UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 000-21725
THE TRANSLATION GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 23-3382869
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(State or other jurisdiction of (I.R.S. Employ. Ident. No.)
incorporation or organization)
30 WASHINGTON AVENUE
HADDONFIELD, NJ 08033
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (609) 795-8669
ISSUER'S FAX NUMBER: (609) 795-8737
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] NO [ ].
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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Issuer's revenues for its most recent fiscal year: $ 5,987,002
Aggregate market value of the voting stock held by non-affiliates of
registrant on June 21, 1999, based on average of the high and low price on that
date, was $8,935,452 million. Exclusion of shares in this calculation shall not
be deemed an admission that such person is an affiliate and inclusion shall not
be deemed an admission that such person is not an affiliate. This information is
provided solely for record keeping purposes of the Securities and Exchange
Commission.
See "Market of the Registrant's Common Stock and Related Stockholder
Matters."
The number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,798,008 shares of common
stock, par value $ .001 per share, as of June 21, 1999, which includes up to
103,000 shares to be issued pursuant to an agreement with a former executive of
a wholly owned subsidiary and 416,668 shares issued in connection with a recent
acquisition.
Transitional Small Business Disclosure Format: Yes [ ]; No [X]
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PART I
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
When used in this Annual Report on Form 10-KSB and in other public
statements by the Company and Company officers, the words "expect", "estimate",
"project", "intend", and similar expressions are intended to identify
forward-looking statements regarding events and financial trends which may
affect the Company's future operating results and financial condition. Such
statements are subject to risks and uncertainties that could cause the Company's
actual results and financial condition to differ materially. Such factors
include, among others, the risk factors described under Item 1 in this Annual
Report. Additional factors are described in the Company's other public reports
filed with the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date made. The Company undertakes no obligation to publicly release the
result of any revision of these forward-looking statements to reflect events or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND BACKGROUND
The Translation Group, Ltd. was incorporated under the laws of Delaware
on July 6, 1995. On January 17, 1996, The Translation Group consummated its
first acquisition when the shareholders of Bureau of Translation Services, Inc.,
a Pennsylvania corporation ("BTS"), exchanged their shares of BTS for shares of
The Translation Group so that BTS became a wholly owned subsidiary of The
Translation Group. Prior to the acquisition of BTS, The Translation Group's only
activity was related to the negotiations and other matters pertaining to the
raising of funds under a private placement.
On June 30, 1997, The Translation Group acquired all the issued and
outstanding common stock of the companies that comprise the Word House Group in
exchange for shares of The Translation Group whereby Word House became a wholly
owned subsidiary of The Translation Group. Word House has been in operation
since 1984, and currently has offices in The Netherlands, France, and China.
On May 28, 1999, The Translation Group acquired all the issued and
outstanding stock of Planet Access Networks, Inc., a web site development and
management company that will also provide intranet and internet delivery
services for the Company's planned translation products now under development.
The consideration for the shares of Planet Access was the issuance of 416,668
shares of The Translation Group's common stock and cash in the amount of
$900,000 to be paid by September 15, 1999.
The Translation Group and its wholly owned subsidiaries are
collectively referred to herein as "The Translation Group" or the "Company."
Corporate and administration office of the Company is located at 30 Washington
Avenue, Haddonfield, NJ 08033, and its telephone number is (609) 795-8669.
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BUSINESS
The Company translates conventional documents and software written in
one language into other languages, and specializes in providing high tech
translation and localization services, principally in the Information Technology
("IT") sector of the translation market. Localization is the art of converting
text from one language to another giving careful consideration to the customs of
the local area.
The Company has recently launched research programs directed toward the
development of computer-based machine translation systems. These new powerful
information tools will provide the basis for the development of new products.
The basic business model is to accelerate technical developments, together with
product marketing and sales, to create unique translation products for special
niche markets. The Company believes that this strategy will result in
significant increases in revenues and profitability.
Thus, the Company is changing from a translation and localization
service provider, generally using human resources and industry-available
technology and software tools, to a Company with its own uniquely developed
translation and localization technologies. During the past year, the Company
experimented with various projects to coordinate customers, technology changes,
and its own facilities with the growing markets. The Company believes that a
basic change from a labor intensive process to a technology driven process is
required in the industry. Therefore, the Company has been in transition while
developing its own software systems through its strategic technology
relationships with Gedanken and ESTeam to produce specialized automated
translation products for the financial, medical/pharmaceutical, environmental,
information technology and telecommunication fields.
THE TRANSLATION MARKET
The translation market breaks down into two broad categories, namely
"retail" and "professional/technical." The retail translation segment includes a
variety of applications such as general business correspondence, consumer
product marketing, newspapers, magazines, literary works, chat room
conversations, TV shows, news programs, personal letters and similar forms of
commercial and interpersonal communications.
The professional/technical translation market includes all types of
business products and services as well as government publications requiring
translation. Virtually all businesses which export products or services require
that their products be tailored to the local target market or country.
The Company plans to devote most of its resources to competing in the
high volume professional/technical market.
The demands of the professional/technical market on translators are
substantially greater than those in the retail translation market. Not only is
native fluency in the target language required, but knowledge of the terms and
vocabulary of the particular business is also required. Translators must also be
language competent in the source language to understand the
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sophisticated concepts of the products. Businesses often hire bilingual or
multilingual persons as translators and teach these translators the details of
their products or services, rather than depend upon an outside translation
company with language skills but no product knowledge.
According to published industry reports, the demand for language
translation is growing at 25 - 30% per year. Among the fastest growing
translation markets are (i) Eastern Europe, including the countries comprising
the former USSR, due to the multiple language needs in those countries and (ii)
the Asia/Pacific region due to their emerging markets which appeal to global
businesses. Computer-aided language translation is an emerging trend. Management
estimates that machine translation systems currently represent sales of
approximately one percent of the total market potential exceeding $10 billion
annually.
CURRENT SERVICES AND PRODUCTS
The Company presently specializes in managing and producing high
volume, technical translations for the IT and software industries, including the
production of the software itself, software manuals, and software documentation
with a current capability of 24 languages. The Company provides a full range of
translation and localization services to international customers as well as
customers preparing to engage in international commerce. The Company translates
product materials and helps customers localize products and services for the
global marketplace. The Company provides services that are customized to the
customer's requirements.
The primary products and services the Company currently provides are as
follows:
1. Multilingual Localization and Translation, including
o All levels of product management
o Terminology development
o Re-use of previously translated materials using latest
technology tools
o Translation and technical editing of text
o Software engineering, including resizing and compiling
o On-line help compiling and formatting
o Linguistic, functionality, and QA testing
o Desktop publishing, graphic layout, editing, and
proofreading
o Coordination of in-country review
o Production of publishable materials and electronic media,
including CD ROM
o Multimedia localization and production
o Web site and on-line publishing localization and production
2. Internationalization and Development Consulting
3. In-Country Training, Support, and Service Centers
4. Facilities Management and Resource On-Site Placement Services
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Historically, the process of multilingual localization has been highly
labor intensive. Much of the hands-on work has been done principally by
independent translators and editors retained by the Company, as well as Company
employees. Various computer-assisted translation tools have been employed to
reduce costs and to enhance consistency. The Company utilizes these software
applications for extracting and storing data, to preserve formatting during the
translation process, for online dictionaries, for presentation of text and use
of previous translation. In this regard, the Company's translation memory
capabilities have depended upon the storage of and access to previously
translated material in computer usable form.
Our ability to take advantage of translation memory depends on the
stability of customers, types of products, material to be translated and
customer requirements. If variables negatively affect any of the foregoing
factors, such as occurs with first-time customers or when translating materials
in new topics, we may be unable to exploit this advantage. For this reason, the
Company is pursuing the production of its own phased-in system of computer
assisted translation tools which would not be limited to the same materials
being previously translated. See "Technology Applications," below.
The Company considers its highly detailed project management, tracking
and costing procedures as an integral part of producing its specialized
services. The Company places a strong emphasis on efficient processes, and
believes that centralized project management is essential to efficiency. To
better implement this policy, a project manager is assigned to each project.
Thus, even when a project may have team members in many different locations,
most work is coordinated centrally in the Company's United States and European
headquarters via electronic communication. Certain core functions such as
editing, proofreading, desktop publishing and client coordination are part of
central project management. In preparing work for translation into multiple
languages a project editor may identify problems or issues which are relevant
across the entire project. Similarly, in a multiple-language project, problems
may be identified by the translators in one or two languages that are relevant
to others. The Company believes that central control of the process is the best
way to handle certain situations, such as the identification of software bugs.
The Company provides an extensive range of communications facilities by
utilizing its own internal systems integration group that maintains the
Company's Internet/Extranet/ Intranet and e-mail systems. Files are prepared for
translation by the Company's technical staff and are distributed electronically
to translators either locally or in the applicable country. All of the Company's
translators are native speaking professionals in the target language, and are
required to know the subject matter of the area in which they translate. In
addition, a project must have technically knowledgeable staff in the source
language, preferably a specialist in that area. Translated versions are returned
to the Company's central project management for technical review, proofing and
compilation if software is involved. The target language versions are then
distributed to appropriate client locations, which may be multiple locations or
a central site. The Company considers itself an extension of the client's
documentation and software development departments. All project activities are
closely tracked using custom-designed and commercial project management/tracking
applications. This data is fully available to the client and the client always
knows the status of the project. The Company expects to expand its communication
abilities with the acquisition of Planet Access Networks, Inc. as described
below. See "Recent Agreements and Acquisitions."
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The Company realizes that many of its customers do not possess all the
expertise needed to manage the localization process. The Company, therefore, has
created expanded services including management consulting and on-site
management. Systems development and consulting services also include product
planning and redesign for local markets. The Company understands the changes in
technology, that taking a product to a global market can be a difficult
proposition. In order to offset the technical difficulties for its customers,
the Company has taken an active role in the development and modifications of its
customers' products to support local specifications and character encoding for
different regions of the world. These services allow the Company to manage the
localization while simultaneously allowing the customer to manage their product.
Therefore, costs are reduced while quality is maintained.
CUSTOMERS
The Company provides translation and localization services to a diverse
range of industries and industry sectors, with an emphasis on IT companies such
as software publishers, computer hardware manufacturers and computer and
peripherals vendors. Our target markets include nearly all professional
technical and industrial applications such as financial, medical, legal, trade
publications, automotive, software, technical abstracts, equipment and
instrumental manuals, environmental and various other governmental regulations.
At present, key markets for the Company's services are customers
located in Japan, Europe and in the Americas, which include the dialects of
Canadian French, Latin American Spanish, and Brazilian Portuguese. Growth
markets are primarily in Asia and Eastern Europe. Japanese and Dutch represent
the Company's largest languages by volume; the Company believes that Chinese
will also become more significant in the future. The Company's business in Japan
is primarily in translation for suppliers of applications software, including a
substantial volume of Unix-based systems and customized implementations. The
principal applications supported are financial and manufacturing, as well as
client systems encompassing everything from order entry to distribution.
The Company has a large number of IT-based clients. The strong
relationships the Company has developed with its IT clients have also generated
a volume of more conventional translation work. For example, the Company is
currently translating and localizing software messages, software dialog boxes,
software help, and related documentation for several of its clients. These
products are localized for Okidata Peripherals, a division of OKI America, Inc.,
Bentley Systems Inc.'s CAD/CAM software, Matrox Electronic Systems Ltd.'s video
and networks products, Microsoft(R) Corporation's software products, and Project
Software & Development, Inc.'s management system. Other customers include
Hewlett-Packard Company, Creative Labs Inc., Bay Networks, INSO Corporation,
Automatic Data Processing, Inc., Fisher-Rosemont Systems, Minitab Inc.,
Caterpillar Inc., Oracle Corporation and Xerox Corporation.
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TECHNOLOGY APPLICATIONS
The Company has followed the progress of machine translation over the
years. After much careful review and consideration, the Company concluded that
to the best of its knowledge no one system exists that meets its standards of
accuracy, efficiency and effectiveness. Accordingly, the Company is developing
its responses to common problems in the localization process. Currently under
development are fully automatic and language-aware automatic computer
machine-translation systems at both Gedanken and ESTeam.
The goal for the design of computer systems and machine tools is to
enhance or replace the manual translation process. Moreover, included in the
software systems design are sets of tools and other production-enhancing factors
such as quality control. These tools and systems are intended to address some of
the problems involved in the translation/localization of a text from a source
language to a target language by dealing with the following ambiguities:
o Lexical ambiguity--multiple meanings (polysemy) of the same words.
o Structural ambiguity--language that is vague, unclear and or uncertain in
meaning.
o Contextual ambiguity--words can acquire idiosyncratic meaning within
specific context; these meanings do not relate to the normal senses of the
words as normally used.
The Company believes that its technology for computer-aided translation
will provide 90+ % accurate translation on the first pass without human
intervention. The operating methodology of the Company's computer translation
system is based upon the input of large amounts of legacy language translations
in both source and target language. In this manner, the Company's system
"learns" the language of the specific topic and continues to improve its
knowledge as post-edited texts are inputted to the system. Thus, the Company's
system, in time, becomes expert in the particular products or services of the
customer.
The computer translation systems used by the Company are made up of
modules or sub-routines that perform specific tasks in sequence. A module may be
a database or a set of instructions. Typically, a system includes:
o A PARSER which diagrams a sentence into its constituents such as a subject,
verb, object, modifying clauses, adjective and adverb modifiers;
o AN ALIGNMENT TOOL which sequentially translates into a parallel fashion the
sentences in one language into the target language;
o A TRANSLATION MEMORY FEATURE which is a database containing all of the
previously aligned translated words, phrases, and sentences from one
language linked to the target language;
o A BI-LINGUAL DICTIONARY which links the proper translation of words/phrases
in one language to another;
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o A "FUZZY MATCH" ROUTINE which is a software routine which looks for the
most probable word or phrase match when no perfect match exists; and
o A CONVERSION RULE ROUTINE which is a set of instructions directing the
sentence structure conversion from one language to another.
In addition, a number of additional and often proprietary software
features can be incorporated into a machine translation system to assist with
quality control items such as consistency checks and spelling checks.
The Company is committed to invest significant amounts on machine
translation with specific emphasis on acquiring a proprietary real-time
completely automated machine translation system. These include the Gedanken
system and the BTR system described below. Target applications for automated
translation will include products in the financial, medical/ pharmaceutical,
environmental, information technology and telecommunications fields. Financial
information products include company reports and financial statements, research
and credit reports, and news releases. Included in medical/pharmaceutical are
such products as Material Safety Data Sheets ("MSDS") for pharmaceutical raw
materials and drug "product inserts." In the environmental area, products
include MSDS and their equivalents, international governmental regulations and
news, bills of lading for shipments, standard operating procedures for handling
chemicals and other compounds covered by environmental regulations. Target
applications for information technology and telecommunications include products
such as software with technical/operating manuals, software help, and software
documentation.
THE GEDANKEN SYSTEM
The Gedanken system is owned by Gedanken Inc., a development company
unaffiliated with the Company. The Company has an exclusive worldwide license to
use the system once developed and ready for deployment in exchange for future
royalties and development funding. The Company has agreed to pay to Gedanken
$750,000 for the development of the improved translation/localization system
(that includes a specific topic builder, general topic dictionary, quality
control and alignment tools). Over the past two years, the Company has invested
more than $500,000 in system research and development, and anticipates providing
an additional funding during 1999-2000 to complete the transition from a
research system to a development and production system. The Gedanken system
addresses the added complexities of translating information from free-flowing
texts of any kind. The Gedanken system is rooted in statistical analysis of
large amounts of language data and is constructed of modules which perform
different functions. These modules are designed to make the system a single
comprehensive automated translation system. There are several important
differentiating features of the Gedanken system, one of which is the "Precision
English" module. The system also includes a sophisticated parser which dissects
sentences and bilingual dictionaries. By eliminating the bulk of the ambiguous
words and phrases and substituting more accurate words, the "Precision English"
module raises the level of correct translation markedly.
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Gedanken, Inc. has filed for a patent on its system, for which the
principal claim is the incorporation of various inter-related modules in a
comprehensive computer translation system. The Company is obligated to pay
royalties on all revenues generated that use in whole or in part the patent
rights and know-how. Various production modules of the system will be completed
during 1999, and overall system completion is scheduled for 2000. The Company
also has the option to the development of a Real Time Voice Translation System
subject to providing the necessary funding estimated at $4,000,000.
BTR SYSTEM
In April 1999, the Company entered into a development and license
agreement with ESTeam, A.B. ("ESTeam"), a Swedish corporation specializing in
the development of a computer-automated language system known as the "BTR
system." The Agreement provides for the customization of this system for
specific market applications. This system is designed to accept and analyze very
large amounts of data, namely, words, word phrases, sentence segments and whole
sentences in both source and target languages. The particular application
already perfected by ESTeam was for the automated translation of trademark
information for its customer Compu-Mark, S.A., a Thompson Group Company, which
holds a license to use the system for patent and trademark registrations. This
custom system is now available in eleven different languages and it performs
95+% accurate translations automatically with no human intervention.
As with other machine translation systems, the BTR system is comprised
of sub-routines, or modules, that perform specific tasks while the modules
interrelate via a master control program. Sub-routines include such functions as
text delineation, spell check, spell correct with correct word, bilingual
dictionary matches, large capacity data bases, target language verification,
"fuzzy" logic matches and statistical word matches. One of the key
differentiating features of the BTR system is its ability to analyze and find
language matches at the sub-sentence level, namely, sentence segments and word
phrase levels. This feature was positively reflected in an independent
side-by-side test conducted by the European Union Commission in which BTR
outperformed the world's largest selling translation memory system by a 5-to-1
margin.
The BTR system excels in automated translation within a defined topic,
such as the financial markets and the chemical and environmental applications,
for which The Translation Group is initially developing "products" using the BTR
system. The projects being developed by ESTeam are financially supported by the
Company. Under the current arrangement, ESTeam will complete the product
developments and the Company will commercialize them. The development of the
first products for the financial market commenced in May 1999 and is planned for
commercialization in the fourth quarter of 1999.
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PLANET ACCESS
Planet Access provides the Company with capabilities in internet
services, website development and website management services and also allows
the Company's new translation products to be effectively delivered through
secure intranet or internet services. Planet Access is fully capable of
providing the most sophisticated and comprehensive internet engineering,
including but not limited to site design, security, security pass access,
secured credit card transactions, secure private access and site hosting. Planet
Access also provides custom network solutions and engineering services such as
Local Area Networks (LAN's), Wide Area Networks (WAN's), internet design and
security, dedicated high speed corporate internet access and many other custom
applications. Customers for the above activities now include AVIS, Novartis,
Lucent Technologies, Lockheed-Martin, ABN AMRO, Knoll Pharmaceutical and about
90 other clients.
Planet Access compliments the Company's business because substantially
every new translation application requires that the source text be transported
in digital form into the translation system software, processed, and then
subsequently transported back to the client. Depending on the market
applications, the users may access the system remotely via private subscriber
intranet lines, public internet lines or dedicated services lines. Virtually all
of the Company's product business lines such as information technology,
financial translations and medical device labels will require remote-user
electronic interface with the Company's clients.
COMPETITION
The worldwide translation market is estimated by OVUM, a market
research company specializing in this area and by LISA (Localization Industrial
Standards Association) to be approximately $20 billion annually. Both firms
estimate annual growth rates at 25%-30%, due to the globalization of commerce
which requires the localizing of a product or service to a particular country.
An unknown percentage of language translation is performed "in house", that is,
by medium and large sized multinationals with product offerings in 10-20
languages. Companies as diverse as Caterpillar, Boeing, Oracle, IBM, Bloomberg,
and XEROX have in-house translation staffs for certain languages. Companies that
perform translation as a business tend to be small firms with revenues of
$300,000 to $700,000. The Company estimates that 95% of the 3000+ U.S.-based
translation agencies have revenues of less than $1.5 million.
As translation/localization contracts become larger, Company management
believes that large corporate IT customers will continue to migrate to the
solution-based models offered by large capacity service providers. While the
Company's competitors can currently be divided into two main subcategories,
traditional translation companies and machine translation and/or solution-based
companies offering large capacity machine translation products and/or
solution-based models, Company management believes that within a relatively
short period of time the Company will be competing primarily with companies in
the second subcategory.
The Company believes that the common structural flaw of competitors'
machine translation systems is their reliance upon software driven by linguistic
rules, which are rules developed by academic linguists to address grammar,
syntax, lexical usage, context, sentence
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structure and the like. The Company's solution to the problem is fundamentally
different and simpler than the rule based systems. The Company's approach relies
upon mathematical and statistical evaluations of dual language texts in
particular topics. By statistically analyzing substantial amounts of legacy text
in two languages, patterns of word matches, as well as phrase and sentence
matches become apparent and remembered in such a way to allow the translation of
newly inputted text with a target accuracy of 90% + correct.
The Company differentiates itself from its competitors not only in its
technological approach but also in its marketing strategy . The Company's
strategy is to develop specific niche translation products for markets such as
IT, financial, pharmaceutical and environmental in which the customer subscribes
to the 'product' via a limited access internet/intranet service as opposed to
the historic business model of existing translation companies, namely the
fee-for-service competitive bid model. While numerous specialty niches for
translation 'products' are available, the Company is setting product priorities
based upon the best combination of development time and profitability.
Many more companies outside the U.S. perform translation since the
non-US market is substantially larger than the U.S. market. The same fragmented
market structure of thousands of small firms prevails overseas. Worldwide, fewer
than 10 companies have annual translation revenues of over $50 million.
The Company's principal competitors in traditional language translation
include Berlitz, Lernout & Hauspie, N.V., Bowne Translation Division, Alpnet,
Lionbridge and XEROX Lingua. In machine translation, the Company's principal
competitors include Logos, Systran, Transparent Language Inc., and the Language
Technologies division of Lernout & Hauspie. Many of these competitors have
substantially greater financial resources, more extensive experience, and better
established research and development, marketing and servicing capabilities than
the Company.
Company management believes that competition in the machine translation
market is based primarily upon accuracy, functionality, ease-of-use, versatility
and price. The Company's performance will depend on its ability to innovate, as
well as maintain and solicit quality people in technical, sales and management
positions.
DEVELOPMENT AGREEMENTS
On April 15, 1999, the Company entered into a development and license
agreement with ESTeam, a Swedish corporation, for market applications identified
by the Company. ESTeam is a software-development company specializing in the
development of a computer-automated language translation system, known as the
"BTR System," and customizing such system for specific market applications. The
BTR System, its modifications, improvements, and adaptations, are used to
perform computer translations of specific text documents in a particular domain.
The Translation Group has received an exclusive worldwide license for certain
applications for a period of fifteen years. In consideration of the worldwide
license, The Translation Group has agreed: (1) to pay royalties on sales of any
application and (2) to pay ESTeam the development costs for perfecting each of
the market applications.
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Although the Company has historically adopted state of the art
technologies in its operations, during the past two years, the Company has
increased its investment in computer automated translation with specific
emphasis on developing a proprietary and completely automated machine
translation system. In November 1996, the Company obtained an exclusive
worldwide license and rights for the life of the patent to use and sell
know-how, apparatus, and methods pertaining to software tools and systems
developments based on a patent application owned by Gedanken.
EMPLOYEES
The Company presently employs 82 full-time people, comprised of 11 in
management positions, 10 in administration, 6 in sales and marketing, 55 in
production and engineering. In addition, the Company also uses the services of
about 450 freelance and/or independent translators and editors on an as-needed
basis from a roster of several thousand worldwide. The Company's acquisition of
Planet Access added an additional 35 full-time employees.
All of the Company's translators are native-speaking professionals in
the target language, and are required to know the subject matter of the area in
which they translate. In addition, a project must have technically knowledgeable
staff in the source language, preferably a specialist in that area.
Even with machine translation, there is a need for qualified
individuals as in-house quality-control personnel and as translators of subject
areas that have not been mechanized. The Company expects that the available pool
of qualified translators will not grow as rapidly as the growth in the
translation and localization market as a whole. To respond to the anticipated
labor shortage caused by the expansion of the total market growth, in April 1998
the Company entered into an agreement with New Jersey Department of Labor and
Felician College to develop a network of qualified translators and localizers,
through the implementation of a certificate training program. Under this
partnership, the State of New Jersey will provide funding for the Felician
College Office of Continuing Education to implement the certificate program
comprised of three core courses and one elective. The Company provided the core
curriculum and trained Felician staff. All program graduates who participate in
the program are eligible to enroll in paid internships at the Company. The
agreement with New Jersey Department of Labor and Felician College expires in
May, 2000. The Company will continue to evaluate the merits of this program, as
well as any other programs which may assist it in alleviating the industry labor
shortage.
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RECENT AGREEMENTS AND ACQUISITIONS
PLANET ACCESS
On May 28, 1999, the Company acquired all of the outstanding shares of
Planet Access Networks, Inc. based in Stanhope, New Jersey, which provides a
broad range of Internet related services, including development of e-commerce
sites built to client's specifications.
The purchase price for the Planet Access shares was approximately $3.8
million, consisting of an aggregate 416,668 shares of the Company's common stock
paid as of the closing and $900,000, payable not later than September 15, 1999.
In addition, the Company is obligated to provide funding to Planet Access in a
minimum amount of $4,000,000 (prior to costs and expenses of such funding) which
may be obtained, at the Company's discretion, in the form of a public or private
sale of securities of the Company or Planet Access. To secure such obligations,
the Company has pledged the Planet Access shares to the former shareholders of
Planet Access. In the event the Company breaches its obligations to the former
Planet Access shareholders, their remedies include the return of the Planet
Access shares and payment by the Company of their costs and expenses of the
transaction. In addition, Planet Access would retain $250,000 advanced to it by
the Company and any profits earned by Planet Access subsequent to the closing
would be evenly divided by the Company and Planet Access.
The Company also agreed to repurchase the Company shares within ninety
(90) days of the first anniversary of the acquisition at a price of $7.00 per
share, if, on such anniversary date: (1) the shares of common stock are not
listed for trading on a national securities exchange or included on NASDAQ; (2)
during the ninety (90) days preceding such date, the average weekly trading
volume is less than 100,000 shares; and (3) the average of the closing or high
bid price during the twenty (20) trading days preceding such date is less than
$10.00 per share.
The terms of the transaction were determined by arms-length negotiation
between the parties. Prior to the acquisition, there was no material
relationship between the former shareholders of Planet Access and the Company or
any director, officer or affiliate of the Company or any associate of any such
director or officer.
In addition to maintaining Planet Access' historic business, the
Company intends to utilize Planet Access' resources to offer the Company's
translation services over the Internet. The purchase price will be allocated to
the underlying fair value of the assets acquired, and the balance to excess.
RISK FACTORS
------------
OUR FUTURE PROFITABILITY, AND THE VALUE OF YOUR INVESTMENT, WILL DEPEND UPON THE
SUCCESS OF OUR GROWTH STRATEGY.
We have reflected only modest net income from operations during fiscal
1997, and a net loss during fiscal 1998 and 1999. As a result, our future
profitability, our ability to effectively compete in the translation and
localization industry and the ultimate value of your investment is likely to
depend upon the successful implementation of our business strategy, which
primarily relies upon the development and implementation of computer aided
translation and localization products.
