of the surviving corporation's common stock issued and
outstanding on the effective date of the merger, assuming the exercise of all
outstanding options and warrants to purchase common stock, having a market value
of approximately $_________.
INTERESTS OF OFFICERS AND DIRECTORS OF ARC IN THE MERGER (See "Special Factors -
Interests of ARC Management and Directors in the Transactions")
Under the Merger Agreement, Mr. Peter A. Bordes, Jr., shall continue as a member
of the board of directors of the surviving corporation in the merger. The
foregoing may influence Mr. Bordes in making his recommendation that you vote in
favor of the transactions, including the Merger Agreement and the merger.
ARC'S PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK (See
"Proposal 2 - Description of Amendment")
In order for ARC to issue the shares of ARC common stock and options and/or
warrants to purchase shares of ARC common stock to RoomLinX stockholders as the
consideration in the merger, ARC must first amend its certificate of
incorporation to increase the number of shares of common stock that ARC is
authorized to issue. In order to permit the merger, ARC is asking its
stockholders to approve the proposed amendment to ARC's certificate of
incorporation to increase the number of authorized shares of common stock from
45,000,000 to 250,000,000.
ARC'S PROPOSAL TO CHANGE ITS NAME TO "ROOMLINX, INC."
As a result of the merger, ARC will wind down its existing business and the
business of the surviving corporation will be the business of RoomLinX. In order
to permit the change of ARC's name to RoomLinX, Inc., ARC is asking its
stockholders to approve the proposed amendment to ARC's certificate of
incorporation to change its name from ARC Communications Inc. to RoomLinX, Inc.
As a result of the merger, the stockholders, optionholders and warrantholders of
each of ARC and RoomLinX prior to the merger will be stockholders, optionholders
and warrantholders of the surviving corporation which will have the name
RoomLinX, Inc.
ARC'S PROPOSAL TO REINCORPORATE IN THE STATE OF NEVADA (See "Proposal 3 - Terms
of Reincorporation" and "- Comparison between New Jersey and Nevada Law")
ARC formed RL Acquisition, Inc., a Nevada corporation and wholly-owned
subsidiary, in order to consummate the merger with RoomLinX. In the merger,
RoomLinX will merge with and into RL Acquisition, with RL Acquisition as the
surviving corporation and wholly-owned subsidiary of ARC. In order to
consolidate the corporate offices of ARC and RL Acquisition after the merger and
to reincorporate ARC into a Nevada entity, ARC is asking its stockholders to
approve the reincorporation of ARC in the State of Nevada by the merger of ARC
with and into RL Acquisition.
12
ARC'S PROPOSAL TO ADOPT THE LONG-TERM INCENTIVE PLAN (See "Proposal 4 - Terms of
the Plan")
In order to offer eligible employees of the surviving corporation in the merger
the opportunity to acquire or increase their proprietary interest in the
surviving corporation and to provide employees with incentives to contribute to
the performance and growth of the company, ARC is asking its stockholders to
adopt the proposed long-term incentive plan, effective upon the closing of the
merger.
RISK FACTORS (See "Risk Factors")
By voting for or against the merger, the amendment to ARC's certificate of
incorporation, the reincorporation of ARC in the State of Nevada and the
adoption of the long-term incentive plan, ARC stockholders are effectively
deciding whether or not to invest directly in the business of RoomLinX which
shall constitute the entire business of the surviving corporation after the
merger. ARC stockholders should carefully consider the factors discussed in the
section entitled "Risk Factors" before deciding how to vote.
13
ARC COMMUNICATIONS INC.
401 Hackensack Avenue, 3rd Floor
Hackensack, New Jersey 07601
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY __, 2004
The board of directors of ARC Communications, Inc., a New Jersey corporation,
asks that you appoint its representatives as proxies to vote your shares of ARC
common stock at the special meeting of stockholders of ARC to be held on May __,
2004, at the offices of Westerman Ball Ederer Miller & Sharfstein, LLP located
at 170 Old Country Road, Mineola, New York 11501, beginning at 10:00 a.m., local
time, and at any adjournments or postponements thereof. To appoint the proxies,
please sign and return the enclosed form of proxy card. This proxy statement and
the accompanying proxy card were mailed on or about May __, 2004, to holders of
ARC common stock entitled to vote at the special meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, our stockholders will be asked to consider and approve a
series of transactions involving the reorganization of ARC as follows:
o the merger of ARC with RoomLinX, Inc., a Nevada corporation, pursuant to
an Agreement and Plan of Merger, as amended by the Amendment to Agreement
and Plan of Merger (references to the Merger Agreement throughout this
proxy statement mean the Merger Agreement as amended by the Amendment to
Agreement and Plan of Merger, unless the context states otherwise);
o an amendment to ARC's certificate of incorporation to increase the
authorized common stock of ARC from 45,000,000 shares to 250,000,000
shares and change its name to "RoomLinX, Inc.";
o the reincorporation of ARC from a New Jersey corporation to a Nevada
corporation by the merger of ARC with and into its wholly-owned subsidiary
RL Acquisition, Inc., a Nevada corporation; and
o the adoption of a long-term incentive plan, effective as of the closing of
the merger.
The board of directors of ARC has fixed the close of business on April __, 2004,
as the record date for the special meeting. Only persons who are holders of
record of ARC's outstanding common stock as of the record date are entitled to
vote. As of the record date, _________ shares of common stock of ARC were
issued, outstanding, and entitled to vote at the special meeting. Each holder of
record of common stock on the record date will be entitled to one vote for each
share held on all matters to be voted upon at the special meeting.
QUORUM, ABSTENTIONS AND BROKER NON-VOTES
To hold the special meeting, there must be a quorum, which means a majority of
ARC's outstanding shares of common stock as of the record date must be present
at the meeting either in person or by proxy in order to hold the meeting and
conduct business. Abstentions and broker non-votes (meaning proxies submitted by
brokers as holders of record on behalf of their customers that do not indicate
how to vote on the proposal) are also considered part of the quorum. With
respect to each proposal, abstentions and broker non-votes will have the same
effect as a vote AGAINST the proposal.
VOTES REQUIRED FOR APPROVAL
Under New Jersey law, the affirmative vote of at least a majority of the votes
cast by the holders of our common stock entitled to vote at the special meeting
is required to approve and adopt each of proposals.
14
HOW TO VOTE
You may vote your proxy by mail, or by attending the special meeting in person.
You may vote by mail by signing the enclosed proxy card that represents your
shares and mailing it in the enclosed, prepaid and addressed envelope. If you
mark your voting instructions on the proxy card, your shares will be voted as
you instruct. You may vote "FOR," "AGAINST" or "ABSTAIN" for the proposals. A
properly executed proxy card marked "ABSTAIN" as to any proposal will not be
voted with respect to that proposal, although it will be counted for purposes of
determining whether there is a quorum. If you just sign your proxy card with no
further instructions, your shares will be counted as a vote "FOR" all of the
proposals. You may vote in person at the meeting by written ballot which will be
passed out to stockholders at the meeting.
We request that ARC stockholders complete, date and sign the accompanying proxy
card and promptly return it in the accompanying envelope. If you receive more
than one proxy card, it means that you have multiple accounts at the transfer
agent and/or with brokers. Please sign and return all proxy cards to ensure that
all of your shares are voted.
If your shares are held in street name, your brokerage firm may vote your shares
under certain circumstances. These circumstances include certain "routine"
matters, such as the election of directors, but do not include other matters,
including the proposals being voted on at the special meeting. Brokers will
provide instructions to beneficial owners on how to direct the broker to vote
their shares. Broker non-votes (meaning proxies submitted by brokers as holders
of record on behalf of their customers that do not indicate how to vote on the
proposal) are counted only for purposes of establishing a quorum.
All properly executed proxies that we receive prior to the vote at the special
meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no direction is indicated (other than
broker non-votes), your proxy will be voted FOR each of the proposals described
in this proxy statement. ARC's board of directors does not currently intend to
bring any other business before the special meeting and is not aware of any
other matters to be brought before the special meeting. If other business
properly comes before the special meeting, the proxies will be voted in
accordance with the judgment of the proxy holders.
You may revoke your proxy and change your vote at any time before the polls
close at the special meeting. You may do this by: (i) sending written notice to
Peter A. Bordes, Jr. at 401 Hackensack Avenue, 3rd Floor, Hackensack, New Jersey
07601; (ii) signing another proxy with a later date and delivering the proxy to
Mr. Bordes; or (iii) voting again at the special meeting. If you have instructed
a broker to vote your shares, you must follow the directions from your broker on
how to change that vote.
DISSENTERS' RIGHTS
Pursuant to Section 14A:11-1 of the New Jersey Permanent Statutes, stockholders
who object to the merger or the reincorporation shall have the right to dissent
to such transactions and to demand to be paid in cash the fair value of their
shares by following the procedures prescribed in the New Jersey Permanent
Statutes. This proxy statement and Annex C attached to this proxy statement set
forth the rights of dissenting stockholders and provide a description of the
procedures required to be followed by dissenting stockholders to obtain such
fair value for their shares.
15
RISK FACTORS
In addition to the other information included and incorporated by reference in
this proxy statement, our stockholders should carefully consider the matters
described below in voting on the proposals to be voted on at the special
meeting.
RISK FACTORS RELATING TO ARC
IF THE MERGER WITH ROOMLINX IS NOT CONSUMMATED, ARC HAS NO CONTINUING BUSINESS
OPERATIONS.
During 2003, ARC sold its continuing education segment in order to raise funds
and focus on the multimedia business. However, the multimedia business revenues
continued to decline. Currently, ARC is not generating any revenue nor is it
expected to in the near future. Should ARC's stockholders not approve the
merger, there will be no ongoing business operations.
ARC HAS SUSTAINED CONTINUING LOSSES OF OPERATIONS.
ARC has losses from continuing operations for the year ended December 31, 2003
of $572,000 and has an accumulated deficit of $2,182,000 as of December 31,
2003. No assurance can be given as to whether we will achieve profitability, if
at all. If we fail to achieve and maintain sufficient profitability within the
time frame expected by investors, the market price of our common stock may be
adversely affected.
HISTORICAL LOSSES AND NEGATIVE CASH FLOWS FROM OPERATIONS RAISE DOUBT ABOUT
ARC'S ABILITY TO CONTINUE AS A GOING CONCERN.
Historically, ARC has suffered losses and has not generated positive cash flows
from operations. This raises substantial doubt about our ability to continue as
a going concern. The audit reports of independent auditors Eisner LLP for the
years ended December 31, 2003 and 2002 on our financial statements contained an
explanatory paragraph expressing doubt about ARC's ability to continue as a
going concern
RISK FACTORS RELATING TO THE TRANSACTIONS
IF WE ARE UNABLE TO COMPLETE THE TRANSACTIONS, OUR STOCK PRICE WILL BE ADVERSELY
AFFECTED.
If the merger is not completed, our stock price will likely be adversely
affected as the marketplace is anticipating the merger to be consummated and has
bid up our stock price in anticipation of its completion. Whether or not the
merger is completed, ARC will need to pay expenses related to the transactions,
such as legal and accounting expenses. In addition, whether or not the merger is
completed, ARC has expenses as a public company including, without limitation,
the cost of complying with the provisions of the Sarbanes-Oxley Act of 2002. As
stated elsewhere throughout this proxy statement, ARC's current business is
being wound down, as its remaining assets are essentially valueless. The merger
with RoomLinX is ARC's only alternative to possibly generate revenue and provide
value to its stockholders.
THE TRANSACTIONS WILL RESULT IN SUBSTANTIAL DILUTION TO OUR CURRENT
STOCKHOLDERS.
The issuance of shares of common stock and options and/or warrants to purchase
shares of common stock to RoomLinX stockholders in the merger will significantly
dilute the voting power and ownership percentage of our existing stockholders.
We expect to issue 68,378,346 shares of common stock, plus options and/or
warrants to purchase 11,465,001 shares of common stock. Accordingly, immediately
following completion of the merger, RoomLinX stockholders are expected to
represent approximately of 65% of the surviving corporation's equity on a
fully-diluted basis, assuming the exercise by RoomLinX stockholders of all
options and warrants issued to them in the merger.
16
THE ROOMLINX STOCKHOLDERS SHALL HAVE VOTING POWER OF THE CAPITAL STOCK OF THE
SURVIVING CORPORATION SUFFICIENT TO CONTROL OR SIGNIFICANTLY INFLUENCE ALL MAJOR
CORPORATE DECISIONS.
Upon the closing of the merger and the reincorporation, the surviving
corporation will have outstanding an aggregate of approximately __________
shares of common stock (excluding shares issued or issuable upon exercise of
outstanding options and warrants). Accordingly, the voting rights of RoomLinX
stockholders will represent approximately 67% of the voting power of the
surviving corporation.
RISK FACTORS RELATING TO THE SURVIVING CORPORATION AFTER THE TRANSACTIONS
IF THE SURVIVING CORPORATION CONTINUES TO EXPERIENCE LOSSES AFTER THE
TRANSACTIONS ARE COMPLETED, IT COULD EXPERIENCE DIFFICULTY MEETING ITS BUSINESS
PLAN, AND THE STOCK PRICE COULD BE NEGATIVELY AFFECTED.
After the transactions, it is expected that the surviving corporation RoomLinX
will continue to experience operating losses and negative cash flow from
operations. Any failure to achieve and then maintain profitability and positive
cash flow could negatively impact the market price of the surviving
corporation's common stock and its ability to continue as a going concern.
RoomLinX has not been profitable or cash flow positive on a quarterly or annual
basis, and it is anticipated that after completion of the transactions, it will
incur net losses and negative cash flow for the foreseeable future. As a result,
the surviving corporation will need to generate significant quarterly revenues
if it is to achieve and maintain profitability and positive cash flow. A failure
to achieve profitability or positive cash flow in the near term could make it
difficult or impossible for the surviving corporation to grow its business. If
its business strategy is not successful, it may not generate significant
revenues or achieve profitability.
RISKS PARTICULAR TO ROOMLINX - References to "we," "our," "us" and similar words
used throughout the remaining Risk Factors refer to RoomLinX.
WE HAVE HISTORICALLY INCURRED LOSSES AND THESE LOSSES WILL CONTINUE IN THE
FORESEEABLE FUTURE.
We have never earned a profit. As at December 31, 2003, we had net losses of
$5,601,470 since our inception. Since our inception, we have invested
significant capital to build our organization. We have incurred operating losses
since our inception and expect to continue to incur operating losses for at
least the next year. We will need to generate significant revenue to become
profitable and sustain profitability on a quarterly and annual basis.
We may not achieve or sustain our revenue or profit goals, and our ability to do
so depends on the factors specified elsewhere in "Risk Factors" - as well as on
a number of factors outside of our control, including the extent to which:
o our competitors announce and develop, or lower the prices of,
competing services; and
o prices for our services decrease as a result of reduced demand or
competitive pressures.
As a result, we may not be able to increase revenue or achieve
profitability on a quarterly and annual basis.
BOTH OUR MANAGEMENT AND OUR INDEPENDENT AUDITORS HAVE EXPRESSED AN OPINION
RAISING SUBSTANTIAL DOUBT CONCERNING OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditors have expressed an opinion raising substantial doubt
concerning our ability to continue as a going concern with respect to our
financial statements for the year ended December 31, 2003 and the seven month
period ended December 31, 2002. This qualification could materially adversely
affect the manner in which third parties do business with us, most notably in
connection with the extension of credit and their degree of commitment to any
long-term agreements. Actions that may be taken by our suppliers and other
creditors to enhance their credit positions could cause the surviving
corporation significant additional liquidity problems and could adversely impact
our ability to continue doing business. Such a qualification could also make it
more difficult for us to obtain capital on acceptable terms, if at all.
17
WE MAY NEED ADDITIONAL FUNDS WHICH, IF AVAILABLE, COULD RESULT IN INCREASED
INTEREST EXPENSES OR ADDITIONAL DILUTION TO OUR STOCKHOLDERS. IF ADDITIONAL
FUNDS ARE NEEDED AND ARE NOT AVAILABLE, OUR BUSINESS COULD BE NEGATIVELY
IMPACTED.
At this time, we do not have any bank credit facility or other working capital
credit line under which we may borrow funds for working capital or other general
corporate purposes. If our plans or assumptions change or are inaccurate, we may
be required to seek additional capital.
If funds are raised through the issuance of equity securities, the percentage
ownership of our then-current stockholders will be reduced and the holders of
new equity securities may have rights, preferences or privileges senior to those
of the holders of our common stock. If additional funds are raised through a
bank credit facility or the issuance of debt securities, the holder of such
indebtedness would have rights senior to the rights of common stockholders and
the terms of such indebtedness could impose restrictions on our operations. If
we need to raise additional funds, we may not be able to do so on terms
favorable to us, or at all. If we cannot successfully increase our revenues or
raise adequate funds on acceptable terms, we may not be able to continue to fund
our operations.
We may be required to sell or otherwise dispose of portions of our business in
order to improve our cash position. We may not be able to effect such sales on
satisfactory terms or at all.
OUR LIMITED CASH RESOURCES WILL LIKELY RESTRICT OUR FLEXIBILITY AND OVERALL
OPERATIONS.
In order for us to continue operating as an independent business entity, it has
been necessary for us to develop significant budgetary constraints. These
constraints limit our ability to respond to business opportunities or issues as
they arise. Since our industry remains in an early stage and its needs are
dynamic, our budgetary constraints may adversely affect our ability to respond
to market demands and our ability to compete.
WE HAVE ONLY A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE
AN INVESTMENT IN OUR COMMON STOCK.
We have only a limited operating history on which you can evaluate our business,
financial condition and operating results. We face a number of risks encountered
by early stage technology companies that participate in new technology markets,
including our ability to:
o maintain our engineering and support organizations, as well as our
distribution channels;
o negotiate and maintain favorable usage rates with our vendors;
o retain and expand our customer base at profitable rates;
o recoup our expenses associated with the wireless devices we resell
to subscribers;
o manage expanding operations, including our ability to expand our
systems if our subscriber base grows substantially;
o attract and retain management and technical personnel; and
o anticipate and respond to market competition and changes in
technologies as they develop and become available.
We may not be successful in addressing or mitigating these risks and
uncertainties, and if we are not successful our business could be significantly
and adversely affected.
18
TO GENERATE INCREASED REVENUE WE WILL HAVE TO INCREASE SUBSTANTIALLY THE NUMBER
OF OUR CUSTOMERS, WHICH MAY BE DIFFICULT TO ACCOMPLISH.
Adding new customers will depend to a large extent on the success of our direct
and indirect distribution channels and acquisition strategy, and there can be no
assurance that these will be successful. Our customers' experiences may be
unsatisfactory to the extent that our service malfunctions or our customer care
efforts, including our website and 800 number customer service efforts, do not
meet or exceed subscriber expectations. In addition, factors beyond our control,
such as technological limitations of the current generation of devices, which
may cause our customers' experiences with our service to not meet their
expectations, can adversely affect our revenues.
WE MAY ACQUIRE OR MAKE INVESTMENTS IN COMPANIES OR TECHNOLOGIES THAT COULD CAUSE
LOSS OF VALUE TO OUR STOCKHOLDERS AND DISRUPTION OF OUR BUSINESS.
Subject to our capital constraints, we intend to continue to explore
opportunities to acquire companies or technologies in the future. Entering into
an acquisition entails many risks, any of which could adversely affect our
business, including:
o failure to integrate the acquired assets and/or companies with our
current business;
o the price we pay may exceed the value we eventually realize;
o loss of share value to our existing stockholders as a result of
issuing equity securities as part or all of the purchase price;
o potential loss of key employees from either our current business or
the acquired business;
o entering into markets in which we have little or no prior
experience;
o diversion of management's attention from other business concerns;
o assumption of unanticipated liabilities related to the acquired
assets; and
o the business or technologies we acquire or in which we invest may
have limited operating histories, may require substantial working
capital, and may be subject to many of the same risks we are.
WE HAVE LIMITED RESOURCES AND WE MAY BE UNABLE TO EFFECTIVELY SUPPORT OUR
OPERATIONS.
We must continue to develop and expand our systems and operations in order to
remain competitive. We expect it to place strain on our managerial, operational
and financial resources. We may be unable to develop and expand our systems and
operations for one or more of the following reasons:
o we may not be able to retain at reasonable compensation rates
qualified engineers and other employees necessary to expand our
capacity on a timely basis;
o we may not be able to dedicate the capital necessary to effectively
develop and expand our systems and operations; and
o we may not be able to expand our customer service, billing and other
related support systems.
If we cannot manage our operations effectively, our business and operating
results will suffer.
19
OUR BUSINESS PROSPECTS DEPEND IN PART ON OUR ABILITY TO MAINTAIN AND IMPROVE OUR
SERVICES AS WELL AS TO DEVELOP NEW SERVICES.
We believe that our business prospects depend in part on our ability to maintain
and improve our current services and to develop new services. Our services will
have to achieve market acceptance, maintain technological competitiveness and
meet an expanding range of customer requirements. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new services and service enhancements. Additionally, our new
services and service enhancements may not achieve market acceptance.
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR BUSINESS COULD SUFFER.
Our industry is characterized by rapidly changing technologies, industry
standards, customer needs and competition, as well as by frequent new product
and service introductions. Our services are integrated with the computer systems
of our customers. We must respond to technological changes affecting both our
customers and suppliers. We may not be successful in developing and marketing,
on a timely and cost-effective basis, new services that respond to technological
changes, evolving industry standards or changing customer requirements. Our
success will depend, in part, on our ability to accomplish all of the following
in a timely and cost-effective manner:
o effectively using and integrating new technologies;
o continuing to develop our technical expertise;
o enhancing our engineering and system design services;
o developing services that meet changing customer needs;
o advertising and marketing our services; and
o influencing and responding to emerging industry standards and other
changes.
WE DEPEND ON RETAINING KEY PERSONNEL. THE LOSS OF OUR KEY EMPLOYEES COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Due to the technical nature of our services and the dynamic market in which we
compete, our performance depends on retaining key employees. Competitors and
others may attempt to recruit our employees. A major part of our compensation to
our key employees is in the form of stock option grants. A prolonged depression
in our stock price could make it difficult for us to retain our employees and
recruit additional qualified personnel.
AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM THIRD
PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES.
In designing, developing and supporting our services, we rely on many third
party providers. These suppliers may experience difficulty in supplying us
products or services sufficient to meet our needs or they may terminate or fail
to renew contracts for supplying us these products or services on terms we find
acceptable. If our liquidity deteriorates, our vendors may tighten our credit,
making it more difficult for us to obtain suppliers on terms satisfactory to us.
Any significant interruption in the supply of any of these products or services
could cause a decline in sales of our services, unless and until we are able to
replace the functionality provided by these products and services. We also
depend on third parties to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis and
respond to emerging industry standards and other technological changes.
20
WE MAY FACE INCREASED COMPETITION, WHICH MAY NEGATIVELY IMPACT OUR PRICES FOR
OUR SERVICES OR CAUSE US TO LOSE BUSINESS OPPORTUNITIES.
The market for our services is becoming increasingly competitive. Our
competitors may use the same products and services in competition with us. With
time and capital, it would be possible for competitors to replicate our services
and offer similar services at a lower price. We expect that we will compete
primarily on the basis of the functionality, breadth, quality and price of our
services. Our current and potential competitors include:
o other wireless high speed internet access providers, such as SDSN,
Guest-Tek Wayport, Greentree and StayOnLine;
o cable network carriers, such as SBC, Comcast, Sprint and COX
Communications; and
o internal information technology departments of large companies.
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do.
Additionally, many of these companies have greater name recognition and more
established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can. In addition, we have established
strategic relationships with many of our potential competitors. In the event
such companies decide to compete directly with us, such relationships would
likely be terminated, which could have a material adverse effect on our business
and reduce our market share or force us to lower prices to unprofitable levels.
WE MAY BE SUED BY THIRD PARTIES FOR INFRINGEMENT OF THEIR PROPRIETARY RIGHTS AND
WE MAY INCUR DEFENSE COSTS AND POSSIBLY ROYALTY OBLIGATIONS OR LOSE THE RIGHT TO
USE TECHNOLOGY IMPORTANT TO OUR BUSINESS.
Any intellectual property claims, with or without merit, could be time consuming
and expensive to litigate or settle and could divert management attention from
administering our business. A third party asserting infringement claims against
us or our customers with respect to our current or future products may
materially adversely affect us by, for example, causing us to enter into costly
royalty arrangements or forcing us to incur settlement or litigation costs.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND, AS
A RESULT, PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF OPERATIONS ARE NOT
NECESSARILY MEANINGFUL.
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors. These factors include:
o the demand for and market acceptance of our services;
o downward price adjustments by our competitors on services they offer
that are similar to ours;
o changes in the mix of services sold by our competitors;
o technical difficulties or network downtime affecting communications
generally;
o the ability to meet any increased technological demands of our
customers; and
o economic conditions specific to our industry.
Therefore, our operating results for any particular quarter may differ
materially from our expectations or those of security analysts and may not be
indicative of future operating results. The failure to meet expectations may
cause the price of our common stock to decline.
21
RISKS PARTICULAR TO OUR INDUSTRY
THE MARKET FOR OUR SERVICES IS NEW AND HIGHLY UNCERTAIN.
The market for wireless data services is still emerging and continued growth in
demand for and acceptance of these services remains uncertain. Current barriers
to market acceptance of these services include cost, reliability, functionality
and ease of use. We cannot be certain that these barriers will be overcome. If
the market for our services does not grow or grows slower than we currently
anticipate, our business, financial condition and operating results could be
materially adversely affected.
RISKS PARTICULAR TO STOCK PRICE
OUR STOCK PRICE, LIKE THAT OF MANY TECHNOLOGY COMPANIES, MAY BE VOLATILE.
We expect that the market price of our common stock will fluctuate as a result
of variations in our quarterly operating results and other factors beyond our
control. These fluctuations may be exaggerated if the trading volume of our
common stock is low. In addition, due to the technology-intensive and emerging
nature of our business, the market price of our common stock may rise and fall
in response to a variety of factors, including:
o announcements of technological or competitive developments;
o acquisitions or strategic alliances by us or our competitors;
o the gain or loss of a significant customer or order;
o changes in estimates of our financial performance or changes in
recommendations by securities analysts regarding us or our industry;
or
o general market or economic conditions.
This risk may be heightened because our industry is new and evolving,
characterized by rapid technological change and susceptible to the introduction
of new competing technologies or competitors.
In addition, equity securities of many technology companies have experienced
significant price and volume fluctuations. These price and volume fluctuations
often have been unrelated to the operating performance of the affected
companies. Volatility in the market price of our common stock could result in
securities class action litigation. This type of litigation, regardless of the
outcome, could result in substantial costs and a diversion of management's
attention and resources.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have never paid or declared any cash dividends on our common stock or other
securities and intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Unless we pay dividends, our
stockholders will not be able to receive a return on their shares unless they
sell them.
22
THE COMPANIES
ARC COMMUNICATIONS INC.
General
The following description of ARC Communications Inc. describes the business of
ARC through the closing of the merger. Following the merger, ARC's business will
be wound down and the business of the surviving corporation will be the business
of RoomLinX. A description of RoomLinX and its business is set forth following
the description of ARC.
CORPORATE HISTORY
ARC Communications Inc. was incorporated under the laws of the state of New
Jersey on October 21, 1992 under the name Arc Slide Technologies Ltd. On August
14, 1996, Arc Communications Inc., a Florida corporation, formerly known as
Alliance Telecommunications Holding Corp., acquired Arc Slide Technologies Ltd.,
and Arc Slide Technologies Ltd. became a wholly-owned subsidiary of Arc
Communications Inc. On November 21, 1997, Arc Communications Inc. merged with
and into its wholly-owned subsidiary Arc Slide Technologies Ltd. with Arc Slide
Technologies Ltd. the surviving corporation in such merger. At the time of the
merger, Arc Slide Technologies Ltd. changed its name to ARC Communications Inc.
ARC'S BUSINESS
Interactive multimedia programs have been a primary area of ARC's business. ARC
has formed strategic alliances with advertising agencies that have major
pharmaceutical companies as their clients. By forming these alliances, ARC's
clients are able to use ARC's expertise in a variety of interactive multimedia
areas. Further, such strategic alliances enable ARC's clients to use leading
edge technologies without having to incur substantial development costs. ARC
earns revenues from the Interactive Programs from billing for the creative
development. The expenses are principally payroll related and purchase costs are
insignificant.
ARC has the ability to design and create specific websites for a client and to
operate such websites. ARC also designs and develops interactive kiosks and
advertising and promotional materials, including packaging for retail products.
ARC's services range from consulting services to complete marketing-driven
design and construction of multi-level websites. ARC also offers numerous
integrated services in addition to those discussed above, particularly offline
media planning and buying related to identification, negotiation for and
purchase of banners, sponsorship and proprietary partnerships on websites.
The markets for ARC's services are highly competitive and are characterized by
pressures to incorporate new technologies, accelerate completion schedules and
reduce prices. ARC expects competition for its services to intensify in the
future, partly because there are no substantial barriers to entry into ARC's
business. ARC faces competition from a number of sources, including potential
customers that perform interactive marketing and communications services and
website development services in-house. These sources also include other website
service boutique firms, communications, telephone and telecommunications
companies, computer hardware and software companies such as Microsoft
Corporation and Adobe Systems Incorporated, established online service
companies, advertising agencies, internet-services and access providers as well
as specialized and integrated marketing communication firms. Many of ARC's
competitors or potential competitors have longer operating histories, more
substantial customer relationships and significantly greater financial,
managerial, technological, sales, marketing and other resources than ARC. ARC
also competes on the basis of creative reputation, price, reliability of
services and responsiveness. There can be no assurance that ARC will be able to
compete and its inability to do so would have a material adverse impact on ARC's
business, financial condition and operating results.
Subsequent to December 31, 2002, ARC reduced its staff to keep its overhead in
line with decreasing revenues. At December 31, 2003, ARC had three full-time
employees.
23
RL ACQUISITION, INC.
RL Acquisition, Inc. is a Nevada corporation and wholly-owned subsidiary of ARC.
It was formed for the purpose of the merger pursuant to the Merger Agreement.
ROOMLINX, INC.
GENERAL
RoomlinX provides wired networking solutions and Wireless Fidelity networking
solutions, as known as Wi-Fi, for high speed internet access to hotels,
convention centers, corporate apartments and special events locations. The
company installs and creates services that address the productivity and
communications needs of hotel guests, convention center exhibitors, corporate
apartment customers and individual consumers. RoomLinX specializes in providing
advanced Wi-Fi wireless services such as the wireless standards known as 802.11a
and 802.11b.
Hotel customers sign service agreements, where RoomlinX provides the maintenance
for the networks, as well as the right to provide value added services over the
network.
RoomlinX derives it's revenues primarily from the installation of the wired and
wireless networks it provides to hotels, convention centers and apartment
buildings. RoomlinX derives additional revenue from the maintenance of these
networks. Customers typically pay a one-time fee for the installation of the
network and then pay monthly maintenance fees for the upkeep of the network.
RoomlinX intends to increase its focus on value added services, thus intending
to create additional revenue from providing new services over the networks it
installs.
RoomLinX's principal office is currently based in Vancouver, British Columbia,
Canada. The company intends to move it's principal office to New Jersey, while
maintaining the Vancouver, British Columbia office, as well as other small sales
offices throughout the United Stated and Canada. Roomlinx's website is located
at www.roomlinx.com. We have not incorporated by reference into this filing any
of the information on our website, and you should not consider it to be a part
of this document. Our web site address is included in this document as an
inactive textual reference only.
The RoomlinX name and logo and the names of services offered by Roomlinx are
trademarks, registered trademarks, service marks or registered service marks of
Roomlinx.
CORPORATE HISTORY
Roomlinx was incorporated in the State of Nevada on March 5, 1999.
On December 8, 2003, RoomLinX entered into a definitive merger agreement with
ARC, whereby the RoomlinX business will be the entire focus of the merged
companies.
ROOMLINX'S BUSINESS
At December 31, 2003, Roomlinx had installed its networking solution in
approximately in 50 hotels and 11,000 rooms, from which RoomLinX receives,
directly or indirectly, monthly maintenance fees.
RoomLinX's solution offers easy to use access, providing instant and seamless
connections for laptop users from anywhere throughout a property, including
guest rooms, meeting rooms, back office and public area, over a high-speed
connection that is up to 300 times faster than a standard dial-up modem. Users
on this network have access to home and corporate email accounts and Virtual
Private Networks, also known as VPNs. These users have flexible billing options,
choosing from any one of free service, flat rate, time based usage or unlimited.
In addition these users can expand the service to include value-added services
such as wireless point of sale, maintenance, check-in and internet telephony
services.
24
RoomLinX offers the following services to its customers:
o site-specific determination of needs and requirements;
o design and installation of the wireless or wired network;
o full maintenance and support of the network;
o technical support to assist guests and hotel staff 24 hours a day, 7
days a week, 365 days a year;
o hotel staff and management training, and
o marketing assistance and continuous network monitoring to ensure
high quality of service.
