U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
(Name of Small Business Issuer in its charter)
Texas 74-2653437
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 North Shoreline Drive, Suite 701 North,
Corpus Christi, TX 78471
--------------------------------------------------
(Address of principal executive offices)
512-887-7546
-------------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
Preferred Stock, $0.001 par value
----------------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Page
----
Preliminary Statement ..................................................... 1
Description of Business.................................................... 1
Business Development ............................................. 1
Business of the Company .......................................... 1
Live Tissue Bonding Equipment ........................... 3
Anaerobic Farm-waste Disposal Equipment ................. 4
Carbon Dioxide Separator ................................ 5
Raw Materials, Supplies and Manufacturing ............... 5
Distribution Methods .................................... 6
Competition ............................................. 6
Live tissue bonding equipment .................. 6
Anaerobic farm-waste disposal plants ........... 6
CO2 Separator .................................. 7
Patents, Trademarks and Licenses ........................ 7
Government Approval and Regulations ..................... 7
Year 2000 Computer Problems ............................. 7
Research and Development ................................ 8
Cost of Compliance with Environmental Laws .............. 8
Seasonality ............................................. 8
Employees ............................................... 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 8
Results of Operations ............................................ 8
Sales ................................................... 9
Interim results ................................ 9
Gross Margin ............................................ 9
Interim results ................................ 9
Selling, General and Administrative Expenses ............ 9
Interim results ................................ 9
Net Loss ................................................ 10
Interim results ................................ 10
Balance Sheet Items ..................................... 10
Assets ......................................... 10
Stockholders' Equity ........................... 10
Interim balance sheet items .................... 10
Liquidity and Outlook ................................... 10
Costs of Filing Periodic Reports ........................ 11
Properties ................................................................ 11
Security Ownership of Certain Beneficial Owners and
Management ....................................................... 11
Changes in Control ...................................... 12
Directors, Executive Officers and Control Persons ......................... 12
Executive Compensation .................................................... 14
Certain Relationships and Related Transactions ............................ 14
ii
<PAGE>
Description of Securities ................................................. 15
Common Stock ..................................................... 15
Voting Rights ........................................... 15
Dividend Rights ......................................... 15
Liquidation Rights ...................................... 15
Preemptive Rights ....................................... 15
Registrar and Transfer Agents ........................... 15
Dissenters' Rights ...................................... 15
Preferred Stock .................................................. 15
Series A Preferred Stock ................................ 16
Market for Common Stock and Related Stockholder Matters ................... 16
Holders .......................................................... 17
Dividends ........................................................ 17
Legal Proceedings ......................................................... 17
Recent Sales of Unregistered Securities ................................... 17
Indemnification of Directors and Officers ................................. 18
Financial Statements ...................................................... 20
iii
<PAGE>
PRELIMINARY STATEMENT
Consortium Service Management Group, Inc. is filing this registration
statement on a voluntary basis under Section 12(g) of the Securities Exchange
Act of 1934. Our common stock trades in the over-the-counter market and is
quoted by NASD market makers on the OTC Bulletin Board. A recent rule change
requires that all companies whose securities are approved for quotation on the
OTC Bulletin Board must file periodic financial reports with governmental
authorities such as the Securities and Exchange Commission. The effectiveness of
this registration statement subjects the company to the periodic reporting
requirements imposed by Section 13(a) of the Securities Exchange Act.
DESCRIPTION OF BUSINESS
Business Development
- --------------------
We were incorporated on November 17, 1992 in the State of Texas. We conduct
our business from our headquarters in Corpus Christi, Texas; from offices in
Oklahoma City, Oklahoma; and from offices in Kiev, Ukraine. We first had
revenues from operations in 1995.
We believe we are unique in our business mission. We facilitate the
transfer to the U.S. and other developed countries of technologies developed by
the scientists and engineers of Ukraine.
We have a formal relationship with several prestigious organizations in
Ukraine. They have, as their stockholders or members, many of Ukraine's leading
scientists, engineers and technicians. We formalized our relationship with them
in February 1994 when we registered with the Ukraine Government a Ukraine
company owned 50 percent by us and 50 percent by the Ukraine organizations.
The Ukraine company's name is United Engineering Company. It is called a
"joint stock company with a foreign investor." The foreign investor is us.
United Engineering Company is authorized by Ukraine law, among other things, to
perform classified and secret construction works related to the national
security of Ukraine.
The 50 percent of the stock of United Engineering Company owned by Ukraine
organizations is owned by the following companies or organizations:
o The State Property Fund of Ukraine. It owns all state
----------------------------------
enterprises and property of the state, and it is
represented by:
o Yuzhnoye (Southern) Machine Building Plant. This is a
------------------------------------------
giant manufacturing complex located in Dniepropetrovsk.
It built many of the missiles and nuclear missiles for
1
<PAGE>
the former Soviet Union. Today, it manufactures commercial
satellites, farming tractors for export, trolley cars, and
other heavy products.
o Design Bureau "Yuzhnoye". This organization was
------------------------
established in 1954. It developed and turned over to
the Ukraine Army several generations of missiles
(specifically, SS-18 "Satan" satellite and the launch
rockets "Cyclone" and "Zinet"), space carrier rockets,
and artificial satellites. Design Bureau employs
several thousand researchers and production engineers
and is the leading enterprise in Ukraine for the
development of rocket and other jet systems. It also
is the leading enterprise for the elimination of
launching sites in Ukraine. The Bureau also works on
conversion projects, trolley busses, pumps for the oil
industry, small-sized vehicles for cleaning city
streets, and devices for manufacturing margarine, oils,
etc. It is under the direction of Academician
Stanislav Nikolayevich Konyukhov, who also is president
of United Engineering Company.
o Trust No. 5 for Special Construction Works. This
------------------------------------------
organization believes itself to be the highest
technical and most qualified engineering firm in the
former Soviet Union. It was involved in building all
of the former Soviet Unions's nuclear and non-nuclear
missile launching pads and silos, the Soviet space
station, several chemical and oil industry plants and
pipelines, and other installations requiring the
highest technologies of the former Soviet Union.
o E.O. Paton Institute of Electric Welding. This
----------------------------------------
organization was founded in 1934 by the Academy of
Sciences of the Ukraine S.S.R. It is headed today by
Professor Boris Paton, the president of the Ukraine
Academy of Sciences. It developed the collapsible,
titanium-welded, building-structure technology that was
used in the construction of the Soviet space station
"MIRE." We believe the Paton Institute is one of the
world's most prominent scientific institutions involved
in metal casting and bonding ceramics, microwave
bonding of metals and plastics, explosive welding and
cutting, welding in space and underwater, electro
metallurgy, protective coatings, and bridge building
and coating. It employed at one time more than 5,000
scientists and engineers and employs today more than
200 engineers and executives. It has joint ventures
with several multinational companies and governmental
agencies including the U.S. Department of Energy and
NASA.
o Spivdruznist Business Association. This was formed by
---------------------------------
major defense enterprises to develop and implement
methods of dismantling munitions and converting the
2
<PAGE>
metals and explosive by-products to commercially marketable
products. It is composed of 6 large manufacturing facilities
that developed and manufactured explosives, weapons and
military equipment during the Cold War.
o Pivdenexo, Ltd. This is a research, development and
--------------
production-design "think tank."
The above organizations, working with us as their equal partners in United
Engineering Company, as well as other organizations in Ukraine look to us to
fill two roles:
o Inside Ukraine. When they negotiate with western
nation enterprises expecting to do business in Ukraine,
we bring to the negotiating table our experience in
negotiating agreements with market-oriented
enterprises.
o Outside Ukraine. After we first identify technologies
developed in Ukraine that appear to have promising
commercial application, we introduce companies in the
U.S. and in other developed countries to these
technologies and attempt to negotiate technology
transfer agreements between them and the Ukraine
organizations.
Inside Ukraine, we have assisted United Engineering Company in its
negotiation of contracts for the dismantling of the Ukraine nuclear and
non-nuclear missiles, silos, and related equipment. This dismantling is required
by the treaty known as START and will be paid for by the U.S. and other western
countries. The Ukraine members of UEC designed, built and commanded these
missiles and silos, are logical organizations to dismantle them, and are
expected to receive a substantial portion of the contracts to dismantle them.
Since 1995 United Engineering Company has completed contracts with U.S.
contractors for more than $6.0 million with respect to ICBM dismantlement in
Ukraine and for more than DM4.7 million in contracts with the German Government
and German contractors for new methods of dismantling ICBM silos.
Outside Ukraine, we have identified several promising Ukraine-developed
technologies. We have been both successful and unsuccessful in negotiating
technology transfer agreements between United Engineering Company or one of its
constituent Ukraine organizations and companies in the U.S. The projects we are
promoting at the present time are as follows:
Live Tissue Bonding Equipment.
-----------------------------
The E.O. Paton Electric Welding Institute of Kiev, Ukraine developed
equipment that bonds blood vessels and soft tissues in substantially less time
than other technologies take and apparently leaves no trace scar tissues after a
lapse of six to seven months.
3
<PAGE>
The equipment bonds the soft biological tissue with a special miniature
surgical tool. It appears that the Ukraine scientists have developed a superior,
all-purpose, seamless method of bonding soft biological tissues, which method is
characterized by simple manipulation applicable to different surgical operations
and the fast restoration of tissues without the formation of coarse scars.
Apparently there is no need for prolonged special training of surgeons and
surgical personnel.
U.S. and foreign patent applications on the process have been filed and the
exclusive world rights have been reassigned, under a performance contract, to a
research and development group in Louisville, Kentucky and a major, private
medical equipment manufacturing company in exchange for total funding of the
project. We retained a 7.5 percent royalty interest (of which we get half) in
the adjusted retail price of all products and equipment sold that are the
subject of the assignment.
We estimate that the research and development group and medical equipment
manufacturing company have expended in excess of $2.5 million in developing the
project and will expend additional funds to bring this product to market.
Testing on animals has been successfully completed. Testing on humans in
Ukraine began in mid-year 1998. Testing on humans in the U.S. is expected to
commence soon. Approval of the process and equipment by the Federal Drug
Administration is expected to be routine and to be obtained by year-end 2000.
Anaerobic Farm-waste Disposal Equipment.
---------------------------------------
We have obtained the exclusive worldwide rights to market a closed system,
no lagoon, anaerobic plant that:
o processes farm-animal waste into a high grade organic
fertilizer,
o captures the methane gas for commercial use,
o eliminates 90 to 95 percent of the odor, and
o prevents all runoff and contamination of the
environment.
This processing plant was developed in Ukraine before the breakup of the
Soviet Union. The developer is a 103-year-old Ukraine joint stock company that
is the Ukraine's largest enterprise that manufactures equipment for the
petroleum and chemical industries. The company's name is Sumy Frunze Machine-
Building Science-and-Production Association, called herein "Frunze."
Frunze developed the processing plant to solve the above-mentioned problems
that were associated with a 3,000-head swine farm located in the center of a
city of 400,000 people. The plant has operated successfully for more than twelve
years.
4
<PAGE>
United Engineering Company coordinates our relations with Frunze in
Ukraine. We are marketing these plants in a six-state region in the U.S. through
Western Waste Management, Inc. We have contracts to lease two plants to large
dairy herd farms. The plants will be custom designed for each U.S. user. The
major portion of each plant will be manufactured initially, at least, by Frunze
in Ukraine. The electric motors, generators, tanks and computer controls will be
obtained in the U.S. Approximately 70% of the cost of a plant will be for
Ukraine-manufactured parts at a cost far less than could be obtained in the U.S.
A considerable market exists for the plant. At the end of 1997 there were
1,520 U.S. swine farms with 5,000 head or more and more than 4,000 swine farms
with 2,000 to 5,000 head of stock. It is estimated that 5,000-head swine farm
with a lagoon spends $90,000 to $100,000 a year on lagoon management only. And
this is without controlling the odor, soil permeation or runoff problems.
We estimate that the $510,000 cost of a Farm Waste Anaerobic Plant for a
3,000-head swine farm will be recovered by the farmer in five to seven years
from:
o organic fertilizer sales,
o methane gas used on the farm and sold commercially,
o elimination of waste lagoon expense, and
o reduction of other operating costs.
Of major public relations importance is the near total elimination of foul
odors. The only exposure of the animal waste to the atmosphere is the
one-day-or-less period that elapses before it is hosed or scraped to the pump
site for transportation to the closed storage tanks or directly to the
processing plant. Little decomposition and emission of gases occur during this
initial period.
Of major health importance are:
o the elimination of the volatile organic acids, which
are consumed by the gas-producing bacteria,
o the elimination of surface and ground water
contamination, and
o the dramatic reduction of pathogen populations in the
heated digesters.
Carbon Dioxide Separator.
------------------------
We own the exclusive world rights to market certain equipment that
separates carbon dioxide and other impurities from the gas produced in landfills
and converts the remaining gas to a cleaner, 98-percent pure methane gas for use
in internal combustion engines or for sale to natural gas
5
<PAGE>
companies. This equipment was developed for us by the Institute of Gas, Ukraine
National Academy of Sciences.
The manufacturing and operating costs of our CO2 separator plants are
substantially lower than the costs of competitive units. We have negotiated a
contract to provide two of these plants to a large U.S. landfill operator. One
plant will be placed on a landfill in Alabama, the other in Indiana. The plants
will be manufactured in Ukraine. The landfill operator will provide all other
equipment needed as well as the operations. We will share equally the revenue
generated by the plants.
Raw Materials, Supplies and Manufacturing
-----------------------------------------
The tissue bonding equipment is to be manufactured in the U.S. The
prototype for the equipment has been completed and successfully demonstrated to
physicians and surgeons in the U.S.
The anaerobic plants will be manufactured in Ukraine at a cost far less
than what it would cost in the U.S.
The carbon dioxide separator plants will be manufactured in the Ukraine,
again at a cost far less than what it would cost in the U.S.
Distribution Methods
--------------------
The U.S. medical research and development group and the medical equipment
manufacturing company will market and distribute the live tissue bonding
equipment once Federal Drug Administration approval is obtained.
We have organized a majority-owned subsidiary, Anaerobic Farm Waste, Inc.,
to own and lease the anaerobic farm waste disposal equipment. The officers of
our company are also the principal officers of the subsidiary company.
We are marketing our CO2 separator equipment directly through the efforts
of our officers.
Competition
-----------
Live tissue bonding equipment.
-----------------------------
We have the only equipment in the world that bonds live tissues with
little or no scarring. We are in competition only with older surgical methods of
closing tissue openings.
Anaerobic farm waste disposal plants.
------------------------------------
There are ten companies that offer various types of anaerobic systems
in the U.S. None of these systems processes the manure and water to the extent
of the Ukraine-made plant. Further, the costs of design, development,
fabrication and construction are higher by multiples in the U.S. than in
Ukraine, where high-caliber scientists and engineers are readily available. The
plant now in operation in
6
<PAGE>
Ukraine is the product of years of experience in designing and building various
types of anaerobic plants. The design now in operation has been the most
effective and economical for anaerobically processing animal wastes.
CO2 Separator.
-------------
Numerous companies make CO2 separators in the U.S. but none can
compete with the quality of our separators or with our price. Their prices are
multiples of ours. Their separators produce no better than 75 to 90 percent pure
methane; ours produce 98-percent pure methane.
Patents, Trademarks and Licenses
--------------------------------
The live tissue bonding equipment is the subject of patents and patent
applications filed by the Ukraine inventor in the Ukraine, the U.S., and other
countries. The patents and the patent applications for the U.S., the European
Patent Convention, Australia, Canada and Japan have been assigned to the U.S.
medical equipment manufacturing company that will manufacture and market the
equipment once the Federal Drug Administration approves the equipment for use on
humans.
We have been assigned the exclusive world rights to license, manufacture,
market, and distribute both the anaerobic farm waste disposal equipment and the
CO2 separator equipment.
Government Approval and Regulations
-----------------------------------
The live tissue bonding equipment must obtain the approval of the Federal
Drug Administration before it can be sold to be used on humans. Testing of this
equipment on humans in the U.S. should begin this year. Filings will then be
made with the FDA. We expect no unusual delay in obtaining FDA approval, due to
the results of the testing and the accepted usage of this technology in Ukraine.
We expect to receive FDA clearance by the end of the year 2000.
The anaerobic farm waste disposal plants and the CO2 separator plants
require no governmental approval before being placed into use, but the results
of their usage are subject to the oversight authority of the Environmental
Protection Agency. Because we expect the results of their usage will enable
cattle, swine and chicken farmers and landfill operators to comply with EPA
regulations, we believe the plants will be readily accepted in the U.S.
Year 2000 Computer Problems
---------------------------
We have determined that we do not face material costs, problems or
uncertainties about the year 2000 computer problem. This problem affects many
companies and organizations and stems from the fact that many existing computer
programs use only two digits to identify a year in the date field and do not
consider the impact of the year 2000. We are newly organized, use off-
7
<PAGE>
the-shelf and easily replaceable software programs, and have yet to devise our
own software programs.
We have been advised by the manufacturers of our anaerobic farm waste
plants and our CO2 separator plants that they are Year 2000 compliant. Should
they not be and should difficulties arise, we will have to delay our operations
until they work out their problems.
Research and Development
------------------------
We expend no funds on research and development.
Cost of Compliance with Environmental Laws
------------------------------------------
We have no direct costs in complying with environmental laws. Our anaerobic
farm waste disposal plants are designed to dispose of farm waste in a manner
that meets all environmental regulations. The same is true with regard to our
CO2 separator plants. The users of this equipment have an environmental waste
disposal problem caused by their other operations. Their cost of complying with
environmental regulations is our share of the revenue produced from the
installation and use of our equipment.
Seasonality
-----------
There is no seasonal aspect of our business.
Employees
---------
We employ three persons full time in the U.S. and two persons full time in
Kiev, Ukraine.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere. See "Financial Statements."
Results of Operations
- ---------------------
The following table presents, as a percentage of sales, certain selected
financial data for the two fiscal years ended December 31, 1998 and for the
six-month periods ended June 30, 1998 and June 30, 1999:
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended 12-31 6-Mos. Ended 6-30
1998 1997 1999 1998
---------------- -----------------
<S> <C> <C> <C> <C>
Sales, including 50%
interest in United
Engineering Company 100.0% 100.0% 100.0% 100.0%
Cost of sales 48.3 0.0 37.3 71.0
----- ----- ----- -----
Gross margin 51.7 100.0 62.7 29.0
Selling, general and
administrative
expenses 77.0 105.7 105.1 75.7
Other income and (losses)
on foreign currency
exchange (15.7) 0.0 0.0 0.0
----- ----- ----- -----
Net income (loss) (41.0) (5.7) (42.4) (46.7)
</TABLE>
Sales
-----
Sales decreased from $559,215 in the fiscal year ended December 31, 1997 to
$509,861 in the fiscal year ended December 31, 1998, a decrease of 8.8 percent.
The decrease in sales was attributable to foreign exchange loss of $91,957.
Interim results.
---------------
Sales decreased from $130,014 in the first half of 1998 to $90,377
in the first half of 1999, a decrease of 30.5 percent. The decrease was due
entirely to less revenue from the tissue bonding project. Dividends from United
Engineering Company increased from $2,666 in the first half of 1998 to $8,390 in
the first half of 1999.
Gross Margin
------------
All revenues in fiscal 1997 were attributable to services - $299,454 - or
to our 50 percent interest in United Engineering Company - $259,761.
Accordingly, the above table reflects a 100 percent gross margin in fiscal 1997.
In fiscal 1998, our cost of goods sold was $246,242, which was 48.3 percent of
$509,861 in revenues.
Interim results.
---------------
Despite $39,637 less revenue in the first half of 1999 than in the
first half of 1998, the gross margin increased from $37,681 to $56,637, a 50.3
percent increase. The improvement was due entirely to $60,158 less expense
associated with the tissue bonding project.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses decreased from $590,888 in
fiscal year 1997, or 105.7 percent of sales, to $392,808 in fiscal year 1998, or
77 percent of sales. This decrease is due to reduction in foreign travel, U.S.
travel, and other operating costs.
Interim results.
---------------
Selling, general and administrative expenses decreased from $98,378 in
the first half of 1998 to $94,977 in the first half of 1999 - a decrease of 3.5
percent. The decrease was due entirely to payables and expense adjustments.
9
<PAGE>
Net Loss
--------
We had a net loss from operations in fiscal year 1997 of $31,673, or $0.02
a share of our common stock. In fiscal year 1998 we had a net loss from
operations of $209,152, or $0.10 a share of common stock. Some $91,957 of this
loss is attributable to a foreign exchange loss - the U.S. dollar strengthening
against the Ukraine currency. The balance of the loss is attributed by
management to accrued loan interest.
Interim results.
---------------
Our net loss of $60,697 in the first half of 1998 decreased to a net
loss of $38,340 in the first half of 1999, a decrease of 36.9 percent. The
increase was due to payables and expense adjustments described above in
"Selling, General and Administrative Expenses - Interim Results."
Balance Sheet Items
-------------------
Assets.
------
Our total assets increased in fiscal 1998 by $194,531 - a 34.2 percent
increase. Some $136,309, or 70 percent of the increase, is attributable to our
increased investment in United Engineering Company.
Stockholders' Equity.
--------------------
Stockholders' equity decreased from $195,016 at the end of fiscal 1997
to $25,314 on December 31, 1998. The loss from operations of $209,152 was
covered by an increase in stockholders' loans to the company of $288,750 and the
sale of $30,000 of stock.
Interim balance sheet items.
---------------------------
Notes Payable to Stockholders.
-----------------------------
We decreased our notes payable to stockholders from $685,430 at
December 31, 1998 to $400,225 on June 30, 1999 - a 41.6 percent decrease.
Stockholders' Equity.
--------------------
We increased stockholders' equity from only $25,314 on December
31, 1998 to $512,368 on June 30, 1999. The increase was due almost entirely to
the $285,205 reduction in notes payable to stockholders, which reduction
reflected the conversion of the notes to common stock.
Liquidity and Outlook
---------------------
We have been able to stay in operation only from the proceeds realized from
loans and from the sale of capital stock. We perceive our long-term solution to
our continuing losses to be:
o additional contracts for the leasing of our anaerobic
farm waste equipment;
o additional contracts for the joint venturing of our CO2
separator;
10
<PAGE>
o the sale of capital stock in either our company or our
subsidiary, Anaerobic Farm Waste, Inc.; and
o loans to finance the purchase of anaerobic farm waste
units and CO2 separators.
At this time, we have not identified the sources for additional equity capital,
but we are negotiating with a lender of funds that we believe will provide the
capital for us to purchase anaerobic farm waste plants and CO2 separators for
executed contracts that require such equipment.
Costs of Filing Periodic Reports
--------------------------------
The filing of this Form 10-SB registration statement subjects our company
to certain requirements of the Exchange Act of 1934. These requirements include
the filing of an annual report on the company's business, which must include
audited financial statements; quarterly reports, which must include unaudited
interim financial statements; and periodic reports of certain material events of
which investors should be made aware. Legal and accounting expertise are
required to prepare these reports. The services of the company's securities law
attorney and the annual auditor's services must be paid for in cash. Should cash
not be available to pay for these legal and auditor's services, we will have to
borrow these needed funds from sources not yet identified.
PROPERTIES
We lease office space in the following cities as follows:
<TABLE>
<CAPTION>
Approximate Monthly Term of
Square Feet Rental Lease
----------- ------- -------
<S> <C> <C> <C> <C>
Corpus Christi, TX 1,000 $ 500 08-31-2001
Oklahoma City, OK 500 $ 500 Month-to-Month
Kiev, Ukraine 800 $1,200 Month-to-Month
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of June 30, 1999, the number of shares of
Common Stock of the company beneficially owned by each officer and director of
the company, individually and as a group, and by each person known to the
company to be the beneficial owner of more than five percent of the Common
Stock.
11
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of
Name and Address Common Stock Percent
---------------- ------------ -------
<S> <C> <C>
Esmeralda G. Robbins(1) 250,000 8.6
701 CCNB North Tower
500 North Shoreline
Corpus Christi, TX 78471
Donald S. Robbins(2)(3) 250,000 8.6
701 CCNB North Tower
500 North Shoreline
Corpus Christi, TX 78471
Gordon W. Allison(3)(4) 382,800 13.1
P. O. Box 770304
Oklahoma City, Oklahoma 73177
James Workman 60,000 2.1
1826 War Eagle Street
North Little Rock, AR 72116
Officers and Directors 942,800 32.3
as a group (4 persons)(3)
-------------------------
</TABLE>
(1) These shares are held of record by the Esmeralda G. Robbins
Family Limited Partnership.
(2) These shares are held of record by the Donald S. Robbins Family Limited
Partnership.
(3) This does not include 75,669 shares of Series A Preferred
Stock of the company, which shares are owned by Mr. Robbins
(43,869 shares) and Mr. Allison (31,800 shares), each share
of which Preferred Stock is entitled to receive an $0.80
annual dividend, payable quarterly, cumulative if not paid,
has a face value of $10, is redeemable by the company out of
profits, and is preferred over the company's Common Stock in
the event of the liquidation and dissolution of the company.
(4) This stock is held of record by Electronic Data Service, Inc., an
Oklahoma corporation, of which Mr. Allison is an officer, director and
100 percent beneficial shareholder.
Changes in Control
- ------------------
There are no arrangements which may result in a change in control of the
company.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The company's directors, officers and significant employees occupying
executive officer positions, their ages as of June 30,
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<PAGE>
1999, the directors' terms of office and the period each director has served are
set forth in the following table:
<TABLE>
<CAPTION>
Director's
Director Term
Person Positions and Offices Since Expires
- --------------------- --------------------- -------- ---------
<S> <C> <C> <C>
Esmeralda G. Robbins, 54 Chairman of the Board 1992 2000
of Directors
Donald S. Robbins, 55 President, Chief 1992 2000
Executive Officer and
Director
Gordon W. Allison, 72 Executive Vice Presi- 1992 2000
dent, Chief Financial
Officer, Secretary and
Director
James Workman, 71 Director 1998 2000
</TABLE>
Donald S. Robbins.
-----------------
Mr. Robbins commenced his business career by working from 1969 until 1979
with several life insurance companies in the area of estate and retirement
planning. From 1979 until 1983 he was associated with the financial planning
division of E.F. Hutton, Hutton Financial Services. From 1983 until 1988 he was
associated with Prudential Bache Securities as a vice president for investments
and financial planning. From 1988 until 1995 he was affiliated with the
broker-dealer firm Royal Alliance Associates, Inc. From 1983 until 1985 he has
been a guest speaker at numerous investor meetings, continuing medical education
meetings, medical society meetings and broker seminars. Mr. Robbins was one of
the founders of the company in 1992 and is the person who has negotiated for the
company with respect to the marketing and licensing agreements of the company
and the person who negotiated with the various organizations in Ukraine that,
together with the company, founded United Engineering Joint Stock Company. Mr.
Robbins oversees the company's operations offices in Ukraine and devotes full
time to the affairs of the company.
Gordon W. Allison.
-----------------
Mr. Allison has 35 years experience in the insurance industry and 28 years
experience as a corporate officer and a chief executive of several companies.
From 1972 through 1987 he was the chief executive officer of American Trustee
Life Corporation and affiliated insurance companies in Minnesota, Arizona, and
Nebraska. In 1988 he retired from the insurance industry as an officer and
director of companies but remained in sales and financial planning. From 1988
until 1991 he served as a director of Advantage Marketing System, a public
company. In 1982 he was the president of the Association of Oklahoma Life
Insurance Companies. From 1982 through 1991 he was the partnership manager of
Cross Timbers Ranch Ltd., a real estate development and ranching operation
specializing in tax-sheltered cattle maintenance. He has been a bank director
and a community and church leader in Oklahoma City for more than 30 years. He is
one of the founders of the company and is responsible for its operations in the
U.S., particularly during periods when Mr. Robbins is in Ukraine.
13
<PAGE>
James Workman.
-------------
An agriculture entrepreneur and expert, James Workman has spent his entire
working life in agriculture projects. For 35 years he has operated and owned
several thousand acres of farming. He recently retired and sold out a
26,000-acre farming operation in Mississippi specializing in soy beans, rice,
cotton, corn and wheat. Prior to moving to Mississippi, James Workman operated a
10,000-acre farm operation in Arkansas for a German company farming rice,
cotton, corn and soy beans. He specialized in land clearing, land precision
leveling, drainage and irrigation for the German company.
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1996,
1997 and 1998 of the chief executive officer of the company. During the period,
no executive officer of the company received compensation that exceeded
$100,000.
<TABLE>
<CAPTION>
Fiscal Annual Other
Name Year Salary Compensation
------------------ ------- ------- ------------
<S> <C> <C>
Donald S. Robbins, 1998 $48,000 None
President
1997 $32,900 None
1996 $33,100 None
</TABLE>
Set forth below is information concerning individual grants of stock
options made during fiscal year 1998 to the officers of the company:
<TABLE>
<CAPTION>
No. of Shares of No. of Total
Common Stock Options Granted
Underlying to All Employees Exercise Expiration
Name of Officer Options Granted in Fiscal Year Price Date
--------------------- --------------- -------------- ------- ------
<S> <C> <C> <C> <C>
Donald S. Robbins 425,000 850,000 $0.16(1) 2004
Gordon W. Allison 425,000 850,000 $0.16(1) 2004
- --------------------
</TABLE>
(1) The exercise price is the same as the closing bid price for the common
stock on the day the options were granted.
Directors of the company receive no compensation for their services as
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions during the past two years, or proposed
transactions, to which our company was or is to be a party, in which any
director, executive officer, nominee for election as a director, a holder of
more than five percent of our
14
<PAGE>
voting stock or any member of their immediate family had or is to have a direct
or indirect material interest.
Our company's "parents" may be deemed to be Esmeralda G. Robbins, Donald S.
Robbins and Gordon W. Allison by reason of their positions as officers and
directors of the company and their stock ownership as reflected in the tables
above.
DESCRIPTION OF SECURITIES
The company is authorized to issue 40 million shares of Common Stock,
$0.001 par value and 10 million shares of Preferred Stock, $0.001 par value. The
presently outstanding shares of Common Stock and Preferred Stock are fully paid
and nonassessable.
Common Stock
- ------------
Voting Rights.
-------------
Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders. Shares of Common Stock do not
have cumulative voting rights, which means that the holders of a majority of the
shareholder votes eligible to vote and voting for the election of the Board of
Directors can elect all members of the Board of Directors.
Dividend Rights.
---------------
Holders of record of shares of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds of the
company legally available therefor.
Liquidation Rights.
------------------
Upon any liquidation, dissolution or winding up of the company, holders of
shares of Common Stock are entitled to receive pro rata all of the assets of the
company available for distribution to shareholders after distributions are made
to the holders of the company's Preferred Stock.