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<PAGE>
WE HAVE COMMITTED A SIGNIFICANT PORTION OF OUR WORKING CAPITAL TO RESEARCH AND
DEVELOPMENT AND THE FAILURE TO COMMERCIALIZE OUR COMPUTER AIDED TRANSLATION AND
LOCALIZATION PRODUCTS AND SERVICES WILL HAVE A MATERIAL ADVERSE IMPACT ON OUR
FINANCIAL CONDITION.
Over the past two years we have invested over $500,000 on the
development of the Gedanken system, and we anticipate providing additional
funding during 1999-2000 to complete the research and commercialize the system.
We are also funding research by the ESTeam A.B. to further develop and
commercialize a proprietary computer-automated translation system known as the
BTR System. Our inability to commercialize either one or both of these projects
will adversely affect our competitive position in the industry and negatively
impact our profitability.
FAILURE TO SUCCESSFULLY INTEGRATE PLANET ACCESS, INC. INTO OUR EXISTING
OPERATIONS OR MEET CERTAIN PERFORMANCE GOALS UNDER THE PURCHASE AGREEMENT WILL
MAKE IT UNLIKELY WE CAN SUCCESSFULLY IMPLEMENT OUR STRATEGIC PLAN AND NEGATIVELY
AFFECT OUR LIQUIDITY.
Our business strategy depends on our ability to use the services
provided by Planet Access to transport text in digital form into the translation
system software and then subsequently transport the translated text back to the
client. Our purchase agreement with former shareholders of Planet Access gives
them the right to sell their shares in the Translation Group back to us for
$7.00 per share if the selling price of our common stock is less than $10.00 per
share on the one-year anniversary of the closing. If we are required to
repurchase our stock, our liquidity would be severely reduced as would our
ability to fund our research and commercialization efforts.
LIMITED MARKET FOR OUR COMMON STOCK INCREASES THE POSSIBLE VOLATILITY OF OUR
STOCK PRICES AND THE VALUE OF ANY INVESTMENT IN OUR EQUITY MAY BE REDUCED.
The public trading market for shares of our common stock is limited on
the OTC Bulletin Board, however, in view of the minimal supply of shares
eligible for public resale, trading has been extremely limited. There can be no
assurances that a regular trading market for our common stock will be sustained.
By its very nature, trading on the OTC Bulletin Board provides only limited
market liquidity. In addition, the stock markets generally have experienced, and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small cap companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of our common stock.
IF WE USE OUR COMMON STOCK TO CARRY OUT ANY MORE ACQUISITIONS OR ISSUE MORE OF
OUR COMMON STOCK IN A PUBLIC OFFERING, ADDITIONAL DILUTION TO YOUR INVESTMENT
WILL OCCUR.
We may grow our business through acquisitions. We could accomplish this
through The issuance of additional shares of our common stock. This would have
the effect of increasing the number of shares of common stock outstanding. In
addition, in order to accomplish our business
15
<PAGE>
strategy on a longer-term basis, we are likely to require additional financing,
which may entail the issuance of additional shares of common stock, preferred
stock or common stock equivalents, which would have the further effect of
increasing the number of shares outstanding. This may be done in order to, among
others, facilitate a business combination, acquire assets or stock of another
business, compensate employees or consultants or for other valid business
reasons in the discretion of our Board of Directors.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS, WHICH COULD RESULT IN LOSS OF MARKET
SHARE OR REDUCED MARGINS.
We face intense competition from multinational, regional and local
companies in every market in which we operate. The principal competitive factors
within the translation and localization industry include price, technological
capability, accuracy, extent of geographic coverage and the ability to deliver
our services in a timely manner. Many of our competitors have well established
reputations and significantly greater financial, marketing, personnel and other
resources than we do. Our principal competitors are Berlitz, Lernout & Hauspie,
N.V., Bowne Translation Division, Alpnet, Lionbridge, XEROX Lingua, Logos,
Systran, and Transparent Language Inc., some of which are multinational,
highly-visible and well-regarded enterprises. There can be no assurance that we
will be able to compete effectively against these or any other competitors.
SENIOR MANAGEMENT BENEFICIALLY OWNS A SIGNIFICANT PERCENTAGE OF OUR COMMON STOCK
AND THEREFORE HAS SIGNIFICANT INFLUENCE OVER THE ELECTION OF DIRECTORS.
Our officers, directors and principal stockholders own approximately
44.9% of the common stock of the Company on a fully diluted basis. See "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Consequently, upon
exercise of their vested options and warrants and by virtue of Delaware law,
these stockholders could be in a position to influence the election of all of
our directors and possibly control the outcome of other corporate matters
without the approval of our other stockholders. In addition, applicable
statutory provisions and the ability of the Board of Directors to issue one or
more series of Preferred Stock without stockholder approval could deter or delay
unsolicited changes in control of the Company by discouraging open market
purchases of our stock or a non-negotiated tender or exchange offer for such
stock, which may be disadvantageous to our stockholders who may otherwise desire
to participate in such a transaction and receive a premium or their shares.
THE SUCCESSFUL IMPLEMENTATION OF OUR BUSINESS STRATEGY IS DEPENDENT UPON
MANAGEMENT PERSONNEL AND EXECUTIVE OFFICERS.
Our operations are dependent upon the continued services of senior
management and upon our ability to hire and retain qualified management and
technical personnel. The loss of services of any of the those executive officers
or other management or personnel, whether as a result of death, disability or
otherwise, would have a material adverse effect upon our business.
16
<PAGE>
WE POTENTIALLY HAVE EXPOSURE TO YEAR 2000 ISSUES.
We are presently attempting to respond to Year 2000 issues. Year 2000
issues are the result of computer programs being written using two digits rather
than four digits to define the applicable year associated with the program or an
associated computation. Any of The Translation Group's computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in normal
business activities. Management expects to have substantially all of the systems
application changes completed within the next six (6) months and believes that
its level of preparedness is appropriate.
Our failure or the failure of any party with which we conduct business
to be Year 2000 ready in a timely manner could have a material adverse impact on
our operations. If our systems or the systems of our significant vendors,
customers, lenders, strategic partners and other outside parties with which we
transact business were to fail because they were not Year 2000 ready, we would
incur significant costs and inefficiencies. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the Year 2000
readiness of third parties, we cannot be sure that we will be able to resolve
problems associated with the Year 2000 issue in a timely and cost-effective
manner. Our inability to do so may adversely affect our operations and business
or expose us to third-party liability.
A SIGNIFICANT PORTION OF OUR REVENUES ARE DERIVED FROM OUR INTERNATIONAL
OPERATIONS, AND A DOWNTURN IN INTERNATIONAL COMMERCE COULD SEVERELY IMPACT OUR
RESULTS OF OPERATIONS.
A significant portion of our business is conducted outside the United
States. International trade is influenced by many factors, including economic
and political conditions, employment issues, currency fluctuations and laws
relating to tariffs, trade restrictions, foreign investments and taxation. As a
result, our operations are subject to various risks such as loss of revenue due
to the instability of foreign economies, currency fluctuations and devaluations,
adverse tax policies and governmental activities that may limit or disrupt
markets, restrict payments or the movement of funds or result in the deprivation
of contract rights. The Transaction Group is subject to taxation in a number of
jurisdictions, and the final determination of its tax liabilities involves the
interpretation of the statutes and requirements of various domestic and foreign
taxing authorities. Moreover, many of the countries where we operate and plan to
operate have legal systems that differ from the United States legal system and
may provide substantially less protection for foreign investors. A reduction in
the level of international trade, material restrictions on trade or a downturn
in the economies of countries in which we currently operate could have a
material adverse effect on our results of operations.
17
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal operating facilities are located in
Haddonfield, New Jersey, Amsterdam, The Netherlands, and Lyon, France. The New
Jersey production facility occupies approximately 6,000 square feet at a monthly
rate of $8,300 pursuant to a lease that extends until February 28, 2003. In May
1997 Word House moved its principal location to Amsterdam. Its lease is for
approximately 5,500 square feet, and is for a period of five years at a rent of
$7,500 per month. A French subsidiary owns a condominium floor in Lyon, with
approximately 3,000 square feet of space. Estimated annual costs approximate
$43,000. The Company also has an office in Beijing, China, with an annual rent
of $21,000 for approximately 800 square feet. In January 1999 the Company closed
its London office and its administration facility in Westmont, New Jersey. In
March 1999, the Company closed its Canadian office and in May 1999, opened an
office in San Jose, California.
Planet Access leases approximately 2,500 square feet of office and
production space in Stanhope, New Jersey with an annual rent of $32,400. This
lease expired on June 30, 1998. Since the expiration date, Planet Access has
been on a month-to-month extension. Planet Access has recently entered into a
lease for 8,500 square feet of office and production space in Flanders, New
Jersey with an annual rent of $127,500. This lease expires on July 15, 2004.
The Company believes that all of its facilities are currently adequate
and further believes that, if necessary, adequate facilities could be located in
the event the Company needs to replace or expand its current facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company has been sued by a stockholder who is seeking monetary
damages, specific performance, equitable relief and costs in the amount of
$3,000,000. The Company and its special litigation counsel believe that this
suit is completely without merit and will vigorously defend it. On September 15,
1997 the Company was served with a summons which was subsequently filed in the
New York State Supreme Court, Kings County, alleging various acts of fraud
associated with the Company's reverse stock split which occurred on November 21,
1996. The plaintiff, Lee Dan Ltd., a shareholder of the Company, is seeking
monetary damages, specific performance, equitable relief and costs in the amount
of $3,000,000. Based on a review of the file and discussions with the Company
management, counsel for the Company believes that there is a substantial
likelihood that the Company will prevail in this matter.
The Company is not a party to, or involved in, any other material legal
proceedings. In the ordinary course of business the Company may become subject
to certain legal proceedings and there can be no assurances that the results of
such proceedings will not have a material adverse affect on the Company's
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company completed its initial public offering on December 6, 1996.
Since that date its common stock has been reported on the NASDAQ OTC Bulletin
Board under the symbol THEO. The following table sets forth the range of the
high and low bid prices for the common stock as reported by the National
Quotation Bureau for the periods indicated and represents prices between
broker-dealers, which do not include retail mark-ups and mark-downs, or any
commission to the broker-dealer. The bid prices do not reflect prices of actual
transactions.
1997 HIGH LOW
Quarter ended June 30, 1997 $10.00 $7.50
Quarter ended September 30, 1997 9.125 4.25
Quarter ended December 31, 1997 6.1875 4.00
1998
Quarter ended March 31, 1998 $ 4.75 $ 3.75
Quarter ended June 30, 1998 6.50 4.00
Quarter ended September 30, 1998 7.5625 5.25
Quarter ended December 31, 1998 6.25 4.50
1999
Quarter ended March 31, 1999 $ 5.00 $ 3.00
On June 18, 1999 the closing bid price for the Company's common stock
was $4.1875. The approximate number of record holders of common stock as of June
15, 1999 was 61. The approximate number of beneficial owners was 650 as of June
15, 1999.
The Company also issued common stock purchase warrants in connection
with its initial public offering which are exercisable until December 31, 1999
for a share of common stock upon payment of the exercise price of $6.20. There
is currently no registration statement in effect covering the exercise of these
warrants and therefore the Company is not permitted under applicable securities
laws to accept exercises thereof.
DIVIDEND POLICY
The Company has not declared or paid any dividends nor does it expect
to pay dividends on its common stock in the foreseeable future intending to
retain earnings to finance the growth of its operations.
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TRANSFER AGENT
The Company uses American Stock Transfer & Trust Company, 40 Wall
Street, New York, New York 10005, to act as Transfer Agent for the Company's
common stock.
ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CREDIT (000'S)
YEAR ENDED MARCH 31, 1999, 1998 & 1997
<TABLE>
<CAPTION>
OPERATIONS 1999 % 1998* % CHANGE 1997 % CHANGE
- ---------- ---- - ----- - ------ ---- - ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales......................... $ 5,987 100.0 $ 6,421 100.0 ($ 432) $ 3,193 100.0 $ 3,228
Operating Costs &
EXPENSES
Cost of Sales................. 4,832 80.6 4,189 65.3 643 2,201 68.9 1,988
Selling & Admin............... 1,865 31.1 1,309 20.3 556 596 18.6 713
Research & Develop............ 147 2.4 244 3.8 ( 97) -- -- 244
Special & Other............... 979 16.3 -- -- 979 -- -- --
Corporate Admin............... 736 12.2 774 12.0 ( 38) 216 6.7 558
Amort. of excess.............. 97 1.6 73 1.1 24 -- -- 73
----------- --------- ---------- --------- ---------- --------- ---------- ----------
Total......................... 8,657 1,44.2 6,589 102.5 2,068 3,013 94.2 3,576
Operating loss before other
income........................ (2,670) (44.2) (168) (2.5) (2,502) 180 5.8 (348)
Interest income, net.......... 125 2.1 178 2.7 ( 53) 76 2.4 102
----------- --------- ---------- --------- ---------- --------- ---------- ----------
Loss (income) before taxes.... (2,545) (42.1) 10 .2 (2,555) 256 8.2 (246)
Income taxes.................. 396 6.5 24 .4 420 102 3.2 78
=========== ========= ========== ========= ========== ========= ========== ==========
Net Income (Loss)............. $ (2,149) (35.6) $ (14) (.2) $ 2,135 $ 154 5.0 $ (168)
=========== ========= ========== ========= ========== ========= ========== ==========
Average shares outstanding.... 2,278 2,124 1,465
Primary earnings per share.... $ (.94) $ (.01) $ .11
*Includes sales and costs of acquired subsidiary for the nine months ended March
1, 1998 Reflects reclassifications for consistency of comparisons.
3/31/99 3/31/98
FINANCIAL CONDITION (IN 000'S) CHANGE
Cash and short term investments........................................ $ 1,896 $ 3,298 $ (1,402)
Other current assets................................................... 1,697 2,066 ( 369)
------------ ----------- -----------
Total Current Assets................................................... 3,593 5,364 (1,771)
Total Current Liabilities.............................................. 1,452 1,585 133
------------ ----------- -----------
Working Capital........................................................ 2,141 3,779 (1,638)
------------ ----------- -----------
Current Ratio.......................................................... 2.5:1 3.4:1
Total Assets........................................................... 6,161 8,181 (2,020)
Total Liabilities...................................................... 1,639 1,660 21
------------ ----------- -----------
Stockholders' equity................................................... 4,522 6,521 (1,999)
============ =========== ===========
Book value per share................................................... $ 2.00 $ 2.86 $ (0.86)
============ =========== ===========
</TABLE>
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RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1999 AS COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
As presented in the above summary, the Company lost $2,149,000 for the
year ended March 31, 1999 in comparison to a loss of $14,000 for the prior
fiscal year. The primary reasons for the increased loss were: a 6.7% decrease in
sales from $6,421,000 in 1998 to $5,987,000 in 1999 and a 15.3% increase of cost
of sales from $4,189,000 to $4,832,000 during the same period; the Company's
expenses for special projects and other costs not directly related to the
current production-sales cycle of $979,000; and an increase in selling and
administration of $556,000, which was only partially offset by other decreases
of $55,000 and an income tax recovery change of $402,000, also contributed to
the loss.
A reduction in the Company's gross margin of $1,075,000 was the result
of a decrease in sales of $432,000 and increase of cost of sales of $643,000.
The increased costs were primarily the result of the Company's expansion of its
capacity. The Company moved to larger quarters and increased its engineering,
production and support personnel. During this fiscal year, the Company's results
from operations were negatively affected by the economic downturn in Asia. At
the same time, the Company was in the beginning of a transition from a
translation service bureau utilizing tools and memory translation to a more
technologically based products enterprise developing its own computer
translation system.
The special projects and other costs included:
new product development and strategic
alliance discussions $261,000
settlement of salary contracts of president
of subsidiary $316,000
loss in establishing and closing of
Canadian operations $122,000
amortization of value of options relating to service
and consulting agreement $180,000
overlaps in the settlement of certain professional fees $100,000
--------
Total: $979,000
========
Selling and administrative expenses increased by $556,000, from 20.3%
to 31.1% of sales. These included the following:
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increased costs of sales personnel $ 85,000
marketing campaign $ 170,000
accounting system charges and increased
accounting personnel $ 80,000
salary increase to senior management of subsidiaries $ 70,000
severance costs $ 90,000
----------
Total: $ 495,000
==========
Management believes that most of the causes of this significant loss
have been eliminated or their effects reduced. The Company has taken the
following steps to mitigate further losses and to return to profitability:
(i) International operations in Europe and Canada lost approximately
$500,000 in the most recent fiscal year. The Canadian entity was closed in
March, 1999. It is anticipated that European operations will be profitable in
the first quarter of fiscal 2000.
(ii) Personnel costs have been reduced. Such changes will reduce costs
by approximately $350,000.
(iii) The general advertising campaign has been terminated and
marketing costs reduced by approximately $200,000.
(iv) The Company has achieved "technological feasibility" relative to
its research and development efforts to design a computer translation system. It
has also acquired under a license exclusive rights for computer based
translations for certain of the products (see "Business").
(v) The Company has acquired a Web site and internet management
services operation (see "Business") which is expected to be immediately
accretive to earnings.
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<PAGE>
FISCAL YEAR ENDED MARCH 31, 1998 AS COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
The Company's profit decreased from $256,000 before taxes to $10,000 as
a result of the following factors:
Research and development: There were significant efforts to develop
computer translation systems and tools with consequent research and development
expenses of approximately $244,000.
Public entity: As a publicly traded entity, the Company incurred direct
expenditures for legal, financial, accounting and other fees that were not
required by a private entity. It is estimated that expenditures for these costs
approximated $150,000.
Expansion of capacity: As more fully described in "Business," the
Company expanded its ranges of services. As a result, there were additions to
management and technical staff, support services and space.
A detailed comparison of costs and expenses is not appropriate. The
increase in sales of $3,228,000 for the current year as compared to the same
period for the prior year consists of an increase in sales of the domestic
subsidiary of $638,000 and of the acquired foreign subsidiaries of $2,590,000.
The acquisition gave rise to the amortization of excess of approximately
$73,000. Moreover, Corporate Administration expenses included in Selling,
General, and Administrative for the year ended March 31, 1997 were for a four
month period and aggregated $216,000 in comparison to $774,000 for the full year
ended March 31, 1998.
LIQUIDITY AND WORKING CAPITAL
As of 3/31/99 working capital decreased to $2,139,000 from $3,778,000
for $1,639,000, as a result of operating losses and the changes detailed in the
accompanying consolidated statement of cash flow. The Company believes that it
has adequate cash and other components of working capital necessary for planned
operations for the next 12 months. Inflation has not been a factor in the
Company's results of operations.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Based on recent assessments, the Company determined that it will be
required to modify or replace non-compliant computer equipment and up-grade
non-compliant software. These will be replaced in 1999. The Company's plan to
resolve the Year 2000 Issue involves the following four phases: assessment,
remediation, testing and implementation. To date, the Company has completed its
assessment of all systems that could be significantly affected by the Year 2000.
23
<PAGE>
The Company is primarily in the business of providing services but those
services are supported by the use of computer hardware and software systems in
the production of a substantial portion of those services. The Company's vendors
consist primarily of individual translators and other service professionals who
are not expected to be materially impacted by the Year 2000 Issue. The Company
is also dependent upon third party suppliers for utility services and
telecommunications capabilities. The Company has its primary locations in
geographically diverse locations in North America, Europe and Asia. If one of
the Company's locations should be unable to operate due to the Year 2000 Issue
affecting one of its third party suppliers, the Company believes that
replacement services could be rendered from another of the Company's locations.
The Company has not yet completed a comprehensive study as to whether
its third party suppliers and strategic partners are Year 2000 compliant. It is
in the process of gathering information bout the Year 2000 status and will
continue to assess and monitor their compliance.
STATUS. The Company has completed a full evaluation of all of its
systems, the Company has began the remediation phase and believes it is 60%
complete with the information already obtained in the evaluation process. The
Company expects to have all critical systems and hardware replaced before
October 1, 1999. Following these replacements, the Company plans to test all
equipment and software. The testing phase will be completed no later than
November 1, 1999. During the period of testing the critical systems, any system
or piece of equipment that is found to be non-compliant, will be retired and
replaced. The Company does not expect the cost to replace such equipment to be
material.
THIRD PARTIES. The Company has queried its significant suppliers and
strategic partners that do not share information systems with the Company, but
has not received answers to all of its queries. To date, the Company is not
aware of any of these third parties with a Year 2000 Issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that they will be Year 2000 ready.
The inability of those third parties to complete their Year 2000 resolution
process in a timely fashion is not expected to materially impact the Company.
The Company believes that it could partially compensate for the failure of those
third parties to comply by utilizing its operations in other geographic
locations to meet the client requirements or by using alternate suppliers.
COSTS. The Company will utilize primarily internal resources to
reprogram, replace, test and implement the software and operating equipment for
required Year 2000 modifications. The total costs of the Year 2000 project is
estimated at $85,000 and is being funded through operating cash flows. To date
the Company has incurred approximately ($25,000 expensed and $10,000 capitalized
for new equipment), related to all phases of the Year 2000 project. Of the total
estimated remaining project costs, approximately $30,000 is related to software
up-grades and $20,000 for testing and monitoring of remaining systems.
RISKS. Management believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of its Year 2000 program. In the event
that the Company does not complete any additional phases, the Company's ability
to produce certain orders may be negatively impacted. More importantly,
disruptions resulting from Year 2000 Issues in the world economy in
24
<PAGE>
geographies where the Company or its clients have significant operations could
adversely affect the Company.
The Company may be unable to meet service commitments due to computer
system failure. The amount of potential liability, lost revenue, and damages
cannot be reasonably estimated at this time.
CONTINGENCY PLANS. The Company currently has no contingency plans in
place in the event it does not complete all phases of the Year 2000 program
because of the planned changes. The Company plans to reevaluate its state of
readiness in October 1999 and determine whether such a plan is necessary.
FOREIGN CURRENCY FLUCTUATIONS
The Company bills its customers in US Dollars and in foreign currencies
at agreed upon amounts of exchange. The Company's operations impacted by
exchange rate fluctuations have been immaterial.
THE EURO
On January 1, 1999 a new currency was launched, the Europe, which is a
significant step towards full European Monetary Union (EMU) whereby the national
currencies of certain European sovereign states will be replaced by a single,
supra-national currency in July 2002.
Currently, the Euro co-exists at fixed exchange rates with existing
national currencies of the eleven participating European countries. It is
planned that the Euro will stimulate the economies of the EMU countries by
introducing transparent pricing between countries, lower transaction costs and
greater certainty of investment and trade within Europe.
Approximately 45% of the Company's revenue for the fiscal year ended
March 31, 1999 is located within countries adopting the Euro (Ireland, Germany,
France, Spain, the Netherlands and Belgium). The impact of the Euro's
introduction and future implementation is not expected to be significant to the
revenue and net income of the Company.
ITEM 7. FINANCIAL STATEMENTS
The information called for by Item 7 is included in the Financial
Statements contained in this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended March 31, 1999, the directors and/or
executive officers of The Translation Group were as follows:
NAME AGE POSITION
---- --- --------
Charles D. Cascio 62 President, Chief Executive
Officer/Director
Julius Cherny, Ph.D. 62 President of BTS and Director
John Toedtman 54 Chief Operating Officer/Director
Gary M. Schlosser 48 Director
Theodora Landgren 54 Director
Robert J. Wussler 62 Director
James W. Grau 59 Director
Richard J. L. Herson 80 Director/Employee
CHARLES D. CASCIO became a Director, President and Chief Executive
Officer of the Company in May of 1996. He had previously been engaged by the
Company, from its inception, as a financial consultant. From late 1992 until
July 1996 he was Chairman and President of Electro-Kinetic Systems, Inc., a
publicly held company. From 1990 to late 1992, Mr. Cascio was employed as a full
time marketing and financial consultant to John B. Canuso, Inc., a large
privately held development, building and entertainment company located in
Southern New Jersey. From 1987 to 1990, he was a full time financial and
marketing consultant to Drug Screening Systems, Inc., a publicly held
manufacturer of drug screening systems to detect the presence of "drugs of
abuse." From 1984 to 1987, Mr. Cascio managed a wholly and family owned
sporting, entertainment and recreational facility, known as the Coliseum,
located in Voorhees, NJ. Mr. Cascio holds a Bachelors Degree in Economics from
Iona College.
JULIUS CHERNY, PH.D. was a Director from May 1996 to October 1998 and
on September 2, 1997 assumed the presidency of Bureau of Translation Services,
Inc. Dr. Cherny is a founder and partner of Mottola, Cherny and Associates, a
consulting firm specializing in providing financial, organizational and systems
consulting services. He is currently president and a director of Electro-Kinetic
Systems, Inc., a publicly held company. Dr. Cherny holds a Ph.D. in accounting
and is currently on staff at the NYU Graduate School of Business and previously
at the Hagen School of Business at Iona College. Dr. Cherny has held positions
as Director, Senior Vice President, and Chief Financial Officer with firms in
the securities industry. Dr. Cherny has published numerous papers and books
dealing with finance, accounting and advanced mathematical theory. In November
of 1998, Mr. Cherny resigned as President of BTS and a director of the Company.
JOHN TOEDTMAN has been employed by the Company since October 1998 and
was appointed as a Director in February 1999. From 1996 to 1998 Mr. Toedtman was
employed as Managing Director of Blue Stone Capital Partners, L.P., an
investment banking firm. From 1990
26
<PAGE>
to 1996 Mr. Toedtman was President and Director of Gen/Rx, Inc., a
pharmaceutical firm; from 1980 to 1986 he was President and Director of Personal
Diagnostics, Inc., a medical device company; and from 1976 to 1980 he was
President and Director of Princeton Chemical Research, Inc., a process
technology company; and from 1970 to 1976 he was Group Vice President of
Englehard Industries, a large precious metals company. Mr. Toedtman has a B.A.
in economics from Georgetown University.
GARY M. SCHLOSSER was elected a Director in August 1996. Since August
1, 1994, Mr. Schlosser has been the President and a director of Jefferson Bank
of New Jersey. From October 1989 through July 1994 he was Executive Vice
President of Glendale National Bank of New Jersey and prior thereto, from July
1988, he was President of Glendale Mortgage Services Corporation, a subsidiary
of Atlantic Bancorporation. Mr. Schlosser received a bachelor of arts degree in
history and business from the University of Colorado at Denver. Mr. Schlosser is
a member of the Camden County Bankers Association and the South Jersey Security
Bankers Association.
THEODORA LANDGREN currently is a Director and resides in London,
England. She was the Chairperson of the Board of Directors and Chief Operating
Officer of the Company from January 1996, to April 1998 and she was the Chairman
and President of BTS since founding the firm in 1984 until September 2, 1997.
Prior to starting BTS she studied linguistics and computer programming at
several universities including Universities of Denver and Innsbruck (Austria)
and USC College of Continuing Education, as well as teaching English to
non-English speaking students at the University of Stockholm, Sweden. Ms.