The main service currently offered by RoomlinX is the installation and servicing
of wired and wireless networks in the hotel industry. RoomlinX's strategy is to
focus its resources on delivering, a wide range of communications and
information services to the hotel industry. In addition, we plan to enter,
either organically, or through partnerships with current providers, the sale of
our services to other hospitality, recreational and both public and private
facilities.
The network's that RoomLinX's installs can supply the hotel with all of the
requirements to supply the hotel's back office, guest rooms, restaurants,
lobbies, convention center and meeting rooms over the internal local area
network (LAN). For convention centers requiring a high-speed connection for
their booths and meeting areas, the companies wireless local area network (WLAN)
product enables portable and mobile computer users to seamlessly access the
Internet from anywhere within the convention center. Users access the internet
without any modification to their computer and can walk freely about the
premises while still being connected to the network.
RoomLinX gives the client hotel property two options in acquiring our high-speed
Internet services: the hotel can buy the system and pay RoomLinX a monthly
service fee to maintain technical support, or the hotel can lease-to-own the
system with a third party and pay RoomLinX a monthly service fee.
RoomLinX, generally has the first right of refusal to provide all wireless
services to the hotel as well as to provide value added services over the
installed network. There are many other products that RoomLinX will offer to
sell to the hotels to increase its revenues and profit margins. The majority of
these services would be offered in conjunction with third parties that have
expertise with the particular service.
We believe that the potential market for our services is largely underserved,
providing us with opportunities for additional growth. Subject to capital
constraints, we intend to leverage RoomlinX's brand and distribution to offer a
wider portfolio of products and services.
We seek to deepen penetration within our installed customer base and expand the
breadth of our overall customer base by distinguishing our current and future
offerings with value-added solutions through increased marketing activities.
SALES AND MARKETING
Sales
RoomLinX has an experienced team in the area of agent-based sales to the
hospitality industry that provides them with the ability to build and execute on
an outsourced sales model that is highly competitive in the industry. RoomLinX
will continue to build on this model and add other sales teams as part of its
growth strategy.
As part of the sales strategy RoomLinX has established a series of strategic
alliances with communication marketing companies and communication providers
throughout the U.S. These organizations already have preferred access to the
customer, which may give RoomLinX an advantage in the market place. These sales
representatives are paid on a commission basis. RoomLinX provides comprehensive
sales training and packaged marketing materials to its independent
representatives in order to obtain optimum installation contracts. RoomLinX
currently employs six in-house technical sales and marketing personnel that
support the representatives in the field and effectively close the contracts.
25
There are three succinct areas of outsource marketing in the hospitality sector
that RoomLinX concentrates it's sales effort on:
Independent Communication Sales Representatives, and Representative
Organizations - This group sells local and long-distance communication products
into the hotel industry. For the most part, they have long-term contract
commitments with the hotels to provide these services. Because they sell
multiple lines of communication services to hotels, they have direct contact
with the Information Systems director. These services save money for the hotels
as well as providing them with additional income to the hotel, and as such they
have good access to the decision-maker in this market.
Wholesale Equipment Suppliers, Equipment Installers in the Hospitality
Market - This group sells and installs central phone systems (also know as PBX
systems), voice mail systems, property management systems and software related
services directly into the hotel market. Since these services are directly
related to both the income and marketing sides of the hospitality area, their
access to this clientele is very good.
The Hotel Interconnect Individual or Companies - This group handles the
installation and the maintenance for the ICSR's and Interconnect companies.
In all cases, at least one and generally all three of the above groups interact
with the hotel industry at all levels on a daily basis. This provides RoomLinX
with a valuable source of sales and marketing personnel with direct contact into
the industry.
MARKETING
We typically deploy a marketing mix consisting of direct mail, Internet direct
response, print ads in periodicals aimed at hospitality industry, and tradeshow
sponsorship and support.
OPERATIONS
RoomLinX has built a foundation on which to achieve growth with minimal fixed
expenditures. RoomLinX has achieved this by building the infrastructure and
quality controls to outsource the following functions: system integration,
bandwidth provisioning, system deployment, and technical support and service.
RoomLinX acts as a pure service provider that aggregates the products and
services required to install wireless high-speed networks and deploys them
through its delivery infrastructure that combines in-house technical and RF
(radio frequency) experts with select system integrators in the customer's area.
After installation RoomLinX manages the network under a long-term contract.
COMPETITION
The market for our services is becoming increasingly competitive. The widespread
adoption of industry standards in the communications market may make it easier
for new market entrants and existing competitors to introduce services that
compete against ours. Our competitors may use the same products and services in
competition with us. With time and capital, it would be possible for competitors
to replicate our services. We expect that we will compete primarily on the basis
of the functionality, breadth, quality and price of our services.
RESEARCH AND DEVELOPMENT
We continue to enhance the features and performance of our existing products and
services. In addition, we are continuing to evaluate new products to meet our
customers' expectations of ongoing innovation and enhancements.
Our ability to meet our customers' expectations depends on a number of factors,
including our ability to identify and respond to emerging technological trends
in our target markets, develop and maintain competitive products, enhance our
existing products by adding features and functionality that differentiate them
from those of our competitors and offering products on a timely basis and at
competitive prices. Consequently, we have made, and we intend to continue to
make, investments in research and development.
EMPLOYEES
As of March 31, 2004 we had a total of 15 full-time employees. None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good.
26
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
In January 2002, ARC engaged Alliance Advisors and Roccus Capital Partners, LLC
to provide consulting services to ARC relating to its on-going business
operations, acquisitions and divestitures. Alliance Advisors and Roccus Capital
introduced ARC to Mr. Peter A. Bordes, Jr., the current chairman and chief
executive officer of ARC. On June 17, 2002, Mr. Bordes purchased shares of ARC
common stock representing approximately 26% of the issued and outstanding shares
of ARC common stock on that date. Mr. Bordes was provided with a seat on ARC's
board of directors and immediately began assisting ARC in identifying and
pursuing opportunities to expand its communications business. Following June 17,
2002, Mr. Bordes, Alliance Advisors and Roccus Capital worked extensively with
ARC's management to determine its strategic direction.
At the end of 2002, as a result of the closing of ARC's educational seminar
programs which generated a substantial portion of the revenue of ARC's
educational division, ARC determined to sell its continuing professional
education business ArcMesa Educators, Inc. to Belcan Corporation of Cincinnati,
Ohio. The closing of the sale of ArcMesa took place on April 1, 2003. This area
of ARC's business had sustained continual losses. It was intended that the sale
of ArcMesa would allow ARC to concentrate on its core business and it was
anticipated that the sale would provide ARC with the resources to expand into
other communications areas. Despite these efforts, ARC continued to experience
losses.
At the beginning of May 2003, Alliance Advisors and Roccus Capital were
introduced to Mr. Robert Lunde, president and chief executive officer of
RoomLinx, by Rodman and Renshaw, consultant to RoomLinx. In late May 2003, a
meeting was set up among Alliance Advisors, Roccus Capital and Mr. Lunde at the
offices of Rodman and Renshaw.
At the May 2003 meeting, the parties discussed that given the declining
operating performance of ARC and the cost of remaining a public company, it had
become necessary for ARC to go into another line of business. ARC looked for a
buyer for its remaining assets for the better course of a year and no one was
found. Certain members of ARC management expressed an interest in purchasing
ARC's remaining assets. The parties discussed the value that RoomLinX placed on
ARC's status as a public company and the possibility of a reverse merger to
allow RoomLinX to become a public company without incurring the usual expenses
associated with an initial public offering. It was decided that, prior to or
simultaneously with a proposed merger, ARC would sell off its existing assets
and spin-off its existing business.
The role of Rodman and Renshaw, Alliance Advisors and Roccus Capital in the
negotiations was to review and discuss RoomLinX's business, its business plan
and its financial projections including the information set forth in the
RoomLinX confidential executive summary.
From May 2003 to July 2003, the representatives of the parties, including
Alliance Advisors, Roccus Capital, Rodman and Renshaw and Mr. Lunde had a number
of meetings and conference calls, one of which was attended by Mr. Bordes, as he
was a large investor in ARC, whereby the parties discussed a possible merger
transaction between ARC and RoomLinX. On July 21, 2003, the parties entered into
a Letter of Intent to merge. The material differences between the parties in the
negotiations was with respect to the capitalization structure of the surviving
corporation following the merger. As the parties continued their due diligence,
RoomLinX determined that ARC's value was less than originally assumed at the
time of the signing of the Letter of Intent. The parties amended the Letter of
Intent on September 19, 2003. Under the July 21, 2003 Letter of Intent,
following the merger, approximately 2/3 of the capital of the surviving
corporation would be held by RoomLinX stockholders and approximately 1/3 held by
ARC stockholders, in each case before giving effect to the dilution caused by
the ARC private placement which is described below. Pursuant to the amended
Letter of Intent, following the merger, approximately 3/4 of the capital of the
surviving corporation will be held by RoomLinX stockholders and approximately
1/4 held by ARC stockholders, before giving effect to the dilution caused by the
ARC private placement which is described below. On December 8, 2003, the parties
signed the definitive Merger Agreement which reflected the amended
capitalization structure of the surviving corporation.
27
Shortly after the amended Letter of Intent was signed, ARC engaged in a private
placement of its securities in reliance upon Rule 506 of Regulation D under the
Securities Act. In the ARC private placement, ARC sold to accredited investors
shares of its common stock at a price of $.075 per share and warrants to
purchase that number of shares of common stock equal to one-half of one common
share purchased. Each warrant has a three-year term and an exercise price of
$.15 per share. The initial maximum offering amount in the ARC private placement
was $500,000, which ARC subsequently increased to $1,250,000. The ARC private
placement closed at the end of February 2004. In the ARC private placement,
approximately 16,666,661 shares of ARC common stock and warrants to purchase
approximately 8,333,333 shares of ARC common stock were issued to investors for
gross proceeds of $1,250,000 before direct issuance costs of approximately
$54,000. The participants in the ARC private placement executed and delivered
investor questionnaires to the effect that they were "accredited investors" for
purposes of meeting the requirements for the registration exemptions provided
under Regulation D.
In connection with the merger, the parties agreed that only shares of ARC common
stock and warrants issued in the ARC private placement in connection with the
first $550,000 of securities purchased in the private placement shall be deemed
to be outstanding at the effective time of the merger for purposes of
calculating the merger consideration (such amount being equal to 7,333,333
shares of ARC common stock and warrants to purchase 3,666,667 shares of ARC
common stock).
At about the same time that ARC engaged in its private placement, RoomLinX
engaged in a private placement of its securities in reliance upon Rule 506 of
Regulation D under the Securities Act and Regulation S under the Securities Act.
In the RoomLinX private placement, RoomLinX sold shares of its common stock at a
price of $.40 per share and warrants to purchase that number of shares of common
stock equal to one-half of one common share purchased. Each warrant has a 2-year
term and an exercise price of $.80 per share. The initial maximum offering
amount in the private placement was $800,000. The RoomLinX private placement
closed February 25, 2004. In the RoomLinX private placement, approximately
3,239,500 shares of RoomLinX common stock and warrants to purchase approximately
1,971,625 shares of RoomLinX common stock were issued. Approximately 45
investors participated in the RoomLinX private placement by purchasing $722,100
of securities before direct issuance costs of approximately $58,000. Purchasers
in the RoomLinX private placement executed and delivered representation letters
to the effect that they were "accredited investors" for purposes of meeting the
requirements for the registration exemptions provided under Regulation D and
Regulation S. In addition to the issuances to the purchasers in the RoomLinX
private placement, RoomLinX issued shares of RoomLinX common stock and warrants
to purchase shares of common stock as compensation under employment and
consulting arrangements to less than 35 "purchasers", as such term is defined
under Rule 506.
Following the signing of the Merger Agreement, Mr. Michael Rubel, former
director and chief operating officer of ARC, Mr. Thomas Rittenhouse, creative
director of ARC's New Media Services, and Mr. Sheinwald, principal of Alliance
Advisors, expressed an interest in purchasing the existing assets comprising
ARC's "graphic design and interactive multi-media" business. Upon completion of
their due diligence, it was determined by Messrs. Rubel, Rittenhouse and
Sheinwald that, as an operating business, ARC had become valueless. The parties
to the merger concluded that ARC's only remaining value was as a shell company
for a private entity to become a public company as contemplated by the merger
with RoomLinX and that ARC would wind down its existing business.
As a result of the closing of the ARC private placement and the determination
that ARC's assets and business had become valueless, the parties agreed to amend
the Merger Agreement to change the description of the merger consideration from
a formula to the actual aggregate number of shares of common stock and options
and/or warrants to purchase shares of common stock to be issued to RoomLinX
stockholders and to change the requirement that ARC sell all of its assets to a
requirement that ARC wind down its business. Accordingly, on February 25, 2004,
the parties entered into the Amendment to Merger Agreement, which is attached to
this proxy statement as Annex E.
RECOMMENDATIONS OF OUR BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE
At its meeting held on December 5, 2003, our board of directors determined (1)
that the merger, the amendment to ARC's certificate of incorporation, the
reincorporation, the adoption of a long-term incentive plan and the transactions
contemplated thereby are fair to and in the best interests of ARC and ARC's
stockholders and (2) determined to recommend that ARC's stockholders approve the
proposals related to the transactions. Accordingly, our board of directors
recommends that our stockholders vote FOR the merger, the issuance of shares of
ARC capital stock to RoomLinX stockholders in connection with the merger, the
amendment to ARC's certificate of incorporation, the reincorporation, the
adoption of a long-term incentive plan and the other transactions contemplated
thereby.
28
In January 2004, ARC's board of directors, recognizing that it may have certain
conflicts of interest arising from the transactions, determined to add an
independent member to the board of directors who would also act as the special
committee in the transactions to review the fairness of the merger and the other
transactions to ARC's stockholders. In January 2004, Mr. Joel Schwartz agreed to
serve as an independent member of ARC's board of directors and to act as the
special committee with respect to the merger and each of the related
transactions. In consideration for agreeing to serve as a member of ARC's board
of directors, ARC issued to Mr. Schwartz a non-qualified stock option to
purchase 100,000 shares of ARC common stock at a purchase price of $0.08 per
share which shall vest and become exercisable upon the earlier of (a) ninety
(90) days from the date of his agreement to serve as a member of the board of
directors or (b) the closing of the merger. At the time that the long-term
incentive plan is established in connection with the merger, ARC will cause the
option to be covered by the long-term incentive plan either by the exchange of
the option for a new option or otherwise. ARC will also pay Mr. Schwartz $1,000
per month for his service as a director and will reimburse all reasonable out of
pocket expenses incurred by him in connection with his at attendance at meetings
of the board of directors.
On February 5, 2004, the special committee determined (1) that the merger, the
amendment to ARC's certificate of incorporation, the reincorporation, the
adoption of a long-term incentive plan and the transactions contemplated thereby
are fair to and in the best interests of ARC and ARC's stockholders and (2) to
recommend that ARC's stockholders approve the proposals related to the merger,
the amendment to ARC's certificate of incorporation, the reincorporation and the
adoption of a long-term incentive plan. Accordingly, the special committee
determined to recommend that our stockholders vote FOR the merger, the issuance
of shares of ARC capital stock to RoomLinX stockholders in connection with the
merger, the amendment to ARC's certificate of incorporation, the
reincorporation, the adoption of a long-term incentive plan and the other
transactions contemplated thereby.
NO FINANCIAL ADVISORS
ARC did not engage financial advisors in connection with the merger and has not
obtained the opinion of any financial advisor or other third party as to the
fairness of the merger to ARC's stockholders from a financial point of view, or
as to any other matters. ARC's board of directors did not believe that obtaining
such an opinion would be an appropriate use of corporate funds. Nevertheless,
the board of directors of ARC and the special committee believe that the merger
is in the best interests of ARC and ARC's stockholders. Because of the absence
of a fairness opinion, there will be no independent assurance from an expert
that the consummation of the merger is fair from a financial point of view to
ARC's stockholders.
FACTORS RELEVANT TO THE TRANSACTIONS
In reaching its decision to approve the merger, the amendment to ARC's
certificate of incorporation, the reincorporation, the adoption of the long-term
incentive plan and to recommend approval of the transactions and the proposals,
including the issuance of shares of ARC's common stock and options and/or
warrants to purchase shares of ARC common stock in connection with the merger,
ARC's board of directors and the special committee consulted with our chief
executive officer, Alliance Advisors and Roccus Capital, and considered
information provided by members of our management team and independently
considered the proposed Merger Agreement and the transactions contemplated
therein. The information provided by the members of our management team that was
presented the board of directors, including the member of the special committee,
included RoomLinX's confidential executive summary which contained, among other
things, a description of RoomLinX's business, business plan and financial
projections. In addition, our management team presented information about
RoomLinX's industry to the board of directors, including the member of the
special committee, that according to Pyramid Research, the industry in which
RoomLinX operates is projected to grow at a compound annual rate in excess of
84% over the next five years.
BOARD OF DIRECTORS CONSIDERATIONS
ARC's board of directors considered several factors as reasons that the merger,
the amendment to ARC's certificate of incorporation, the reincorporation and the
adoption of the long-term incentive plan will be beneficial to ARC and ARC's
stockholders. In particular, ARC's board of directors considered, among other
things:
29
1. that ARC had continued to incur losses for several years;
2. that ARC's net sales since the year ended 2000 have continued to decline;
3. that despite the sale of ArcMesa and the reduction in its number of
employees, ARC had been unable to eliminate its pattern of losses;
4. that no buyer could be found for ARC's assets;
5. the determination of ARC's management team, including ARC's chairman and
chief executive officer, Alliance Advisors and Roccus Capital, that ARC's
business had become essentially valueless and that the only remaining value to
ARC and ARC's stockholders was ARC's status as a public company;
6. the substantial compliance costs of being a public company;
7. information relating to the business, assets, management, financial
condition, customers, competitive position and operating performance of
RoomLinX;
8. the terms of the transactions;
9. the substantial dilution to ARC's stockholders as a result of the issuance of
shares of ARC common stock and options and warrants to purchase shares of ARC
common stock to RoomLinX stockholders as the merger consideration;
10. the risk that the benefits sought in the transaction might not be fully
achieved; and
11. the interests that Mr. Peter A. Bordes, Jr., ARC's chairman and chief
executive officer, may have with respect to the transactions in addition to the
interests of our stockholders generally.
SPECIAL COMMITTEE CONSIDERATIONS
In the course of its deliberations, the special committee considered the factors
considered by the board of directors as well as the following additional
factors:
1. that despite diligent efforts, ARC was unable to find alternatives to the
transactions and ARC was unable to find a purchaser for its assets;
2. the inability of ARC to earn sufficient revenues from its existing business
to cover the cost and expense of being a public company;
3. the lack of alternative financing sources;
4. that the surviving corporation would not be cash flow or EBITDA positive
immediately after the transactions;
5. that ARC's existing business had become valueless; and
6. that probably the only way to obtain any value for ARC's stockholders was to
rely on the value of ARC's status as a public company.
In addition to the foregoing, our board of directors discussed the terms of the
transactions and information relating to the transactions with members of our
management team, including our chairman and chief executive officer, and with
our legal counsel.
30
Our board of directors, including the member of the special committee, did not
find it useful to, and did not attempt to, quantify, rank or otherwise assign
relative weights to the factors that it considered. Our board of directors,
including the member of the special committee, considered, among other things,
the analysis, experience, expertise and recommendation of our chairman and chief
executive officer and information from certain members of our management team,
of the fairness to our stockholders of the consideration to be paid by ARC to
RoomLinX stockholders in connection with the merger.
In addition, our board of directors, including the member of the special
committee, did not undertake to make any specific determination as to whether
any particular factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, but rather our board of directors,
including the member of the special committee, conducted an overall analysis of
the factors described above, including discussions with our management team and
legal and accounting advisors. In considering the factors described above,
individual members of our board of directors, including the member of the
special committee, may have given different weight to different factors.
Our board of directors, including the member of the special committee,
considered all factors as a whole, and overall considered the factors to be
favorable and to support their determinations. However, the general view of our
board of directors, including the member of the special committee, was that
factors 9, 10 and 11 under "Board of Directors Considerations" and factor 4
under "Special Committee Considerations" were uncertainties, risks or drawbacks
relating to the transactions, but that the other reasons and factors described
above were generally considered favorable.
REGULATORY APPROVALS RELATING TO THE TRANSACTIONS
We are not aware of any federal or state regulatory requirements that must be
complied with or approvals that must be obtained to consummate the transactions,
other than (1) filing of certificates of merger with the Secretary of State of
the State of Nevada to effect the merger and with the Secretary of State of the
State of Nevada and the Secretary of State of the State of New Jersey to effect
the reincorporation, (2) filing of the certificate of amendment to ARC's
certificate of incorporation with the Secretary of State of the State of New
Jersey increasing our authorized common stock and changing our name from ARC
Communications Inc. to RoomLinX, Inc. and (3) filing of this proxy statement
with the SEC. If any additional approvals or filings are required, we will use
our commercially reasonable efforts to obtain those approvals and make any
required filings before completing the transactions.
INTERESTS OF ARC MANAGEMENT AND DIRECTORS IN THE TRANSACTIONS
In considering the recommendations of our board of directors with respect to the
transactions, our stockholders should be aware that certain members of our board
of directors and executive officers may have interests in the transactions that
are in addition to the interests of our stockholders generally. These interests
include the following:
(i) Under the Merger Agreement, Mr. Peter A. Bordes, Jr., chairman and chief
executive officer of ARC, shall continue as a member of the board of directors
of the surviving corporation after giving effect to the merger and the
reincorporation. The parties to the merger deemed it to be in the best interests
of the surviving corporation to keep Mr. Bordes on the board of directors
following the merger because Mr. Bordes was a significant investor in ARC and
will still have a significant ownership interest in the surviving corporation
and, therefore, a significant interest in the surviving corporation's business.
In addition, Mr. Bordes is a well-respected businessperson in his own right and
it was believed that he would add value and expertise to the surviving
corporation's board of directors and be able to assist the surviving corporation
in its business.
INTERESTS OF ROOMLINX'S MANAGEMENT AND DIRECTORS IN THE TRANSACTIONS
Certain members of RoomLinX's board of directors and management may have
interests in the transactions that are different from or in addition to the
interests of ARC's and RoomLinX's stockholders generally. These interests
include the following:
(i) Mr. Robert P. Lunde, chairman and chief executive officer of RoomLinX, shall
continue as a member of the board of directors of the surviving corporation
after giving effect to the merger and the reincorporation. The parties to the
merger deemed it to be in the best interests of the surviving corporation to
keep Mr. Lunde on the board of directors following the merger because as the
chief executive officer of RoomLinX, it was believed that he would add
significant value to the surviving corporation due to his experience with
RoomLinX's business and his expertise in its industry.
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(ii) Mr. Herbert I. Hunt, III, director of RoomLinX, shall continue as a member
of the board of directors of the surviving corporation after giving effect to
the merger and the reincorporation. The parties to the merger deemed it to be in
the best interests of the surviving corporation to keep Mr. Hunt on the board of
directors following the merger because he was a significant investor in RoomLinX
and would still have a significant ownership interest in the surviving
corporation and, therefore, a significant interest in its business and
operations. In addition, as a member of the board of directors of RoomLinX, it
was believed that Mr. Hunt's experience would add value to the surviving
corporation's board of directors.
(iii) Under the Merger Agreement, each of Mr. Roger Killian and Mr. Richard
Peacey shall receive one-year extensions on their employment agreements. Mr.
Killian will serve as Vice President of Sales of the surviving corporation and
Mr. Peacey will serve as Executive Vice President of Sales of the surviving
corporation. The parties to the merger deemed it to be in the best interests of
the surviving corporation to keep Mr. Killian and Mr. Peacey as employees of the
surviving corporation following the merger to maintain continuity in the
business of the surviving corporation and because of their technical and
industry knowledge. In addition, it was believed that their sales experience
would add value to the surviving corporation.
PROPOSAL 1 -- APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY
We have entered into an Agreement and Plan of Merger, dated as of December 8,
2003, by and among RoomLinX, ARC and RL Acquisition, and an Amendment to Merger
Agreement, dated as of February 25, 2004. The Merger Agreement and the Amendment
to Merger Agreement are the documents that govern the terms of the merger. A
copy of the Merger Agreement is attached as Annex A to this proxy statement and
a copy of the Amendment to Merger Agreement is attached as Annex E to this proxy
statement. You should read the Merger Agreement and the Amendment to Merger
Agreement carefully. References to the Merger Agreement throughout this proxy
statement mean the Merger Agreement as amended by the Amendment to Merger
Agreement, unless the context states otherwise and the descriptions of the
merger and the terms of the merger throughout this proxy statement describe the
merger and the terms of the merger pursuant to the Merger Agreement as amended
by the Amendment to Merger Agreement.
THE MERGER
On December 8, 2003, RoomLinX, ARC and RL Acquisition entered into the Merger
Agreement, and on February 25, 2004, the parties entered into the Amendment to
Merger Agreement. The Merger Agreement (including all changes and amendments
thereto) was approved by the board of directors of ARC on December 5, 2003 and
the board of directors of RL Acquisition on December 8, 2003, and will become
effective within ten (10) days after the satisfaction or waiver of the
conditions to closing set forth in the Merger Agreement, but no later than May
14, 2004, or at such other date as ARC and RoomLinX shall agree.
Upon the terms and subject to the conditions set forth in the Merger Agreement
and in accordance with Nevada law, RoomLinX will be merged with and into RL
Acquisition, with RL Acquisition as the surviving corporation of such merger. As
a result of the merger, the outstanding shares of common stock of RoomLinX shall
be canceled and converted in the manner provided in the Merger Agreement, the
separate corporate existence of RoomLinX shall cease and RL Acquisition shall
continue unimpaired as the surviving corporation in the merger.
Pursuant to the terms of the Merger Agreement, in the merger, the outstanding
options, convertible debentures and warrants of RoomLinX, other than up to
$30,000 of convertible debentures which shall be converted into indebtedness of
ARC (the "Permitted Debt"), are to be canceled or converted into stock. Prior to
the closing of the merger, RoomLinX converted all of its options and all but a
$10,000 convertible debenture to stock. In the merger, the outstanding
convertible debenture will be converted into indebtedness of ARC, the principal
amount of which shall be convertible into ARC common stock at a conversion price
of $.20 per share, with such indebtedness having a maturity date of not less
than eighteen (18) months from the closing of the merger. At the time of the
merger, RoomLinX will have outstanding warrants to purchase 1,971,625 shares of
RoomLinX common stock which shall be converted into warrants to purchase _______
shares of ARC common stock. The grant of options and/or warrants to the RoomLinX
stockholders shall work as follows: ______________________________.
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The consideration to RoomLinX stockholders for the merger shall be equal to an
aggregate of 68,378,346 shares of ARC common stock and options and/or warrants
to purchase 11,465,001 shares of common stock. Ten Million of the shares payable
to the RoomLinX stockholders shall immediately be deposited in escrow for a
period of six months from the closing to secure the indemnification obligations
of RoomLinX set forth in the Merger Agreement, in accordance with the terms of
an escrow agreement to be executed by the parties on the closing date. As a
result of the merger, the RoomLinX stockholders shall acquire voting and
dispositive control of ARC's common stock.
In addition to the consideration to RoomLinX stockholders for the merger,
effective as of the effective time of the merger, ARC will issue options to
purchase 250,000 shares of common stock having an exercise price of $0.20 per
share, a three year term and a "cashless exercise" provision and 250,000 shares
of common stock to Rodman and Renshaw in consideration for its services as
financial advisor to RoomLinX in connection with the merger. The shares of
common stock, options and shares of common stock issuable upon exercise of the
options will be issued to Rodman and Renshaw without registration under the
Securities Act in reliance on the exemption provisions of Rule 506 of Regulation
D and may not be sold in the absence of such registration or an exemption from
registration under the Securities Act.
The securities being issued to RoomLinX stockholders in the merger will be
issued without registration under the Securities Act in reliance on the
exemption provisions of Rule 506 of Regulation D and Regulation S under the
Securities Act. RoomLinX stockholders have provided representation letters to
the effect that they are "accredited investors" for purposes of meeting the
requirements for the registration exemptions provided under Regulation D and
Regulation S under the Securities Act. Less than 35 RoomLinX stockholders who
are being issued securities in the merger received their RoomLinX securities as
compensation pursuant to employment and consulting arrangements. These
stockholders have been furnished with the information that is required to be
furnished to each "purchaser" who is not an accredited investor pursuant to Rule
502 of Regulation D.
In order to have a sufficient number of shares of common stock to issue the
consideration in the merger, ARC must amend its certificate of incorporation to
increase its number of authorized shares of common stock. Therefore, immediately
prior to the filing of the certificate of merger with the Secretary of State of
the States of Nevada to effect the merger, ARC is required to file an amendment
to its certificate of incorporation to increase the number of authorized shares
of its common stock from 45,000,000 to 250,000,000 and change its name to
"RoomLinX, Inc." In addition, following the merger, ARC is required to
reincorporate from a New Jersey corporation to a Nevada corporation by means of
a merger of ARC with and into RL Acquisition, with RL Acquisition continuing as
the surviving corporation with the name "RoomLinX, Inc.", and the surviving
corporation in the merger is required to have in place a long-term incentive
plan for the grant of options to purchase an aggregate of ________ shares of
common stock of the surviving corporation.
TERMS OF THE MERGER AGREEMENT
The following discussion summarizes the material terms of the Merger Agreement,
a copy of which is attached to this proxy statement as Appendix A, and the
Amendment to Merger Agreement, a copy of which is attached to this proxy
statement as Appendix E. The Merger Agreement and the Amendment to Merger
Agreement are incorporated herein by reference and made an integral part hereof.
Stockholders are urged to read the Merger Agreement and the Amendment to Merger
Agreement carefully as they are the legal documents that govern the merger.
The Merger. Subject to the terms and conditions of the Merger Agreement, as a
result of the merger, the outstanding shares of capital stock of RoomLinX held
by RoomLinX stockholders will be converted or canceled in the manner provided by
the Merger Agreement, the separate corporate existence of RoomLinX shall cease,
and RL Acquisition, ARC's wholly owned subsidiary, shall continue unimpaired as
the surviving corporation in the merger. In consideration for the merger,
RoomLinX stockholders will receive the an aggregate of 68,378,346 shares of ARC
common stock and options and/or warrants to purchase an aggregate of 11,465,001
shares of ARC common stock. As a result of the merger, the RoomLinX stockholders
shall acquire voting and dispositive control of ARC's common stock.
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Simultaneously with the merger, ARC is required to file an amendment to its
certificate of incorporation to: (i) increase its number of authorized shares of
common stock from 45,000,000 to 250,000,000, and (ii) change its corporate name
to "RoomLinX, Inc." In addition, immediately following the merger, ARC is
required to reincorporate from a New Jersey corporation to a Nevada corporation
by merging with and into RL Acquisition, with RL Acquisition continuing as the
surviving corporation with the name RoomLinX, Inc. As a result of the merger,
the amendment to ARC's certificate of incorporation and the reincorporation, the
stockholders, optionholders and warrantholders of each of ARC and RoomLinX prior
to the merger will be stockholders, optionholders and warrantholders of the
post-merger company.
Closing. The closing will take place ten (10) days after the satisfaction or
waiver of the conditions to closing set forth in the Merger Agreement, but no
later than May 14, 2004, or at such other date as ARC and RoomLinX shall agree.
Effective Date. The merger of shall become effective upon the filing of
certificate of merger in the State of Nevada.
Certificate of Incorporation and Bylaws of Surviving Corporation Following the
Merger. The certificate of incorporation and bylaws of ARC, as in effect at the
effective time and except as amended as described in this proxy statement (name
change, increase in authorized shares of common stock and reincorporation in the
State of Nevada), will be the certificate of incorporation and bylaws,
respectively, of the surviving corporation following the merger.
Board Reconstitution. In view of the controlling interest in ARC to be acquired
by the RoomLinX stockholders, the Merger Agreement provides for the current
members the board of directors of ARC and RL Acquisition to resign at the time
of the merger. Concurrently with the resignation of the current members of the
board of directors of ARC and RL Acquisition, the board of directors of the
surviving corporation shall be comprised of two directors selected by RoomLinX,
one director selected by ARC and two directors designated by the RoomLinX
designees and the ARC designee (which two directors may be designated
concurrently with or subsequent to the effective time of the merger, at the
discretion of the RoomLinX designees and the ARC designee). Although stockholder
approval of the board reconstitution is not among the proposals being voted upon
at the special meeting, the following summary of the business experience and
background of the board designees is provided in accordance with Rule 14f-1
under the Exchange Act.
ARC DESIGNEE
Peter Bordes, age 41, was appointed to ARC's board of directors in September
2002 and was appointed our chief executive officer in July 2003. Mr. Bordes is
an owner of Greater Media, Inc., a privately owned media conglomerate with
leading radio and publishing properties in Boston, Philadelphia, Detroit and New
Jersey. He is also chairman of the board of directors of Empire Media, a
diversified media group with a focus on publishing, broadcasting and interactive
media.