Preemptive Rights.
-----------------
Holders of Common Stock do not have any preemptive rights to subscribe for
or to purchase any stock, obligations or other securities of the company.
Registrar and Transfer Agent.
----------------------------
The company's registrar and transfer agent is Securities Transfer
Corporation of Dallas, Texas.
Dissenters' Rights.
------------------
Under current Texas law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the company to purchase his shares.
Dissenters' rights commonly arise in extraordinary transactions such as mergers,
consolidations, reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the company's certificate of
incorporation.
Preferred Stock
- ---------------
The company is also authorized to issue 10 million shares of Preferred
Stock, $0.001 par value.
15
<PAGE>
The Preferred Stock or any series thereof shall have such designations,
preferences and relative, participating, optional or special rights and
qualifications, limitations or restrictions thereof as shall be expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
board of directors and may be made dependent upon facts ascertainable outside
such resolution or resolutions of the board of directors, provided that the
manner in which such facts shall operate upon such designations, preferences,
rights and qualifications, limitations or restrictions of such class or series
of stock is clearly and expressly set forth in the resolution or resolutions
providing for the issuance of such stock by the board of directors.
Series A Preferred Stock.
------------------------
The board of directors, by resolution, designated a Series A Preferred
Stock, consisting of 75,669 shares, each with a face value of $10, each entitled
to receive an $0.80 annual dividend, payable quarterly, cumulative if not paid,
and preferred over the Common Stock in the event of the liquidation and
dissolution of the company.
All 75,669 shares of the company's authorized Series A Preferred Stock have
been issued, 43,869 to Donald S. Robbins, president, chief executive officer and
director of the company, and 31,800 shares to Gordon W. Allison, executive vice
president, chief financial officer, secretary and a director of the company.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The company's Common Stock is quoted on the OTC Bulletin Board. Its symbol
is "CTUM."
It first traded on April 21, 1998. The range of high and low bid
information for our Common Stock is set forth below. The source of this
information is the OTC Bulletin Board. The quotations reflect inter-dealer
prices without markup, markdown or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1998
---- 2nd Qtr. 2 1.125
3rd Qtr. 1.3125 0.5
4th Qtr. 0.2813 0.1500
1999
---- 1st Qtr. 1.6875 0.1500
2nd Qtr. 1.1875 0.5000
</TABLE>
On June 30, 1999, there were 2,918,095 shares of Common Stock outstanding.
There are 850,000 shares subject to outstanding options to purchase, or
securities convertible into, such shares of stock.
16
<PAGE>
Holders
- -------
As of June 30, 1999 there were approximately 84 holders of record of our
Common Stock. Some 850,682 shares of Common Stock are held by numerous other
shareholders in brokerage accounts under the record name of "Cede & Co."
Dividends
- ---------
We have paid no dividends to our common stockholders and do not plan to pay
dividends on our Common Stock in the foreseeable future. We currently intend to
retain any earnings to finance future growth.
LEGAL PROCEEDINGS
Neither the company nor our property is a party to any pending legal
proceeding or any known proceeding that a governmental authority is
contemplating.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years our company sold the following securities
without registering the securities under the Securities Act of 1933:
<TABLE>
<CAPTION>
No. of
Shares Offering
Date Sold Price
------ -------- --------
<S> <C> <C> <C>
1997 212,600 $186,950
1998 174,515(1) 39,451
4-6-99 586,862 582,612
--------
$809,013
- ------------------------
</TABLE>
(1) Of these shares, 12,965 shares were issued in June 1998 to Diversified
Marketing Co. in exchange for financial public relations services valued at
$3,000.
The shares were sold pursuant to the exemption from registration provided
by Regulation D, Rule 504. The securities were sold through the efforts of our
officers and also through the NASD broker-dealer firm of Atlantic Pacific
Financial, Inc. A commission of ten percent of the proceeds of sales was paid to
Atlantic Pacific Financial, Inc. for sales made by it. No commissions were paid
with respect to sales made by the officers of the company.
With regard to the above Rule 504 public offering sales, we furnished each
prospective investor with an offering memorandum that described our company and
generally met the disclosure requirements of Form 1-A of the Securities and
Exchange Commission.
17
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Texas corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful.
In the case of any action or suit by or in the right of the corporation
against such persons, the corporation is authorized to provide similar
indemnification, provided that, should any such persons be adjudged to be liable
for negligence or misconduct in the performance of duties to the corporation,
the court conducting the proceeding must determine that such persons are
nevertheless fairly and reasonably entitled to indemnification. To the extent
any such persons are successful on the merits in defense of any such action,
suit or proceeding, Texas law provides that they shall be indemnified against
reasonable expenses, including attorney fees.
A corporation is authorized to advance anticipated expenses for such suits
or proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Texas law are not
deemed exclusive of any other rights by which an officer, director, employee or
agent may seek indemnification or payment of expenses or may be entitled to
under any by-law, agreement, or vote of shareholders or disinterested directors.
In such regard, a Texas corporation is empowered to, and may, purchase and
maintain liability insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation. As a result of such corporation
law, the company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the company has been
advised that in the opinion of the Securities and Exchange Commission such
18
<PAGE>
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
19
<PAGE>
FINANCIAL STATEMENTS
There appears below the following financial statements of the company:
Independent accountant's report
of July 27, 1998 .............................................. F-1
Balance Sheet at December 31, 1997 ..................................... F-2
Statements of Operations for the Years Ended
December 31, 1997 and December 31, 1996 ....................... F-4
Statements of Change in Stockholders' Equity
from Inception (November 19, 1992)
to December 31, 1997 .......................................... F-5
Statements of Cash Flows for the Years Ended
December 31, 1997 and December 31, 1996........................ F-7
Notes to Financial Statements, December 31, 1997 ....................... F-8
Independent Auditors Report of August 17, 1999 ......................... F-13
Balance Sheet at December 31, 1998 ..................................... F-14
Statement of Operations for the Year Ended
December 31, 1998 ............................................. F-16
Statement of Cash Flows for the Year Ended
December 31, 1998 ............................................. F-17
Statement of Changes in Stockholders' Equity
from Inception (November 19, 1992)
to December 31, 1998 .......................................... F-18
Notes to Financial Statements, December 31, 1998 ....................... F-20
Balance Sheet (unaudited) at June 30, 1999 ............................. F-24
Statement of Operations for the Six Months Ended
June 30, 1999 and June 30, 1998 ............................... F-26
Statement of Cash Flows for the Six Months Ended
June 30, 1999 and June 30, 1998 ............................... F-27
20
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit No. Description
---------- -------------
3 - Amended and Restated Articles of
Incorporation of Consortium Service
Management Group, Inc.
3.1 - Bylaws of Consortium Service Management
Group, Inc.
10 - Founders' Agreement of United Engineering
Company
10.1 - Statutes (Bylaws) of United Engineering
Company
10.2 - Agreement of April 24, 1996 between
Consortium Service Management Group, Inc.
and The L Group, Inc. concerning tissue
bonding technology
10.3 - Agreement of July 9, 1996 between
Consortium Service Management Group, Inc.
and International Welding concerning
tissue bonding technology
10.4 - Agreement among Consortium Service
Management Group, Inc., United
Engineering Company and Ivan V.
Semenenko, the inventor of the anaerobic
farm waste technology
10.5 - Agreement of June 9, 1998 among
Consortium Service Management Group,
Inc., The Sumy Frunze Machine Building
Science and Production Association, and
United Engineering Company concerning the
anaerobic farm waste technology
10.6 - Agreement between Consortium Service
Management Group, Inc. and Western Waste
Management, Inc. concerning the anaerobic
farm waste technology
10.7 - Agreement between Consortium Service
Management Group, Inc. and Aardema Dairy
concerning the anaerobic farm waste
technology
21
<PAGE>
10.8 - Agreement between Consortium Service
Management Group, Inc. and John and Ruth
Beukers concerning the anaerobic farm
waste technology
10.9 - Agreement of December 1998 between
International Welding Association of
Kiev, Ukraine and Consortium Service
Management Group, Inc. concerning the
carbon dioxide separator technology
22
<PAGE>
JAAK (JACK) OLESK
Certified Public Accountant
270 North Canon Drive, Suite 203
Beverly Hills, California 90210
(310) 288-0693
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Consortium Service Management Group, Inc.
I have audited the accompanying balance sheet of Consortium Service Management
Group, Inc. as of December 31, 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Consortium Service Management
Group, Inc. as of December 31, 1997 and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Jaak Olesk, CPA
Beverly Hills, California
July 27, 1998
F-1
<PAGE>
Consortium Service Management Group, Inc.
BALANCE SHEET
December 31, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets
Cash $ 9,497
Trade Accounts Receivable 17,800
---------
Total Current Assets 27,297
Fixed Assets
Furniture, Fixtures and Equipment 33,868
(Less Accumulated Depreciation) (12,621)
Total Fixed Assets 21,247
Other Assets
Accounts Receivable from United
Engineering Company 383,613
(Less Valuation Allowance) (323,613)
Investment - United Engineering
Company 385,705
Founders Fund 73,843
Total Other Assets 519,548
---------
$ 568,092
=========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
Consortium Service Management Group, Inc.
BALANCE SHEET(continued)
December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Current Liabilities
Accounts Payable $ 33,174
Accrued Expenses 15,000
Taxes Payable 13,997
Notes Payable to Stockholders 310,905
----------
Total Current Liabilities 373,076
Stockholders' Equity Preferred stock,
$0.001 par value 10,000,000 shares
authorized; 75,669 shares issued and
outstanding at December 31, 1997 76
Common stock, $0.001 par value
40,000,000 shares
authorized; 2,096,718 shares issued and
outstanding at December 31, 1997 2,097
Additional paid-in capital 1,042,301
Retained earnings(deficit) (849,458)
Total Stockholders' Equity 195,016
----------
$ 568,092
==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Consortium Service Management Group, Inc.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year
Ended Dec. 31,
--------------
1997 1996
---- ----
<S> <C> <C>
Revenues $ 299,454 $ 246,197
General costs
and expenses:
General and adminis-
trative expenses 590,888 698,413
---------- ----------
(Loss) before income
taxes and interest
in income of
unconsolidated
company (291,434) (452,216)
Income taxes - -
---------- ----------
(Loss) before interest
in income of
unconsolidated company (291,434) (452,216)
Interest in income of
unconsolidated company 259,761 321,403
---------- ----------
NET (LOSS) $ (31,673) $ (130,813)
========== ==========
Net (loss) per share
of common stock $ (.02) $ (.07)
========== ==========
Weighted average
common shares
outstanding 2,008,125 1,884,118
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Consortium Service Management Group, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From Inception (November 19, 1992) to December 31, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained
------------------- ------------------ Paid-In earnings
Shares Amount Shares Amount Capital (Deficit) Total
------- -------- ------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec.
31, 1995 - $ - 1,884,118 $ 1,884 $ 832,608 $(686,972) $ 147,520
Preferred shares
issued for
services on
April 11, 1996 73,958 74 - - 14,958 - 15,032
Preferred
shares
issued for
assets on April
11, 1996 1,711 2 - - 7,998 - 8,000
Net (loss) for
year ended Dec.
31, 1996 - - - - - (130,813) (130,813)
-------- -------- --------- --------- ---------- --------- ---------
Balance, Dec.
31, 1996 75,669 $ 76 1,884,118 $ 1,884 $ 855,564 $(817,785) $ 39,739
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Consortium Service Management Group, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
For the two year period ended December 31, 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained
------------------- ------------------ Paid-In earnings
Shares Amount Shares Amount Capital (Deficit) Total
------- -------- ------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec.
31, 1996 75,669 $ 76 1,884,118 $ 1,884 $ 855,564 $(817,785) $ 39,739
Common shares
issued for cash
during 1997 - - 205,250 205 180,295 - 180,500
Common shares
issued for
services
during 1997 - - 7,350 8 6,442 - 6,450
Net (loss) for
year ended Dec.
31, 1997 - - - - - (31,673) (31,673)
-------- -------- --------- --------- ---------- --------- ---------
Balance, Dec.
31, 1997 75,669 $ 76 2,096,718 $ 2,097 $1,042,301 $(849,458) $ 195,016
======== ========= ========= ========= ========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Consortium Service Management Group, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year
Ended Dec. 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from/(for)
operating activities:
Continuing operations
(loss) from operations $ (31,673) $(130,813)
Depreciation and amortization 5,927 1,761
Issuance of stock for services 6,450 15,032
Valuation allowance-receivable (129,107) 452,720
Changes in assets
and liabilities:
Accounts receivable 51,307 (306,110)
Accounts payable (11,660) 44,834
Accrued salaries (180,000) 180,000
Investment-United
Engineering Company (185,918) (199,787)
Other 324,693 154,500
--------- ---------
Net Cash provided (Used) by
operating Activities: (149,981) 212,137
Cash flows from/(for)
investing activities:
Acquisition of fixed assets (23,890) -
Other - (213,134)
Net Cash provided (used) by
investing activities: (23,890) (213,134)
Cash flows from/(for)
financing activities:
Issuance of shares 180,500 -
--------- ---------
Net cash provided by
financing activities: 180,500 -
Net increase (decrease)
in cash 6,629 (997)
Cash at beginning of period 2,868 3,865
--------- ---------
Cash at end of period $ 9,497 $ 2,868
========= =========
Supplemental disclosures:
Cash paid during the
period for:
Interest $ - $ -
========= =========
Income taxes $ - $ -
========= =========
Noncash financing transactions:
Stock for services $ 6,450 $ 15,032
========= =========
Stock for assets $ - $ 8,000
========= =========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Note 1 - Significant Accounting Policies
Nature of Operations
Consortium Service Management Group, Inc. (the "Company"), a Texas
corporation, was incorporated on November 17, 1992. The planned operations of
the Company are to develop business and investment opportunities in Eastern
Europe, especially Ukraine. The Company is also engaged in the commercialization
of advanced technologies, whereby the Company receives world licensing,
marketing and distribution rights in exchange for technology, commercial
development, marketing and distribution. The Company has successfully placed the
live biological tissue bonding technology with a U.S. manufacturing company and
has contracted for two new medical technologies.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with maturities of less than three months to be cash
equivalents.
Revenue Recognition
Income is earned as recognized by contractual agreements. Revenue from
sales of services is recognized when the services are performed and billable.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment is stated at cost and is depreciated
using the straight - line method over the estimated useful lives of the assets,
primarily five years. Equipment with no continuing value is written off.
Investments in Unconsolidated Companies
Investments in companies in which Consortium Service Management Group, Inc.
has an equity interest of at least 20% but not more than 50% are accounted for
under the equity method. Under this method, the Company records its share of
income or losses as interest in income or losses of unconsolidated companies and
increases or decreases the investment by the equivalent amount.
Foreign Operations
Foreign currency transactions and financial statements are translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52 "Foreign Currency Translation". All balance sheet accounts have been
translated using the current exchange rate at the balance sheet date. Income
Statement accounts have been translated using the average exchange rates during
each reporting period. For the periods presented, the Company had no significant
foreign currency transaction gains or losses.
F-8
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
Note 1 - Significant Accounting Policies (continued)
Loss Per Share
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding during the periods presented. As the effect
would be antidilutive, warrants outstanding are not included in the computation.
Issuance of Shares for Services
Valuation of shares for services is based on the fair market value of
services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Accounting Pronouncements to be Adopted in 1998
During 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Accounting Standards ("SFAS") that are effective for
periods beginning after December 15, 1997 and will be adopted by the Company
during 1998. The Company does not expect that adoption of these Standards will
have a material effect on its financial position, results of operations or on
disclosures within the financial statements.
(1) SFAS No. 130-"Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components.
(2) SFAS No. 131-"Disclosures about Segments of an Enterprise and Related
Information", which establishes new standards for reporting information about
operating segments in interim and annual financial statements.
Income Taxes
The Company records its income tax provision in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes". (See
Note 3).
Reclassifications
Certain prior year amounts have been reclassified to conform with 1997
classifications.
F-9
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
Note 2 - Basis of Presentation and Considerations Related to Continued Existence
(Going Concern)
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $31,673 and $130,813 for the years ended December 31,
1997 and 1996, respectively. These factors, among others, raise substantial
doubt as to the Company's ability to obtain debt and/or equity financing and
achieve profitable operations.
The Company's management intends to raise additional operating funds
through equity and/or debt offerings and the sale of technologies. However,
there can be no assurance management will be successful in its endeavors.
Note 3 - Income Taxes
The Company records its income tax provision in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for deferred income
taxes.
Since the Company has not generated taxable income since inception, no
provision for income taxes has been provided. At December 31, 1997, the Company
did not have any significant tax net operating loss carryforwards (tax benefits
resulting from losses for tax purposes have been fully reserved due to the
uncertainty of a going concern). At December 31, 1997, the Company did not have
any significant deferred tax liabilities or deferred tax assets.
Note 4 - Warrants Outstanding
In 1997, pursuant to an offering made in reliance upon an exemption from
registration provided by Regulation D, Rule 504 of the Securities and Exchange
Commission, the Company sold shares of common stock and stock purchase warrants.
Approximately $180,500 was raised.
Each warrant entitles the holder to purchase one share of the Company's
common stock for $2.00. The warrants expire September 15, 1998. The Company can
call in the warrants on fifteen days notice, if not exercised by the holder
prior to the expiration of the fifteen day notice period, should the Company's
common stock trade at or above a $2.50 reported closing bid or trade price for
ten consecutive trading days. At December 31, 1997 the Company had 361,000
warrants outstanding.
F-10
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
Note 5 - Preferred Stock/Common Stock Split/Stock Options
On April 11, 1996 the Company amended its Articles of Incorporation. The
effects of the amendments were as follows:
The authorized capital was increased to 40 million shares of common stock,
par value $0.001, and 10 million shares of Preferred Stock were authorized, of
which Preferred Stock, a Series A Preferred Stock was designated which consists
of 75,669 shares, each with a $10 face amount entitled to an annual, cumulative
dividend from the net profits of the Company equal to 8% of the face amount,
redeemable out of otherwise undistributed net profits of the Company, and
preferred over the common stock in the event of the liquidation and dissolution
of the Company to the extent of its unredeemed face amount and accumulated
unpaid dividends (the face amount of $10 is solely for dividend calculation, and
liquidation and dissolution calculation; for accounting purposes the par value
is $0.001). On April 11, 1996 the Company issued the Series A Preferred Stock
shares to the following persons:
<TABLE>
<CAPTION>
Person No. of Shares
- ------------------------- -------------
<S> <C>
Donald S. Robbins
(President/CEO and Director) 43,869
Gordon W. Allison
(Executive Vice President, Secretary
and Director) 31,800
--------
75,669
========
</TABLE>
Consideration for the preferred stock issuance consisted of
preincorporation costs, office furniture, vehicle and services rendered to the
Company.
Incidental to the Company's amendment to its Articles of Incorporation
filed April 11, 1996, each previously issued share of Common Stock of the
Company was exchanged for 25 new shares of Common Stock of the Company in a
stock split. Common stock amounts shown for previous years have been restated to
reflect this split.
150,000 shares of the Company's common stock is issuable to each of Messrs.
Robbins and Allison (300,000 shares total) pursuant to stock options. Each
option expires March 31, 2001, and is exercisable at $1 a share.
F-11
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
Note 6 - Investment - United Engineering Company
At December 31, 1997 the Company was a 50% owner of United Engineering
Company ("UEC"), a Ukraine - U.S. joint stock company registered under the laws
of Ukraine. The other 50% of UEC's equity was owned by eight Ukraine
organizations representing fourteen Ukraine organizations, three of which
represent the State Property Fund of Ukraine. All UEC decisions require a 75%
shareholder vote. UEC is a Ukraine joint stock company with foreign investment,
the Company being the foreign investor, and holds a Ukraine license to perform
classified and secret construction works relating to projects that are in the
Ukraine national security sector. For the year ended December 31, 1997 UEC had
revenues of approximately $2,000,000 and a net income of approximately $600,000.
At December 31, 1997 UEC had approximately $890,000 in assets and approximately
$45,000 in liabilities. For the year ended December 31, 1997 the Company had an
interest of $259,761 in the income of UEC. A portion of Investment- United
Engineering Company is shown as Founders Fund. This represents a liquidation
priority.
Note 7 - Change in Accounting Estimate
During 1997, the President/CEO and the Executive Vice President (both of
whom are also significant stockholders) elected not to try and collect back
salaries from the Company (thus estimating they were due zero). At December 31,
1996 it had been estimated that these two officers together were owed
approximately $180,000 in salaries for approximately the three years ended
December 31, 1996.
The above change was recorded by the Company as a change in accounting
estimate. A change in an accounting estimate is not accounted for by restating
prior years' financial statements or by including the cumulative effect of the
change in income. This change in accounting estimate does not affect future
periods.
Note 8 - Notes Payable to Stockholders
These notes consist of short-term (generally one year) unsecured notes with
maturities at varying dates. Primarily, the interest rate is 11%. There was no
significant interest payable at December 31, 1997.
F-12
<PAGE>
INDEPENDENT AUDITORS REPORT
---------------------------
To the Shareholders and Board of Directors
Consortium Service Management Group, Inc.
I have audited the accompanying balance sheet of Consortium Service Management
Group, Inc. as of December 31, 1998, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Consortium Service Management
Group, Inc. as of December 31, 1998, and the results of its operations and cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Oklahoma City, Oklahoma Gary Skibicki
September 7, 1999 Certified Public Accountant
F-13
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
BALANCE SHEET
as of December 31, 1998
---------------ASSETS---------------
<TABLE>
<CAPTION>
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash $50179
Trade Accounts Receivable 17800
Note Receivable 600
-------
Total Current Assets $ 68579
FIXED ASSETS
- ------------
Furniture, Fixtures & Equipment 58518
Less: Accum. Depr. (20331)
-------
Total Fixed Assets 38187
OTHER ASSETS
- ------------
Accounts Receivable from
United Engineering Company 383613
Less: Allowance Doubtful
Accounts (323613)
Investment - United
Engineering Company 522014
Founders Fund 73843
--------
Total Other Assets 655857
---------
Total Assets $ 762623
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-14
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
BALANCE SHEET (Continued)
December 31, 1998
---------------LIABILITIES---------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES
- -------------------
<S> <C> <C> <C>
Accounts Payable $15620
Taxes Payable 13355
Notes Payable to Stockholders 685430
Interest Payable 22904
--------
Total Current Liabilities $ 737309
STOCKHOLDERS EQUITY
- -------------------
Preferred Stock, $.001 Par 76
Value, 10000000 Shares
Authorized; 75669 Shares
Issued and Outstanding
at December 31, 1998
Common Stock $.001 Par Value, 2271
40000000 Shares Authorized;
2271233 Shares Issued and Outstanding
at December 31, 1998
Additional Paid in Capital 1081578
Retained Earnings 1/1/98 $(849459)
Current Year Income (117195)
Foreign Exchange Loss (91957)
Retained Earnings 12/31/98 (1058611)
----------
Total Stockholders Equity 25314
---------
Total Liabilities and Stockholders Equity $ 762623
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-15
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
STATEMENT OF OPERATIONS
JANUARY 1, 1998 - DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues 278929
Cost of Goods Sold 246242
Gross Profit 32687
General and Administrative Expenses 392808
Operating Income (360121)
Interest in Income of Unconsolidated Company 230932
Gain on Asset Exchange 11994
Foreign Currency Loss (91957)
Income from Continuing Operations (209152)
Income Taxes -0-
Net Loss (209152)
Net Loss Per Share of Common Stock $( .10)
Weighted Average Common Shares Outstanding 2111261 Shares
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-16
<PAGE>
CONSORTIUM SERVICES MANAGEMENT GROUP, INC.
STATEMENT OF CASH FLOWS
JANUARY 1, 1998 - DECEMBER 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C>
Net Income (209152)
Dividends From Investee 2666
Depreciation 7710
Decrease Accounts Payable (10292)
and Accured Expenses
Foreign Exchange Loss 91957
Equity Income From Investee (230932)
Interest 95225
--------
Net Cash From Operating Activities (252818)
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Purchase Equipment (24650)
Increase Note Receivable (600)
--------
Cash Used From Investing Activities (25250)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Increase Shareholder Loans 288750
Increase in Stock Issue 30000
--------
Increase Cash From 318750
Financing Activities
Net Increase in Cash 40682
Cash at Beginning of Period 9497
Cash at End of Period 50179
Non Cash Financing Activities
Shareholder Note Payable
Added to Paid in Capital 9450
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-17
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (NOVEMBER 19, 1992) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
NO. PREFERRED PAR NO. COMMON PAR ADDITIONAL DURING DEVELOPMENT
DESCRIPTION SHARES VALUE SHARES(ea) VALUE PAID IN CAPITAL STAGE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Shares Issued for
Services at Inception 1260000 $ 1260 $ 49140 $ 50400
Nov. 19, 1992
Net Loss Year Ended 12/31/92 $( 23882) (23882)
--------- ---------- ---------- --------- ---------- ---------- --------
Balance December 31, 1992 1260000 $ 1260 $ 49140 ( 23882) $ 26518
Common Shares Issued for
Cash During 1993 102063 102 134898 135000
Net Loss Year Ended 12/31/93 (119408) (119408)
--------- ---------- ---------- --------- ---------- ---------- --------
Balance December 31, 1993 1362063 1362 184038 (143290) 42110
Common Shares Issued for
Cash During 1994 320848 320 543182 543502
Common Shares Issued for
Services During 1994 139750 140 5450 5590
Net Loss Year Ended 12/31/94 (288402) (288402)
--------- ---------- ---------- --------- ---------- ---------- --------
Balance December 31, 1994 1822661 1822 732670 (431692) 302800
Common Shares Issued for
Cash During 1995 61457 62 99938 100000
Net Loss Year Ended 12/31/95 (255280) (255280)
--------- ---------- ---------- --------- ---------- ---------- --------
Balance December 31, 1995 1884118 1884 832608 (686972) 147520
Preferred Shares Issued for
Services on April 11, 1996 73958 $ 74 14958 15032
Preferred Shares Issued
For Asset on April 11, 1996 1711 2 7998 8000
Net Loss Year Ended 12/31/96 (130813) (130813)
--------- ---------- ---------- --------- ---------- --------- --------
Balance December 31, 1996 75669 76 1884118 1884 855564 (817785) 39739
Common Shares Issued for
Cash During 1997 205250 205 180295 180500
Common Shares Issued for
Services During 1997 7350 8 6442 6450
Net Loss Year Ended 12/31/97 (31673) (31673)
--------- ---------- ---------- --------- ---------- --------- --------
Balance December 31, 1997 75669 $ 76 2096718 $ 2097 $1042301 $(849458) $195016
</TABLE>
F-18
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION (NOVEMBER 19, 1992) TO DECEMBER 31, 1998
(Continued)
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
NO. PREFERRED PAR NO. COMMON PAR ADDITIONAL DURING DEVELOPMENT
DESCRIPTION SHARES VALUE SHARES(ea) VALUE PAID IN CAPITAL STAGE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Shares Issued for
Cash During 1998 174515 174 $39277 39451
Net Loss Year Ended
12/31/98 $ (209153) (209153)
--------- ---------- ---------- --------- ---------- --------- --------
Balance December 31, 1998 76669 $ 76 2271233 $ 2271 $1081578 $(1058611) $ 25314
</TABLE>
F-19
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Consortium Service Management Group, Inc. (the "Company"), a Texas corporation,
was incorporated on November 17, 1992. The planned operations of the Company are
to develop business and investment opportunities in Eastern Europe, especially
Ukraine. The Company is also engaged in the commercialization of advanced
technologies, whereby the Company receives world licensing, marketing and
distribution rights in exchange for technology, commercial development,
marketing and distribution. The Company has successfully placed the live
biological tissue bonding technology with a U.S. manufacturing company and has
contracted for two new medical technologies.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with maturities of less than three months to be cash
equivalents.
Revenue Recognition
Income is earned as recognized by contractual agreements. Revenue from sales of
services is recognized when the services are performed and billable.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment is stated at cost and is depreciated using the
straight - line method over the estimated useful lives of the assets, primarily
five years. Equipment with no continuing value is written off.
Investments in Unconsolidated Companies
Investments in companies in which Consortium Service Management Group, Inc. has
an equity interest of at least 20% but not more than 50% are accounted for under
the equity method. Under this method, the Company records its share of income or
losses as interest in income or losses of unconsolidated companies and increases
or decreases the investment by the equivalent amount.
Foreign Operations
Foreign currency transactions and financial statements are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency
F-20
<PAGE>
Translation". All balance sheet accounts have been translated using the current
exchange rate at the balance sheet date. Income Statement accounts have been
translated using the average exchange rates during the year. The Company owns a
50% interest in United Engineering Company which was organized in and operates
in the Ukraine. The average exchange rate used to record income was .41542
functional currency to U.S. dollars and the year end exchange rate used was .250
to value the United Engineering investment.
Loss Per Share
The computation of loss per share of common stock is based on the weighted
average number of shares outstanding during the period presented. As the effect
would be antidilutive, warrants outstanding are not included in the computation.
Issuance of Shares for Services
Valuation of shares for services is based on the fair market value of services.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Accounting Pronouncements Adopted in 1998
During 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Accounting Standards ("SFAS") effective for periods
beginning after December 15, 1997 and adopted by the Company during 1998.
Adoption of these Standards did not have a material effect on its financial
position, results of operations or on disclosures within the financial
statements.
(1) SFAS No. 130 - "Reporting Comprehensive Income", established standards for
the reporting and display of comprehensive income and its components.
(2) SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related
Information", established new standards for reporting information about
operating segments in interim and annual financial statements.
Income Taxes
The Company records its income tax provision in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". (See Note
3).
F-21
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE 2
BASIS OF PRESENTATION AND CONSIDERATIONS RELATED
TO CONTINUED EXISTENCE (GOING CONCERN)
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred a net loss
of 209,153 for the year ended December 31, 1998 and this factor combined with
prior year net losses, raises substantial doubt as to the Company's ability to
obtain debt and/or equity financing and achieve profitable operations.
The Company's management intends to raise additional operating funds through
equity and/or debt offerings and the sale of technologies. However, there can be
no assurance management will be successful in its endeavors.
NOTE 3
INCOME TAXES
The Company records its income tax provision in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of
accounting for deferred income taxes.
Since the Company has not generated taxable income since inception, no provision
for income taxes has been provided. At December 31, 1998, the Company had
significant tax net operating loss carryforwards and at December 31, 1998, the
Company did not have deferred tax liabilities or deferred tax assets.