Landgren is active in the American Translator's Association (ATA) and the
Society of Technical Communication (STC).
ROBERT WUSSLER was elected a Director in September 1997. Mr. Wussler is
currently President & CEO of The Wussler Group and Affiliate Enterprises, a
company owned by ABC Television Network. He is the former President of CBS
Television and CBS Sports and was an original founder of CNN (Cable News
Network). Mr. Wussler received a bachelor of arts degree in communications from
Seton Hall University. Additionally, he holds honorary doctorates of law from
Seton Hall University and Emerson College. He has served as Chairman of the
National Academy of Arts and Sciences and member of the Board of Governors of
both the National Cable Television Association and the National Academy of Cable
Programming.
JAMES W. GRAU was elected a Director in April of 1997. Since 1980, Mr.
Grau has served as President and was the founder of Charisma Communications,
Ltd. which specializes in producing programs, industrials, live events and
concerts for the networks, cable and industry. During its 19 year history
Charisma has created programs earning the highest industry awards and accolades
and has eleven productions in The Museum of Television and Radio.
RICHARD J. L. HERSON is a Director and employee of The Translation
Group. Mr. Herson served as the Chief Financial Officer from July 6, 1995, until
August 31, 1997. From 1945 to 1974 Mr. Herson was a general partner in the firm
of Hertz, Herson and Company, CPA's with offices in New York, and Charlotte. He
is currently Secretary of the Bruner Foundation, where he directs its investment
portfolio. He is also secretary/treasury of Electro-Kinetic Systems, Inc., a
publicly held company. He holds a Bachelor's Degree from the City College of New
York and a M.S. in Accounting from Columbia University. He has also authored
numerous articles and a book on accounting. Mr. Herson will retire as an
employee in July 1999.
27
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the chief
executive officer and the other most highly compensated officers whose salary is
in excess of $100,000 for the fiscal year ending March 31, 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
===========================================================================================================================
Long Term Compensation
===================================================
Annual Compensation Awards Payouts
===========================================================================================================================
Other Restricted
Name and Annual Stock Stock LTIP All
Principal Salary Bonus Compen- Award(s) Options/SARS(Payouts Other
Position Year(s) ($) ($) sation($) ($) ($) Compen-sation($)
============================================================================================================================
<S> <C> <C> <C> <C>
Charles D. Cascio 1999 $108,058 -0- $24,956(ii)
President and 1998 $106,775 -0- $19,188
CEO 1997 $87,000 (i) -0- -0-
============================================================================================================================
Julius Cherny 1999 $104,000 -0- $21,044(iv)
President of 1998(iii) $60,000 -0- -0-
BTS 1997 N/A N/A N/A
============================================================================================================================
Theodora 1999 $126,748(v) -0- $5,309(vi)
Landgren 1998 $106,775 -0- $9,000
Chief 1997 $104,000 -0- -0-
Operating
Officer
============================================================================================================================
</TABLE>
(i) for the period from May 10, 1996 to March 31, 1997.
(ii) consists of car allowance and related expenses totaling $10,608, medical
reimbursement of $2,215, health insurance, premium of $5,104 and life
insurance premium of $7,028.
(iii) for the period from September 1, 1997 to March 31, 1998.
(iv) consists of health insurance premiums totaling $6,469 and medical
reimbursements of $14,575.
(v) consists of settlement agreement payments in lieu of salary of $123,548.
(vi) consists of health insurance premiums.
EMPLOYMENT AGREEMENTS
The Company has a five year written employment contract dated July 1,
1996 with its Chief Executive Officer for an annual base salary of $104,000
during each of the five years thereof, plus annual cost of living adjustments.
This agreement also (i) contains restrictions on competing with the Company for
two years following termination of employment, (ii) provides for severance
payments in the event of termination without cause by the Company in an amount
equal to the aggregate amount of payments due under the term of the Agreement
(without regard to extensions), but in no event less than one year's
compensation, (iii) provides that the Company will purchase a life insurance
policy naming as beneficiary a person chosen by the officer in an amount equal
to 2.5 times his salary and (iv) provides for a car or a car allowance.
28
<PAGE>
The Company has a three-year written employment contract with its Chief
Operating Officer, John Toedtman, for an annual base salary of $100,000 during
each of the three years thereof, plus annual cost of living adjustments. This
agreement also (i) provides for a car or car allowance. Mr. Toedtman was also
granted options to purchase 100,000 shares of the Company's common stock.
The Company also had a similar agreement with the president of its
foreign subsidiary. This executive has since retired from the Company as of
January 31, 1999. The Company also had an agreement with the president of its
American subsidiary for a salary in the base amount of $104,000 per year.
STOCK OPTION PLAN
In October of 1996, the Board of Directors and stockholders of the
Company adopted a Stock Option Plan (the "Option Plan") as an incentive for, and
to encourage share ownership by, the Company's officers, directors and other key
employees and/or consultants and potential management of possible future
acquired companies. The Option Plan provides that options to purchase a maximum
of 2,500,000 shares of common stock, subject to adjustment in certain
circumstances may be granted under the Option Plan. Both incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and non-qualified options are provided for under the Plan.
The Option Plan also allows for the granting of stock appreciation rights
("SARs") in tandem with, or independently of, stock options. Any SARs granted
will not be counted against the 2,500,000 share limit.
The purpose of the Option Plan is to make options and SARS available to
certain officers, directors and other key employees and/or consultants of the
Company in order to give such individuals a greater personal interest in the
success of the Company and, in the case of employees, an added incentive to
continue and advance in their employment.
The Plan is currently administered by the majority vote of a committee
(the "Committee") appointed by the Board of Directors and comprised of at least
two members of the Board who, in the case of the Option Plan, are not eligible
to receive options, other than pursuant to a formula, it being intended that
such plan shall qualify under Rule 16b-3 as promulgated pursuant to the
Securities Exchange Act of 1934, as amended. The Committee designates those
persons to receive grants under the Plan and determines the number of options to
be granted and the price payable for the shares of Common stock thereunder. The
price payable for the shares of Common stock under each option is fixed by the
Committee at the time of the grant, but, for incentive stock options, must be
not less than 100% (110% if the person granted such option owns more than 10% of
the outstanding shares of Common stock) of the fair market value of Common stock
at the time the option is granted, and 85% of such price for non-qualified stock
options. The above notwithstanding, the Company intends shortly to amend the
Option Plan so it will conform to the recent revisions of Rule 16b-3.
29
<PAGE>
See Note 8-Stock Options and Warrants, Notes to Consolidated Financial
Statements, relative to the granting of options during the years ended March 31,
1999, and March 31, 1998, unexercised options held as of the end of the fiscal
year, options exercised and options forfeited during the years.
Compensation of Directors
Beginning April 1, 1999, outside directors of the Company will be
compensated for their services at the rate of $1,000 per meeting and receive
options to acquire 5,000 shares of common stock each quarter at the average
market value of the last ten days of the quarter. See also "Executive
Compensation - Employment Agreements" for descriptions of other agreements
between the Company and certain of its directors who are employees of the
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon information supplied to the Company by its directors,
officers and beneficial owners of at last 10% of the common stock, the Company
believes that during the fiscal year ended March 31, 1999, all filing
requirements under Section 16(a) applicable to its directors and executive
officers were met except that Mr. Herson failed to file Form 4 relative to the
disposition of certain of his shares to members of his family and to a
foundation of which he is president.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's common stock, as of June 15, 1999, by (a) each person
known by the Company to own beneficially more than five percent of the Company's
outstanding shares of common stock, (b) each director and executive officer of
the Company who owns shares and (c) all directors and executive officers of the
Company as a group. Unless otherwise indicated, all shares of common stock are
owned by the individual named as sole record and beneficial owner with exclusive
power to vote and dispose of such shares. The reported numbers and percentages
include stock options and warrants which are currently exercisable or
exercisable within 60 days of June 15, 1999 as required by Item 403 of
Regulation S-B of the Securities Act.
COMMON STOCK
OWNED PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OF CLASS
---------------- ------------ ----------
Theodora Landgren (2)(3) 477,000 17.1%
Charles D. Cascio (1)(2)(4) 365,000 13.0%
Richard J.L. Herson (1)(5) 74,000 2.6%
Gary M. Schlosser (1)(6) 50,000 1.8%
Julius Cherny (6) 300,000 10.7%
James W. Grau (7) 6,660 *
Edouard Prisse (8) 253,000 9.0%
30
<PAGE>
John Toedtman (1)(6) 100,000 3.6%
Robert J. Wussler (6) 60,000 2.1%
All Executive Officers and
Directors as a Group (9) 1,685,660 44.9%
========= =====
- ------------------
* Less than 1%
(1) Uses the Company's address at 30 Washington, Haddonfield, NJ 08033.
(2) Includes 100,000 currently exercisable warrants and 100,000 currently
vested stock options.
(3) Does not include an additional 112,500 shares of Common Stock held in a
Voting Trust under which she had sole voting control until December 2,
1998. The Voting Trust has since been terminated and the shares returned
to their respective record owners.
(4) Does not include an aggregate of 144,000 shares owned by his adult
independent children. Mr. Cascio disclaims beneficial ownership of such
shares.
(5) Includes 39,000 currently exercisable stock options.
(6) Consists of currently exercisable stock options.
(7) Consists of currently exercisable warrants.
(8) Includes 100,000 shares of common stock, an additional 103,000 shares of
common stock to be delivered pursuant to a prior agreement and 50,000
currently exercisable stock options.
(9) Includes 587,500 shares, 749,000 currently exercisable stock options, and
206,660 warrants owned by all executive officers and directors of the
Company during the reporting period.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an exclusive license agreement with Gedanken, a company
controlled by Dr. Julius Cherny, for the worldwide rights to an automated
machine translation system. Dr. Cherny owns a United States Patent that
describes apparatus and methods for translating languages using advanced
telecommunications and computer technologies. The Company is obligated under the
agreement to pay royalties on all revenues generated that use, in whole or in
part, the patent rights and know-how.
On June 29, 1998, the Company entered into a five-year consulting
agreement with a former officer of a foreign subsidiary which provides for an
annual retainer of $20,000 plus the ability to borrow up to $50,000 a year from
the Company which will be secured by common stock of The Translation Group
currently owned by the former officer. In exchange for the above mentioned
remuneration, the consultant will provide his services to the Company for a
minimum of one day per week throughout the term of the agreement.
31
<PAGE>
Michael Cascio, Esquire, the son of Charles Cascio, President and Chief
Executive Officer of The Translation Group, provided legal services to the
Company for the fiscal years ended March 31, 1999 and 1998 valued at $49,004 and
$47,000, respectively.
The Company has entered into written employment agreements with certain
of its officers. See "Executive Compensation."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits were filed as part of SB-2 Registration
Statement dated July 25, 1996 (Registration No. 333-8857):
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
<S> <C> <C>
1.1 Revised Underwriting Agreement (4)
2.1 Stock Purchase Agreement between the Stockholders of Planet Access Filed herewith
Networks, Inc., Planet Access Networks, Inc. and the Company, as
amended dated April 27, 1999
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 By-laws of the Company (1)
4.1 Specimen Common Stock Certificate (3)
4.2 Specimen Warrant Certificate (3)
4.4 Revised Form of Warrant Agreement (4)
4.5 Form of Revised Representative's Warrant Agreement (4)
4.6 Form of Revised Representative's Warrant (4)
4.7 Form of Subscription Agreement between the Company and investors (1)
pursuant to December 7, 1995 Private Placement Memorandum
10.1 Lease Agreement between Bureau of Translation Services, Inc. and (1)
J.C.G. Partnership dated January 18, 1995
10.2 Employment Agreement between the Company and Charles D. Cascio (2)
dated as of December 7, 1995, as amended
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
10.3 Agreement between the Bureau of Translation Services, Inc. and (2)
debis Systemhaus KSP - Rommorzielle Systeme und Projeit Gomblt
dated May 24, 1995
10.4 The Translation Group, Ltd. 1995 Stock Option Plan (1)
10.5 Consulting Agreement between the Representative and the Company (4)
10.6 License Agreement between the Company and Gedanken Corporation Incorporated by reference
dated as of November 1, 1996 to the Company's Annual
Report on Form 10-KSB for
the year ended March 31,
1997
10.7 Consulting Agreement between the Company and James W. Grau dated Incorporated by reference
February 20, 1997 to the Company's
Registration Statement on
Form S -8 filed May 21,
1997
10.8 Agreement between the Company and Felician College dated April 6, Incorporated by reference
1998 to the Company's Annual
Report on Form 10-KSB for
the year ended March 31,
1998
10.9 Employment Agreement between the Company and Jeffrey Cartwright Filed herewith
dated May 18, 1999
10.10 Employment Agreement between the Company and Frederick LaParo Filed herewith
dated May 18, 1999
10.11 Employment Agreement between the Company and John Toedtman dated Filed herewith
May 18, 1999
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
10.12 Stock Pledge Agreement between the Company and various former Filed herewith
stockholders of Planet Access Network, Inc. dated May 18, 1999
10.13 License Agreement between the Company and ESTeam AB dated April Filed herewith
15, 1999*
</TABLE>
- -------------------------
* Subject to confidential treatment request pursuant to Rule 24b-2 of the
Exchange Act of 1934.
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated July 25, 1996 (Registration No. 333-8857) (the "Form
SB-2").
(2) Incorporated by reference to Amendment No. 1 to the Company's Form SB-2.
(3) Incorporated by reference to Amendment No. 2 to the Company's Form SB-2.
(4) Incorporated by reference to Amendment No. 3 to the Company's Form SB-2.
(b) REPORTS ON FORM 8-K.
During the quarter ended March 31, 1999 the Company filed the following
Reports on Form 8-K.
1. Report on Form 8-K filed March 10, 1999 relating to the
Company decision not to retain Richard A. Eisner & Company,
LLP ("Eisner") to audit the Company's financial statements for
the year ended March 31, 1999.
2. Report on Form 8-K/A filed march 19, 1999 relating to the
Company's decision not to retain Eisner to audit the Company's
financial statements for the year ended March 31, 1999.
34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
THE TRANSLATION GROUP, LTD.
By: /S/ CHARLES D. CASCIO
----------------------------
Charles D. Cascio, President
Dated: July 14, 1999
By: /S/ JUSTINE KOSTKA
----------------------------
Justine Kostka, Controller
Dated: July 14, 1999
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Charles D. Cascio President, Chief Executive July 14, 1999
CHARLES D. CASCIO Officer and Director
/s/ Theodora Landgren Director July 14, 1999
THEODORA LANDGREN
/s/ Richard J.L. Herson Director and Employee July 14, 1999
RICHARD J.L. HERSON
/s/ Gary M. Schlosser Director July 14, 1999
GARY M. SCHLOSSER
/s/ Robert Wussler Director July 14, 1999
ROBERT WUSSLER
/s/ John Toedtman Chief Operating Officer July 14, 1999
JOHN TOEDTMAN and Director
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Translation Group, Ltd.
We have audited the accompanying consolidated balance sheet of The Translation
Group, Ltd. and subsidiaries as of March 31, 1999, and the related consolidated
statements of operations, comprehensive operations, stockholders' equity and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all materials respects, the consolidated financial position of The Translation
Group, Ltd. and subsidiaries as of March 31, 1999, and the consolidated results
of their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/ Wiss & Company, LLP
-----------------------
WISS & COMPANY, LLP
Livingston, New Jersey
June 22, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Translation Group, Ltd.
We have audited the accompanying consolidated balance sheet of The Translation
Group, Ltd. and subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
materials respects, the consolidated financial position of The Translation
Group, Ltd. and subsidiaries as of March 31, 1998, and the consolidated results
of their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
June 30, 1998
F-2
<PAGE>
THE TRANSLATION GROUP, LTD.
and Subsidiaries
Consolidated Balance Sheet
As of March 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,895,970
Accounts receivable, net of allowance for doubtful
accounts of $71,140 857,261
Work in process 390,780
Certificate of deposit, pledged 106,540
Other current assets 350,337
-------
Total current assets 3,600,888
Property and equipment, net of accumulated depreciation and
amortization of $773,878 1,007,719
Excess of purchase price over fair value of net assets acquired, net of
accumulated amortization of $169,547 1,249,717
Loan receivable from officer 149,500
Other assets 128,017
-------
TOTAL ASSETS $ 6,135,841
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 451,631
Notes payable, banks 196,672
Current maturities of long-term obligations 123,630
Accrued liabilities 444,742
Deferred income 244,780
-------
Total current liabilities 1,461,455
Long-term obligations, less current maturities 178,254
TOTAL LIABILITIES 1,639,709
---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 authorized,
no shares issued and outstanding
Common stock, $.001 par value, 15,000,000 shares authorized,
2,278,340 shares outstanding and to be issued 2,278
Additional paid-in capital 6,051,985
Unearned portion of compensatory warrants (45,000)
Retained earnings (1,467,025)
Common stock in treasury, 8,000 shares (68,032)
Foreign currency translation adjustment 21,926
------
Total stockholders' equity 4,496,132
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,135,841
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
THE TRANSLATION GROUP, LTD.
and Subsidiaries
Consolidated Statements of Operations
For the years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenue $ 5,987,002 $ 6,420,833
Cost of revenue 4,832,359 4,189,366
----------- -----------
Gross profit 1,154,643 2,231,467
--------- ---------
Cost and expenses:
Selling, general and administration 1,864,721 1,309,349
Research and development 147,320 244,169
Special projects and other costs 979,357
Corporate administration 736,184 773,897
Amortization of excess of purchase price over
fair value of net assets acquired 96,884 72,663
--------- ---------
Total 3,824,466 2,400,078
--------- ---------
Loss before other income (expense) (2,669,823) (168,611)
----------- ---------
Other income (expense):
Interest income 185,212 197,488
Interest expense (45,461) (18,754)
Foreign currency gains (losses) (14,774) -
-------- -------
124,977 178,734
-------- -------
(Loss) income before provision for income taxes (2,544,846) 10,123
Provision for income taxes (396,160) 24,437
--------- ------
Net loss $ (2,148,686) $ (14,314)
=============== ==========
Net loss per common share outstanding - basic $ (0.94) $ (0.01)
======== ========
- diluted $ (0.94) $ (0.01)
======== ========
Weighted-average shares - basic 2,278,340 2,124,000
Dilutive effect of potential common shares - -
--------- ---------
Weighted-average shares - diluted 2,278,340 2,124,000
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
UNEARNED FOREIGN
ADDITIONAL PORTION OF CURRENCY TOTAL
COMMON COMMON PAID-IN COMPRETAINED RETAINED TREASURY TRANSLATION STOCKHOLDERS'
SHARES STOCK CAPITAL WARRANTS EARNINGS STOCK ADJUSTMENT EQUITY
------ ------ ---------- ----------- --------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1997 1,943,000 $ 1,943 $4,046,772 $ - $ 695,975 $ - $ - $ 4,744,690
Shares issued with the exercise of warrants 13,340 13 80,027 80,040
Shares issued in connection with consulting
agreement 25,000 25 149,975 150,000
Adjustments in connection with prior financings 10,000 10 (11,502) (11,492)
Shares issued in connection with exercise of
employee stock options 2,000 2 11,998 12,000
Shares issued and issuable in connection with
the acquisition of the Word House Companies 185,000 185 1,109,815 1,110,000
Shares issuable in connection with the contingent
purchase price of the Word House Companies 100,000 100 399,900 400,000
Warrants issued in connection with public
relations agreement 40,000 40,000
Option granted for warrants to a consultant 225,000 (225,000) -
Foreign currency translation adjustment 9,769 9,769
Net loss - - - - (14,314) - - (14,314)
--------- ------ --------- --------- --------- --------- --------- ----------
BALANCE AT MARCH 31, 1998 2,278,340 2,278 6,051,985 (225,000) 681,661 - 9,769 6,520,693
Amortization of unearned compensation 180,000 180,000
Purchase of treasury stock, 8,000 shares (68,032) (68,032)
Foreign currency translation adjustment 12,157 12,157
Net loss - - (2,148,686) - - (2,148,686)
--------- ------- ----------- --------- ------------- ---------- -------- -----------
BALANCE AT MARCH 31, 1999 2,278,340 $ 2,278 $ 6,051,985 $ (45,000) $ (1,467,025) $ (68,032) $ 21,926 $ 4,496,132
========= ======= =========== ========== ============= ========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
MARCH 31, MARCH 31,
1999 1998
Net loss $ (2,148,686) $ (14,314)
Other comprehensive income (loss)
Currency translation adjustment 12,157 9,769
------------ ---------
Comprehensive loss $ (2,136,529) $ (4,545)
============= =========
See accompanying notes to financial statements.
F-6
<PAGE>
THE TRANSLATION GROUP, LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net loss $ (2,148,686) $ (14,314)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 325,382 250,508
Amortization of excess purchase price over fair value of net assets acquired 130,882
Amortization of compensatory warrants 180,000
Settlement agreement 270,251
Warrants issued for services 40,000
Loss on abandonment of property and equipment 6,258
Deferred income taxes (218,172) (60,620)
Changes in operating assets and liabilities:
Accounts receivable 326,779 112,917
Work in process 346,917 (575,908)
Other current assets (205,962) 236,945
Other assets (22,261) (2,813)
Accounts payable 108,828 80,470
Accrued liabilities and deferred income (3,034) (73,340)
Accrued income taxes - foreign (31,954) 31,954
-------- --------
Net cash provided by (used for) operating activities (941,030) 32,057
--------- ------
Cash flows provided by (used for) investing activities:
Investments in US Government obligations 2,000,000 1,000,720
Purchase of property and equipment (404,851) (311,329)
Acquisition costs of $83,978, net of cash acquired of $14,438 (69,540)
Investment in certificate of deposit (6,540) (100,000)
Loans and advances to officers (12,000) (153,200)
-------- ---------
Net cash provided by (used for) investing activities 1,576,609 366,651
--------- -------
Cash flows provided by (used for) financing activities:
Net proceeds from issuance of common stock 80,548
Net proceeds from notes payable, banks 46,672 150,000
Payments on long-term obligations (95,477) -
-------- -------
Net cash provided by (used for) financing activities (48,805) 230,548
-------- -------
Foreign currency translation adjustment 12,157 9,769
------ -----
Net increase in cash and cash equivalents 598,931 639,025
Cash and cash equivalents, beginning of year 1,297,039 658,014
--------- -------
Cash and cash equivalents, end of year $ 1,895,970 $ 1,297,039
==========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: During
the year ended March 31, 1999, the Company acquired 8,000 shares
of its common stock in satisfaction of a loan receivable from an officer
During the year ended March 31, 1998, the Company issued 25,000 shares
of its stock for a consulting agreement valued at $150,000.
On June 30, 1997, the Company acquired the stock of Word House as
described in Note 1.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year
for:
Interest $ 45,461 $ 14,633
-------- --------
Income taxes $ 359 $ 602
----- -----
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
THE TRANSLATION GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
The Translation Group, Ltd. and Subsidiaries (TTGL or the Company) translates
and localizes documents and software into various languages. Services are
provided to many industries with a concentration in information technology
companies. The Company has launched a research program directed toward the
development of computer-based translation systems. The basic business model is
to accelerate technical developments together with product marketing and sales.
TTGL was incorporated in the State of Delaware on July 6, 1995, and under the
terms of an agreement and plan of reorganization, acquired 100% of the issued
and outstanding shares of the Bureau of Translation Services, Inc. (BTS) on
January 17, 1996. BTS was incorporated in 1984 in the State of Pennsylvania. On
December 2, 1996, the Company completed its initial public offering (IPO) and
sold 705,000 shares of its common stock at a price of $6.00 per share and
1,840,000 warrants at a price of $.20 per warrant. The net proceeds amounted to
approximately $3.5 million.
In February 1997, the Company obtained an exclusive worldwide license and rights
to use and sell know-how, apparatus, and methods pertaining to tools and systems
developments based on a patent application by the Gedanken Corporation
("Gedanken"). Gedanken has applied for a United States Patent that describes
apparatus and methods for translating words, phrases, and sentences from a
source language to other target languages using advanced telecommunications and
computer technologies. The original agreement has been modified as described in
Note 4.
Effective June 30, 1997, and as later amended, TTGL acquired all the issued and
outstanding common stock of the companies that comprise the Word House Group
(Word House) in exchange for 185,000 of its common shares and 200,000 additional
common shares contingent on future earnings levels, of which 100,000 shares were
issuable as of March 31, 1998.
On April 15, 1999, the Company entered into a development and license agreement
with ESTEAM AB (EST), a corporation organized under the laws of Sweden. EST is a
software-development company specializing in the development of a
computer-automated language translation system, known as the "BTR System," that
tailors such system to specific applications. The BTR System, when applied to
appropriate hardware, automatically performs language translations without any
human intervention. TTGL has received an exclusive worldwide license for four
identified applications and for four additional applications for a period of
fifteen years. For royalties, development costs, and other information, see Note
11.
As of May 1, 1999, the Company acquired all the issued and outstanding shares of
Planet Access Networks, Inc. (Planet) for 416,668 shares of its common stock and
cash in the amount of $900,000. The Company agreed further to secure additional
funding for Planet; moreover, the sellers have the right to require the Company
to repurchase all or part of the issued shares based on certain conditions. See
Note 11.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEARS
The Company's reporting year ends March 31. For purposes of reporting, fiscal
year ended March 31, 1999 will also be referred to as the 1999 fiscal year;
fiscal year ended March 31, 1998 will also be referred to as the 1998 fiscal
year; and any reference to fiscal year ended March 31, 1997 will also be
referred to as the 1997 fiscal year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TTGL, BTS, and
Word House, from the date of Word House acquisition on June 30, 1997. All
significant inter-company accounts and transactions have been eliminated.
Accordingly, the consolidated financial statements for the year ended March 31,
1999 and 1998 reflect the results of activities of all of these companies.
The Company has accounted for its acquisition of the Word House Companies under
the purchase method of accounting, wherein the purchase price is allocated to
the assets and liabilities as of the acquisition date based on estimated
respective fair values. The excess of purchase price over fair values of net
assets acquired is being amortized over fifteen years. Stockholders' equity as
of March 31, 1999 includes issuable shares (see Note 1).
F-8
<PAGE>
REVENUE RECOGNITION
Translation service contracts are accounted for under the percentage of
completion method of accounting, whereby sales and costs are recognized as work
on contracts progresses. Changes in estimates for revenue, costs and profits are
recognized in the period in which they are determinable. Work in progress
represents the excess of revenue recognized for financial reporting purposes
over amounts contractually permitted to be billed to customers. Deferred revenue
represents excess of amounts billed over revenue recognized for financial
reporting purposes. Invoices are rendered based upon terms of the contract.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Systems acquisitions
and specialized tools, together with related software, are expensed while in
development until technological feasibility has been established.
CAPITALIZED COMPUTER SOFTWARE COSTS
AcSEC SOP98-1 requires companies to capitalize and amortize certain costs
associated with developing software for internal use. There are three stages:
the preliminary project stage; the application development stage; and the
post-implementation/operation stage. After the preliminary project stage is
completed and management has committed to funding a probable successful software
project, such costs should be capitalized. Once the software is placed into
service, the capitalized cost should be amortized over the period of expected
benefit in a systematic and rational manner.