ROOMLINX DESIGNEES
Mr. Robert P. Lunde, age 46, was named chief executive officer of RoomLinX in
January 2002. Mr. Lunde has been a director and chairman of the board of
directors of RoomLinX since February 2001. Mr. Lunde was a co-founder of
RoomLinX in 1999 and has been involved in its development since that time. In
1995, Mr. Lunde incorporated Rolar Consulting Inc. in which he continued his
consulting business. His services varied from client to client but included
advising on market making, public company structure and investor relations. From
1989 until 1994, Mr. Lunde worked as an independent business consultant to
various companies. From October 1982 until December 1988, Mr. Lunde was employed
as a floortrader on the Vancouver Stock Exchange. During this time Mr. Lunde
worked for various firms, the most recent employer being Midland Walwyn
Securities. Mr. Lunde passed the Canadian Securities Course in 1981 and was
licensed and bonded as a professional trader.
Mr. Herbert I. Hunt III, age 47, has been a director of RoomLinX since May 2000.
Mr. Hunt joined R.M. Wax & Associates, an international search firm focusing in
corporate finance, in 1984. In 1992, he founded H.I.Hunt & Company and, as
principal, developed one of the most respected financial services search firms
in the US and UK marketplaces. Mr. Hunt has been retained by many of the
country's financial services firms to fill key personnel positions. Mr. Hunt is
a well-known figure amongst the professional investment community in both Boston
and New York. He sits on the board of directors of several private companies.
Mr. Hunt has a Bachelor of Science degree from Northeastern University
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Representations and Warranties. The Merger Agreement contains various
representations and warranties of ARC, RL Acquisition and RoomLinX. ARC and RL
Acquisition represent and warrant to RoomLinX as to, among other things: (i)
organization; (ii) litigation; (iii) authority and enforceability; (iv) capital
structure; (v) financial statements; (vi) transactions with affiliates; (vii)
liabilities or claims; (viii) absence of certain adverse changes; and (ix) SEC
filings. RoomLinX represents and warrants to ARC and RL Acquisiton as to, among
other things: (i) organization; (ii) litigation; (iii) authority and
enforceability; (iv) capital structure; (v) financial statements; (vi)
transactions with affiliates; (vii) liabilities or claims; and (viii) absence of
certain adverse changes.
Conduct Prior to Effective Time. Pursuant to the Merger Agreement, the parties
have agreed, among other things, that each of RoomLinX and ARC shall carry on
its business in the usual, regular and ordinary course and use all commercially
reasonable efforts to preserve intact its present business organization and
preserve its relationships with third parties and others having business
dealings with it, with the objective that its goodwill and ongoing business
shall be unimpaired at the effective time. ARC has agreed to continue to make
all required filings in accordance with the Securities Act and the Exchange Act.
Each party shall promptly notify the other parties of any event or occurrence
not in the ordinary course of business which comes to its attention and which
has caused, or could reasonably be expected to cause, a material adverse change.
The parties have also agreed that they shall not take certain acts without the
prior written consent of the other parties. Each of ARC, RL Acquisition and
RoomLinX have agreed not to, among other things (i) issue any shares of its
capital stock or change its capitalization; (ii) amendment its articles of
incorporation or bylaws; (iii) acquire or agree to acquire any business or any
corporation or the assets thereof; (iv) sell, lease or otherwise dispose of or
encumber any of its properties or assets except in the ordinary course of
business; (v) incur any indebtedness other than in the ordinary course of
business; (vi) enter into or amend any employment or severance agreement, or pay
any bonus or remuneration, or increase the salaries of its directors, officers,
employees, or consultants; or (vii) engage in any activities or transactions
that are outside the ordinary course of its business.
Pursuant to the Merger Agreement, each party shall give each other party, and
its accountants, counsel and other representatives, reasonable access to (i) all
of its respective properties, books, contracts, commitments and records, and
(ii) all other information concerning its business, properties and personnel as
such party may reasonably request.
Indemnification. Each of ARC and RL Acquisition has agreed to indemnify, defend
and hold RoomLinX and its officers and directors, employees and agents, harmless
from and against any and all claims, actions, causes of action, suits or other
proceedings, losses, liabilities and damages, and expenses in connection
therewith, including, without limitations, reasonable fees and disbursements of
counsel incurred by any of them as a result of, or arising out of, or relating
to, any failure of any representation or warranty set forth in Section 3 of the
Merger Agreement to be true and correct when made or any failure by ARC or RL
Acquisition to comply with its covenants or agreements set forth in the Merger
Agreement. RoomLinX has agreed to indemnify, defend and hold each of ARC and RL
Acquisition and their respective officers and directors, employees and agents,
harmless from and against any and all claims, actions, causes of action, suits
or other proceedings, losses, liabilities and damages, and expenses in
connection therewith, including, without limitation, reasonable fees and
disbursements of counsel incurred by any of them (i) as a result of, or arising
out of, or relating to any failure of any representation or warranty set forth
in Section 2 of the Merger Agreement to be true and correct when made or any
failure by RoomLinX to comply in any material respect with any of its covenants
or agreements set forth in this Agreement or (ii) any claim by LeaseTek or its
successors against any of them.
In addition, subject to the terms and conditions of the Merger Agreement, each
of the parties has agreed (i) to keep confidential all information furnished in
connection with the merger, and (ii) to use reasonable best efforts to
effectuate the merger.
Conditions to the Merger. The obligations of each party to effect the merger are
subject to the satisfaction or waiver on or prior to the closing of a number of
conditions, including but not limited to the following:
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(i) ARC shall have obtained the approval of the holders of the requisite number
of shares of its common stock to effect the merger, the winding down of ARC's
business, the amendment to its certificate of incorporation and the
reincorporation of ARC in the State of Nevada;
(ii) RoomLinX, ARC and RL Acquisition shall have received all requisite
approvals by government agencies and authorities and all consents and approvals
of third parties as are required for the consummation of the merger;
(iii) An audit of RoomLinX performed by Deloitte & Touche LLP shall have been
completed and the audited RoomLinX financials statements delivered to ARC;
(iv) RoomLinX will certify that (i) all issued and outstanding options,
convertible debentures and warrants of RoomLinX have been converted into
RoomLinX shares, other than the Permitted Debt, and (ii) RoomLinX has a positive
net worth.
(v) The executive offices of the surviving corporation shall be relocated to the
metropolitan area or as otherwise determined by the board of directors of the
surviving corporation;
(vi) Effective as of the effective time, the board of directors of the surviving
corporation shall be comprised of two RoomLinX designees and one ARC designee;
(vii) The winding down of ARC's business shall be completed;
(viii) ARC shall have raised $500,000 in a private placement of ARC securities;
(ix) RoomLinX shall have raised $400,000 in a private placement of RoomLinX
securities;
(x) The holders of less than ten (10%) percent of the issued and outstanding
shares of capital stock of RoomLinX will have exercised appraisal rights under
Nevada Law as dissenting stockholders and RoomLinX and ARC will have resolved
all matters of appraisal and payment under Nevada Law for each dissenting
stockholder;
(xi) Roger Killian and Richard Peacey shall have received one year extensions on
their employment agreements from the closing;
(xii) The Escrow Agreement shall have been duly executed and delivered by all
parties thereto; and
(xiii) ARC shall have issued certain shares of common stock and options to
purchase shares of common stock to Rodman and Renshaw, financial advisor to
RoomLinX in connection with the merger.
Termination. The Merger Agreement may be terminated and the merger abandoned at
any time prior to the effective time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions contemplated thereby, as
follows:
(i) by the parties, following mutual written consent duly authorized by the
boards of directors of each of the parties hereto;
(ii) by RoomLinX or ARC (on behalf of RL Acquisition), if the effective time
shall not have occurred as soon as reasonably practicable but no later than May
14, 2004; provided that the reason the effective time has not occurred is not
the result of the intentional failure by the party seeking termination to
fulfill any obligation under the Merger Agreement;
(iii) by RoomLinX, following discovery of: (i) information that, in the
reasonable discretion of RoomLinX, may be material and adverse to either ARC or
RL Acquisition or their respective businesses, or constitutes a material adverse
change on a going forward basis; or (ii) a breach of any representation or
warranty made by ARC or RL Acquisition contained in Article 3 of the Merger
Agreement; or
(iv) by ARC (on its own behalf and on behalf of RL Acquisition), following
discovery of: (i) information that, in the reasonable discretion of ARC, may be
material and adverse to RoomLinX or the RoomLinX business, or constitutes a
material adverse change on a going forward basis; or (ii) a breach of any
representation or warranty made by RoomLinX contained in Article 2 of the Merger
Agreement.
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In the event of termination of the Merger Agreement, the Merger Agreement shall
become void and there shall be no liability under the Merger Agreement on the
part of any party, or any of their respective officers or directors; provided,
however, that nothing shall relieve any party from liability for the willful
breach of any of its representations, warranties, covenants or agreements set
forth in the Merger Agreement.
DISSENTERS' RIGHTS
ARC's stockholders are entitled to dissenters' rights in connection with the
merger. If the merger is approved, dissenting stockholders of ARC are entitled
to assert dissenters' rights under the New Jersey Permanment Statutes ("NJPS").
A brief summary of dissenter's rights is provided below. However, any
stockholder considering the use of dissenters' rights should not rely only on
the following, which is only a partial summary. Sections 14A:11-1 through
14A:11-11 of the NJPS dealing with dissenters' rights are attached to this proxy
statement as Appendix C. Stockholder's who wish to assert their dissenter's
rights are urged to read Appendix C in full.
To exercise dissenters' rights, a dissenting stockholder must file with ARC, in
time to be received before the special meeting, a written notice of dissent (a
"Notice of Intent") indicating an intent to demand payment for his shares if the
merger is consummated. The Notice of Intent must either be submitted to ARC at
the special meeting or mailed to us not less than three business days before the
special meeting to c/o Westerman Ball Ederer Miller & Sharfstein, LLP, 170 Old
Country Road, Mineola, New York 11501, to the attention of Alan C. Ederer, Esq.
A dissenting stockholder must also vote against the merger or abstain from
voting, and the dissent must apply to all the shares of our common stock owned
by the dissenting stockholder.
If the merger is approved and consummated, the surviving corporation must send
each dissenting stockholder, within 10 days after the effective date of the
merger, a written notice (a "Dissenters' Notice") confirming the effective date.
Within 20 days after the Dissenters' Notice is mailed, a dissenting stockholder
must respond by sending us a written demand for payment of the fair value of his
shares (the "Payment Demand"). The Payment Demand should be sent to us at 401
Hackensack Avenue, 3rd Floor, Hackensack, New Jersey 07601, Attention: Peter A.
Bordes, Jr., Chief Executive Officer.
Within 20 days after making a Payment Demand, a dissenting stockholder must
submit to us all stock certificates representing his shares. Upon receipt, we
will mark the certificates to reflect the demand and return them to the
dissenting stockholder. A dissenting stockholder who has made a Payment Demand
will thereafter be entitled only to payment for his shares and will not be
entitled to vote or exercise any other stockholder rights. A dissenting
stockholder may not withdraw a Payment Demand without our written consent. When
we communicate with any dissenting stockholders, we must inform them of the
deadlines for any actions they are required to take in order to perfect their
dissenters' rights. Merely voting against the merger or abstaining from voting
will not satisfy the procedural requirements for perfecting dissenters' rights.
Within 10 days after the deadline for submitting Payment Demands, the surviving
corporation will mail to each dissenting stockholder its financial statements at
and for a twelve-month period ended on the latest practicable date. The
transmittal letter must indicate whether we have elected to pay dissenting
stockholders the fair value of their shares. If so, it must specify the price we
have determined as the fair value of those shares. Within 30 days after the
deadline for submitting Payment Demands (the "Settlement Window"), we must make
payment of that fair value for all the shares of each dissenting stockholder who
accepts our valuation and submits his stock certificates for cancellation.
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If a dissenting stockholder does not accept our valuation within the Settlement
Window, he may serve us with a written demand to commence an action in the New
Jersey Superior Court for the court's determination of the fair value of his
shares. The demand must be served within 30 days after the expiration of the
Settlement Window. Not later than 30 days after our receipt of the demand, we
must commence the requested action. If we fail to do so, a dissenting
stockholder may commence the action in our name not later than 60 days after the
expiration of the time allotted for us to commence the action.
In any action to determine the fair value of our common stock, all dissenting
stockholders who have not accepted our valuation within the Settlement Window
will be parties to the action. The court may appoint an appraiser to receive
evidence and report to the court on its evaluation of fair value. The court will
determine the appraiser's powers and, based on its evaluation, will render a
judgment against the surviving corporation in favor of each stockholder in the
action for the fair value of his shares, as determined by the court, together
with an allowance for interest at a rate set by the court from the applicable
Payment Demand to the day of payment. The judgment will be payable to a
dissenting stockholder upon surrender to the surviving corporation of the
certificates representing his shares.
The costs and expenses of any action for determining the fair value of
dissenters' shares, including reasonable compensation for and expenses of any
appraiser, will be determined by the court and apportioned and assessed as the
court determines. Fees and expenses of counsel and of experts for the parties to
the action may be assessed against the surviving corporation if the court deems
an assessment to be equitable, but only if the court finds that our offer of
payment was not made in good faith or if we failed to make a payment offer.
The right of any dissenting stockholder to be paid the fair value of his shares
will terminate if (1) he fails to present the certificates representing his
shares for notation, unless a court directs otherwise, (2) the Payment Demand is
withdrawn by the dissenting stockholder with our written consent, (3) we come to
an agreement with the dissenting stockholder on the fair value of his shares,
(4) the New Jersey Superior Court determines that the stockholder is not
entitled to payment for his shares, (5) the merger is abandoned or rescinded or
(6) a court having jurisdiction permanently enjoins or sets aside the merger. In
any of those events, a dissenting stockholder's rights as a stockholder will be
reinstated as of the date of his Payment Demand without prejudice to any
corporate action that has taken place in the interim, and the stockholder will
be entitled to receive any intervening preemptive rights and payment of any
intervening dividend or other distribution.
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of accounting. The
merger will be treated as a purchase of ARC by RoomLinX for accounting purposes.
Because RoomLinX stockholders will own a majority of the outstanding shares of
the combined company upon completion of the combination, the combination will be
accounted for as a reverse acquisition in which ARC will survive as the combined
company. The consolidated balance sheet after the merger will reflect the net
assets of ARC acquired in the merger based on their fair value at the time of
the merger and the net assets of RoomLinX at their historical cost. The purchase
price of ARC will be allocated to the assets and liabilities of ARC assumed by
RoomLinX, as the acquiring company for accounting purposes, based on their
estimated fair market value at the acquisition date.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We expect the merger to qualify as a reorganization under Section 368(a)(1)(A)
of the Internal Revenue Code. We expect that there will be no material tax
consequences from the merger for our continuing stockholders. ARC has not
requested a ruling from the Internal Revenue Service or an opinion of counsel
with respect to the federal income tax consequences of the merger under the
Internal Revenue Code. The basis for the foregoing discussion is the informal
review of the relevant tax laws by our legal counsel and tax advisors. State,
local, or foreign income tax consequences to stockholders may vary from the
federal tax consequences described above. Stockholders should consult their own
tax advisors as to the effect of the merger under applicable federal, state,
local, or foreign income tax laws.
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RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors recommends that our stockholders vote FOR the merger,
Merger Agreement and the transactions contemplated thereby, including the
issuance of shares of our common stock and options and/or warrants to purchase
shares of our common stock as consideration for the merger.
PROPOSAL 2 -- AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
CHANGE NAME TO ROOMLINX, INC.
Our board of directors has approved, subject to stockholder approval, an
amendment to ARC's certificate of incorporation to (i) increase the number of
authorized shares of common stock from 45,000,000 to 250,000,000 and (ii) change
our name to "RoomLinX, Inc." A copy of the proposed certificate of amendment is
attached as Annex B to this proxy statement. Stockholders are urged to read the
certificate of amendment carefully as it is the legal document that governs the
amendment to ARC's certificate of incorporation. Approval of this proposal is
required to consummate the merger. Although we are asking for stockholder
approval of this proposal, if for any reason the merger is not consummated, this
proposal will not be implemented.
DESCRIPTION OF AMENDMENT
Pursuant to ARC's certificate of incorporation, ARC is currently authorized to
issue up to 45,000,000 shares of common stock, par value $.001 per share, and
5,000,000 of preferred stock, par value $.20 per share. The preferred stock
consists of 1,500,000 shares designated as Class A Preferred Stock (the "Class A
Preferred"), with the remaining 3,500,000 shares consisting of "blank check"
preferred stock that have not yet been designated.
There are currently approximately __________ shares of ARC common stock issued
and outstanding, 655,000 shares of common stock reserved for issuance upon the
exercise of options and 8,333,333 shares of common stock reserved for issuance
upon the exercise of warrants. In addition, there are an aggregate of 720,000
shares of Class A Preferred issued and outstanding. No other shares of preferred
stock are issued and outstanding.
Pursuant to the terms of the Merger Agreement, ARC will issue an aggregate of
68,378,346 shares of common stock and options and/or warrants to purchase an
aggregate of 11,465,001 shares of common stock to the RoomLinX stockholders. ARC
will also issue options to purchase 250,000 shares of common stock having an
exercise price of $0.20 per share, a three year term and a "cashless exercise"
provision and 250,000 shares of common stock to Rodman and Renshaw in
consideration for its services as financial advisor to RoomLinX in connection
with the merger. In addition, subject to the completion of the merger, the
surviving corporation in the merger shall have a long-term incentive plan
authorizing the issuance of stock options and other stock based awards to
purchase an aggregate of _______ shares of the surviving corporation's common
stock.
The proposed amendment to ARC's certificate of incorporation will authorize the
issuance of up to an additional 195,000,000 shares of common stock. This will
provide a sufficient number of authorized shares of common stock for issuance in
the merger and for future issuances under the long-term incentive plan.
Following the merger, the surviving corporation will have issued and outstanding
__________ shares of common stock and options and warrants to purchase
__________ shares of common stock. In addition, __________ additional shares of
common stock shall remain available for issuance under the long-term incentive
plan. Accordingly, the number of authorized shares of common stock that will be
available for issuance will be ___________. There are no other current plans or
proposals to issue shares of common stock following the merger.
REASONS FOR THE AMENDMENTS; EFFECT OF THE AMENDMENT
The amendment to our certificate of incorporation described in this proposal is
required to consummate the merger. In the opinion of our board of directors, the
amendment is advisable and in the best interests of our stockholders. If the
amendment is not approved, we will not be able to complete the merger and the
other transactions contemplated by the Merger Agreement.
39
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors recommends a vote FOR the approval of the amendment to
ARC's certificate of incorporation to (i) increase the number of authorized
shares of common stock from 45,000,000 to 250,000,000 and (ii) change our name
to "RoomLinX, Inc."
PROPOSAL 3 - APPROVAL AND ADOPTION OF THE MERGER OF ARC
INTO ITS WHOLLY-OWNED SUBSIDIARY RL ACQUISITION FOR THE PURPOSE OF CHANGING
ARC'S STATE OF INCORPORATION FROM NEW JERSEY TO NEVADA
TERMS OF THE REINCORPORATION
Our board of directors has adopted a resolution authorizing the reincorporation
of ARC from a New Jersey corporation to a Nevada corporation on the following
terms:
o Prior to the signing of the Merger Agreement, ARC formed RL Acquisition, Inc.,
a wholly-owned subsidiary under the laws of the State of Nevada, for the purpose
of consummating the merger.
o Immediately following the merger of RoomLinX with and into RL Acquisition, ARC
will merge (the "Reincorporating Merger") with and into RL Acquisition, with RL
Acquisition the surviving corporation.
o The certificate of incorporation of RL Acquisition following the
Reincorporation Merger will be substantially the same as ARC's certificate of
incorporation after giving effect to the amendment including, without
limitation, authorizing 250,000,000 shares of common stock and changing the name
of RL Acquisition to RoomLinX, Inc.
o In the Reincorporating Merger, each whole share of ARC common stock
outstanding after giving effect to the merger will be converted into a whole
share of common stock of the surviving corporation and each whole share of ARC
Class A Preferred outstanding after giving effect to the merger will be
converted into a whole share of Class A Preferred of the surviving corporation.
COMPARISON BETWEEN NEW JERSEY AND NEVADA LAW
The rights of continuing stockholders after the Reincorporating Merger will be
governed by Nevada rather than New Jersey corporate law. The corporate laws in
these states are substantially alike. Areas where there are substantive or
procedural differences that could affect our stockholders after the merger are
summarized below.
- -----------------------------------------------------------------------------------------------------------------------------------
Action Nevada Law New Jersey Law
------ ---------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
Amendment of A charter or bylaw amendment requires approval by vote A charter amendment requires approval by vote of a
Charter and of the holders of a majority of the outstanding stock majority of the votes cast at the meeting by the holders
By-laws: entitled to vote on the matter and by the holders of a of shares entitled to vote on the matter. Bylaws may
majority of the outstanding stock of each class entitled also be amended by plurality vote.
to vote thereon as a class.
- -----------------------------------------------------------------------------------------------------------------------------------
Exculpation Directors may not be exculpated from liability for (1) Directors may not be exculpated from liability for (1) a
of Directors acts or omissions involving either intentional breach of their duty of loyalty to the corporation or
and Officers: misconduct, fraud or a knowing violation of the law or its shareholders, (2) acts or omissions not in good
(2) the payment of improper distributions. faith or involving intentional misconduct or a knowing
violation of law or (3) any act or omission from which
they derived an improper personal benefit.
- -----------------------------------------------------------------------------------------------------------------------------------
Stand Stills: Unless waived in the charter, there is a three-year There is a five-year restriction on any business
restriction on transactions between public corporations combination between a publicly held New Jersey
and the holder of 10% or more of the corporation's corporation and an Interested Shareholder unless the
outstanding capital stock (an "Interested Shareholder") business combination was approved by the corporation's
unless the transaction was approved before the board of directors before the shareholder's interest
shareholder's interest exceeded 10% or more of the exceeded 10% or more of the corporation's outstanding
corporation's outstanding stock. Even after the stock. After the expiration of the five-year period,
expiration of the three-year period, the transaction covered New Jersey corporations may not engage at any
will remain prohibited unless (1) the board of directors time in a covered business combination with any
approved the transaction before the shareholder became Interested Shareholder other than a business combination
"interested" or (2) the transaction is approved by a (1) approved by the holders of two-thirds of the voting
majority of disinterested shareholders. stock not beneficially owned by the Interested
Shareholder, (2) with an Interested Shareholder who
inadvertently exceeded the 10% threshold and promptly
reduced his holdings below 10% or (3) in which the
Interested Shareholder pays a formula price designed to
ensure that all other shareholders receive at least the
highest price per share paid by the Interested
Shareholder. A New Jersey corporation may not opt out of
these provisions.
- -----------------------------------------------------------------------------------------------------------------------------------
40
BY-LAWS
There are no specific provisions in ARC's by-laws that impact New Jersey's state
law default provisions set forth above and there are no specific provisions in
RL Acquisition's by-laws that impact Nevada's state law default provisions set
forth above. The certificate of incorporation of ARC does not counteract New
Jersey's default provision upon a merger and the certificate of incorporation of
RL Acquisition does not counteract Nevada's default provision upon a merger.
DISSENTERS' RIGHTS
Under New Jersey law, stockholders who object to the Reincorporating Merger are
entitled to dissenters' rights. For a description of those rights, see "Proposal
1 - Dissenters' Rights."
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors recommends a vote FOR the approval of the reincorporation
of ARC from a New Jersey corporation to a Nevada corporation by the merger of
ARC with and into RL Acquisition.
PROPOSAL 4
APPROVAL AND ADOPTION OF THE ROOMLINX LONG-TERM INCENTIVE PLAN
GENERAL
The parties to the merger have determined that the surviving corporation should
have a long-term incentive plan for grants of stock options and other stock
based awards. ARC's board of directors has adopted a long-term incentive plan,
effective as of the closing of the merger and subject to approval by our
stockholders at the special meeting. A copy of the RoomLinX, Inc. Long-Term
Incentive Plan (the "Plan") is attached as Annex D to this proxy statement.
Stockholders are urged to read the Plan carefully as it is the legal document
that governs the issuance of stock options by the surviving corporation.
41
TERMS OF THE LONG-TERM INCENTIVE PLAN
Subject to completion of the merger, the Plan authorizes the grant of stock
options and other stock-based awards to purchase an aggregate of _________
shares of the surviving corporation's common stock, after giving effect to the
merger and the reincorporation. The plan permits the granting of stock options
(including incentive stock options qualifying under section 422 ("ISOs") of the
Internal Revenue Code of 1986, as amended, and nonqualified stock options
("NSOs")), stock appreciation rights, restricted or unrestricted stock awards,
phantom stock, performance awards, other stock-based awards or any combination
of the foregoing. Shares covered by the Plan may be either previously unissued
or reacquired shares. Shares that cease to be subject to an option or other
award because of its expiration or termination will again be available for the
grant of options and other awards until termination of the Plan, except that any
such shares shall not be for purchase pursuant to incentive stock options
intended to qualify under section 422 of the Code.
The Plan will be administered by the board of directors or by a committee or
committees as may be appointed by the board of directors from time to time (the
board of directors, committee or committees being referred to as the
"Administrator"). The Administrator will have sole discretion to select
optionees, determine the number of shares subject to each grant and prescribe
the other terms and conditions of each award. All employees, officers and
directors of, and other individuals providing bona fide services to or for, the
surviving corporation will be eligible to receive awards under the Plan.
The exercise price of each ISO granted under the Plan must be equal to the fair
market value of the common stock, as determined by the Administrator, at the
time the option is granted, but NSOs may be granted with an exercise price less
than fair market value. No award granted under the Plan may be transferred
except by will or the laws of descent and distribution. No awards may be granted
under the Plan after the tenth anniversary of the effective date of the Plan,
although the expiration date of previously granted awards may extend beyond that
date.
The number of shares covered by the Plan and the exercise price of outstanding
options are subject to customary antidilution adjustments in the event of any
recapitalization or similar change affecting the surviving corporation's common
stock. In the event the surviving corporation sells all or substantially all its
consolidated assets, dissolves, merges or consolidates with another company, the
Administrator, in its discretion and without the consent of the holders of
awards, shall make (1) appropriate adjustments to the maximum number and kind of
shares reserved for issuance or with respect to which awards may be granted
under the Plan and (2) any adjustments in outstanding awards, including, but not
limited to reducing the number, kind and price of securities subject to awards.
Any termination, amendment or modification to the Plan requires the approval of
the board of directors and stockholders of the surviving corporation.
No awards will be granted under the Plan prior to the merger.
FEDERAL INCOME TAX MATTERS
An employee receiving an ISO under the Plan will not be in receipt of taxable
income upon the grant of the ISO or upon its timely exercise except under
alternative minimum tax rules. Generally, exercise of an ISO will be timely if
made during its term and if the optionee remains an employee of the surviving
corporation at all times from the date of grant until three months before the
date of exercise. Upon sale of the stock received upon exercise, the employee
will generally recognize long term capital gain or loss equal to the difference
between the sale proceeds and the option exercise price. The surviving
corporation, under these circumstances, will not be entitled to any federal
income tax deduction in connection with either the exercise of the ISO or the
sale of the underlying stock by the employee.
For purposes of the alternative minimum tax, an employee exercising an ISO will
have alternative minimum taxable income resulting from the exercise. The amount
of the alternative minimum taxable income and the tax basis in the shares
received upon exercise of an ISO will be determined in the year of exercise
unless the shares received upon exercise are sold to an unrelated party in the
same tax year. In that event, there will generally be no adverse effect because
the alternative minimum taxable income will then be limited to the taxable gain
on the sale as determined for regular tax purposes
42
An employee or consultant receiving a NSO or electing to sell option shares from
an ISO exercise prior to the expiration of two years from the grant date or
within one year from the exercise date (a "Disqualified ISO") will not recognize
taxable income upon the grant of the NSO or ISO. Upon exercise of the NSO or
Disqualified ISO, an optionee will recognize ordinary income to the extent of
the difference between the option exercise price and the fair market value of
the stock on the date the option is exercised (the "Compensation Element"). Upon
sale of the stock received upon exercise, the optionee will generally recognize
capital gain or loss equal to the difference between the sale proceeds and the
fair market value of the common stock on the date of exercise. The Company will
be entitled to a federal income tax deduction equal to the Compensation Element
upon the exercise of an NSO or Disqualified ISO. If an ISO is exercised by a
former employee more than three months after his termination of employment, the
ISO will be treated as a Disqualified ISO for federal income tax purposes.
If an optionee uses previously owned shares of common stock to exercise an ISO
or NSO, the transaction will generally not be considered to be a taxable
disposition of the previously owned shares. However, if the previously owned
shares had been acquired upon exercise of a prior tax qualified stock option and
the holding period requirement for those tendered shares was not satisfied at
the time they were used to exercise an ISO, the use of the tendered shares would
cause the ISO to be treaded as a Disqualified ISO for federal income tax
purposes.
ROOMLINX, INC. LONG-TERM INCENTIVE PLAN
- --------------------------------------------------------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF UNITS
- --------------------------------------------------------------------------------
Peter A. Bordes, Jr.
- --------------------------------------------------------------------------------
Joel Schwartz
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Executive Group
- --------------------------------------------------------------------------------
Non-Executive Director Group
- --------------------------------------------------------------------------------
Non-Executive Officer
Employee Group
- --------------------------------------------------------------------------------
STOCK OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
STOCK OWNERSHIP PRIOR TO THE MERGER
The following table sets forth certain information as of December 31, 2003
concerning the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each current member of the board of directors, each executive
officer named in the Summary Compensation Table, and all directors and executive
officers as a group.
43
Shares Beneficially Owned
-----------------------------
Name and Address Number Percent
- ------------------ ------ -------
Peter A. Bordes, Jr. (8)(9) 4,224,148
62 White Street
Suite 3 East
New York, New York 10013
Steven H. Meyer (1)(5) 2,302,020
26 Oxford Drive
Wayside, New Jersey 07712
Kenneth P. Meyer (2)(5) 2,300,687
7 Wemrock Drive
Wayside New Jersey 07712
Michael Rubel (3)(6) 842,500
3 Aspen Court
Wayside, New Jersey 07712
Thomas Rittenhouse (4)(7) 783,200
26 Jacob Drive
Howell, New Jersey 07731
All directors and current executive officers
as a group (5 persons)........................ _________ __%
(1) Steven Meyer is a director and the former President of ARC.
(2) Kenneth Meyer is a former director and former vice president of ARC.
(3) Michael Rubel is a former director and former chief operating officer of
ARC.
(4) Thom Rittenhouse is creative director of New Media Services.
(5) Kenneth Meyer and Steven Meyer are brothers.
(6) Includes options to purchase 250,000 shares of common stock pursuant to
Mr. Rubel's Stock Option Agreement which will vest within 60 days.
(7) Includes options to purchase 250,000 shares of common stock pursuant to
Mr. Rittenhouse's Stock Option Agreement which will vest within 60 days.
(8) Peter A. Bordes, Jr. is a director and the chief executive officer of ARC.
(9) Includes options to purchase 500,000 shares of common stock which are
fully vested.
STOCK OWNERSHIP FOLLOWING THE MERGER
The following table sets forth certain information concerning the beneficial
ownership of the common stock of the surviving corporation as of the effective
time of the merger by each stockholder that will be the beneficial owner of more
than 5% of the outstanding shares of common stock, each member of the board of
directors of the surviving corporation, each executive officer of the surviving
corporation, and all directors and executive officers of the surviving
corporation as a group.
44
Shares Beneficially Owned
-----------------------------
Name and Address Number Percent
- ------------------ ------ -------
Peter A. Bordes, Jr. (8)(9) 4,224,148
62 White Street
Suite 3 East
New York, New York 10013
Steven H. Meyer (1)(5) 2,302,020
26 Oxford Drive
Wayside, New Jersey 07712
Kenneth P. Meyer (2)(5) 2,300,687
7 Wemrock Drive
Wayside New Jersey 07712
Michael Rubel (3)(6) 892,500
3 Aspen Court
Wayside, New Jersey 07712
Thomas Rittenhouse (4)(7) 833,200
26 Jacob Drive
Howell, New Jersey 07731
Robert P. Lunde
Herbert I. Hunt, III
All directors and current executive officers
as a group (__ persons)......................... _________ __%
(1) Steven Meyer is a director and the former President of ARC.
(2) Kenneth Meyer is a former director and former vice president of ARC.
(3) Michael Rubel is a former director and former chief operating officer of
ARC.
(4) Thom Rittenhouse is creative director of New Media Services.
(5) Kenneth Meyer and Steven Meyer are brothers.
(6) Includes options to purchase 62,500 shares of common stock pursuant to Mr.
Rubel's Stock Option Agreement which will vest within 60 days.
(7) Includes options to purchase 62,500 shares of common stock pursuant to Mr.
Rittenhouse's Stock Option Agreement which will vest within 60 days.
(8) Peter A. Bordes, Jr. is a director and the chief executive officer of ARC.
(9) Includes options to purchase 500,000 shares of common stock which are
fully vested.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as to
compensation received by our chief executive officer and each of the four other
most highly compensated executive officers who were employed by ARC at the end
of December 31, 2003 (collectively, the "named executive officers") for services
rendered to ARC in all capacities during the three fiscal years ended December
31, 2003.