NOTE 4
WARRANTS OUTSTANDING
In 1998, pursuant to an offering made in reliance upon an exemption from
registration provided by Regulation D, Rule 504 of the Securities and Exchange
Commission, the Company offered for sale 400,000 shares of common stock units
(warrant shares) at $2.00 a share. Each unit consisted of one share of common
stock and four warrants that were originally scheduled to expire June 30, 1998.
These warrants were extended to April 6, 1999 at which time 42,500 were
converted to 42,500 shares of common stock at $1.00 per share with the remaining
warrants expiring. Additionally and also on April 6, 1999, the Company issued
177,400 common stock shares at $1.00 par for notes receivable with the stock
certificates held by the Company as collateral.
F-22
<PAGE>
Consortium Service Management Group, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998
NOTE 5
INVESTMENT - UNITED ENGINEERING COMPANY
At December 31, 1998 the Company was a 50% owner of United Engineering Company
("UEC"), a Ukraine - U.S. joint stock company registered under the laws of
Ukraine. The other 50% of UEC's equity was owned by eight Ukraine organizations
representing fourteen Ukraine organizations, three of which represent the State
Property Fund of Ukraine. All UEC decisions require a 75% shareholder vote. UEC
is a Ukraine joint stock company with foreign investment, the Company being the
foreign investor, and holds a Ukraine license to perform classified and secret
construction works relating to projects that are in the Ukraine national
security sector. For the year ended December 31, 1998 UEC had revenues of
approximately $1,700,000 and a net income of approximately $461,000. At December
31, 1998 UEC had approximately $610,000 in assets and approximately $65,000 in
liabilities. For the year ended December 31, 1998 the Company had an interest of
$230,931 in the income of UEC.
A portion of Investment - United Engineering Company is shown as Founders Fund.
This represents a liquidation priority.
NOTE 6
NOTES PAYABLE TO STOCKHOLDERS
These notes consist of short-term (generally one year) unsecured notes with
maturities at varying dates. Primarily, the interest rate is 11%. At year end
interest payable was $22,904. During this first four months of 1999 $260,000 of
notes were exchanged for common stock.
F-23
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
Balance Sheet
June 30, 1999
<TABLE>
<CAPTION>
CURRENT ASSETS
- --------------
<S> <C>
Cash $ 704
Account Receivable - Alba 17,800
Notes Receivable - Current 178,000
--------
Total Current Assets $196,504
FIXED ASSETS
- ------------
Furniture and Fixtures $ 8,118
Equipment 50,400
Accumulated Depreciation (20,331)
--------
Total Property and Equipment $ 38,187
OTHER ASSETS
- ------------
UEC Founders Fund $ 73,843
Account Receivable - TB 60,762
Account Receivable - UEC 383,613
Account Receivable - Other 2,474
Allowance for Doubtful Accounts (323,613)
Investment - UEC 522,014
Employee Advances 26,065
--------
Total Other Assets $745,158
--------
Total Assets $979,849
========
</TABLE>
F-24
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
Balance Sheet (Continued)
June 30, 1999
<TABLE>
<CAPTION>
CURRENT LIABILITIES
- -------------------
<S> <C>
Accounts Payable $ 6,500
Taxes Payable 12,852
Notes Payable to Stockholders 400,225
Interest Payable 22,904
Other Current Liabilities 25,000
----------
Total Current Liabilities $ 467,481
STOCKHOLDERS EQUITY
- -------------------
Preferred Stock $0.001 Par Value $ 76
10,000,000 Shares Authorized
75,669 issued and outstanding
Common Stock $0.001 Par Value 2,622
40,000,000 Shares Authorized
2,322,120 issued and outstanding
Additional Paid-In Capital 1,606,621
Retained Earnings (1,058,611)
Current Year Earnings (38,340)
----------
Total Stockholders Equity $ 512,368
----------
Total Liabilities and
Stockholders Equity $ 979,849
==========
</TABLE>
F-25
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
Statement of Operations
For the Six Months Ending June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
06-30-99 06-31-98
-------- --------
<S> <C> <C>
Revenues $ 90,377 $130,014
Cost of Goods Sold 33,740 92,333
-------- --------
Gross Profit 56,637 37,681
General and Administrative Expenses 94,977 98,378
-------- --------
Operating Income (38,340) (60,697)
-------- --------
Income Taxes 0 0
-------- --------
Net Gain or (Loss) $(38,340) $(60,697)
Net Loss per Share of Common Stock (.013) (.021)
2,918,095 shares outstanding
</TABLE>
F-26
<PAGE>
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
Statement of Cash Flows
For the Six Months Ending June 30, 1999 and June 30, 1998
<TABLE>
<CAPTION>
06-30-99 06-31-98
-------- --------
Cash Flows from Operating Activities
- ------------------------------------
<S> <C> <C>
Net Income $ (38,340) $ (60,697)
Accounts Receivable (60,762) (60,762)
Employee Advances (26,065) (24,200)
Accounts Payable (9,120) (28,060)
Accrued Interest 0 (15,000)
Payroll Taxes Payable (503) (5,761)
Notes Receivable-Current (2,474) (600)
Other Current Liabilities 25,000 (32,260)
--------- ---------
Net Cash Used in Operations $(112,264) $(171,220)
--------- ---------
Cash Flows from Investing Activities
- ------------------------------------
Investment in UEC $ 0 $ 73,843
Equipment 0 (18,000)
--------- ---------
Net Cash Used in Investing $ 0 $ 55,843
--------- ---------
Cash Flows from Financing Activities
- ------------------------------------
Common Stock $ 351 $ 0
Preferred Stock 0 76
Increase in Paid-in Capital 347,643 7,118
Notes Payable (285,205) 98,750
--------- ---------
Net Cash Used in Financing $ 62,789 $ 105,944
--------- ---------
Net Increase (Decrease) in Cash $ (49,475) $ (9,433)
========= =========
Cash Balance at End of Period $ 704 $ (65)
Cash Balance at Beginning of Period (50,179) 9,498
--------- ---------
Net Increase (Decrease) in Cash $ (49,475) $ (9,433)
========= =========
</TABLE>
F-27
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSORTIUM SERVICE MANAGEMENT GROUP,
INC.
Date: September 3, 1999 By /s/ Donald S. Robbins
---------------------------------
Donald S. Robbins, President and
Chief Executive Officer
23
FILED
In the Office of the
Secretary of State of Texas
April 11, 1996
Corporations Section
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
TO THE SECRETARY OF STATE OF TEXAS:
The undersigned Corporation (the "Corporation"), a Texas corporation, for
the purpose of adopting Amended and Restated Articles of Incorporation pursuant
to Section 17-6605 of the Texas General Corporation Code (the "Act"), hereby
certifies:
1. The name of this Corporation is Consortium Service Management Group,
Inc.
2. The name under which this Corporation was originally incorporated was
Consortium Service Management Group, Inc.
3. The Articles of Incorporation of this Corporation were filed with the
Texas Secretary of State on November 17, 1992.
4. The amendments to the Articles of Incorporation are: (a) to change the
provisions relating to the capital stock of the Corporation, (b) to change the
name and address of the registered agent of the Corporation, (c) to add
provisions relating to directors' liability and indemnification, and (d) to
provide the names and addresses of the present directors.
5. The 55,000 shares of Common Stock, no par value, presently outstanding
shall be exchanged for 1,375,000 shares of Common Stock, par value $0.001,
authorized by the Amended and Restated Articles of Incorporation.
6. The amendments contained herein effect a change in the amount of stated
capital, increasing the amount from zero to $50,000.
7. These Amended and Restated Articles of Incorporation were duly adopted
on February 17, 1996 in accordance with Act Section 17-6605, after being
proposed by the directors and adopted by the shareholders (55,000 shares issued
and outstanding) in the manner and by the vote prescribed in Act Section
17-6602, and restate, integrate and further amend the Articles of Incorporation.
Each amendment has been effected in conformity with provisions of the Texas
Business Corporation Act. This instrument accurately copies the Articles of
Incorporation and all amendments thereto that are in effect to date and as
further amended by the Restated Articles
Exhibit 3
Page 1 of 4 Pages
<PAGE>
of Incorporation, and this instrument contains no other change in any provision.
8. The Articles of Incorporation of this Corporation are hereby restated as
further amended hereby, to read in full, as follows:
ARTICLES OF INCORPORATION
OF
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
FIRST: Name. The name of this Corporation is Consortium Service Management
Group, Inc. (the "Corporation).
SECOND: Registered Office. The name and address of the registered agent of
this Corporation in the State of Texas and the address of the registered office
of this Corporation in the State of Texas, which is the same as the address of
its registered agent, are:
Esmeralda Robbins
701 CCNB North Tower
500 North Shoreline
Corpus Christi, Texas 78471
THIRD: Term. The term of this Corporation shall be perpetual.
FOURTH: Purpose. The purpose of this Corporation is to engage in any lawful
act or activity for which corporations may be organized under the Texas General
Corporation Code (the "Act").
FIFTH: Capital Stock. The Corporation is authorized to issue two classes of
stock, both of which shall be voting. One class of stock shall be Common Stock,
par value $0.001. The second class of stock shall be Preferred Stock, par value
$0.001. The Preferred Stock, or any series thereof, shall have such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as shall be
expressed in the resolution of resolutions providing for the issue of such stock
adopted by the board of directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of the board of directors,
provided that the manner in which such facts shall operate upon such
designations, preferences, rights and qualifications, limitations or
restrictions of such class or series of stock is clearly and expressly set forth
in the resolution or resolutions providing for the issuance of such stock by the
board of directors.
The total number of shares of stock of each class which the Corporation
shall have authority to issue and the par value of each share of each class of
stock are as follows:
Exhibit 3
Page 2 of 4 Pages
<PAGE>
<TABLE>
<CAPTION>
No. of
Par Authorized
Class Value Shares Total
----------- --------- ------------
<S> <C> <C> <C>
Common $0.001 40,000,000 $40,000
Preferred $0.001 10,000,000 10,000
50,000,000 $50,000
</TABLE>
Series A Preferred Stock. By action of the directors of the Corporation
taken March 18, 1996, there is designated the Series A Preferred Stock of the
Corporation, which consists of 75,668 shares of the Corporation's authorized
10,000,000 shares of Preferred Stock. Each share of this series shall have a $10
face amount; shall be entitled to an annual, cumulative dividend from the net
profits of the Corporation equal to 8 percent of the face amount; shall be
redeemable by the Corporation out of otherwise undistributed net profits of the
Corporation legally entitled by the laws of Texas for such redemption; and shall
be preferred over the Common Stock in the event of the liquidation and
dissolution of the Corporation to the extent of its unredeemed face amount and
accumulated, unpaid dividends.
SIXTH: Number of Directors; Current Directors. The number of directors of
this Corporation shall be such as from time to time shall be fixed by, or in the
manner provided in, the Bylaws. Election of directors need not be by ballot
unless the Bylaws so provide. Currently there are three directors, Esmeralda G.
Robbins and Donald S. Robbins, both of 701 CCNB Tower North, Corpus Christi,
Texas, 78471, Gordon W. Allison, 5929 N. May Avenue, Suite 511, Oklahoma City,
Oklahoma 73112 and Lois Martin-Dommer, 5929 N. May Avenue, Suite 511, Oklahoma
City, Oklahoma 73112.
SEVENTH: Director's Liability; Indemnification. To the maximum extent
permitted by the Act as it exists on the date hereof or as it may hereafter be
amended, no director of this Corporation shall be liable to this Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director. No amendment to or repeal of this Article SEVENTH shall apply to or
have any effect on the liability or alleged liability of any director of this
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, this Corporation has caused this Certificate to be
signed by its Vice President and attested by its Secretary this 2nd day of
April, 1996.
Consortium Service Management
Group, Inc., a Texas corporation
By: /s/ Gordon W. Allison
---------------------------------
Gordon W. Allison, Vice President
Exhibit 3
Page 3 of 4 Pages
<PAGE>
ATTEST:
(SEAL)
/s/ Gordon W. Allison
- ----------------------------
Gordon W. Allison, Secretary
Exhibit 3
Page 4 of 4 Pages
BYLAWS
OF
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation shall be established and maintained at 701 CCNB North Tower, Corpus
Christi, Texas 78471.
SECTION 2. OTHER OFFICES. The corporation may have other
offices, either within or without the State of Texas, at such place or places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders
for the election of directors and for such other business as may be stated in
the notice of the meeting, shall be held at such place, either within or without
the State of Texas, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date and place
of meeting, the annual meeting of stockholders shall be held at the registered
office of the corporation in Texas on the second Tuesday of May of each year at
11 a.m., local time.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote
Exhibit 3.1
Page 1 of 15 Pages
<PAGE>
shall elect a Board of Directors and they may transact such other corporate
business as shall be stated in the notice of the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any
purpose other than the election of directors may be held at such time and place
as shall be stated in the notice of the meeting.
SECTION 3. VOTING. Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in accordance
with the provisions of these Bylaws shall be entitled to one vote, in person or
by proxy, for each share of stock entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon the demand of any stockholder, the vote for
directors and the vote upon any question before the meeting, shall be by ballot.
All elections for directors shall be decided by plurality vote of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors; and all other questions shall be decided by the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter, except as
otherwise provided by the Certificate of Incorporation or the laws of the State
of Texas.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at
Exhibit 3.1
Page 2 of 15 Pages
<PAGE>
least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as originally noticed shall
be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes may be called by the President or
Secretary, or by resolution of the directors.
Exhibit 3.1
Page 3 of 15 Pages
<PAGE>
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat at
his address as it appears on the records of the corporation, not less than ten
(10) nor more than sixty (60) days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER AND TERM. The number of directors shall be
one or more. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to
Exhibit 3.1
Page 4 of 15 Pages
<PAGE>
serve until his or her successor shall be elected and shall qualify. Directors
need not be stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a committee
or other office may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of
a committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
SECTION 5. INCREASE OF NUMBER. The number of directors may be
increased by amendment of these Bylaws by the affirmative vote of a majority
vote of a majority in interest of the stockholders, at the annual meeting or at
a special meeting called for that purpose, and by like vote the additional
directors may be
Exhibit 3.1
Page 5 of 15 Pages
<PAGE>
chosen at such meeting to hold office until the next annual election and until
their successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all
of the powers of the corporation except such as are by law, or by the
Certificate of Incorporation of the corporation or by these Bylaws conferred
upon or reserved to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole board, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation. Any such committee, to the extent provided in the resolution of
the Board of Directors, or in these Bylaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution, these Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Exhibit 3.1
Page 6 of 15 Pages
<PAGE>
SECTION 8. ANNUAL MEETINGS. The annual meeting of the Board
may be held at such time and place as shall be fixed by a vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order to legally constitute such
meeting.
SECTION 9. REGULAR MEETINGS. Regular meetings of the
directors may be held without notice at such places and times as shall be
determined from time to time by resolution of the
directors.
SECTION 10. SPECIAL MEETINGS. Special meetings of the board
may be called by the President or by the Secretary on the written request of any
two (2) directors on at least two (2) days' notice to each director and shall be
held at such place or places as may be determined by the directors, or as shall
be stated in the call of the meeting.
SECTION 11. QUORUM. A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 12. COMPENSATION. Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any
Exhibit 3.1
Page 7 of 15 Pages
<PAGE>
director from serving the corporation in any other capacity as an officer, agent
or otherwise, and receiving compensation therefor.
SECTION 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board, or of such
committee as the case may be, and such written consent is filed with the minutes
of proceedings of the board or committee.
ARTICLE IV
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the corporation shall be
a President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one (1)
or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers
as they may deem proper. None of the officers of the corporation need be
directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two (2) offices may be held by
the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors
may appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
Exhibit 3.1
Page 8 of 15 Pages
<PAGE>
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors,
if one be elected, shall preside at all meetings of the Board of Directors and
he shall have and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the chief
executive officer of the corporation and shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation. He shall preside at all meetings of the stockholders if
present thereat, and in the absence or non-election of the Chairman of the Board
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or an Assistant Secretary.
SECTION 5. VICE PRESIDENT. Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURER. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the corporation. He shall
deposit all monies and
Exhibit 3.1
Page 9 of 15 Pages
<PAGE>
other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
SECTION 9. SALARIES. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
SECTION 10. REMOVAL. Any officer elected or appointed by the
Board of Directors may be removed from office, with or without cause, at any
time by the affirmative vote of a majority of
Exhibit 3.1
Page 10 of 15 Pages
<PAGE>
the directors present at any meeting of the Board at which a quorum is present.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock,
signed by the President or Vice President, and the Treasurer or an Assistant
Treasurer, or Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number of shares owned by him in the corporation. Any
of or all the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may
be issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom
Exhibit 3.1
Page 11 of 15 Pages
<PAGE>
they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporation action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares as the holder in
fact thereof, and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as may be
otherwise expressly provided by the laws of Texas.
Exhibit 3.1
Page 12 of 15 Pages
<PAGE>
SECTION 6. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall deem conducive to the interests of the
corporation.
SECTION 7. SEAL. The corporate seal shall be circular in form
and shall contain the name of the corporation and the words "CORPORATE SEAL."
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
SECTION 8. FISCAL YEAR. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
SECTION 9. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 10. NOTICE. Whenever any notice is required by these
Bylaws to be given, personal notice is not meant unless expressly so stated, and
any notice so required shall be deemed to be sufficient if given by depositing
the same in the United States
Exhibit 3.1
Page 13 of 15 Pages
<PAGE>
mail, postage prepaid, addressed to the person entitled thereto at his address
as it appears on the records of the corporation, and such notice shall be deemed
to have been given on the day of such mailing. Stockholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by Statute.
SECTION 11. WAIVER OF NOTICE. Whenever any notice whatever is
required to be given under the provisions of any law, or under the provisions of
the Certificate of Incorporation of the corporation or these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
---------------------------------------
EMPLOYEES AND AGENTS
--------------------
To the extent and in the manner permitted by the laws of the
State of Texas, and specifically as is permitted under the general corporation
act, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement.
Exhibit 3.1
Page 14 of 15 Pages
<PAGE>
ARTICLE VII
AMENDMENTS
----------
These Bylaws may be altered or repealed and Bylaws may be made
at any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or Bylaw or Bylaws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or Bylaw or Bylaws to
be made, be contained in the notice of such special meeting. ADOPTED: November
19, 1992
Exhibit 3.1
Page 15 of 15 Pages
FOUNDERS' AGREEMENT JOINT STOCK COMPANY WITH FOREIGN INVESTMENTS
"UNITED ENGINEERING COMPANY"
Article 1
THE FOUNDERS AND FORMATION
The Founders of the Joint Stock Company:
1. The State Property Fund of Ukraine, represented by the President of the Fund,
Mr. Vladimir Priadko, acting in the interests of the state-owned enterprises:
The Production Association "Southern Machine-Building Plant", "Trust # 5 for
Special Construction Works", Construction Bureau "The Southern" ;
2. The "Spivdruznist" Association of Enterprises, by Vyacheslav. M. Taran, the
Managing Director, the legal address: Svobody Str. 2-A, Lozova, Kharkiv Region;
3. The Special Construction and Technology Bureau of the Electrical Welding
Institute ("The Paton Institute") , by Leonid A.Volgin, the Managing Director,
the Legal Address: B.Khmelnitsky Str., 5, Vasilkiv of Kievkaja Region;
4. "Ukrinvestkonversia ltd." - The Limited Liability Company, by Sergij Lutwort,
the President, the legal address: Peremoga Squ., The Officers Club, Vinnitza;
5 . The Limited Liability Company EKSKATT ltd.", by Viacheslav G. Lashkevitch ,
the President, the legal address: Bozenko Str., 11, Kiev;
6. Research and Production Enterprise with Limited Liability "Pivdenexo", by
Nikolay Melnik, the Direktor General, the legal address: Altayskaya str. , 51,
City of Dniepropetrovsk, Ukraine, and
7. Corporation "CONSORTIUM SERVICE MANAGEMENT GROUP - "C.S.M.G." registered in
Texas, USA, the certificate of incorporation issued November 17, 1992, The
Corporation Statutes # 01250009, represented by Donald Robbins, President of the
Corporation, the legal address - 701 CCNB, North Tower 500, N. Shoreline, Corpus
Christi, Texas, 78471, USA.,
have agreed to act as Founders of a closed Joint Stock Company, referred to as
"The Company", to be established in accordance with Ukrainian Law and for the
purpose of production operations and other activities herein set forth. The
Ukrainian Founders and the American Co-Founder listed herein shall be regarded
as original shareholders of the Company (to referred to as "the Founders" or
"the Shareholders"). 1.2. The Governing Laws: The Company establishment and
activities shall be governed by:
- - the effective legislation of Ukraine, "The Law of Ukraine On Business
Associations" in particular, legislation on investments and on foreign
investments in Ukraine and by other legislative acts,
- - by this Founders Agreement and by
- - The Company Statutes that may be subject to amendments from time to time;
Article 2 DURATION
The duration of the Company shall be perpetual.
Article 3 PURPOSES AND FIELDS OF ACTIVITY
Exhibit 10
Page 1 of 8 Pages
<PAGE>
The broad commercial purpose of the Company shall be rendering of all kinds of
engineering services which may be needed for the implementation of the
state-funded and supported and of other military conversion programs and
projects, as well as creation of certain profitable daughter enterprises and
operations. In accordance with the broad commercial purpose the scope of
business activity of the Company shall be:
- - working out and development of programms, projects and technologies, focused
on the liquidation of armaments and participation in the implementation of the
said programms;
- - reconstruction of military objects taken off duty as the result of liquidation
of armaments;
- - liquidation, utilization and salvaging of ammunition, explosive effect
connected works.
- - working out and development of rehabilitation and training programms mainly
for the army officers of the military units to be disbanded as the result of the
armaments reduction to fill the positions in the Company;
- - building and sale on the low interest credit basis of housing for the army
officers leaving the Army in connection with the disarmament;
- - technological engineering services, resulting mainly in providing and
transferring of certain technologies ordered by a third parties for the purpose
of creation of new industrial object or conversion of military production;
- - construction engineering, resulting mainly into the activity which involves
managing supplies of and mounting of specific technological equipment, operating
in special construction and final assembly works; - consulting engineering
including the following: rendering of the intellectual services in projection of
construction sites, working out of the construction strategy, marketing
researches and feasibility studies, organization and managing of open auctions
and tenders for best supply and construction contractors, carrying out of
construction works to install equipment chosen at tender or auction,
coordination of civil engineering works, supply and assembly works;
- - utilization, deep processing and salvaging of discharged metal objects,
marketing, sale, export sales of salvaged metals and of the products resulting
from its salvaging;
- - developing of the technologies and production of the equipment for the needs
of agricultural sector;
- - conversion of military property and hardware taken off duty and its
utilization;
- - building of housing and of other civil objects;
- - leasing of the equipment to the third parties;
Article 4
NAME AND THE LEGAL ADDRESS OF THE COMPANY
The name of the Company shall be:
(a) In Ukrainian: Aktionerne tovaristvo z inozemnimy investiciamy
"OBIEDNANA INGINIRINGOVA COMPANIA"
(b) In English - The Joint Stock Company With Foreign Investments
Exhibit 10
Page 2 of 8 Pages
<PAGE>
"UNITED ENGINEERING COMPANY"
The legal address of the Company is:
Altayskaya Str., 51, Dniepropetrovst 320064, Ukraine.
Article 5 LEGAL STATUS OF THE COMPANY
5.1. The Company is established as a closed Joint Stock Company in accordance
with The Law of Ukraine On Business Associations, i.e. a company which has a
capital fund divided into certain number of shares of equal nominal value and is
liable for its obligations only by its assets. The Company shall also enjoy the
Status of an Enterprise with foreign investments established under the Laws of
Ukraine on Foreign Investments. 5.2. As an enterprise with foreign investment
the Company may create subsidiaries, daughter companies, may acquire stock of
privatized state plants and factories and structure itself as Holding Company,
i.e. a business entity which owns controlling voting stock of daughter companies
and subsidiaries.
5.3. The Company will be liable to the demands of creditors to the extend all
its property and assets, but all shareholders are liable only within the limits
of their share value.
Article 6 CAPITAL FUND AND PERCENTAGE INTERESTS
6.1. Share Capital (Statutory Fund). The authorized share capital of the Company
("Capital Fund") at the moment of its founding to be subscribed and paid in by
the Founders upon Company establishment is one hundred million (100,000,000) of
Ukrainian karbovanetz, or if valued in order to carry out valuation of the
American Partner (the Founder) and the relevant contributions of the Ukrainian
Partners (the Founders) in the contributions convertion into hard convertible
currency - one hundred (100,000) US dollars in accordance with the following
exchange rate agreed between all of the Founders: One (1) US dollar is equal to
one thousand (1000) karbovanetz. This Capital Fund is divided into 10,000 shares
of common stock with a nominal value of UK 10,000 each.
The Founders only shall subscribe to the Company's Share Capita. The Founders
who are Ukrainian legal entities shall pay in their shares by contributing the
relevant sums of cash into the Statutory Fund. The American Founder "C.S.M.G.
inc." shall pay in its shares in kind (by certain equipment) for the total sum
of fifty thousand (50,000) US dollars, to be contributed into the Statutory
Fund: The convertion of "C. S. M. G. inc." in kind" contribution into Ukrainian
Karbovanetz shall carried out in accordance with the previously agreed exchange
rate: one (1) dollar is equal to one thousand (1000) karbovanetz.
1. The State Property Fund shall pay in the aggragate amount of 1875 shares,
that will make up 18,75% equal to 18,750,000 karbovanetz or 18,750 US dollars in
the following way:
(a) The value of 625 shares worth Ukbv.6,250,000 or 6,250 US dollars, that make
up 6,25% of the Share Capital, shall be paid in cash by the Industrial
Production Association "Southern MachineBuilding Plant";
(b) The value of 625 shares worth Ukbv.6,250,000 or 6,250 US dollars that make
up 6,25% of the Share Capital shall be paid in cash by "Trust # 5 for Special
Construction Works";
(c) The value of 625 shares worth Ukbv. 6,250,000 or 6,250 US dollars that make
up 6,25% of the Share Capital shall be paid in cash by the Construction Bureau
"The Southern"; 2: The "Spivdruznist" Association of Enterprises, shall
subscribe and pay in 625 shares worth Ukbv. 6,250,000 or 6,250 US dollars, which
will make 6,25% of the Company's Capital;
3. The Special Construction and Technology Bureau of the Electrical Welding
Institute ("The Paton Institute") shall subscribe and pay in 625 shares worth
Ukbv.6,250,000 or 6,250 US dollars, which will
Exhibit 10
Page 3 of 8 Pages
<PAGE>
make 6,25% of the Company's Capital;
4. "Ukrinvestkonversia ltd.", Limited Liability Company shall subscribe and pay
in 875 shares worth Ukbv.8,750,000 or 6,250 US dollars, which will make 8,75% of
the Company's Capital;
5. The Limited Liability Company "EKSKATT ltd." shall subscribe and pay in 500
shares worth Ukbv. 5,000,000 or 5,000 US dollars, which will make 5% of the
Company's Capital;
6. Research and Production Enterprise with Limited Liability "Pivdenexo , shall
subscribe and pay in 500 shares worth Ukbv. 5,000,000 or 5,000 US dollars, which
will make 5% of the Company's Capital;
7 Corporation "CONSORTIUM SERVICE MANAGEMENT GROUP - "C.S.M. G. shall subscribe
and pay in 5000 shares worth fifty million (Ukbv. 50,000) karbovanetz or fifty
thousand (50,000) US dollars which will make 50% of the Company's capital. The
American Founder(s) shall pay in it's shares in US dollars at the official
exchange rate effective the date of paying in the capital.
Statotur Fund Payment Order:
a) The Founders shall pay in their shares by making certain property
contribution in the amounts and by the schedule set forth by the relevant
regulations of the Ukrainian Legislation;
b) The Founders who are Ukrainian legal entities shall pay in their respective
shares by contributing certain amounts of cash into the Statutory Fund pursuant
Article 3.1. of this Syayutes.
c) The Founder - "C.S.M.G. inc." shall pay in it's shares (5000) by making
contribution in kind (contributing an automobile, a maxi-van and some office
equipment) at the aggregate value of 50,000 US dollars.
The American Founder(s) shall pay in it's shares in US dollars at the official
exchange rate effective the date of paying in the Capital.
6.2. The Company has the right to make Capital Fund increase if all the shares
previously issued were paid in at a price not less then nominal value. The
Capital Fund increase may be made by means of issuance of additional stock or by
share par value increase. 6.3. Increase in Capital Fund Procedures.
a) The Company may increase its Capital Fund after starting operations subject
to decision of Shareholders General Assembly.
b) The Company may also make increase in Capital Fund and make private placement
of additional stock issued, among Ukrainian or us enterprises, which Founders
may deem necessary to associate with the Company's operations. Additional shares
issued also shall be placed between citizens of Ukraine or USA, members of the
Board or the Management of the Company or those who are rendering helpful
services for the Company. Any decision to be taken on the issuance of additional
stock shall be subject of exclusive authority of the General Meeting of the
Shareholders and will need not less then 3/4 majority vote of all the
Shareholders. The said rule shall be also applied to the private offering of
certain amount of stock to the natural persons and legal entities of US or
Ukraine, which may belong to the executive officers of the Company, referred to
in Article 5.1. (e) of the Company's Statutes or the outsiders that ,an provide
valuable services for the Company.
6.4. The issue or private offer price of such newly issued shares may be greater
than their nominal value.
6.5. Shares. The Shares of the Company shall be registered personal shares of
common stock and shall be numbered consecutively. Each shareholder shall be
issued a certificate evidencing his\her ownership in shares of stock in the
Company.
Exhibit 10
Page 4 of 8 Pages
<PAGE>
6.6. Creation of the New Subsidiaries.
',on the decision taken by 3/4 majority vote of the General Meeting the
Shareholders the Company may create its subsidiaries.
6.7. Equal distribution of interests between the American and the Ukrainian
Partners. In any capital increase or private placement of Company's stock policy
the Founders of the Company shall keep the equal distribution of interests in
it's Share Capital pursuant the guideline that neither all the American
Shareholders, nor the Ukrainian Shareholders shall have the ownership and voting
rights exceeding 50% of the Company Authorized Share Capital.
Article 7 FINANCING OF THE COMPANY BUSINESS
7 . 1: The Company shall open, pursuant to the Law of Ukraine, the following
bank accounts: i) a UK account in one of the local Banks;
ii) a USD account in one of the local Banks;
iii) the correspondence accounts in banking institutions of the CIS countries
and other countries of the former Soviet Union;
iiii) a hard currency account in one of the first class European or US banks,
referred to as "Foreign bank account", for the purpose of funding equipment,
operating and other necessary business expenses and to function as a receiving
account for the purpose of depositing the irrevocable letters of credit from the
sale of Companys products to the world markets. This account the Company shall
open after receiving license from the National Bank of Ukraine.