SFAS No. 2, together with FASB No. 86, accounting for research and development
(R&D) costs, require that companies expense R & D until the research and
development project has reached technological feasibility. The Company believes
that these releases apply to its development of machine-translation computer
systems and that such technological feasibility was achieved as at August 1,
1998. Accordingly, all expenditures to that point have been expensed as research
and development and capitalized after that date.
FOREIGN CURRENCY TRANSLATION
Statement of operations amounts have been translated using the average exchange
rates in effect for each period. Gains and losses from foreign exchange
transactions have been included in the Statements of Operations. Balance sheet
amounts have been translated using exchange rates in effect at the balance sheet
dates and the translation adjustment has been included in the foreign currency
translation adjustment, as a separate component of stockholders' equity.
EARNINGS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" (EPS) which requires dual presentation of basic and
diluted EPS for all entities with complex capital structures on a retroactive
basis. Basic income (loss) per share is computed based upon the weighted average
number of common shares outstanding during each year, shares contingently
issuable under the Word House acquisition have been included for fiscal 1999 and
excluded from the calculation for the 1998 fiscal year. Diluted EPS gives effect
to outstanding warrants and options using the treasury stock method. For fiscal
1999 and fiscal 1998, options and warrants were considered anti-dilutive and
were excluded from the calculation of diluted EPS.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid debt instruments when purchased with a
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash and unsecured trade receivables. The
Company maintains its cash balances in financial institutions some of which are
insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured
balances at March 31, 1999 totaled approximately $1,936,000. Of the uninsured
cash balances, $1,823,000 is held in a Salomon Smith Barney money market
account.
The Company grants unsecured credit to virtually all of its customers, with no
individual customer comprising a concentrated risk. Management believes that
credit risk associated with accounts receivable is limited due to the Company's
long standing relationships with the majority of its customers.
F-9
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost net of depreciation and amortization.
Depreciation and amortization are computed using straight-line and accelerated
methods over the estimated useful lives of the assets in place. Amortization of
leasehold improvements is provided over the shorter of the lease term or the
estimated useful life of the asset.
STOCK OPTIONS
The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires pro-forma disclosure of net income
as if the SFAS No. 123 fair-value method had been applied. The Company measures
and recognizes compensation costs under the provisions of Accounting Princples
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (by SFAS No.
123) which permits that when the exercised price of the Company's employee stock
option equals or is more than the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
MARKETING AND ADVERTISING
Marketing and advertising costs are expensed as incurred. Such expenses
approximated $223,000 and $98,000 for the years ended March 31, 1999 and 1998,
respectively.
INCOME TAXES
The Company accounts for its income taxes using the liability method which
measures deferred income taxes by applying enacted statutory rates in effect at
the balance sheet date to differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements. The asset
arising from the net operating loss carry forwards was fully reserved since the
realization of the benefits is uncertain.
SPECIAL PROJECTS AND OTHER COSTS
During the year ended March 31, 1999, the Company incurred significant costs
which include: special projects relating to new product developments and
investigation of strategic alliances; settlement of salary contracts with
previous chief operating officer; the opening and closing of a Canadian
facility; the amortization of the value of options regarding a financial
consulting contract; and settlement of differences of professional fees for the
prior and current periods.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Certain of the Company's subsidiaries were previously a part
of a consolidated group in the Netherlands. Such subsidiaries may be jointly and
severally liable for any tax assessments resulting from the group. Management
estimates that no provision for such contingency is necessary. Actual results
could differ from these estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has implemented: SFAS No. 130 "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and its
components in financial statements; and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" which establishes standards
for the way public business enterprises report information about operating
segments in annual and interim financial statements. The Company considers that
it operates in one industry segment and is reporting segment data in accordance
with markets.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Annual Report to Stockholders contains forward-looking statements. To date,
the Company has not completed the commercialization of products or services
based on its technological approaches, and there can be no assurance that the
approaches will enable the Company to commercially exploit such technology. In
addition, the Company faces competition from other companies, many of which are
larger and better financed.
F-10
<PAGE>
The Company had a substantial operating loss for its year ended March 31, 1999.
While it expects to reduce its losses significantly in its first quarter and
return to profitability, there is no assurance that funds will become available
for its research and development programs and related sales and marketing of
products. Insufficient funds could require the Company to delay, scale back, or
eliminate certain of these programs. There also can be no assurance that pending
developments will be protected by enforceable patents or copyrights, or
maintained in confidence as trade secrets.
Other factors may affect the Company's future operations, including the ability
to attract and retain qualified management, to exploit current marketing
efforts, and to compete successfully in the market.
NOTE 3-SIGNIFICANT CUSTOMERS
For the year ended March 31, 1999, two customers account for 20% and 11% of
revenues, in comparison to two customers that represented 10% and 14% of
revenues for the year ended March 31, 1998.
NOTE 4-RESEARCH AND DEVELOPMENT
The Company expensed approximately $147,000 and $244,000 for the development of
a machine-translation system during the year ended March 31, 1999 and 1998. The
goal for the design of machine tools, or systems, is to enhance the
translation/localization (production) process. The Company considers that
technological feasibility was achieved as at August 1, 1998, and subsequent
payments to the Gedanken Corporation, in the amount of $180,000, were
capitalized after that date.
In February 1997, the Company obtained an exclusive worldwide license and rights
to use and sell know-how, apparatus, and methods pertaining to tools and systems
developments based on a patent application by Gedanken. By assignment from Dr.
Julius Cherny, Gedanken applied for a United States Patent that describes
apparatus and methods for translating words, phrases, and sentences from a
source language to other target languages using advanced telecommunications and
computer technologies. The Company is obligated to pay royalties on all revenues
generated that use in whole or part the patent rights and know-how. The Company
has the right to stop funding at specified times or accomplishment periods. The
Company has agreed to pay Gedanken $750,000 for a translation/ localization
system (that includes a specific topic builder, general topic dictionary,
quality control, and alignment tools) at the rate of $20,000 a month through
December 15, 1998, and at the rate of $40,000 a month thereafter; the original
arrangement of $20,000 per month has been verbally extended through June 30,
1999.
Under the 1997 license agreement, the Company also has the option from Gedanken
for the rights to the development of a Real Time Voice Translation System based
on providing the necessary funding estimated at $4,000,000.
Dr. Cherny resigned his positions as the president of BTS and a director of the
Company in November, 1998. Since that time, he has devoted full time to research
and development on behalf of the Company. Dr. Cherny remains president and
principal shareholder of Gedanken.
NOTE 5-PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, 1999 Average Useful Life
(Years)
Equipment (includes $848,461 5
$520,000 pledged as collateral
for bank notes payable)
Software 238,615 5
Equipment and software
under licenses 334,564 5
Office condominium 245,182 20
Furniture & fixtures 54,219 5
Vehicles 23,269 3
Leasehold improvements 37,287 5
---------
Total 1,781,597
Less: accumulated
depreciation and amortization 773,878
----------
Net property and equipment $1,007,719
==========
For the years ended March 31, 1999 and 1998, depreciation and amortization
expenses were $258,880 and $183,651, respectively.
F-11
<PAGE>
NOTE 6-RELATED PARTY TRANSACTIONS
The Company settled the outstanding employment contract and loan account with
its former chairperson and chief operating officer for approximately $360,000
(which includes legal fees) and the return of 8,000 shares of its common stock.
It was deemed that $275,000 of the settlement was a period expense and the
balance a deferred consulting fee. Due from the Company's chief executive
officer (CEO) is a loan of $149,500 (which includes accrued interest at the rate
of 6% per annum) that is collateralized by 20,000 of such individual's shares of
the Company's common stock.
The Company has retained a former officer and son of the Company's CEO as
outside legal counsel; fees were $49,000 in fiscal 1999 and $47,000 in fiscal
1998. For consulting services for year ended March 31, 1998, a director received
20,000 warrants valued at $40,000, and a corporation under his control, received
$24,013. A former officer and a current director and employee received $26,851
in fiscal 1999 and $17,912 in fiscal 1998.
Gedanken, a company controlled by Dr. Julius Cherny, was paid $240,000 by the
Company during both fiscal 1999 and fiscal 1998 for the computer translation
system that Gedanken is developing (see Note 4 relative to the accounting for
such payments).
NOTE 7-DEBT
The original bank loan for financing of equipment in the amount of $150,000 is
payable monthly, beginning April 1998, in the principal amount of $6,250 plus
interest at the rate of 9.5%. The loan is collateralized by the equipment, a
$100,000 certificate of deposit and certain other assets.
Word House has a bank net overdraft facility of up to $150,000, which is
collateralized by cash, accounts receivable, and equipment. The bank has also
issued a letter of credit for the account of Word House in the amount of $50,000
as a security deposit.
NOTE 8-INCOME TAXES
As of March 31, 1999 and 1998 other assets include approximately $112,000 and
$31,000 respectively of claims for income taxes paid in prior periods as a
result of carry back of operating losses.
Net operating loss carry-forwards:
The Company has US Federal and State operating loss carry forwards and
deferred tax assets of approximately $1,100,000 which expire over the ensuing
period of twenty years.
The Company has foreign net operating loss carry-forwards of
approximately $473,000 which expire as follows:
Year Ending
March 31, Amount
--------- ------
2001 $ 10,000
2003 67,000
2004 226,000
---------
303,000
Net operating losses that
do not expire 170,000
-------
Total $473,000
========
The deferred tax asset of approximately $600,000 has been offset by a
100% valuation allowance because of the uncertainty of its realization.
F-12
<PAGE>
NOTE 9-STOCK OPTIONS AND WARRANTS
Stock Options
In October 1996, the Company adopted a Stock Option Plan (the "Plan") that
provides for a maximum of 2,500,000 shares of common stock to be issued in
connection with such plan. The price payable for the shares of common stock
under incentive stock options must be not less that 100% of the fair market
value at the time the option is granted (and 110% if the person granted such
option owns more than 10% of the outstanding shares of the common stock).
Additionally, under the Plan, participants may be granted stock appreciation
rights (SAR). SARs consist of rights to receive either cash or shares of common
stock equal to the amount by which the value of such shares of common stock on
the date the SAR is exercised exceeds the per share option price. No SARs have
been granted. Options granted under this Plan expire ten years from date of
grant, for non-affiliated persons and five years for a 10% owner.
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals or is more than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The alternative fair value accounting is disclosed only for pro forma purposes
as provided for under SFAS No. 123, "Accounting for Stock-Based Compensation",
which requires the use of option valuation models. Options granted to
non-employees are valued at their fair value at the date of grant.
The following is a schedule of the status of options granted under the Company's
stock option plan:
Weighted Average
Exercise Price
Options Per Share
Outstanding at March 31,1996 -0-
Granted 700,000 $6.17
------- -----
Outstanding at March 31, 1997 700,000 6.17
Granted 599,000 4.75
Exercised (2,000) 6.00
Cancelled (100,000) 6.00
--------- ----
Outstanding at March 31, 1998 1,197,000 $5.47
--------- -----
Granted 495,000 4.99
Cancelled (263,000) 5.75
--------- ----
Outstanding at March 31, 1999 1,429,000 $5.25
========= =====
Exercisable at March 31, 1999 852,300 $5.37
======= =====
Exercisable at March 31, 1998 409,200 $5.12
======= =====
As of March 31, 1999, the Company has 1,069,000 options available to grant under
the Plan.
As of March 31, 1999 for each of the following classes of options as determined
by the range of exercise price, the following information regarding
weighted-average exercise prices and weighted-average remaining contractual
lives of each class is as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
Weighted Average Weighted Average Number of
Number Exercise Price of Remaining Contract Life Options Weighted Average Exercise
Of Options of Outstanding Options Currently Price of Options Currently
Options (Years) Exercisable Exercisable
- --------- ----------------- ----------------------- ----------- ---------------------------
<S> <C> <C> <C> <C>
20,000 $4.00 9.75 - -
520,000 4.50 8.94 370,000 $4.50
372,500 5.00 9.54 100,000 5.00
306,500 6.00 3.67 182,300 6.00
210,000 6.60 7.71 200,000 6.60
- --------- ------ ---- ------- ----
1,429,000 $5.25 $7.81 852,300 $5.37
========= ===== ===== ======= =====
</TABLE>
The pro forma information regarding net (loss) and (loss) per share as required
by SFAS No. 123, has been determined as if the Company had been accounting for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
March 31,
1999 --------- 1998
---- ----
Range of risk free interest rates 6.10% - 6.30% 6.10% - 6.30%
Dividend yield 0% 0%
Volatility factor 64% 70%
Expected life of options (in years) 8 8
The weighted average fair value of options granted was $4.91 for the year ended
March 31, 1999 and $3.29 for the year ended March 31, 1998. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, for traded shares, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. For
purposes of pro forma disclosures, the estimated fair value of the options
granted in fiscals 1999 and 1998 is amortized to expense over the options'
average vesting period. The Company's pro forma information follows:
Year Ended March 31
1999 ------------------- 1998
---- ----
Pro forma loss $(3,063,591) $(2,010,919)
Pro forma loss per share $ (1.35) $ (.95)
======== =======
The pro forma disclosures presented above for fiscals 1999 and 1998,
respectively, reflect compensation expense only for options granted in fiscals
1999 and 1998. These amounts may not necessarily be indicative of the pro forma
effect of SFAS No. 123 for future periods in which options may be granted.
WARRANTS
Pursuant to the IPO in December 1996, the Company sold 1,840,000 warrants. There
were also 300,000 warrants outstanding to shareholders given in consideration of
their give-back of shares to the Company in connection with the IPO. Each
warrant entitles the registered shareholder to purchase one share of common
stock at an exercise price of $6.20 per share for a period of three years
beginning December 1996. There is no current registration statement in effect
covering the exercise of these warrants. The Company also granted the
underwriters, of its IPO, rights to purchase 60,000 shares of the Company's
common stock at an exercise price of $7.80 per share and 160,000 warrants at an
exercise price of $.26 per warrant and in turn, an exercise price for the stock
of $7.80 per share that expires on December 2, 2001. In connection with the
Company's earlier private placement, additional stock warrants were issued to
purchase 40,000 shares of the Company's common stock at a price of $1.50 per
share that expires on January 17, 2001.
F-14
<PAGE>
During the year ended March 31,1998, the Company issued 20,000 warrants valued
at $40,000 for consulting fees and also gave an option to a consultant for three
years and an additional three years by mutual consent for 100,000 warrants at
the then market price of $.80 per warrant and a price of $4.50 per common share.
The term of the warrant overlays the option period. The Company valued the
warrants at $225,000 and services are to be provided from April 1, 1998 to June
30, 1999; the costs are being amortized over the period of fifteen months during
which the services are to be performed.
Outstanding warrants consist of the following:
Issued in connection with the Initial Public
Offering 2,140,000
---------
Balance at March 31, 1997 2,140,000
Granted 20,000
Exercised (13,340)
Balance at March 31, 1998 2,146,660
=========
Balance at March 31, 1999 2,146,660
=========
The above outstanding warrants do not include the warrants described above
relating to the Company's underwriters' options to acquire 260,000 warrants and
for the option to acquire 100,000 warrants issued to the consultant.
NOTE 10-COMMITMENTS AND CONTINGENCIES
(A) Employment Contracts
The Company has employment contracts with its chief executive officer and its
chief operating officer that expire June 30, and September 30, 2001. Aggregate
remaining compensation and benefits under such contracts approximate $635,000.
(B) Rent
The Company has operating leases for its production facilities and office space.
Aggregate minimum future annual rental payments are as follows:
Year Ending
March 31, Total
----------- -----
2000 248,097
2001 124,436
2002 105,110
2003 96,351
---------
Total $573,994
Rent expenses from fiscal years 1999 and 1998 were $196,707 and $96,250
respectively.
(C) Year 2000 Issue
The Company has completed a full evaluation of its systems involving computer
hardware and applicable software. Management believes it has an effective
program in place to resolve this issue in a timely manner. Estimated related
costs of this project are projected to be approximately $50,000.
F-15
<PAGE>
(D) Other matters and Litigation
The Company has been sued by a stockholder who is seeking monetary damages,
specific performance, equitable relief and costs in the amount of $3,000,000.
Legal counsel, after a review of the file and discussions with management,
believes there is substantial likelihood that the Company will prevail in this
matter.
NOTE 11-ACQUISITIONS AND RECENT AGREEMENTS
DEVELOPMENT AND LICENSE AGREEMENT WITH ESTEAM AB
On April 15, 1999, the Company entered into a development and license agreement
with ESTEAM AB (EST), a corporation organized under the laws of Sweden. EST is a
software-development company specializing in the development of a
computer-automated language translation system, known as the "BTR System," that
tailors such system to specific applications. The BTR System, its modifications,
improvements, and adaptations, are used to perform translations of specific text
documents in a particular domain. The BTR System, when applied to appropriate
hardware, automatically performs language translations without any human
intervention. The computer software utilized in the BTR System may be
"off-the-shelf" or proprietary, that is, created for a specific purpose and not
commercially available. TTGL has received an exclusive worldwide license for
four identified applications and for four additional applications for a period
of fifteen years, with an option, under certain conditions and considerations,
to extend the agreement for an additional three years. In consideration of the
worldwide license, TTGL has agreed: to pay royalties on sales of any
application; to pay EST a minimum of $50,000 per month towards EST's operating
expenses for two years; and will provide certain development funding in addition
to the $50,000 minimum. In addition, TTGL has granted stock options to three
employees of EST, aggregating 102,000 shares of its common stock at a price of
$3.50 per share. Such options are subject to the provisions of TTGL's 1995 Stock
Option Plan and will vest with the grantees based upon the achievement of
revenues by TTGL from the development work of EST.
ACQUISITION OF PLANET ACCESS NETWORKS, INC.
Planet Access performs field internet and website development and management
services for its clients. As of May 1, 1999, the Company acquired all the issued
and outstanding shares of Planet for 416,668 shares of its common stock and cash
in the amount of $900,000 to be paid on September 15, 1999. The purchase is
secured by the seller's shares; the officers of the seller received four-year
employment contracts that include incentive stock options of the Company. The
Company agreed further:
i. to secure funding by September 15, 1999, in the minimum
amount of $4,000,000.
ii. that each of the four sellers has the right to require the
purchaser to repurchase at $7.00 per share all or part of the
416,668 shares issued under the agreement if, on May 28,
2000, certain conditions are not met, including that the
selling price of the Company's common shares is at least
$10.00 per share.
iii. to establish a $250,000 line of credit for Planet, to be
considered as liquidated damages in the event the Company
fails to implement its obligations under the agreement.
The purchase price will be allocated to the underlying fair value of the assets
acquired, and the balance to excess of purchase price over fair value of net
assets acquired.
CANADA
On June 29, 1998, the Company formed The Translation Group (Canada) as a wholly
owned subsidiary of the Company. The subsidiary ceased operations in March of
1999.
NOTE 12-SEGMENT OPERATIONS
The sales of BTS originate in the United States to domestic and foreign
customers. Translation/localization is in Japanese, Chinese, and other languages
of the Asian rim, as well as European languages and Canadian French. The sales
of Word House originate in Europe and are almost entirely in Dutch, French and
other European languages.
Financial information that can be classified by the principal locations of the
Company is as follows (stated in thousands):
F-16
<PAGE>
Year Ended March 31, 1999
<TABLE>
<CAPTION>
United
States Europe Parent Eliminations Total
------ ------ ------ ------------ -----
<S> <C> <C> <C> <C> <C>
Revenues $3,115 $3,029 $ $157 $5,987
------ ------ ---- ------
Costs of revenues, selling
and other expenses 3,475 3,380 (157) 6,698
Special and other costs 979 979
Research and development 147 147
Corporate administration 736 736
------- ------- ------ ------- -------
Loss before amortization of excess,
other income and income taxes $ (360) $ (351) $(1,862) $ -0- $(2,573)
===============================================================================
Identifiable assets as at
March 31, 1999 $6,392 $1,233 $(2,739) $ 4,886
==============================================================================
Year Ended March 31, 1998
Revenues $3,832 $2,723 $134 $6,421
------ ------ ---- ------
Costs of revenues, selling
and other expenses 3,093 2,539 (134) 5,498
Research and development 244 244
Corporate administration 774 774
------- ------- ------- ------- ------
Income (loss) before amortization
of excess, other income
and income taxes $ 739 $ 184 $(1,018) $ -0- $ (95)
======= ======= ======== ======== =======
Identifiable assets as at
March 31, 1998 $5,877 $1,147 $ (224) $ 6,800
====== ====== ======== ======== ========
</TABLE>
F-17
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE TRANSLATION GROUP, LTD.,
AND
EACH OF THE SHAREHOLDERS OF
PLANET ACCESS NETWORKS, INC.,
Dated: April __, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of April __, 1999 (the
"Agreement"), among The Translation Group, Ltd., a corporation organized under
the laws of the State of Delaware (the "Purchaser") with an office at 30
Washington Avenue, Haddonfield, New Jersey, 08033, and Planet Access Networks
Inc., a corporation organized under the laws of the State of New Jersey (the
"Company") with an office at 7 Waterloo Road, Suite 202, Stanhope New Jersey
07874, Fred Laparo ("Seller"), an individual residing at 43 Pinkneyville
Road,Sparta, NJ 07871, Jeff Cartwright ("Seller"), an individual residing at 67
Brookwood Drive, Stanhope, NJ 07874, Binh Nguyen ("Seller"), an individual
residing at 95 Philip Drive, Rockaway, NJ 97866, and Peter Grabowsky ("Seller"),
an individual residing at 158 Lakeside Drive West, Belvidere, NJ 07823, (the
four individuals collectively referred to as the "Sellers").
W I T N E S S E T H:
The Sellers collectively hold 100% the Company's shares (the
"Shares") of common stock, with no par value per share (the "Common Stock"), of
the Company, a corporation organized under the laws of the State of New Jersey,
which shares of Common Stock constitute all of the issued and outstanding shares
of Common Stock of the Company;
The Purchaser desires to acquire from the Sellers, and the
Sellers collectively desire to sell to the Purchaser, for the consideration
hereinafter provided, the Shares; and
Certain terms used in this Agreement are defined in Section
11.2 of this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter contained, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. SALE AND PURCHASE OF SHARES; THE CLOSING.. SALE AND
PURCHASE OF SHARES; THE CLOSING.
1.1. SALE AND PURCHASE OF SHARES.1. SALE AND PURCHASE OF
SHARES.
<PAGE>
Subject to the terms and conditions of this Agreement and on
the basis of the representations, warranties, covenants and agreements herein
contained, on the Closing Date, each Seller shall sell, assign and convey to the
Purchaser, and the Purchaser shall purchase, acquire and accept from each
Seller, the Shares of such Seller set forth opposite such Seller's name on
Schedule 1.1 hereto. At the Closing, each Seller shall deliver one or more stock
certificates representing the Shares of such Seller duly endorsed for transfer
to the Purchaser.
1.2. THE CLOSING..2. THE CLOSING.
Subject to the termination of this Agreement as provided in
Section 8 hereof, the consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Purchaser on
May __, 1999(the "Closing Date").
2. CONSIDERATION. CONSIDERATION.
2.1. CONSIDERATION.1. CONSIDERATION.
(a) CONSIDERATION PAYABLE AT CLOSING. At the Closing,
Purchaser shall deliver as consideration for the Shares an aggregate of 416,666
shares of common stock, par value $.001 per share, of Purchaser (the "Purchaser
Shares") allocated to each Seller on a pro rata basis with the other Sellers
based on the number of Shares sold by each Seller.
(b) DEFERRED CONSIDERATION. On or before September 15, 1999,
the Purchaser shall pay to the Sellers, pro rata according to their percentage
ownership of the Company prior to the Closing, the aggregate amount of
$900,000.00, (the "Deferred Purchase Price"). To secure the Purchaser's
obligation to pay the Deferred Purchase Price, the Purchaser shall pledge to the
Sellers the Shares pursuant to the Stock Pledge Agreement, dated the date of
Closing, substantially in the form attached as Exhibit "A".
2.2 PIGGY BACK RIGHTS.
The parties acknowledge that as part of the consideration
provided hereunder, the Sellers shall be proportionedly given the "piggy-back"
rights similar to the registration of Charles Cascio or any assigns as set forth
in paragraph 5.1 below.
2
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS..
REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Sellers, jointly and severally, as to the Company and as
to each of the Sellers, hereby represent and warrant to the Purchaser as
follows:
3.1. ORGANIZATION AND GOOD STANDING..1. ORGANIZATION AND GOOD
STANDING.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey and has
full corporate power and authority to own, lease and operate its properties and
to carry on its business as it is now conducted. The Company is duly qualified
or authorized to do business as a foreign corporation and is in good standing
under the laws of (i) each jurisdiction in which it leases real property and
(ii) each other jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification or authorization, except
where the failure to so qualify would not result in a Material Adverse Change.
(b) The minute books of the Company, as previously made
available to the Purchaser and its counsel, contain accurate records of all
meetings and all other material corporate action of the Company's board of
directors (including any committees thereof) and its stockholders since the date
of the Company's incorporation.
3.2.AUTHORIZATION OF AGREEMENT. 2.AUTHORIZATION OF AGREEMENT.
The Company and each of the Sellers has all requisite
capacity, power and authority to execute and deliver this Agreement, the
Employment Agreement, and each other agreement, document, instrument or
certificate contemplated by this Agreement or to be executed by such Seller in
connection with the consummation of the transactions contemplated by this
Agreement (this Agreement, the Employment Agreements, the Pledge Agreement, and
the other agreements, documents, instruments or certificates delivered pursuant
to this Agreement are hereinafter referred to
3
<PAGE>
as the "Transaction Documents"), and to perform fully its or his obligations
hereunder and thereunder. This Agreement has been, and each of the other
Transaction Documents will be (when executed and delivered by the Company and
each of the Sellers), duly and validly authorized, executed and delivered by the
Company and each of the Sellers and (assuming the due authorization, execution
and delivery of the other parties hereto and thereto) this Agreement
constitutes, and each of the other Transaction Documents will constitute (when
executed and delivered by the Company and each of the Sellers), legal, valid and
binding obligations of the Company and each of the Sellers, enforceable against
the Company and each of the Sellers in accordance with their respective terms,
subject, as to enforceability, to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.3. SUBSIDIARIES. 3. SUBSIDIARIES.
The Company has no subsidiaries and does not own any other
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture or other entity or
have any agreement to acquire any such capital stock or other proprietary
interest.
3.4. NO CONFLICTS; CONSENTS OF THIRD PARTIES.4. NO CONFLICTS;
CONSENTS OF THIRD PARTIES.