45
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Annual Securities All
Compensation Underlying Other
Name Year Salary ($) Bonus ($) Options Compensation
- --------------- ---- ---------- ------------------ ---------- ------------
Steven H. Meyer 2001 111,142 none 1,800 none
2002 97,199 none 1,400 75,000(1) none
2003 23,345 none 700 none
Michael Rubel 2001 125,000 none 2,520 none
2002 117,132 none 2,520 400,000(2) none
2003 76,520 none 2,520 none
Kenneth P. Meyer 2001 107,744 none 3,706 none
2002 96,162 none 3,750 75,000(3) none
2003 25,336 none none none
Thom Rittenhouse 2001 120,000 none none none
2002 120,000 none none 250,000 none
2003 120,000 none none none
Peter A. Bordes, Jr. 2001 n/a
2002 n/a
2003 none none none 500,000 none
(1) On July 1, 2003, Mr. Meyer's options expired in connection with the
termination of his employment with ARC.
(2) On April 1, 2003, options to purchase 150,000 shares of common stock
expired.
(3) On April 1, 2003, Mr. Meyer's options expired in connection with the
termination of his employment with ARC.
OPTION GRANTS IN LAST FISCAL YEAR
On October 15, 2003, in consideration for his agreement to become the chief
executive officer of ARC, as of July 1, 2003, ARC agreed to issue to Mr. Peter
A. Bordes, Jr. a non-qualified stock option to purchase 500,000 shares of common
stock, at a purchase price of $0.08 per share. The option was fully vested and
immediately exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
There were no options exercised by the named executive officers during the 2003
fiscal year.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about shares of our common stock that
may be issued upon the exercise of options. We have no stockholder approved
equity compensation plans. We have a number of options which were granted
pursuant to equity compensation plans not approved by security holders and such
securities are aggregated in the table below.
46
Number of securities
remaining available for
Number of securities to be future issuance under equity
issued upon exercise of Weighted-average exercise compensation plans (excluding
outstanding options, warrants price of outstanding securities reflected in
and rights options, warrants and rights first column)
Equity
compensation plans
not approved by
security holders 1,030,000 $.04 470,000
-----------------------------------------------------------------------------------------
Mr. Peter A. Bordes, Jr., chairman and chief executive officer of ARC, received
an option to purchase 500,000 shares of ARC common stock under equity
compensation plans not approved by security holders which options are fully
vested and exercisable.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On February 19, 2004, ARC entered into an employment letter agreement with Mr.
Michael Rubel. Pursuant to the letter agreement, in consideration for Mr.
Rubel's employment with ARC through and including the later of March 31, 2004
and the closing of the merger, or such earlier date as may be designated by
ARC's board of directors, on the later of March 31, 2004 and the closing of the
merger, ARC agreed to issue Mr. Rubel 50,000 shares of ARC common stock which
shares would be registered on Form S-8 as soon as practicable. In consideration
for work performed by Mr. Rubel past March 31, 2004, 30 days after the last
acceptance by a client of an ARC project, ARC and Mr. Rubel agreed to mutually
agree on compensation to be paid after March 31, 2004 for services rendered on
behalf of ARC. In addition, pursuant to the letter, if Mr. Rubel remained
employed with ARC through and including the later of March 31, 2004 and the
closing of the merger, the portion of the outstanding 62,500 options granted to
Mr. Rubel on October 18, 2001 pursuant to his Stock Option Agreement which have
not become vested shall vest and become exercisable 90 days after the closing of
the merger.
ARC has entered into an employment letter agreement with Mr. Thomas Rittenhouse
on terms identical to the terms set forth in Mr. Rubel's letter agreement
described above.
On ______, 2004, ARC entered into a supplement to the letter agreement with Mr.
Rubel. Pursuant to the supplemental letter agreement, ARC agreed to pay Mr.
Rubel $8,500 in cash upon signing of the agreement and to issue Mr. Rubel the
50,000 shares of ARC common stock agreed to in the original letter agreement. In
consideration for the agreements set forth in the supplemental letter agreement,
Mr. Rubel has agreed to work for ARC on a full-time basis, as needed, through
May 15, 2004.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, and the rules and regulations of the SEC
thereunder requires our directors, executive officers and persons who own
beneficially more than 10% of our common stock to file reports of ownership and
changes in ownership of such stock with the SEC. Based solely upon a review of
such reports, we believe that all our directors, executive officers and 10%
stockholders complied with all applicable Section 16(a) filing requirements
during the last fiscal year.
47
SELECTED FINANCIAL DATA OF ROOMLINX
You should read the following selected financial data in conjunction with
RoomLinX's financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
RoomLinX" included elsewhere in this proxy statement. The following selected
financial data concerning RoomLinX for and as of the year ended December 31,
2003, the seven month period ended December 31, 2002, and the year ended May 31,
2003, is derived from the audited financial statements of RoomLinX. The selected
financial data concerning RoomLinX for and as of the years ended May 31, 2001
and 2000, is derived from the unaudited financial statements of RoomLinX
prepared by RoomLinX's management. The selected financial data is qualified in
its entirety by the more detailed information and financial statements,
including the notes thereto, included elsewhere in this proxy statement. The
audited financial statements of RoomLinX as of December 31, 2002 and 2003 and
for the year ended December 31, 2003, the seven month period ended December 31,
2002, and the year ended May 31, 2003, are included elsewhere in this proxy
statement.
48
ROOMLINX, INC.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Seven
STATEMENT OF OPERATIONS Year Months Year Year Year
Ended Ended Ended Ended Ended
December December May May May
31, 2003 31, 2002 31, 2002 31, 2001 31, 2000
------- ------- ------- ------- -------
Net revenues $ 2,007 $ 488 $ 248 $ 86 $ 38
Gross margin 567 113 84 38 22
Operating expenses 1,137 430 869 2,411 1,089
Net loss for the period $ (832) $ (382) $ (801) $(2,360) $(1,069)
======= ======= ======= ======= =======
Basic loss per share (0.06) $ (0.03) $ (0.07) $ (0.28) $ (0.15)
======= ======= ======= ======= =======
BALANCE SHEET December December May May May
31, 2003 31, 2002 31, 2002 31, 2001 31, 2000
------- ------- ------- ------ --------
Cash and cash equivalents $ 7 $ -- $ 23 $ 3 $ 863
Accounts receivable, net 226 198 43 23 20
Property and equipment, net 270 358 450 657 1,045
Total assets $ 524 $ 571 $ 528 $ 750 $ 2,062
======= ======= ======= ======= =======
Accounts payable and accrued liabilities $ 579 $ 271 $ 319 $ 664 $ 390
Due to related parties 182 123 37 -- --
Current portion of obligations under capital lease 225 179 185 184 113
Current portion of convertible debentures 200 -- -- -- --
Total current liabilities 1,222 651 599 848 503
Convertible debentures, net of current portion 180 200 -- -- --
Total capital deficiency (878) (287) (81) (522) (587)
Total liabilities and capital deficiency $ 524 $ 572 $ 528 $ 750 $ 2,062
======= ======= ======= ======= =======
Cash dividends per share $ -- $ -- $ -- $ -- $ --
Total long term obligations $ 180 $ 208 $ 10 $ 424 $ 2,147
49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ROOMLINX
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations of RoomLinX should be read in conjunction with
RoomLinX's financial statements for the year ended December 31, 2003, the seven
month period ended December 31, 2002, and the year ended May 31, 2002, and the
related notes included elsewhere in this proxy statement.
OVERVIEW
Roomlinx, Inc., a Nevada corporation (for the purpose of this section
sometimes being referred to as "We," "Us" or the "Company"), provides wired
networking solutions and Wireless Fidelity networking solutions, also known as
Wi-Fi, for high speed internet access to hotels, convention centers, corporate
apartments and special events locations. The company installs and creates
services that address the productivity and communications needs of hotel guests,
convention center exhibitors, corporate apartment customers and individual
consumers. We specialize in providing advanced Wi-Fi wireless services such as
the wireless standards known as 802.11a/b/g.
Hotel customers sign long-term service agreements, where we provide the
maintenance for the networks, as well as the right to provide value added
services over the network.
We derive our revenues primarily from the installation of the wired and
wireless networks we provide to hotels, convention centers and apartment
buildings. We derive additional revenue from the maintenance of these networks.
Customers typically pay a one-time fee for the installation of the network and
then pay monthly maintenance fees for the upkeep and support of the network.
During March 1999, we commenced offering our services commercially. Since our
inception, we have invested significant capital to build our technical
infrastructure and network operations. We have incurred operating losses since
our inception and expect to incur operating losses for at least the next 3
fiscal quarters. We will need to increase our installation and maintenance
revenues and improve our gross margins to become profitable and sustain
profitability on a quarterly and annual basis.
Our system sales and installation revenue primarily consists of wired and
wireless network equipment and installation fees associated with the network.
System sales and installation revenue accounted for approximately 76% and 63% of
our total revenue during the year ended December 31, 2003 and seven month period
ended December 31, 2002, respectively. In addition, our service, maintenance and
usage revenue, which primarily consists of monthly maintenance fees related to
the upkeep of the network, accounted for approximately 24% and 37% of our total
revenue during the year ended December 31, 2003 and seven month period ended
December 31, 2002, respectively. Over time, we anticipate that our monthly
recurring fees associated with service and maintenance will increase as our
customer base continues to grow.
Our sales and marketing expenses consist primarily of compensation and
related costs for sales personnel, travel and entertainment, promotions and
advertising and other related costs. We expect sales and marketing expenses to
increase during 2004 compared to 2003 as we continue to expand our sales force
throughout North America. Our general and administrative expenses consist
primarily of compensation and related costs for general corporate and business
development, along with rent and other related costs. We expect general and
administrative costs to increase during 2004 compared to 2003 due to the
anticipated costs of maintaining a publicly traded entity, such as increased
legal and accounting costs, directors and officers liability insurance and
related filing fees. Amortization of property and equipment expense consists
primarily of amortization expenses arising from computer equipment purchased for
our infrastructure and network operations center and other equipment and
property purchases.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures of contingent assets and
liabilities. On an on-going basis, management evaluates its estimates and
judgments, including those related to revenue recognition, allowance for
doubtful accounts and property and equipment valuation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions and conditions.
50
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Our system sales and
installation revenue primarily consists of wired and wireless network equipment
and installation fees associated with the network and is recognized as revenue
when the installation is completed and the customer has accepted such
installation. Our service, maintenance and usage revenue, which primarily
consists of monthly maintenance fees related to the upkeep of the network is
recognized on a monthly basis as services are provided. We estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the ultimate realization of these receivables including
analysis of historical collection rates and the current credit-worthiness of
significant customers. We capitalize and subsequently depreciate our property
and equipment over the estimated useful life of the asset. In assessing the
recoverability of our long-lived assets, we must make certain assumptions
regarding the useful life and contribution to the estimated future cash flows.
If such assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded. We have incurred
substantial operating losses since our inception. As a result of such operating
losses, we have recorded a substantial net operating loss for tax purposes. In
light of our historical operating results, we have not recorded a deferred tax
asset due to the uncertainty surrounding future income.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2003
-------------------- -------------------- -------------------
Revenue
System sales and installation 75.9% 62.5% 0.0%
Service, maintenance and usage 24.1% 37.5% 100.0%
-------------------- -------------------- -------------------
Total Revenue 100.0% 100.0% 100.0%
Cost of Revenue
System sales and installation 61.4% 58.4% 0.0%
Service, maintenance and usage 10.3% 18.5% 66.2%
-------------------- -------------------- -------------------
71.7% 76.8% 66.2%
-------------------- -------------------- -------------------
Gross Profit 28.3% 23.2% 33.8%
Operating Expenses:
Sales and Marketing 22.5% 40.3% 146.5%
General & Administrative 28.7% 31.8% 136.2%
Depreciation of property and equipment 5.5% 15.9% 67.2%
-------------------- -------------------- -------------------
56.7% 88.0% 349.9%
-------------------- -------------------- -------------------
Loss from operations -28.4% -64.8% -316.0%
Other
Interest expense -1.3% -1.4% -0.7%
Foreign exchange -4.1% 1.2% -4.0%
Non-cash financing costs -7.6% -13.2% -1.8%
-------------------- -------------------- -------------------
Total other -13.0% -13.5% -6.6%
-------------------- -------------------- -------------------
Loss for the period -41.5% -78.3% -322.6%
==================== ==================== ===================
YEAR ENDED DECEMBER 31, 2003 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 2002
System sales and installation revenue. System sales and installation
revenue increased to $1,524,000 for the year ended December 31, 2003 from
$305,000 for the seven months ended December 31, 2002. The increase was
primarily due to a full year of operating results during 2003, while during the
seven months ended December 31, 2002 the Company commenced sales in this area.
We expect the system sales and installation revenue to increase during 2004 as
we continue to expand our customer base.
51
Service, maintenance and usage revenue. Service, maintenance and usage
revenue increased to $483,000 for the year ended December 31, 2003 from $183,000
for the seven months ended December 31, 2002. The increase was primarily due to
a full year of operating results as compared to seven months, as well as the
growth in the number of customers we service on a recurring basis. We anticipate
that service, maintenance and usage revenue will increase during 2004 as we
continue to increase our customer base from levels during 2003.
Cost of system sales and installation revenue. Cost of system sales and
installation revenue increased to $1,233,000 for the year ended December 31,
2003 from $285,000 for the seven months ended December 31, 2002. The increase
was directly attributable to the increased corresponding revenue during 2003.
However, as a percentage of System sales and installation revenue, such costs
decreased by 12% during the year ended December 31, 2003 as compared to the
seven months ended December 31, 2002. The decrease as a percentage of revenue is
primarily attributable to negotiating more favorable prices with our vendors due
to the increased volume. We anticipate that cost of system sales and
installation revenue will increase during 2004 as we continue to expand our
customer base.
Cost of service, maintenance and usage revenue. Cost of service,
maintenance and usage revenue increased to $206,000 for the year ended December
31, 2003 from $90,000 for the seven months ended December 31, 2002. Such
increase is directly attributable to the increased corresponding revenue.
However, as a percentage of Service, maintenance and usage revenue, such costs
decreased by 6% during the year ended December 31, 2003 as compared to the seven
months ended December 31, 2002. The decrease as a percentage of revenue is
primarily attributable to negotiating more favorable prices with our vendors due
to the increased volume. We anticipate that cost of service, maintenance and
usage revenue will increase during 2004 as we continue to increase Service,
maintenance and usage revenues.
Sales and marketing. Sales and marketing expense increased by $254,000 to
$451,000 during the year ended December 31, 2003 from $197,000 for the seven
months ended December 31, 2002. Such increase is primarily attributable to
increased personnel and personnel related costs, advertising costs, as well as
more aggressive sales initiatives. During 2004, we anticipate sales and
marketing expense to increase as we will continue with our aggressive sales and
marketing initiatives.
General and administrative. General and administrative expense increased
by $421,000 to $576,000 for the year ended December 31, 2003 from $155,000 for
the seven months ended December 31, 2002. The increase is primarily attributable
to increased personnel and personnel related costs, office, travel and
professional fees. The increase is partially attributable to a $73,000 gain on
settlement of certain trade payables during the seven month period ended
December 31, 2002. During 2004 we anticipate general and administrative costs to
increase as the Company anticipates to be a publicly traded entity during 2004
which will further increase personnel costs as well as professional fees.
Depreciation of property and equipment. Depreciation of property and
equipment increased 42% or $33,000 to $110,000 for the year ended December 31,
2003 as compared to $77,000 for the seven months ended December 31, 2002. The
increase is primarily related to the full year results reported during 2003 as
compared to the seven months during 2002. We anticipate amortization of property
and equipment will decrease as a percentage of total revenue as we are do not
expect major capital expenditures during 2004.
Interest expense. Interest expense increased 273% or $19,000 to $26,000
for the year ended December 31, 2003 as compared to $7,000 for the seven months
ended December 31, 2002. The increase is primarily due to an increase in our
convertible debt and loans payable during 2003. We anticipate that interest
expense will decrease during 2004 as we have or are in the process of
renegotiating all of our convertible notes and loans into equity as part of our
pending merger with ARC.
Foreign exchange. Foreign exchange expense increased $87,000 to $83,000
for the year ended December 31, 2003 from income of $6,000 for the seven months
ended December 31, 2002. The increased expense primarily relates to the exchange
rate fluctuations between the U.S. dollar and the Canadian dollar. We currently
incur operating expenses in Canadian dollars but derive a large portion of
revenue and cost of revenue from U.S. sources. Due to daily fluctuations in the
foreign exchange rates between the U.S and Canada, as well as the increasing
business we are recording in the United States, we are not in the position to
estimate what such expense or income will be during 2004.
52
Non-cash financing costs. Non-cash financing costs increased 137% or
$88,000 to $153,000 for the year ended December 31, 2003 as compared to $$65,000
for the seven months ended December 31, 2002. The increase is primarily due to
expenses recorded with respect to the issuance of warrants in connection with
certain equity and debt financings. We anticipate non-cash financing costs will
decrease during 2004 as we plan to enter into transactions that will not give
rise to such costs.
SEVEN MONTHS ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED MAY 31, 2002
System sales and installation revenue. The Company began generating
revenues from system sales and installations during the seven months ended
December 31, 2002. During this period, system sales and installation revenue was
$305,000.
Service, maintenance and usage revenue. Service, maintenance and usage
revenue decreased to $183,000 for the seven months ended December 31, 2002
compared to $248,000 during the year ended May 31, 2002. The decrease is
directly attributable to a seven-month reporting period during the period ended
December 31, 2002 as compared to the twelve months ended May 31, 2002.
Cost of system sales and installation revenue. The Company began
generating revenues from system sales and installations during the seven months
ended December 31, 2002, as such cost of system sales and installation revenue
commenced during that period. During the seven-months ended December 31, 2002,
cost of system sales and installation revenue was $285,000.
Cost of service, maintenance and usage revenue. Cost of service,
maintenance and usage revenue decreased to $90,000 for the seven months ended
December 31, 2002 compared to $164,000 during the year ended May 31, 2002. The
decrease is directly attributable to a seven-month reporting period during the
period ended December 31, 2002 as compared to the twelve months ended May 31,
2002.
Sales and marketing. Sales and marketing expense decreased to $197,000 for
the seven months ended December 31, 2002 compared to $364,000 during the year
ended May 31, 2002. The decrease is directly attributable to a seven-month
reporting period during the period ended December 31, 2002 as compared to the
twelve months ended May 31, 2002.
General and administrative. General and administrative expense decreased
to $155,000 for the seven months ended December 31, 2002 compared to $338,000
during the year ended May 31, 2002. The decrease is primarily attributable to a
seven-month reporting period during the period ended December 31, 2002 as
compared to the twelve months ended May 31, 2002. The decrease is partially
attributable to a $73,000 gain on settlement of certain trade payables for
amounts less than previously recorded during the seven month period ended
December 31, 2002, partially offset by a $49,000 gain on settlement of certain
trade payables for amounts less than previously recorded during the year ended
May 31, 2002.
Depreciation of property and equipment. Depreciation of property and
equipment expense decreased to $77,000 for the seven months ended December 31,
2002 compared to $167,000 during the year ended May 31, 2002. The decrease is
attributable to a seven-month reporting period during the period ended December
31, 2002 as compared to the twelve months ended May 31, 2002.
Interest expense. Interest expense increased to $7,000 for the seven
months ended December 31, 2002 compared to $2,000 for the twelve months ended
May 31, 2002. The increase is attributable to the issuance of debt instruments
during the seven month period ended December 31, 2002, while no such debt
instruments were outstanding during the twelve months ended May 31, 2002.
Foreign exchange. During the seven month period ended December 31, 2002,
the Company recognized a foreign exchange gain of $6,000 as compared to a
foreign exchange loss of $10,000 for the twelve months ended May 31, 2002. Such
a variance primarily relates to the exchange rate fluctuations between the U.S.
dollar and the Canadian dollar. We incur operating expenses in Canadian dollars
but derive a large portion of revenue and cost of revenue from U.S. sources.
53
Non-cash financing costs. Non-cash financing costs increased to $65,000
for the year seven months ended December 31, 2002 as compared to $5,000 for the
twelve months ended May 31, 2002. The increase is primarily due a $60,000 charge
related to the issuance of warrants during the seven months ended December 31,
2002.
SEVEN MONTHS ENDED DECEMBER 31, 2002 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31,
2001
System sales and installation revenue. The Company began generating
revenues from system sales and installations during the seven months ended
December 31, 2002. During this period, system sales and installation revenue was
$305,000.
Service, maintenance and usage revenue. Service, maintenance and usage
revenue increased to $183,000 for the seven months ended December 31, 2002
compared to $119,000 during the seven months ended December 31, 2001. The
increase is primarily attributable to the growth in the number of customers we
service on a recurring basis during the seven month period ended December 31,
2002 as compared to the same period in 2001.
Cost of system sales and installation revenue. The Company began
generating revenues from system sales and installations during the seven months
ended December 31, 2002, as such, cost of system sales and installation revenue
commenced during that period. During seven-months ended December 31, 2002, cost
of system sales and installation revenue was $285,000.
Cost of service, maintenance and usage revenue. Cost of service,
maintenance and usage revenue decreased to $90,000 for the seven months ended
December 31, 2002 compared to $99,000 during the seven months ended December 31,
2001. The decrease is primarily attributable to negotiating more favorable
prices with our vendors due to the increased volume during the seven months
ended December 31, 2002.
Sales and marketing. Sales and marketing expense decreased to $197,000 for
the seven months ended December 31, 2002 compared to $214,000 during the seven
months ended December 31, 2001. The decrease is primarily attributable to a
reduction in advertising costs during the seven months ended December 31, 2002
as compared to the same period during 2001, resulting from a Company wide effort
to reduce operating expenses and preserve our cash resources.
General and administrative. General and administrative expense decreased
to $155,000 for the seven months ended December 31, 2002 compared to $185,000
during the seven months ended December 31, 2001. The decrease is primarily
attributable to a $73,000 gain on settlement of certain trade payables for
amounts less than previously recorded during the seven month period ended
December 31, 2002, which was partially offset by a $49,000 gain on settlement of
certain trade payables for amount less than previously recorded during the same
period in 2001.
Depreciation of property and equipment. Depreciation of property and
equipment expense decreased to $77,000 for the seven months ended December 31,
2002 compared to $104,000 during the seven months ended December 31, 2001. The
decrease is primarily attributable to the disposal of certain equipment during
the seven months ended December 31, 2001.
Interest expense. Interest expense increased to $7,000 for the seven
months ended December 31, 2002 compared to $6,000 for the seven months ended
December 31, 2001. The increase is attributable to a marginal increase in debt
instruments during the seven month period ended December 31, 2002, as compared
to the same period during 2001.
Foreign exchange. Foreign exchange income increased to $6,000 for the
seven months ended December 31, 2002 compared to $5,000 for the seven months
ended December 31, 2001. The increase is attributable to the exchange rate
fluctuations between the U.S. dollar and the Canadian dollar. We incur operating
expenses in Canadian dollars but derive a large portion of revenue and cost of
revenue from U.S. sources.
Non-cash financing costs. Non-cash financing costs were $65,000 for the
year seven months ended December 31, 2002, while no such costs were incurred
during the seven months ended December 31, 2001. The increase is primarily due a
$60,000 charge related to the issuance of warrants during the seven months ended
December 31, 2002.
54
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we financed our operations through private placements
of our equity securities, our convertible debentures and shareholder loans,
which resulted in aggregate net proceeds of approximately $5.2 million through
December 31, 2003. During the quarter ended March 31, 2004, we issued and sold
1,290,000 shares of common stock for proceeds of approximately $624,000, net of
issue costs of approximately $610,000.
We have incurred significant operating losses since our inception and as
of December 31, 2003 have an accumulated deficit of $5.6 million. During 2003,
we incurred a net loss of $830,000 and used $313,000 of cash to fund operating
activities. As of December 31, 2003 we had $7,000 in cash and cash equivalents
($47,000 at March 31, 2004). Management has evaluated its alternatives to enable
us to pay our liabilities as they become due and payable in the current year.
Such alternatives include reducing our operating losses and obtain additional
financing in order to advance ur business plan. Additionally, management has
executed a definitive merger agreement with ARC. Upon the completion of such
merger, additional financing may become available through the issuance of
additional equity. At this time, we do not have any bank credit facility or
other working capital credit line under which we may borrow funds for working
capital or other general corporate purposes.
Net cash used in operating activities was $313,000, $373,000 and $636,000
for the year ended December 31, 2003, seven months ended December 31, 2002 and
year ended May 31, 2002, respectively. The principal use of cash in each of
these periods was to fund our losses from operations. For the year ended
December 31, 2003, cash used for operating activities was partially offset by a
$308,000 increase in accounts payable and accrued liabilities. This increase is
primarily attributable to our effort to maintain our cash balances for
operations.
Net cash (used in)/provided by investing activities was ($22,000), $2,000
and ($34,000) for the year ended December 31, 2003, seven months ended December
31, 2002 and year ended May 31, 2002, respectively. For the years ended December
31, 2003 and May 31, 2002, we used cash in investing activities principally to
purchase of property and equipment. During the seven months ended December 31,
2002, we provided cash to investing activities principally from the proceeds
from the disposal of certain property and equipment. During 2004, assuming the
merger with ARC is completed, we expect to use cash in investing activities
through capital expenditures to fund the opening of our east coast offices
pursuant to the terms of the Merger Agreement.
Net cash provided by financing activities was $350,000, $341,000 and
$689,000 for the year ended December 31, 2003, seven months ended December 31,
2002 and year ended May 31, 2002, respectively. The cash provided by financing
activities for each of these periods primarily resulted from the issuance of
common shares, convertible debt and loans. During 2004, we expect to provide
cash in financing activities through the sale of additional debt and equity
securities.
As of December 31, 2003, our principal commitments consisted of
obligations outstanding under capital and operating leases. As of December 31,
2003, future minimum payments for capital leases and non-cancelable operating
leases having terms in excess of one year amounted to $0 and $111,000, of which
$33,000 is payable in 2004.
The following table summarizes our contractual obligations at December 31,
2003, and the effect such obligations are expected to have on our liquidity and
cash flows in future periods.
Less
than 1 - 3 4 - 5 After 5
December 31, (in thousands) Total 1 Year Years Years Years
------ ------ ------ ------ ------
Contractual Obligations:
Capital lease obligations $ 225 $ 225 $ - $ - $ -
Operating lease obligations $ 111 33 66 12 -
------ ------ ------ ------ ------
Total contractual cash obligations $ 336 $ 258 $ 66 $ 12 $ -
====== ====== ====== ====== =======
55
As of December 31, 2003, we had $380,000 of convertible debentures
outstanding, $200,000 of which were classified as a current obligation. These
convertible debentures are not included in the table above since it is
anticipated that such debentures will be converted into common stock prior to or
upon completion of the proposed merger with ARC.
As of December 31, 2003, we had approximately $215,000 of shareholder
loans outstanding. These loans are not included in the table above since it is
anticipated that such loans will be converted into common stock prior to or upon
completion of the proposed merger with ARC. Additionally, in the ordinary course
of business, we incur recurring operating costs such as telecommunications,
rent, advertising and other related business expenses. Generally, we pay such
expenses (currently approximately $38,000 monthly) on terms of 30 to 60 days.
These purchase commitments are not included in the table above.
We have evaluated our alternatives to enable us to pay our liabilities as
they become due and payable in the current year, reduce operating losses and
obtain additional or new financing in order to advance our business plan.
Alternatives being considered by us include, among others, completing a
merger/public financing, obtaining financing from new lenders and the issuance
of additional equity. We believe these measures will provide liquidity for us to
continue as a going concern throughout fiscal 2004, however, we can provide no
assurance with regard thereto. If the planned merger with ARC is not completed,
we may need to obtain additional financing to maintain our operations.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144. SFAS No. 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, and
elements of APB 30, Reporting the Results of Operations - Reporting the Effects
on Disposal of a Segment of a Business and Extraordinary, Unusual or
Infrequently Occurring Events and Transactions. SFAS No. 144 establishes a
single-accounting model for long-lived assets to be disposed of while
maintaining many of the provisions relating to impairment testing and valuation.
The adoption of this statement did not have an impact on our consolidated
financial position, results of operations or cash flows.
In April 2002, SFAS No. 145, Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections, was issued.
This statement provides guidance on the classification of gains and losses from
the extinguishment of debt and on the accounting for certain specified lease
transactions. The adoption of this statement did not have an impact on our
consolidated financial position, results of operations or cash flows.
In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective on January 1, 2003. Under SFAS No. 146, companies will record
the fair value of exit or disposal costs when they are incurred rather than at
the date of a commitment to an exit or disposal plan. The adoption of SFAS No.
146 may result in our recognizing the cost of future restructuring activities,
if any, over a period of time rather than in one reporting period.
In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Mutliple Deliverables ("Issue 00-21"). Issue 00-21 provides
guidance on how to account for arrangements that involve the deliver or
performance of multiple products, services and/or rights to use assets. The
provisions of Issue 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. We do not believe that the
adoption of Issue 00-21 will have a material effect on our consolidated
financial position, results of operations or cash flows.
56
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others, ("FIN 45"). FIN 45 requires that we recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in the issuance of the guarantee. FIN 45 is effective for guarantees
issued or modified after December 31, 2002. The disclosure requirements
effective for the year ending December 31, 2002, expand the disclosures required
by a guarantor about its obligations under a guarantee. The adoption of the
accounting requirements of this statement did not impact our financial position,
results of operations or cash flows. The adoption of the disclosure requirements
of this statement did not result in additional disclosures.
In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, was issued. SFAS No. 148 amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The disclosure provisions of SFAS No. 148 are effective for
financial statements for fiscal years ending after December 15, 2002 and interim
periods beginning after December 15,2002. The adoption of this statement did not
impact our financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, ("FIN 46") that addresses the consolidation of
variable interest entities. In December 2003, the FASB issued a revised
Interpretation ("FIN 46R"). Under the revised Interpretation, an entity deemed
to be a business, based on certain specified criteria, need not be evaluated to
determine if it is a Variable Interest Entity. The Company must apply the
provisions to variable interests in entities created before February 1, 2003
during the quarter ended December 31, 2003. Adoption of FIN 46 and FIN 46R did
not have an impact on the Company's financial condition or results of
operations.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS
No. 150"). SFAS No. 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity. SFAS No. 150 represents
a significant change in practice in the accounting for a number of financial
instruments, including mandatorily redeemable equity instruments and certain
equity derivatives. SFAS No. 150 is effective for all financial instruments
created or modified after May 31, 2003, and to other instruments as of July 1,
2003. We will adopt the provisions of SFAS No. 150 on July 1, 2003. We do not
expect that the adoption of this Statement will have a material impact on its
results of operations and financial position.
FOREIGN CURRENCY EXCHANGE RATE RISK
A portion of our expenses, primarily general and administrative
expenses relating to our Vancouver, British Columbia, Canada office are
denominated in Canadian dollars while our functional currency is the U.S.
dollar. In 2003, as a result of the appreciation of the Canadian dollar relative
to the U.S. dollar, we realized foreign currency losses of approximately
$83,000. In the event the Canadian dollar continues to appreciate in 2004 we
will experience additional foreign currency losses. Holding all other variables
constant and on a hypothetical basis, a further 10% increase in the value of the
Canadian dollar against the U.S. dollar over 2004 would result in approximately
$107,000 in foreign currency losses for the year. Conversely, a 10% decrease
over 2004 would result in approximately $60,000 in foreign currency gains for
the year.
We will continue to monitor our exposure to foreign currency
fluctuations and although we have never used financial hedging techniques to
date, we may use them in the future to minimize the effect of these
fluctuations. Nevertheless, we cannot assure you that these fluctuations will
not adversely affect our results of operations in the future.
57
ARC COMMUNICATIONS INC.
SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the audited
financial statements ARC. The selected financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the Company
and related notes thereto included in ARC's 2003, 2002, 2001, 2000 and 1999
Annual Reports on Form 10-KSB. ARC's 2003 Annual Report on Form 10-KSB is
incorporated by reference in the proxy.
Years Ended December 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------------------------------
Net sales 762,000 1,057,000 1,369,000 3,183,000 2,975,000
Total costs and expenses 1,313,000 1,526,000 2,079,000 3,095,000 2,721,000
Total other income (expense) (15,000) 12,000 (4,000) (16,000) (28,000)
Income (Loss) from continuing operations (572,000) (442,000) (714,000) 72,000 226,000
Income (Loss) from discontinued operations 5,000 (7,000) (27,000) (172,000) (114,000)
Gain on sale of discontinued operations 418,000 -- -- -- --
Net Income (loss) (149,000) (449,000) (741,000) (100,000) 112,000
Net Income (loss) attributable to common
stockholders (162,000) (462,000) (754,000) (113,000) 99,000
Basic and diluted loss per share - continuing
operations and net loss
Continuing operations (0.04) ($0.03) ($0.05) 0.01 0.02
Years Ended December 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------------------------------
Cash 2,000 0 21,000 351,000 346,000
Accounts Receivable 48,000 126,000 444,000 426,000 713,000
Assets of Discontinued Operations 16,000 477,000 126,000 44,000
Total Assets of Continuing Operations 241,000 284,000 750,000 1,347,000 1,526,000
Line of Credit 120,000 295,000 439,000 355,000 464,000
Accounts Payable and Accrued Expenses 716,000 294,000 221,000 274,000 297,000
Liabilities of Discontinued Operations 83,000 443,000 170,000 27,000
Total Liabilities of Continuing Operations 836,000 663,000 766,000 581,000 753,000
Stockholders Equity (Capital Deficiency) (595,000) (446,000) 18,000 722,000 790,000
58
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF ARC COMMUNICATIONS INC.