7.2. The Company can use part of the assets invested into the Capital Fund to
cover part of the office expenses costs until first profits appear.
7.3. "S.C.M.G.", in a period that will not exceed 120 days after obtaining by
the Ukrainian Founders of the documents, referred to in the Article 8.3., shall
assist in providing financing for Companys' business in form of a loan up to an
aggregate amount up to two million USD ($ 2 000,000) with the interest rate not
exceeding 9% annually to cover such an operational expenses of the Company that
the shareholders may deem necessary The repayment term shall be 36 month with a
minimum monthly payment of $70,550 and 50% of the profit payback schedule. The
first payment shall be made the first day of the month which will follow
four-month period starting from the the date of obtaining the credit.
7.4. This financing shall be in form of a loan to which the Company will be a
debtor, with loan to be provided by one of US or European Commercial Banks.
7.5. All the founders shall provide working capital to the Company on credit
terms or interest free subsidy.
7.6. The CSMG] shall provide marketing for the Company operations in order to
insure export of the Companys' products to world market at the best average
prices attainable.
7 , 7. The Ukrainian Founders shall be responsible for all the official
approvals, registration certificates or licenses, opening of the Company's
accounts in Ukraine, that may be necessary in connection with the Company
establishment and will bear all the expenses relevant to these activities. The
"SCMG" as a Founder to the Company shall be responsible for the expenses
connected with the opening of Foreign Bank Account.
Article 8. SECURITY OF THE COMPANY DEBT
8.1. Immediately after obtaining of the registration certificate of the Company
Ukrainian Founders shall
Exhibit 10
Page 5 of 8 Pages
<PAGE>
address the appropriate Government authorities of Ukraine and the National Bank
of Ukraine in order to obtain special license for operating the Foreign Bank
account in the Company name, to handle operations referred to in the paragraph
7.1. of this Agreement;
8.2. The US Founder shall retain one of "the big six" accounting firms to
oversee the Foreign bank account operations.
8.3. The Ukrainian Founder shall seek to obtain from the Government of Ukraine a
written document, guaranteeing immediate free export to the world market of no
less then 50% of metals, objects and components, obtained by the Company out of
its salvage of military hardware operations. Should the Ukrainian Founders fail
to get the said document within 30 days after the date of official registration
of the Company, the American Founder may withdraw from the Company notifying the
other Shareholders on its decision in 5 days period .
8.4. On the Condition of the Reception of the Hard Currency Credit The Company
shall pay monthly to the Creditor beginning with the date of the first payment
and each month there after the sum referred to in the Article 7.3.
Article 9
PROFIT OF THE COMPANY AND ITS DISTRIBUTION
9.1. The Company shall keep books and records concerning all profits, losses,
income, expenditures, assets and liabilities.
9.2. Profit of the Company after all allocations to the State Budget (net
profit) if any shall be the Company property. The profit and loss distribution
between the Founders shall be proportional to their respective investments to
the Capital Fund, provided that all extra contributions to the working capital
also shall be refunded.
9.3. The Profits of the Company shall be counted for in accordance with the
accounting regulations effective in Ukraine, though financial statements
prepared in accordance with American accounting standards shall be prepared.
Article 10.
INSURANCE FUND AND LIABILITY OF FOUNDERS.
The insurance fund is created by the Company at the amount of 25 twenty five
percent (25%) of the Capital Fund. The year allocations to the Reserve Fund
shall not be less then 5% of the profit.
Article 11.
FOUNDERS OBLIGATIONS AS TO STARTING SALVAGE OPERATIONS
11.1. Immediately after registration of the Company Ukrainian founder will be
active take every effort in order to provide for the Company:
i) provide locations or shops for the Company operations with necessary elements
of industrial infrastructure in a form of associating other parties with the
Company business ;
ii) provide supplies of objects for dismantling and salvage
Exhibit 10
Page 6 of 8 Pages
<PAGE>
iii) to provide no less then 6 dismantled strategic missiles locations for the
purpose of their usage in the Company's interests
11.2. The US Founder will take efforts in order to provide for the Company:
i) obtaining of the funding for Company operations subject to conditions set
forth hereinunder;
ii) marketing and sales to the World market of the Company products at highest
but competitive prices available;
iii) training of the Company personnel if necessary
iy) funding of the strategic study of the Company's operations at $100,000 after
receiving licese and other documents referred to in Article 8.3. of this
Agreement.
11.3. The sale out of the state-owned stock of the Company shall be carried out
by the State Property Fund of Ukraine in accordance with effective legislation.
Article 12 GENERAL RIGHTS AND RESPONSIBILITY OF THE FOUNDERS
12.1. Founders shall have rights and responsibility pursuant article 1 1 of the
law of Ukraine "On Business Associations" and in addition to those, hereby
undertake the following actions in compliance with article 26 and all other
provisions of the Law on Economic Associations:
(a) they ratify and adopt this Founders' Agreement and approve the Statutes of
the Company; (b) they authorize the undersigned to be their lawful and duly
authorized Representatives to carry out this Agreement, including:
(c) to take all actions necessary to officially register the Company as a joint
stock company, and to register the Statutes as required in accordance with
Ukrainian law;
(d) to constitute a first general meeting of Shareholders following registration
of the Company;
(e) they indemnify and hold harmless their Representatives (the undersigned)
from any and all damage, loss, liability and expense incurred or suffered by
them as a result of their
actions in furtherance of the creation of the Company.
Article 13 GOVERNING BODIES OF THE COMPANY.
13.1. The Founders shall create governing bodies of the Company pursuant to
Ukrainian legislation: General Meeting of the Shareholders Board of Directors,
Supervisory Board and Audit Commission as controlling body.
13.2. General Meeting of the Shareholders shall be convened weekly during the
six month period following the Company official registration and after
expiration of the said term - in accordance with relevant Statutes provisions.
The Shareholders at their meeting shall elect Chairman who will also bear the
title "President of the Company".
13.3. Board of Directors shall consist of ten members; US Founder on his part
and Ukrainian Founders on their part jointly shall designate equal number of
Directors and the Company will conclude a contract with each of the Directors.
Two members of the Board of Directors (one on Ukrainian part and one on US part)
shall be appointed as Directors General. Directors General shall manage every
day operations of the Company and will not be authorized to fund without the
Board of Directors approval assets which
Exhibit 10
Page 7 of 8 Pages
<PAGE>
according to the exchange rate announced by the Bank of Ukraine exceed $500,
except for every day operational expenditures.
Article 14 ARBITRATION.
All disputes that may arise between US Founder and Ukrainian Founders shall be
subject to litigation at the International Commercial Arbitration in Stockholm.
Article 15 FINAL CLAUSES
15. 1. This Agreement shall be effective from the date of its sighing by the
Founders. From this date all other documents (correspondence, protocols of
intent) shall not be effective.
15.2. The document entitled "The Company's Statutes" shall be regarded as Annex
to this Founders' Agreement. Should any provisions of the Founders' Agreement
and the Company's Statutes contradict to each other the relevant provision of
the Founders' Agreement shall prevail.
15.3. This Agreement shall be executed in ten counterparts in Ukrainian and in
three counterparts in English each of which shall be deemed as originals, but in
case of any misunderstanding the English text will prevail.
Exhibit 10
Page 8 of 8 Pages
REGISTERED
by Executive Committee
of the Dnipropetrovsk City
Counsil of Peoples Deputies
Certificate of Registration No of " " 1994
APPROVED
by the Founders' Meeting
Protocol # dated September, 1994
(The Founders Agreement is regarded as an integrated part of the Company's
Statues)
Registration No part of the Company's DEPUTY CHAIRMAN OF THE EXECUTIVE Statutes)
COMMITTEE I.I.KULICHENKO STATUTES of the,
JOINT STOCK COMPANY WITH FOREIGN INVESTMENTS "UNITED ENGINEERING COMPANY"
The City of Dnipropetrovsk - 1994
STATUTES "UNITED ENGINEERING COMPANY" JOINT STOCK COMPANY
ARTICLE I. DEFINITIONS
1.1. "Capital Fund" is the authorized share capital of the joint stock company
with foreign investments "United Engineering Company" ("The Company") divided
into certain number of personal shares of common stock with a specified nominal
value as provided in Article 3.1. hereof.
1.2. "Founders" Founders' Representatives" shall have the meanings set forth in
Article 2.1. hereof. Other words and terms used in these Statutes, including
"Shareholders", Shareholders' Meeting", "General meeting "Extraordinary Meeting
, Annual Meeting", "Board Directors", "Directors", "Chairman", "Audit
Commission", "Annual Accounts", "Reserve Fund", "Social Development Fund" ,
.,Agenda", "Audit Report", and "Liquidation Commission" shall have their plain
meanings unless a contrary meaning or definition is specifically provided or
unless the context in which the word or term is used makes clear that it is
intended to have a different ferent meaning.
ARTICLE II. FORMATION AND LEGAL STATUS
2.1. Founders and Founders' Representatives.
1. The state Property Fund of Ukraine, represented by the President of the Fund,
Mr Vladimir Priadko, acting in the interests of the state-owned enterprises: The
Production Association "Southern Machine-Building Plant", "Trust # 5 for Special
Construction Works", Construction Bureau "The Southern";
2. The "Spivdruznist" Association of Enterprises, by Vyacheslav. M . Taran, the
Managing Director, the legal address: Svobody Str. 2-A, Lozova, Kharkiv Region;
3. The Special Construction and Technology Bureau of the Electrical Welding
Institute ("The Paton Institute"), by Leonid A.Volgin, the Managing Director,
the Legal Address: B. Khmelnitsky Str., 5, Vasilkiv of Kievkaja Region;
4. "Ukrinvestkonversia ltd.", Limited Liability Company, by
2
Sergij Lutwort, the President, the legal address: Peremoga Squ., The Officers
Club, Vinnitza;
5 . The Limited Liability Company "EKSKATT ltd.", by Viacheslav G . Lashkevitch,
the President, the legal address: Boenko Str.1, Kiev;
Exhibit 10.1
Page 1 of 15 Pages
<PAGE>
6. Research and Production Enterprise with Limited Liability "Pivdenexo" , by
Nikolay Melnik, the Direktor General, the legal address: Altayskaya str., 51,
City of Dniepropetrovsk, Ukraine, and
Corporation "CONSORTIUM SERVICE MANAGEMENT GROUP -
"C. S. M.G" registered in Texas, USA, the certificate of incorporation issued
November 17, 1992, the Corporation Statutes # 1250009, represented by Donald
Robbins, President of the Corporation, the legal address - 701 CCNB, North Tower
500, N. Shoreline, Corpus Christi, Texas, 78471, USA.
2.2. Governing Law and Principles. The establishment and activity of the Company
is governed by:
(a) the legislation of Ukraine;
(b) the Founders' Agreement, incorporated herein by this reference; and
(c) these Statutes, as they may be amended from time to time.
2.3. Purpose and scope of business.
The broad commercial purpose of the Company shall be rendering of all kinds of
engineering services which may be needed for the implementation of the
state-funded and supported and of others Ukrainian national military conversion
programs and projects, as well as creation of certain profitable daughter
enterprises and operations that may result from military conversion programs.
accordance with the broad commercial purpose the scope of business activity of
the Company shall be:
- - working out and development of programms, projects and technologies, focused
on the liquidation of armaments and participation in the implementation of the
said programms;
- - reconstruction of military objects taken off duty as the result of liquidation
of armaments; - liquidation, utilization and salvaging of ammunition, explosive
losive effect connected works.
- - working out and development of rehabilitation and training programms mainly
for the army officers of the military units to be disbanded as the result of the
armaments reduction to fill the positions in the company;
- - building and sale on the low interest credit basis of housing for the army
officers leaving the Army in connection with the disarmament ;
- - technological engineering services, resulting mainly in providing and
transferring of certain technologies ordered by a third parties for the purpose
of creation of new industrial object or conversion of military production
- - construction engineering, resulting mainly into the activity which involves
managing supplies of and mounting of specific technological equipment, operating
in special construction and final assembly works;
- - consulting engineering including the following: rendering of the intellectual
services in projection of construction sites, working out of the construction
strategy, marketing researches and feasibility studies, organization and
managing of open auctions and tenders for best supply and construction
contractors, carrying out of construction works to install equipment chosen at
tender or auction, coordination of civil engineering works, supply and assembly
works;
- - utilization, deep processing and salvaging of discharged metal objects,
marketing, sale, export sales of salvaged metals and of the products resulting
from its salvaging;
- - developing of the technologies and production of the equipment for the needs
of agricultural sector;
- - conversion of military property and hardware taken off duty and its
utilization;
Exhibit 10.1
Page 2 of 15 Pages
<PAGE>
- - building of housing and of other civil objects;
- - leasing of the equipment to the third parties;
The Company may become engaged in any works or operations which the Parties may
deem necessary and conductive to the Company's purposes and are not explicitly
prohibited by the legislation of Ukraine. 2.4. Name. The name of the Company is:
Joint Stock Company with Foreign Investments-United Engineering Company",
2.5. Address. The legal address of the Company is:
Ukraine, 51 Altayska Str., Dnipropetrovsk, # 320064
2.6. Duration. The Company is established for an indefinite period.
2.7. Juridical Status.
2.7.1. The Company is a "closed" joint stock company
established in accordance with Ukrainian law.
2.7.2. The Founders' Agreement of the Company provides a
gradual Capital Increase of the Company by engagement of the additional
investment.
2.7.3. The Company shall acquire the rights and
liabilities of a legal entity in accordance with Ukrainian law at the time of
its registration. The Company shall have rights to maintain and use its own
seal, stamp, emblem, operational account and other bank accounts (in Ukrainian
national currency and in foreign currency pursuant to effective Ukrainian
currency regulations).
2.8. Limitation of Liability. The Company is liable for its undertakings to the
extent of its assets. The shareholders are not liable for the Company's
undertakings, except to the extent of the contributions of the shareholders to
the Company, and the Company is not liable for the undertakings of the
shareholders.
ARTICLE III. SHARE CAPITAL-AND SHARES
3.1. Share Capital (Statutory Fund). The authorized share capital of the Company
("Capital Fund") at the moment of its founding to be subscribed and paid in by
the Founders upon Company establishment is one hundred million (100,000,000) of
Ukrainian karbovanetz, or if valued in order to carry out
I
valuation of the American Partner (the Founder) and the relevant contributions
of the Ukrainian Partners (the Founders) in the contributions convertion into
hard convertible currency - one hundred (100,000) US dollars in accordance with
the following exchange rate agreed between all of the Founders: one (1) US
dollar is equal to one thousand (1000) karbovanetz. This Capital Fund is divided
into 10,000 shares of common stock with a nominal value of UK 10,000 each. The
Founders only shall subscribe to the Company's Share Capita. The Founders who
are Ukrainian legal entities shall pay in their shares by contributing the
relevant sums of cash into the Statutory Fund. The American Founder "C.S.M.G.
inc." shall pay in its shares in kind (by certain equipment) for the total sum
of fifty thousand (50,000) US dollars, to be contributed into the Statutory
Fund. The convertion of "C.S.M.G. inc." "in kind" contribution into Ukrainian
Karbovanetz shall carried out in accordance with the previously agreed exchange
rate: one (1) dollar is equal to one thousand (1000) karbovanetz.
1. The State Property Fund shall pay in the aggragate amount of 1875 shares,
that will make up 18,75% equal to 18,750,000 karbovanetz or 18,750 US dollars in
the following way:
Exhibit 10.1
Page 3 of 15 Pages
<PAGE>
(a) The value of 625 shares worth Ukbv. 6,250,000 or 6,250 US dollars that make
up 6,25% of the Share Capital, shall be paid in cash by the Industrial
Production Association "Southern Machine-Building Plant";
(b) The value of 625 shares worth Ukbv. 6,250,000 or 6,250 US dollars that make
up 6,25% of the Share Capital shall be paid in cash by Trust # 5 for Special
Construction Works";
(c) The value of 625 shares worth Ukbv. 6,250,000 or 6,250 VS dollars that make
up 6,25% of the Share Capital shall be paid in -ash by the Construction Bureau
"The Southern";
2. The "Spivdruznist" Association of Enterprises, shall subscribe and pay in 625
shares worth Ukbv. 6,250,000 or 6,250 US dollars, which will make 6,25% of the
Company's Capital;
' - The Special Construction and Technology Bureau of the Electrical Welding
Institute ("The Paton Institute") shall subscribe and pay in 625 shares worth
Ukbv.6,250,000 or 6,250 US dollars, which will make 6,25% of the Company's
Capital;
4. "Ukrinvestkonversia ltd.", Limited Liability Company shall subscribe and pay
in 875 shares worth Ukbv. 8,750,000 or
6,250 US dollars, which will make 8,75% of the Company's Capital;
5 The Limited Liability Company "EKSKATT ltd." shall subscribe and pay in 500
shares worth Ukbv. 5,000,000 or 5,000 US dollars, which will make 5% of the
Company's Capital;
6. Research and Production Enterprise with Limited Liability
"Pivdenexo" shall subscribe and pay in 500 shares worth Ukbv. 5,000,000 or 5,000
US dollars, which will make 5% of the Company's Capital; 7 Corporation
"CONSORTIUM SERVICE MANAGEMENT GROUP - "C.S.M.G." shall subscribe and pay in
5000 shares worth fifty million Ukbv. 5 000) karbova etz or fifty thousand (5
000) US dollars which will make 50% of the Company's capital. The
American Founder(s) shall pay in it's shares in US dollars at the official
exchange rate effective the date of paying in the Capital.
Statotury Fund Payment Order:
a) The Founders shall pay in their shares by making certain property
contribution in the amounts and by the schedule set forth by the relevant
regulations of the Ukrainian Legislation;
b) The Founders who are Ukrainian legal entities shall pay in their respective
shares by contributing certain amounts of cash into the Statutory Fund pursuant
Article 3.1. of this Syayutes.
c) The Founder - "C.S.M.G. inc." shall pay in it's shares (5000) by making
contribution in kind (contributing an automobile, a maxi-van and some office
equipment) at the aggregate value of 50,000 US dollars.
The American Founder(s) shall pay in it's shares in US dollars at the official
exchange rate effective the date of paying in the Capital.
13.2 - The Company has the right to make Capital Fund increase if a 1 the shares
previously issued were paid in at a price not less then nominal value. The
Capital Fund increase may be made by means of issuance of additional stock or by
share par value increase.
3.3. Future Increase in Capital Fund.
a) The Company may increase its Capital Fund after starting operations subject
to decision of Shareholders General Meeting.
Exhibit 10.1
Page 4 of 15 Pages
<PAGE>
b) The Company may also make increase in Capital Fund and make private placement
of additional stock issued, among Ukrainian or US enterprises, which Founders
may deem necessary to associate with the Company's operations. Additional shares
issued also shall be placed between citizens of Ukraine or USA, members of the
Board or the Management of the Company or those who are rendering helpful
services for the Company. Any desicion to be taken on the issuance of additional
stock shall be subject of exclusive authority of the General Meeting of the
Shareholders and will need not less then 3/4 majority vote of all the
Shareholders. The said rule shall be also applied to the private offering of
certain amount of stock to the natural persons and legal entities of US or
Ukraine, which may be members of the management or the stuff members of the
Company or the outsiders that can provide valuable services for the Company.
3.3. The issue or private offer price of such newly issued shares may be greater
than their nominal value.
3.4. The shares shall be registered shares and shall be numbered consecutively.
Each shareholder shall be issued a certificate evidencing his\her ownership in
shares of stock in the Company.
3.5. Additional Investments by creating the new subsidiaries.
Upon the decision taken by 3/4 majority vote of the General Meeting of the
Shareholders the Company may create subsidiaries.
3.6. Equal distribution of interests between the American and the Ukrainian
Partners. In any capital increase or private placement of Company's stock policy
the Founders of the Company shall keep the equal distribution of interests in
it's Share Capital pursuant the guideline that neither all the American
Shareholders, nor the Ukrainian Shareholders shall have the ownership rights
exceeding 50% of the Company Capital.
3.7. Shareholders' Register. The Board of Directors shall keep a shareholders'
register in which shall be entered the names and addresses of all shareholders,
the amount paid up on each share, the amount of any shareholder loans or
credits, and the amount of any dividend or other distributions paid or owing to
shareholders. On being so requested, the Board of Directors shall furnish (free
of charge) a shareholder with an extract from the register insofar as it relates
to
8
his shares. The register also shall be available during normal business hours at
the Company's principal offices for perusal and inspection by the shareholders.
3.8 Transfer of Shares. The transfer of shares shall require an instrument of
transfer and service of such instrument upon the Company, or the written
acknowledgement of such transfer by the Company by an entry in the shareholders'
register.
3.9. Reduction of Share Capital.
3.9.1. The General Meeting may resolve to reduce the
issued share capital by cancelling shares or by reducing the nominal value of
shares by means of an amendment to the Statutes, provided that a resolution to
cancel shares can only relate to shares which are held by the Company itself.
3.9.2. Reduction of the nominal value of shares of any
class without repayment, as well as partial repayment on shares, shall only be
made to the same amount in respect of all the shares of the same class, except
if determined otherwise by a resolution passed by the majority of all
shareholders. The notice convening a meeting at which such a resolution is
passed, shall state the purpose of the reduction of the share capital.
3.10. Additional Matters Affecting Shares.
Exhibit 10.1
Page 5 of 15 Pages
<PAGE>
3.10.1. The Company shall notify the shareholders of the
proposed issue and the period during which the preferential right can be
exercised. Such period shall not be less than four (4) weeks from the date of f
the notice.
3.10.2. Shares can only be issued against payment in full. 3.10.3. The Company
cannot subscribe its own shares or
acquire previously subscribed, issued and fully paid shares in its own share
capital unless prior authorization has been given either by the Founders or,
upon their election, by the Supervisory Board and the Board of Directors.
Notwithstanding the foregoing, the Company is free (i) to acquire previously
issued shares of stock whose nominal value does not exceed, in the aggregate,
five percent (5%) of the Company's Capital Fund for the purpose of establishing
an executive compensation plan in accordance with Article 10.2. hereof;
3.10.4. The Company cannot cast votes on shares held by
itself.
ARTICLE IV. CONTRIBUTIONS TO THE RESERVE FUND AND OTHER FUNDS
4.1. Establishment of Certain Funds. In addition to the Capital Fund, the
Company shall create and maintain the following funds:
(a) Reserve Fund;
(b) such other funds as the Board of Directors (or Supervisory Board and Board
of Directors jointly) may deem necessary.
4.2. Allocations. The Board of Directors, after notice to the Supervisory Board,
commencing after the first year of operations, shall annually determine the sums
to be allocated to the funds created by the Company prior to any dividend
distribution; provided that if and to the extent required by Ukrainian law, sums
must be allocated to the Reserve Fund to ensure that the Reserve Fund equals or
exceeds twenty five percent (25%) of the Capital Fund by the end of any
statutorily required period, and the annual contribution to the Reserve Fund
shall be at least five percent (5%) of the annual net profit of the Company.
4.3. Use of Funds. The Board of Directors shall determine the use of the funds
in the interests of the Company, in accordance with the purposes of said funds
and in compliance with the operating principles of the Company as described
herein.
ARTICLE V. GOVERNING BODIES OF THE COMPANY
5.1. Governing Bodies. The governing bodies of the Company are:
(a) the Shareholders' Meeting, the President and two VicePresidents who chair
the Shareholders' Meeting;
10
(b) the Board of Directors;
(c) the Supervisory Board;
(d) the Audit Commission; and
(e) the executive officers of the Company, including the members of the Board,
and those Company employees who are designated as such by the full Board of
Directors.
Exhibit 10.1
Page 6 of 15 Pages
<PAGE>
5.2. Signing on Behalf of the Company. Unless otherwise decided by the
Shareholders' Meeting, the General Directors shall be the authorized signatories
of the Company.
ARTICLE VI. SHAREHOLDERS' MEETINGS
6.1. Highest Authority. The highest decision-making body of the Company is the
Shareholders' Meeting, acting either as the General Meeting or Extraordinary
Meeting of Shareholders. The Shareholders' Meeting shall, within the limits set
by Ukrainian law and these Statutes, be vested with all powers and authorities
not conferred upon other governing bodies of the Company.
6.2. Annual and General Meetings.
6.2.1. There shall be at least one General Meeting of
Shareholders annually (the "Annual Meeting"), unless the shareholders decide to
call more frequent General Meetings. The Annual Meeting shall 1 be called by the
Board of Directors and held within four (4) months of the end of the Company's
financial year. It shall be convened for the purposes of:
(a) considering and approving the Annual Accounts;
(b) approving the annual Audit Report of the Audit Commission;
(c) appropriating the profit and determining the manner in which any losses are
to be covered;
(d) approving executive compensation plans, including fixing any bonuses for the
Directors, Supervisory Board Directors and executive officers of the Company;
and (e) doing all such other things as are prescribed by law or as are proposed
for its action by the Board of Directors and/or the Supervisory Board.
6.2.2. In addition to the matters to be addressed by the
Annual Meeting of Shareholders, any General or Extraordinary Meeting of
Shareholders shall be competent, in accordance with Ukrainian law, to address
the following matters:
(a) those matters whose approval requires a three-fourths (3/4) vote of all
shareholders, as specified in Article 6.10. below;
(b) defining the basic direction of the Company's activity and approving
business plans and reports about their realization;
(c) appointment and dismissing members of the Board of f Directors, election of
the Supervisory Board and the Audit Commission (subject to Articles 7.1., 8.1.
and 9.1. below, applicable to the above-mentioned three governing bodies
respectively); and
(d) adopting operating rules and other internal policies and documents relating
to the Company's organizational structure.
6.3. Extraordinary Meetings. An Extraordinary Meeting of
Shareholders shall be held if any of the following occurs:
(a) the Board of Directors or the Supervisory Board ascertains that the company
is insolvent and more than half of the Company's capital has been lost;
(b) the Board of Directors or the Supervisory Board issues a notice at the
request of one or more shareholders
Exhibit 10.1
Page 7 of 15 Pages
<PAGE>
controlling more than twenty percent (20%) of the vote;
(c) the Board of Directors or the Supervisory Board issues a notice upon
determining that the interests of the company require such a meeting; or
(d) the Audit Commission issues a notice upon determining that the vital
interests of the Company are threatened
12
or there is a misuse of Company assets by officers or employees.
6.4. Notices. The notice of a General or Extraordinary Meeting shall include the
following:
(a) the name and seat of the Company;
(b) the date and place and time of the Meeting;
(c) the items of business to be transacted at the Meeting (the "Agenda"); and
(d) specification as to whether it is a General or Extraordinary Meeting.
At least forty-five (45) days prior to the date of the Meeting, the notice shall
be mailed or delivered to the shareholders at their addresses as shown on the
shareholders' register. Where a Meeting has been convened with a period of
notice shorter than the prescribed period of notice or where such a Meeting is
held without notice, then a valid resolution can only be passed by the unanimous
vote of all shareholders attending the Meeting. Where at a General Meeting ing
items of business are brought up for . discussion which have not been announced
in the convening notice (or in a supplemental convening notice with due
observance of the period of notice prescribed for the convening of Meetings), a
valid resolution can only be passed thereon by the unanimous vote of all
shareholders attending the Meeting.
Each 0 of the Shareholders can put his proposal as to the Agenda of the General
Meeting but not later then 40 days prior to the General Meeting. Within the same
period of time the group of Shareholders having an aggregate amount of 10% of
the vote may insist on submitting certain matter to the Agenda. All the
Shareholders must have a possibility to see the documents relevant to the
Agenda. The General Meeting shall not be authorized to consider matters which
were not included into the Agenda.
6.5. Quorum. A quorum shall exist at any Shareholders' Meeting if at least
seventy five percent (75%) of all of the shareholders who are entitled to vote
are present or represented by proxy.
6.6. Proxies. Any shareholder may be represented at a Meeting by a proxy,
provided that all proxy designations must be in
13
writing. No proxy shall be valid after the expiration of six (6) months from the
date of the proxy unless otherwise specified in the proxy. A shareholder that is
a legal person may exercise its voting rights through any statutory body
authorized to act on its behalf.
6.7. Chairman. Shareholder Meetings shall be presided over by the President of
the Company and in his absence by one of the Vice-Presidents. If such
individuals are prevented from performing their duties, the Meeting itself shall
choose its chairman.
6.8. Minutes. The chairman of the Meeting shall designate a secretary, who need
not be a shareholder, to take minutes of the business transacted, which minutes
shall be recorded in a book intended therefor. Minutes shall be confirmed as a
true and accurate account of the business transacted at the
Meeting
Exhibit 10.1
Page 8 of 15 Pages
<PAGE>
eet ng by the chairman and the secretary of the Meeting, both of whom shall be
obliged either during the Meeting or at a subsequent Meeting to sign the minutes
as representing a true and accurate account. Minutes need not be taken if a
notarial record is prepared of the business transacted at the Meeting.
6.9. Voting.
6.9.1. The shareholders present in person or represented
by proxy shall determine the manner of the voting procedure (secret ballot or
open) for each issue on the Agenda. No vote shall be taken on any matter not
indicated in the Agenda, unless all shareholders in attendance approve of such
vote.
6.9.2. Each share (except any "restricted" non-voting
share) shall entitle the holder thereof to cast one vote. All resolutions shall
be passed by an absolute majority of votes, unless Article 6.10 of these
Statutes prescribes a larger majority. Blank votes shall be regarded as not
having been cast.
6.9.3. Valid votes shall not be cast by persons who in
any capacity other than as shareholders would by the resolution to be passed be
granted any right as against the Company or released from any obligation towards
it.
6.10. Resolutions Without a Meeting Being Held. The
shareholders can also pass resolutions without holding
14
a Meeting, provided always that the votes cast in connection with any such
resolution are evidenced in writing (including by telex, telefax or telegram)
and, further, such resolution is passed by three-fourths (3/4) or more of all
the shareholders. Resolutions that have been passed without holding a Meeting
shall, together with the records relating thereto, be entered in the relevant
minute-book and be read out at the next Meeting.
6.11. Super-Majority Decisions. Notwithstanding any
provision hereof, decisions on the following matters shall require three-fourths
(3/4) or more of the votes of shareholders attending and entitled to vote at a
Shareholders Meeting:
(a) changing the purpose of the Company's activities;
(b) any amendment of the Company's Statutes (except the First and Second
Amendments attached hereto, which have been approved by the Founders);
(c) establishment, reorganization and liquidation of branch enterprises,
affiliates and agents of the Company, and ratification of their statutes and
regulations;
(d) passage of resolutions regarding the imposition of liability on Company
Directors or officers, or suspending or removing Directors or officers from
office for cause;
(e) overruling decisions of the Board of Directors concerning conditions of
payment for the work of employees of the Company, its branch enterprises,
affiliates and agents; and
(f) cessation of the Company's activity, appointment of a liquidation
commission, and/or acceptance of the liquidation balance -
Exhibit 10.1
Page 9 of 15 Pages
<PAGE>
(k) Capital increase or reduction including the additional issuance of shares
for the purpose of private placement of these shares among other shareholders,
legal entities or individuals.