(a) The execution and delivery by the Company and each of the
Sellers of this Agreement and the other Transaction Documents, the consummation
of the transactions contemplated hereby or thereby, and the compliance by the
Company and each of the Sellers with any of the provisions hereof or thereof
does not and will not (i) conflict with, or result in the breach of, any
provision of the certificate of incorporation or by-laws of the Company; (ii)
conflict with, violate, result in the breach or termination of, or constitute a
default or give rise to any "takeback" right or right of termination or
acceleration or right to increase the obligations or otherwise modify the terms
thereof under any Contract, Permit or Order to which the Company or any of the
Sellers is a party or by which the Company or any of the Sellers or the
properties or assets of any of the Sellers or the Company are bound; (iii)
constitute a violation of any Law applicable to the Company or any of the
Sellers; or (iv) result in the creation of any Lien upon the properties or
assets of the Company or any of the Sellers. Except as set forth on Schedule
4
<PAGE>
3.4 of the Disclosure Schedule, no consent, waiver, approval, Order, Permit or
authorization of, or declaration or filing with, or notification to, any Person
or Governmental Body is required on the part of the Company or any of the
Sellers in connection with the execution and delivery of this Agreement or the
other Transaction Documents, or the compliance by the Company and any of the
Sellers, with any of the provisions hereof or thereof.
(b) Neither the Company nor any of the Sellers is a party to
any agreement, contract or covenant limiting the freedom of the Company or any
of the Sellers to compete in any line of business or with any person or other
entity in any geographic region within or outside of the United States of
America.
3.5. CAPITALIZATION. 5.CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
1000 shares of Common Stock. As of the date hereof, 1000 shares of Common Stock
are issued and outstanding, all of which are owned of record and beneficially by
the Sellers and constitute the Shares. The number of shares held by each Seller
is as set forth opposite such Seller's name on Schedule 1.1. The Shares are
validly issued, fully paid and non-assessable. There is no existing option,
warrant, call, right, commitment or other agreement of any character to which
the Company is a party requiring, and there are no securities of the Company
outstanding which upon conversion or exchange would require, the issuance, sale
or transfer of any additional shares of capital stock or other equity securities
of the Company or other securities convertible into, exchangeable for or
evidencing the right to subscribe for or purchase shares of capital stock or
other equity securities of the Company. Neither the Company nor any of the
Sellers is a party to any voting trust or other voting agreement with respect to
any shares of capital stock or to any agreement relating to the issuance, sale,
redemption, transfer or other disposition of capital stock of the Company.
(b) The Shares purchased by the Purchaser will, at the
Closing, constitute all of the issued and outstanding capital stock of the
Company on a fully diluted basis.
3.6. FINANCIAL STATEMENTS. 6. FINANCIAL STATEMENTS.
Sellers have delivered to the Purchaser (i) copies of the
Company's audited balance sheet as at December 31, 1998 and the related audited
statement of income and of cash flows for the year ended December 31, 1998 (the
"Audited Statement"), and its reviewed balance sheets as at December 31, 1997,
5
<PAGE>
December 31, 1996 and December 31, 1995 and the related reviewed statements of
income and of cash flows for the years ended December 31, 1997, December 31,
1996 and December 31, 1995 (the "Reviewed Statements") and (ii) copies of its
unaudited balance sheet at March 31, 1999 and the related unaudited statements
of income and cash flows for the three month period ended March 31, 1999 (the
"Latest Financials") (the Latest Financials, including the related notes and
schedules thereto, the Audited Statement and the Reviewed Statements, are
referred to herein as the "Financial Statements"). Each of the Financial
Statements was prepared in good faith from the books and records of the Company,
is complete and correct in all material respects, has been prepared in
accordance with generally accepted accounting principles and in conformity with
the practices consistently applied by the Company and presents fairly the
financial position, results of operations and cash flows of the Company as at
the dates and for the periods indicated. The books of account and other
financial records of the Company from which the Financial Statements have been
prepared are complete and correct.
3.7. NO UNDISCLOSED LIABILITIES. 7. NO UNDISCLOSED LIABILITIES.
Except to the extent set forth in the Financial Statements, or
as set forth on Schedule 3.7 of the Disclosure Schedule which sets forth with
specificity each liability of the Company in excess of $1,000 (whether accrued,
absolute, contingent or otherwise, and whether due or to become due or asserted
or unasserted), the Company has no Indebtedness and there is no basis for the
assertion of any claim or material liability of any nature against the Company,
except obligations under Contracts described on Schedule 3.13 of the Disclosure
Schedule or under Contracts that are not required to be disclosed thereon as a
result of dollar thresholds specified in Section 3.13.
3.8. ABSENCE OF CERTAIN DEVELOPMENTS. 8. ABSENCE OF CERTAIN DEVELOPMENTS.
Except as expressly set forth on Schedule 3.8 of the
Disclosure Schedule, since December 31, 1998:
(a) There has not been any Material Adverse Change nor has
any event occurred which could result in any Material Adverse Change;
6
<PAGE>
(b) There has not been any damage, destruction or loss,
whether or not covered by insurance, with respect to the property and assets of
the Company having a replacement cost of more than $1,000 for any single loss or
$2,500 for all such losses;
(c) There has not been (i) any declaration, setting aside
or authorizing the payment of, any dividend or other distribution in respect of
any shares of capital stock of the Company or any repurchase, redemption or
other acquisition by the Company of any of the outstanding shares of capital
stock or other securities of, or other ownership interest in, the Company or
(ii) any amount or asset paid or otherwise distributed to any of the Sellers,
whether as compensation or otherwise;
(d) The Company has not (i) awarded or paid any bonuses to
(A) any of the Sellers or (B) other employees of the Company in excess of $1,000
individually, or $2,500 in the aggregate, (ii) entered into or modified or
amended any employment, deferred compensation, severance or similar agreement,
(iii) increased or agreed to increase the compensation payable or to become
payable by it to any of the Company's directors, officers, employees, agents or
Representatives or (iv) increased or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers, employees, agents or Representatives (other than normal increases in
the ordinary course of business consistent with past practice and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expense of the Company);
(e) There has not been any change by the Company in
accounting principles, methods or policies;
(f) The Company has not entered into any Contract
requiring payments in excess of $1,000, or conducted its business other than in
the ordinary course of business consistent with past practice;
(g) The Company has not (i) incurred or repaid any
Indebtedness, (ii) made any loans, advances or capital contributions to any
other Person or (iii) assumed, guaranteed, endorsed or otherwise became liable
for the obligations of any other Person.
7
<PAGE>
(h) The Company has not failed to promptly pay and
discharge any current liabilities except where disputed in good faith by
appropriate proceedings;
(i) The Company has not mortgaged, pledged or subjected to
any Lien any of its assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any assets of the Company
(other than the sale of inventory in the ordinary course of business consistent
with past practice);
(j) The Company has not discharged or satisfied any Lien,
or paid any obligation or liability (fixed or contingent), except in the
ordinary course of business consistent with past practice and which, in the
aggregate, would not be material to the Company;
(k) The Company has not canceled or compromised any debt
or claim or amended, canceled, terminated, relinquished, waived or released any
(i) Contract to which any of the Sellers or any Affiliate of any of the Sellers
is a party or (ii) any other Contract or right except (in the case of this
clause (ii)) in the ordinary course of business consistent with past practice
and which, in the aggregate, would not be material to the Company;
(l) The Company has not suffered any Extraordinary Loss or
Extraordinary Losses (as defined in Opinion No. 30 of the Accounting Principles
Board of the American Institute of Certified Public Accountants and any
amendments thereto);
(m) The Company has not transferred, or granted any rights
under any concessions, leases, licenses, agreements, any Patents (as defined in
Section 3.12), Marks (as defined in Section 3.12), Copyrights (as defined in
Section 3.12), trade secrets, know how, manufacturing processes, inventions,
designs, web sites, computer programs or other tangible or intangible
proprietary information used by the Company in its business;
(n) The Company has not made or committed to make any
capital expenditures or capital additions or betterments in excess of $1,000
individually or $2,500 in the aggregate;
8
<PAGE>
(o) The Company has not instituted or settled any Legal
Proceeding;
(p) There have not been any amendments or changes in the
certificate of incorporation or the by-laws of the Company;
(q) The Company has not entered into any Contract to take
any action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement untrue or incorrect as of
the date when made;
(r) The Company has caused to be done all things necessary
to maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its business;
and
(s) The Company has maintained and kept its properties in
good repair, working order and condition, normal wear and tear excepted.
3.9. TAXES. 9. TAXES.
Except as set forth on SCHEDULE 3.9 of the Disclosure
Schedule:
(a) The Company (i) has timely, completely and accurately
filed, or caused to be filed, with all appropriate U.S. federal, state or local
or foreign governmental agencies, all required tax and information returns, of
whatever nature, related to the Company for tax years ended prior to the date of
this Agreement or requests for extensions have been timely filed and any such
request shall have been granted and not expired, (ii) has duly paid, caused to
be paid, or made adequate provision in the balance sheet included in the Latest
Financials for, all taxes (including, but not limited to, income, sales,
property, payroll, employment, gross receipts, excise and franchise taxes),
assessments, charges, penalties and interest, of whatever nature ("Taxes"), due
and payable with respect to all periods ending on or prior to March 31,
1999,(iii) has made adequate provision for all Taxes with respect to all periods
subsequent to the periods covered by such returns, and (iv) has no "open" years
for any tax or information returns.
9
<PAGE>
(b) Neither the Sellers nor the Company has received,
directly or indirectly, notice of, and neither of them is otherwise aware of,
any pending, threatened, ongoing or past audit or examination by any
Governmental Body with respect to Taxes relating to the Company; nor are the
Sellers or the Company a party, directly or indirectly, to any action or
proceeding by any Governmental Body for assessment or collection of Taxes
relating to the Company; nor has any claim for assessment and collection, or any
notice of deficiency, been asserted or proposed against the Sellers or the
Company, directly or indirectly, with respect thereto; nor has the Sellers or
the Company executed a waiver of any statute of limitations with respect
thereto.
(c) All material elections with respect to Taxes affecting
the Company as of the date hereof are set forth on Schedule 3.9 of the
Disclosure Schedule.
(d) The Company is not liable for Taxes of any other
Person, is not currently under any contractual obligation to indemnify any
Person with respect to Taxes, and is not a party to any tax sharing agreement or
any other agreement providing for payments by the Company with respect to Taxes.
(e) The Company is not a party to any joint venture,
partnership or other arrangement or contract which could be treated as a
partnership for United States federal income tax purposes.
(f) The Company will not be required, as a result of a
change in method of accounting for any period prior to the Closing Date, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of foreign law) in taxable income for any period after the Closing
Date.
(g) SCHEDULE 3.9 of the Disclosure Schedule contains a
list of all jurisdictions in which a tax or information return has been filed by
the Company, and no claim has ever been made by any tax authority in any other
jurisdiction that the Company is subject to taxation or required to file a tax
or information return in such jurisdiction.
3.10. REAL PROPERTY. 10. REAL PROPERTY.
(a) SCHEDULE 3.10 of the Disclosure Schedule sets forth a
complete list of all real property and interests in real property owned by the
Company ("Owned Properties"). The Company has good, marketable and insurable
title in fee simple to all Owned Properties, in each case free and clear of all
Liens of any nature whatsoever except as set forth on Schedule 3.10 of the
Disclosure Schedule.
10
<PAGE>
(b) SCHEDULE 3.10 of the Disclosure Schedule sets forth a
complete list of all real property and interests in real property leased by the
Company (individually, a "Real Property Lease") and identifies, for each Real
Property Lease, the parties thereto, the address of the property subject
thereto, the rent payable thereunder, the terms of any renewal options, the
substance of any amendments or modifications thereto and any reciprocal easement
or operating agreements relating thereto. The Company has good, marketable and
insurable title to the leasehold estates in all Real Property Leases, in each
case free and clear of all Liens of any nature whatsoever except as set forth on
Schedule 3.10 of the Disclosure Schedule.
(c) None of the Real Property Leases is subject to any
lease, sublease, license or other agreement granting to any other Person any
right to the use, occupancy or enjoyment of the Real Property Leases or any part
thereof.
(d) Each of the Real Property Leases is valid and
enforceable in accordance with its terms, and there is no default under any Real
Property Lease either by the Company or any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder. Each of the Real Property Leases, upon the
consummation of the transactions contemplated hereby and by the other
Transaction Documents, will continue to entitle the Company, as the case may be,
to the use, occupancy and possession of the real property specified in such Real
Property Lease. The Company has delivered or otherwise made available to the
Purchaser true, correct and complete copies of the Real Property Leases,
together with all amendments, modifications, supplements or side letters
affecting the obligations of any party thereunder.
(e) No previous or current party to any Real Property
Lease has given notice of or made a claim with respect to any breach or default
thereunder.
11
<PAGE>
3.11. TANGIBLE PERSONAL PROPERTY 3.11. TANGIBLE PERSONAL PROPERTY.
(a) Schedule 3.11(a) of the Disclosure Schedule sets forth
all leases of personal property ("Personal Property Leases") involving annual
payments in excess of $1,000 relating to personal property used in the business
of the Company or to which the Company is a party or by which the Company or any
of its respective properties or assets is bound. The Company has delivered or
otherwise made available to the Purchaser true, correct and complete copies of
the Personal Property Leases, together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(b) Each of the Personal Property Leases is in full force
and effect and is valid, binding and enforceable in accordance with its terms,
and there is no default under any Personal Property Lease either by the Company
or by any other party thereto, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default thereunder.
(c) The Company has good and marketable title to all of
the material items of tangible personal property that is owned and used by it,
free and clear of any and all Liens ("personal property" shall include all
personal property having a value in excess of $1,000). All items of tangible
personal property which, individually or in the aggregate, are material to the
operation of the business of the Company are in good condition and in a state of
good maintenance and repair (ordinary wear and tear excepted) and are suitable
for the purposes used for the operation of the business of the Company.
(d) Set forth in Schedule 3.11(d), are all personal
property that the Company owns or otherwise has any interest, including but not
limited to, a description and location of the personal property, all liens
and/or encumbrances regarding, arising from, covering and/or concerning the
personal property, the estimated market values of the personal property, taxes
and other assessments regarding, arising from, covering and/or concerning the
personal property and a summary of overhead costs associated with the personal
property.
(e) Appended to Schedule 3.11(d) are all liens and/or
encumbrances regarding, arising from, covering and/or concerning the personal
property, and all other documents regarding and/or concerning the estimated
market values of the personal property, taxes and other assessments regarding,
arising from, covering and/or concerning the personal property and overhead
costs associated with the personal property.
12
<PAGE>
(f) Set forth in SCHEDULE 3.11(f) is a detailed summary of
all bank accounts owned or that are in force for the benefit of the Company,
including but not limited to, the name and address of the bank where the account
is maintained, the name or names on the account, the amount of money in the
account as of April 15, 1999, the account number, the type of account, the
authorized signatures, and any overdraft or loan agreements relating to the
account.
3.12. Intellectual Property.12. Intellectual Property.
(a) SCHEDULE 3.12(a) of the Disclosure Schedule contains
an accurate and complete list of all domestic and foreign (i) patents, pending
patent applications and patent applications in process but not yet filed, owned
by, assignable to, or licensed to the Company or any of its subsidiaries (the
"Patents"); registered trademarks and service marks and pending applications
therefor and trade names owned by or licensed to the Company or any of its
subsidiaries (the "Marks"); and copyright registrations and pending applications
therefor owned by or licensed to the Company and used by the Company in the
conduct of its business (the "Copyrights"); (ii) written licenses and other
agreements relating to the Patents, Marks and Copyrights, and any other written
licenses and other agreements relating to trade secrets and know-how which are
material to the conduct of the Company's business and (iii) manufacturing,
process, and other technology transfer and license agreements which are material
to the conduct of such business. The Company owns, or has a valid, binding and
enforceable license or otherwise possesses legally enforceable rights to use all
Patents, Marks, Copyrights, and any applications therefor, technology,
inventions, designs, know-how, computer software programs or applications, web
sites and tangible or intangible proprietary information or material that are
used in the businesses of the Company as currently conducted.
(b) Except as disclosed in SCHEDULE 3.12(b) of the
Disclosure Schedule, the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of the obligations
of the Sellers hereunder, in violation of any licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party Patents, Marks and Copyrights ("Third-Party
Intellectual Property Rights"). No claims with respect to the Patents,
registered and material unregistered Marks, registered Copyrights, and any
applications therefor owned by the Company or any of its subsidiaries (the
"Company Intellectual Property Rights"), any trade secret material to the
Company, or Third Party Intellectual Property Rights to the extent
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arising out of any use, reproduction or distribution of such Third Party
Intellectual Property Rights by or through the Company, are currently pending
or, to the knowledge of each of the Sellers, are threatened by any person. None
of the Sellers knows of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company or any of
its subsidiaries, infringes on any copyright, patent, trademark, service mark or
trade secret; (ii) against the use by the Company, of any trademarks, trade
names, trade secrets, copyrights, patents, technology, inventions, designs,
know-how or computer software programs and applications and web sites used in
the business of the Company as currently conducted or as proposed to be
conducted; (iii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property Rights or other trade secret material to the
Company; or (iv) challenging the license or legally enforceable right to use of
the Third Party Intellectual Rights by the Company.
(c) To the best knowledge of each of the Sellers, all
material Patents, Marks and Copyrights held by the Company and its subsidiaries
are valid and subsisting. Except as set forth in Schedule 3.12(c) of the Company
Disclosure Schedule, to the best knowledge of each of the Sellers, there is no
material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property by any third party, including any employee or
consultant or former employee or consultant of the Company.
3.13. Material Contracts3.13. Material Contracts.
(a) Except as set forth on Schedule 3.13 of the Disclosure
Schedule, neither the Company nor any of its properties or assets is a party to
or bound by any (i) Contract not made in the ordinary course of business; (ii)
employment, consulting, non-competition, severance, golden parachute or
indemnification Contract (including, without limitation, in each case any
Contract to which the Company is a party involving employees of the Company);
(iii) advertising, public relations, franchise, distributorship or sales agency
Contract; (iv) Contract involving the commitment, payment or receipt of in
excess of $1,000 in the aggregate; (v) Contract granting a right of first
refusal for the acquisition, sale or lease of any assets or capital stock of the
Company; (vi) Contract with any Person involving a sharing of profits; (vii)
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real or tangible
personal property of the Company; (viii) loan agreement,
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credit agreement, promissory note, guarantee, subordination agreement, letter of
credit or any other similar type of Contract evidencing Indebtedness; (ix)
Contract with any Governmental Body; (x) Contract with respect to the
inspection, removal or remediation of Hazardous Materials; (xi) retainer
Contract with attorneys, accountants, actuaries, appraisers, investment bankers
or other professional advisers; or (xiii) commitment or agreement to enter into
any of the foregoing. The Company has delivered or otherwise made available to
the Purchaser true, correct and complete copies of the Contracts listed on
Schedule 3.13 of the Disclosure Schedule, together with all amendments,
modifications, supplements or side letters affecting the obligations of any
party thereunder.
(b) (i) Each of the Contracts listed on Schedule 3.13 of
the Disclosure Schedule is valid and enforceable in accordance with its terms,
and there is no default under any Contract listed on Schedule 3.13 of the
Disclosure Schedule by the Company or by any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder.
(ii) No previous or current party to any Contract listed
on Schedule 3.13 has given notice of or made a claim with respect to any breach
or default thereunder.
3.14. EMPLOYEES3. 14. EMPLOYEES; INDEPENDENT CONTRACTORS.
(a) The Company has continuing relationships with its
employees and with its distributors, independent contractors (including, but not
limited to, independent manufacturers) and independent representatives
(collectively, the "Independent Contractors").
(b) No condition or state of facts or circumstances exists
which could materially adversely affect the Company's relations with its
employees or Independent Contractors, including, without limitation, the
consummation of the transactions contemplated by this Agreement or by the other
Transaction Documents.
(c) The Company is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours and is not engaged in any unfair labor practice.
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(d) No collective bargaining agreement with respect to the
business of the Company is currently in effect or being negotiated. The Company
has not encountered any labor union or collective bargaining organizing activity
with respect to its employees. The Company has no obligation to negotiate any
such collective bargaining agreement, and, to the best knowledge of each of the
Sellers, there is no indication that the employees of the Company desire to be
covered by a collective bargaining agreement.
(e) There are no strikes, slowdowns or work stoppages
pending or, to the best knowledge of each of the Sellers, threatened with
respect to the employees of the Company or any Independent Contractor of the
Company, nor has any such strike, slowdown or work stoppage occurred or, to the
best knowledge of each of the Sellers, been threatened.
(f) Neither the Company nor any of the Sellers has
received notice of the intent of any government, body or agency responsible for
the enforcement of labor or employment laws to conduct an investigation of the
Company, and, to the best knowledge of each of the Sellers, no such
investigation is in progress.
(g) A true and correct copy of a schedule listing, as of
March 31, 1999, the annual base salary or annualized wages of each employee of
the Company whose annual base compensation is more than $10,000 has been
provided to the Purchaser by Sellers.
(h) No employee of the Company is, and the Company is not
in violation of any term of any employment agreement, non-disclosure agreement,
non-compete agreement or any other agreement regarding an employee's employment
with the Company.
(i) A true and correct copy of a schedule listing as of
March 31, 1999, each Independent Contractor of the Company (i) to whom the
Company made payments in the three month period ending March 31, 1999 in excess
of $2,500 or (ii) that generated in excess of $10,000 of the Company's revenues
has been provided to Purchaser by Sellers.
3.15. EMPLOYEE BENEFITS. 15. EMPLOYEE BENEFITS.
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Except as disclosed on Schedule 3.15 of the Disclosure
Schedule, the Company has no collective bargaining, labor, stock option, profit
sharing, pension, retirement, stock bonus, thrift-savings, incentive, benefit or
other similar Contract, plan, policy or arrangement in connection with the
conduct of its operations, and the Company is not in default under any such
Contract, plan, policy or arrangement.
3.16. LITIGATION 3.16. LITIGATION.
(a) There are no Legal Proceedings pending or threatened
that question the validity of this Agreement or any of the other Transaction
Documents or any action taken or to be taken in connection with the consummation
of the transactions contemplated hereby or thereby. Schedule 3.16 of the
Disclosure Schedule sets forth a true, correct and complete list of all Legal
Proceedings pending or threatened against or affecting the Company or any of the
Sellers, or any properties or assets of the Company or any of the Sellers, at
law or in equity.
(b) There is no outstanding or threatened Order of any
Governmental Body against, affecting or naming the Company or affecting any of
the business, properties or assets of the Company.
3.17. COMPLIANCE WITH LAWS; PERMITS. 17. COMPLIANCE WITH LAWS; PERMITS.
(a) The Company is and at all times has been in compliance
in all material respects with all Laws and Orders promulgated by any
Governmental Body applicable to the Company or to the conduct of the business or
operations of the Company or the use of the properties (including any leased
properties) and assets of the Company. The Company has not received, and to the
best knowledge of each of the Sellers there has been no issuance of, any notice
of a violation or alleged violation by the Company of any such Law or Order.
There is no investigation or review by any Governmental Body with respect to the
Company pending, or to the best knowledge of each of the Sellers, threatened,
nor has any Governmental Body notified the Company or any of the Sellers of its
intention to conduct the same.
(b) To the best knowledge of each of the Sellers, no
legislative or regulatory proposal of any Governmental Body has been adopted or
is pending which could result in a Material Adverse Change.
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(c) The Company is not subject to any Legal Proceeding,
investigation, Order or settlement alleging or addressing a violation of, or
liability under, any Law.
(d) Schedule 3.17 of the Disclosure Schedule lists all
Permits of the Company of all Governmental Bodies, indicating, in each case, the
expiration date thereof, which Permits constitute all Permits required by the
nature of the operations of the Company to permit its operations in the manner
in which they are currently conducted. Such Permits have been validly issued to
the Company by the appropriate Governmental Bodies in compliance with all
applicable Laws, and the Company has complied in all material respects with all
conditions of such Permits applicable to it. No default or violation, or event
that with the lapse of time or giving of notice or both would become a default
or violation, has occurred in the due observance of any such Permit. All such
Permits are in full force and effect without further consent or approval of any
Person.
3.18. ENVIRONMENTAL MATTERS. 18. ENVIRONMENTAL MATTERS.
The operations of the Company have been conducted and are in
compliance with all Environmental Laws. Neither the Company nor any of the
Sellers has received any notice from any source, or has otherwise obtained
knowledge, to the effect that there is lacking any Environmental Permit required
in connection with the Company's operations and Real Property Leases. The
Company and all of its past and current Facilities and operations are not
subject to any outstanding Order or Contract, including Environmental Liens,
with any Governmental Body or Person, or subject to any federal, state or local
investigation respecting (A) Environmental Laws, (B) any Remedial Action or (C)
any Environmental Claim. The Company is not subject to any Legal Proceeding
alleging the violation of any Environmental Law or Environmental Permit. The
Company has not received (nor, to the best knowledge of each of the Sellers, has
there been issued) any communication, whether from a Governmental Body,
citizens' group, employee or any other Person, that alleges that the Company is
not in compliance with any Environmental Law or Environmental Permit. The
Company has not caused or permitted any Hazardous Materials to remain or be
disposed of, either on or under real property legally or beneficially owned or
operated by the Company or on any real property not permitted to accept, store
or dispose of such Hazardous Materials. The Company has no liabilities
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with respect to Hazardous Materials, and no facts or circumstances exist which,
in the aggregate, could give rise to liabilities with respect to Hazardous
Materials. None of the operations of the Company involves the generation,
transportation, treatment, storage or disposal of Hazardous Materials and there
is not now on or in any property leased by Company (1) any underground storage
tanks or surface tanks, dikes or impoundments; (2) any asbestos containing
materials or (3) any polychlorinated biphenyls.
3.19. Insurance.19. Insurance.
Schedule 3.19 of the Disclosure Schedule sets forth a list of
all policies of insurance of any kind or nature covering the Company or any of
its employees, properties, assets, or operations, including, without limitation,
policies of life, disability, fire, theft, workers compensation, employee
fidelity, product liability and other casualty and liability insurance. All such
policies are in full force and effect. Such insurance is adequate to cover risks
of such types and in such amounts as is customary for Persons engaged in similar
lines of business. All policies of such insurance (identified on Schedule 3.19
of the Disclosure Schedule) are binding and effective upon the issuers thereof
(each of whom is reputable and creditworthy) in accordance with their respective
terms.
3.20. INVENTORY; RECEIVABLES; PAYABLES. 20. INVENTORY;
RECEIVABLES; PAYABLES.
(a) The inventory of the Company (including that reflected
on the Financial Statements) is in good and merchantable condition, and suitable
and usable or saleable in the ordinary course of business, consistent with past
practice, and has been reflected on the Financial Statements and carried on the
books of account of the Company in accordance with generally accepted accounting
principles, consistently applied. Without limiting the generality of the
foregoing, such inventory does not include any obsolete, below standard quality
or defective materials or any excess stock items, except as have been reserved
against as reflected on the Financial Statements. The Company's assets include a
sufficient but not an excessive quantity of each type of inventory in order to
meet the normal requirements of the Company's business.
(b) All accounts receivable of the Company have arisen
from bona fide transactions in the ordinary course of business consistent with
past practice and are legally binding. All accounts receivable of the Company
reflected on the Latest Financials, or arising after the date thereof, are good
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and collectible at the aggregate recorded amounts thereof, net of any applicable
reserve for returns or doubtful accounts reflected thereon, which reserves are
adequate and were calculated in a manner consistent with past practice and in
accordance with generally accepted accounting principles consistently applied.