The following unaudited pro forma condensed combined financial statements
give effect to the acquisition of RoomLinX by way of the merger of ARC with
RoomLinX as if the merger had occurred on January 1, 2003. The pro forma
condensed combined balance sheet combines the December 31, 2003 balance sheets
of ARC and RoomLinX. The pro forma condensed combined statement of operations
for the year ended December 31, 2003 combines the historical results of ARC for
the fiscal year ended December 31, 2003 with the historical results of RoomLinX
for the fiscal year ended December 31, 2003.
The pro forma adjustments are based on currently available information and
upon estimates and assumptions that we believe are reasonable under the
circumstances. A final determination of the allocation of the purchase price to
the assets acquired and liabilities assumed has not been made, and the
allocation reflected in the unaudited pro forma condensed combined financial
statements should be considered preliminary and is subject to the completion of
a more comprehensive valuation of the assets acquired and liabilities assumed.
The final allocation of purchase price could differ materially from the pro
forma allocation included herein. You should read the accompanying unaudited pro
forma condensed combined financial data and related notes in conjunction with
the audited financial statements and notes thereto included in ARC's Form 10-KSB
for the year ended December 31, 2003, a copy of which accompanies this proxy
statement, and the financial statements of RoomLinX elsewhere in this proxy
filing. We provide the accompanying unaudited pro forma condensed combined
financial statements for informational purposes only. It is not necessarily
indicative of the results that will be achieved for future periods and does not
purport to represent what our financial position or results of operations would
actually have been if the merger of ARC with RoomLinX had, in fact, occurred on
January 1, 2003.
The pro forma condensed consolidated financial statements included in this
proxy statement have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States of America have been
condensed or omitted pursuant to such rules and regulations. However, we believe
that the disclosures are adequate to make the information not misleading.
Arc Communications Inc.
Pro Forma Condensed Combined Balance Sheet
(Unaudited)
(Expressed in United States Dollars)
Historical Historical Pro Forma Pro Forma
ARC RoomLinx Adjustments Combined
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,000 $ 7,000 $ 1,076,000 1 $ 1,085,000
Accounts Receivable-net 48,000 226,000 -- 274,000
Costs in Excess of Billings 12,000 -- -- 12,000
Prepaid Expenses -- 21,000 -- 21,000
Other Receivables 2,000 -- -- 2,000
Due from sale of continuing professional segment 100,000 -- -- 100,000
----------- ----------- ----------- -----------
Total Current Assets 164,000 254,000 1,076,000 1,494,000
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT-NET 7,000 270,000 -- 277,000
OTHER ASSETS
Deferred Costs 54,000 -- (54,000)1
Security Deposits 16,000 -- -- 16,000
----------- ----------- ----------- -----------
Total Other Assets 77,000 270,000 (54,000) 293,000
----------- ----------- ----------- -----------
TOTAL ASSETS $ 241,000 $ 524,000 $ 1,022,000 $ 1,787,000
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS
EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Line of Credit $ 120,000 $ -- $ (120,000)1 $ --
Accounts Payable and Accrued Expenses 716,000 579,000 (54,000)1 1,241,000
Deferred revenue -- 12,000 -- 12,000
Due to related parties -- 182,000 (182,000)2 --
Current portion of obligations under capital lease -- 225,000 -- 225,000
Loans payable -- 23,000 -- 23,000
Current portion of convertible debentures -- 200,000 (200,000)2 --
----------- ----------- ----------- -----------
Total Current Liabilities 836,000 1,221,000 (556,000) 1,501,000
----------- ----------- ----------- -----------
Convertible debentures, net of current portion -- 180,000 (170,000)2 10,000
----------- ----------- ----------- -----------
Total Current Liabilities 836,000 1,401,000 (726,000) 1,511,000
----------- ----------- ----------- -----------
Preferred Stock, Stated Value $.20;
5,000,000 Shares Authorized;
Issued and Outstanding 720,000 Shares 144,000 -- -- 144,000
Common Stock, $.001 Par Value,
Authorized 45,000,000 shares (250,000,000
pro forma, issued and outstanding
14,984,459 shares; pro forma 100,279,465 shares) 15,000 15,000 17,000 1 100,000
53,000 3
Additional Paid in Capital 1,428,000 4,709,000 1,179,000 1 5,633,000
-- -- 552,000 2 --
-- -- (53,000)3 --
-- -- (2,182,000)4 --
Accumulated Deficit (2,182,000) (5,601,000) 2,182,000 4 (5,601,000)
----------- ----------- ----------- -----------
EQUITY (CAPITAL DEFICIENCY) (595,000) (877,000) 1,748,000 276,000
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 241,000 $ 524,000 $ 1,022,000 $ 1,787,000
=========== =========== =========== ===========
See notes to the unaudited pro forma condensed combined financial statements.
59
Arc Communications Inc.
Pro Forma Condensed Combined Statements of Operations
For the Year Ended Decemebr 31, 2003
(Unaudited)
(Expressed in United States Dollars)
Historical Historical Pro Forma Pro Forma
Arc RoomLinx Adjustments Combined
----------- ----------- ----------- -----------
REVENUES
System sales and installation -- $ 1,524,000 -- $ 1,524,000
Service, maintenance and usage -- 483,000 -- 483,000
Multimedia $ 762,000 -- -- 762,000
----------- ----------- ----------- -----------
Total Revenue 762,000 2,007,000 -- 2,769,000
----------- ----------- ----------- -----------
COSTS AND EXPENSES
System sales, installation and service -- 1,233,000 -- 1,233,000
Operating Costs 202,000 206,000 -- 408,000
Selling, General and Administrative 970,000 1,027,000 -- 1,997,000
Impairment Loss 76,000 -- -- --
Depreciation and Amortization 65,000 110,000 -- 175,000
----------- ----------- ----------- -----------
Total Costs and Expenses 1,313,000 2,576,000 -- 3,813,000
----------- ----------- ----------- -----------
OTHER EXPENSES
Foreign exchange -- 83,000 -- 83,000
Interest Expense 15,000 26,000 $ (15,000)1 26,000
Non-cash financing costs -- 153,000 -- 153,000
----------- ----------- ----------- -----------
Total Other Expense 15,000 262,000 (15,000) 262,000
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (566,000) (831,000) -- (1,306,000)
Provision for income taxes 6,000 -- -- 6,000
----------- ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (572,000) (831,000) (15,000) (1,312,000)
Preferred stock dividend imputed (13,000) -- -- (13,000)
----------- ----------- ----------- -----------
Loss from continuing operations
attributable to common stockholders $ (585,000) $ (831,000) $ (15,000) $(1,325,000)
=========== =========== =========== ===========
Weighted Average Number of Shares Outstanding 14,984,000 -- 85,295,000 a 100,279,000
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.04) $ (0.01)
=========== ===========
See notes to unaudited pro forma condensed combined financial statements.
60
ARC COMMUNICATIONS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(Unaudited)
Pro Forma Adjustments
1. Through March 29, 2004, ARC issued 16,666,661 shares of its common stock in a
private placement transaction raising $1,196,000 after expenses. Pursuant to the
Merger Agreement, as a condition to closing, ARC was required to raise a minimum
of $500,000 in a private placement of its securities. ARC used a portion of the
funds raised in the private placement to repay its line of credit and certain
accounts payable and anticipates using the remainder for working capital.
2. Prior to the consummation of the merger, all of the outstanding convertible
debentures and amounts due from related parties will be converted into RoomLinX
common stock except for a $10,000 convertible debenture.
3. All outstanding shares of RoomLinX common stock will be converted into
68,378,346 shares of ARC's common stock, including shares relating to the
conversion of the RoomLinX convertible debt. Additionally, 250,000 shares of
ARC's common stock will be issued to financial consultants as commissions for
the merger.
4. ARC's accumulated deficit has been eliminated since the transaction will be
accounted for as a reverse acquisition whereby RoomLinX will be the accounting
acquirer.
The combination is being accounted for as a purchase business combination as
defined by Statement of Financial Account Standards No. 141, Business
Combinations. Because RoomLinX stockholders will own a majority of the
outstanding shares of the combined company upon completion of the combination,
the combination will be accounted for as a reverse acquisition in which ARC will
survive as the combined company. Accordingly, for accounting purposes, ARC is
treated as the acquired company and RoomLinX is treated as the acquiring
company. Under reverse acquisition accounting, the purchase price of ARC is
based upon the fair value of ARC common stock and the fair value of ARC stock
options. The purchase price of ARC will be allocated to the assets and
liabilities of ARC assumed by RoomLinX as the acquiring company for accounting
purposes, based on their estimated fair market values at the acquisition date.
a. Loss Per Share
Basic and diluted net loss per share is calculated by dividing pro forma net
loss by the pro forma outstanding common shares.
The weighted average shares outstanding have been adjusted to reflect the shares
to be issued as a result of the merger transaction.
61
COMPARATIVE PER SHARE DATA AND DIVIDEND INFORMATION
The following table sets forth the historical per share information of ARC and
RoomLinX and combined per share data on an unaudited, pro forma basis after
giving effect to the merger. You should read this information in conjunction
with the selected historical financial data, asnd audited financial statements
for the year ended December 31, 2003, the seven months ended December 31, 2002
and the year ended May 31, 2002, which are included in this proxy statement with
respect to RoomLinX. Our audited financial statements for the years ended
December 31, 2002 and 2003 are included in our Annual Report on Form 10-KSB for
the year ended December 31, 2003, which accompanies this proxy statement. You
should also read this information in conjunction with the unaudited pro forma
condensed combined financial statements, including the notes thereto, which are
included elsewhere in this proxy statement. The pro forma information is
presented for illustrative purposes only. You should not rely on the pro forma
financial information as an indication of the combined financial position or
results of operations of future periods or the results that actually would have
been realized had the entities been a single entity during the periods
presented.
The unaudited pro forma per share information combines the financial information
of ARC with the financial information of RoomLinX for the year ended December
31, 2003, assuming the merger occurred on January 1, 2003.
Historical book value per common share for both companies is computed by
dividing stockholders' equity (deficit) attributable to common stockholders by
the number of shares of common stock outstanding at the end of period.
Historical book value per preferred share for both companies is computed by
dividing the recorded balance attributable to preferred stock by the number of
shares of preferred stock outstanding at the end of the period. Our unaudited
pro forma combined per share data is derived from the unaudited pro forma
condensed combined financial statements that are included elsewhere in this
proxy statement.
Year Ended
December 31,
2003
----------------
(Unaudited)
ARC Historical Per Share
Data:
Basic and diluted net loss per common share $(0.01)
Book value (deficiency) per common share $(0.05)
Book value (deficiency) per preferred share $ 0.20
RoomLinX Historical Per Share Data:
Basic and diluted net loss per common share $(0.06)
Book value (deficiency) per common share $(0.06)
Book value (deficiency) per preferred share --
ARC Pro Forma Combined:
Basic and diluted net loss per common share $(0.01)
Book value (deficiency) per common share $ 0.00
Book value (deficiency) per preferred share $ 0.20
Our common stock trades on the OTC-Bulletin Board under the symbol "ACOC". Our
Class A Preferred Stock trades on the OTC-Bulletin Board under the symbol
"ACOCP". For the periods indicated, the following table sets forth the high and
low bid quotations for our common stock and Class A Preferred Stock as reported
by the National Quotation Bureau, Inc. The quotations represent inter-dealer
quotations without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
62
HIGH AND LOW STOCK PRICES
SYMBOL TIME PERIOD LOW BID HIGH BID
ACOC
January 1 - March 31, 2002 .03 .20
April 1 - June 30, 2002 .06 .24
July 1 - September 30, 2002 .06 .75
October 1 - December 31, 2002 .16 .35
January 1 - March 31, 2003 .06 .30
April 1 - June 30, 2003 .07 .15
July 1 - September 30, 2003 .08 .20
October 1 - December 31, 2003 .12 .40
January 1 - March 15, 2004 .20 .59
ACOCP
January 1 - March 31, 2002 .003 .085
April 1 - June 30, 2002 .03 .06
July 1 - September 30, 2002 .015 .09
October 1 - December 31, 2002 .03 .07
January 1 - March 31, 2003 .05 .05
April 1 - June 30, 2003 .04 .04
July 1 - September 30, 2003 .04 .20
October 1 - December 31, 2003 .06 .15
January 1 - March 15, 2004 .05 .05
The closing bid for our common stock on OTB-Bulletin Board on December 8, 2003,
the last trading day prior to the public announcement of the merger was $.20 per
share, and on March 15, 2004 was $.59. The closing bid for our Class A Preferred
Stock on OTB-Bulletin Board on December 8, 2003, the last trading day prior to
the public announcement of the merger, was $.15 per share, and on March 15, 2004
was $.05. As of April __, 2004, the record date, there were ___ stockholders of
record who held shares of our common stock and 6 stockholders of record who
owned shares of our Class A Preferred Stock. Since our inception, we have not
paid any cash dividends on our stock. There are no restrictions currently in
effect which preclude us from declaring dividends. However, dividends may not be
paid on our common stock while there are accrued but unpaid dividends on the
Class A Preferred Stock (9% Cumulative, Redeemable Preferred Stock). As of
December 31, 2003, accrued but unpaid preferred stock dividends aggregated
$69,000. We intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate declaring
or paying any cash dividends on our stock in the foreseeable future.
No active trading or public market exists for RoomLinX common stock. The shares
of RoomLinX common stock are not listed on any exchange and are not traded in
the over-the-counter market. As of April __, 2004, the record date, there were
__ stockholders of record who held shares of RoomLinX common stock. RoomLinX has
never paid any cash dividends on its common stock, and anticipates that for the
foreseeable future it will continue to retain any earnings for use in the
operation of its business.
OTHER MATTERS
ANNUAL REPORT ON FORM 10-KSB
Our annual report on Form 10-KSB for the fiscal year ended December 31, 2003 as
filed with the SEC, except exhibits thereto, accompanies this proxy statement.
Our annual report, and the information contained therein, is incorporated herein
by reference. These documents contain important business and financial
information about ARC, including the audited financial statements contained in
our annual report. We will provide copies of the exhibits should they be
requested by eligible stockholders, and we may impose a reasonable fee for
providing such exhibits. Request for additional copies of our annual report on
Form 10-K should be mailed to:
63
ARC Communications Inc.
401 Hackensack Avenue, 3rd Floor
Hackensack, New Jersey 07601
Attention: Peter A. Bordes, Jr., Chief Executive Officer
PROPOSALS INTENDED TO BE PRESENTED AT THE NEXT ANNUAL MEETING
Rules of the SEC and our bylaws require that any proposal by a stockholder for
consideration at the 2004 Annual Meeting of Stockholders must be received by us
a reasonable time before we begin to print and mail our proxy materials for the
2004 Annual Meeting, if any such proposal is to be eligible for inclusion in our
proxy materials for, and to be presented for consideration at, our 2004 Annual
Meeting. Under such rules, we are not required to include stockholder proposals
in our proxy materials unless certain other conditions specified in such rules
are met.
OTHER MATTERS
Our board of directors knows of no other matters to be brought before the
special meeting. However, if any other matters arise, your signed proxy card
gives authority to Mr. Peter A. Bordes, Jr. and Mr. Steven Meyer to vote on
those matters at their discretion. If you decide to attend the special meeting,
you may revoke your proxy at any time before it is voted.
EXPENSES OF SOLICITATION
We will bear the cost of solicitation of proxies. In an effort to have as large
a representation at the meeting as possible, special solicitation of proxies
may, in certain instances, be made personally or by telephone, telegraph or mail
by one or more of our employees.
INCORPORATION OF INFORMATION BY REFERENCE
This proxy statement is accompanied by our annual report on Form 10-KSB for the
year ended December 31, 2003. The annual report on Form 10-KSB is incorporated
by reference into this proxy statement and considered a part of this document.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that we file at the SEC's public reference room at 450 Fifth Street,
Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. You also may obtain copies of this
information by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Room 1024, at prescribed rates. Our public filings with the SEC
also are available from commercial document retrieval services and at the web
site maintained by the SEC at http://www.sec.gov.
We have supplied all information in this proxy statement relating to ARC and RL
Acquisition, Inc. RoomLinX has supplied all information in this proxy statement
relating to RoomLinX, Inc.
By Order of the Board of Directors, {-s- Peter A. Bordes, Jr.}
Peter A. Bordes, Jr., Chairman and Chief Executive Officer
April __, 2004
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of RoomLinX, Inc. as of and for
the year ended December 31, 2003:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statement of Operations
Consolidated Statements of Capital Deficiency
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Directors of
RoomLinX Inc.
We have audited the accompanying balance sheets of RoomLinX Inc. as of December
31, 2003 and 2002 and the related statements of operations, capital deficiency
and cash flows for the year ended December 31, 2003, the seven month period
ended December 31, 2002 and the year ended May 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RoomLinX Inc. as of December
31, 2003 and 2002 and the results of its operations and its cash flows for the
year ended December 31, 2003, the seven month period ended December 31, 2002 and
the year ended May 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's recurring losses from operations and stockholders'
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
(SIGNED) DELOITTE & TOUCHE LLP
Chartered Accountants Vancouver,
British Columbia January 16, 2004
65
ROOMLINX INC.
BALANCE SHEETS
(STATED IN UNITED STATES DOLLARS)
December 31, December 31,
2003 2002
----------- -----------
ASSETS
Current
Cash and cash equivalents ..................................... $ 7,252 $ --
Accounts receivable and other ................................. 225,995 198,399
Prepaid expenses and other .................................... 20,930 15,279
----------- -----------
Total current assets ............................................ 254,177 213,678
Property and equipment, net ..................................... 269,809 358,145
----------- -----------
Total assets .................................................... $ 523,986 $ 571,823
=========== ===========
LIABILITIES
Current
Bank overdraft ................................................ $ -- $ 8,182
Accounts payable and accrued liabilities ...................... 579,091 270,732
Deferred revenue .............................................. 12,077 69,800
Due to related parties ........................................ 182,009 123,442
Current portion of obligations under capital lease ............ 225,374 178,810
Loans payable ................................................. 23,139 --
Current portion of convertible debentures ..................... 200,000 --
----------- -----------
Total current liabilities ....................................... 1,221,690 650,966
Long-term portion of obligations under capital lease ............ -- 8,016
Convertible debentures, net of current portion .................. 180,000 200,000
----------- -----------
Total liabilities ............................................... 1,401,690 858,982
----------- -----------
Continuing operations (Note 1)
Commitments (Note 6)
CAPITAL DEFICIENCY
Capital stock
Authorized
25,000,000 common shares with a par value of $0.001 per share
Issued
14,786,963 common shares (December 31, 2002 - 14,426,963) ... 14,787 14,427
Additional paid-in capital ...................................... 4,551,779 4,408,139
Warrants ........................................................ 157,200 60,000
Deficit ......................................................... (5,601,470) (4,769,725)
----------- -----------
Total capital deficiency ........................................ (877,704) (287,159)
----------- -----------
Total liabilities and capital deficiency ........................ $ 523,986 $ 571,823
=========== ===========
See accompanying Notes to the Financial Statements.
66
ROOMLINX INC.
STATEMENTS OF OPERATIONS
(STATED IN UNITED STATES DOLLARS)
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
------------ ------------ ------------
Revenue
System sales and installation .......................................... $ 1,523,836 $ 305,275 $ --
Service, maintenance and usage ......................................... 482,738 182,880 248,302
------------ ------------ ------------
2,006,574 488,155 248,302
------------ ------------ ------------
Cost of Revenue
System sales and installation .......................................... 1,232,969 284,873 --
Service, maintenance and usage ......................................... 206,216 90,135 164,287
------------ ------------ ------------
1,439,185 375,008 164,287
------------ ------------ ------------
Gross profit ............................................................. 567,389 113,147 84,015
------------ ------------ ------------
Operating expenses
Sales and marketing .................................................... 451,368 196,899 363,849
General and administrative ............................................. 575,967 155,314 338,094
Amortization of property and equipment ................................. 110,015 77,398 166,770
------------ ------------ ------------
1,137,350 429,611 868,713
------------ ------------ ------------
Loss from operations ..................................................... (569,961) (316,464) (784,698)
------------ ------------ ------------
Other
Interest expense ....................................................... (25,982) (6,972) (1,816)
Foreign exchange ....................................................... (82,602) 5,808 (10,042)
Non-cash financing costs ............................................... (153,200) (64,545) (4,535)
------------ ------------ ------------
Total other .............................................................. (261,784) (65,709) (16,393)
------------ ------------ ------------
Net loss ................................................................. $ (831,745) $ (382,173) $ (801,091)
============ ============ ============
Basic and diluted loss per share ......................................... $ (0.06) $ (0.03) $ (0.07)
============ ============ ============
Basic weighted-average number of common
shares used to calculate basic and diluted
loss per share ......................................................... 14,442,196 14,058,539 11,073,567
============ ============ ============
See accompanying Notes to the Financial Statements.
67
ROOMLINX INC.
STATEMENTS OF CAPITAL DEFICIENCY
(STATED IN UNITED STATES DOLLARS)
Additional
Number of Paid-In
Shares Amount Capital Warrants Deficit
----------- ----------- ----------- ----------- -----------
Balance, June 1, 2001 ....................................... 10,093,678 $ 10,094 $ 2,997,156 -- $(3,586,461)
Issued for cash - private placement ......................... 3,627,156 3,628 1,041,259 -- --
Issued for property and equipment ........................... 200,000 200 249,800 -- --
Financing expenses - options ................................ -- -- 4,535 -- --
Net loss .................................................... -- -- -- -- (801,091)
----------- ----------- ----------- ----------- -----------
Balance, May 31, 2002 ....................................... 13,920,834 13,922 4,292,750 -- (4,387,552)
Issued for cash - private placement ......................... 506,129 505 110,844 -- --
Financing expenses - options ................................ -- -- 4,545 -- --
Issued on convertible debenture ............................. -- -- -- 60,000 --
Net loss .................................................... -- -- -- -- (382,173)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 .................................. 14,426,963 14,427 4,408,139 60,000 (4,769,725)
Issued for cash - private placement ......................... 70,000 70 27,930 -- --
Issued on settlement of loans payable 150,000 ............... 150 59,850 -- --
Issued as financing costs ................................... 140,000 140 55,860 -- --
Issued on convertible debenture ............................. -- -- -- 54,000 --
Issued on private placement ................................. -- -- -- 43,200 --
Net loss .................................................... -- -- -- -- (831,745)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 .................................. 14,786,963 $ 14,787 $ 4,551,779 $ 157,200 $(5,601,470)
=========== =========== =========== =========== ===========
See accompanying Notes to the Financial Statements.
68
ROOMLINX INC.
STATEMENTS OF CASH FLOWS
(STATED IN UNITED
STATES DOLLARS)
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ----------- -----------
Operating activities
Loss for the period ............................................................... $ (831,745) $ (382,173) $ (801,091)
Items not affecting cash:
Amortization of property and equipment .......................................... 110,015 77,398 166,770
Amortization of capital lease obligation ........................................ 38,547 (8,098) (944)
Forgiveness of debt ............................................................. -- -- (49,140)
Loss on disposal of property and equipment ...................................... -- 12,929 74,014
Non-cash financing and consulting costs ......................................... 153,200 64,545 4,535
Change in operating assets and liabilities ........................................ 217,389 (137,743) (29,833)
----------- ----------- -----------
Cash used in operating activities ................................................... (312,594) (373,142) (635,689)
----------- ----------- -----------
Investing activities
Proceeds from disposal of property and equipment .................................. -- 14,461 89,959
Purchase of property and equipment ................................................ (21,679) (12,830) (123,621)
----------- ----------- -----------
Cash (used in) provided by investing activities ..................................... (21,679) 1,631 (33,662)
----------- ----------- -----------
Financing activities
Due to related parties ............................................................ 58,567 86,097 --
Loans payable ..................................................................... 83,140 (56,858) 56,858
Convertible debenture ............................................................. 180,000 200,000 --
Funds advanced for share subscription ............................................. -- -- (412,797)
Issuance of common shares for cash ................................................ 28,000 111,349 1,044,887
Cash provided by financing activities ............................................. 349,707 340,588 688,948
Net increase (decrease) in cash and cash equivalents .............................. 15,434 (30,923) 19,597
Cash and cash equivalents, beginning of period ...................................... (8,182) 22,741 3,144
----------- ----------- -----------
Cash and cash equivalents, end of period ............................................ $ 7,252 $ (8,182) $ 22,741
----------- ----------- -----------
Non-cash investing and financing activities
Issuance of common shares for property
and equipment ....................................................................... $ 56,000 $ -- $ 250,000
=========== =========== ===========
Issuance of common shares on settlement
of loans payable .................................................................... $ 60,000 $ -- $ --
=========== =========== ===========
See accompanying Notes to the Financial Statements.
69
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
1. CONTINUING OPERATIONS
These financial statements of RoomLinX Inc. ("RoomLinX" or the
"Company") have been prepared on the basis of accounting principles
applicable to a going concern which assumes that the Company will be
able to continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities in the
normal course of business.
Several adverse conditions cast doubt on the validity of this
assumption. The Company has incurred significant operating losses
over the past several fiscal years, has a working capital deficiency
of $967,513 and a capital deficiency of $877,704.
Management has evaluated the Company's alternatives to enable it to
pay its liabilities as they become due and payable in the current
year, reduce operating losses and obtain additional or new financing
in order to advance its business plan. Alternatives being considered
by management include, among others, completing a merger/public
financing (Note 14), obtaining financing from new lenders and the
issuance of additional equity. The Company believes these measures
will provide liquidity for it to continue as a going concern
throughout fiscal 2004, however, management can provide no assurance
with respect to their success in affecting one or more of these
measures, or whether, if affected, such measures will provide
sufficient financing to sustain their operations.
These financial statements do not reflect adjustments that would be
necessary if the going concern assumption were not appropriate
because management believes that the actions already taken or planned
will mitigate the adverse conditions and events that raise doubts
about the validity of the going concern assumption used in preparing
these financial statements.
If the going concern assumption were not appropriate for these
financial statements then adjustments would be necessary in the
carrying value of assets and liabilities, the reported revenue and
expenses and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(a) Nature of operations
The Company is involved in providing cost-effective networking
solutions for high speed Internet access instalments available to
hotels, commercial buildings, convention centres and other locations.
70
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(b) Basis of Presentation
The Company's 100% owned subsidiary Reserve X Internet
Reservation Systems Inc. ("ReserveX") was formally dissolved
on February 26, 2003. Prior to the dissolution, ReserveX was
inactive and had no material assets or liabilities.
Subsequent to May 31, 2002, the Company changed its fiscal
reporting period from a fiscal year ended May 31 to a fiscal
year ended December 31 to align better with its current and
future reporting requirements. Accordingly, the Company has
presented the statements of operations, capital deficiency
and cash flow for the year ended December 31, 2003, the
seven month period ended December 31, 2002 and the year
ended May 31, 2002.
(c) Use of estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United
States of America ("U.S. GAAP") requires the Company to make
estimates and assumptions that may affect the amounts of
assets and reported liabilities at the date of the financial
statements as well as the reported amounts of revenues and
expenses during the period. Despite the Company's best
effort to make these good faith estimates and assumptions,
actual results may differ.
(d) Foreign currency translation
The United States dollar is the functional currency of the
Company. Assets and liabilities in foreign currencies are
translated into United States dollars using the exchange
rate at the balance sheet date. Revenues and expenses are
translated at average rates of exchange during the period.
Gains and losses from foreign currency transactions are
included in operations.
(e) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, demand
deposits, and short-term highly liquid investments that have
original maturities of three months or less at the date of
purchase.
71
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(f) Accounts receivable and allowance for doubtful accounts
Accounts receivable are comprised of billed and unbilled
receivables arising from recognized or deferred revenues.
The Company maintains an allowance for doubtful accounts at an
amount it estimates to be sufficient to provide adequate
protection against losses resulting from collecting less than
full payment on its receivables. In judging the adequacy of
the allowance for doubtful accounts, the Company considers
multiple factors including historical bad debt experience, the
general economic environment, and the aging of receivables. A
considerable amount of judgment is required when the Company
assesses the realization of receivables, including assessing
the probability of collection and the current creditworthiness
of each customer. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of
their ability to make payments, an additional provision for
doubtful accounts may be required.
(g) Fair value of financial instruments
At December 31, 2003, the Company has the following financial
instruments: cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities and convertible
debentures. The carrying value of cash and cash equivalents,
accounts receivable, and accounts payable and accrued
liabilities approximates their fair value based on their
liquidity or based on their short-term nature. The fair value
of the Company's obligations under capital leases and
convertible debentures debt at December 31, 2003 was not
readily determinable.
(h) Concentration of credit risk
Financial instruments that potentially subject the Company to
a concentration of credit risk consist principally of cash and
cash equivalents and accounts receivable. Cash and cash
equivalents are custodied with high quality financial
institutions to mitigate exposure to credit risk. The
Company's customer base is dispersed across many different
geographic areas throughout North America. The Company
performs ongoing credit evaluations of its customers and
generally does not require collateral or other security to
support credit sales. During the year ended December 31, 2003,
no single customer accounted for more than 10% of revenues.
72
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(i) Property and equipment
Property and equipment are initially recorded at cost and the
Company provides for amortization as follows:
Furniture 20% declining balance method
Computer hardware 30% declining balance method
Automobile 30% declining balance method
One-half of the above rate is taken in the year of
acquisition.
(j) Impairment of long-lived assets
The Company makes periodic reviews for impairment of
long-lived assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Under SFAS No. 144, an impairment loss would be
recognized when estimate of undiscounted future cash flows
expected to result from the use of an asset and its eventual
disposition are less than its carrying amount. No such
impairment losses have been identified by the Company as at
December 31, 2003.
(k) Revenue recognition
Over the course of its development, the Company has derived
revenue from the following sources:
(i) Revenue from the sale and installation of Wi-Fi Wireless
networking solutions is recognized under contracted
arrangements upon delivery and installation at customer
sites where the fee is fixed or determinable and
collection is probable. Where contracted arrangements
provide for customer acceptance or there is uncertainty
about customer acceptance, revenue is deferred until the
Company has evidence of customer acceptance. Customers
generally do not have the right of return.
(ii) Service maintenance and usage revenue is recognized
under contracted arrangements with customers when the
fee is fixed or determinable and collection is probable.
Service and maintenance contract revenue is recognized
ratably over the contractual period. Usage fees are
recognized under specific customer contracts as services
are rendered where the fee is fixed or determinable and
collection is probable.
(iii) Deferred revenue consists of payments received in
advance of revenue being earned under installation and
service contracts described above.
73
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(l) Loss per share
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average
number of common shares outstanding during the period. The
computation of diluted earnings per share assumes the
conversion, exercise or contingent issuance of securities
only when such conversion, exercise or issuance would have
a dilutive effect on earnings per share. The dilutive
effect of convertible securities is reflected in diluted
earnings per share by application of the "if converted"
method. The dilutive effect of outstanding options and
warrants and their equivalents is reflected in diluted
earnings per share by application of the treasury stock
method.
(m) Stock-based compensation
Under the Company's Stock Option Plan, the Company may
grant options to its directors, officers, employees,
independent contractors and consultants.
As of December 31, 2003, the Company has not issued stock
options to its employees or directors. As permitted under
SFAS No. 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards to
employees. Under APB Opinion No. 25, the Company will
generally recognize no compensation expense with respect to
such awards, since the exercise price of the stock options
granted are expected to equal to the fair market value of
the underlying security on the grant date.
The Company's policy is to record deferred compensation
charges related to its employee stock options in those
situations where options are granted at an exercise price
lower than the deemed fair value of the underlying common
shares or where options are granted to non-employees. These
amounts are amortized as a charge to operations over the
vesting periods of the individual stock options.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 for awards granted after
December 31, 1994 as if the Company had accounted for its
stock-based awards to employees under the fair value method
of SFAS 123. The fair value of the Company's stock-based
awards to employees is estimated as of the date of the
grant using a Black-Scholes option pricing model. As the
Company has issued no stock options to its employees or
directors, there are no pro forma stock compensation
charges to disclose. Limitations on the effectiveness of
the Black-Scholes option valuation model are that it was
developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully
transferable and that the model requires the use of highly
subjective assumptions including expected stock price
volatility.
74
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(n) Income taxes
The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes. This statement
provides for a liability approach under which deferred
income taxes are provided based upon currently enacted tax
laws and rates. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amounts
expected to be realized.
(o) Comprehensive income
SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full
set of general purpose financial statements. The Company has
no comprehensive income items, other than net loss, in any
of the periods presented.