ARTICLE VII. BOARD OF DIRECTORS
7.1. Number and Appointment.
7.1.1. The Company shall be managed by the Board of
Directors consisting of no more then ten (10) Directors, provided the number
will be always odd. The Board of Directors is authorized to consider any matters
which are not within the authority of other bodies of corporate governance of
the Company.
7.1.2. The Founders have elected and appointed the
initial Board of Directors consisting of ten members; US Founder on his part and
Ukrainian Founders on their part shall designate equal number of Directors and
the Company will conclude a contract with each of the Directors, 5 persons from
each side. Two members of the Board of Directors (one on Ukrainian part and one
on US part) shall be appointed as Directors General. The responsibilities of the
Directors Generals are dealt with in article 13.3 of the Founders' Agreement.
7.1.3. The Chairman may also be given the title of
"President" and the other Directors may be given such titles as the Founders or
a Shareholders' Meeting may determine.
7.1.4. Subject to Article 7.1.2. above, a General Meeting
may in the future appoint the Board of Directors, fix their term of office and
remuneration, and determine the other conditions of service of the Directors.
The General Meeting also may at any time suspend or remove a Director for cause
prior to the expiration of his term of office, upon a three-fourths (3/4) vote
of shareholders as provided in Article 6.10.
7.2. Duties. The Board of Directors and its delegates represent the Company with
respect to third parties, before courts and other legal bodies, and manage the
daily operations of the Company. The Chairman shall determine the duties to be
discharged by the other Directors to the extent that the General Meeting has not
done so by resolution. The Board of Directors also may create subcommittees of
the full Board, including an Executive Committee, consisting of such number of
Directors and having such functions and authorities as the Board determines.
7.3. Meetings and Decisions.
7.3.1. Any Director can call a meeting of the Board of
Directors. Meetings of the Board can be held only if at least the majority of
the members is present Meeting of the Board shall be held weekly and may be
conducted through speakerphone conference.
7.3.2. one of the Director General shall preside at
meetings of the Board of Directors.
7.3.3. The Board shall pass all resolutions by absolute
majority of votes, each Director having one vote. In the event of an equality of
votes, the Chairman shall have a casting vote; or the Board may by majority vote
decide that a matter shall be decided by the Supervisory Board.
Blank votes shall be null and void.
Exhibit 10.1
Page 10 of 15 Pages
<PAGE>
7.3.4. Minutes shall be taken of the business transacted
at any meeting. Such minutes shall be entered in the book intended therefor. The
minutes shall be confirmed as a true and accurate account of the business
transacted at the meeting by the chairman and the secretary of the meeting
concerned, both of whom shall be obliged either during the meeting or at a
subsequent meeting to sign the minutes as representing a true and accurate
account.
7.3.5. The Board of Directors may also pass resolutions
without holding a meeting, provided that any such resolution is set forth in
writing (including a telex, telefax or telegram).
7.4. Vacancies. Where the office of a Director is vacated or where a Director is
otherwise prevented from acting, the management of the Company shall be vested
in the remaining Directors. In the event that the offices of all Directors are
vacated or where all the Directors are otherwise prevented from acting, the
Supervisory Board shall temporarily be vested with the management of the
Company's business, without prejudice to its power in that event to entrust such
management to one or more persons, whether or not from among its members, but
only until such time as a new Board of Directors is appointed by a Shareholders'
Meeting. ARTICLE VIII. SUPERVISORY BOARD
8.1. Number and Appointment.
8.1.1. The Company shall have a Supervisory Board
consisting of three (3) or more members. The General Meeting shall determine the
actual number of Supervisory Board members.
8.1.2. The initial Supervisory Board Directors shall have
a term of office of two (2) years, and they may stand for re-election and serve
additional terms of office fice if so elected by a Shareholders' Meeting.
8.1.3. Subject to Article 8.1.2. above, a General Meeting
may appoint the Supervisory Board Directors, fix their term of office and
remuneration, and determine their other conditions of service. The General
Meeting may also at any time suspend or remove them from office, for cause or
without cause prior to the expiration of their term of office.
8.2. Duties. The Supervisory Board shall oversee and supervise the management of
the Company by the Board of Directors, for the purpose of ensuring that the
general state of the business and affairs of the Company are carried out in
accordance with the principles of these Statutes and applicable Ukrainian law.
In the exercise of their duties of office, the Supervisory Directors shall be
guided by the interests of the Company and shall be free to give advice and make
recommendations on any matter to the Board of Directors and/or to a
Shareholders' Meeting. Notwithstanding the generality of the foregoing and in
addition to its other rights and responsibilities as specified in these
Articles, the Supervisory Board shall be empowered to:
(a) check all books and records of the Company, and annually to review and
approve the Annual Accounts and Report of the Audit Commission;
(b) take the advice of experts in such fields as it may deem desirable for the
performance of its tasks; and
(c) suspend a member of the Board of Directors from office in the event there
has been a misuse of Company assets or abuse of power by the Director and after
notice to
18
Exhibit 10.1
Page 11 of 15 Pages
<PAGE>
the General Meeting, provided that the suspension from office may be terminated
by the General Meeting by a majority of votes cast.
8.3. Meetings and Decisions.
8.3.1. Any Supervisory Board Director can call a meeting
of the Supervisory Board. Meetings of the Supervisory Board can be held only if
at least the majority of the members is present or represented.
8.3.2. The Supervisory Board shall choose from among its
members a chairman and a secretary who may or may not be a Supervisory Board
Director. The chairman shall bear the title of "Chairman of the Supervisory
Board". Supervisory Board Directors may cause themselves to be represented only
by a written power of attorney (including by telex, telefax or telegram), which
power of attorney may be granted to a fellow Supervisory Board Director only.
8.3.3. The Supervisory Board shall pass all resolutions
by an absolute majority of votes, each Supervisory Board Director having one
vote. The Chairman of the Supervisory Board shall have a casting vote in the
event of an equality of votes. Blank votes shall be null and void. Upon being so
requested, the members of the Board of Directors shall attend the meetings of
the Supervisory Board, and vice versa.
8.3.4. Minutes shall be taken of the business transacted
at any meeting. Such minutes shall be entered in the book intended therefor. The
minutes shall be confirmed as a true and accurate account of the business
transacted at the meeting by the chairman and the secretary of the meeting, both
of whom shall be obliged either during the meeting or at a subsequent meeting to
sign the minutes as representing a true and accurate account.
8.3.5. The Supervisory Board may also pass resolutions
without holding a meeting, provided that any such resolution is set forth in
writing (including a telex, telefax or telegram) and, further, that such
resolution is passed by the unanimous vote of all Supervisory Board Directors.
19
ARTICLE IX. AUDIT COMMISSION
9.1. Composition. The Company shall have an Audit Commission, which shall be
composed of at least three (3) persons, whose members must be appointed (and may
only be dismissed) by the Shareho iders' Meeting from among its ranks. The
Directors and Supervisory Board members shall not be members of the Audit
Commission.
9.2. Responsibility. The Audit Commission certifies annual accounting and
financial statements, balance sheets and profit and loss statements, and tax
statements and filings (the "Annual Accounts"), and otherwise assists the
Directors and executive officers in the fiscal and financial management of the
Company. The Audit Commission also verifies the lawful activities of Company
Directors, officers and employees, and it may call an Extraordinary Meeting if
it determines that the vital interests of the Company are threatened or there is
a misuse of company assets by employees.
9.3. Reports. The Audit Commission certifies and submits to the Chairman of the
Board and to the Annual Meeting an annual Audit Report, analyzing and commenting
in detail on the Annual Accounts of the Company, within three (3) months of the
end of each fiscal year. The Audit Commission shall provide such other reports
to the Board and/or shareholders as they demand.
Exhibit 10.1
Page 12 of 15 Pages
<PAGE>
ARTICLE X. PERSONNEL
10.1. Personnel Policies. The organization, personnel
structure, qualifications, salaries, benefits, working hours and conditions, and
other policies concerning the personnel of the Company shall be established by
the Board of Directors, provided that such policies shall be in conformity with
the business policies and principles of the Company stipulated in these Statutes
and are in accordance with the applicable laws of Ukraine. The Board (and its
delegates among the executive officers of the Company) has full and plenary
power consistent with Ukrainian laws to employ and dismiss employees, to
negotiate and execute collective bargaining or other labor agreements, and
otherwise to establish the terms and conditions of employment, including
determining worker bonuses and incentive compensation.
20
10.2. Executive Compensation. The Board of Directors shall
establish the amount and terms of compensation for its members, members of the
Supervisory Board and of the Audit Commission, and executive officers of the
Company, subject to the requirements of Ukrainian law; provided that the Board
shall present the details of such compensation arrangements to the Annual
Meeting as part of an annual executive compensation plan and the Annual Meeting
does not pass a resolution of disapproval. The annual executive compensation
plan may, with the approval of both the Board of Directors and the Supervisory
Board, authorize the payment of bonuses or incentive compensation in the form of
Company shares or stock options; provided that for this purpose, the Company may
only reissue or dispose of shares held by the company in its own share capital
(including treasury stock but excluding any "restricted" shares), subscribed and
acquired by the company in accordance with Article 3.10.5. hereof.
ARTICLE XI. ANNUAL BUSINESS PLAN, FINANCIAL RECORDS, ACCOUNTING AND AUDITS
11.1. Contents. The Board of Directors shall develop a
detailed and comprehensive annual Business Plan, which shall be submitted
annually to the Supervisory Board and the Annual Meeting of Shareholders. The
Business Plan shall be divided into quarters and shall include but not be
limited to:
(a) capital budget;
(b) purchasing plans and procedures;
(c) general schedule of product prices;
(d) sales and marketing plan, including related quantities, prices, and costs
for each product;
(e) employment plans;
(f) wage and salary scales for workers and worker bonus and incentive programs;
(g) executive compensation plan (as provided in Article 10.2.);
(h) bookkeeping and accounting procedures and any changes therein; and
21
(i) annual budget, including projected revenues and costs.
11.2. Fiscal Year. The fiscal year of the Company is the
calendar year. The first fiscal year shall end on December 31, 1993. Accounting
and auditing practices of the
Exhibit 10.1
Page 13 of 15 Pages
<PAGE>
Company shall be in accordance with the provisions of these Statutes and
applicable Ukrainian laws and regulations.
11.3. Financial Records. The Company shall maintain a
complete and accurate set of financial and accounting records in accordance with
the guidelines established by the Audit Commission. The financial records of the
Company are maintained and signed by the Company's treasurer, designated by the
Board of Directors, and shall be certified annually by the Audit Commission as
provided in Article IX. hereof. The shareholders shall be given access, upon
request, to the financial and accounting records of the Company.
11.4. Independent Auditors. In addition to audits by
Ukrainian auditing organizations as may be required pursuant to Ukrainian law,
the Company has the right to appoint, at the Company's expense, independent
auditors, who may be of any nationality, to conduct annual or other periodic
audits of the Company in accordance with internationally accepted accounting
standards and principles.
11.5. Disclosure. The Company shall proceed to publication,
and shall disclose and make filings to governmental authorities, of the Annual
Accounts, Annual Report, Business Plan, and other information and particulars
concerning its activities, if and insofar as the Ukrainian Law on Securities and
the Stock Exchange or other Ukrainian laws or regulations so prescribe.
ARTICLE XII. DISSOLUTION AND LIQUIDATION OF THE COMPANY
12.1. Liquidation Commission. The dissolution of the Company
and the liquidation of its assets shall be undertaken by a liquidation
commission appointed by the Company or in the event of bankruptcy or the
cessation of the Company's activities, by a liquidation commission appointed by
a court or an arbitration court.
12.2. Liquidation Commission Management. From the date of
appointment of the liquidation commission, authority to manage the affairs of
the Company is transferred to the
22
commission. Within such time periods as are required or allowed under Ukrainian
law, the liquidation commission shall publish information about the Company in
official (republican and local) press organs, establish the dead line for and
give notice to creditors to make their claims, evaluate the existing property
(assets and liabilities) of the Company, make public the Company's debtors and
creditors and any settlements with them, take measures to pay the Company's
debts to third parties as well as to shareholders, and determine the liquidation
statement and forward it to the Shareholders' Meeting.
12.3. Liquidation Statement. The liquidation commission
shall prepare a financial statement as of the proposed date of f the termination
the liquidation (the
"liquidation idation statement" , showing all assets after the discharge or
settlement of outstanding obligations and contingent obligations, including,
without limitation, taxes or other charges, bank and other State debts, and
supplier debts, due or to become due prior to or upon liquidation. The
liquidation commission shall submit the liquidation statement to a Shareholders'
Meeting along with a final report on the progress of liquidation and a proposal
as to the settlement of any remaining liabilities and the disposition of the
remainder of the Company's assets.
Exhibit 10.1
Page 14 of 15 Pages
<PAGE>
12.4. Proceeds of Dissolution. After the approval of the
liquidation statement by the Shareholders' Meeting, the liquidation commission
shall proceed with the dissolution and winding-up of the Company. Upon
dissolution of the Company and the liquidation of its assets, liquidation
proceeds shall be applied in the following order of priority:
(a) payment of the expenses and settlement of the obligations of the Company;
and
(b) payment of the remainder of funds, if any, to the shareholders, in
proportion to the nominal value of their respective shares of the Company's
Capital Fund.
12.5. Cessation. Following dissolution and liquidation, the
liquidation commission shall:
(a) ensure the safe deposit of all of the Company's books and records, for such
period as is required by law; and
23
(b) cause the Company to be deleted from the appropriate companies register.
The liquidation of the Company is considered completed and the Company is
regarded as having ceased its activity from the moment that this s fact is
entered into the appropriate government register.
Exhibit 10.1
Page 15 of 15 Pages
AGREEMENT
THIS AGREEMENT amends and restates herein that Agreement effective the 24th day
of April, 1996, as amended, and is effective as of that 24th day of April, 1996,
by and between Consortium Service Management Group, Inc., a Texas corporation
with offices located at 701 CCNB North Tower, 500 North Shore Line, Corpus
Christi, TX 78471 and 5929 N. May Avenue, Suite 511, Oklahoma City, Oklahoma
73112 (hereinafter "CSMG"), and The L Group, Inc., a Kentucky corporation, with
offices located at 1400 One Riverfront Plaza, Louisville, Kentucky 40202 (the "L
Group").
RECITALS:
1. CSMG has expended great effort and money seeking and locating technology and
market opportunities in Ukraine; and
2. CSMG has identified technology it deems viable and has secured an agreement
with the developer of the technology, E.O. Paton Electric Welding Institute of
Kiev, Ukraine ("Paton"), and International Association Welding of Kiev, Ukraine
("IAW") to test, patent, market, manufacture, distribute and license the "Tissue
Bonding Technology", as defined in paragraph 2(d) ; and
3. Paton and IAW have agreed to assign to CSMG 0 existing and future patent
rights Wanted to Paton and/or IAW, individually, jointly, or with any third
party, with regard to the Tissue Bonding Technology; and
4. CSMG needs funding to meet its obligations under that agreement with Paton
and IAW; and
5. The L Group has agreed to provide that needed funding in consideration for
the exclusive right to test, patent, market, manufacture, distribute and license
the Tissue Bonding technology in the Territory, as defined in paragraph 7 below.
NOW THEREFORE, CSMG and L Group deem it to be in their mutual best interests to
enter into this Agreement on the terms and conditions set out below.
Agreement
1. -PURPOSE.
CSMG and L Group agree to enter into this Agreement for the purpose of funding
the obligations of CSMG to Paton and IAW as set forth in that document entitled,
"Exclusive Rights, Disclosure and Non-Circumvent Agreement" dated October 25,
1995, and all subsequent amendments and modifications thereto (attached hereto
as Exhibit A and made part hereof by this reference) and as set forth in that
document entitled "CONTRACT on the realization of the "TISSUE BONDING project",
dated July 9, 1996, and a subsequent amendments and modifications thereto
(attached hereto as Exhibit B and made part hereof by this reference) for
securing the rights set forth *in that document for the benefit of CSMG and L
Group, as set forth below.
2. DEFINITION.
(a) Scientists. All inventors of the Tissue Bonding Technology, as identified on
the Assignment, attached hereto as Exhibit C.
(b) Tissue - Bonding. Paton and IAW have developed equipment and a process that
bonds soft biological tissue. The process of Tissue Bonding employs an
appliance, equipment, and a miniature surgical tool to perform an all-purpose,
seamless bonding of soft biological tissue. The method is characterized by use
of the specialized equipment and manipulation applicable to different surgical
operations and results in a secure bond and rapid restoration
Exhibit 10.2
Page 1 of 8 Pages
<PAGE>
of tissue without the formation of coarse scars, It is represented by CSMG to be
a simple manipulation that can be learned without prolonged, special surgical
training.
(c) Tissue Bonding Project. The joint project of CSMG and Louisville Group to
bring 0 the equipment and the process of Tissue Bonding to fruition as a iable
market product.
(d) Tissue Bonding Technology. This shall include all rights related to Tissue
Bonding and the Tissue Bonding Projects which shall 'include (i) those patent
subjects listed in Addendum 4 of the IAW/CSMG contract dated July 9, 1996, (ii)
future rights arising from the research funding described in this Contract, and
(iii) future rights related to the Tissue Bonding Project, whether developed by
both Parties or the USA research and manufacturing group. Rights shall include:
patent applications, patents, substitutions for and divisions, continuations,
patents-in-part, renewals, reissues, extensions and the like; as well as,
confidential information, trade secrets, know-how and technical information,
whether or not of a confidential or patentable nature, relating to the Tissue
Bonding Project.
(e) Net Revenue Net revenue shall mean the revenue received by L Group from
Frantz Medical Development Ltd. ("FMD") for sales of any device employing the
Tissue Bonding Technology as set forth in the L Group/FMD Agreement dated
December 10, 1996, Section 4.04 Royalty Payments.
(f) Net Market Revenue "Net Market Revenue" shall mean the total
revenue received by any sales agent, less the amount of any credits (including
freight, return allowances, and discounts), for devices applying the Tissue
Bonding Technology sold to any end-user.
3. TERM.
This Agreement is effective for one (1) year commencing on the 24th day of
April, 1996, and shall be automatically renewed annually unless terminated by L
Group upon written notice given
given not less than forty-five (45) days prior to the expiration of the initial
one year term, or any subsequent renewal period. The L Group may also terminate
this agreement upon forty-five (45) days written notice if it believes, in its
reasonable opinion, that the Tissue Bonding Project is no longer viable. Upon
such notice of contract termination, L Group shall reassign all rights acquired
under paragraph 5 to CSMG.
4. Consideration
Cons' deration from L Group to CSMG for rights acquired hereunder shah be the
funding of certain facets of the Tissue Bonding Project, as follows:
(a) L &cup shall pay to CSMG the sum of Five Thousand Dollars ($5,000.00) per
month, for a period of thirty-six (36) months, for certain costs of the Tissue
Bonding Project including part of CSMG's costs in operating its offices in
Ukraine and the logistical and travel costs associated with the Tissue Bond
Project. Notwithstanding any other provision in this Agreement, the parties
shall review this cost payment every six (6) months and shall adjust this
payment if circumstances so require. In the event parties are unable to agree as
to the next six (6) months funding terms, the amount shall remain the same as
the then current period provided, however, that CSMG maintains its offices in
the Ukraine with staffing continuing at the same level as in the prior six (6)
months period.
(b) L Group shall pay to CSMG monthly the sum of Sixteen Thousand Two Hundred
Seventeen Dollars ($16,217.00) ("Monthly Funding Amount"), for a period of
thirty-six (36) months, for direct costs of CSMG's obligations to IAW and/or
Paton under the agreements attached as Exhibits A and B, respectively. At the
end of the first one-year term, and thereafter at the end of any one-year
renewal periods, this fund payment amount will be reviewed by CSMG and L Group,
and adjusted, if necessary, to an amount the parties believe, in good faith, is
necessary to achieve the purposes set forth in this agreement. Should the
Exhibit 10.2
Page 2 of 8 Pages
<PAGE>
parties fail to agree on an adjusted Monthly Funding Amount, the amount shall
remain the same as in the previous one-year period.
(c) The L Group's duty to pay the Monthly Funding Amount shall terminate if at
any time during the initial one-year term or any subsequent renewal period,
CSMG's duty to make monthly payments to IAW and/or Paton shall terminate.
(d) The L Group's duty to make any payments described in this Paragraph 4 shall
terminate if CSMG defaults on any agreement(s) between CSMG and IAW and/or
Paton, related to Tissue Bonding, the Tissue Bonding Project or Tissue Bonding
Technology and fails to cure within any applicable cure period, unless L Group
elects, in its sole discretion, to exercise the rights granted to 'It in
paragraph 4(f). The terms of this paragraph 4(e) shall not apply if CSMG's
default 'is caused by payment default hereunder by L Group.
(e) The L Group's duty to make payments as set forth in paragraph 4(b) above
shall be partially or fully offset or reduced by the revenue sharing as set
forth in Paragraph 4(D) of that Agreement, as amended, by and between CSMG and
IAW dated July 9, 1996 and attached hereto as Exhibit B. It is agreed, however,
by CSMG and L Group that credit offset shall be equally shared by CSMG and L
Group.
(f) CSMG hereby agrees to give L Group ten (10) days written notice of any
failure by CSMG to make any monthly payment to IAW and/or Paton. CSMG agrees
that upon receipt of said notice, L Group may, at its option and in its sole
discretion, make Monthly Funding Amount payments directly to IAW and/or Paton,
until such time as CSMG cures said failure. CSMG hereby agrees that any such
direct payments of the Monthly Funding Amount by L Group to IAW and/or Paton,
shall not constitute a default by L Group, and such payments to IAW and/or Paton
shall be deducted from L Group's obligations as stated in paragraph 4(b) above.
The parties agree that the discretionary rights provided in this paragraph 4(f)
cannot be acquired by L Group as a result of L Group's default in payment.
(g) L Group will pay the additional sum of Ten Thousand Dollars ($10,000.00) to
CSMG, for direct payment by CSMG to IAW, in the event that IAW meets the
schedule (the "Accelerated Development Schedule") as set forth in Exhibit D,
attached hereto, and a commercial product is successfully introduced by L Group
or its assignee to the market in the United States of America, For purposes of
this paragraph 4(g), "successfully introduced" is defined as: the sale of the
initial fifty units to end users.
(h) Payment in full by L Group under the terms of subparagraphs (a) and (b) of
this Section 4 plus the on-going revenue sharing, as set forth in Section 9
below, shall constitute full consideration for the Tissue Bonding Technology.
(i) Each payment required by L Group pursuant to paragraphs 4(a) and 4(b) shall
be made by the 20th day of the month for which the payment is due, by wire
transfer- to the bank account of CSMG pursuant to wire transfer instructions
provided from time to time by CSMG. Such wire transfers shall be sent in a
manner to insure receipt by CSMG by the 25th day of the month.
The L Group's duty to pay the Monthly Funding Amount may, at its
election, terminate if at any time during the initial one-year term or any
subsequent renewal period, any of the Scientists cease working or contributing
to the Tissue Bonding Project.
5. Rights Acquired by L Group.
(a) In return for the consideration provided by L Group to CSMG hereunder, CSMG
hereby grants to L Group the exclusive right to sell, market, manufacture,
license and otherwise distribute the equipment and process derived from Tissue
Bonding Technology in the Territory.
Exhibit 10.2
Page 3 of 8 Pages
<PAGE>
(b) In addition, CSMG shall assign to L Group upon execution of this Agreement
any patent applications or patent rights related to Tissue Bonding Technology
exclusively for all areas in the Territory. The Parties further agree that a
final patent applications shall be made in the name of Paton and/or IAW, and
shall be assigned to CSMG within five (5) days of execution by the inventors and
reassigned to L Group within five (5) days thereafter- It is further agreed that
the L Group may reassign its rights, in
the T
whole or in pall, to FMD, or an entity controlled by FMD or its principal
shareholder(s), or such other entity as L Group and CSMG may, in the exercise of
good faith and commercial reasonableness, agree upon. 6. Default
(a) Default by L Group for Failure If CSMG does not
receive the wire transfer to its bank account by the due date for the monthly
funding requirements described in paragraphs 4(a), 4(b) and 4(i). CSMG shall
notify L Group by facsimile transmission sent as provided in paragraph 16. L
Group "I haw until the seventh business day following the sending by CSMG of the
facsimile transmission notifying L Group of its breach of the payment obligation
to cure such breach. If the payment is not received by wire transfer to the CSMG
bank account by the end of the cure period, CSMG may elect to immediately
terminate this contract by refusing any future tender of the payment obligations
and by sending written notice to L Group within ten (10) days of its election to
terminate. The acceptance by CSMG of late payments shall not constitute a waiver
of its rights to insist upon strict compliance by L Group with the payment
obligations of L Group as described in this Agreement.
(b) Default for In the event of a breach by L
Group or CSMG for failure of performance or breach other than as set forth above
in subparagraph 6(a) of this Agreement, the non-breaching party may declare a
default by providing written notice to the other party of the breach and
providing a cure period of at least fourteen (14) days from the date of the
notice received. If the other party fails to cure the breach by the end of the
cure period, the non-breaching party may, at its option, terminate this Ag
Agreement by providing written notice to the other party.
(c) &version of Rights Li Upon Breach. (1) In the event that this Agreement is
terminated either pursuant to the provisions of subparagraph (a) of this
paragraph or by L Group pursuant to the provisions of paragraph 3, all rights
acquired by L Group pursuant to the terms of this Agreement shall automatically
revert to CSMG. Within fifteen (IS) days of such termination, L Group shall
execute a reassignment of the patent applications or patents described in
paragraph 5 to CSMG and shall return to CSMG all documentation relating to the
Tissue Bond Project, without keeping a copy of any such documentation. This
requirement to forward all documentation relating to the Tissue Bond Project
relates to documentation from any source in the possession of L Group, whether
prepared by CSMG, L Group or any third party.
(2) In the event of declaration of default by either party pursuant to the
provisions of subparagraph (b) of this paragraph, and failure to cure by the
notified party, the parties shall each retain all remedies at law or equity and
no action or inaction by either party shall constitute a waiver of any right of
that party.
7. Territory.
The Territory shall be United States of America, Europe and any other portions
of the world to which CSMG acquires the rights from IAW and/or Paton and/or the
Scientists, pursuant to any existing or future agreement or agreements.
Exhibit 10.2
Page 4 of 8 Pages
<PAGE>
8. Patents.
(a) L Group, at its expense shall initiate and complete a patent search and
patent application for the equipment and/or application process for Tissue
Bonding Technology in the United States in the name of Paton and/or IAW and/or
individual inventor(s) as identified to L Group by CSMG; all patents and patent
rights shall be assigned exclusively to L Group, (b) L Group shall also apply
for foreign patents in other countries within the Territory which it deems to be
commercially viable markets,
9. Revenue Sharing. L Group and CSMG shall be entitled to a one-half equal share
of Net Revenue but in no event shall CSMG receive less than seven and one-half
(71/2) percent of Net Market Revenue. CSMG shall independently assume any and
all financial responsibility to Paton, IAW, the Scientists, and any other
Ukrainian parties with which it contracts.
10.
(a) In addition to other responsibilities of L Group noted herein, L Group
shall:
(1) Conduct patent search, at its own expense, in United States (and,
subject to later agreement of parties regarding countries and costs elsewhere);
(2) Make application, at its own expense, for patent in United States
(and, subject to later agreement of parties re countries and costs, elsewhere);
(3) Bring personnel, equipment and product from Ukraine to USA; (4) If L Group
deems it necessary, bear the expenses to bring engineers
from USA to Ukraine to review equipment and product and to review raw material,
test methods, assembly and any special tools, equipment or processes.
(5) The parties agree that it will be necessary to bring three (3) or four
(4) individuals from CSMG's Ukrainian operations to USA for approximately three
to four weeks to demonstrate Tissue Bonding and work with L Group and patent
counsel, or make other arrangements as the parties may deem advisable. L Group
will pay the agreed compensation plus reasonable expenses (including lowest
available round-trip airfare, lodging and food) for Ukrainian personnel during
stay in USA at the rate of One Thousand Dollars ($1, 000) each per month only.
(6) Ship prototype to United States.
(7) Conduct the Tissue Bonding Project in general accordance with the
Process as outlined in Exhibit E attached hereto (and made part hereof).
(b) In addition to other responsibilities of CSMG noted here, CSMG (1) Maintain
its contractual relations with Paton and IAW on terms set
forth in the July 9, 1996 agreement and not modify, amend, terminate the
existing contractual relations or enter into any new agreements with Paton
and/or IAW relating to Tissue Bonding and Tissue Bonding Technology without the
express written consent of the L-Group;
Exhibit 10.2
Page 5 of 8 Pages
<PAGE>
(2) Maintain or procure world-wide rights from Paton, IAW, the
Scientists, or the successors in interest of Paton, IAW, and the Scientists for
the sale, marketing, manufacturing, licensing and distribution of the equipment
and processing of Tissue Bonding and Tissue Bonding Technology;
(3) Prepare and forward to L Group the complete Tissue Bonding
equipment, research and specifications sufficient to enable L Group to initiate
patent search and application, prepare product in accordance with United States
specifications and FDA approval.
(4) Maintain the functioning of the Ukrainian research and
manufacturing operations;
(5) Give written notice to L Group within ten (10) business days of any
default by either Paton or IAW on any agreement between CSMG and Paton and/or
IAW relating to Tissue Bonding, Tissue Bonding Project or Tissue Bonding
Technology; and
(6) Request IAW and Paton to give written notice to L Group within ten
(10) days of any default by CSMG of any agreement between CSMG and Paton and/or
IAW.
(7) Assure the continued participation of Scientists responsible for, and
controlling, the Tissue Bonding and Tissue Bonding Technology.
(c) In addition to other responsibilities set forth herein, CSMG and L
Group agree to jointly make any and all public announcements relating to Tissue
Bonding and the Tissue Bonding Project, or Tissue Bonding Technology.
11. Condition Precedent.
As conditions precedent to any and all obligations of L Group set forth herein,
the parties agree that Agreement dated July 9, 1996, as amended, by and between
CSMG, Paton and IAW, be valid and binding in all respects and grant to CSMG, to
L Group's satisfaction, all rights (except Russia and Ukraine) to the Tissue
Bonding Technology, and grant to CSMG the right to reassign all said rights to L
Group-, and that a copy of that binding agreement and any necessary supporting
documents be delivered to L Group.