Since December 31, 1998, to the best knowledge of each of the Sellers, there has
been no event that could materially increase the ratio of uncollectible accounts
receivable ("Uncollectible Receivables") to the accounts receivable or cause the
Company's reserve, if any, for Uncollectible Receivables to be inadequate. None
of such accounts receivable is, or will at the Closing Date be, subject to any
defense, counterclaim or setoff.
(c) All accounts payable of the Company reflected in the
Latest Financials or arising after the date thereof are the result of bona fide
transactions in the ordinary course of business consistent with past practice
and have been paid or are not yet due and payable.
3.21. MAJOR SUPPLIERS AND CUSTOMERS. 21. MAJOR SUPPLIERS
AND CUSTOMERS.
(a) Since December 31, 1998, there has not been any
Material Adverse Change in the business relationship of the Company with its any
of its suppliers, and none of the Sellers has any knowledge that there will be
any such change.
(b) Since December 31, 1998, there has not been any
Material Adverse Change in the business relationship of the Company with its
customers, and none of the Sellers has any knowledge that there will be any such
change. Except as disclosed on Schedule 3.21 of the Disclosure Schedule, the
Company has no customer which purchased products that accounted for more than 5%
of the Company's sales during the fiscal year ended December 31, 1998 or during
the three month period ended March 31, 1999.
3.22. RELATED PARTY TRANSACTIONS. 22. RELATED PARTY
TRANSACTIONS.
Except as set forth on Schedule 3.22 of the Disclosure
Schedule, no officer, director or Affiliate (or any relative of any of them) of
the Company nor any of the Sellers (or any relative of any Seller) has entered
into any transaction with or is a party to any Contract with the Company. No
officer, director or Affiliate (or any relative of any of them) nor any of the
Sellers (or any relative of any Seller) of the Company owns any direct or
indirect interest of any kind in, or controls or is a director, officer,
employee or partner of, or consultant to, or lender to or borrower from or has
the right to participate in the profits of, any Person which is a competitor,
supplier, customer, landlord, tenant, creditor or debtor of the Company.
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3.23. ENTIRE BUSINESS. 23. ENTIRE BUSINESS.
The assets, properties and rights which will be owned or
leased by the Company as of the Closing will constitute all of the tangible and
intangible property used by and necessary to the Company in connection with the
conduct of its business, except as described in the Schedules to this Agreement.
3.24. No Misrepresentation. 24. No Misrepresentation.
No representation or warranty of any of the Sellers contained
in this Agreement (including the Disclosure Schedules hereto) or in any other
Transaction Document furnished to the Purchaser pursuant to the terms hereof
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading. None of the Sellers knows of any facts which have caused or in the
future are reasonably likely to cause a Material Adverse Change which has not
been disclosed herein or in a Disclosure Schedule hereto. The representations
and warranties contained in this Section 3.24 or elsewhere in this Agreement or
in any other Transaction Document shall not be affected or deemed waived by
reason of the fact that the Purchaser and/or its Representatives know or should
have known that any such representation or warranty is or might be inaccurate in
any respect.
3.25. PRODUCT LIABILITY AND RECALLS. 25. PRODUCT LIABILITY
AND RECALLS.
(a) Except as disclosed on Schedule 3.25 of the Disclosure
Schedule, none of the Sellers is aware of any claim, or the basis of any claim,
against the Company for injury to person or property of employees or any third
parties suffered as a result of the manufacture, sale or distribution of any
product or the performance of any service by the Company, including claims
arising out of the allegedly defective or unsafe nature of the products sold or
distributed by the Company.
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(b) Except as disclosed on Schedule 3.25 of the Disclosure
Schedule, there is no pending or, to the best knowledge of each of the Sellers,
threatened recall or investigation of any product sold or distributed by the
Company.
(c) There are no liabilities or threatened claims for (a)
product returns, (b) warranty obligations or (c) product services other than
those arising in the ordinary course of business consistent with past practice.
3.26. 3.26. BROKERS, FINDERS.
No Person has acted directly or indirectly as a broker or
finder for the Company or any of the Sellers in connection with the negotiations
relating to the transactions contemplated by this Agreement or by the other
Transaction Documents, and no Person is entitled to any fee or commission or
like payment in respect thereof based in any way on agreements, arrangements or
understandings made by or on behalf of the Company or any of the Sellers.
40 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Sellers
that:
4.1. Organization and Good Standing.1. Organization and Good
Standing.
The Purchaser is duly organized, validly existing and in good
standing under the laws of the State of Delaware.
4.2. AUTHORIZATION OF AGREEMENT.2. AUTHORIZATION OF
AGREEMENT.
The Purchaser has all requisite corporate power and authority
to execute and deliver this Agreement and each of the other Transaction
Documents to be executed by the Purchaser in connection with the consummation of
the transactions contemplated hereby and thereby, and to perform fully its
obligations hereunder and thereunder. The execution, delivery and performance by
the Purchaser of this Agreement and each of the other Transaction Documents to
be executed by the Purchaser has been duly authorized by all necessary action on
behalf of the
22
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Purchaser. This Agreement has been, and each of the other Transaction Documents
will be (when executed and delivered by the Purchaser), duly and validly
executed and delivered by the Purchaser and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each of the other Transaction Documents will constitute (when
executed and delivered by the Purchaser), legal, valid and binding obligations
of the Purchaser, enforceable against the Purchaser in accordance with their
respective terms, subject, as to enforceability, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
4.3. NO CONFLICTS; CONSENTS OF THIRD PARTIES. 3. NO
CONFLICTS; CONSENTS OF THIRD PARTIES.
The execution and delivery by the Purchaser of this Agreement
and the other Transaction Documents to be executed by the Purchaser, the
consummation of the transactions contemplated hereby or thereby, and the
compliance by the Purchaser with any of the provisions hereof or thereof does
not and will not (a) conflict with, or result in the breach of, the certificate
of incorporation or by-laws of the Purchaser, (b) conflict with, violate, result
in the breach of, or constitute a default under any Contract or Order to which
the Purchaser is a party or by which the Purchaser or its properties or assets
are bound or (c) constitute a violation by the Purchaser of any Law applicable
to the Purchaser. No consent, waiver, approval, Order, Permit or authorization
of, or declaration or filing with, or notification to, any Person or
Governmental Body is required on the part of the Purchaser in connection with
the execution and delivery of this Agreement or the other Transaction Documents
to be executed by the Purchaser or the compliance by the Purchaser with any of
the provisions hereof or thereof which has not been made or obtained.
4.4. LITIGATION. 4. LITIGATION.
Except as disclosed in Purchaser Disclosure Documents, there
are no Legal Proceedings against the Purchaser pending or, to the best knowledge
of the Purchaser, threatened that question the validity of this Agreement or any
of the other Transaction Documents or any action taken or to be taken by the
Purchaser in connection with the consummation of the transactions contemplated
hereby or thereby.
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4.5 FINANCIAL STATEMENTS FINANCIAL STATEMENTS.
The financial statements of Purchaser which have been included
in the Purchaser Disclosure Documents referred to in Section 4.6 and provided to
the Seller were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may have been indicated in the notes thereto) and fairly present, in all
material respects, the consolidated financial position of Purchaser as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods then ended.
4.6. SEC DOCUMENTS. 6. SEC DOCUMENTS.
Purchaser has furnished to the Seller a complete copy of
(i)Purchaser's Annual Report to Stockholders on Form 10-K for the fiscal year
ended March 31, 1998 (the "Annual Report"), and (ii)Purchaser's Quarterly Report
to Stockholders on Form 10-Q for the quarter, ended December 31, 1998, filed
with the Securities and Exchange Commission (collectively, the "Purchaser
Disclosure Documents"). The Purchaser Disclosure Documents, at the respective
time each such document was issued, (a) complied as to form in all material
respects with the rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended; and (b) did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.7. TITLE TO PURCHASER SHARES. 7. TITLE TO PURCHASER
SHARES.
The Purchaser Shares have been duly authorized for issuance
and when issued and delivered in accordance with and pursuant to the terms of
this Agreement will be validly issued, fully paid and non-assessable.
50 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE SELLERS ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS.
5.1. TITLE AND INVESTMENT REPRESENTATIONS 5.1. TITLE AND
INVESTMENT REPRESENTATIONS.
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Each Seller represents and warrants to, and covenants and
agrees with, the Purchaser that, such Seller (a) has good and marketable title
to the Shares of such Seller, free and clear of all Liens of any kind or nature
whatsoever and that at the Closing, the Purchaser will obtain good and
marketable title to such Shares, free and clear as aforesaid, (b) is an
"accredited investor" within the meaning of Rule 501 under the Securities Act of
1933, as amended, (c) by reason of such Seller's business and financial
experience, and the business and financial experience of those persons retained
by such Seller to advise him with respect to his investment in the Purchaser
Shares, such Seller, together with such advisors, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and the risks of an investment in the Purchaser
Shares and is able to bear the economic risk of holding the Purchaser Shares for
an indefinite period and (d) is acquiring the Purchaser Shares for his own
account and for investment and with no intention of distributing or reselling
the Purchaser Shares or any part thereof in any transaction that would be in
violation of the securities laws of the United States or any state. Each of the
Sellers shall receive, proportionally, "piggy-back" rights similar to
Registration rights that Charles Cascio,his successors, or any assigns,
including but not limited to relatives, beneficiaries, heirs or others whom he
has transferred any interest receives in the event that the Purchaser files a
Registration Statement, excluding any Registration Statement, which proceeds
will be used, directly or indirectly, to provide funding for the Company, filed
within the six (6) month period from the Closing Date.
5.2. INFORMATION REPRESENTATIONS. 2. INFORMATION
REPRESENTATIONS.
Each Seller represents and warrants that (i) such Seller, and
his Representatives as deemed necessary by such Seller (including such Seller's
professional, tax and other advisors), have carefully reviewed the materials
(the "Materials") furnished by the Purchaser to such Seller in connection with
the transactions contemplated by this Agreement, including without limitation,
the Purchaser Disclosure Documents and (ii) such Seller, and such Seller's
Representatives, have been granted the opportunity to ask questions of, and
receive answers from, Representatives of Purchaser concerning Purchaser and the
Purchaser Shares and to obtain any additional information that such Seller
deemed necessary to verify the accuracy of the information contained in the
Materials.
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5.3. .3. ADVICE OF CHANGES.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, each Seller will promptly advise the Purchaser in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of the Sellers contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate, (b) of any Material Adverse Change, and (c) of any breach
by any Seller of any covenant or agreement contained in any Transaction
Document.
5.4. MAINTENANCE OF BUSINESS.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers shall cause the Company to:
(a) cause to be done all things in the regular course of
business necessary to maintain, preserve and renew its (i) corporate existence
and all material licenses, authorizations and permits necessary to the conduct
of its businesses and (ii) relationships with customers, suppliers, employees
and others in substantially the same manner as it has prior to the date hereof;
(b) comply in all material respects with all applicable
Laws; and
(c) maintain proper books of record and account which
present fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with generally accepted
accounting principles, consistently applied. 5.4. MAINTENANCE OF BUSINESS. FROM
THE DATE HEREOF UNTIL THE EARLIER OF THE CLOSING OR THE TERMINATION OF THIS
AGREEMENT, THE SELLERS SHALL CAUSE THE COMPANY TO(A) CAUSE TO BE DONE ALL THINGS
IN THE REGULAR COURSE OF BUSINESS NECESSARY TO MAINTAIN, PRESERVE AND RENEW ITS
(I) CORPORATE EXISTENCE AND ALL MATERIAL LICENSES, AUTHORIZATIONS AND PERMITS
NECESSARY TO THE CONDUCT OF ITS BUSINESSES AND (II) RELATIONSHIPS WITH
CUSTOMERS, SUPPLIERS, EMPLOYEES AND OTHERS IN SUBSTANTIALLY THE SAME MANNER AS
IT HAS PRIOR TO THE DATE HEREOF;(B) COMPLY IN ALL MATERIAL RESPECTS WITH ALL
APPLICABLE LAWS; AND(C) MAINTAIN PROPER BOOKS OF RECORD AND ACCOUNT WHICH
PRESENT FAIRLY IN ALL MATERIAL RESPECTS ITS FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND MAKE PROVISIONS ON ITS FINANCIAL STATEMENTS FOR ALL SUCH PROPER
RESERVES AS IN EACH CASE ARE REQUIRED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED.
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5.5 CONDUCT OF BUSINESS. 5 CONDUCT OF BUSINESS.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers will cause the Company to continue to
conduct the business of the Company and maintain the Company's business
relationships in the ordinary and usual course of business and will not permit
the Company, without the prior written consent of the Purchaser, which shall not
be unreasonably withheld and which shall be presumed to be granted unless denied
within five (5) business days of written notice to Purchaser from the Company,
to;
(a) (i) declare, set aside or authorize the payment of,
any dividend or other distribution in respect of any shares of capital stock of
the Company or repurchase, redeem or acquire any of the outstanding shares of
any class of capital stock or (ii) pay or otherwise distribute any other amounts
or assets to any Seller, whether as compensation or otherwise;
(b) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization or agreement affecting the
number or rights of outstanding shares of any class of its capital stock;
(c) (i) award or pay any bonuses to employees of the
Company, (ii) enter into or modify or amend any employment, deferred
compensation, severance or similar agreement, (iii) increase or agree to
increase the compensation payable or to become payable by it to any of the
Company's directors, officers, employees, agents or Representatives or (iv)
increase or agree to increase the coverage or benefits available under any
severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with such directors, officers, employees,
agents or Representatives;
(d) change accounting principles, methods or policies;
(e) enter into any Contract requiring payments in excess
of $1,000, or conduct its business other than in the ordinary course of business
consistent with past practice;
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(f) (i) incur or repay any Indebtedness, (ii) make any
loans, advances or capital contributions to any other Person or (iii) assume,
guarantee, endorse or otherwise become liable for the obligations of any other
Person.
(g) fail to maintain and keep its properties in good
repair, working order and condition, normal wear and tear excepted;
(h) fail to comply with all other obligations which it
incurred pursuant to any Contract or promptly pay or discharge any current
liabilities, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its books
with respect thereto;
(i) mortgage, pledge or subject to any Lien any of its
assets, or acquire any assets or sell, assign, transfer, convey, lease or
otherwise dispose of any assets of the Company (other than the sale of inventory
in the ordinary course of business consistent with past practice);
(j) discharge or satisfy any Lien, or pay any obligation
or liability (fixed or contingent), except in the ordinary course of business
consistent with past practice and which, in the aggregate, would not be material
to the Company;
(k) cancel or compromise any debt or claim or amend,
cancel, terminate, relinquish, waive or release (i) any Contract to which any
Seller or any of his Affiliates is a party or (ii) any other Contract or right
except (in the case of this clause (ii)) in the ordinary course of business
consistent with past practice and which, in the aggregate, would not be material
to the Company;
(l) transfer or grant any rights under any concessions,
leases, licenses, agreements or Intellectual Property used by the Company in its
business;
(m) make or commit to make any capital expenditures or
capital additions or betterments;
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(n) institute or settle any Legal Proceeding;
(o) amend its certificate of incorporation or by-laws;
(p) issue, sell or transfer any shares of its capital
stock of any class or any other of its securities, or issue or create any
options, warrants, calls, rights, commitments, subscriptions, convertible
securities or other agreements of any character requiring the Company to issue,
sell or transfer any shares of capital stock, or accelerate the vesting of any
outstanding security;
(q) merge, consolidate or reorganize with, or acquire, any
entity;
(r) agree to any audit assessment by any Tax authority or
fail to pay and discharge when payable all Taxes, assessments and governmental
charges imposed upon its properties or upon the income or profits therefrom (in
each case before the same becomes delinquent and before penalties accrue
thereon) and all claims for labor, materials or supplies which if unpaid would
by law become a Lien upon any of its property;
(s) change any insurance coverage, issue any certificates
of insurance or fail to continue in force with nationally recognized insurance
companies adequate insurance covering risks of such types and in such amounts as
are customary for Persons engaged in similar lines of business;
(t) enter into any transaction with, or become party to
any Contract with, any officer, director, or Affiliate (or any relative of any
of them) of the Company; or
(u) agree to do, or enter into negotiations with respect
to, any of the things described in the preceding clauses in this Section 5.5.
5.6. REGULATORY APPROVALS. 6. REGULATORY APPROVALS.
Each Seller will, and will cause the Company to, promptly
execute and file, or join in the execution and filing, of any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any Governmental Body which may be reasonably required,
or which the Purchaser may reasonably request in connection with the
consummation of the transactions contemplated by this Agreement. The Sellers
will use their, and will cause the Company to use its, best efforts to promptly
obtain all such authorizations, approvals and consents.
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5.7. NECESSARY CONSENTS. 7. NECESSARY CONSENTS.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers will use their, and will cause the
Company to use its, best efforts to obtain such written consents and take such
other actions as may be necessary or appropriate to facilitate the consummation
of the transactions contemplated hereby and by the other Transaction Documents
and to allow the Purchaser to carry on the Company's business after the Closing
Date.
5.8. ACCESS TO INFORMATION. 8. ACCESS TO INFORMATION.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers will, and shall cause the Company to,
(i) allow the Purchaser and its Representatives reasonable access to the files,
books, records, personnel and offices of the Company, including, without
limitation, any and all information relating to the Company's Taxes,
commitments, Contracts, and real, personal and intangible property and financial
condition, (ii) furnish promptly to the Purchaser all information concerning the
Company's business, properties and personnel as the Purchaser may reasonably
request, and (iii) make available to the Purchaser the appropriate individuals
(including attorneys, accountants and other professionals) for discussion of the
Company's business, properties and personnel as the Purchaser may reasonably
request. The Sellers will cause the Company's accountants to cooperate with the
Purchaser and its Representatives in making available to the Purchaser all
financial information reasonably requested, including, without limitation, the
right to examine all working papers pertaining to all Tax returns and financial
statements prepared, reviewed or audited by such accountants.
5.9. SATISFACTION OF CONDITIONS PRECEDENT. 9. SATISFACTION OF
CONDITIONS PRECEDENT.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers will use their, and will cause the
Company to use its, best efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Section 7.
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5.10. NO OTHER NEGOTIATIONS. 10. NO OTHER NEGOTIATIONS.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Sellers shall not, and shall cause the
Company to not, directly or indirectly, (a) solicit, initiate discussions or
engage in negotiations with any Person (whether such negotiations are initiated
by the Seller or otherwise) or take any other action intended or designed to
facilitate the efforts of any Person, other than the Purchaser, relating to the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its capital stock or
assets (any such efforts by any such Person, including any proposal to make such
an acquisition, are referred to as an "Acquisition Proposal"), (b) provide
non-public information with respect to the Company to any Person, other than the
Purchaser or (c) enter into any agreement, understanding, commitment or other
arrangement with any Person, other than the Purchaser, relating to an
Acquisition Proposal. If the Company or any Seller receives any unsolicited
offer or proposal to enter negotiations or discussions relating to an
Acquisition Proposal, the Sellers shall promptly notify the Purchaser, which
notice shall include information as to the identity of the Person making any
such offer or proposal and the specific terms of such offer or proposal, as the
case may be.
60 COVENANTS OF THE PURCHASER COVENANTS OF THE
PURCHASER.
6.1. ADVICE OF CHANGES. 1. ADVICE OF CHANGES.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Purchaser will promptly advise the Seller in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of the Purchaser contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect, and (b) of any breach by the
Purchaser of any covenant or agreement contained in this Agreement.
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6.2. REGULATORY APPROVALS. 2. REGULATORY APPROVALS.
The Purchaser will promptly execute and file, or join in the
execution and filing, of any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any Governmental
Body, or which the Seller may reasonably request in connection with the
consummation of the transactions contemplated by this Agreement. The Purchaser
will use its best efforts to promptly obtain all such authorizations, approvals
and consents.
6.3. NECESSARY CONSENTS. 3. NECESSARY CONSENTS.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Purchaser will use its best efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate to facilitate the consummation of the transactions contemplated
hereby and by the other Transaction Documents.
6.4. SATISFACTION OF CONDITIONS PRECEDENT.
4. SATISFACTION OF CONDITIONS PRECEDENT.
From the date hereof until the earlier of the Closing or the
termination of this Agreement, the Purchaser will use its best efforts to
satisfy or cause to be satisfied all the conditions precedent that are set forth
in Section 7.
6.5 DIRECTORS AND OFFICERS OF THE PURCHASER AND THE
COMPANY.
Immediately following the Closing, Jeff Cartwright and Fred
LaParo shall be elected/appointed by Purchaser as Directors of the Company.
Additional Directors of the Company may be elected/appointed at the direction
and sole discretion of the Purchaser. In addition, for a period to coincide with
Fred LaParo's Employment Agreement with the Company, the Purchaser shall
nominate Fred LaParo as a Director of Purchaser prior to June 1, 1999.
6.6. PERSONAL GUARANTEES BY THE SELLER.
In the event that the Sellers do not exercise their rights to
take back the Company's Shares under the Pledge Agreement, all personal
guarantees of the Sellers relating to the Companys' corporate matters shall be
paid or collateralized by the Purchaser and all individual guarantors shall be
removed within five days of September 15, 1999.
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6.7. MAINTENANCE OF BUSINESS.
Until payment of the Deferred Purchase Price has been made,
the Purchaser shall cause the Company to operate in the ordinary course,
consistent with past practice, except that (i) the Company shall cooperate in
any manner necessary to complete the financing contemplated in Section 6.8(b);
and (ii) the Purchaser and the Company will cooperate in connection with joint
products and services contemplated by the Purchaser's business plan. Without
limiting the foregoing, the Purchaser shall not, prior to the payment of the
Deferred Purchase Price, invade the assets of the Company.
6.8 FINANCING MATTERS.
(a) The Purchaser shall provide, through the date of payment
in full of the Deferred Purchase Price, a line of credit of up to $250,000,
which shall bear interest at the lesser of (i) a rate of 1 1/2% per annum over
the Purchaser's cost of funds; or (ii) a rate of 8 3/4% per annum.
(b) On or prior to September 15, 1999, the Purchaser shall
provide or secure funding in a minimum amount of $4,000,000 (prior to costs and
expenses of obtaining such funding). This funding may be obtained, at the
Purchaser's discretion, in the form of a private or public sale of securities of
the Purchaser or the Company, or through any alternative means.
(c) In the event that Purchaser fails to pay the Deferred
Purchase Price in accordance with Section 2.1(b) or secure funding in accordance
with Section 6.8(b) by September 15, 1999; i) any amount outstanding and/or
remaining under the $250,000 line of credit, including accrued interest thereon,
shall be considered liquidated damages; ii) the Company and Purchaser shall
split profits, if any, attributable to joint projects by the Company and
Purchaser during the 2nd and 3rd quarters of 1999, but no later than December
31, 1999; and iii) the Company shall reserve sufficient capacity to complete any
Purchaser projects in progress at that time. For all work performed under this
Section, the Company shall be compensated at its normal and customary retail
rates.
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(d) In the event that Purchaser pays the Deferred Purchase Price in
accordance with Section 2.1(b) and secures funding in accordance with Section
6.8(b) by September 15, 1999, the Company shall repay to the Purchaser, from the
financing, all monies provided to Company by Purchaser and all cost and expenses
incurred by the Purchaser arising from this Agreement and the transactions
contemplated by this Agreement, including accrued interest.
6.9 PUT OF PURCHASER SHARES.
Each of the Sellers shall have the one-time right to require
the Purchaser to repurchase all or any part of the Purchaser Shares issued to
them under this Agreement, at a price of $7.00 per share, if, on the one year
anniversary of the Closing Date, (i) the Purchaser Shares are not listed for
trading on a national securities exchange or included on an automated quotation
system maintained by the National Association of Securities Dealers; (ii) during
the ninety days preceding such date the average weekly reported trading volume
of the Purchaser Shares is less than 100,000 shares; and (iii) the average of
the closing price or the high bid price of the Purchaser Shares during the
twenty trading days preceding such date is less than $10.00 per share. Any
Seller desiring to exercise the option shall notify the Company not later than
ninety days after the anniversary date of the Closing Date, which notification
shall be irrevocable.
7. CONDITIONS 7. CONDITIONS.
7.1. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATIONS
..1. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATIONS.
The respective obligations of each party hereunder are subject
to the fulfillment or satisfaction of each of the following conditions prior to
or at Closing(any one or more of which may be waived in writing by all of the
parties to this Agreement):
(A COMPLIANCE WITH LAW.(AA COMPLIANCE WITH LAW. There shall
be no Law enacted, entered, enforced or deemed applicable to the transactions
contemplated hereby or by the other Transaction Documents which would prohibit
or render illegal the transactions contemplated hereby or thereby.
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(b No Legal Proceedings or Orders.(ba No Legal Proceedings or
Orders. There shall not have been instituted, pending or threatened any Legal
Proceeding by or before any Governmental Body, nor shall there be in effect any
Order issued by any Governmental Body, or threat of any Order, that prevents or
seeks to prevent, or questions the validity of this Agreement or the other
Transaction Documents or any action taken or to be taken in connection with the
consummation of the transactions contemplated hereby or thereby.
(c Other Agreements. Each of the Sellers and the Purchaser
shall have executed and delivered such Seller's Employment Agreement.
7.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS.2.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS.
The obligations of each of the Sellers hereunder are subject
to the fulfillment or satisfaction of each of the following conditions prior to
or at Closing (any one or more of which may be waived in writing by the Seller):
(a Accuracy of Representations and Warranties. The
representations and warranties of the Purchaser set forth in Section 4 shall be
true and accurate in all material respects with the same force and effect as if
they had been made at the Closing, and the Seller shall receive a certificate to
such effect signed by an officer of the Purchaser.
(b COVENANTS. The Purchaser shall have performed and complied
in all material respects with all of its covenants required to be performed by
it under this Agreement and the Seller shall receive a certificate to such
effect signed by an officer of the Purchaser.
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7.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.3.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.
The obligations of the Purchaser hereunder are subject to the
fulfillment or satisfaction of each of the following conditions prior to or at
Closing (any one or more of which may be waived in writing by the Purchaser):
(A ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of each of the Sellers set forth in Section 3
shall be true and accurate in all material respects with the same force and
effect as if they had been made at the Closing, and the Purchaser shall receive
a certificate to such effect signed by each of the Sellers.
(b COVENANTS. Each of the Sellers shall have performed and
complied in all material respects with all of the covenants required to be
performed by such Seller under this Agreement and the Purchaser shall receive a
certificate to such effect signed by each of the Sellers.
(c ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not have
been any Material Adverse Change, and the Purchaser shall receive a certificate
to such effect signed by each of the Sellers.
(d OPINION OF SELLER'S COUNSEL. The Purchaser shall have
received from Ferriter, Scobbo, Caruso & Rodophele, Attorneys at Law, counsel to
the Sellers and the Company. Such opinion shall be in form and substance
reasonably satisfactory to the Purchaser's legal counsel.