(p) Advertising
The Company expenses advertising costs as they are incurred.
Advertising expense is included in sales and marketing
expenses and amounted to $128,667 in the year ended December
31, 2003 (seven months ended December 31, 2002 - $34,605;
twelve months ended May 31, 2002 - $55,007).
(q) Newly adopted and recently issued accounting standards
On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 144. SFAS No.
144 supersedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed
of, and elements of APB 30, Reporting the Results of
Operations - Reporting the Effects on Disposal of a Segment
of a Business and Extraordinary, Unusual or Infrequently
Occurring Events and Transactions. SFAS No. 144 establishes
a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions
relating to impairment testing and valuation. The adoption
of this statement did not have an impact on the Company's
consolidated financial position, results of operations or
cash flows.
In April 2002, SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, was issued. This statement provides
guidance on the classification of gains and losses from the
extinguishment of debt and on the accounting for certain
specified lease transactions. The adoption of this statement
did not have an impact on the Company's consolidated
financial position, results of operations or cash flows.
75
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Newly adopted and recently issued accounting standards
(continued)
In June 2002, SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, was issued. This statement
provides guidance on the recognition and measurement of
liabilities associated with disposal activities and is
effective on January 1, 2003. Under SFAS No. 146, companies
will record the fair value of exit or disposal costs when
they are incurred rather than at the date of a commitment to
an exit or disposal plan. The adoption of SFAS No. 146 may
result in the Company recognizing the cost of future
restructuring activities, if any, over a period of time
rather than in one reporting period.
In November 2002, the EITF reached a consensus on Issue No.
00-21, Revenue Arrangements with Mutliple Deliverables
("Issue 00-21"). Issue 00-21 provides guidance on how to
account for arrangements that involve the deliver or
performance of multiple products, services and/or rights to
use assets. The provisions of Issue 00-21 will apply to
revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company does not believe
that the adoption of Issue 00-21 will have a material effect
on its consolidated financial position, results of
operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Guarantees of Indebtedness of Others,
("FIN 45"). FIN 45 requires the Company to recognize, at the
inception of a guarantee, a liability for the fair value of
the obligation undertaken in the issuance of the guarantee.
FIN 45 is effective for guarantees issued or modified after
December 31, 2002. The disclosure requirements effective for
the year ending December 31, 2002, expand the disclosures
required by a guarantor about its obligations under a
guarantee. The adoption of the accounting requirements of
this statement did not impact the Company's financial
position, results of operations or cash flows. The adoption
of the disclosure requirements of this statement did not
result in additional disclosures.
In December 2002, SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, was issued. SFAS No.
148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on the reported results. The
disclosure provisions of SFAS No. 148 are effective for
financial statements for fiscal years ending after December
15, 2002 and interim periods beginning after December
15,2002. The adoption of this statement did not impact the
Company's financial position, results of operations or cash
flows.
76
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(CONTINUED)
(q) Newly adopted and recently issued accounting standards
(continued)
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, ("FIN 46") that
addresses the consolidation of variable interest entities.
In December 2003, the FASB issued a revised Interpretation
"FIN 46R". Under the revised Interpretation, an entity
deemed to be a business, based on certain specified
criteria, need not be evaluated to determine if it is a
Variable Interest Entity. Company must apply the provisions
to variable interests in entities created before February
1, 2003 during the quarter ended December 31, 2003. Adoption
of FIN 46 and FIN 46R did not have an impact on the
Company's financial condition or results of operations.
In May 2003, the FASB issued Statement No. 150, Accounting
for Certain Financial Instruments with Characteristics of
both Liabilities and Equity ("SFAS No. 150"). SFAS No. 150
establishes standards for classifying and measuring as
liabilities certain financial instruments that embody
obligations of the issuer and have both characteristics of
liabilities and equity. SFAS No. 150 represents a
significant change in practice in the accounting for a
number of financial instruments, including mandatorily
redeemable equity instruments and certain equity
derivatives. SFAS No. 150 is effective for all financial
instruments created or modified after May 31, 2003, and to
other instruments as of July 1, 2003. The Company will adopt
the provisions of SFAS No. 150 on July 1, 2003. The Company
does not expect that the adoption of this Statement will
have a material impact on its results of operations and
financial position.
3. ACCOUNTS RECEIVABLE AND OTHER
The principle components of accounts receivable and other were as
follows:
December 31,
-------------------
2003 2002
-------- --------
Trade accounts receivable .............................................................. $194,875 $135,768
Unbilled receivables ................................................................... 2,116 52,855
GST receivable ......................................................................... 29,004 9,776
-------- --------
$225,995 $198,399
======== ========
It is anticipated that the Company will recover 100% of its accounts
receivable and therefore no allowance for doubtful accounts has been
provided.
77
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
4. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
December 31, December 31,
2003 2002
-------------------------------------------- --------------
Accumulated Net Book Net Book
Cost Depreciation Value Value
----------- -------------- ---------- --------------
Furniture ................... $ 11,385 $ 5,720 $ 5,665 $ 6,586
Computer hardware ........... 797,603 540,821 256,782 341,042
Automobile .................. 21,425 14,063 7,362 10,517
----------- -------------- ---------- --------------
$ 830,413 $ 560,604 $ 269,809 $ 358,145
=========== ============== ========== ==============
The net book value of property and equipment under capital leases at
December 31, 2003 totalled $72,738 (2002 - $103,913), net of
accumulated amortization of $204,166 (2002 - $172,991).
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principle components of accounts payable and accrued liabilities
were as follows:
December 31,
-------------------
2003 2002
-------- --------
Trade accounts payable ......................................................................... $333,562 $ 86,641
Accrued compensation ........................................................................... 167,177 134,797
Other accrued liabilities ...................................................................... 43,966 42,433
Interest payable ............................................................................... 34,386 6,861
-------- --------
$579,091 $270,732
======== ========
At December 31, 2003, accrued compensation includes $30,000 (2002 -
$33,000) of consulting fees due to a director of the Company.
At December 31, 2003, accrued compensation and accrued liabilities
include, $124,139 and $7,857 which will be converted to common shares
on or before the closing date of the proposed merger of the Company
with ARC Communications Inc. (refer to Note 14).
78
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
6. COMMITMENTS
(a) Capital leases
December 31,
========== ==========
2003 2002
========== ==========
LeaseTec Corp International - various leases
bearing interest from 21.6% - 35.2%,
with monthly payments of principal
and interest totalling $11,944 ......................... $ 228,790 $ 187,349
---------- ----------
Howard Carter Lease Ltd. - bearing interest at
1.08% per annum, with a monthly payment of
principal and interest of $237 ......................... 9,790 10,352
========== ==========
238,580 197,701
Less amounts representing imputed interest at
1.08% to 35.2% per annum ................................ 13,206 10,875
========== ==========
Present value of net future minimum lease payments........ 225,374 186,826
Less current portion...................................... 225,374 178,810
========== ==========
$ - $ 8,016
========== ==========
The total amount of interest paid on capital leases for the
year ended December 31, 2003 was $70 (period ended December
31, 2002 - $71; year ended May 31, 2002 - $140).
Management attempted to renegotiate the capital lease
obligation with LeaseTec Corp International ("LeaseTec"). The
Company has been unsuccessful in contacting representatives of
LeaseTec and has therefore suspended payments and has ceased
accrual of interest on this obligation until such time they
are able to contact the lessor and renegotiate the terms. The
lease obligation is personally guaranteed by the former
directors of the Company.
(b) Operating leases
In addition, the Company is committed under a lease on its
head office premises to May 31, 2007. Minimum future payments
are as follows:
2004 ........................................ $ 32,607
2005 ............................................ 32,607
2006 ........................................... 32,607
2007............................................. 32,607
2008 and thereafter.............................. --
------------------------------------------------------------
$ 130,428
============================================================
79
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
7. CONVERTIBLE DEBENTURE
The current and non-current portions of the debenture balance that
total $380,000 ($200,000 as of December 31, 2002) is part of a private
placement of debentures having an aggregate subscription level of
$500,000. Each debenture has a face value of $10,000 and has a term of
two years, expiring at various dates beginning November 1, 2004. All or
any portion of the outstanding principal sum and accrued interest of
each debenture is convertible at the option of the subscriber into
common shares of the Company at a price of $0.50 per share if converted
on or before the due date. The debentures are due and payable on the
due date, if not converted prior to the due date. As security for the
payment of the principal and interest, the Company has granted a
general security interest on all of its present and after-acquired
personal property and a floating charge over all of its present and
after-acquired real property. Each debenture carries interest at the
rate of 12% per annum, payable quarterly.
For each $1.00 invested, each debenture holder was also granted two
share purchase warrants, entitling the holder to purchase one share of
common stock at a price of $0.75. The warrants have a two-year term.
The total fair value of the warrants issued during the year was
determined to be $54,000 and was recorded as a non-cash financing cost
in the statement of operations.
During the year, the Company offered its debenture holders the limited
opportunity to convert their debentures to common shares at $0.40 per
share prior to the closing of the proposed merger of the Company with
ARC Communications Inc. (refer to Note 14). Of the above-noted amount,
$370,000 will be converted to common shares on or before the closing
date of the merger.
8. SHARE CAPITAL
(a) Stock-based compensation
The Company issued options to purchase common shares to
contractors during the seven month period ended December 31,
2002 and the year ended May 31, 2002 as follows:
Number of Exercise Expiry
Shares Price Date
----------- ---------- ------------------
113,363 $ 0.22 January 6,2005
113,636 0.22 November 30,2004
----------- ---------- ------------------
226,999
80
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
8. SHARE CAPITAL (CONTINUED)
(a) Stock-based compensation (continued)
The total fair value of these options was determined to be
$4,545 and was recorded in the statement of operations for the
seven month period ended December 31, 2002 (May 31, 2002 -
$4,535) as a non-cash financing cost. The fair value of these
options was determined using the Black-Scholes option pricing
model with the following assumptions:
Seven months ended Year ended
December 31, 2002 May 31, 2002
------------------ --------------
Expected dividends ..................... 0% 0%
Expected volatility .................... 15% 25%
Risk-free interest rate ................ 3.25% 3.25%
Expected option life in years .......... 2 2
As at December 31, 2003, the following share purchase warrants were
outstanding:
Number of Exercise Expiry
Warrants Price Date
----------- ---------- ------------------
760,000 $ 0.75 Beginning,
November 1, 2004
180,000 $ 0.80 Beginning
December 18, 2005
-----------
940,000
===========
(b) Private placement
During the year, the Company issued a new private placement
offering closing in November 2003 at a price of $0.40 per
unit. Each unit consists of one common share in the capital of
the Company and one-half of one common share purchase warrant.
Each whole warrant is transferable and entitles the holder to
purchase one common share of the Company for a period of
twenty-four months after closing at a price per warrant of
$0.80. During the year, the Company issued 360,000 units
(which included 180,000 warrants). The total fair value of the
warrants issued during the year was determined to be $43,200
and was recorded as a non-cash financing cost in the statement
of operations.
81
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
9. RELATED PARTY TRANSACTIONS
Except as noted elsewhere in these consolidated financial statements,
related party transactions at December 31, 2003 are as follows:
(a) Amounts due to related parties include $42,009 (2002 - $23,443) of
non-interest bearing loans and $140,000 (2002 - $100,000) of loans bearing
interest at 35% per annum, acquired. The holders of the interest-bearing
loans in the amount of $140,000 have agreed to convert such amounts into
common shares on or before the closing date of the ARC merger (Note 13).
The loans may be secured and have no specific terms of repayment.
(b) During the year ended December 31, 2003, $102,783 (2002 - $40,780) of
consulting fees and salaries were incurred to directors, companies
controlled by directors and officers of the Company.
10. INCOME TAXES
At December 31, 2003, subject to the approval of the United States
Internal Revenue Service and Canada Customs and Revenue Agency, the
Company has approximately $5 million of non-capital and net operating
losses that commence expiry in 2010, which may be used to reduce future
income taxes otherwise payable.
The Company's statutory tax rate is reduced to zero due to the impact of
unbenefited tax loss carryforwards.
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income
tax reporting purposes. Deferred tax assets and liabilities of the Company
as of December 31, 2003 and 2002 are as follows:
December 31, December 31,
2003 2002
----------- -----------
Deferred income tax assets
Net operating tax loss carryforwards ......................... $ 2,001,655 $ 1,698,976
Valuation allowance for deferred income tax assets ........... (2,001,655) (1,698,976)
----------- -----------
Net deferred income tax assets ............................... $ - $ -
=========== ===========
Deferred income tax liabilities
Book and tax differences on assets ............................ $ - $ -
----------- -----------
Net deferred income tax liabilities ........................... $ - $ -
=========== ===========
82
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
10. INCOME TAXES (CONTINUED)
Due to the uncertainty surrounding the realization of deferred income tax
assets in future income tax returns, the Company has recorded a 100%
valuation allowance against its deferred income tax assets.
A reconciliation between the Company's effective tax rate and the U.S.
Federal statutory rate is as follows:
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ---------- -----------
Net loss ................................................... $ (831,745) $ (382,173) $ (801,091)
Federal statutory tax rate ................................. 35% 35% 35%
Income taxes at U.S. Federal statutory rate ................ $ (291,110) $ (133,761) $ (280,382)
Benefit of losses not tax effected ......................... 291,110 133,761 280,382
----------- ---------- -----------
$ - $ - $ -
=========== ========== ===========
11. CHANGES IN NON-CASH OPERATING ASSETS AND LIABILITIES
Seven months
Year ended ended Year ended
December 31, December 31, May 31,
2003 2002 2002
----------- ---------- -----------
Accounts receivable and other .............................. $ (27,596) $ (155,590) $ (11,470)
Prepaid expenses and other ................................. (5,651) (3,367) (10,414)
Accounts payable and accrued liabilities ................... 308,359 (48,586) (7,949)
Deferred revenue ........................................... (57,723) 69,800 -
=========== ========== ===========
$ 217,389 $ (137,743) $ (29,833)
=========== ========== ===========
83
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
12. SEGMENTED DISCLOSURES
The Company manages its operations in one business segment, the provision
of wireless high-speed Internet network solutions to hotels, conference
centres and commercial buildings. The Company attributes revenue among
geographical areas based on location of the customers involved. The
following table presents a summary of total revenues by geographical
region:
December 31,
2003 2002
----------- -----------
United States .................................................. $ 1,884,047 $ 436,139
Canada ......................................................... 122,527 52,016
----------- -----------
$ 2,006,574 $ 488,155
=========== ===========
The following table presents a summary of property and equipment by geographical
region:
December 31,
2003 2002
----------- -----------
Property and equipment, net
United States................................................. $ 181,767 $ 257,010
Canada........................................................ 88,042 101,135
----------- -----------
$ 269,809 $ 358,145
=========== ===========
84
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
(STATED IN UNITED STATES DOLLARS)
13. SUPPLEMENTARY INFORMATION
The unaudited results of operations for the seven month period ended
December 31, 2001 are as follows:
Seven months
ended
December 31,
2001
(Unaudited)
------------
Revenue
System sales and installation $ -
Service, maintenance and usage 119,362
------------
119,362
------------
Cost of Revenue
System sales and installation -
Service, maintenance and usage 99,442
------------
99,442
------------
Gross profit 19,920
------------
Operating expenses
Sales and marketing 213,842
General and administrative 185,157
Amortization of property and equipment 104,455
------------
503,454
------------
Loss from operations (483,534)
------------
Other
Interest expense (6,356)
Foreign exchange 4,884
Non-cash financing costs -
------------
Total other (1,472)
------------
Loss for the period $ (485,006)
============
Basic loss per share $ (0.04)
============
Basic weighted-average number of common
shares used to calculate loss per share 11,016,657
============
85
ROOMLINX INC.
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003 (STATED IN
UNITED STATES DOLLARS)
14. PROPOSED MERGER WITH ARC COMMUNICATIONS INC.
In December 2003, the Company executed a definitive Agreement to merge
with ARC Communications Inc. ("ARC"), a full service media and technology
communications firm. ARC is a publicly traded company trading on the
OTCBB. Under the current capitalization structure, ARC will acquire the
Company in a reverse take-over transaction whereby the ARC shares
following the merger will be held approximately 3/4 by the Company's
shareholders and 1/4 by ARC shareholders. The closing of the merger is
subject to a number of conditions, including approval by the shareholders
of the Company and ARC.
15. SUBSEQUENT EVENTS
The Company received $40,000 from a shareholder on January 13, 2004. This
loan will bear interest at 12% and is secured by all contract rights and
general intangibles whether now owned or hereafter acquired.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ROOMLINX, INC.,
ARC COMMUNICATIONS INC.
AND
RL ACQUISITION, INC.
DATED: DECEMBER 8, 2003
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of December 8,
2003, is made and entered into by and among ROOMLINX, INC., a Nevada corporation
("ROOMLINX"), ARC COMMUNICATIONS INC., a New Jersey corporation ("ARC"), and RL
ACQUISITION, INC., a Nevada corporation and wholly-owned subsidiary of ARC
("RL").
BACKGROUND
WHEREAS, RoomLinX is engaged in the business of providing wireless high-speed
Internet network solutions to the hospitality industry, including, without
limitation, conference centers and hotels (the "BUSINESS");
WHEREAS, the parties hereto desire to effect the merger of RoomLinX with and
into RL, with RL as the surviving entity, which shall be wholly-owned by ARC
(the "INITIAL MERGER"), and, immediately thereafter, to effect the merger of RL
with and into ARC or ARC with and into RL (the "MERGER"); and
WHEREAS, the respective Boards of Directors of RoomLinX, ARC and RL have
determined that the Initial Merger and the Merger is fair to, and in the best
interests of, their respective stockholders, have approved and adopted this
Agreement and each of the Related Agreements (as hereinafter defined) to which
it is a party and each of the transactions contemplated hereby and thereby and,
in the case of ARC and RL, have resolved to declare this Agreement and the
Related Agreements advisable and to recommend to their respective stockholders
that they approve this Agreement and the Related Agreements and the transactions
contemplated hereby and thereby, including the Initial Merger and the Merger,
upon the terms and subject to the conditions more fully set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER AND RELATED MATTERS
SECTION 1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
Articles of Merger (each a "CERTIFICATE OF MERGER") duly executed and
acknowledged shall be filed in the offices of the Secretary of State of the
States of Nevada and New Jersey, as necessary, on the Closing Date (as defined
in Article 5) or as soon as practicable thereafter. The Initial Merger shall
become effective upon the filing of a Certificate of Merger in the State of
Nevada (the "INITIAL EFFECTIVE TIME"). At the Initial Effective Time, RoomLinX
shall be merged with and into RL, and, RL shall continue as the surviving
corporation under the laws of the State of Nevada. The Merger shall become
effective upon the filing of a Certificate of Merger in the States of Nevada and
New Jersey (the "EFFECTIVE TIME"). At the Effective Time, RL shall be merger
with and into ARC or ARC shall be merged with and into RL and, RL or ARC, as the
case may be, shall continue as the surviving corporation under the laws of the
State of Nevada, in the case of RL as the surviving corporation, or the State of
New Jersey, in the case of ARC as the surviving corporation (such continuing
corporation sometimes hereinafter referred to as the "SURVIVING CORPORATION").
For federal income tax purposes, each of the Initial Merger and the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended. The parties to this Agreement hereby
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
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SECTION 1.2 EFFECT OF MERGER.
(a) At the Initial Effective Time, the effect of the Initial Merger shall be as
provided in the applicable provisions of the laws of the State of Nevada. Except
as herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of RL shall continue
unaffected and unimpaired by the Initial Merger and the corporate franchises,
existence and rights of RoomLinX shall be merged with and into RL, and RL, as
the surviving corporation, shall be fully vested therewith. At the Effective
Time, the separate existence of RoomLinX shall cease and, in accordance with the
terms of this Agreement, RL shall possess all the rights, privileges, immunities
and franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, and all taxes,
including those due and owing and those accrued, and all other choses in action,
and all and every other interest of or belonging to or due to RoomLinX and RL
shall be taken and deemed to be transferred to, and vested in, RL without
further act or deed; and all property, rights, privileges, powers and franchises
and all and every other interest shall be thereafter effectually the property of
RL as they were of RoomLinX and RL. Except as otherwise provided herein, RL
shall thenceforth be responsible and liable for all the liabilities and
obligations of RoomLinX and RL and any claim existing, or action or proceeding
pending, by or against RoomLinX or RL may be prosecuted as if the Initial Merger
had not taken place, and RL may be substituted in their place. Except as set
forth herein, neither the rights of creditors nor any liens upon the property of
RoomLinX or RL shall be impaired by the Initial Merger, and all debts,
liabilities and duties of RoomLinX and RL shall attach to RL, and may be
enforced against RL to the same extent as if said debts, liabilities and duties
had been incurred or contracted by RL.
(b) At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of the laws of the States of Nevada and New Jersey, as
applicable. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of ARC
or RL, as the case may be, shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of ARC or RL, as the
case may be, shall be merged with and into the Surviving Corporation and the
Surviving Corporation shall be fully vested therewith. At the Effective Time,
the separate existence of ARC or RL, as the case may be, shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to ARC or RL shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights, privileges, powers and franchises and all and
every other interest shall be thereafter effectually the property of the
Surviving Corporation as they were of ARC and RL. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of ARC and RL and any claim existing, or
action or proceeding pending, by or against ARC or RL may be prosecuted as if
the Merger had not taken place, and the Surviving Corporation may be substituted
in their place. Except as set forth herein, neither the rights of creditors nor
any liens upon the property of ARC or RL shall be impaired by the Merger, and
all debts, liabilities and duties of ARC and RL shall attach to the Surviving
Corporation, and may be enforced against the Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
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SECTION 1.3 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The articles
of incorporation of ARC, as amended immediately prior to the Closing, shall be
the articles of incorporation of the Surviving Corporation.
SECTION 1.4 BY-LAWS OF THE SURVIVING CORPORATION. The bylaws of ARC, as in
effect immediately prior to the Closing, shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by law.
SECTION 1.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. At the Effective
Time, each of the directors and officers of RL and ARC immediately prior to the
Effective Time shall resign or be removed from office and concurrently therewith
the directors of the Surviving Corporation shall be comprised of two directors
designated by RoomLinX (the "ROOMLINX DESIGNEES"), one director designated by
ARC (the "ARC DESIGNEE") and two directors designated by the RoomLinX Designees
and the ARC Designee, such directors to hold office, subject to the applicable
provisions of the articles of incorporation and bylaws of the Surviving
Corporation, until the next annual stockholders' meeting of the Surviving
Corporation and until their respective successors shall be duly elected or
appointed and qualified. Within twelve (12) months of the execution of this
Agreement, Mr. Peter Bordes or his designee and Mr. Herbert Hunt or his designee
shall have the right to mutually designate the Chief Executive Officer of the
Surviving Corporation. At the Effective Time, the other officers of the
Surviving Corporation, subject to the applicable provisions of the articles of
incorporation and bylaws of the Surviving Corporation, shall be as designated by
the Board of Directors of the Surviving Corporation until their respective
successors shall be duly elected or appointed and qualified.
SECTION 1.6 MANNER OF CONVERSION. As of the Effective Time:
(a) all of the shares of common stock, par value $.001 per share, of RoomLinX
which are issued and outstanding immediately prior to the Initial Effective Time
(the "ROOMLINX SHARES"), by virtue of the Initial Merger and the Merger and
without any action on the part of the holder thereof, automatically shall be
deemed to represent the right to receive the merger consideration, as provided
in Section 1.7 hereof, and all of the outstanding options, convertible
debentures and warrants of RoomLinX shall be canceled, extinguished or converted
into the right to receive ARC Common Stock as provided in Section 1.7, other
than up to $30,000 of convertible debentures of RoomLinX (the "PERMITTED DEBT")
which shall be converted into indebtedness of ARC, the principal amount of which
shall be convertible into shares of common stock, par value $.001 per share, of
ARC (the "ARC COMMON STOCK") at a conversion price of $.20 per share, with such
indebtedness having a maturity date of not less than eighteen (18) months from
the Closing Date;
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(b) all RoomLinX Shares which are held by RoomLinX as treasury stock shall be
canceled and retired and no consideration shall be delivered or paid in exchange
therefore; and
(c) each share of the capital stock of RL shall be canceled and in exchange
therefore, one (1) share of RoomLinX shall be issued to ARC, which share of
RoomLinX shall constitute all of the issued and outstanding shares of capital
stock of RoomLinX.
SECTION 1.7 MERGER CONSIDERATION. At the Effective Time, RoomLinX Shares, other
than RoomLinX Shares held in treasury (which shall be canceled pursuant to
Section 1.6(b) above), by virtue of the Merger and without any action on the
part of the holders thereof (the "ROOMLINX STOCKHOLDERS"), automatically shall
be canceled and extinguished and converted into the right to receive (a) three
(3) shares of ARC Common Stock for each one (1) share of ARC Common Stock
outstanding at the Effective Time (the "ARC MERGER SHARES"; provided that
10,000,000 ARC Merger Shares shall immediately be deposited in escrow for a
period of six (6) months from the Closing Date to secure the indemnification
obligations of RoomLinX set forth herein, in accordance with the terms of an
escrow agreement to be executed by the parties on the Closing Date (the "ESCROW
AGREEMENT"), and (b) options and/or warrants to purchase the greater of (A)
8,000,000 shares of ARC Common Stock or (B) three (3) shares of ARC Common Stock
for each (1) option or warrant outstanding to purchase ARC Common Stock at the
Effective Time provided that such options and/or warrants shall have an exercise
price of not less than $.20 per share, shall not be entitled to "cashless"
exercise provisions and shall be exercised within two (2) years of the Closing
Date. At the Effective Time, the RoomLinX Stockholders shall deliver stock
certificates representing all of the issued and outstanding RoomLinX Shares to
ARC and ARC shall (x) issue to the RoomLinX Stockholders in exchange therefor
stock certificates representing the ARC Merger Shares, 10,000,000 of which shall
be delivered to the escrow agent in accordance with the Escrow Agreement, and
(y) authorize the issuance of the options and/or warrants referred to above. In
determining the number of shares of ARC Common Stock or the number of options or
warrants to purchase ARC Common Stock to be issued pursuant to this Section 1.7,
the shares of ARC Common Stock and options to purchase shares of ARC Common
Stock to be issued to Alliance Advisors, Roccus Capital Partners, Mr. Peter
Bordes and Rodman and Renshaw, or their designees, as provided in Section 6(n)
hereof, shall not be deemed to be outstanding on the Effective Date.
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SECTION 1.8 ADJUSTMENTS TO MERGER CONSIDERATION.
(a) If, prior to the Effective Time, the outstanding shares of ARC Common Stock
shall be changed into a greater number of shares or a different class of stock
by reason of any reclassification, recapitalization, exchange of shares, stock
split, or otherwise, the number of ARC Merger Shares to be received by the
RoomLinX Stockholders hereunder shall be likewise adjusted to reflect the
changed number or classification of ARC Merger Shares.
(b) If, prior to the Effective Time, ARC raises greater than $500,000 in a
private placement of ARC securities, the parties agree that the merger
consideration shall be adjusted to reflect the additional issued and outstanding
ARC securities.
(c) If, prior to the Effective Time, RoomLinX raises in excess of $400,000 in a
private placement of RoomLinX securities, the parties agree that the merger
consideration shall be adjusted to reflect the additional number of issued and
outstanding RoomLinX securities.
SECTION 1.9 RESTRICTIONS ON TRANSFERS. RoomLinX acknowledges that: (a) the ARC
Merger Shares to be issued to the RoomLinX Stockholders hereunder are
unregistered and may be required to be held indefinitely unless they are
subsequently registered under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereto (the "SECURITIES ACT"), or an
exemption from such registration is available; (b) the ARC Merger Shares may not
be offered, sold, pledged, hypothecated or otherwise disposed of unless such
offer, sale pledge, hypothecation or other disposition (i) is registered under
the Securities Act, or (ii) does not violate the Securities Act, and (c) the
certificates representing the ARC Merger Shares shall bear a legend to the
effect of (a) and (b) above.
SECTION 1.10 APPRAISAL RIGHTS. Notwithstanding any provision of this Agreement
to the contrary, the RoomLinX Shares (the "DISSENTING SHARES") that are issued
and outstanding immediately prior to the Effective Time and held by stockholders
who did not vote in favor of the Merger and who comply with all of the relevant
provisions of Sections 92A.300 to 92A.500 of Nevada Law (the "DISSENTING
STOCKHOLDERS") will not be converted into or be exchangeable for the right to
receive ARC Merger Shares, unless and until such holders have failed to perfect
or have effectively withdrawn or lost their rights to appraisal under Nevada
Law. RoomLinX will give ARC (i) immediate oral notice followed by prompt written
notice of any written demands for appraisal of any RoomLinX Shares, attempted
withdrawals of any such demands and any other instruments served pursuant to
Nevada Law and received by RoomLinX relating to stockholders' rights of
appraisal, and (ii) will keep ARC informed of the status of all negotiations and
proceedings with respect to demands for appraisal under Nevada Law. If any
Dissenting Stockholder fails to perfect or will have effectively withdrawn or
lost the right to appraisal, the RoomLinX Shares held by such Dissenting
Stockholder will thereupon be treated as though such shares had been converted
into the right to receive ARC Merger Shares pursuant to Section 1.7 of this
Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF ROOMLINX
RoomLinX represents and warrants to RL and ARC that:
SECTION 2.1 ORGANIZATION. RoomLinX is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada with all
requisite legal right, power and authority (corporate or other) to own or hold
under lease the property it purports to own or hold under lease and to carry on
the Business. RoomLinX is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of the Business or its
ownership or leasing of property requires such qualification.
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SECTION 2.2 SUBSIDIARIES. RoomLinX has no subsidiaries and RoomLinX does not own
of record or beneficially, directly or indirectly, (i) any share of capital
stock or securities convertible into capital stock of any other corporation,
(ii) any participating interest or equity interest in any partnership, joint
venture, limited liability company or other non-corporate business enterprise,
or (iii) control, directly or indirectly, any other entity.
SECTION 2.3 PENDING CLAIMS.
(a) There is no litigation, suit, action, claim, arbitration, administrative or
legal or other proceeding, or governmental investigation pending or, to
RoomLinX's knowledge threatened, against RoomLinX and there are no unasserted
claims possible of assertion of which RoomLinX has notice or knowledge;
(b) There are no audits by a governmental authority, claims for unpaid taxes of
any kind, or other similar actions, proceedings or disputes pending or, to
RoomLinX's knowledge, threatened against or affecting RoomLinX or the Business;
(c) There are no unpaid judgments of any kind against RoomLinX relating to
RoomLinX or the Business; and
(d) RoomLinX has not been charged with or, to its knowledge threatened, with a
charge or violation or, to its knowledge, is it under investigation with respect
to any alleged violation of any provision of any federal, state, local or
foreign law or administrative ruling or regulation relating to RoomLinX or any
aspect of the Business.
SECTION 2.4 TITLE TO ASSETS. RoomLinX is the sole and exclusive owner of, and
has good and marketable title to, all of its assets, rights, properties, claims,
contracts and businesses of every kind, nature, character and description,
tangible and intangible, personal, real or mixed, wherever located
(collectively, "ASSETS"), free and clear of all liens, mortgages, pledges,
claims, encumbrances, security interests, covenants, easements, rights of way,
equities, options, rights of first refusal, assessments, defects in title,
encroachments, charges or any other burden or restriction of any kind or nature
(collectively, "LIENS"); and no other person, firm or corporation has or will
have on the Closing Date (as hereinafter defined) any interest whatsoever in any
of its Assets.
SECTION 2.5 AUTHORITY AND ENFORCEABILITY. Except for the approval of the
RoomLinX Stockholders, which shall be sought promptly after execution and
delivery of this Agreement, RoomLinX has the full right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement and
each of the other agreements to be entered into in connection with the
transactions contemplated herein (the "RELATED Agreements"). The execution,
delivery and performance by RoomLinX of this Agreement, the Related Agreements
and any other agreements contemplated hereby and thereby and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of RoomLinX. No other corporate or stockholder action is
necessary for the authorization, execution, delivery and performance by RoomLinX
of this Agreement, the Related Agreements and any other agreements between the
parties contemplated hereby and the consummation by RoomLinX of the transactions
contemplated hereby or thereby, including the Merger. This Agreement and each
Related Agreement have been duly executed and delivered by RoomLinX and
constitute the legal, valid and binding obligations of RoomLinX, enforceable
against it in accordance with its terms.
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SECTION 2.6 NO BREACH OR VIOLATION. The execution, delivery and performance of
this Agreement, the Related Agreements and any other agreements contemplated
hereby and thereby between the parties hereto by RoomLinX and the consummation
of the transactions contemplated hereby and thereby will not (a) result in or
constitute a breach or an event that, with or without notice or the passing of
time or both, would be a default, breach or other violation of the articles of
incorporation or bylaws of RoomLinX; (b) violate (with or without the giving of
notice or the passing of time or both), or require any consent, approval, filing
or notice under, any provision of any law, rule or regulation, court or
administrative order, writ, judgment or decree applicable to RoomLinX, the
Business or any of its Assets; and (c) with or without the giving of notice or
the passing of time or both (i) violate or conflict with, or result in the
breach, suspension or termination of any provision of, or constitute a default
under, or result in the acceleration of the performance of the obligations of
RoomLinX under, or (ii) result in the creation of any Liens upon all or any
portion of the properties or the Assets of RoomLinX or the Business pursuant to,
the articles of incorporation or bylaws of RoomLinX, or any indenture, mortgage,
deed of trust, lease, agreement, contract or instrument to which RoomLinX is a
party or by which RoomLinX, its Assets or the Business is bound.