12. Assignability
In addition, and supplement to, rights of assignment set forth in paragraph 5(b)
above, the parties agree that L Group may assign any or all of its rights
hereunder to any corporation or entity or group in which any shareholder of L
Group is an officer, shareholder, member or partner and in which the L Group has
a significant interest. For purposes of this paragraph, "significant interest"
is defined to be an initial equity interest equal to or greater than twenty (20)
percent. In the event L Group does so assign, it will advise CSMG in writing at
the address set forth herein.
13. Non-Disclosure and Non-Circumvention
Attached as Exhibit F is a copy of an agreement dated August 4, 1995 between Dr.
Don Mobley, Dr. 'Joe Kutz, and CSMG entitled "Disclosure and NonCircumvent
Agreement." L Group acknowledges that it is successor to the interests ofDr. Don
Mobley and Dr. Joe Kutz in the Disclosure and Non-Circumvent Agreement and
agrees to be bound by the terms of that agreement. CSMG and L Group each hereby
Exhibit 10.2
Page 6 of 8 Pages
<PAGE>
represent that they have not violated the terms of the Disclosure and
Non-Circumvent Agreement.
Notwithstanding the foregoing or terms or provisions of the Disclosure and
Non-Circumvent Agreement," the parties agree that any and all discussions,
sharing of information or data by Dr. Don Mobley, Dr. Joe Kutz and/or L group
with FMD, its officers, employees, or agents is not a violation of that
agreement or its interest. The parties further agree that L Group (or its
officers or agents) is authorized to disclose such aspects of the technology and
its projected marketing as is necessary, in L Group's determination, to offer L
Group's interest for sale to a third party; provided, that L Group shall have
any such third party first execute a disclosure and non-circumvent agreement in
a form acceptable to CSMG and that L Group delivers a copy of any such projected
marketing information to CSMG.
14.
In the event that an initial public offering of equity in L Group or its
assignee is contemplated by L Group in relation to enhancing development or
marketing by L Group or its assignee of Tissue Bonding or Tissue Bonding
Technology, L Group shag notify CSMG as soon as practicable and shall enter into
good faith discussions with CSMG as to participation by CSMG. 15. Amendment.
This Agreement may be amended only in written form executed by both parties.
16. Notice.
Any notice required under or related to this agreement shall be forwarded in
written form either by United States First Class Mail, Certified Mail., Return
Receipt
Requested, or by facsimile transmission as follows:
To CSMG:
Mr. Gordon Allison Consortium Service Management Group, Inc. 5929 N. May Avenue,
Suite 511 Oklahoma City, Oklahoma 73112 USA Telecopier: (405)-843-0679
with copy to:
Frantz Medical Development Ltd. (Attention: President) 595 Madison Avenue New
York, New York 10022 USA Telecopier: (212) 751-6313
To L Group:
Mr. Charles W. Dobbins, Jr. The L Group, Inc. 1400 One Riverfront Plaza
Louisville, Kentucky 40202 USA Telecopier: (502)-584-2318 with copy to:
Frantz Medical Development Ltd. (Attention: President) 595 Madison Avenue New
York-, New York 10022 USA Telecopier: (212) 751-6313
Change in address for notice may be similarly forwarded in writing to the other
party.
17. Entire Agreement,
Exhibit 10.2
Page 7 of 8 Pages
<PAGE>
This Agreement represents the entire agreement by and between the parties.
18. Execution by Facsimile
The parties agree that this agreement may be executed in counterpart originals
or by the exchange of execution signatures by facsimile transmission.
19. Good Faith Effort.
The parties agree to act in good faith to move forward the process of the
project and the purpose of this Agreement as quickly as possible in all respects
including among all other agreed aspects, to act without delay to: (1) initiate
operations in Ukraine and Louisville; (2) initiate patent process; (3) complete
marketable tissue bonding prototype; (4) complete final design of tissue bonding
tools, appliances and equipment-, (5) coordinate to complete any research or
materials deemed necessary for patent application(s) and regulatory approval(s);
(6) to act to initiate manufacturing and marketing; and (7) to do any and all
acts to further the purposes and responsibilities set forth in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on this day of
June, 1997, but effective as stated hereinabove.
CSMG Louisville-Group:
Donald S. Robbins Donald R. Mobley
President and CEO President
Donald s. Robbins
Consortium Service Management The L Group, Inc. Group,lnc.
Exhibit 10.2
Page 8 of 8 Pages
CONTRACT
on realization the "TISSUE BONDING" project
This contract entered into on this 9 day of July, 1996 by and among:
1. CSMG
Consortium Service Management Group, Inc. of Corpus Christi, Texas, USA 500 N.
Water St., Ste. 701 N. Corpus Christi, Texas 78471 USA (hereinafter referred to
as "CSMG".)
2. IAW
International Association "Welding" has been established and now operates in
accordance with the Ukrainian legislation; the headquarters' legal address is
Ukraine, 252650, Kiev, Bozhenko str., 11 (hereinafter referred to as "IAW") Both
sides hereinafter together referred to as "Parties".
PREAMBLE
(A) As the E.O. Paton Institute of Electric Welding of the National Academy of
Sciences of Ukraine, Clinical and Experimental Surgery Institute and "Ohmadet"
(Mother and Child Care) Scientific Medical Center, represented by IAW, have
valuable information, "know-how" and patentable works that have been developed
during several years in the sphere of tissue bonding for the various functional
purposes and it was confirmed by CSMG experts; (B) As CSMG has a great
experience in arranging and financing the works for joint projects in order to
bring the latest inventions up to the marketable level, (C) As on October 25,
1995 the EXCLUSIVE RIGHTS, NON DISCLOSURE AND NON CIRCUMVENT AGREEMENT (Addendum
1) was signed in order to receive financial assistance from CSMG needed for
realizing the "Tissue Bonding" project;
The "Non Disclosure Agreement" was signed on February 8, 1996
(Addendum 1) (D) As CSMG has organized this financial assistance as it had been
described in the Agreement (C); (E) As CSMG in cooperation with the American
scientists and specialists is ready to cooperate with IAW which represents the
temporary scientific team of Ukrainian scientists and specialists in order to
improve the technology and equipment, provide research, testing, patenting,
marketing, manufacture, licensing, servicing and distribution of the products to
be manufactured within the "Tissue Bonding" project; (F) As the Parties have
developed the program of joint works (Addendum 2) they are ready to work
together as a joint Ukrainian-American team in order to find commercial
application of the technique; (G) As IAW is the Association of the Research
Institutes, industrial enterprises and medical organizations and one of the
IAW's purposes is providing assistance to its members for the international
cooperation; and one of the IAW founders is the E.O. Paton Institute of Electric
Welding of the National Academy of Sciences of Ukraine; (H) As in this Contract
IAW acts on behalf of the Paton Institute of Electric Welding and "Ohmadet";
Thus, the Parties reached the following agreement:
1. THE PURPOSE AND THE SUBJECT OF THE CONTRACT
The purpose of this Contract is to realize The "Tissue Bonding" project by
arranging the cooperation between the Ukrainian and American Scientists and
specialists.
The objective of this cooperation is to continue the works by the Parties in
Kiev, Ukraine and USA based on the attached program for the realization of
researching, patenting, testing, manufacturing, marketing,
Exhibit 10.3
Page 1 of 6 Pages
<PAGE>
distribution and service of the Tissue Bonding technology and equipment; and to
bring the Tissue Bonding equipment to market as quickly as possible, joint
continuation of the development and enlargement of the spheres of the Tissue
Bonding method usage and improvement of the equipment and tools.
2. DEFINITION
(A) LIVE BIOLOGICAL TISSUE BONDING. The Paton Institute of Electric Welding
together with the experimental department of the Clinical and Experimental
Surgery Institute and the microsurgery department of the "Ohmadet" Scientific
Medical Center have developed the method and equipment allowing to provide soft
biological tissues bonding without additional materials such as surgical
threads, glues, etc. The tissue bonding method employs an appliance, equipment
and tools, micro surgical experience to perform seamless bonding of soft
biological tissue. The method is characterized by use of the specialized
equipment, instruments and interchangeable manipulation surgical tools
applicable for different surgical operations.
(B) TISSUE BONDING PROJECT. The joint project to be done by both Parties with
the involvement of other organizations is to bring the method, equipment,
instruments and tools for tissue bonding to fruition as viable market product
and to provide further development of the method and to enlarge the sphere for
its usage.
(C) PRODUCTS TO BE RECEIVED ON THE -TISSUE BONDINGPROJECT. Energy supply
equipment with computer control, specialized surgical tool with a device for its
connection to the energy supply equipment, the technique of surgical operations
on different tissues and reports on the
performed researches.
(A) This Contract is effective on the date of the first monthly funding set
forth in numerical paragraph 4.A, below, delivered by CSMG and shall be
completed after fulfilling the works on the agreed program which describes the
contractors' responsibilities. Annually all the works performed shall be
described in the annual report signed by the Parties and then the Parties work
out a new work plan for the following year within the Program framework.
(B) The Contract shall be renewed automatically annually and the Parties agree
that the amount of, and need for, funding will be reviewed by both Parties on an
annual basis after signing the documents about the works that will have been
completed by that time and according to the agreed new work plan for the
following year with all the necessary changes in order to reach the purposes of
this Contract.
4. CONTRACT COST
For the rights acquired hereinafter and described below CSMG shall fund the
"Tissue Bonding" project realization.
(A) CSMG shall transfer to the IAW's bank account during the first year of work
on the Contract the monthly amount USD 16 217 (sixteen thousand two hundred
seventeen) for the direct expenses on the "Tissue Bonding" project according to
the calculations (Addendum 3). This amount may be changed taking into account
all the necessary amendments described in 3.B.
(B) Payments on this Contract shall be transferred at the beginning of every
month by CSMG in US dollars only to the IAW's bank account:
hard currency account # 3433180400 at the State Export-Import Bank of Ukraine.
8, Kreschatik str, Kiev 252001, Ukraine. Correspondent account of the State
Export Import Bank of Ukraine: CITIBANK N.A. NEW-YORK 36083522 or CREDIT
LYONNAIS, NEW-YORK BRANCH CORR.ACC. N 01-32726-001-00.
5. RIGHTS OF THE PARTIES
Exhibit 10.3
Page 2 of 6 Pages
<PAGE>
(A) CSMG will have an exclusive right to market, manufacture, distribute,
license and service the products of the "Tissue Bonding" project, servicing and
licensing on the territory described below.
CSMG can give the above mentioned rights in this agreement between both Parties
to the organization that provides financing for this project only (L Group) but
without giving those rights any other Party.
(B) CSMG will have the rights to use the patents described in the Addendum 4 on
the territory mentioned below.
CSMG can give the above mentioned rights in this agreement between both Parties
to the organization that provides financing for this project only (L Group) but
without giving those rights any other Party.
(C) E.O.Paton Institute of Electric Welding and/or its scientist will assign the
patents described in the Addendum 4 to CSMG. Patents shall be issued in the name
of E.O.Paton Institute of Electric Welding.
(D) IAW shall have the exclusive rights to provide all the bank and customs
operations on the territory of Ukraine.
(E) The Parties shall have the equal rights to divide the revenues received from
the realization "Tissue Bonding" project equally in accordance with Paragraph 8
of this Contract.
(F) The Parties shall have equal rights to the patents which will be obtained as
a result of further joint research work on "Live Tissue Bonding".
(G) The Contracts for commercial distribution of the products of the "Tissue
Bonding" project shall be signed by both Party.
JH) If the financing from CSMG for the researches on this project will be
stopped before the appointed time, the rights described in paragraphs 5.A and
5.C will be cancelled after two months if the problem is not solved.
6. TERRITORY
The territory on which this Contract is effective and gives to CSMG the
exclusive rights to test, market, manufacture, license, service, and otherwise
distribute the developments of the Tissue Bonding project first shall be the
United States of America and Europe, but CSMG shall have the priority right for
the immediate participation in the markets of the other parts of the world, once
the country markets are identified as economically viable and are agreed to by
both sides.
7. PATENTS
CSMG at its expense shall arrange to initiate and complete a patent search and
patent application in the USA for the method, equipment and their application.
The parties agree that patents shall be issued in the name of E.O.Paton
Institute of Electric Welding and/or the inventors named by E.O.Paton Institute
of Electric Welding. All patents and patents rights shall be assigned to CSMG.
8. REVENUE SHARING
Revenues received by CSMG from an organization which has received the rights in
compliance with Paragraphs 5(A) and 5(B) from all types of the Tissue Bonding
project sales, marketing, manufacturing, licensing and other distribution of
Tissue Bonding products, realization of the further patents, assigning of
"know-how" and other distributions, including all types of equipment shall be
divided equally between the Parties.
Exhibit 10.3
Page 3 of 6 Pages
<PAGE>
9. ADDITIONAL RESPONSIBILITIES
In addition to other responsibilities of CSMG noted, herein, CSMG shall: (A)
Arrange for patent search in the United States (and subject to later
agreement of Parties re: countries);
(1) arrange to make application for patent in the United States of America (and,
subject to later Agreement of parties re: other countries);
(2) arrange to bring personnel, equipment and product from Kiev, Ukraine to
Louisville, USA;
(3) arrange for the expenses of the Ukraine personnel for travel, food and
lodging while in the United States;
(4) initiate the "Tissue Bonding" project in general accordance with the process
outlined in the Addendum 2 for 1996 and the agreed plans for every following
year. (B) In addition to other responsibilities noted here IAW on behalf of
E.O.Paton Institute of Electric Welding shall:
(1) prepare and forward to CSMG a complete set of Tissue Bonding full
information about the tissue bonding method sufficient to enable a patent search
and application;
(2) arrange for appropriate personnel to go to United States to demonstrate the
equipment and work with patent attorney and deliver a prototype to United States
for use; one sample will be handed over to CSMG free of charge, the other sample
will be returned to Ukraine.
(3) mutually cooperate with the research and manufacturing group that CSMG has
arranged in the development of tools, equipment design and enhancement of the
project. (C) In addition IAW shall:
(1) arrange the realization of fundings from CSMG for fulfilling this project;
(2) arrange the legal support of the project in accordance with the legislation
of Ukraine, including signing contracts and agreements for fulfilling the works
on this projects;
(3) arrange information updating communications between the Parties;
(4) arrange verification of use of funds with CSMG on a monthly basis in
accordance with the Addendum 2;
(5) arrange business trips and receive the specialists working on the project.
10. CONFIDENTIALITY
The conditions of confidentiality that were described before in the
Agreements (Addendum 1) shall remain valid for this Contract.
11. FORCE-MAJEUR SITUATIONS
(A) Neither Party is responsible for the failure to realize the project or for
the delay in realization the responsibilities described in this Contract, in
case
Exhibit 10.3
Page 4 of 6 Pages
<PAGE>
when a breach of the obligations or delay is caused directly or indirectly by
any
force-majeur situation.
(B) The following circumstances are considered to be force-majeur though they
are not limited only by the circumstances mentioned below (on the condition that
such a situation is caused by the described hereabove in paragraph ILA): o fire,
flood, explosions, accidents, social unrest, breach of the peace, lockouts,
wars and other critical situations, Government resolutions; o any damages of the
main equipment that cause closing of the enterprises; or o any industrial
conflict, strike, lockout or other situations that can not be
controlled by the Party.
(C) The Party that announces about the force-majeur situation shall inform the
other Party immediately in writing and shall do its best to ease the situation
and continue its responsibilities.
(D) If the force-majeur situation continues and, probably, will continue for
more than two months, the Party that was not informed about the force-majeur
situation may terminate the Contract in 30 days after a written notification
about its intentions.
(E) In case if the force-majeur situations affect the possibilities of one of
the Parties to meet its responsibilities, the fulfillment by the Parties of
their responsibilities shall be suspended till the moment of termination the
force-majeur situation. In this case none of the Parties will be responsible for
the breach of its duties during this period.
(F) After the elimination of the force majeur situation the Parties may consider
this Contract resumed; all the specific conditions making for resumption of this
Contract after the force-majeur situation shall be described in the minutes
subject to approval by both Parties.
12. OTHER CONDITIONS
(A) Any amendments in this Contract must be applied in writing and signed by
authorized representatives of both Parties.
(B) IAW will conduct the works for this Contract by signing contracts and work
agreement with organizations and physical persons.
(C) A list of equipment and conditions of its supply which will have to be
shipped, pursuant to the Contract, from the US to Ukraine and from Ukraine to
the US will be agreed upon in writing in the process of work and included
additionally in Addendum 5, which is part of this Contract. 13. JURIDICAL
ADDRESSES
CSMG CONSORTIUM SERVICE MANAGEMENT GROUP, INC. 500 N. Water St., Ste. 701 N.
Corpus Christi, Texas 78471 USA with representation office in Kiev CSMG bank
account: BANCFIRST, Oklahoma City, Oklahoma, USA, Account # 400 329 4871 Tel:
(512) 887-7546 Fax: (512) 884-0792 Tel/Fax in Kiev: (044) 290-4629 Donald S.
Robbins, President and C.E.O.
IAW INTERNATIONAL ASSOCIATION "WELDING"
Ukraine, 252650, Kiev Bozhenko str., 11 Tel: (044) 227-6049 Fax: (044) 227-4677
Dr. Olga N. Ivanova, IAW representative.
This Contract has been prepared by the Parties in two copies in the Russian and
in the English languages.
Exhibit 10.3
Page 5 of 6 Pages
<PAGE>
IAW CSMG Date Date
Chairman of the IAW
Board President,// A Academician a B.E. Paton a o Donald S. Robbins
Executive Director
A.V. Krivosheyev
Exhibit 10.3
Page 6 of 6 Pages
CONTRACT# On Creation of Bio-Energetic Units on Processing and Utilization of
Live-Stock Farming Wastes
Dnipropetrovsk City 1999
This contract supersedes all prior oral and written agreements between the
parties
regarding the Aerobic Bio-Energetic Units "ABEU" and technology.
1. PARTIES OF THE CONTRACT:
1. 1. US side, as a Customer, is represented by:
- - Consortium Service Management Group, Inc., 500 No. Shoreline, suite 701 No.
Tower, Corpus Christi, TX 78471 (hereinafter referred to as CSMG) as a Customer
in the person of Donald S. Robbins, President and CEO;
1.2. Ukrainian side, as an Executor, is represented by:
- - Joint Stock Company "United Engineering Company", Dnipropetrovsk City, Ukraine
(hereinafter referred to as JSC UEC) in the person of Director General Mr.
Vladlen A. Guzhva,;
- - Mr. Ivan V. Semenenko, Surny, Ukraine (hereinafter referred to as Inventor);
2. Preamble
2. 1.As CSMG and AFW have a great experience in arranging marketing technologies
and equipment for this joint project in order to bring the ABEU equipment to the
USA and other world markets; and
2.2. as UEC is a joint stock company with a great experience in the field of
engineering, construction -installation work and adjustment work; and
2.3 Inventor has technical "know-how" and may have some patentable works that
have been developed during several years in the sphere of anaerobic Animal waste
plant for the various functional animal wastes processing purposes;
2.4. As CSMG has organized the first equipment markets in the USA. All parties
agree CSMG shall have the exclusive world rights to the ABEU technology and
inventor Semenenko, Semenenko technology and upgrades, patents, including
upgrades,
2.5. As CSMG in cooperation with AFW as the USA side is ready to cooperate with
the JSC UEC, the SPA FRUNZE, and Semenenko as the Ukraine side which represents
the USA and Ukraine temporary technological team in order to determine the first
USA farm location retrofitting and equipment need, determine a price for the
equipment, provide testing, patenting if necessary, marketing, manufacture,
licensing, servicing and distribution of the products to be manufactured within
the "ABEU Complex" project;
3. THE PURPOSE OF THE CONTRACT
The purpose of this Contract is to bring Ukraine design of the "Anaerobic
Bio-Energetic Unit" to the USA and other world markets as soon as possible.
4. DEFINITION
ANAEROBIC BIO-ENERGETIC UNITS. Inventor has developed ABEU which is designed for
processing of liquid and solid manure in anaerobic conditions into high
efficient, disinfected, deodorized organic
Exhibit 10.4
Page 1 of 7 Pages
<PAGE>
fertilizers suitable for immediate use without additional processing and for
obtaining biogas as electric energy source. The ABEU is a closed system which
processes the manure in a closed environment and provides methane for electric
generation or other purposes, allows the elimination of the waste lagoon, cleans
water to drinking water standard if elected by the location and processes the
waste to a level that the processed product is not harm the environment, animals
or humans. The ABEU also obtains dewatered, disinfected organic fertilizers,
obtain purified discharge (in regard to sanitary indications) which is suitable
for repeated use in manure disposal system on live-stock farm, reduce
consumption of energy for farm needs by using the obtained biogas, increase
sanitary work atmosphere and working conditions on farm, and reduce infectious
germs and micro organisms thus reducing human and cattle disease rate. It is
supposed to solve a very important ecological problem of utilization and
processing of animal wastes, that is to reduce the odor level by 90-95%, to
reduce quantity of hazardous for ozone stratum gases by 90-95%, elimination of
penetration of polluting animal farm wastes into the ground waters, reservoirs
and rivers.
5. PRODUCTS TO BE RECEIVED ON THE "ANAEROBIC BIOENERGETIC
COMPLEX" PROJECT.
5.1 ABEU will be equipped a with system for collecting and utilization of
biogas, generating electric energy decontaminated, solid fertilizer, and with
system for additional water treatment to the level of service water (according
to sanitary indications) which is suitable for repeated use in manure flush
system on livestock farm or may be treated to drinking water level if so
selected by the location needs.
5.2 ABEU for the territory of the USA and other countries that are capable of
processing the farm's wastes of several thousand hogs or dairy head of cattle
with the observance of all ecological norms, fixed by the government at this
territory. It is understood by all parties that the units are very similar and
the actual plants purchased will have the same anaerobic processing components,
however the actual number and size of components needed by each concrete plant
will be determined by the size of the respective needs of the animal farm
location.
6. SUBJECT MATTER OF THE CONTRACT.
6. 1. Parties have come to an agreement about mutual cooperation in order to
develop and realize the program on creation of the aerobic bio-energetic units
(complexes) ABEU.
6.2. CSMG, as a Customer commissions and Ukraine side as an Executor binds
itself to perform the development, installation and commissioning of the
ecologically pure and economically efficient ABEU Units for processing a great
quantity of animal industry's wastes in the USA and other countries.
7. USA First Plants Plan:
7.1 First Stage: The bringing over of Ukraine experts to the USA to visit the
locations where first plants may be installed. The development of ABEU plant
costs and schematics or drawings for the specific locations based on the animal
size of the location within three weeks of the Ukraine experts visit.
7.2 Second Stage: The delivery of the schematics or drawings and plant costs to
the USA location for approval by the grower, regulatory authorities, insurers
and bankers for final approval.
7.3 Third stage: Upon approval of second stage and posting of the C SMG letter
of Credit begin manufacture of the ABEU equipment with the intent of the
equipment being manufactured and loaded on a vessel within 90 days of such
Letter of Credit posting
7.4 Fourth stage: Upon equipment arriving to the location in the USA, UEC and
Semenko and shall visit
Exhibit 10.4
Page 2 of 7 Pages
<PAGE>
the USA for the propose of overseeing the prudent installation and start up
operation of the plants and training of USA personnel to successfully operate
the plants.
8. OBLIGATIONS OF THE CONTRACT PARTIES.
As the Executor of the work on the Contract the Ukrainian side binds itself to
the following obligations:
o to perform the development of technical offer, development of the detail
design of each bio-energetic unit, development of the construction part of the
working design;
o mange for appropriate personnel to go to the United states to review the needs
of the grower location; tAr
o to perform start-up and adjustment works;
o to perform the oversight of the construction works;
o to carry out the oversight of the completion of electric equipment
installation;
o to provide warranties and product guarantees acceptable to the USA side;
o to provide CSMG copies of all contracts between the Ukraine side;
o to mange the legal support of the project in accordance with the laws of
Ukraine with the legislation of Ukraine, including signing contracts and
agreements for fulfilling the works of this project;
o to mange business trips and accommodation of the specialists, working on the
Project o to perform the development of the working design, including working
drawings for the USA plants;
o to manufacture ABEU equipment and to carry out completing of mechanical
equipment and shipment of the equipment to the location.
o to provide operations manuals and equipment manuals to CSMG in English
o be responsible for all Ukraine customs costs, problems and all Ukraine taxes;
o to perform all duties described in USA first plants plan (paragraphs 7.3,7.4);
8.3. CSMG, as a Customer, binds itself to the following:
o to conclude a separate contract with Ukraine side on each bio-energetic unit
for the USA and other countries markets and determination of cost for the
location unit after completion of paragraphs 7.1 and 7.2 mentioned above;
o to pay, in accordance with concluded agreements, -it cost for executed and
accepted works on its creation, installation and adjustment as completed by the
Ukraine side and accepted by the USA side;
o to carry out delivery of cable products, electric motors; electric power
generator, construction of buildings, facilities, foundations for ABEU,
installed in the USA and other countries;
o to arrange the expenses of the Ukraine specialists for travel, food and
lodging while in the USA and other countries;
o to arrange the site visits at the USA locations for the Ukraine team of 2 to 3
experts;
Exhibit 10.4
Page 3 of 7 Pages
<PAGE>
o arrange for and coordinate the USA requirements and specifications between the
USA specialists and Ukraine team;
o to market the ABEU technology and equipment
9. RIGHTS OF THE PARTIES
9.1 CSMG will have the exclusive world rights to patent, market, distribute,
license,
service the products of the ABEU project and technology and the Author or other
members of the team including any ABEU technology upgrades servicing and
licensing to begin in the territory described below.
9.2 New patents will be issued in the name of the inventor / inventors but will
be assigned
to C SMG within 5 days of filing a patent application or issuance of a patent
9.3 CSMG may assign its exclusive rights to the Animal I- Waste, Inc. as a
participant
of the present Contract from the US side, or other business entity, CSMG deems
necessary for the success of the ABEU project, after coordination with the
Ukrainian side.
9.4 CSMG may seek other suppliers of certain parts of the ABEU plant if such
parts are needed for prudent operation of the plant or if such parts are less
costly to manufacture in the USA or other location when taking into account
costs of shipping, freight, installation, manufacturing and other costs relating
to the part.
9.5. Ukraine side shall have the exclusive rights to provide all the bank and
customs operations on the territory of Ukraine.
10. COST OF WORKS, PROCEDURE OF PAYMENT.
10. 1 Cost of units, created under separate contracts for each location and
procedure of payments are determined by the parties of these contracts in
accordance with the technical specifications of the Unit and other contract
terms. 10.2 Upon final approval as described in paragraph 7.2. of the delivery
of the schematics or drawings and plant costs to CSMG of the USA location for
approval by the grower, regulatory authorities, insurers and bankers CSMG shall
pay the costs as arranged by the parties for the schematic or drawings within 20
days of notification to CSMG from the grower, regulatory authorities, insurers
and bankers. 10.3 Upon final approval as described in paragraph 7.2 CSMG shall
post a Letter of Credit for the purchase of the ABEU equipment with delivery
terms agreed to by the parties for the manufacturer and delivery of the ABEU
equipment
11. PATENTS
In the event it is determined by all parties to this agreement that there are
important patentable inventions which make economic sense, the patent shall be
issued in the name of the individual inventor(s) and assigned to CSMG
immediately upon patent filing and
issuance.
12. Royalty Payments
12.1 The sum of royalty payments paid to the Ukrainian side, are based on
equipment costs stated by the
Exhibit 10.4
Page 4 of 7 Pages
<PAGE>
manufacturer at the factory, FOB agreed port of departure in Ukraine.
12.2. The sum of royalty payments for CSMG exclusive world rights paid to the
Ukrainian side shall be at the rate of 5 % of the equipment costs described in
12. 1.
13. Exclusive Rights Assignment.
CSMG may assign its exclusive marketing rights to Anaerobic Farm Waste, In_
Oklahoma City, OK (hereinafter called AFW) as an affiliated company in the
person of Gordon W. Allison President and CEO or other business entity as CSMG
deems necessary for the success of the ABEU project#
The future royalty payments described in paragraph 12 made under this contract
shall be considered payment in full for exclusive rights to CSMG so long as CSMG
meets the requirements to supply orders of at least $ 1,000,000 (one million US
dollars) of ABEU equipment to the Ukraine side.
14. PROVISION OF CONFIDENTIALITY
14.1 Contract parties bind themselves to keep confidentiality of information
acquired within realization of the present contract. Contract parties agree to
divulge such
information only to those persons inside the organization who have to be -are of
it;
or to divulge such information to the third party with the written consent of
the second
party of the present contract only.
14.2. Confidential information is as follows:
o Technical data - drawings, prototypes of equipment, models, principles of
construction and description of the manufacturing methods of assemblies and the
unit, as a whole;
o Commercial information about the cost of the unit, possibilities of units'
sale;
o Commercial information regarding the who and where of plant installations and
locations
15. LIABILITIES OF THE PARTIES.
15. 1. In case of breach of terms of the Contract, signed up between the
Customer and some Executor from the Ukrainian side, on particular ABEU Unit
because of the Executor's fault the latter pays the Customer penalty at the rate
of 10% of cost of works on the portion of the contract in which the default
occurred.
15.2. 1n case of delay in execution of works for 10 days, the Customer has the
right to cancel a contract or demand full cure of the default within 3 0 days of
notification of default.
15.3. For the delay on payment with the Executor of more than 10 days, the
Customer pays the Executor penalty at the rate of 10% of cost of the portion of
works the works on the contract in which the default occurred.
16. RELEASE FROM LIABILITIES.
16. 1. Neither Party is responsible for the failure to realize the project or
for the delay in realization the
Exhibit 10.4
Page 5 of 7 Pages
<PAGE>
responsibilities described in this Contract, in case when a breach of the
obligations or delay is caused directly or indirectly by any forcemajeur
situation. 16. 2 The following circumstances are considered to be force-majeur:
fire, flood, explosions, accidents, social unrest, breach of the peace,
lockouts, wars
and other critical situations, Government resolutions;
any damages of the main equipment that cause closing of the enterprises; or any
industrial conflict, strike, lockout or other situations that can not be
controlled by
the Party.
16.3 The Party that announces about the force-majeur situation shall inform the
other party immediately in writing and shall do its best to ease the situation
and continue its responsibilities.
16.4 If the force-majeur situation continues and, probably, will continue for
more than three months, the Party that was not informed about the force-majeur
situation may terminate the contract in 30 days after a written notification
about its intentions.