(e DOCUMENTS. The Purchaser shall have received all written
consents, assignments, waivers, authorizations or other certificates reasonably
deemed necessary by the Purchaser's legal counsel to provide for the
continuation in full force and effect of any and all material Contracts of the
Company and for each of the Sellers to consummate the transactions contemplated
hereby and by the other Transaction Documents.
(f GOVERNMENT CONSENTS. There shall have been obtained such
material Permits and there shall have been taken such other action, as may be
required to consummate the transactions contemplated hereby and by the other
Transaction Documents by any Government Body having jurisdiction over the
parties and the actions herein proposed to be taken, including but not limited
to requirements under applicable federal and state securities laws.
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(g OTHER AGREEMENTS. Each Seller shall have executed and
delivered (i) a Non-competition Agreement and a General Release Such documents
shall be in form and substance reasonably satisfactory to the Purchaser's legal
counsel
(h SATISFACTORY COMPLETION OF DUE DILIGENCE. The Purchaser
shall have (i) received all due diligence materials requested by the Purchaser
from the Company and the Sellers and shall be satisfied in its sole discretion
with the results of its review and analysis of such materials, and (ii)
conducted interviews with such members of the Company's management or such other
personnel as the Purchaser shall have requested and shall be satisfied in its
sole discretion with the results of such interviews. (i) Notwithstanding
anything herein to the contrary, final approval of this Agreement by the Board
of Directors of the Purchaser.
8. TERMINATION OF AGREEMENT. TERMINATION OF AGREEMENT.
8.1. TERMINATION 8.1. TERMINATION.
This Agreement shall become effective upon execution. This
Agreement may be terminated prior to the Closing as follows:
(a by mutual written consent duly executed by each of the
Sellers and the Purchaser; or
(b by either the Purchaser or the Sellers, if any of the
conditions set forth herein shall not have been satisfied or waived on the
Closing Date; provided, however, that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose breach of
this Agreement or failure to fulfill any obligation under this Agreement has
been the cause of or resulted in the failure of any condition for Closing; or
(c by either the Purchaser or the Sellers, if a Governmental
Body shall have issued a nonappealable final Order or taken any other action
having the effect of permanently
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restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby or in the other Transaction Documents; provided
however, that the right to terminate this Agreement under this Section 8.1(c)
shall not be available to any party which has not complied with its respective
obligations under Sections 5.7 or 6.2 and such noncompliance materially
contributed to the issuance of any such Order or the taking of such action;
provided further that the party seeking to terminate this Agreement pursuant to
this Section 8.1(c) shall have used all reasonable efforts to remove such Order
or action; or
(d by either the Purchaser or the Sellers, if any
representation or warranty of the Purchaser or any of the Sellers, respectively,
set forth in this Agreement shall be untrue in any material respect such that
the conditions set forth in Sections 7.3(a) or 7.2(a)), as the case may be,
would not be satisfied provided, however, that if such representation or
warranty is curable prior to the Closing Date by the Purchaser or the Sellers,
as the case may be, through the exercise of reasonable best efforts and for so
long as the Purchaser or the Sellers, as the case may be, continues to exercise
such reasonable best efforts, neither the Purchaser nor the Sellers,
respectively, may terminate this Agreement under this Section 8.1(d); or
(e by either the Purchaser or the Sellers, upon a breach of
any covenant or agreement on the part of the Purchaser or the Seller,
respectively, set forth in this Agreement such that the conditions set forth in
Sections 7.3(b) or 7.2(b), as the case may be, would not be satisfied; provided,
however, that if such covenant or agreement is curable prior to the Closing Date
by the Purchaser or the Sellers, as the case may be, through the exercise of
reasonable best efforts and for so long as the Purchaser or the Sellers, as the
case may be, continue to exercise such reasonable best efforts, neither the
Purchaser nor the Sellers, respectively, may terminate this Agreement under this
Section 8.1(e).
8.2. NOTICE OF TERMINATION. 2. NOTICE OF TERMINATION.
Any termination of this Agreement under Section 8.1 above will
be effective by the delivery of written notice (in accordance with the
provisions of Section 11.10 hereof) of the terminating party to the other
parties hereto.
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8.3. EFFECT OF TERMINATION. 3. EFFECT OF TERMINATION.
In the case of any termination of this Agreement as provided
in this Section 8, this Agreement shall be of no further force and effect
(except for Sections 11.3, 11.6, 11.8 and 11.13); provided, however, that a
termination of this Agreement shall not relieve any party from liability for any
breach of this Agreement or defeat or impair the right of any party to pursue
such relief as may otherwise be available to it as a result of any breach of
this Agreement or any of the representations, warranties, covenants or
agreements contained herein.
9. LEGEND ON CERTIFICATES. LEGEND ON CERTIFICATES.
Each stock certificate issued to represent the Purchaser
Shares shall bear the following (or a substantially equivalent) conspicuous
legend on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAW, OR (II)
ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE
STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF
SECURITIES, INCLUDING RULE 144 UNDER THE ACT; PROVIDED THAT,
AN OPINION OF COUNSEL IS FURNISHED, REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE TO THE TRANSLATION GROUP LTD., THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR
APPLICABLE STATE SECURITIES LAW IS AVAILABLE.
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legend shall also bear such legend, unless the
restrictions contained in Section 5.1 of this Agreement are no longer effective
and in the opinion of counsel for Purchaser the Purchaser Shares represented
thereby need no longer be subject to the restrictions contained in this
Agreement. Purchaser shall not transfer on its books any certificate for the
Purchaser Shares in violation of the provisions of this Agreement. Purchaser
shall give appropriate stop transfer instructions to its stock transfer agent
with respect to the Purchaser Shares.
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10. FURTHER AGREEMENTS OF THE PARTIES. FURTHER AGREEMENTS
OF THE PARTIES.
10.1. INDEMNITY. 1. INDEMNITY.
(a Each Seller, jointly and severally, and, until the
Closing, the Company, agrees to indemnify, defend and hold harmless the
Purchaser (and each officer, director, shareholder, affiliate, agent and
permitted assign thereof) from and against any and all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties, and
attorneys' fees, disbursements and related charges) (collectively, "Losses")
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representations, warranties, covenants or agreements of the
Company or any of the Sellers contained in this Agreement or the other
Transaction Documents.
(b The Purchaser agrees to indemnify, defend and hold
harmless the Company and each of the Sellers from and against any and all Losses
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representations, warranties, covenants or agreements of the
Purchaser contained in this Agreement or the other Transaction Documents.
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11. Miscellaneous. Miscellaneous.
11.1. Survival of Representations and
Warranties 11.1. Survival of Representations and Warranties.
The representations and warranties of the Sellers contained in
this Agreement shall survive the Closing Date for the benefit of the Purchaser
as follows: (i) as to the representations and warranties contained in Sections
3.5 and 5.1, forever; (ii) as to the representations and warranties contained in
Section 3.18, five years following the Closing Date; (iii) as to the
representation and warranties contained in Section 3.9, until 60 days following
the expiration of all periods allowed for objecting and appealing the
determination of any proceedings relating to any assessment or reassessment by
any tax authority with respect to the matters to which such representations and
warranties pertain; and (iv) as to all other representations and warranties,
until two years following the Closing Date. The representations and warranties
of the Purchaser shall survive the Closing Date for the benefit of the Sellers
until two years following the Closing Date.
11.2. CERTAIN DEFINITIONS.2. CERTAIN DEFINITIONS.
"AFFILIATE" shall have the meaning specified by Rule 12b-2
under the Securities Exchange Act of 1934.
"CLOSING" shall have the meaning set forth in Section 1
hereof.
"CLOSING DATE" shall have the meaning set forth in Section 1
hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means shares of the Company's Common Stock,
par value [$_____] per share.
"CONFIDENTIAL INFORMATION" shall mean confidential records
and information, including, but not limited to, development, marketing,
purchasing, organizational, strategic, financial, managerial, administrative,
manufacturing, production, distribution and sales information, distribution
methods, data, specifications and processes presently owned or at any time
hereafter developed by a Person or its agents or consultants or used presently
or at any time hereafter in the course of the business of such Person, that are
not otherwise part of the public domain.
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"CONTRACT" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, conditional sale contract, mortgage, license,
franchise, insurance policy. commitment or other arrangement or agreement,
whether written or oral.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule annexed
hereto as Schedule I.
"ENVIRONMENTAL CLAIM" means any accusation, allegation,
notice of violation, action, claim, Lien, demand, abatement or other Order or
direction (conditional or otherwise) by any Governmental Body or any Person for
personal injury (including sickness, disease or death), tangible or intangible
property damage, damage to the environment, nuisance, pollution, contamination
or other adverse effects on the environment, or for fines, penalties or
restrictions resulting from or based upon (i) the existence, or the continuation
of the existence, of a Release (including, without limitation, sudden or
non-sudden accidental or non-accidental Releases) of, or exposure to, any
Hazardous Material or other substance, clinical, material, pollutant,
contaminant, odor, audible noise, or other Release in, into or onto the
environment (including, without limitation, the air soil, soil, surface water or
Groundwater) at, in, by, from or related to the Facilities or any activities
conducted thereon, (ii) the environmental aspects of the transportation,
storage, treatment or disposal of Hazardous Materials in connection with the
operation of the Facilities; or (iii) the violation, or alleged violation, of
any Environmental Laws, Orders or Permits of or from any Governmental Body
relating to environmental matters connected with the Facilities.
"ENVIRONMENTAL LAW" means any Law concerning the
environment, or activities that might threaten or result in damage to the
environment or human health, or any Law that is concerned in whole or in part
with the environment and with protecting or improving the quality of the
environment and human and employee health and safety and includes, but is not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. ss. 9601 et seq.) the Hazardous Materials
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq), the Clean Water Act (33 U.S.C. ss.
1251 et seq), the Clean Air Act
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(33 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.
2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
ss. 136 et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651
et seq.) ("OSHA"), as such laws have been amended or supplemented, and the
regulations promulgated pursuant thereto, and any and all analogous state or
local statutes, and the regulations promulgated pursuant thereto, and any and
all treaties, conventions and environmental public and employee health and
safety statutes and regulations or analogous requirements of non-United States
jurisdictions in which the Company conducts any business.
"ENVIRONMENTAL MATTERS" means any matter arising out of or
relating to human and employee health and safety or the environment which could
give rise to liability or require the expenditure of money to address, and shall
include, without limitation, investigating and remediating costs, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"ENVIRONMENTAL PERMIT" means any Permit, approval,
authorization, license variance, registration, or permission required under any
applicable Environmental Laws and all supporting documents associated therewith.
"FACILITIES" means real property, leased or operated by the
Company.
"GOVERNMENTAL BODY" means any governmental or regulatory
body (including the Food and Drug Administration (the "FDA"), the Federal Trade
Commission (the "FTC"), the Consumer Product Safety Commission (the "CPSC") the
United States Department of Agriculture (the "USDA") and the Federal Trade
Commission, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"HAZARDOUS MATERIALS" means any substance, material or waste
which is regulated by any local, state or federal Governmental Body in the
Jurisdiction in which the Company conducts business, or the United States,
including, without limitation, any material or substance which is defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or restricted hazardous waste," "subject waste," "contaminant,"
"toxic waste" or "toxic substance" under any provision of Environmental Law,
including but not limited to, petroleum products, asbestos and polychlorinated
biphenyls.
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<PAGE>
"INDEBTEDNESS" means at a particular time, without
duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, including any bank overdraft
or other similar extension of credit, (ii) any indebtedness evidenced by any
note, bond, debenture or other debt security, (iii) any indebtedness for the
deferred purchase price of property or services with respect to which a Person
is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of
business which are not more than 30 days past due), (iv) any commitment by which
a Person assures a creditor against loss (including, without limitation,
contingent reimbursement obligations with respect to letters of credit), (v) any
indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person assures a creditor against loss, (vii) any
indebtedness secured by a Lien on a Person's assets and (viii) any unsatisfied
obligation for "withdrawal liability" to a multiemployer plan" as such terms are
defined under ERISA.
"LAW" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement or guideline (including FDA Over the Counter ("OTC") Monographs and
cosmetic ingredient safety and color additive rules and regulations, cosmetic
labeling requirements under the Fair Packaging and Labeling Act (the "FPLA"),
federal and state food, drug and false advertising Laws, and rules and
regulations of the FTC, the CPSC and the USDA).
"LEGAL PROCEEDING" means any judicial, administrative or
arbitral actions, suits, proceedings (public or private), claims or governmental
proceedings.
"LIEN" means any lien, pledge, hypothecation, levy,
mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement, or
other real estate declaration, covenant, condition, restriction or servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction or limitation whatsoever.
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<PAGE>
"MATERIAL ADVERSE CHANGE" means any material adverse change
in the business, properties, results of operations, prospects or condition
(financial or otherwise) of the Company.
"ORDER" means any order, consent, consent order, injunction,
judgment, decree, consent decree, ruling, writ, assessment or arbitration award.
"PERMITS" means any approvals, authorizations,
registrations, consents, licenses, permits or certificates by any Governmental
Body.
"PERSON" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"REPRESENTATIVES" of a Person means its officers, employees,
agents, legal advisors and accountants.
"SHARES" means the Common Stock to be purchased hereunder.
11.3. EXPENSES. 3. EXPENSES.
Each party shall bear its own expenses in connection with the
negotiation and execution of this Agreement and the transactions contemplated
hereby and by the other Transaction Documents. None of Seller's costs or
expenses shall be charged to the Company without the prior written consent of
Purchaser.
11.4. SPECIFIC PERFORMANCE. 4. SPECIFIC PERFORMANCE.
Each Seller acknowledges and agrees that the breach or
threatened breach of this Agreement would cause irreparable damage to the
Purchaser and that the Purchaser will not have an adequate remedy at law.
Accordingly, each Seller expressly acknowledges that the Purchaser shall be
entitled to specific performance, injunctive relief or any other equitable
remedy against each of the Sellers, without the posting of a bond, in
45
<PAGE>
the event of any breach or threatened breach of any provision of this Agreement
by any of the Sellers. The rights and remedies of the parties hereto are
cumulative and shall not be exclusive, and each such party shall be entitled to
pursue all legal and equitable rights and remedies and to secure performance of
the obligations and duties of the other under this Agreement, and the
enforcement of one or more of such rights and remedies by a party shall in no
way preclude such party from pursuing, at the same time or subsequently, any and
all other rights and remedies available to it.
11.5. FURTHER ASSURANCES. 5. FURTHER ASSURANCES.
Each Seller and the Purchaser each agree to execute and
deliver such other reasonable documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby or by the other Transaction Documents.
11.6. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; AND
CONSENT TO SERVICE OF PROCESS.6. SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; AND CONSENT TO SERVICE OF PROCESS.
(a The parties hereto hereby irrevocably submit to the
exclusive jurisdiction of any federal or state court located within the State of
New Jersey over any dispute arising out of or relating to this Agreement or any
of the transactions contemplated hereby or by the other Transaction Documents
and each party hereby irrevocably agrees that all claims in respect of such
dispute or any suit, action or proceeding related thereto may be heard and
determined in such courts. The parties hereby irrevocably waive, to the fullest
extent permitted by applicable law, any objection which they may now or
hereafter have to the laying of venue of any such dispute brought in such court
or any defense of inconvenient forum for the maintenance of such dispute. Each
of the parties hereto agrees that a judgment in any such dispute may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law.
(b THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF
THIS AGREEMENT.
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<PAGE>
(c Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action or proceeding, by the
mailing of a copy thereof in accordance with the provisions of Section 11.10.
11.7. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.7. ENTIRE
AGREEMENT; AMENDMENTS AND WAIVERS.
This Agreement (including the schedules and exhibits hereto)
represents the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof and can be amended, supplemented or
changed, and any provision hereof can be waived, only by written instrument
making specific reference to this Agreement signed by the parties hereto. No
action taken pursuant to this Agreement, including without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a further or continuing waiver of such breach or as a waiver of any other or
subsequent breach. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
11.8. GOVERNING LAW11. 8. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without giving
effect to the principles of conflict of laws thereunder.
11.9. Table of Contents and Headings11.9.Table of Contents and
Headings.
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<PAGE>
The table of contents and section headings of this Agreement
are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement.
11.10. NOTICES. 10. NOTICES.
All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally, upon
delivery to a nationally recognized overnight courier service, or when mailed by
certified mail, return receipt requested, to the parties at the following
addresses (or to such other address as a party may have specified by notice
given to the other party pursuant to this provision):
If to Seller, to:
[Provide Sellers' address]
With a copy to:
__________________________
__________________________
__________________________
__________________________
Telephone:
Fax:
If to Purchaser to:
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, NJ 08033
Attn: John Toedtman
Telephone: 609-795-8669
Fax: 609-795-8737
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<PAGE>
With copies to:
Michael C. Cascio, Esquire
12 E. Stow Road, Suite 150
Marlton, NJ 08053
Telephone: 609-596-7228
Fax: 609-988-1205
And
Joseph P. Galda, Esquire
Buchanan Ingersoll, P.C.
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103-2985
Telephone: 215-665-3879
Fax: 215-665-8760
All notices are effective upon receipt or upon refusal if properly delivered.
11.11. SEVERABILITY. 11. SEVERABILITY.
If any term, provision, covenant or condition of this
Agreement or part thereof, or the application thereof to any Person, place or
circumstance shall be held to be invalid, unenforceable or void by a court of
competent jurisdiction, the remainder of this Agreement and such term,
provision, covenant or condition shall remain in full force and effect, and any
such invalid, unenforceable or void term, provision, covenant or condition shall
be deemed, without further action on the part of the parties hereto, modified,
amended and limited, and the court shall have the power to modify, amend, and
limit such term, provision, covenant or condition, to the extent necessary to
render the same and the remainder of this Agreement valid, enforceable and
lawful.
49
<PAGE>
11.12. BINDING EFFECT, ASSIGNMENT. 12. BINDING EFFECT,
ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and permitted assigns. Nothing in
this Agreement shall create or be deemed to create any third party beneficiary
rights or any other rights of any kind in any Person or entity not a party to
this Agreement except as provided below. No assignment of this Agreement or of
any rights or obligations hereunder may be made by any Seller (by operation of
law or otherwise) without the prior written consent of the Purchaser and any
attempted assignment without such required consent shall be void. The Purchaser
may assign this Agreement and any or all rights and obligations hereunder, in
whole or in part, to any Affiliate of the Purchaser, any purchaser of all or
substantially all of the Purchaser's business or assets, any successor to the
Purchaser or any assignee thereof (each, a "Successor"), whether direct or
indirect, by purchase, merger, consolidation, operation of law or otherwise. The
Purchaser will require any such Successor to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Purchaser would be required to perform it if no such purchase, succession or
assignment had taken place. Upon any such permitted assignment, the references
in this Agreement to the Purchaser shall also apply to any Successor unless the
context otherwise requires.
11.13. Confidential Information. 13. Confidential Information.
All Confidential Information with respect to any party hereto
is considered secret and will be disclosed in confidence. Each party hereto
acknowledges that, it may have access to and become acquainted with Confidential
Information of another party. Each party hereto agrees that it will not prior to
the Closing Date (or in the event of the termination of this Agreement in
accordance with its terms) and at all times thereafter, directly or indirectly
for any reason whatsoever, disclose or use any such Confidential Information.
All records, files, drawings, documents, equipment and other tangible items,
wherever located, relating in any way to or containing Confidential Information,
which any party has prepared or shall in the future prepare, shall be and remain
the sole and exclusive property of such party and shall be included in the
Confidential Information. Upon termination of this Agreement in accordance with
its terms, the parties shall promptly deliver any and all of the Confidential
Information and copies thereof of any other party, not previously delivered to
such party, that may be in its possession or under its control. The foregoing
restrictions shall not apply to the use, divulgence, disclosure or grant of
access to Confidential Information to the extent, but only to the extent, (i)
expressly permitted or required pursuant to any other written agreement
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<PAGE>
between the parties, (ii) such Confidential Information has been publicly
disclosed (not due to a breach by any party of its obligations hereunder, or by
breach of any other Person, of a fiduciary or confidential obligation to a
party) or (iii) a party is required to disclose Confidential Information by or
to any court of competent jurisdiction or any other Governmental Body; provided,
however, that the party required to disclose such Confidential Information
shall, prior to any such disclosure, immediately notify the party which owns the
Confidential Information of such requirement and provided further, that such
party shall have the right, at its expense, to object to such disclosures and to
seek confidential treatment of any Confidential Information to be so disclosed
on such terms as it shall determine.
11.14. PUBLIC ANNOUNCEMENT. 14. PUBLIC ANNOUNCEMENT.
The parties shall cooperate with respect to any public
announcement relating to the transactions contemplated hereby or by the other
Transaction Documents; and neither party will issue any public statement
announcing such transaction without the prior consent of the others, except as
such party in good faith (based upon advice of counsel) believes is required by
law and following notice to the other party.
11.15. COUNTERPARTS. 15. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first written above.
THE TRANSLATION GROUP, LTD.
By:_________________________________
JOHN TOEDTMAN, C.O.O.
PLANET ACCESS NETWORKS INC.
By:_________________________________
FRED LAPARO AS PRESIDENT OF PLANET
ACCESS NETWORKS INC., AND
INDIVIDUALLY AS A SELLER
By:_________________________________
JEFF CARTWRIGHT AS VICE PRESIDENT
OF PLANET ACCESS NETWORKS INC.,
AND INDIVIDUALLY AS A SELLER
By:_________________________________
BINH NGUYEN AS TECHINAL DIRECTOR
OF PLANET ACCESS NETWORKS INC., AND
INDIVIDUALLY AS A SELLER
By:_________________________________
PETER GRABOWSKY AS INFORMATION ARCHITECT
OF PLANET ACCESS NETWORKS INC., AND
INDIVIDUALLY AS A SELLER
52
EMPLOYMENT AGREEMENT ("Agreement"), dated as of ____________, 1999 between
Planet Access Networks Inc., its successors and assigns, a New Jersey
corporation with an office at 7 Waterloo Road, Suite 202, Stanhope New Jersey
07874, (the "Company"), and Jeff Cartwright ("Employee").
WHEREAS, the Company is desirous of employing Employee to further the
business purposes of the Company; and
WHEREAS, Employee is desirous of being employed by the Company on the terms
provided herein;
NOW, THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ Employee on a full time
basis as Vice President; and Employee hereby agrees to accept such employment
and perform the duties of such office. Employee shall report to and be under the
direction and control of the Board of Directors of the Company, and shall have
the usual and necessary authority, duties and responsibilities of a Vice
President of the Company. Employee shall devote his best efforts to the business
of the Company and to promoting its best interest. The Company shall furnish
Employee with an office, secretarial help and other facilities and services as
are suitable to his position and adequate for the performance of his duties in
accordance with the provisions of this Agreement. In addition, the Company may
provide Employee with such Employee perquisites as may be deemed by the Board of
Directors to be commensurate with Employee's position with the Company.
2. TERM OF EMPLOYMENT. Subject to the provisions for termination
hereinafter provided, the term of Employee's employment hereunder shall begin on
May __, 1999 and shall extend until the fourth anniversary of the date thereof.
<PAGE>
3. PLACE OF PERFORMANCE. In connection with his employment by the Company,
Employee shall be based at the Company's principal office.
4. COMPENSATION AND EXPENSES.
(a) The Company shall pay to the Employee a salary at a rate of $150,000
per year, payable in accordance with the normal payroll practices of the
Company. In addition, the base salary and bonuses shall be reviewed annually by
the Board of Directors of the Company who may make recommendations for
additional increases.
(b) During the term of this Agreement, the Company shall reimburse Employee
for all reasonable Company related travel, entertainment and other business
expenses reasonably necessary and appropriate for the performance of his duties
hereunder, provided that Employee submits receipts and other expense records to
the Company in accordance with the Company's general reimbursement policy then
in effect for Employees of the Company.
(c) In addition, during the term of this Agreement, the Company will
provide Employee with a vehicle comparable to the one he currently operates plus
pay Employees motor vehicle insurance as it is currently maintained. Employee
will be personally responsible for maintaining detailed business and personal
use vehicle logs of mileage and expenses, sufficient to satisfy the requirements
of the Internal Revenue Service.
(d) Employee will be entitled to a one time bonus of $46,000.00 if the
Company secures initial financing as contemplated by the Stock Purchase
Agreement between the Company and The Translation Group, Ltd., by way of a
public offering as a result of which the Company has a post-money valuation in
excess of $20,000,000.00 (calculated by multiplying the initial public offering
price by the number of shares of the Company outstanding after the offering).
Said Bonus shall be paid within two weeks after funds, if any, from such
offering become available.
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<PAGE>
(e) During the term of this Agreement (including extensions), the Employee
will retain a seat on the Board of Directors of the Company, its successors or
assigns.
(f) All compensation payable to Employee under this Agreement is stated in
a gross amount and will be subject to all applicable withholding taxes, or other
normal payroll deductions, and any other amounts required by law to be withheld.
5. EMPLOYEE BENEFIT PLANS.
(a) During the term of Employee's employment under this Agreement,
Employee shall be entitled to participate, to the extent he and/or members of
his family are eligible, in all employee benefit plans in effect for Employees
of the Company during the term of this Agreement. Also, the Company shall
purchase on the life of Employee (i) life insurance in an amount equal to 3
times his then current annual base salary naming Employee's designee as
beneficiary.
(b) During the term of Employee's employment, Employee shall be entitled
to four weeks paid vacation, as well as paid holidays given by the Company to
its employees. Vacation time may be carried over and accrued to the next year
unless the Company determines, in a case of unusual and mitigating
circumstances, not to permit carryover of vacation time.
(c) Employee will be eligible for incentive stock options to purchase
shares of The Translation Group, Ltd., common stock at market price at the time
the options are exercised ("Stock Options"). These Stock Options will vest in
equal installments over four years; will have a term of five (5) years; will be
subject to the provisions of The Translation Group, Ltd. 1995 Stock Option Plan;
and will be based upon specific levels of after tax income achieved by the
3
<PAGE>
Company, using $350,000.00 after tax as the base. The specific number of Stock
Options shall be determined by dividing 46% of the after tax income in excess of
$350,000.00 by market price of the shares of The Translation Group, Ltd. For
purposes of this Section, the market price of the shares of The Translation
Group, Ltd., shall mean the high bid price of The Translation Group, Ltd. common
stock at the close of the first trading day after the close of each fiscal year.
Notwithstanding anything to the contrary hereinabove, in no event shall the
Employee be eligible to exercise more than 92,000 Stock Options in any one
fiscal year.
6. TERMINATION.
(a) Death. Employee's employment hereunder shall terminate upon his death.
(b) DISABILITY. If, as a result of Employee's incapacity due to physical or
mental illness then Employee shall be deemed to be permanently disabled and the
Company shall give Employee Notice of Termination (as hereinafter defined) which
shall take effect thirty (30) days after the date it is sent to Employee.