SECTION 2.7 CORPORATE DOCUMENTS. RoomLinX has furnished to ARC for its
examination true and correct copies of the articles of incorporation, bylaws and
minute books of RoomLinX.
SECTION 2.8 CAPITALIZATION. As of the date hereof, the authorized capital stock
of RoomLinX consists of 200,000,000 shares of common stock, par value $.001 per
share, of which 14,426,963 shares are validly issued and outstanding, fully paid
and non-assessable. Except as set forth on Schedule 2.8, RoomLinX has no
options, warrants, equity securities, calls, rights (including preemptive
rights), commitments or agreements of any character to which it is a party or by
which it is bound, obligating it to issue, deliver or sell, or cause to be
issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or to
cause the repurchase, redemption or acquisition, of any shares of capital stock
of RoomLinX or obligating it to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right, commitment or
agreement, or any other obligation to make any other distribution in respect
thereof. All of the outstanding securities of RoomLinX were issued in compliance
with all applicable Federal and state securities laws. There are no voting
trusts or agreements, shareholder agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of
RoomLinX (whether or not RoomLinX is a party thereto). RoomLinX does not hold
any shares of capital stock in its treasury.
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SECTION 2.9 CONDUCT OF BUSINESS. From the date of this Agreement until the
Closing, RoomLinX shall operate the Business in the ordinary course and in a
commercially reasonable manner and will make all reasonably necessary efforts to
preserve intact the Business, its relationships with third parties, the goodwill
it has accrued and the services of its existing officers, employees, and
directors.
SECTION 2.10 FINANCIAL STATEMENTS. RoomLinX has previously furnished to ARC the
following financial statements of RoomLinX, copies of which are attached on
Schedule 2.10: (a) audited financial statements consisting of balance sheets,
statements of income, statements of retained earnings and statements of cash
flows for each of the two most recently completed fiscal years (the "AUDITED
ROOMLINX FINANCIALS") and (b) unaudited financial statements consisting of a
balance sheet (the "INTERIM ROOMLINX BALANCE SHEET") and income statement as of
and for the nine (9) months ended September 30, 2003 (the "UNAUDITED ROOMLINX
FINANCIALS" and together with the Audited RoomLinX Financials, the "ROOMLINX
FINANCIAL STATEMENTS"). All RoomLinX Financial Statements (a) have been prepared
from the books and records of RoomLinX and its subsidiaries, if any, (b) have
been prepared in accordance with GAAP, consistently applied, throughout the
periods involved (except as disclosed therein and other adjustments disclosed
therein, and, in the case of the Unaudited RoomLinX Financials, the absence of
footnotes and subject to normal year-end adjustments which will not be material)
and (c) present fairly in all material respects the financial condition of
RoomLinX as of such date and the results of its operations for the calendar year
or nine-month period then ended.
SECTION 2.11 NO UNDISCLOSED LIABILITIES. Except as specifically described in the
RoomLinX Financial Statements or as set forth on Schedule 2.11, RoomLinx has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the RoomLinX Financial Statements.
RoomLinX does not know of any material liability of any nature, direct or
indirect, contingent or otherwise, or in any amount, not adequately reflected or
reserved against in the Interim RoomLinX Balance Sheet.
SECTION 2.12 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 2.12,
no current holder of ten (10%) percent or more of any class of capital stock of
RoomLinX nor any director, officer or employee of RoomLinX, or member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has an interest or is an officer, director, trustee, partner or holder of any
equity interest (each, an "AFFILIATE"), is a party to any transaction with
RoomLinX, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, loaning of money to, rental of
real or personal property from or otherwise requiring payments to any such
person or firm. None of the officers, directors or key employees of RoomLinX or
their Affiliates owns, directly or indirectly, individually or collectively, a
material interest in any entity which is a competitor, customer or supplier of
RoomLinX.
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SECTION 2.13 SECURITIES AND EXCHANGE COMMISSION FILINGS. The RoomLinX Financial
Statements and other information relating to RoomLinX furnished in writing by
RoomLinX to ARC for inclusion in the Proxy Statement or Information Statement
(each as hereinafter defined) at the time of the mailing of the Proxy Statement
or Information Statement to ARC's stockholders will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein,
in light of the circumstances under which they are made, not misleading.
SECTION 2.14 NO MATERIAL MISSTATEMENT OR OMISSION OF MATERIAL FACT.
This Agreement (including the Schedules and Exhibits to this Agreement), the
Related Agreements and all other certificates, instruments and documents
executed in connection herewith and therewith are true, complete and correct in
all material respects. Neither this Agreement nor any Schedule or Exhibit to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in the light of the circumstances under which they
are made, not misleading.
SECTION 2.15 NO MATERIAL ADVERSE CHANGE. Since September 30, 2003, there has not
occurred any material adverse change, event or effect in the financial
condition, results of operation, assets (including, without limitation,
intangible assets), liabilities or business of RoomLinX and its subsidiaries, if
any, taken as a whole, or any change that would prevent or materially delay
consummation of the transactions contemplated under this Agreement, including,
the Merger, or otherwise prevent RoomLinX from performing its obligations under
this Agreement and the Related Agreements ("ROOMLINX MATERIAL ADVERSE CHANGE").
ARTICLE 3
ARC'S AND RL'S REPRESENTATIONS AND WARRANTIES
ARC and RL each represent and warrant to RoomLinX that:
SECTION 3.1 ORGANIZATION. ARC is a corporation duly organized, existing and in
good standing under the laws of the State of New Jersey, with all requisite
legal right, power and authority (corporate or other) to own or hold under lease
the property it purports to own or hold under lease and to carry on its
business. ARC is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification. RL is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada.
SECTION 3.2 SUBSIDIARIES. Other than RL, ARC has no subsidiaries and ARC does
not own of record or beneficially, directly or indirectly, (i) any share of
capital stock or securities convertible into capital stock of any other
corporation, (ii) any participating interest or equity interest in any
partnership, joint venture, limited liability company or other non-corporate
business enterprise, or (iii) control, directly or indirectly, any other entity.
RL has no subsidiaries and RL does not own of record or beneficially, directly
or indirectly, (i) any share of capital stock or securities convertible into
capital stock of any other corporation, (ii) any participating interest or
equity interest in any partnership, joint venture, limited liability company or
other non-corporate business enterprise, or (iii) control, directly or
indirectly, any other entity.
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SECTION 3.3 PENDING CLAIMS.
(a) There is no litigation, suit, action, claim, arbitration, administrative or
legal or other proceeding, or governmental investigation pending or, to ARC's or
RL's knowledge threatened, against ARC or RL, respectively, and there are no
unasserted claims possible of assertion of which ARC or RL has notice or
knowledge;
(b) There are no audits by a governmental authority, claims for unpaid taxes of
any kind, or other similar actions, proceedings or disputes pending or, to ARC's
or RL's knowledge, threatened against or affecting either of them or their
respective businesses;
(c) There are no unpaid judgments of any kind against ARC or RL relating to
either of them or their respective businesses; and
(d) Neither ARC nor RL has been charged with or, to the knowledge of either of
them threatened, with a charge or violation or, to the knowledge of either of
them, is either under investigation with respect to any alleged violation of any
provision of any federal, state, local or foreign law or administrative ruling
or regulation relating to any aspect of either of them or their respective
businesses.
SECTION 3.4 TITLE TO ASSETS. Each of ARC and RL is the sole and exclusive owner
of, and has good and marketable title to, all of its respective Assets, free and
clear of all Liens; and no other person, firm or corporation has or will have on
the Closing Date any interest whatsoever in any of such Assets.
SECTION 3.5 AUTHORIZATION AND ENFORCEABILITY. Except for the approval of the
stockholders of ARC, which shall be sought promptly after the execution and
delivery of this Agreement, each of ARC and RL has the full right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement and the Related Agreements, and no other corporate or stockholder
action is necessary for the authorization, execution, delivery and performance
by each of ARC and RL of this Agreement, the Related Agreements and any other
agreements between the parties contemplated hereby and the consummation by each
of ARC and RL of the transactions contemplated hereby or thereby, including the
Merger. The execution, delivery and performance by each of ARC and RL of this
Agreement, the Related Agreements and any other agreements contemplated hereby
and thereby and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of each of ARC and
RL, and ARC as the sole stockholder of RL. This Agreement and each Related
Agreement have been duly executed and delivered by each of ARC and RL and
constitute the legal, valid and binding obligations of each of ARC and RL,
enforceable against each of ARC and RL in accordance with its respective terms.
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SECTION 3.6 NO BREACH OR VIOLATION. The execution, delivery and performance of
this Agreement, the Related Agreements and any other agreements contemplated
hereby and thereby between the parties hereto by each of ARC and RL and the
consummation of the transactions contemplated hereby and thereby will not (a)
result in or constitute a breach or an event that, with or without notice or the
passing of time or both, would be a default, breach or other violation of the
articles of incorporation or bylaws of ARC or RL; (b) violate (with or without
the giving of notice or the passing of time or both), or require any consent,
approval, filing or notice under, any provision of any law, rule or regulation,
court or administrative order, writ, judgment or decree applicable to ARC or RL,
their respective businesses or their respective Assets; and (c) with or without
the giving of notice or the passing of time or both (i) violate or conflict
with, or result in the breach, suspension or termination of any provision of, or
constitute a default under, or result in the acceleration of the performance of
the obligations of ARC or RL under, or (ii) result in the creation of any Liens
upon all or any portion of the properties or Assets of ARC or RL or their
respective businesses pursuant to, the articles of incorporation or bylaws of
ARC or RL, or any indenture, mortgage, deed of trust, lease, agreement, contract
or instrument to which ARC or RL is a party or by which ARC or RL, their
respective Assets or their respective businesses is bound.
SECTION 3.7 CORPORATE DOCUMENTS. ARC and RL have furnished to RoomLinX for its
examination true and correct copies of their articles of incorporation, bylaws
and minute books.
SECTION 3.8 SEC FILINGS. Each of the documents filed by ARC with the Securities
and Exchange Commission ("SEC") (including all financial statements included
therein) (the "SEC FILINGS") at the time of filing thereof conformed with the
requirements of the Securities Act, and none of the SEC Filings at the time of
filing thereof contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
SECTION 3.9 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of ARC consists of
5,000,000 shares of preferred stock, par value $.20 per share, of which 720,000
shares are validly issued and outstanding, fully paid and non-assessable, and
45,000,000 shares of ARC Common Stock, of which 14,984,459 shares were validly
issued and outstanding, fully paid and non-assessable on November 12, 2003.
Except as set forth in the SEC Filings, ARC has no options, warrants, equity
securities, calls, rights (including preemptive rights), commitments or
agreements of any character to which ARC is a party or by which it is bound,
obligating it to issue, deliver or sell, or cause to be issued, delivered or
sold, or to repurchase, redeem or otherwise acquire, or to cause the repurchase,
redemption or acquisition, of any shares of capital stock of ARC or obligating
it to grant, extend, accelerate the vesting of or enter into any such option,
warrant, equity security, call, right, commitment or agreement, or any other
obligation to make any other distribution in respect thereof. All of the
outstanding securities of ARC were issued in compliance with all applicable
Federal and state securities laws. There are no voting trusts or agreements,
shareholder agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of ARC (whether or not ARC is a
party thereto). The ARC Merger Shares, when issued and delivered to the RoomLinX
Stockholders in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid and non-assessable, and issued in compliance with all
applicable Federal and state securities laws, including compliance with
Regulation S promulgated under the Securities Act with respect to the non-U.S.
RoomLinX Stockholders.
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(b) As of the date hereof, the authorized capital stock of RL consists of 100
shares of common stock, par value $.01 per share, of which 100 shares are
validly issued and outstanding, fully paid and non-assessable, all of which are
owned by ARC.
SECTION 3.10 CONDUCT OF BUSINESS. Except as expressly contemplated by this
Agreement, from the date of this Agreement until the Closing, ARC shall operate
its business in the ordinary course and in a commercially reasonable manner and
will make all reasonably necessary efforts to preserve intact its business and
its relationships with third parties, the goodwill it has accrued and the
services of its existing officers, employees and directors. Notwithstanding the
foregoing, the parties acknowledge that it is the intention of ARC to transfer
the existing ARC business model and any and all Assets of ARC, including any
intangible assets associated with the existing ARC business model, either by a
sale of stock or sale of assets, in accordance with a transaction approved by
the ARC Board of Directors (the "ARC SALE").
SECTION 3.11 FINANCIAL STATEMENTS. ARC has previously filed with the SEC: (a)
audited financial statements consisting of balance sheets, statements of income,
statements of retained earnings and statements of cash flows for each of the two
most recently completed fiscal years (the "AUDITED ARC FINANCIALS") and (b)
unaudited financial statements consisting of a balance sheet (the "INTERIM ARC
BALANCE SHEET") and income statement as of and for the nine (9) months ended
September 30, 2003 (the "UNAUDITED ARC FINANCIALS" and together with the Audited
ARC Financials, the "ARC FINANCIAL STATEMENTS"). All ARC Financial Statements
(a) have been prepared from the books and records of ARC (b) have been prepared
in accordance with GAAP, consistently applied, throughout the periods involved
(except as disclosed therein and other adjustments disclosed therein, and, in
the case of the Unaudited ARC Financials, the absence of footnotes and subject
to normal year-end adjustments which will not be material) and (c) present
fairly in all material respects the financial condition of ARC as of such date
and the results of its operations for the calendar year or nine-month period
then ended.
SECTION 3.12 NO UNDISCLOSED LIABILITIES. Except as specifically described in the
ARC Financial Statements or as set forth on Schedule 3.11, each of ARC and RL
has no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the ARC Financial Statements.
Neither ARC nor RL knows of any material liability of any nature, direct or
indirect, contingent or otherwise, or in any amount, not adequately reflected or
reserved against in the Interim ARC Balance Sheet.
SECTION 3.13 TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC
Filings, no Affiliate of ARC or RL, is a party to any transaction with ARC or
RL, including any contract, agreement or other arrangement providing for the
employment of, furnishing of services by, loaning of money to, rental of real or
personal property from or otherwise requiring payments to any such person or
firm. None of the officers, directors or key employees of ARC or RL or their
Affiliates owns, directly or indirectly, individually or collectively, a
material interest in any entity which is a competitor, customer or supplier of
ARC or RL.
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SECTION 3.14 SECURITIES AND EXCHANGE COMMISSION FILINGS. The ARC Financial
Statements and other information relating to ARC and RL in the Proxy Statement
or Information Statement (other than the RoomLinX Financial Statements and other
information related to RoomLinX furnished to ARC for inclusion therein) at the
time of the mailing of the Proxy Statement or Information Statement to ARC's
stockholders will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they are made, not misleading.
SECTION 3.15 NO MATERIAL MISSTATEMENT OR OMISSION OF MATERIAL FACT.
This Agreement (including the Schedules and Exhibits to this Agreement), the
Related Agreements and all other certificates, instruments and documents
executed in connection herewith and therewith are true, complete and correct in
all material respects. Neither this Agreement nor any Schedule or Exhibit to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in the light of the circumstances under which they
are made, not misleading.
SECTION 3.16 NO MATERIAL ADVERSE CHANGE. Since September 30, 2003, there has not
occurred any material adverse change, event or effect in the financial
condition, results of operation, assets (including, without limitation,
intangible assets), liabilities or business of ARC or RL, taken as a whole, or
any change that would prevent or materially delay consummation of the
transactions contemplated under this Agreement, including, the Merger, or
otherwise prevent ARC or RL from performing its obligations under this Agreement
and the Related Agreements ("ARC-RL MATERIAL ADVERSE CHANGE")
ARTICLE 4
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME
(a) As soon as practicable after the execution and delivery of this Agreement,
ARC and RoomLinX, in conjunction with their respective counsel, shall prepare
and file with the SEC, either (i) a Proxy Statement pursuant to Regulation 14A
("PROXY STATEMENT") under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), or (ii) in the event that ARC obtains the requisite approval
from its stockholders without the necessity of a special meeting of
stockholders, an Information Statement pursuant to Regulation 14C ("INFORMATION
STATEMENT") under the Exchange Act, and shall use their commercially reasonable
best efforts to cause the Proxy Statement to be "cleared" by the SEC, and to
cause the Proxy Statement or the Information Statement to be mailed to all
holders of ARC Common Stock.
(b) RoomLinX shall (i) cooperate in the preparation and filing of the Proxy
Statement, Information Statement or other filing required to be made with the
SEC under the Securities Act or the Exchange Act in connection with the
transactions contemplated in this Agreement and the Related Agreements,
including the Merger, and (ii) provide all material reasonably requested by ARC
(including all financial statements of RoomLinX, financial information and other
information) for inclusion in the Proxy Statement, Information Statement or
other required SEC filing.
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(c) During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, except as
expressly contemplated by this Agreement, each of RoomLinX and ARC shall carry
on its business in the usual, regular and ordinary course and use all
commercially reasonable efforts to preserve intact its present business
organization and preserve its relationships with third parties and others having
business dealings with it, with the objective that its goodwill and ongoing
business shall be unimpaired at the Effective Time. ARC shall continue to make
all required filings in accordance with the Securities Act and the Exchange Act.
Each party shall promptly notify the other parties of any event or occurrence
not in the ordinary course of business which comes to its attention and which
has caused, or could reasonably be expected to cause, an ARC-RL Material Adverse
Change or a RoomLinX Material Adverse Change.
(d) Except as expressly contemplated by this Agreement, each of ARC and RL shall
not, without the prior written consent of RoomLinX, and RoomLinX shall not,
without the prior written consent of ARC:
(i) Intentionally omitted;
(ii) Issue, deliver or sell, authorize or propose the issuance, delivery or sale
of, or purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities or authorize or propose
any change in its equity capitalization;
(iii) Solicit approval for or effect any amendments to its articles of
incorporation or bylaws;
(iv) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to such party;
(v) Sell, lease, license, pledge or otherwise dispose of or encumber any of its
properties or assets except in the ordinary course of business consistent with
past practice (including without limitation any indebtedness owed to it or any
claims held by it);
(vi) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances, other than in the ordinary course of business consistent with past
practice;
(vii) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business consistent
with past practice of liabilities reflected or reserved against in its financial
statements;
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(viii) Enter into or amend any employment, severance, termination contract or
other agreement or arrangement with, or pay any bonus or remuneration, including
without limitation, any severance or termination pay to, any director, employee
or consultant, or increase the salaries, wage rates, or other payments or
benefits of its directors, officers, employees, or consultants;
(ix) Transfer, assign or otherwise grant or convey to any person or entity any
rights in, to or under its intellectual property;
(x) Engage in any activities or transactions that are outside the ordinary
course of its business; or
(xi) Take, or agree (in writing or otherwise) to take, any of the actions
described in this Section, or any action which would make any of the
representations or warranties contained in this Agreement untrue or inaccurate
or result in any of the conditions to the Merger set forth herein not being
satisfied.
(e) Each party shall give each other party, and its accountants, counsel and
other representatives, reasonable access during normal business hours and upon
reasonable prior notice during the period from the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement to (i)
all of its respective properties, books, contracts, commitments and records, and
(ii) all other information concerning its business, properties and personnel as
such party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
ARTICLE 5
THE CLOSING
The closing ("CLOSING") of the Merger and any other transactions contemplated by
this Agreement shall take place at the law offices of Westerman Ball Ederer
Miller & Sharfstein, LLP, 170 Old Country Road, Mineola, New York 11501 within
ten (10) days after satisfaction of the conditions set forth in Article 6
hereof, but no later than March 31, 2004, or at such other place and time and on
such other date, as the parties may agree upon in writing ("CLOSING DATE").
ARTICLE 6
CONDITIONS TO CLOSING
The obligations of each party to engage in the transactions contemplated by this
Agreement are subject to the fulfillment, prior to or on the Closing Date, of
the following conditions:
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(a) ARC shall have complied with Regulation 14A or Regulation 14C, as the case
may be, under the Exchange Act and shall have obtained the approval of the
holders of the requisite number of shares of ARC Common Stock to (i) an
amendment to the articles of incorporation of ARC to (A) increase the number of
authorized shares of ARC Common Stock to 150,000,000 shares and (B) change the
name of ARC to RoomLinX, Inc., or such other name as RoomLinX may direct (the
"AMENDED CERTIFICATE"), (ii) the Merger, and (iii) the ARC Sale;
(b) RoomLinX, ARC and RL shall have received all requisite approvals by
government agencies and authorities and all consents and approvals of third
parties as are required for the consummation of the Merger;
(c) This Agreement, the Related Agreements and the transactions contemplated
herein and therein, including the Merger, shall have been approved by (i) the
Boards of Directors of each of RoomLinX, ARC and RL, (ii) the RoomLinX
Stockholders and (iii) ARC as the sole stockholder of RL;
(d) The Amended Certificate shall have been filed;
(e) An audit of RoomLinX performed by Deloitte & Touche LLP shall have been
completed and the Audited RoomLinX Financials Statements delivered to ARC for
inclusion in the Proxy Statement or Information Statement;
(f) RoomLinX will certify that (i) all issued and outstanding options,
convertible debentures and warrants of RoomLinX have been converted into
RoomLinX Shares, other than the Permitted Debt, and (ii) RoomLinX has a positive
net worth.
(g) The executive offices of the Surviving Corporation shall be relocated to the
New York metropolitan area or as otherwise determined by the Board of Directors
of the Surviving Corporation;
(h) Effective as of the Effective Time, the Board of Directors of the Surviving
Corporation shall be comprised of the RoomLinX Designees, the ARC Designee and
two directors designated by the RoomLinX Designees and the ARC Designee;
(i) The ARC Sale shall have closed prior to the Closing;
(j) ARC shall have raised $500,000 in a private placement of ARC securities;
(k) RoomLinX shall have raised $400,000 in a private placement of RoomLinX
securities;
(l) The holders of less than ten (10%) percent of the issued and outstanding
RoomLinX Shares will have exercised appraisal rights under Nevada Law as
Dissenting Stockholders. RoomLinX and ARC will have resolved all matters of
appraisal and payment under Nevada Law for each Dissenting Stockholder;
(m) Roger Killian and Richard Peacey shall have received one year extensions on
their employment agreements from the Closing Date;
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(n) The Escrow Agreement shall have been duly executed and delivered by all
parties thereto; and
(o) ARC shall have issued to (1) Alliance Advisors and Roccus Capital Partners
or their designees an aggregate of 2,000,000 shares of ARC Common Stock, (2) Mr.
Peter Bordes (who shall continue as a director of ARC) options to purchase
500,000 shares of ARC Common Stock at an exercise price of $0.08 per share and
(3) Rodman and Renshaw, options to purchase 250,000 shares of ARC Common Stock
at an exercise price of $0.20 per share having a three (3) year term and
"cashless exercise" provisions, and 250,000 shares of ARC Common Stock. All
shares and options to purchase ARC Common Stock referred to in this Section 6(n)
shall be registered on Form S-8 promptly after the Effective Date.
ARTICLE 7
OBLIGATIONS OF ROOMLINX AT CLOSING
At the Closing, RoomLinX or the RoomLinX Stockholders (as the case may be) shall
have delivered to ARC all of the resolutions, certificates, documents and
instruments required by this Agreement, including, without limitation:
(a) Stock certificates for all of the RoomLinX Shares duly endorsed for transfer
or accompanied by duly executed stock powers executed in blank;
(b) Certificate of Merger;
(c) Certificate of Good Standing from the Secretary of State of the State of
Nevada;
(d) Resolutions of the Board of Directors of RoomLinX and the RoomLinX
Stockholders approving the execution and delivery of this Agreement and the
Related Agreements, the consummation of the transactions contemplated hereby and
thereby, the consummation of the Merger and the filing of the Certificate of
Merger, and certified copies of the articles of incorporation, as amended, and
bylaws, as amended, of RoomLinX, all certificated by the Secretary of RoomLinX;
and
(e) Officer's certificate signed by the Chief Executive Officer of RoomLinX to
the effect that (i) the representations and warranties of RoomLinX set forth in
this Agreement are true and correct in all material respects on and as of the
Closing Date; (ii) there shall have been no RoomLinX Material Adverse Change
from the date of this Agreement through the Closing Date; and (iii) all
covenants requiring pre-Closing performance have been performed.
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ARTICLE 8
OBLIGATIONS OF ARC AND RL AT CLOSING
At the Closing, ARC or RL (as the case may be) shall have delivered to RoomLinX
all of the resolutions, certificates, documents and instruments required by this
Agreement, including, without limitation:
(a) Stock certificates representing the ARC Merger Shares to the RoomLinX
Stockholders;
(b) Amended Certificate;
(c) Certificate of Merger;
(d) Certificate of Good Standing from the Secretary of State of the State of New
Jersey for ARC and the Secretary of State of the State of Nevada for RL;
(e) Resolutions of the Board of Directors and stockholders of ARC and RL
approving the execution and delivery of this Agreement and the Related
Agreements, the consummation of the transactions contemplated hereby and
thereby, the consummation of the Merger, the filing of the Certificate of Merger
and the filing of the Amended Certificate, and certified copies of each
corporation's articles of incorporation, as amended, and bylaws, as amended, all
certificated by the Secretary of ARC and RL;
(f) Resignations of all officers and directors of ARC and RL, effective as of
the Effective Date; and
(g) Officer's certificate signed by the Chief Executive Officer of each of ARC
and RL to the effect that (i) the representations and warranties of ARC and RL
set forth in this Agreement are true and correct in all material respects on and
as of the Closing Date; (ii) there shall have been no ARC-RL Material Adverse
Change from the date of this Agreement through the Closing Date; and (iii) all
covenants requiring pre-Closing performance have been performed.
ARTICLE 9
TERMINATION
This Agreement may be terminated and the merger and the other transactions
contemplated by this Agreement may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the transactions contemplated by this Agreement, as follows:
(a) by the parties, following mutual written consent duly authorized by the
Boards of Directors of each of the parties hereto;
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(b) by RoomLinX or ARC (on behalf of RL), if the Effective Time shall not have
occurred as soon as reasonably practicable but no later than March 31, 2004;
provided, however, that the right to terminate this Agreement under this Section
9(b) shall not be available if the reason the Effective Time has not occurred is
the intentional failure by the party seeking termination to fulfill any
obligation under this Agreement;
(c) by RoomLinX, following discovery of: (i) information that, in the reasonable
discretion of RoomLinX, may be material and adverse to either ARC or RL or their
respective businesses, or constitutes an ARC-RL Material Adverse Change on a
going forward basis; or (ii) a breach of any representation or warranty made by
ARC or RL contained in Article 3 hereof; or
(d) by ARC (on its own behalf and on behalf of RL), following discovery of: (i)
information that, in the reasonable discretion of ARC, may be material and
adverse to RoomLinX or the Business, or constitutes a RoomLinX Material Adverse
Change on a going forward basis; or (ii) a breach of any representation or
warranty made by RoomLinX contained in Article 2 hereof.
In the event of termination of this Agreement pursuant to this Article 9, this
Agreement shall forthwith become void and there shall be no liability under this
Agreement on the part of any party, or any of their respective officers or
directors; provided, however, that nothing herein shall relieve any party from
liability for the willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 EXPENSES. Each party shall bear its own expenses in connection with
this Agreement and the transactions contemplated hereby.
SECTION 10.2 INDEMNIFICATION. In consideration of the execution and delivery of
this Agreement by ARC and RL, RoomLinX agrees to indemnify, defend and hold each
of ARC and RL and their respective officers and directors, employees and agents
(herein called the "ARC-RL INDEMNITEES"), harmless from and against any and all
claims, actions, causes of action, suits or other proceedings (whether or not
such ARC-RL Indemnitee is a party thereto), losses, liabilities and damages, and
expenses in connection therewith, including, without limitation, reasonable fees
and disbursements of counsel (herein called the "ARC-RL INDEMNIFIED
LIABILITIES," which term shall not include, however, liabilities incurred by
reason of the gross negligence or willful misconduct of an ARC-RL Indemnitee)
incurred by the ARC-RL Indemnitees or any of them (i) as a result of, or arising
out of, or relating to any failure of any representation or warranty set forth
in Section 2 to be true and correct when made or any failure by RoomLinX to
comply in any material respect with any of its covenants or agreements set forth
in this Agreement or (ii) any claim by LeaseTek or its successors against the
ARC-RL Indemnitees. In consideration of the execution and delivery of this
Agreement by RoomLinX, each of ARC and RL agrees to indemnify, defend and hold
RoomLinX and its officers and directors, employees and agents (collectively, the
"ROOMLINX INDEMNITEES"), harmless from and against any and all claims, actions,
causes of action, suits or other proceedings (whether or not such RoomLinX
Indemnitee is a party thereto), losses, liabilities and damages, and expenses in
connection therewith, including, without limitations, reasonable fees and
disbursements of counsel (herein called the "ROOMLINX INDEMNIFIED LIABILITIES,"
which term shall not include, however, liabilities incurred by reason of the
gross negligence or willful misconduct of a RoomLinX Indemnitee) incurred by the
RoomLinX Indemnitees or any of them as a result of, or arising out of, or
relating to, any failure of any representation or warranty set forth in Section
3 to be true and correct when made or any failure by ARC or RL to comply with
its covenants or agreements set forth in this Agreement. The provisions of, and
obligations of RoomLinX, ARC and RL under, this Section shall be enforceable by
each ARC-RL Indemnitee or RoomLinX Indemnitee separately or together with other
ARC-RL Indemnitees or RoomLinX Indemnitees, as the case may be, and any such
ARC-RL Indemnitee or RoomLinX Indemnitee seeking to enforce the indemnification
provided for hereunder may initially proceed directly against RoomLinX, ARC or
RL, as the case may be, without first resorting to any other rights of
indemnification or otherwise that it may have.
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SECTION 10.3 HEADINGS. The subject headings of this Agreement are included for
purposes of convenience only, and shall not affect the construction or
interpretation of any of its provisions.
SECTION 10.4 CONFIDENTIALITY. The parties to this Agreement shall hold, and
shall cause their representatives to hold, all negotiations, information and
documents delivered pursuant to this Agreement confidential and shall not
disclose for any reason, except as provided below, any such information without
the prior written consent of the party to whom such information relates. If the
transactions contemplated by this Agreement are not consummated for any reason,
each party shall destroy or return to the other party all such information and
documents and any copies as soon as practicable and not disclose any such
information (that has not previously been disclosed by a party other than the
relevant party) to any third party unless required to do so pursuant to a
requirement or order under applicable laws and regulations or pursuant to a
subpoena or other legal process.
SECTION 10.5 ENTIRE AGREEMENT, MODIFICATION AND WAIVER. This Agreement, together
with the agreements referenced herein or contemplated hereby, constitutes the
entire agreement between the parties pertaining to its subject matter and
supersede 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.
SECTION 10.6 FURTHER ACTION. Each of the parties hereto shall use its reasonable
best efforts to (i) take, or cause to be taken, all appropriate action and do,
or cause to be done, all things necessary, proper or advisable under applicable
law or otherwise to consummate and make effective the transactions contemplated
by the Agreement, and (ii) make all necessary filings, and thereafter make any
other required submissions, with respect to the Agreement and the transactions
contemplated hereby. The parties hereto shall cooperate with each other in
connection with the timely making of all such filings, including by providing
copies of all such documents to the other party and its advisors prior to filing
and, if requested, by accepting all reasonable additions, deletions or changes
suggested in connection therewith.
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SECTION 10.7 PUBLICITY. No party to this Agreement shall issue any press release
or other public statement relating to this Agreement or the transactions
contemplated hereby without the prior written approval of the other parties.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 10.9 RIGHTS OF PARTIES. Nothing in this Agreement, whether expressed or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto 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 or against any party to this Agreement.
SECTION 10.10 ASSIGNMENT. Neither RL nor ARC shall assign this Agreement to any
person or entity without the prior written consent of RoomLinX. RoomLinX shall
not assign this Agreement to any person or entity without the prior written
consent of ARC. Subject to the previous sentence, this Agreement shall be
binding on, and shall inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns. Any
assignment or attempted assignment in violation of the provisions of this
Section shall be void.
SECTION 10.11 REMEDIES. Each party's obligation under this Agreement is unique.
If any party should default in its obligations under this Agreement, the parties
each acknowledge that it would be extremely impracticable to measure the
resulting damages; accordingly, the nondefaulting party, in addition to any
other available rights or remedies, may sue in equity for specific performance,
and the parties each expressly waive the defense that a remedy in damages will
be adequate.
SECTION 10.12 EFFECT OF CERTAIN ACTIONS. No action taken pursuant to or related
to this Agreement, including without limitation any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party taking
such action of compliance with any representation, warranty, condition or
agreement contained herein.