16.5 In case if the force-majeur situations affect the possibilities of one of
the Parties to meet its responsibilities, the fulfillment by the Parties of
their responsibilities shall be suspended till the moment of termination the
force-majeur situation. In this case none of the Parties will be responsible for
the breach of its duties during this period.
16.6 After the elimination of the force majeur situation the Parties may
consider this Contract resumed; all the specific conditions making for
resumption of this Contract after the force- majeur situation shall be described
in the minutes subject to approval by both Parties.
16.7. If the circumstances, specified in item 14.2. of the present contract, go
on for more than three months, each party will have a right to cancel a contract
and, in this case no one of the parties will have the right to demand
compensation fro. another party for the possible losses that incurred.
17. TERM OF A CONTRACT.
17. 1. The present contract is valid to the moment of its complete execution,
from the moment of its signing by parties.
17.2. The present contract is for a period of 20 years and may be prolonged by
mutual agreement of parties.
18. ORDER OF SETTLEMENT OF DISPUTES.
18. 1. Parties settle disputes that occurred under present contract by way of
negotiations.
18.2. If the parties can not come to an agreement the dispute will be settled in
accordance with Legislation of Ukraine at the Arbitration Court of the Chamber
of Commerce of the Ukraine if the disagreement is a Ukraine dispute.
18.3. If parties can not come to an agreement the dispute will be settled in
accordance with the laws of the State of Texas, Nueces County, USA, if the
disagreement is a US dispute.
19. CHANGE OF CONTRACT TERMS.
Exhibit 10.4
Page 6 of 7 Pages
<PAGE>
19. 1. The terms of present contract equally legally binding for both parties
can be changed and supplemented by mutual agreement with making a document in
written form, without fail.
19.2. Any amendments to this contract must be applied in writing and signed by
authorized representatives of all parties. 19.3. No one of the parties has the
right to transfer its rights under present contract to the third party without
approval of the other party in written form.
20. TERMS OF EXECUTION OF WORKS.
20. LA term of the performance of works under present contract will be stated in
the associated contracts for the particular location.
20.2. Executor has the right to perform work ahead of schedule on those
contracts.
21. ORDER OF ACCEPTANCE OF THE EXECUTED WORKS.
2 1. 1. Acceptance of the executed works is legalized by the Certificate, signed
by the parties of the present contract.
21.2 .Finished design documents are handed over to the to CSMG for final
approval as described in paragraph 7.2.
21.3. CSMG within 30 working days after the day of receiving the design
documents provide the Executor with the signed Acceptance Certificate of the
executed works or with the reasonable refusal of the acceptance of design
documents.
21.4. CSMG's reasonable remarks are legalized by bilateral Statement with
indication of the required changes and terms of their performance by the
Executor of the works.
21.5. If, within the execution of works, it will be cleared out the
inevitability of negative result or the inexpediency of further execution of
works, the Executor has to lay off the works and to inform the CSMG in written
form within 3 days after laying-off the work. In this case the parties have to
consider the question about feasibility and further lines of development of
works.
The given contract is made in eight (8) copies equally legally binding, four
copies - in Russian and four copies - in English language. The Customer has two
copies (in English and in Russian language) each and the Executor from Ukraine
side has two copies (in Russian and in English language) each. The English
version shall be the dominant contract in all territories outside the Ukraine.
22. LEGAL ADDRESSES OF THE PARTIES:
CUSTOMER EXECUTORS
Consortium Service Management Group, Inc. Joint Stock Company "United
Engineering 500 # Shoreline, Suite 701, Corpus Christi, Company" Texas, USA Karl
Marx Avenue, 67/98, Dnipropetrovsk city, 320070, Ukraine THE BANK OF NEW YORK
NEW YORK, USA SWIFT: IRVTUS3N ACC. 890-2061-048 ZEMELNY CAPITAL COMMERCIAL BANK
ACC. 2600700100014 840 UNITED ENGINEERING COMPANY DNIPROPETROVSK, UKRAINE SIGNED
BY: CSMG President JSC UEC Direct
Exhibit 10.4
Page 7 of 7 Pages
Draft EXCLUSIVE RIGHTS, DISCLOSURE AND NON CIRCUMVENT AGREEMENT
This Agreement made on this 9 day of June 1998 by and between JSC The Sumy
Frunze Machine-Building Science And Production Association of Sumy, Ukraine,
(hereinafter referred to as "Frunze") , and Consortium Service Management Group,
Inc. of Corpus Christi, Texas with representation offices in Kiev, Ukraine
(hereinafter referred to as "CSMG") and JSC United Engineering Company
(hereinafter referred to as TEC").
Purpose of the Agreement
CSMG, Frunze and UEC hereby agree to enter into a program of mutual cooperation
for the purpose of realization of Anaerobic Bioenergetic Complex project,
technological improvements if necessary, testing, marketing, manufacturing,
distribution and licensing of the technology for processing livestock wastes and
producing fertilizers, methane gas and electric power.
Parties to the Agreement
Frunze is a duly authorized and licensed Machine-BuiIding Science And Production
Association of Sumy, Ukraine.
UEC is a duly authorized and licensed Ukrainian legal entity of Dniepropetrovsk,
Ukraine.
CSMG is a corporation duly registered in the state of Texas, headquarters in
Corpus Christi Texas with representation offices in Kiev, Ukraine formed
expressly for the purpose of developing commercial business opportunities in the
former Soviet Union countries during its transition to a market economy.
DURATION OF THE AGREEMENT
This agreement shall be in force from the date of signature of principal
executive officers representing each side. It shall remain in force for three
years unless one of the three sides declares in writing its desire to terminate
any of its provisions and receives approval from the other parties. The
agreement may be extended by an addendum, signed by representatives of all
sides, to that effect. All parties shall honor all provisions on this agreement
if a grant or financing is completed with a CSMG introduced grant or funding
source within two years after termination of this contract. SUBJECT OF THE
AGREEMENT
The purpose of the project is the upgrading if necessary of the existing plant
design, implement design changes if necessary and operate as a working model a
state of the art Anaerobic Bioenergetic Complex developed by Frunze for the
purpose of determining and establishing if applicable a viable local and
international market for the Complex Biogas 301 CM and manure processing
technology. The purpose of the Anaerobic Bioenergetic Complex Biogas 301 CM is
to provide an environmentally friendly, safe and economically viable solution to
the problem of large livestock wastes. Specifically the existing plant
will be upgraded by the addition of a water treatment unit and used a's a
working model for processing pig waste. This working model will be used for
marketing purposes as well as an operating laboratory for further development of
the manure processing technology. It is anticipated that the plant will reduce
odor by 90% to 95%, reduce the current release of Ozone layer damaging gases by
90% to 95%, eliminate the opportunity for the swine waste to percolate into the
water tables, Iakes, rivers or streams while converting the waste problem into
an income producing asset to the swine grower.
OBLIGATIONS OF THE PARTIES TO THE AGREEMENT
CSMG will arrange funding for the project, coordinate with western hog farms for
market evaluation, market the project if it is marketable, coordinate the
project with swine farm design engineers from USA
Exhibit 10.5
Page 1 of 3 Pages
<PAGE>
to work as part of the development team, provide source for an electric gas
generator, coordinate with Frunze and UEC on the project. CSMG declares its
intention to pursue funding for the upgrading of the existing 301 CM plant to be
carried out by Frunze and UEC in mutual corporation with foreign engineers or
experts provided by CSMG the premises of Frunze and UEC in Ukraine. CSMG will
use its experience in arranging the funds for the upgrading of the existing
plant, design of a larger plant for the international market if necessary and
manufacturing of the Anaerobic Bioenergetic Complex.
In consideration of the time, energy, expense and expertise of CSMG in
successfully arranging such funds Frunze and UEC agree to assign to CSMG the
world exclusive rights for licensing, manufacturing, marketing and servicing of
Biogas 301 CM plants with marketing expected to begin USA and west European
countries for licensing, marketing, manufacturing, and distribution. Such rights
shall be shared by shared by Frunze / UEC as one entity and CSMG as the other on
a 50/ 50 basis, but CSMG has first right of refusal for other markets of the
world.
CSMG has the right to attract additional partners for marketing, manufacturing
and distribution of Biogas 301 CM Anaerobic Bioenergetic Complex and manure
processing technology. The Anaerobic Bioenergetic Complex conception has been
developed and patented by the Ukrainian scientists, patents shall be assigned to
CSMG by the patent authors and FRUNZE upon completion of a assigned to CSMG by
the patent authors and FRUNZE upon completion of a formal contact between the
parties. In the event it is determined by all parties to this agreement that
there are important patentable inventions which make economic sense, the patent
shall be issued in the name of the individual inventor(s) and assigned to CSMG
immediately upon patent filing and issuance.
FRUNZE will develop by July 21, 1998 the design and cost estimates of the Biogas
301 CM plant in operational state with the additional waste water treatment
system.
FRUNZE will also provide the drawings and cost estimate for the addition of the
additional water waste system to the existing plant.
Frunze / UEC and patent authors will assign or re-assign when applicable their
patent rights to CSMG for the Biogas 301 CM and technology.
UEC will participate in erection and adjustment work and putting the plant into
operation.
PROPRIETARY INFORMATION
For purposes associated with this agreement, it is agreed that it may be
necessary for the parties to disclose "proprietary information" to each other,
which disclosure shall be in accordance with the terms of this article.
As used in this agreement the term "proprietary information" shall mean:
Written commercial or technical information (including financing, design and
manufacturing information) disclosed by one party to the other and stated by the
transmitting party in writing it is to be considered as proprietary or
confidential information so indicated by an appropriate notation;
Orally or visually disclosed commercial or technical information which is
designated proprietary or confidential information at the time of disclosure and
confirmed in writing as such within a 30 day period;
Drawings identified in writing by the transmitting party to be proprietary or
confidential and so indicated by notation;
Hardware, samples or models supplied by the transmitting party to the receiving
party, unless otherwise defined in writing.
Exhibit 10.5
Page 2 of 3 Pages
<PAGE>
Companies, institutes, entities, and other business concerns introduced by CSMG
or its associates shall be considered proprietary information of CSMG.
3
Each party agrees that it shall maintain the proprietary information of the
other in confidence, and disclose such information within its organization only
to those with a "need to know" and shall, without prior written consent of the
other party, except as provided herein, use such information or disclose such
information to any person or persons outside its organization.
The restrictions as to use and disclosure of information shall not apply to
information that was already known to the other party, in the public domain or
generated independently by other source; however, the burden of proof lies with
the receiving party.
All information, contracts, parties and opportunities being introduced will be
kept and held in strict confidence and released only on a need to know basis.
Pursuant to this agreement Frunze / UEC shall provide CSMG with information on
Anaerobic Bidenergetic Complex Biogas 301 CM in addendum to this agreement. This
proprietary and confidential information belongs to Frunze UEC.
Dated this day of June 1998
For Frunze for: CSMG 500 no. Shoreline Ste. 701 no
Corpus Christi, Texas 78471
Donald S. Robbins Director President And CEO
Exhibit 10.5
Page 3 of 3 Pages
AGREEMENT
This Agreement is made the day 1999 by and of between Consortium Service
Management Group, Inc., a Texas Corporation ("CSMG") and Western Waste
Management, Inc., an Idaho corporation ("WWM").
CSMG has secured worldwide exclusive rights to an animal waste treatment process
("the process") described as follows:
"An anaerobic animal waste processing facility, the same being a closed system
which processes the manure in a closed environment and provides methane for
electric generation or other purposes, allows the elimination of the waste
lagoon, cleans water to drinking water standard if elected by the Customer and
processes the animal waste to a level that the processed product is not harmful
to environment, animals or humans."
WWM is an independent Idaho corporation which contemplates providing necessary
services to CSMG in the obtaining of Customers and sales for CSMG as well as
such services accompanying management and operation of said anaerobic animal
waste processing facilities to be established at Customer locations.
For good and adequate consideration, the receipt of which is acknowledged
herein, the parties hereby agree as follows:
1. In contemplation of the agreements herein, CSMG hereby grants to WWM an
exclusive right to market the anaerobic animal waste processing facility and
turn key operations "the process" in the states of Idaho, Washington, Oregon,
California, Nevada and Utah ("the Territory"). WWM's exclusive marketing right
shall be perpetual for so long as WWM achieves gross sales of the equipment on
behalf of CSMG in an amount which equals or exceeds Five Million Dollars
($5,000,000.00) in a twelve month period. Such period shall commence on the
completion of the first animal waste treatment facility in the Territory, and
the maintenance process becoming operational and successfully treating animal
waste.
I (a). WWM hereby agrees that it will devote its full time to promoting the
marketing, maintenance and operation of CSMG's anaerobic animal waste processing
facility and it will not market, promote, sell, maintain, manage or be directly
or indirectly involved in any other business of any kind without the express
written consent of CSMG. 2, The prices to be quoted for the process by WWM to
Customers in the Territory shall be the prices then being quoted by CSMG for
sales of equipment and construction of the process as well as turn-key services
provided during the term of Customer's agreement. All such prices are for the
process fully erected and successfully operating at the Customer's site in the
Territory All orders or contracts taken for CSMG with any Customer must, prior
to any efforts by CSMG, be specifically approved by any third party leasing or
financing company dealing with CSMG and providing long term funding for the
Process. in this regard, the Customer may be required to furnish confidential
financial information subsequent to its order or agreement with CSMG.
3. Upon receipt of an order for this Process, and receipt of the deposit check,
WWM shall immediately notify CSMG, and transmit to CSMG the order and necessary
Customer financial information and the Customer's deposit check which shall be
made solely payable to CSMG. CSMG, upon receipt of the order and deposit check
from VOW shall immediately notify the third party leasing or financing company
with which it is seeking to provide long term funding for the process and as
expeditiously as possible seek approval of the Customer and the proposed
agreement. Following such approval CSMG shall immediately begin to locate,
design, and plan, the animal waste treatment facility. Construction and erection
of the plant at the site as specified by NVWM or the Customer, shall begin
within seven months after Customer and WWM shall have furnished to CSMG all
necessary government permits. If such permits are not forthcoming through no
fault of CSMG, then in that event the Customer shall be entitled to a refund of
all unused portions of its initial deposit. All such orders and contracts shall
be taken by WWM in the name
Exhibit 10.6
Page 1 of 4 Pages
<PAGE>
of CSMG. CSMG shall have completed construction of the facility and the facility
shall be complete, operational, and successfully treating animal waste within
the established time noted in each of said orders by CSMG, barring any
unexpected delays due to strikes, war, inclement weather, acts of God or
otherwise.
4. Upon receipt by CSMG of each order and deposit check, NVWM shall be entitled
to a commission equivalent to ten percent (10%) of the initial deposit check
received by CSMG, but not less than a sum of Five Thousand Dollars ($5,000).
During the location, design, and planning, and prior to the construction and
erection process, VOW shall be solely responsible for obtaining on behalf of
CSMG any and all permits required by any governmental entity and which would be
necessary to build, complete and daily operate the anaerobic animal waste
processing facility contemplated herein. CSMG shall deliver replacement parts to
V;WM within three working days. Costs of such parts not covered by warranty
shall be divided by CSMG and WAW on the pro-rata percentage as the revenue
sharing is divided for the particular plant. All such permits shall be taken in
the sole name of CSMG and WWM shall provide CSMG, as soon as practicable, with a
copy of all such permits as well as all regulations applicable to said permits.
5. Upon the completion of the construction of the plant and the acceptance
thereof by the Customer, WWM, and the third party leasing company, WNW shall
then be entitled to a commission of ten percent (10%) of the total price of the
unit less the commission previously paid as specified in paragraph 4 above. WWM
shall have the total responsibility to daily manage and service such plant and
be the entity primarily responsible for the plant's maintenance and operation.
As consideration for these continued services on the part of VOW, during the
time CSMG is under obligation to make payments to any third party leasing or
financing company, CSMG agrees to pay to WWM the sum of seventy-five percent
(75%) of the monthly net revenues received by CSMG from the Customer but not
less than Two Thousand Dollars ($2,000) per month. WWM agrees that CSMG may
retain twenty-five percent (25%) of the above described net revenues. "Net
Revenues" shall be defined as that sum between the monthly payments made by the
Customer and the monthly amounts due by CSMG to any third party leasing or
financing company. Upon termination CSMG's obligation to any third party leasing
or financing company, CSMG agrees to pay WWM as follows: (1) the amount of all
payments made by CSMG to WWM for the twelve (12) months immediately prior to
termination of any third party leasing or financing company arrangement shall be
calculated: (ii) the amount so calculated shall be divided by twelve (12), which
sum shall be the amount CSMG shall pay WWM per month for the duration of CSMG's
contractual relationship with the Customer, including contractual extensions by
Customer.
6. All solid by-products generated by the waste treatment facility shall be the
property of CSMG and shall be delivered by WWM to a central location as
designated by CSMG. For transportation in excess of twelve (12) miles from the
facility to the CSMG designated location, WWM shall charge standard trucking
fees as part of the expense against gross profits including WWM transportation
expenses in excess of twelve (12) miles from the facility which shall be
included in calculating profits. CSMG agrees to bag and market such animal waste
by-products and the net profits therefrom shall be divided between WWM and CSMG
as fifty percent (50%) to each entity as and when received.
7. CSMG shall indemnify, defend, and hold harmless WWM, its officers, directors,
employees and agents, and their successors, heirs and assigns from and against
all loss, claims, suits, costs, expenses, liabilities, personal or consequential
damages, proceedings, and cause of action arising out of or connected with
CSMG's breach of this Agreement.
8. WWM shall indemnify, defend and hold harmless CSMG, its officers, employees
and agents, and their successors, heirs and assigns from and against all loss,
claims, suits, costs, expenses, liabilities, personal or consequential damages,
proceedings, and causes of action arising out of or connected with either WWM's
breach of this Agreement or WWM's management or operations at any site within
the territory covered by this Agreement, including any suits brought against
CSMG by any third party for any reason connected with the anaerobic animal waste
processing facility of any kind. WWM at its sole cost and expense shall obtain
necessary liability insurance in an amount of at least One Million Dollars ($
1,000,000) per processing operation and in such policy of insurance name CSMG as
a co-insured. WWM shall provide copies of the declaration
Exhibit 10.6
Page 2 of 4 Pages
<PAGE>
pages of said insurance policies within ten (10) days of its acquisition.
9. The parties shall use their best endeavors to settle any dispute or
controversy or claim arising out of or relating to this Agreement. To this
effect, the parties shall consult and negotiate with each other, in good faith
and understanding of their mutual interests, to reach a just and equitable
solution satisfactory to both parties. If the parties cannot reach a solution
within a period of thirty (30) days, then the dispute shall be finally settled
by arbitration in accordance with the rules of the American Arbitration
Association. The Arbitration Tribunal shall be formed of one arbitrator to be
selected by CSMG and one arbitrator to be selected by WWM with the two selected
arbitrators selecting a third arbitrator among themselves. The arbitration shall
take place in a mutually agreed location. Judgment entered upon the award
rendered may be entered into any court having jurisdiction or application may be
made to such court for a judicial recognition of the award or an order of
enforcement thereof as the case may be. This paragraph provides the sole
recourse for the settlement of any dispute, controversy, or claim arising out of
or relating to this Agreement.
10. Unless expressed herein, This Agreement does not make either party the
employee, agent, or legal representative of the other for any purpose
whatsoever. Other than as set forth herein, neither party is granted any right
or authority to assume or to create any obligation or responsibility, express or
implied, on behalf of or in the name of the other party. Neither party shall act
or represent itself or suffer or allow anyone else to hold themselves out as an
agent or employee of the other party. Neither party shall have authority,
express or implied, to make any representations or statements on behalf of the
other party, other than as expressed herein.
11. Neither party shall have the right to assign or otherwise transfer its
rights and obligations under this Agreement except with the prior written
consent of the other party. Any prohibited assignment shall be considered null
and void.
12. All notices, requests, consents, demands, waivers, or other communications
hereunder shall be in writing, first class registered or certified mail,
facsimile transmission or by hand delivery to the address set forth below.
Notices to CSMG shall be sent to:
Consortium Services Management Group
500 N. Shoreline, 701 N. Tower Corpus Christi, TX 78471 with a copy to: F.
Edward Barker Edward Barker & Associates 800 N. Shoreline, Ste. 2 100 South
Corpus Christi, TX 78401-3700 (361) 881-9217 (phone) (361) 882-9437 (fax)
All notices to WWM shall be delivered to:
Western Waste Management, Inc.
2603 Eastover Terrace Boise, Idaho 83706
The parties may at any time designate by like notice hereunder other addresses
to which notices and other communications should be transmitted.
13. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL PROPOSALS, ORAL OR WRITTEN, AND
ALL NEGOTIATIONS, CONVERSATIONS, OR DISCUSSIONS HERETOFORE HAD BETWEEN THE
PARTIES RELATED TO THIS AGREEMENT.
14. This Agreement may be modified, amended, rescinded, canceled or waived, in
whole or in part only by written amendment signed by the parties.
Exhibit 10.6
Page 3 of 4 Pages
<PAGE>
15. In the event that any of the terms of this Agreement are in conflict with
any rule of law or statutory provision or are otherwise unenforceable under the
laws or regulations of any government or subdivision hereof, such terms shall be
deemed stricken from this Agreement, but such invalidity or unenforceability
shall not invalidate any of the other terms of this Agreement and this Agreement
shall continue in force, unless the invalidity or unenforceability of any such
provisions hereof does substantial violence to, or where the invalid or
unenforceable provisions comprise an integral part of, or are otherwise
inseparable from, the remainder of this Agreement.
16. CSMG has the right to assign this contract to its subsidiary animal waste
company.
17. This Agreement may be executed in counterparts and each such counterpart
shall be deemed an original hereof.
18. No failure by either party to take any action or assert any right hereunder
shall be deemed to be a waiver of such right in the event of the continuation or
repetition of the circumstances giving rise to such right.
19. In the event either party shall initiate legal action to enforce any of the
terms of this Agreement, including arbitration, prevailing party shall be
entitled to its actual attorney's fees, costs, and all actual expenses of the
legal proceedings.
20. This contract shall be construed under the laws of the State of Texas.
21. All payments by CSMG to WWM hereunder will be made within five (5) business
days from CSMG's receipt of payment from customer.
CONSORTIUM SERVICE MANAGEMENT GROUP, INC.
By Donald Robbins
Its
Western Waste Management, Inc.
By
Its
Exhibit 10.6
Page 4 of 4 Pages
AGREEMENT
THIS AGEEMENT is made and entered into this & day of 1999, by and between
Consortium Service Management Group, Inc., a Texas corporation, hereinafter
referred to as "CSMG" and Aardema Dairy, hereinafter referred to as "Customer."
WITNESSETH:
WHEREAS, CSMG has secured the exclusive worldwide rights to an anaerobic
animal waste treatment plant, hereinafter referred to as the "Plant," that
processes animal waste into methane, water for flushing and washing up to the
level of drinking water purity, if so elected by a customer, removes harmful
pathogens, processes the waste to a level that the processed end product is not
harmful to the environment, animals or humans and eliminates the need for an
animal waste lagoon, hereinafter referred to the "Process;" and
WHEREAS, the Plant requires and includes buildings, methane powered electric
generator, digesters, water treatment equipment, preheaters and other equipment
for the processing of the animal waste; and
WHEREAS, Customer has determined that the Process would be beneficial to
Customer's processing of animal waste generated by Customer's dairy; and
WHEREAS, it is the purpose of this Agreement to set forth the terms and
conditions pursuant to which CSMG agrees to construct and operate a Plant for
the processing of animal waste generated by Customer's dairy on Customer's real
property and for Customer to compensate CSMG for the processing of animal waste
generated by Customer's dairy;
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained, CSMG, for itself, its sub-contractors, successors and assigns, and
Customer, for itself, its successors and assigns do hereby agree as follows:
1. Escrow Deposit. Customer, contemporaneously with the execution of this
Agreement, shall deposit and pay into escrow with LAND TITLE AND ESCROW, 237 N.
Lincoln, Jerome, Idaho the sum of FIFTY THOUSAND AND 00/100 DOLLARS
($50,000.00). Said FIFTY THOUSAND AND 00/100 DOLLARS ($50,000.00) or portions
thereof shall be returned to Customer or disbursed to CSMG as hereinafter
provided. Customer and CSMG agree that the cost of said escrow shall be shared
and paid equally.
2. CSMG Financing. Upon the execution of this Agreement by the parties
hereto, CSMG shall forthwith seek and use its good faith best efforts to obtain
the necessary funding from or through a leasing or financing company for the
capital expenditures, costs and expenses to be incurred and paid by it to
fulfill its duties and obligations pursuant to and under this Agreement.
Customer hereby agrees to cooperate with CSMG in its efforts to obtain said
necessary financing. Customer's cooperation shall include responding to
reasonable requests from CSMG for the leasing and financing companies; provided,
however, Customer shall have no obligation hereunder to prepare or cause to be
prepared financial statements or financial documentation relative to its dairy
AGREEMENT -Page I -
Exhibit 10.7
Page 1 of 9 Pages
<PAGE>
operation that does not exist as of the date hereof CSMG hereby agrees that any
and all financial statements and information disclosed by Customer to either
CSMG or the leasing or financing companies shall be held strictly confidential
and is not to be released, disclosed or otherwise disseminated without the
express consent of Customer. In the event CSMG is unable to secure said
necessary financing within fifteen (15) business days from the date of CSMG's
receipt of all requested financial information, this Agreement may be terminated
and cancelled by Customer, and Customer shall have returned to it the FIFTY
THOUSAND AND 00/100 DOLLARS ($50,000.00) deposited and paid into escrow with
LAND TITLE AND ESCROW, 237 N. Lincoln, Jerome, Idaho. In such event, CSMG hereby
agrees to release or otherwise cause the release of the FIFTY THOUSAND AND
00/100 DOLLARS ($50,000.00) to Customer.
3. Construction of Plant. Upon CSMG securing the necessary financing for the
capital expenditures, costs and expenses to be incurred and paid by it to
fulfill its duties and obligations pursuant to and under this Agreement, CSMG
agrees to construct the Plant on Customer's real property, including, but not
limited to providing any and all materials and labor needed for and to construct
the Plant, securing any and all necessary governmental permits and complying
with any and all applicable Federal, State, County and Municipal fire, safety,
zoning, building and environmental codes and regulations and any other
applicable laws, statutes, ordinances and regulations as follows.
a. Within four (4) weeks from the date of financing approval, CSMG shall
transport or cause to be transported to Customer's location its necessary
agents, engineers, specialists, or employees to begin the development of a site
specific plan and specifications for the Plant at Customer's location. Within an
additional four (4) weeks thereafter, CSMG shall prepare and present to Customer
written definite and firm plans and specifications for the Plant at Customer's
location. Said written definite and firm plans and specifications shall include
the specific location of and area for the Plant on Customer's real property, the
specific benefits to be realized by Customer from the operation of the Plant and
the Process, the capacity of the Plant with regard to the Process, the monthly
fee to be charged by CSMG to Customer for the Process, and the point of
construction of the Plant that constitutes the completion of one-half (1/2) of
the construction of the Plant.
b. Within five (5) working days, after review and consideration by Customer of
said written definite plans and specifications, Customer must elect to either
cancel and terminate this Agreement or proceed with the construction of the
Plant.
(i) In the event Customer elects to terminate this Agreement, TEN
THOUSAND AND 00/100 DOLLARS ($10,000.00) of the FIFTY THOUSAND AND 00/100
DOLLARS ($50,000.00) deposited and paid into escrow with LAND TITLE AND ESCROW,
237 N. Lincoln, Jerome, Idaho shall, within five (5) working days of Customer's
election to terminate, be released and paid to CSMG, and the remaining FORTY
THOUSAND AND 00/100 DOLLARS ($40,000.00) shall be released and returned to
Customer. In such event, CSMG and Customer hereby agree to release or otherwise
cause the release of said sums to the party entitled thereto.
AGREEMENT - Page 2.
Exhibit 10.7
Page 2 of 9 Pages
<PAGE>
(ii) In the event Customer elects to proceed with the construction of the Plant,
within five (5) working days of Customer's election to proceed, TWENTY FIVE
THOUSAND AND 00/ 100 DOLLARS ($25,000. 00) of the FIFTY THOUSAND AND 00/100
DOLLARS ($50,000.00) deposited and paid into escrow with LAND TITLE AND ESCROW,
237 N. Lincoln, Jerome, Idaho shall be released and paid to CSMG, and the
remaining TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($25,000.00) shall remain in
escrow. In such event, Customer hereby agrees to release or otherwise cause the
release of said sum to CSMG.
(c) In the event Customer elects to proceed with the construction of the Plant,
CSMG
shall forthwith proceed with securing all necessary governmental permits and
construction of the Plant on Customer's designated real property. Subject to
delays caused by strikes, wars, or acts of God CSMG shall complete construction
of the Plant on Customer's designated real property on or before eleven (11)
months from the date of Customer's election to proceed. At such time that the
construction of the Plant is one-half (1/2) completed the remaining TWENTY FIVE
THOUSAND AND 00/100 ($25,000.00) held in escrow at LAND TITLE AND ESCROW, 237 N.
Lincoln, Jerome, Idaho shall be released and paid to CSMG. One-half (1/2)
completion of the construction of the plant shall meari that point of
construction of the Plant identified in the written definite and firm plans and
specifications for the Plant at Customer's location as constituting the
completion of one-half (1/2) of the construction of the Plant.
(d) Customer hereby agrees to cooperate with CSMG in its efforts to obtain and
secure the necessary governmental permits and approval for the construction of
the Plant and operation of the Process, including providing to CSMG information
reasonably necessary to secure said permits and approval.
4. Location of Plant on Customer's Real Property. As part of Customer's review
and consideration of the definite plans and specifications for the Plant and
subject to termination and cancellation of this Agreement by Customer as
provided herein, CSMG and Customer shall mutually agree upon the specific
location of and area for the Plant on Customer's real property. The mutually
agreed upon location of and area for the Plant is hereinafter referred to as the
"Designated Property." Customer agrees to lease the Designated Property to CSMG
for ONE DOLLAR AND 00/100 ($1.00) per year for the entire term of this
Agreement, and for the term of any renewals hereof. As part of said lease of the
Designated Property to CSMG, CSMG shall possess the right of ingress and egress
for CSMG to remove the solid waste by-products generated by the Plant and the
Process. CSMG shall not permit any lien or encumbrance to attach to, against or
upon the Designated Property. Customer shall warrant, and subject to termination
and cancellation of this Agreement by Customer as provided herein does hereby
warrant unto CSMG full and free ingress and egress to the Designated Property
for purpose of the operation of the Plant and the Process. Customer shall
warrant, and subject to termination and cancellation of this Agreement by
Customer as provided herein does hereby warrant unto CSMG that the Designated
Property shall be free and clew of any and all liens or encumbrances that
interfere with the operation of the Plant or the Process.
AGREEMENT - Page 3.
Exhibit 10.7
Page 3 of 9 Pages
<PAGE>
5. Taxes. Assessments and Utilities. Customer shall be responsible for and shall
pay all property taxes that-may be imposed against or upon the Designated
Property during the term of this Agreement. CSMG shall be responsible for and
shall pay any and all municipal, county and state taxes assessed during the term
of this Agreement against any leasehold interest or any personal property of any
nature or kind, owned by or placed in, upon or about the Designated Property by
CSMG, and shall also pay any and all taxes of every nature which may be imposed
with respect to the operation of the Plant by CSMG in or fro. the Designated
Property. CSMG shall be responsible for and shall pay all utility expenses and
charges of every nature accruing by reason of C SMG's use and occupancy of the
Designated Property and the operation of the Plant, including, but not limited
to, water, sewer, trash, telephone, electricity and heating.
6. Monthly Fee Charged to Customer. As part of Customer's review and
consideration of the written definite plans and specifications for the Plant in
accordance with subparagraph 3.b. hereinabove, and subject to termination and
cancellation of this Agreement by Customer as provided herein, CSMG and Customer
shall mutually agree upon the monthly fee to be charged to Customer for the
Process. Upon CSMG and Customer mutually agreeing upon the monthly fee to be
charged to Customer for the Process, they shall enter into an addendum to this
Agreement memorializing the monthly fee to be charged to Customer during the
term of this Agreement.
7. Repayment of $50,000.00 Deposited into Escrow. Upon full funding of the
necessary funding from or through a leasing or financing company for the capital
expenditures, costs and expenses to be incurred and paid by CSMG to fulfill its
duties and obligations pursuant to and under this Agreement, Customer shall have
the option of either full reimbursement from CSMG of the FIFTY THOUSAND AND
00/100 DOLLARS ($50,000.00) paid and deposited into escrow or application and
credit of said amount toward the monthly fee to be charged Customer by CSMG for
the Process.
8. Warranties of Plant and Process. Upon complete construction of the Plant at
the Designated Property, CSMG shall fully and adequately test the Plant in order
to be able to warrant to Customer that the Plant is free from defect in
material, design or workmanship, and the Process is fully operational in
accordance with the written definite and firm plans and specifications for the
Plant. Upon completion of said test and certification from engineers that the
plant is free from defects in material, design, and workmanship, and the Process
is fully operational in accordance with the written definite and firm plans and
specifications for the Plant, CSMG shall hereby warrant -to Customer that the
Plant is free from defect in material, design or workmanship, and the Process is
fully operational in accordance with the written definite and firm plans and
specifications for the Plant.
9. Operation of Plant. CSMG agrees to operate the Plant on Customer's real
property, and to keep the Plant in good working order and repair, and to
maintain the Process as fully operational in accordance with the written
definite and firm plans and specifications for the Plant, subject to mechanical
failures or breakdowns occasioned from the normal operation of the Plant,
strikes, wars, acts of God and occurrences not within the control of CSMG.
Customer agrees to cooperate fully in good faith with CSMG in dealing with any
disruption of the Process at the Plant and to take all reasonable action as
requested by CSMG in the resolution of such disruptions as may be necessary on
the part of Customer. CSMG shall use its best efforts to install upgrades to the
Plant
AGREEMENT - Page 4.
Exhibit 10.7
Page 4 of 9 Pages
<PAGE>
and the Process' from CSMG designers, engineers, and scientists and as they
become available from they are mutually agreed to by Customer and CSMG.
10. Animal Waste. When the Plant is certified by engineers as being in
compliance with all necessary government permits, plans, and specifications as
well as being in good working order, and the Process is fully operational in
accordance with the written definite and firm plans and specifications for the
Plant, Customer agrees to furnish to CSMG not more than all of the animal wastes
of the number of animals for which the plant was designed to process, but in no
event more than the total amount of animal wastes produced by Customer's dairy
operation for which the CSMG and Customer agree the Plant is to service. All
solid by-products generated by the Plant and the Process waste treatment
facility shall be the property of CSMG, and Customer does hereby grant to CSMG
the right to all such solid by-products, compost, or other solid materials
generated by such plant. Customer shall have all rights to any non-solid
by-products such as liquid or gas results of the Process but only in excess of
that necessary to operate the plant. CSMG hereby agrees to properly remove such
solid waste by-products on a regular basis but not less than every THIRTY (30)
days.
11. Payment of Monthly Fee, Commencing on the first day of the month following
the Plant being certified by engineers as being in compliance with all necessary
government permits, plans, and specifications as well as being in good working
order, and the Process is fully operational in accordance with the written
definite and firm plans and specifications for the Plant, Customer agrees to pay
to CSMG the monthly fee to be charged to Customer for the Process, to which
Customer and CSMG have mutually agreed in accordance with paragraph 6,
hereinabove. Said monthly payments shall be made by Customer on or before the
first day of each month during the term of this Agreement.
12. Ter.. This Agreement shall be for a term of TEN (10) years, commencing as of
the first day of the month following the Plant's certification by engineers as
being in compliance with all government permits, plans, and specifications as
well as being in good working order, and the Process is fully operational in
accordance with the written definite and firm plans and specifications for the
Plant.
Following the initial TEN (10) year term of this Agreement or any renewal
thereof, Customer may either purchase the Plant at a sales price negotiated and
agreed upon by CSMG and Customer or, at Customers option, renew this Agreement
for successive terms of TEN (10) yews.
13. Default by Customer. In the event Customer defaults in any of its monthly
payments or other obligations as set forth herein, then CSMG may immediately
cease operation of the Process and CSMG shall be entitled to dismantle and
remove the Plant from the Designated Property; provided, however, prior to
dismantle and removal of the Plant from the Designated Property CSMG shall first
give Customer thirty (30) days written notice of the matters in which it is in
default and the opportunity to cure such default within said notice period. Such
notice shall be given in writing, prepared by CSMG or CSMG's agents, and
delivered to Customer. Such delivery of the said written notice shall be by
personal service, by mailing to Customer via Certified Mail, or by facsimile
transmission with said notice being mailed to Customer via Certified Mail. CSMG
shall have the right of full access to the Designated Property as is necessary
to effectuate such dismantlement and removal of the Plant.
AGREEMENT - Page 5.
Exhibit 10.7
Page 5 of 9 Pages
<PAGE>
14. Default by CSMG. In the event the Process ceases for a period in excess of
twenty four (24) consecutive hours, Customer may immediately cease making the
monthly payments to CSMG and Customer's monthly payments or prorated portion
thereof shall abate. Customer's obligation to make the monthly payments to CSMG
shall resume upon the restart of the Process.
in the event CSMG fails to restart the Process within a period of thirty (30)
consecutive days from the cessation of the Process, the Customer shall have the
right to declare CSMG in default of this Agreement and have CSMG dismantle and
remove the Plant from the Designated Property; provided, however, prior to
Customer exercising its right to have CSMG dismantle and remove the Plant from
the Designated Property Customer shall give CSMG thirty (30) days written notice
of the default and the opportunity to cure the default within thirty (30) days
of receipt of said notice. Such notice shall be given in writing, prepared by
Customer or Customer's agents, and delivered to CSMG. Such delivery of the said
written notice shall be by personal service, by mail to CSMG via Certified Mail,
or by facsimile transmission with said notice being mailed to CSMG via Certified
Mail.
In the event CSMG defaults in any of its obligations as set forth herein, other
than cessation of the Process, Customer shall first give CSMG thirty (30) days
written notice of the matters in which it is in default and the opportunity to
cure such default within thirty (3 0) days of receipt of said notice. Such
notice shall be given in writing, prepared by Customer or Customer's agents, and
delivered to CSMG. Such delivery of the said written notice shall be by personal
service, by mail to CSMG via Certified Mail, or by facsimile transmission with
said notice being mailed to CSMG via Certified Mail.
15. Termination of Agreement. At the end of the initial term or any renewed term
of this Agreement, CSMG shall, unless the Plant is sold to Customer, within
thirty (30) days thereafter begin to dismantle and remove the Plant from the
Designated Property. CSMG shall have the full right of access to the Designated
Property as is necessary to effectuate such dismantlement and removal.
16. Risk of Loss. CSMG agrees that the risk of loss due to loss by fire or other
casualty to the Plant, its equipment or otherwise property shall remain with
CSMG during the term of this Agreement.
17. Indemnification. CSMG agrees to indemnify, save and hold harmless Customer
its officers, directors, partners, employees and agents, and its successors,
heirs and assigns, from and against any and all claims, liability, damage,
judgment, penalty, fine, cost, loss or expenses, including reasonable attorney
fees and costs, all of which arise from or relate to the Plant, the Process, its
occupation and use of the Designated Property, and its failure to comply with
any and all applicable and governing Federal, State, County, and Municipal
statutes, regulations and otherwise laws by reason of CSMG's operation of the
Plant, the Process or occupation and use of the Designated Property including,
but not limited to fire, safety, zoning, building codes and regulations, and
environmental laws, statutes and regulations.
Customer agrees to indemnify, save and hold harmless CSMG, its officers,
directors, employees and agents, and their successors, heirs and assigns, from
and against any and all claims, liability, damage, judgment, penalty, fine,
cost, loss or expenses, including reasonable attorney fees and costs, all of
which are caused directly and proximately from Customer's, its officers,
directors, partners, employees and agents negligence.
AGREEMENT - Page 6.
Exhibit 10.7
Page 6 of 9 Pages
<PAGE>
18. Resolution of Disputes. The parties shall use their best endeavors to settle
my dispute or controversy or claim arising out of or relating to this Agreement.
To this effect, the parties shall consult and negotiate with each other, in good
faith and understanding of their mutual interests, to reach a just and equitable
solution satisfactory to both parties. If the parties cannot reach a solution
within a period of thirty (30) days, then the dispute shall be finally settled
by arbitration in accordance with the rules of the American Arbitration
Association. The Arbitration Tribunal shall be formed of one arbitrator to be
selected by CSMG and one arbitrator to be selected by Customer with the two
selected arbitrators selecting a third arbitrator among themselves. The
arbitration shall take place in a mutually agreeable location in the state of
Idaho. Judgment entered upon the award rendered may be entered into any court
having jurisdiction or application may be made to such court for a judicial
recognition of the award or an order of enforcement thereof as the case may be.
This paragraph provides the sole recourse for the settlement of any dispute,
controversy, or claim arising out of or relating to this Agreement.
19. Assignment of Agreement. CSMG shall possess the right to assign this
Agreement to a third party leasing or financing company, its subsidiary animal
waste company and/or local operating management company; provided, however, such
assignee is qualified to operate the Plant. Notwithstanding the assignment of
this Agreement, CSMG shall remain liable to Customer for the duties and
obligations herein.
20. No Agency Relationship Created. This Agreement does not make either party
the employee, agent, or legal representative of the other for any purpose
whatsoever. Neither party is granted my right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or in
the name of the other party. Neither party shall act or represent itself or
suffer or allow anyone else to hold themselves out as an agent or employee of
the party. Neither party shall have authority, express or implied, to make any
representations or statements on behalf of the other party .
21. Notice. For purposes of notification pursuant to this Agreement, all notice
requests, consents, demands, waivers, or other communications hereunder shall be
in writing and shall be mailed via Certified Mail, or sent by facsimile
transmission with said notice being mailed via Certified Mail to the respective
parties hereto at the following address and/or facsimile numbers, or otherwise
personally delivered:
Notices to CSMG shall be delivered to:
Consortium Services Management Group 500 N. Shoreline, 701 N. Tower Corpus
Christi, Texas 78471 Facsimile (361) 884-0792
With a copy to:
F. Edward Barker
Edward Barker & Associates
AGREEMENT -Page 7.
Exhibit 10.7
Page 7 of 9 Pages
<PAGE>
800 N. Shoreline, Ste. 2 100 South Corpus Christi, Texas 78401-3700 Facsimile
(361) 882-9437
All notices to Customer shall be delivered to:
Aardema Dairy c/o Donald J. Aardema 144 West 400 South Jerome, Idaho 83333
Facsimile (208) 324-7328
The parties may at any time designate by like notice hereunder other addresses
to which notices and other communications should be transmitted.
22. Time. Time is agreed to be of the essence of this Agreement.
23. Severabilily. In the event that any of the terms of this Agreement are in
conflict with any rule of law or statutory provision or are otherwise
unenforceable -der the laws or regulations of any government or subdivision
thereof, such terms shall be deemed stricken from this Agreement, and such
invalidity or unenforceability shall not invalidate this Agreement or any of the
other terms of this Agreement, and this Agreement shall continue in full force
and effect, -less the invalidity or unenforceability of any such provisions
hereof adversely affect the receipt of any material benefit of either party
hereunder, does substantial violence to, or where the invalid or unenforceable
provisions comprise an integral part of, or are otherwise inseparable from, the
remainder of this Agreement.
24. Counterparts to Agreement. This Agreement may be executed in counterparts
and each such counterpart shall be deemed an original hereof.
25. No Waiver. No failure by either party to take any action or assert any right
hereunder shall be deemed to be a waiver of such right in the event of the
continuation or repetition of the circumstances giving rise to such right.
26. Fees and Costs. In the event that CSMG or Customer shall be required to
secure legal services or advice to enforce any of their respective rights,
duties or obligations hereunder, with or without litigation, the successful
party with respect to such enforcement shall be entitled to recover, in addition
to all other remedies, reasonable attorney fees and costs.
27. Binding Effect. The provisions of this Agreement shall bind and inure to the
benefit of the heirs, successors, executors, administrators and assigns of the
parties hereto.
28. Entire Agreement. This agreement contains the entire agreement of the
parties hereto with respect to the matters contained herein, and no prior
agreement, or understanding pertaining to any such matter, shall be effective
for any purpose. No provision of the Agreement
AGREEMENT - Page 8.
Exhibit 10.7
Page 8 of 9 Pages
<PAGE>
may be amended or added to, except by an agreement in writing signed by the
parties hereto, or their respective successors-in-interest.
29. Construction of Agreement. All portions of this Agreement shall be construed
under the laws of the state of Idaho
IN WITNESS WHEREOF, the parties hereto have set their hands the day and year
first above written.
CONSORTIUM SERVICE MANAGEMENT Aardema Dairy GROUP, INC. By By Donald Robbins
Donald J. Aardema Its President
AGREEMENT - Page 9.
Exhibit 10.7
Page 9 of 9 Pages
AGREEMENT
THIS AGREEMENT is entered into this day of 1999, by and between CONSORTIUM
SERVICE MANAGEMENT GROUP, INC." a Texas corporation, hereinafter referred to as
"CSMG", and JOHN BEUKERS and RUTH BEUKERS, husband and wife, hereinafter
referred to as "Beukers."
R E C I T A L S:
A. CSMG has secured rights to an anaerobic animal waste treatment plant which is
capable of
processing animal waste into useable byproducts.
B. Beukers conducts substantial dairy operations in Jerome and Gooding County,
Idaho. As a
consequence of those dairy operations, substantial solid and liquid wastes from
livestock are produced, creating great expense to the dairy operator to properly
dispose of
C. This technology under the control of CSMG may prove to be useful in providing
a mutually
beneficial means of processing the solid and liquid waste generated by the
livestock at Beukers' dairy operations by converting those wastes into useful
byproducts.
D. The technology has been used in the Ukraine to process animal waste, and the
engineers,
technicians and others conversant with the technology will be required to come
to the United States to the site of Beukers' dairy operation in order to view
the dairy operation and determine whether utilizing the CSMG technology would be
feasible for both parties,
E. Beukers is desirous to show their good faith by depositing certain sums of
money in the trust
account of Land Title & Escrow, Inc., to be released to CSMG and/or other
parties on the occurrence of specified conditions.
F. In addition, the parties wish to obligate themselves to allow for the CSMG
personnel to view the
Beukers dairy operation and to present the nature of the technology and its
function at the Beukers dairy site.
G. In the process of the foregoing, the parties recognize that it will be
necessary to exchange
confidential and proprietary information which the parties wish to agree to keep
and honor as confidential information and not to disclose it to third parties
without the consent of the other.
H. CSMG is in the process of qualifying to do business in the State of Idaho and
will be so qualified
at or before the date of the execution of this Agreement.
IT IS THEREFORE AGREED, in consideration of these recitals trid the mutual
promises and covenants hereafter contained, as follows:
I . Deposited Funds. Concurrently with the execution of this Agreement, Beukers
shall deposit Fifty Thousand Dollars ($50,000), lawful money of the United
States of America, with Land Title & Escrow, Inc., Jerome,, Idaho, which shall
be the escrow holder of the funds pursuant to this Agreement.
Exhibit 10.8
Page 1 of 4 Pages
<PAGE>
The parties shall pay an escrow setup fee of $100 to be equally divided by the
parties. The responsibilities of Land Title & Escrow, Inc., shall be to hold the
funds and deliver the same to the parties entitled to the same under the terms
of this Agreement.
2. Financial Information. Concurrently with the execution of this Agreement by
all parties, Beukers agrees to provide to CSMG copies of federal tax returns for
the preceding two years, together with the most currently available financial
statements for Beukers' dairy operation. The tax returns and the financial
statements shall be subject to the agreement of confidentality below described.
3. Evaluation Period. CSMG will 'immediately cause arrangements to be made
whereby engineers, technicians and other qualified individuals who have
developed and understand technology as set forth in the above recitals
(hereinafter, "CSMG personnel"), and who will travel to the United States of
America, and specifically the site of Beukers dairy operations in Jerome and
Gooding Counties for the purposes of viewing the dairy site, presenting the
technology regarding the processing of solid and liquid waste from livestock
into useful byproduct, analyze proposed sites for a processing facility
incorporating the technology on Beukers real property, reviewing applicable
regulatory statutes, ordinances, rules and orders, and otherwise ascertaining
whether the technology available to CSMG will be useful and feasible at the
Beukers dairy operation. It is anticipated that this visit and presentation
shall take place no later than sixty (60) days from the execution of this
Agreement. CSMG agrees to disclose to Beukers the exact nature and extent of its
technology as well as plans, proposals, drawings, technical materials and such
other information as Beukers may reasonably require to evaluate the nature of
the technology disclosed by CSMG, its usefulness for Beukers' purposes, and the
feasibility of the construction of necessary improvements to accommodate the
processes of converting livestock liquid and solid waste to useful byproducts.
4. Definitive Agreement. At the conclusion of the evaluation period which shall
be no more than 15-- 21 days from the date of the actual visit to the site of
the CSMG personnel, Beukers may decline to proceed any further. In that event,
Ten Thousand Dollars ($10,000) of the money deposited by Beukers to the trust
account shall be released to CSMG, and the parties shall have no further
obligations of any kind to the other except for the nondisclosure provisions
contained elsewhere in this Agreement. If, after the close of the evaluation
period the parties determine that the construction of facilities utilizing the
technology of CSMG to convert liquid and solid animal waste to useful byproducts
will be useful, feasible and practical at one or more Beukers sites, the parties
shall then proceed to negotiate in good faith a definitive agreement which shall
contain the agreement of the parties on all aspects of their proposed business
relationship, including, but not limited to:
A. The development of construction plans and specifications, B. Obtaining the
necessary governmental permits, C. Ownership of the improvements to be
constructed on the Beukers sites, D. Ownership and operation of the
improvements;
E. Mechanisms for the delivery of liquid and animal waste to the site of the
plant,
F. Ownership of the useful byproducts produced from the processes-,
G. Warranties concerning workmanship and operation of the facility;
H. Fees, if any, to be paid by one of the parties to the other for such matters
as the operation of the plant, related services to be provided by CSMG to
Beukers, ownership of useful byproducts to be produced from the solid and liquid
waste and other related matters-,
1. Easements for ingress and egress as appropriate;
J. Financing of the plant's construction.
5. CSMG Confidentiality. CSMG recognizes that the financial information that
Beukers will disclose,
Exhibit 10.8
Page 2 of 4 Pages
<PAGE>
including financial statements and tax returns are confidential and proprietary
to Beukers. CSMG may disclose the information provided to CSMG to its attorneys,
advisors and financial consultants, subject to the same obligations of
confidentiality contained *in this paragraph. CSMG agrees not to disclose the
tax returns, financial statements or any information therein contained to any
third party other than as expressed in this paragraph without the written
consent of Beukers. Should, after the evaluation period above-described, Beukers
chooses not to proceed with the negotiation of a definitive agreement for the
construction and operation of a plant, CSMG shall return the financial
statements and tax returns provided by Beukers, and shall destroy any copies of
such information received by CSMG.
6. Beukers Confidentiality. The parties understand that the matters agreed to
herein will require that CSMG discloses to Beukers some facts, processes, design
and other such material which is confidential and proprietary and which is the
sole and exclusive property ofCSMG. It is also understood by the parties that to
properly evaluate the information disclosed to Beukers, Beukers may be required
to enlist attorneys, engineers, and persons of other disciplines reasonably
necessary to evaluate the information provided by CSMG to determine if the
proposals, plans and designs of CSMG for a plant to process solid and liquid
animal waste into useful byproducts is feasible at the Beukers dairy site,
Beukers may disclose the confidential proprietary information of CSMG to such
other persons, provided that they shall be under the same pledge of
confidentiality as Beukers contained 'In this paragraph. Except as provided by
this paragraph, Beukers agrees not to disclose any confidential proprietary
information of CSMG disclosed to it to third parties without the written consent
of CSMG. Should, after the evaluating period above described, Beukers choose not
to proceed with the negotiation of a definitive agreement for the construction
and operation of a plant, Beukers shall return all documentation provided by
CSMG to Beukers regarding the proposed plant, and shall destroy any copies of
such information received by Beukers.
7, Release and Return of Funds. Should the parties proceed to negotiate a
definitive agreement for the construction and operation of a plant, the Fifty
Thousand Dollars ($50,000) deposited by Beukers in the trust account of Land
Title & Escrow, Inc., shall be released to CSMG upon the following schedule
A. Twenty-five Thousand Dollars ($25,000) upon execution of a definitive
agreement for the construction and operation of the plant-, B. Twenty-five
Thousand Dollars ($25,000) upon commencement of construction of the plant.
The Fifty Thousand Dollars ($50,000) paid by Beukers to CSMG in accordance with
subparagraphs A and B above, shall be returned to Beukers upon completion of the
construction of the plant and the commencement of plant operations.
8. Prohibition of Assignment. Neither party shall assign their interest in this
Agreement to any third party without the written consent of the other.
9. Attorney's Fees on Default: If default is made by either party hereto in
keeping or performing any of the covenants, conditions or agreements herein
agreed to be kept by them, and the other party is required to employ an attorney
to enforce any of the covenants, conditions or agreements herein contained, then
and in such event, the party in default agrees to pay, in addition to all other
sums herein agreed to be paid by the., a reasonable attorney's fee, together
with any costs and disbursements that may be incurred in enforcing this
Agreement.
10. Integration. The parties hereto acknowledge that the terms, conditions and
covenants of this agreement shall supersede any prior negotiations and
agreements of the parties concerning the subject matter of this Agreement and
that there are no other agreements not contained in this agreement, and that
this agreement shall be the final expression of the agreement of the parties and
shall control. No modifications of this agreement shall be valid unless in
writing and executed by all the parties hereto.
11. Time is of the Essence: The parties hereto acknowledge and agree that time
is, and shall be, the
Exhibit 10.8
Page 3 of 4 Pages
<PAGE>
essence of each and every term and condition contained herein.
12. Binding Effect: This Agreement shall be binding upon and shall inure to the
benefit of, and be binding upon the heirs, successors and assigns of the
parties,
IN WITNESS WHEREOF, the parties hereto have hereunto subscribed their names, the
day and year in this agreement first above written.
"CSMG" "Beukers"
By:
John BEUKERS
RUTH BEUKERS
STATE OF TEXAS
ss. County of
On this day Of 1999, before me, the undersigned, a Notary Public in and for said
County and State, personally appeared known to me to be the of CONSORTIUM
SERVICE MANAGEMENT GROUP, INC, whose name is subscribed to the within and
foregoing instrument as such President, and who acknowledged to me that he
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, the day and year in
this certificate first above written.
NOTARY PUBLIC
NOTARY PUBLIC for State of Texas Residing at 500 N. Water St., Suite 708, Corpus
Christi, Tex as Commission Expires: 6-2-2002
STATE OF IDAHO
ss. County of Jerome
On this 30th day of July1999, before me, the undersigned, a Notary Public in and
for said County and State, personally a0eared JOHN BEUKERS and RUTH BEUKERS,
husband and wife, known to me to be the persons whose names are subscribed to
the within and foregoing instrument, and who acknowledged to me that she
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, the day and year in
this certificate first above written.
Exhibit 10.8
Page 4 of 4 Pages
EXCLUSIVE RIGHTS, DISCLOSURE AND NON CIRCUMVENT AGREEMENT
This Agreement made on this day of December 1998 by and between International
Welding Association, Kiev, Ukraine, (hereinafter referred to as "IAW"), Gas
Institute of National Academy of Sciences of Ukraine, (hereinafter referred to
as "GAS"), and Consortium Service Management Group, Inc. of Corpus Christi,
Texas with representation offices in Kiev, Ukraine (hereinafter referred to as
"CSMG").
Purpose of the Agreement
CSMG, IAW and GAS hereby agree to enter into a program of mutual cooperation for
the purpose of realization of development of the technology for purifying of the
methane gas and removing carbon dioxide de as well as the necessary equipment,
technological improvements if necessary, testing, marketing, manufacturing,
distribution and licensing of the technology for purifying of the methane gas
from carbon dioxide to the level required by the customer as well as the
necessary equipment.
Parties to the Agreement
IAW is a duly authorized and licensed Ukraine legal entity formed for the
purpose of international marketing, bringing in investors and valuation of
products developed by its members, interested entities from various countries
and Paton is me of its founding members on commission from which IAW is
authorized to conclude contracts with interested entities from various
countries.
GAS is a duly authorized and licensed Ukraine legal entity of National Academy
of Sciences of Ukraine.
CSMG is a corporation duly registered in the state of Texas, headquarters in
Corpus Christi, Texas with representation offices in Kiev, Ukraine formed
expressly for the purpose of developing commercial business opportunities in the
former Soviet Union countries during its transition to a market economy.
DURATION OF THE AGREEMENT
This agreement shall be in force from the date of signature of principal
executive officers representing each side. It shall remain in force for three
years unless me of the sides declares in writing 'its desire to terminate any of
its provisions and receives approval from the other parties. agreement may be
extended by an addendum, signed by representatives of all sides, to that effect.
All parties shall honor all provisions on this agreement if a grant or financing
is completed with a CSMG introduced grant or funding source within two years
after termination of this agreement.
SUBJECT OF THE AGREEMENT
The purpose of the project is the development of technology for purifying of the
methane gas and removing carbon dioxide for the commercialization to the world
markets.
OBLIGATIONS OF THE PARTIES TO THE AGREEMENT
CSMG will arrange funding for the project, evaluate market, market the project
if it is marketable, coordinate the project with customers design engineers from
USA to work as part of the development team, coordinate with 1AW and GAS on the
project.
ln consideration of the time, energy, expense and expertise of CSMG in
successfully arranging funds IAW and GAS agree to assign to CSMG the exclusive
world rights for licensing, manufacturing, marketing and servicing of technology
for purifying of the methane gas and removing carbon dioxide as well as the
necessary equipment with marketing expected to begin in the USA, Canada and West
European countries for licensing, marketing, manufacturing, and distribution.
Such rights shall be shared by shared by IAW GAS as one entity and CSMG as the
other on a 50%/50% basis at the whole sale level, but CSMG has first right of
refusal for other markets of the world.
Exhibit 10.9
Page 1 of 3 Pages
<PAGE>
CSMG has the night to attract additional partners for marketing, manufacturing
and distribution of technology for purifying of the methane gas and removing
carbon dioxide as well as the necessary equipment. The technology for purifying
fying of the methane gas and removing carbon dioxide as well as the necessary
equipment conception haw been developed and patented by the Ukrainian
scientists, patents shall be assigned to CSMG by the patent authors and GAS upon
completion of a formal contact between the parties. In the event it 'is
determined by all parties to this agreement that there are Important patentable
inventions which make economic sense, the patent shall be issued in the name of
the individual iinventor(s) and assigned to CSMG immediately upon patent filing
and issuance.
Gas will prepare the budget and state the price for the technology for purifying
of the methane gas from carbon dioxide as well as the necessary equipment by 31
December, 1998.
PROPRIETARY INFORMATION
For purposes associated with this agreement, it is agreed that it may be
necessary for the parties to disclose "proprietary information" to each other,
which disclosure shall be in accordance with the terms of this article.
As used 'In this agreement the term "proprietary information" shall mean:
Written commercial or technical information (Including financing, design and
manufacturing information) disclosed by one party to the other and stated by the
transmitting party in writing it is to be considered as proprietary or
confidential information so 'Indicated by an appropriate notation;
Orally or visually disclosed commercial or technical information which is
designated proprietary or confidential information at the time of disclosure and
confirmed in writing as such within a 30 day period-,
Drawings identified 'In whiting by the transmitting party to be proprietary or
confidential and so Indicated by notation;
Hardware, samples or models supplied by the transmitting party to the receiving
party, unless otherwise defined in writing.
Companies, 'institutes, entities, and other business concerns introduced by CSMG
or its associates shall be considered dered proprietary information of CSMG.
Each party agrees that it shall maintain the proprietary information of the
other 'in confidence, and disclose such information within its organization only
to those with a "need to know" and shall, without prior written consent of the
other party, except as provided herein, use such information or disclose such
information to any person or persons outside its organization.
The restrictions as to use and disclosure of information shall not apply to
information that was already known to the other party, *in the public domain or
generated independently by other source-, however, the burden of proof lies with
the receiving party.
All information, contracts, parties and opportunities being introduced will be
kept and held in strict confidence for a period of five years and released only
on a need to know basis.
Pursuant to this agreement IAW /Gas shall provide CSMG with information on the
technology for purifying of the methane gas and removing carbon dioxide. This
proprietary and confidential information belongs to IAW /Gas.
CONTRACT
Exhibit 10.9
Page 2 of 3 Pages
<PAGE>
This agreement hereby expresses parties' intentions for commercialization of the
technology for purifying of the methane gas and removing carbon dioxide. Order
and conditions for realization of technology for purifying of the methane gas
and removing carbon dioxide as well as the necessary equipment project will be
stipulated in the official contract upon the receipt of financial availability
declaration from CSMG.
Dated this day of December 1998
Exhibit 10.9
Page 3 of 3 Pages