SECTION 10.13 NOTICES. All notices, requests 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 (including without limitation
service by overnight courier service) to whom notice is to be given, or on the
third day after mailing if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, at the address set
forth below, or on the date of service if delivered by electronic mail or
facsimile to the facsimile number set forth below which facsimile is confirmed.
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
108
If to RoomLinX: RoomLinX, Inc.
1111 West Hastings Street
Suite 701
Vancouver, BC V6E 2J3
Attn: Mr. Robert P. Lunde
Facsimile:
With a copy to: Clark, Wilson Barristers & Solicitors
800-885 West Georgia Street
Vancouver, British Columbia 604
Attn: William L. Macdonald
Facsimile: (732) 219-5456
If to ARC or to RL: Arc Communications Inc.
788 Shrewsbury Avenue
Tinton Falls, New Jersey 07724
Attn: Mr. Peter Bordes
Facsimile: (732) 219-5456
With a copy to: Westerman Ball Ederer Miller & Sharfstein, LLP
170 Old Country Road
Mineola, NY 11501
Attn: Alan C. Ederer, Esq.
Facsimile: (516) 977-3056
SECTION 10.14 SEVERABILITY. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect.
SECTION 10.15 GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with, and governed by, the law of the State of New York without
regard to any principles of conflicts of law. The parties hereby agree that any
action, suit, arbitration or other proceeding arising out of or related to this
Agreement shall be brought, maintained and conducted only in New York, and each
party hereby irrevocably consents and submits to the personal jurisdiction of
and venue in the United States District Court for the Eastern District of New
York and the New York State Courts in any such proceeding.
SECTION 10.16 LEGAL FEES. In the event any legal action or proceeding is
instituted to enforce or interpret any of the provisions of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees and
disbursements.
109
SECTION 10.17 SCHEDULES AND EXHIBITS. The Schedules and Exhibits attached to
this Agreement are a part hereof as if fully set forth herein.
SECTION 10.18 TIME OF ESSENCE. Time is of the essence for each and every
provision of this Agreement where time is a factor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
110
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as of
the day and year first set forth above.
ROOMLINX, INC.
By: /s/ Robert Lunde
Chief Executive Officer
ARC COMMUNICATIONS INC.
By: /s/ Peter A. Bordes
Chief Executive Officer
RL ACQUISITION, INC.
By: /s/ Peter A. Bordes
Chief Executive Officer
111
ANNEX C
14A:11-1 RIGHT OF SHAREHOLDERS TO DISSENT.
14A:11-1. Right of shareholders to dissent.
(1) Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions
(a) Any plan of merger or consolidation to which the corporation is a party,
provided that, unless the certificate of incorporation otherwise provides
(i) a shareholder shall not have the right to dissent from any plan of merger or
consolidation with respect to shares
(A) of a class or series which is listed on a national securities exchange or is
held of record by not less than 1,000 holders on the record date fixed to
determine the shareholders entitled to vote upon the plan of merger or
consolidation; or
(B) for which, pursuant to the plan of merger or consolidation, he will receive
(x) cash, (y) shares, obligations or other securities which, upon consummation
of the merger or consolidation, will either be listed on a national securities
exchange or held of record by not less than 1,000 holders, or (z) cash and such
securities;
(ii) a shareholder of a surviving corporation shall not have the right to
dissent from a plan of merger, if the merger did not require for its approval
the vote of such shareholders as provided in section 14A:10-5.1 or in subsection
14A:10-3(4), 14A:10-7(2) or 14A:10-7(4);
(iii) a shareholder of a corporation shall not have the right to dissent from a
plan of merger, if the merger did not require, for its approval, the vote of the
shareholders as provided in subsection (6) of N.J.S.14A:10-3; or
(b) Any sale, lease, exchange or other disposition of all or substantially all
of the assets of a corporation not in the usual or regular course of business as
conducted by such corporation, other than a transfer pursuant to subsection (4)
of N.J.S.14A:10-11, provided that, unless the certificate of incorporation
otherwise provides, the shareholder shall not have the right to dissent
(i) with respect to shares of a class or series which, at the record date fixed
to determine the shareholders entitled to vote upon such transaction, is listed
on a national securities exchange or is held of record by not less than 1,000
holders; or
(ii) from a transaction pursuant to a plan of dissolution of the corporation
which provides for distribution of substantially all of its net assets to
shareholders in accordance with their respective interests within one year after
the date of such transaction, where such transaction is wholly for
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(A) cash; or
(B) shares, obligations or other securities which, upon consummation of the plan
of dissolution will either be listed on a national securities exchange or held
of record by not less than 1,000 holders; or
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
(2) Any shareholder of a domestic corporation shall have the right to dissent
with respect to any shares owned by him which are to be acquired pursuant to
section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares owned
beneficially by him and with respect to which a right of dissent exists. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner with respect to which the right of
dissent exists.
(4) A corporation may provide in its certificate of incorporation that holders
of all its shares, or of a particular class or series thereof, shall have the
right to dissent from specified corporate actions in addition to those
enumerated in subsection 14A:11-1(1), in which case the exercise of such right
of dissent shall be governed by the provisions of this Chapter.
Amended 1973, c.366, s.60; 1988, c.94, s.64; 1995, c.279, s.21; 2001, c.193,
s.3.
14A:11-2. NOTICE OF DISSENT; DEMAND FOR PAYMENT; ENDORSEMENT OF CERTIFICATES
(1) Whenever a vote is to be taken, either at a meeting of shareholders or upon
written consents in lieu of a meeting pursuant to section 14A:5-6, upon a
proposed corporate action from which a shareholder may dissent under section
14A:11-1, any shareholder electing to dissent from such action shall file with
the corporation before the taking of the vote of the shareholders on such
corporate action, or within the time specified in paragraph 14A:5-6(2)(b) or
14A:5-6(2)(c), as the case may be, if no meeting of shareholders is to be held,
a written notice of such dissent stating that he intends to demand payment for
his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes effect,
the corporation, or, in the case of a merger or consolidation, the surviving or
new corporation, shall give written notice of the effective date of such
corporate action, by certified mail to each shareholder who filed written notice
of dissent pursuant to subsection 14A:11-2(1), except any who voted for or
consented in writing to the proposed action.
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(3) Within 20 days after the mailing of such notice, any shareholder to whom the
corporation was required to give such notice and who has filed a written notice
of dissent pursuant to this section may make written demand on the corporation,
or, in the case of a merger or consolidation, on the surviving or new
corporation, for the payment of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to section 14A:10-5.1 or
subsection 14A:10-7(4) and shareholder approval is not required under
subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who has the right to
dissent pursuant to section 14A:11-1 may, not later than 20 days after a copy or
summary of the plan of such merger and the statement required by subsection
14A:10-5.1(2) is mailed to such shareholder, make written demand on the
corporation or on the surviving corporation, for the payment of the fair value
of his shares.
(5) Whenever all the shares, or all the shares of a class or series, are to be
acquired by another corporation pursuant to section 14A:10-9, a shareholder of
the corporation whose shares are to be acquired may, not later than 20 days
after the mailing of notice by the acquiring corporation pursuant to paragraph
14A:10-9(3)(b), make written demand on the acquiring corporation for the payment
of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant to
this section, the shareholder shall submit the certificate or certificates
representing his shares to the corporation upon which such demand has been made
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making a demand for payment of the
fair value thereof.
(7) Every notice or other communication required to be given or made by a
corporation to any shareholder pursuant to this Chapter shall inform such
shareholder of all dates prior to which action must be taken by such shareholder
in order to perfect his rights as a dissenting shareholder under this Chapter.
Amended 1973,c.366,s.61; 1988,c.94,s.65.
14A:11-3. "DISSENTING SHAREHOLDER" DEFINED; DATE FOR DETERMINATION OF FAIR VALUE
(1) A shareholder who has made demand for the payment of his shares in the
manner prescribed by subsection 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) is
hereafter in this Chapter referred to as a "dissenting shareholder."
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(2) Upon making such demand, the dissenting shareholder shall cease to have any
of the rights of a shareholder except the right to be paid the fair value of his
shares and any other rights of a dissenting shareholder under this Chapter.
(3) "Fair value" as used in this Chapter shall be determined
(a) As of the day prior to the day of the meeting of shareholders at which the
proposed action was approved or as of the day prior to the day specified by the
corporation for the tabulation of consents to such action if no meeting of
shareholders was held; or
(b) In the case of a merger pursuant to section 14A:10-5.1 or subsection
14A:10-7(4) in which shareholder approval is not required, as of the day prior
to the day on which the board of directors approved the plan of merger; or
(c) In the case of an acquisition of all the shares or all the shares of a class
or series by another corporation pursuant to section 14A:10-9, as of the day
prior to the day on which the board of directors of the acquiring corporation
authorized the acquisition, or, if a shareholder vote was taken pursuant to
section 14A:10-12, as of the day provided in paragraph 14A:11-3(3)(a).
In all cases, "fair value" shall exclude any appreciation or depreciation
resulting from the proposed action.
Amended 1973,c.366,s.62; 1988,c.94,s.66.
14A:11-4. TERMINATION OF RIGHT OF SHAREHOLDER TO BE PAID THE FAIR VALUE OF HIS
SHARES
(1) The right of a dissenting shareholder to be paid the fair value of his
shares under this Chapter shall cease if
(a) he has failed to present his certificates for notation as provided by
subsection 14A:11-2(6), unless a court having jurisdiction, for good and
sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of the
corporation;
(c) the fair value of the shares is not agreed upon as provided in this Chapter
and no action for the determination of fair value by the Superior Court is
commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not entitled to
payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
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(f) a court having jurisdiction permanently enjoins or sets aside the corporate
action.
(2) In any case provided for in subsection 14A:11-4(1), the rights of the
dissenting shareholder as a shareholder shall be reinstated as of the date of
the making of a demand for payment pursuant to subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has
taken place during the interim period. In such event, he shall be entitled to
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution, or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the board, the fair value thereof in cash as of the time of
such expiration or completion.
14A:11-5. RIGHTS OF DISSENTING SHAREHOLDER
(1) A dissenting shareholder may not withdraw his demand for payment of the fair
value of his shares without the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive payment
for his shares shall exclude the enforcement by such dissenting shareholder of
any other right to which he might otherwise be entitled by virtue of share
ownership, except as provided in subsection 14A:11-4(2) and except that this
subsection shall not exclude the right of such dissenting shareholder to bring
or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is ultra vires, unlawful or fraudulent as to such
dissenting shareholder.
14A:11-6. DETERMINATION OF FAIR VALUE BY AGREEMENT
(1) Not later than 10 days after the expiration of the period within which
shareholders may make written demand to be paid the fair value of their shares,
the corporation upon which such demand has been made pursuant to subsections
14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) shall mail to each dissenting
shareholder the balance sheet and the surplus statement of the corporation whose
shares he holds, as of the latest available date which shall not be earlier than
12 months prior to the making of such offer and a profit and loss statement or
statements for not less than a 12-month period ended on the date of such balance
sheet or, if the corporation was not in existence for such 12-month period, for
the portion thereof during which it was in existence. The corporation may
accompany such mailing with a written offer to pay each dissenting shareholder
for his shares at a specified price deemed by such corporation to be the fair
value thereof. Such offer shall be made at the same price per share to all
dissenting shareholders of the same class, or, if divided into series, of the
same series.
(2) If, not later than 30 days after the expiration of the 10-day period limited
by subsection 14A:11-6(1), the fair value of the shares is agreed upon between
any dissenting shareholder and the corporation, payment therefor shall be made
upon surrender of the certificate or certificates representing such shares.
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AMENDED BY L.1973, C. 366, S. 63, EFF. MAY 1, 1974.
14A:11-7. PROCEDURE ON FAILURE TO AGREE UPON FAIR VALUE; COMMENCEMENT OF ACTION
TO DETERMINE FAIR VALUE
(1) If the fair value of the shares is not agreed upon within the 30-day period
limited by subsection 14A:11-6(2), the dissenting shareholder may serve upon the
corporation upon which such demand has been made pursuant to subsections
14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a written demand that it commence an
action in the Superior Court for the determination of the fair value of the
shares. Such demand shall be served not later than 30 days after the expiration
of the 30-day period so limited and such action shall be commenced by the
corporation not later than 30 days after receipt by the corporation of such
demand, but nothing herein shall prevent the corporation from commencing such
action at any earlier time.
(2) If a corporation fails to commence the action as provided in subsection
14A:11-7(1), a dissenting shareholder may do so in the name of the corporation,
not later than 60 days after the expiration of the time limited by subsection
14A:11-7(1) in which the corporation may commence such an action.
14A:11-8. ACTION TO DETERMINE FAIR VALUE; JURISDICTION OF COURT; APPOINTMENT OF
APPRAISER
In any action to determine the fair value of shares pursuant to this Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in the action in
a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who have agreed
with the corporation upon the price to be paid for their shares, shall be made
parties thereto as an action against their shares quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive evidence and
report to the court on the question of fair value, who shall have such power and
authority as shall be specified in the order of his appointment; and
(d) The court shall render judgment against the corporation and in favor of each
shareholder who is a party to the action for the amount of the fair value of his
shares.
14A:11-9. JUDGMENT IN ACTION TO DETERMINE FAIR VALUE
(1) A judgment for the payment of the fair value of shares shall be payable upon
surrender to the corporation of the certificate or certificates representing
such shares.
(2) The judgment shall include an allowance for interest at such rate as the
court finds to be equitable, from the date of the dissenting shareholder's
demand for payment under subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) to
the day of payment. If the court finds that the refusal of any dissenting
shareholder to accept any offer of payment, made by the corporation under
section 14A:11-6, was arbitrary, vexatious or otherwise not in good faith, no
interest shall be allowed to him.
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14A:11-10. COSTS AND EXPENSES OF ACTION
The costs and expenses of bringing an action pursuant to section 14A:11-8 shall
be determined by the court and shall be apportioned and assessed as the court
may find equitable upon the parties or any of them. Such expenses shall include
reasonable compensation for and reasonable expenses of the appraiser, if any,
but shall exclude the fees and expenses of counsel for and experts employed by
any party; but if the court finds that the offer of payment made by the
corporation under section 14A:11-6 was not made in good faith, or if no such
offer was made, the court in its discretion may award to any dissenting
shareholder who is a party to the action reasonable fees and expenses of his
counsel and of any experts employed by the dissenting shareholder.
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ANNEX D
ROOMLINX, INC.
LONG-TERM INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
ROOMLINX, INC., a Nevada corporation (the "Company"), hereby adopts the
ROOMLINX, INC. LONG-TERM INCENTIVE PLAN (the "Plan"). The purpose of the Plan is
to promote the long-term growth and profitability of the Company by (i)
providing key employees, officers, directors of, and other individuals providing
bona fide services to, the Company with incentives to improve stockholder value
and to contribute to the growth and financial success of the Company and (ii)
enabling the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination of the
foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, performance award, or other stock-based award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company, as amended.
(e) "Change in Control" means:
(i) an acquisition (other than from the Company) in a transaction,
or a series of related transactions, by any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT"), (excluding for this purpose, (A) the Company or its
subsidiaries, (B) any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company, (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (D) any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors) of beneficial ownership, within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or more of
either the then outstanding shares of common stock or the combined voting power
of the Company's then outstanding voting securities entitled to vote generally
in the election of directors (the "COMPANY VOTING STOCK");
119
(ii) the effective time of any merger, share exchange, consolidation
or other reorganization or business combination of the Company if immediately
after such transaction persons who hold a majority of the outstanding voting
securities entitled to vote generally in the election of directors of the
surviving entity (or the entity owning 100% of such surviving entity) are not
persons who held the Company Voting Stock immediately prior to such transaction;
(iii) the closing of a sale or conveyance of all or substantially
all of the assets of the Company;
(iv) individuals who were the Board's nominees for election as
directors immediately prior to a meeting of the stockholders of the Company
involving an actual or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, cease to constitute a
majority of the Board following the election; or
(v) the dissolution or liquidation of the Company;
provided, however, that the term "Change in Control" does not include any
transaction pursuant to which shares of capital stock of the Company are
transferred or issued to any trust, charitable organization, foundation, family
partnership or other entity controlled directly or indirectly by, or established
for the benefit of, an Employee or controlled by the Employee for the benefit of
Employee's immediate family members (including spouses, children, grandchildren,
parents, and siblings, in each case to include in-laws and adoptive relations),
or transferred to any such immediate family members.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(g) "Common Stock" shall mean shares of common stock of the Company, par
value of ($0.001) per share.
(h) "Fair Market Value" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, as applicable, (i)
either the closing price or the average of the high and low sale price on the
relevant date, as determined in the Administrator's discretion, quoted on the
New York Stock Exchange, the American Stock Exchange, or the Nasdaq National
Market; (ii) the last sale price on the relevant date quoted on the Nasdaq
SmallCap Market; (iii) the average of the high bid and low asked prices on the
relevant date quoted on the Nasdaq OTC Bulletin Board Service or by the National
Quotation Bureau, Inc. or a comparable service as determined in the
Administrator's discretion; or (iv) if the Common Stock is not quoted by any of
the above, the average of the closing bid and asked prices on the relevant date
furnished by a professional market maker for the Common Stock, or by such other
source, selected by the Administrator. If no public trading of the Common Stock
occurs on the relevant date, then Fair Market Value shall be determined as of
the next preceding date on which trading of the Common Stock does occur. For all
purposes under this Plan, the term "relevant date" as used in this Section
2.1(h) shall mean either the date as of which Fair Market Value is to be
determined or the next preceding date on which public trading of the Common
Stock occurs, as determined in the Administrator's discretion.
120
(i) "Grant Agreement" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
3. ADMINISTRATION
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
121
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including, without limitation, the Company, its stockholders, any
participants in the Plan and any other employee, consultant, or director of the
Company, and their respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN
Subject to adjustments as provided in Section 7(d) of the Plan, the number
of shares of Common Stock available for issuance as Awards under the Plan is
__________. Stock options granted under the Plan after the date hereof shall
vest in accordance with the applicable Grant Agreement.
The Company shall reserve such number of shares for Awards under the Plan,
subject to adjustments as provided in Section 7(d) of the Plan. If any Award, or
portion of an Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or canceled
as to any shares, or if any shares of Common Stock are surrendered to the
Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), or if any shares are withheld by the
Company, the shares subject to such Award and the surrendered and withheld
shares shall thereafter be available for further Awards under the Plan;
provided, however, that any such shares that are surrendered to or withheld by
the Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
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5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers, and
directors of, and other individuals providing bona fide services to or for, the
Company, or of any Affiliate of the Company, as may be selected by the
Administrator from time to time. The Administrator may also grant Awards to
individuals in connection with hiring, retention or otherwise, prior to the date
the individual first performs services for the Company or an Affiliate provided
that such Awards shall not become vested prior to the date the individual first
performs such services.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement. The Administrator may permit or require a
recipient of an Award to defer such individual's receipt of the payment of cash
or the delivery of Common Stock that would otherwise be due to such individual
by virtue of the exercise of, payment of, or lapse or waiver of restrictions
respecting, any Award. If any such payment deferral is required or permitted,
the Administrator shall, in its sole discretion, establish rules and procedures
for such payment deferral.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the Company
or of any current or hereafter existing "parent corporation" or "subsidiary
corporation," as defined in Code sections 424(e) and (f), respectively, of the
Company. Options intended to qualify as incentive stock options under Code
section 422 must have an exercise price at least equal to Fair Market Value as
of the date of grant, but nonqualified stock options may be granted with an
exercise price less than Fair Market Value. No stock option shall be an
incentive stock option unless so designated by the Administrator at the time of
grant or in the Grant Agreement evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
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(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Company's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an Affiliate as a whole, over such performance
period as the Administrator may designate.
(f) Other Stock-Based Awards. The Administrator may from time to time
grant other stock-based awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine.
Other stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
7. MISCELLANEOUS
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The Company
or its Affiliate may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the grantee or holder
of an Award. In the event that payment to the Company or its Affiliate of such
tax obligations is made in shares of Common Stock, such shares shall be valued
at Fair Market Value on the applicable date for such purposes.
124
(b) Loans. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments for Corporate Transactions and Other Events.
(i) Stock Dividend, Stock Split and Reverse Stock Split. In the
event of a stock dividend of, or stock split or reverse stock split affecting,
the Common Stock, (A) the maximum number of shares of such Common Stock as to
which Awards may be granted under this Plan and the maximum number of shares
with respect to which Awards may be granted during any one fiscal year of the
Company to any individual, as provided in Section 4 of the Plan, and (B) the
number of shares covered by and the exercise price and other terms of
outstanding Awards, shall, without further action of the Board, be adjusted to
reflect such event. The Administrator may make adjustments, in its discretion,
to address the treatment of fractional shares and fractional cents that arise
with respect to outstanding Awards as a result of the stock dividend, stock
split or reverse stock split.
(ii) Non-Change in Control Transactions. Except with respect to the
transactions set forth in Section 7(d)(i), in the event of any change affecting
the Common Stock, the Company or its capitalization, by reason of a spin-off,
split-up, dividend, recapitalization, merger, consolidation or share exchange,
other than any such change that is part of a transaction resulting in a Change
in Control, the Administrator, in its discretion and without the consent of the
holders of the Awards, shall make (A) appropriate adjustments to the maximum
number and kind of shares reserved for issuance or with respect to which Awards
may be granted under the Plan, as provided in Section 4 of the Plan; and (B) any
adjustments in outstanding Awards, including but not limited to reducing the
number, kind and price of securities subject to Awards.
(iii) Unusual or Nonrecurring Events. The Administrator is
authorized to make, in its discretion and without the consent of holders of
Awards, adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events affecting the
Company, or the financial statements of the Company or any Affiliate, or of
changes in applicable laws, regulations, or accounting principles, whenever the
Administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
125
(f) Stock Restriction Agreement and Voting Trust. As a condition precedent
to the grant of any Award under the Plan, the exercise pursuant to such an
Award, or to the delivery of certificates for shares issued pursuant to any
Award, the Administrator may require the grantee or the grantee's successor or
permitted transferee, as the case may be, to become a party to a Stock
Restriction Agreement of the Company and/or a Voting Trust Agreement in such
form(s) as the Administrator may determine from time to time.
(g) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof with the approval of
the stockholders of the Company.
(h) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Company or shall interfere in any way with the right of
the Company to terminate such service at any time with or without cause or
notice.
(i) Compliance with Securities Laws; Listing and Registration. If at any
time the Administrator determines that the delivery of Common Stock under the
Plan is or may be unlawful under the laws of any applicable jurisdiction, or
federal or state securities laws, the right to exercise an Award or receive
shares of Common Stock pursuant to an Award shall be suspended until the
Administrator determines that such delivery is lawful. The Company shall have no
obligation to effect any registration or qualification of the Common Stock under
federal or state laws.
The Company may require that a grantee, as a condition to exercise of an
Award, and as a condition to the delivery of any share certificate, make such
written representations (including representations to the effect that such
person will not dispose of the Common Stock so acquired in violation of federal
or state securities laws) and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue the
Common Stock in compliance with applicable federal and state securities laws.
The stock certificates for any shares of Common Stock issued pursuant to this
Plan may bear a legend restricting transferability of the shares of Common Stock
unless such shares are registered or an exemption from registration is available
under the Securities Act of 1933, as amended, and applicable state securities
laws.
(j) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(k) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Nevada, without regard to its conflict of laws principles.
126
(l) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan, or if
earlier, the tenth anniversary of the date this Plan is approved by the
stockholders. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board:
-----------------------------------
Date Approved by the Stockholders:
----------------------------
127
ANNEX E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ROOMLINX, INC.,
ARC COMMUNICATIONS INC.
AND
RL ACQUISITION, INC.
DATED: FEBRUARY 25, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
128
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT"), dated as
of February 25, 2004, is made and entered into by and among ROOMLINX, INC., a
Nevada corporation ("ROOMLINX"), ARC COMMUNICATIONS INC., a New Jersey
corporation ("ARC"), and RL ACQUISITION, INC., a Nevada corporation and
wholly-owned subsidiary of ARC ("RL"). Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Merger Agreement (as
hereinafter defined).
BACKGROUND
WHEREAS, the parties have executed an Agreement and Plan of Merger, dated
as of December 8, 2003 (the "MERGER AGREEMENT"), pursuant to which they have
agreed to effect the merger of RoomLinX with and into RL, with RL the surviving
entity, and, immediately thereafter, to effect the merger of RL with and into
ARC, with RL the surviving entity; and
WHEREAS, the parties hereto desire to make certain amendments to the
Merger Agreement upon the terms and subject to the conditions more fully set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
AMENDMENETS TO MERGER AGREEMENT
SECTION 1.1 The first sentence of Section 1.5 of the Merger Agreement is
hereby amended and restated in its entirety as set forth below:
"At the Effective Time, each of the directors and officers of RL and ARC
immediately prior to the Effective Time shall resign or be removed from office
and concurrently therewith the directors of the Surviving Corporation shall be
comprised of two directors designated by RoomLinX (the "ROOMLINX DESIGNEES"),
one director designated by ARC (the "ARC DESIGNEE") and two directors designated
by the RoomLinX Designees and the ARC Designee (which two directors may be
designated concurrently with or subsequent to the Effective Time, at the
discretion of the RoomLinX Designees and the ARC Designee), such directors to
hold office, subject to the applicable provisions of the articles of
incorporation and bylaws of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until their respective
successors shall be duly elected or appointed and qualified."
SECTION 1.2 Section 1.7 of the Merger Agreement is hereby amended and
restated in its entirety as set forth below:
"SECTION 1.7 MERGER CONSIDERATION.
(a) At the Effective Time, RoomLinX Shares, other than RoomLinX Shares
held in treasury (which shall be canceled pursuant to Section 1.6(b) above), by
virtue of the Merger and without any action on the part of the holders thereof
(the "ROOMLINX STOCKHOLDERS"), automatically shall be canceled and extinguished
and converted into the right to receive in the aggregate (a) 68,378,346 shares
of ARC Common Stock (the "ARC MERGER SHARES"); provided that 10,000,000 ARC
Merger Shares shall immediately be deposited in escrow for a period of six
months from the Closing Date to secure the indemnification obligations of
RoomLinX set forth herein, in accordance with the terms of an escrow agreement
to be executed by the parties on the Closing Date (the "ESCROW Agreement"), and
(b) options and/or warrants to purchase 11,465,001 shares of ARC Common Stock;
provided that such options and/or warrants shall have an exercise price of not
less than $.20 per share, shall not be entitled to "cashless" exercise
provisions and shall be exercised within two years of the Closing Date. At the
Effective Time, the RoomLinX Stockholders shall deliver stock certificates
representing all of the issued and outstanding RoomLinX Shares to ARC and ARC
shall (x) issue to the RoomLinX Stockholders in exchange therefor stock
certificates representing the ARC Merger Shares, 10,000,000 of which shall be
delivered to the escrow agent in accordance with the Escrow Agreement, and (y)
authorize the issuance of the options and/or warrants referred to above.
(b) Intentionally Omitted."
SECTION 1.3 Section 3.10 of the Merger Agreement is hereby amended and
restated in its entirety as set forth below:
129
"SECTION 3.10 CONDUCT OF BUSINESS. Except as expressly contemplated by
this Agreement, from the date of this Agreement until the Closing, ARC shall
operate its business in the ordinary course and in a commercially reasonable
manner and will make all reasonably necessary efforts to preserve intact its
business and its relationships with third parties, the goodwill it has accrued
and the services of its existing officers, employees and directors.
Notwithstanding the foregoing, the parties acknowledge that it is the intention
of ARC to wind down the existing ARC business model and to liquidate all Assets
of ARC (the "ARC LIQUIDATION")."
SECTION 1.4 Article 5 of the Merger Agreement is hereby amended and
restated in its entirety as set forth below:
"The closing ("CLOSING") of the Merger and any other transactions
contemplated by this Agreement shall take place at the law offices of Westerman
Ball Ederer Miller & Sharfstein, LLP, 170 Old Country Road, Mineola, New York
11501 within ten (10) days after satisfaction of the conditions set forth in
Article 6 hereof, but no later than May 14, 2004, or at such other place and
time and on such other date, as the parties may agree upon in writing ("CLOSING
DATE")."
SECTION 1.5 Each of subsections (a), (h), (i) and (o) of Article 6 is
hereby amended and restated in its entirety as set forth below:
"(a) ARC shall have complied with Regulation 14A or Regulation 14C, as the
case may be, under the Exchange Act and shall have obtained the approval of the
holders of the requisite number of shares of ARC Common Stock to (i) an
amendment to the articles of incorporation of ARC to (A) increase the number of
authorized shares of ARC Common Stock to 250,000,000 shares and (B) change the
name of ARC to RoomLinX, Inc., or such other name as RoomLinX may direct (the
"AMENDED CERTIFICATE"), (ii) the Merger, and (iii) the ARC Liquidation;
(h) Effective as of the Effective Time, the Board of Directors of the Surviving
Corporation shall be comprised of the RoomLinX Designees and the ARC Designee;
(i) The ARC Liquidation shall have been completed prior to the Closing;
(o) Effective as of the Effective Time, ARC shall issue options to
purchase 250,000 shares of ARC Common Stock at an exercise price of $0.20 per
share having a three year term and "cashless exercise" provisions, and 250,000
shares of ARC Common Stock to Rodman and Renshaw in consideration for its
services as financial advisor to RoomLinX in connection with the Merger."
SECTION 1.6 Subsection (b) of Article 9 is hereby amended and restated in
its entirety as set forth below:
"(b) by RoomLinX or ARC (on behalf of RL), if the Effective Time shall not
have occurred as soon as reasonably practicable but no later than May 14, 2004;
provided, however, that the right to terminate this Agreement under this Section
9(b) shall not be available if the reason the Effective Time has not occurred is
the intentional failure by the party seeking termination to fulfill any
obligation under this Agreement;"
ARTICLE II
MISCELLANEOUS
SECTION 2.1 FULL FORCE AND EFFECT. Except as amended hereby, the terms of
the Merger Agreement remain in full force and effect.
SECTION 2.2 COUNTERPARTS. This Amendment may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 2.3 GOVERNING LAW; VENUE. This Amendment shall be construed in
accordance with, and governed by, the law of the State of New York without
regard to any principles of conflicts of law. The parties hereby agree that any
action, suit, arbitration or other proceeding arising out of or related to this
Amendment shall be brought, maintained and conducted only in New York, and each
party hereby irrevocably consents and submits to the personal jurisdiction of
and venue in the United States District Court for the Eastern District of New
York and the New York State Courts in any such proceeding.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
130
IN WITNESS WHEREOF, the parties to this Amendment have duly executed it as
of the day and year first set forth above.
ROOMLINX, INC.
By: /s/ Robert Lunde
------------------------------
Chief Executive Officer
ARC COMMUNICATIONS INC.
By: /s/ Peter A. Bordes
------------------------------
Chief Executive Officer
RL ACQUISITION, INC.
By: /s/ Peter A. Bordes
------------------------------
Chief Executive Officer
131
Form of Proxy Card
Front:
ARC COMMUNICATIONS INC.
(THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS)
ARC COMMUNICATIONS INC.-Proxy for the Special Meeting of Stockholders at
10:00 a.m. May __, 2004, at the offices of Westerman Ball Ederer Miller &
Sharfstein, LLP located at 170 Old Country Road, Mineola, New York 11501.
The undersigned hereby appoints Peter A. Bordes, Jr. and Steven Meyer,
and each of them, with full power of substitution, as Proxies to vote the Common
Stock of the undersigned at the referenced Special Meeting, and any adjournments
thereof, upon the matters set forth in the Notice of Special Meeting and Proxy
Statement, as follows:
1. MERGER WITH ROOMLINX, INC:
|_| FOR |_| ABSTAIN |_| AGAINST
2. AMENDMENT TO CERTIFICATE OF INCORPORATION OF ARC TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 45,000,000,TO 250,000,000 AND CHANGE ITS
NAME TO ROOMLINX, INC.:
|_| FOR |_| ABSTAIN |_| AGAINST
3. REINCORPORATION OF ARC FROM A NEW JERSEY CORPORATION TO A NEVADA CORPORATION
THROUGH THE MERGER OF ARC WITH AN INTO ITS WHOLLY-OWNED SUBSIDIARY RL
ACQUISITION, INC.:
|_| FOR |_| ABSTAIN |_| AGAINST
4. ROOMLINX, INC. LONG-TERM INCENTIVE PLAN:
|_| FOR |_| ABSTAIN |_| AGAINST
This Proxy will be voted as specified. If no specification is made, it
will be voted FOR EACH Proposal.
Back:
Any Proxy heretofore given by the undersigned with respect to such
stock is hereby revoked. Receipt of the Notice of Special Meeting and Proxy
Statement is hereby acknowledged.
Do you plan to attend the Meeting? |_| Yes |_| No
Please mark, sign, date and return the Proxy Card
promptly using the enclosed envelope.
DATED: , 2004
----------------------------------------
(Joint owners must EACH sign. Please sign EXACTLY
as your name(s) appear(s) on the card. When signing
as attorney, trustee, executor, administrator,
guardian or corporate officer, please give your
FULL title.)
132