(c) CAUSE. The Company may terminate Employee's employment hereunder for
Cause. For the purpose of this Agreement, the Company shall have "Cause" to
terminate Employee's employment hereunder upon (i) Employee's conviction or, or
plea of "no contest" to, any felony; (ii) acts of fraud, misappropriation of
funds or property of the Company for Employee's own use or embezzlement of any
property of the company; or (iii) any cardinal breach by Employee of any
specific provision of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company pursuant to
subsections (b) or (c) shall be communicated by written Notice of Termination to
the Employee. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied upon and shall set forth a summary of
4
<PAGE>
the circumstances claimed to provide a basis for termination of Employee's
employment under the provision indicated.
(e) DATE OF TERMINATION. The effective date of termination shall be:
(i) If Employee's employment is terminated for Disability, one
hundred-twenty (120) days after Notice of Termination is given (provided that
Employee shall not have returned to the performance of his duties on a full-term
basis during such one hundred-twenty (120) day period);
(ii) If Employee's employment is terminated pursuant to paragraph (c)
above, the date specified in the Notice of Termination, though not earlier than
the date of such Notice; and
(iii) If Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION.
(a) If Employee's employment shall be terminated by reason of his death,
the Company shall pay to his estate, the salary which would otherwise be payable
to Employee up to the first anniversary of the date on which his death occurs
and any bonus payments or stock options already earned or substantially earned.
(b) If Employee's employment shall be terminated by reason of his
disability, the Company shall pay to Employee his salary for one hundred-twenty
(120) days after the date which Notice of Termination is sent to Employee and
any bonus payments or stock options already earned or substantially earned.
(c) If Employee is terminated for Cause, he shall receive only his salary
to the Date of Termination.
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<PAGE>
(d) If Employee is terminated without Cause by the Company, Employee
will be entitled to receive payments equal to the aggregate amount of all
payments due Employee during the term of this Agreement, without regard to any
extensions, but in no event less then one year's compensation at the then
current rates. Such payment shall be paid in full prior to the expiration of the
term of Agreement in equal monthly installments to commence within thirty (30)
days of such termination.
8. LIFE INSURANCE FOR BENEFIT OF COMPANY. Employee agrees that the Company
in its discretion may apply for and procure in its own name and for its own
benefit life insurance upon the life of Employee in any amount or amounts
considered advisable; and that Employee shall have no right, title or interest
therein; and Employee further agrees to submit to any medical or other
examination (and submit to tests and supply any specimens as requested in
connection therewith) and to execute and deliver any application or other
instrument in writing reasonably necessary to effectuate such insurance.
9. CONFIDENTIALITY. Employee hereby acknowledges that certain information
and materials relating to the Company, its products and the various phases of
its operations including, without limitation, trade secrets, formulas, know-how,
specifications, drawings, consumer, distributorship and supplier lists, books,
manuals and other data (collectively, "Confidential Materials"), heretofore or
hereafter obtained by or entrusted to him in the course of his association with
the Company (whether prior to or after the date hereof), is or will be of a
confidential or proprietary nature, not generally known to the Company's
competitors, and that the Company would likely be economically or otherwise
disadvantaged or harmed by the direct or indirect disclosure of any of the
Confidential Materials. Employee shall, at all times, both during and after the
term of this Agreement, hold all of the Confidential Materials in strictest
6
<PAGE>
confidence and not use for his own benefit or of the benefit of any other person
or directly or indirectly disclose or suffer the disclosure of any of the
Confidential Materials to any person, firm, corporation, association or other
entity to whom any Confidential Materials have been disclosed or are threatened
to be disclosed by Employee, directly or indirectly, (other than in the ordinary
course of business of the Company), without the Company's prior written consent.
Upon the termination of Employee's employment, Employee shall return all
Confidential Materials to the Company.
10. NON-SOLICITATION. Subject to the provisions of Section 11, during this
Agreement and for a period of two (2) years following the conclusion of this
Agreement (the "Limited Period"), Employee shall not, directly or indirectly,
(i) hire, solicit, or encourage to leave the employ of the Company or any
affiliate entity, any person employed by the Company or any affiliated entity or
(ii) participate in the solicitation of any business of any type presently
conducted or which may from time to time be conducted by the Company or any
affiliated entity during the Limited Period from any person or entity which was,
or which from time to time may be, a customer of the Company or any affiliated
entity during the Limited Period.
11. NON-COMPETITION. During the Limited Period, Employee shall not be
engaged or interested, directly or indirectly, as an officer, director,
stockholders (excepting less than one (1%) percent interest in a publicly traded
company), employee, partner, individual proprietor, investor or consultant, or
in any other manner or capacity whatsoever, in any business that involves the
production, distribution or marketing of products or services, or otherwise
competitive with, any product or service currently, or which from time to time
may be, produced, distributed or marketed by the Company or any affiliated
entity during the Limited Period, in any place in which the Company or any
affiliated entity at the time of such termination conducts such
7
<PAGE>
a business, without the prior written approval of the Company; provided,
however, that if any provision of Section 10 or this Section 11 would be held to
be unenforceable because of the scope, duration or area of its applicability,
the court making such determination shall have the power to, and shall, modify
such scope, duration or area, or all of them, to the minimum extent necessary to
make such modified form. The above notwithstanding, Employee shall be entitled
to (i) remain on the Board of Directors of any corporations in which he
currently has such a position and (ii) advise or counsel other persons or
entities, provided, such activities are not competitive with the Company and
Employee's name is not publicly associated with such entities or activities.
12. ENFORCEMENT OF CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
AGREEMENTS. Employee hereby acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him of any provision of
Section 9, 10, or 11 of this Agreement and that the Company will suffer
irreparable damage and injury as a result of any such breach. Accordingly, in
the event of Employee's breach or threatened breach of any provision of Section
9, 10, or 11 of this Agreement, Employee hereby consents to the granting of a
temporary restraining order, preliminary injunction and/or permanent injunction
against him or any court of competent jurisdiction prohibiting him from
committing or continuing any such breach or threatened breach. Notwithstanding
anything herein to the contrary, Employee shall have no obligation or liability
under Sections 11 or 12 of this Agreement upon termination of this Agreement by
the Company without cause.
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<PAGE>
13. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered, if personally delivered, or three (3) days
after being mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to Employee, to:
_____________________
_____________________
_____________________
_____________________
Fax:
With a copy to:
_____________________
_____________________
_____________________
_____________________
Fax:
If to Company to:
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, NJ 08033
Attn: John Toedtman
Fax: 609-795-8737
With copies to:
Michael C. Cascio, Esquire
12 E. Stow Road, Suite 150
Marlton, NJ 08053
Fax: 609-988-1205
And
Joseph P. Galda, Esquire
Buchanan & Ingersoll
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103-2985
Fax: 215-665-8760
9
<PAGE>
or to such other address as a party may have furnished to the other in writing
in accordance herewith, except that notices or change of address shall be
effective only upon receipt.
14. EXPENSES OF LITIGATION; ARBITRATION. The Company and Employee each
hereby agree that in connection with any litigation or arbitration arising under
this Agreement that proceeds to judgment or an award, the losing party of any
claim arising thereunder shall pay to the prevailing party all of its costs and
expenses incurred in connection with the prosecution or defense of such claim
including, but not limited to, any and all reasonable attorney's fees.
15. ARBITRATION. Any and all controversies, claims or disputes arising out
of or relating to this Agreement, or the breach thereof (other than as covered
in Section 12), shall be solely and exclusively settled by arbitration in
accordance with the Commercial Arbitration Rules then in effect (the
"Arbitration Rules") of the American Arbitration Association ("AAA"). The
arbitration shall take place in Haddonfield, New Jersey, and the arbitrator
shall be appointed by the mutual consent of the parties. If the parties are
unable to agree upon the appointment of an arbitrator, then the arbitration
shall take place before a panel of three arbitrators selected in accordance with
the Arbitration Rules. Each party hereby irrevocably consents to the sole and
exclusive jurisdiction and venue of the state and Federal courts located in the
State of New Jersey in connection with any matter arising out of the foregoing
arbitration or this Agreement, including but not limited to confirmation of the
award rendered by the Arbitrator(s) and enforcement thereof by entry of judgment
thereon or by any other legal remedy. Service of process in connection with any
such arbitration or any proceeding to enforce an arbitration award may be made
in the manner set forth in Section 13 of this Agreement or in any other manner
permitted by applicable law.
10
<PAGE>
16. MISCELLANEOUS.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and superseded all prior agreements,
arrangements and understandings, written or oral, between them as to such
subject matter. There have been no promises, statements, representations or
other inducements to this Agreement other than as set forth herein.
(b) This Agreement may not be amended, nor may any provision be modified
or waived, except by an instrument duly executed by both parties.
(c) Either party's failure at any time to require performance of any of
the terms, provisions or conditions hereof shall not affect such party's right
thereafter to enforce this Agreement or be deemed a waiver of any succeeding
breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience or reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any provision hereof.
(e) This Agreement shall be governed by an construed in accordance with
the laws of the State of New Jersey applicable to contracts made and to be
wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
provided that Employee shall assume the positions
11
<PAGE>
as negotiated between the Company and any such other entity it consolidated or
merges with. This Agreement calls for the provision of personal services and,
accordingly, shall not be assignable by Employee. However, the restrictions of
Section 9 shall be binding upon Employee's heirs, executors, administrators and
legal representatives.
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected expect to the extent necessary to delete such
illegal, invalid or unenforceable provision, unless such declaration shall
substantially impair the benefit of the remaining portions of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Employee as of the date first written above.
Planet Access, Inc.
BY:______________________________
Name:
Title:
BY:____________________________________
Jeff Cartwright, Employee
EMPLOYMENT AGREEMENT ("Agreement"), dated as of ____________, 1999 between
Planet Access Networks Inc., its successors and assigns, a New Jersey
corporation with an office at 7 Waterloo Road, Suite 202, Stanhope New Jersey
07874, (the "Company"), and Fred Laparo ("Employee").
WHEREAS, the Company is desirous of employing Employee to further the
business purposes of the Company; and
WHEREAS, Employee is desirous of being employed by the Company on the terms
provided herein;
NOW, THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ Employee on a full time
basis as President; and Employee hereby agrees to accept such employment and
perform the duties of such office. Employee shall report to and be under the
direction and control of the Board of Directors of the Company, and shall have
the usual and necessary authority, duties and responsibilities of a President of
the Company. Employee shall devote his best efforts to the business of the
Company and to promoting its best interest. The Company shall furnish Employee
with an office, secretarial help and other facilities and services as are
suitable to his position and adequate for the performance of his duties in
accordance with the provisions of this Agreement. In addition, the Company may
provide Employee with such Employee perquisites as may be deemed by the Board of
Directors to be commensurate with Employee's position with the Company.
<PAGE>
2. TERM OF EMPLOYMENT. Subject to the provisions for termination
hereinafter provided, the term of Employee's employment hereunder shall begin on
May __, 1999 and shall extend until the fourth anniversary of the date thereof.
3. PLACE OF PERFORMANCE. In connection with his employment by the Company,
Employee shall be based at the Company's principal office.
4. COMPENSATION AND EXPENSES.
(a) The Company shall pay to the Employee a salary at a rate of $150,000
per year, payable in accordance with the normal payroll practices of the
Company. In addition, the base salary and bonuses shall be reviewed annually by
the Board of Directors of the Company who may make recommendations for
additional increases.
(b) During the term of this Agreement, the Company shall reimburse
Employee for all reasonable Company related travel, entertainment and other
business expenses reasonably necessary and appropriate for the performance of
his duties hereunder, provided that Employee submits receipts and other expense
records to the Company in accordance with the Company's general reimbursement
policy then in effect for Employees of the Company.
2
<PAGE>
(c) In addition, during the term of this Agreement, the Company will
provide Employee with a vehicle comparable to the one he currently operates plus
pay Employees motor vehicle insurance as it is currently maintained. Employee
will be personally responsible for maintaining detailed business and personal
use vehicle logs of mileage and expenses, sufficient to satisfy the requirements
of the Internal Revenue Service.
(d) Employee will be entitled to a one time bonus of $46,000.00 if the
Company secures initial financing as contemplated by the Stock Purchase
Agreement between the Company and The Translation Group, Ltd., by way of an
public offering as a result of which the Company has a post-money valuation in
excess of $20,000,000.00 (calculated by multiplying the initial public offering
price by the number of shares of the Company outstanding after the offering).
Said Bonus shall be paid within two weeks after funds, if any, from such
offering become available.
(e) During the term of this Agreement (including extensions), the
Employee will retain a seat on the Board of Directors of the Company, its
successors or assigns.
(f) All compensation payable to Employee under this Agreement is stated
in a gross amount and will be subject to all applicable withholding taxes, or
other normal payroll deductions, and any other amounts required by law to be
withheld.
5. EMPLOYEE BENEFIT PLANS.
(a) During the term of Employee's employment under this Agreement,
Employee shall be entitled to participate, to the extent he and/or members of
his family are eligible, in all
3
<PAGE>
employee benefit plans in effect for Employees of the Company during the term of
this Agreement. Also, the Company shall purchase on the life of Employee (i)
life insurance in an amount equal to 3 times his then current annual base salary
naming Employee's designee as beneficiary.
(b) During the term of Employee's employment, Employee shall be entitled
to four weeks paid vacation, as well as paid holidays given by the Company to
its employees. Vacation time may be carried over and accrued to the next year
unless the Company determines, in a case of unusual and mitigating
circumstances, not to permit carryover of vacation time.
(c) Employee will be eligible for incentive stock options to purchase
shares of The Translation Group, Ltd., common stock at market price at the time
the options are exercised("Stock Options"). These Stock Options will vest in
equal installments over four years; will have a term of five (5) years; will be
subject to the provisions of The Translation Group, Ltd. 1995 Stock Option Plan;
and will be based upon specific levels of after tax income achieved by the
Company, using $350,000.00 after tax as the base. The specific number of Stock
Options shall be determined by dividing 46% of the after tax income in excess of
$350,000.00 by market price of the shares of The Translation Group, Ltd. For
purposes of this Section, the market price of the shares of The Translation
Group, Ltd., shall mean the high bid price of The Translation Group, Ltd. common
4
<PAGE>
stock at the close of the first trading day after the close of each fiscal year.
Notwithstanding anything to the contrary hereinabove, in no event shall the
Employee be eligible to exercise more than 92,000 Stock Options in any one
fiscal year.
6. TERMINATION.
(a) DEATH. Employee's employment hereunder shall terminate upon his
death.
(b) DISABILITY. If, as a result of Employee's incapacity due to physical
or mental illness then Employee shall be deemed to be permanently disabled and
the Company shall give Employee Notice of Termination (as hereinafter defined)
which shall take effect thirty (30) days after the date it is sent to Employee.
(c) CAUSE. The Company may terminate Employee's employment hereunder for
Cause. For the purpose of this Agreement, the Company shall have "Cause" to
terminate Employee's employment hereunder upon (i) Employee's conviction or, or
plea of "no contest" to, any felony; (ii) acts of fraud, misappropriation of
funds or property of the Company for Employee's own use or embezzlement of any
property of the company; or (iii) any cardinal breach by Employee of any
specific provision of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company pursuant to
subsections (b) or (c) shall be communicated by written Notice of Termination to
the Employee. For purposes
5
<PAGE>
of this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth a summary of the circumstances claimed to provide a basis for
termination of Employee's employment under the provision indicated.
(e) DATE OF TERMINATION. The effective date of termination shall be:
(i) If Employee's employment is terminated for Disability, one
hundred-twenty (120) days after Notice of Termination is given (provided that
Employee shall not have returned to the performance of his duties on a full-term
basis during such one hundred-twenty (120) day period);
(ii) If Employee's employment is terminated pursuant to paragraph (c)
above, the date specified in the Notice of Termination, though not earlier than
the date of such Notice; and
(iii) If Employee's employment is terminated for any other reason,
the date on which a Notice of Termination is given.
7. COMPENSATION UPON TERMINATION.
(a) If Employee's employment shall be terminated by reason of his death,
the Company shall pay to his estate, the salary which would otherwise be payable
to Employee up to the first anniversary of the date on which his death occurs
and any bonus payments or stock options already earned or substantially earned.
6
<PAGE>
(b) If Employee's employment shall be terminated by reason of his
disability, the Company shall pay to Employee his salary for one hundred-twenty
(120) days after the date which Notice of Termination is sent to Employee and
any bonus payments or stock options already earned or substantially earned.
(c) If Employee is terminated for Cause, he shall receive only his
salary to the Date of Termination.
(d) If Employee is terminated without Cause by the Company, Employee
will be entitled to receive payments equal to the aggregate amount of all
payments due Employee during the term of this Agreement, without regard to any
extensions, but in no event less then one year's compensation at the then
current rates. Such payment shall be paid in full prior to the expiration of the
term of Agreement in equal monthly installments to commence within thirty (30)
days of such termination.
8. LIFE INSURANCE FOR BENEFIT OF COMPANY. Employee agrees that the Company
in its discretion may apply for and procure in its own name and for its own
benefit life insurance upon the life of Employee in any amount or amounts
considered advisable; and that Employee shall have no right, title or interest
therein; and Employee further agrees to submit to any medical or other
examination (and submit to tests and supply any specimens as requested in
connection therewith) and to execute and deliver any application or other
instrument in writing reasonably necessary to effectuate such insurance.
7
<PAGE>
9. CONFIDENTIALITY. Employee hereby acknowledges that certain information
and materials relating to the Company, its products and the various phases of
its operations including, without limitation, trade secrets, formulas, know-how,
specifications, drawings, consumer, distributorship and supplier lists, books,
manuals and other data (collectively, "Confidential Materials"), heretofore or
hereafter obtained by or entrusted to him in the course of his association with
the Company (whether prior to or after the date hereof), is or will be of a
confidential or proprietary nature, not generally known to the Company's
competitors, and that the Company would likely be economically or otherwise
disadvantaged or harmed by the direct or indirect disclosure of any of the
Confidential Materials. Employee shall, at all times, both during and after the
term of this Agreement, hold all of the Confidential Materials in strictest
confidence and not use for his own benefit or of the benefit of any other person
or directly or indirectly disclose or suffer the disclosure of any of the
Confidential Materials to any person, firm, corporation, association or other
entity to whom any Confidential Materials have been disclosed or are threatened
to be disclosed by Employee, directly or indirectly, (other than in the ordinary
course of business of the Company), without the Company's prior written consent.
Upon the termination of Employee's employment, Employee shall return all
Confidential Materials to the Company.
8
<PAGE>
10. NON-SOLICITATION. Subject to the provisions of Section 11, during this
Agreement and for a period of two (2) years following the conclusion of this
Agreement (the "Limited Period"), Employee shall not, directly or indirectly,
(i) hire, solicit, or encourage to leave the employ of the Company or any
affiliate entity, any person employed by the Company or any affiliated entity or
(ii) participate in the solicitation of any business of any type presently
conducted or which may from time to time be conducted by the Company or any
affiliated entity during the Limited Period from any person or entity which was,
or which from time to time may be, a customer of the Company or any affiliated
entity during the Limited Period.
11. NON-COMPETITION. During the Limited Period, Employee shall not be
engaged or interested, directly or indirectly, as an officer, director,
stockholders (excepting less than one (1%) percent interest in a publicly traded
company), employee, partner, individual proprietor, investor or consultant, or
in any other manner or capacity whatsoever, in any business that involves the
production, distribution or marketing of products or services, or otherwise
competitive with, any product or service currently, or which from time to time
may be, produced, distributed or marketed by the Company or any affiliated
entity during the Limited Period, in any place in which the Company or
9
<PAGE>
any affiliated entity at the time of such termination conducts such a business,
without the prior written approval of the Company; provided, however, that if
any provision of Section 10 or this Section 11 would be held to be unenforceable
because of the scope, duration or area of its applicability, the court making
such determination shall have the power to, and shall, modify such scope,
duration or area, or all of them, to the minimum extent necessary to make such
modified form. The above notwithstanding, Employee shall be entitled to (i)
remain on the Board of Directors of any corporations in which he currently has
such a position and (ii) advise or counsel other persons or entities, provided,
such activities are not competitive with the Company and Employee's name is not
publicly associated with such entities or activities.
12. ENFORCEMENT OF CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
AGREEMENTS. Employee hereby acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him of any provision of
Section 9, 10, or 11 of this Agreement and that the Company will suffer
irreparable damage and injury as a result of any such breach. Accordingly, in
the event of Employee's breach or threatened breach of any provision of Section
9, 10, or 11 of this Agreement, Employee hereby consents to the granting of a
temporary restraining order, preliminary injunction and/or permanent injunction
against him or any court of competent jurisdiction prohibiting him from
10
<PAGE>
committing or continuing any such breach or threatened breach. Notwithstanding
anything herein to the contrary, Employee shall have no obligation or liability
under Sections 11 or 12 of this Agreement upon termination of this Agreement by
the Company without cause.
13. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered, if personally delivered, or three (3) days
after being mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to Employee, to:
_____________________
_____________________
_____________________
_____________________
Fax:
With a copy to:
_____________________
_____________________
_____________________
_____________________
Fax:
If to Company to:
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, NJ 08033
Attn: John Toedtman
Fax: 609-795-8737
11
<PAGE>
With copies to:
Michael C. Cascio, Esquire
12 E. Stow Road, Suite 150
Marlton, NJ 08053
Fax: 609-988-1205
And
Joseph P. Galda, Esquire
Buchanan & Ingersoll
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103-2985
Fax: 215-665-8760
or to such other address as a party may have furnished to the other in writing
in accordance herewith, except that notices or change of address shall be
effective only upon receipt.
14. EXPENSES OF LITIGATION; ARBITRATION. The Company and Employee each
hereby agree that in connection with any litigation or arbitration arising under
this Agreement that proceeds to judgment or an award, the losing party of any
claim arising thereunder shall pay to the prevailing party all of its costs and
expenses incurred in connection with the prosecution or defense of such claim
including, but not limited to, any and all reasonable attorney's fees.
15. ARBITRATION. Any and all controversies, claims or disputes arising out
of or relating to this Agreement, or the breach thereof (other than as covered
in Section 12), shall be solely and exclusively settled by arbitration in
accordance with the Commercial Arbitration Rules then in effect (the
"Arbitration Rules") of the American Arbitration Association ("AAA").
12
<PAGE>
The arbitration shall take place in Haddonfield, New Jersey, and the arbitrator
shall be appointed by the mutual consent of the parties. If the parties are
unable to agree upon the appointment of an arbitrator, then the arbitration
shall take place before a panel of three arbitrators selected in accordance with
the Arbitration Rules. Each party hereby irrevocably consents to the sole and
exclusive jurisdiction and venue of the state and Federal courts located in the
State of New Jersey in connection with any matter arising out of the foregoing
arbitration or this Agreement, including but not limited to confirmation of the
award rendered by the Arbitrator(s) and enforcement thereof by entry of judgment
thereon or by any other legal remedy. Service of process in connection with any
such arbitration or any proceeding to enforce an arbitration award may be made
in the manner set forth in Section 13 of this Agreement or in any other manner
permitted by applicable law.
16. MISCELLANEOUS.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and superseded all prior agreements,
arrangements and understandings, written or oral, between them as to such
subject matter. There have been no promises, statements, representations or
other inducements to this Agreement other than as set forth herein.
13
<PAGE>
(b) This Agreement may not be amended, nor may any provision be
modified or waived, except by an instrument duly executed by both parties.
(c) Either party's failure at any time to require performance of any
of the terms, provisions or conditions hereof shall not affect such party's
right thereafter to enforce this Agreement or be deemed a waiver of any
succeeding breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience or reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any provision hereof.
(e) This Agreement shall be governed by an construed in accordance
with the laws of the State of New Jersey applicable to contracts made and to be
wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged,
provided that Employee shall assume the positions as negotiated between the
Company and any such other entity it consolidated or merges with. This Agreement
calls for the provision of personal services and, accordingly, shall not be
assignable by Employee. However, the restrictions of Section 9 shall be binding
upon Employee's heirs, executors, administrators and legal representatives.
14
<PAGE>
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected expect to the extent necessary to delete such
illegal, invalid or unenforceable provision, unless such declaration shall
substantially impair the benefit of the remaining portions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Employee as of the date first written above.
PLANET ACCESS, INC.
BY:______________________________
Name:
Title:
BY:____________________________________
Fred Laparo, Employee
15
EMPLOYMENT AGREEMENT ("Agreement"), dated as of October 1, 1998,
between The Translation Group, Ltd., a Delaware Corporation with an office at 30
Washington Avenue, Haddonfield, New Jersey 08033, (the "Company"), and John
Toedtman ("Employee") residing at 11 Birch Drive, Basking Ridge, New Jersey
07920.
WHEREAS, the Company is desirous of employing Employee to further the
business purposes of the Company; and
WHEREAS, Employee is desirous of being employed by the Company on the
terms provided herein;
NOW, THEREFORE, the Company and Employee agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ Employee on a full
time basis as Chief Operating Officer of the Company; and Employee hereby agrees
to accept such employment and perform the duties of such office and to be under
the direction and control of the Board of Directors of the Company. Employee
shall devote his best efforts to the business of the Company and to promoting
its best interest. The Company may provide Employee with such Employee
perquisites as may be deemed by the Company to be commensurate with Employee's
position with the Company.
2. TERM OF EMPLOYMENT. Subject to the provisions for termination
hereinafter provided, the term of Employee's employment hereunder shall begin on
October 1, 1998, and shall extend until September 30, 2001.
3. COMPENSATION.
(a) The Company shall pay to the Employee a salary at a rate of
$100,000.00 per year, payable in accordance with the normal
payroll practices of the Company. Provided that Employee's salary
will be increased to $145,000.00 in the second year in the event
that the Company receives $5,000,000 cumulative financing during
the first twelve months of this Agreement; and, Employee's salary
will be increased to $175,000.00 in the third year in the event
that the Company receives $5,000,000 cumulative financing and is
listed on NASDAQ or AMEX: The base salary shall be reviewed
annually by the Board of Directors of the Company who may make
recommendations to the Compensation Committee for additional
increases.
(b) Bonus Schedule. In addition to his base salary, Employee shall
be entitled to receive 300,000 stock options of the Company at an
exercise price of $5.00 per share in accordance with the
following provisions:
i. 100,000 vest immediately upon signing this Agreement.
ii. 100,000 vest upon $5,000,000 cumulative financing during the
first twelve months of this Agreement, or upon sale of the
Company, or change of control of the Company.
<PAGE>
iii. 100,000 vest upon NASDAQ or AMEX listing, or upon sale of
the Company, or change of control of the Company.
iv. A bonus of 1% of new financing, with a minimum cumulative
financing of $5,000,000 during the first twelve months of
this Agreement.
v. In the stock option grant, the Company, in addition to
normal exercise provisions, will provide for "non-cash
exchange" of option exercise.
(c) All compensation payable to Employee under this Agreement is
stated in a gross amount and will be subject to all applicable
withholding taxes, or other normal payroll deductions, and any
other amounts required by law to be withheld.
4. EXPENSES.
(a) During the term of this Agreement, the Company shall reimburse
Employee for all reasonable Company related travel, entertainment
and other business expenses reasonably necessary and appropriate
for the performance of his duties hereunder, provided that
Employee submits receipts and other expense records to the
Company in accordance with the Company's general reimbursement
policy then in effect for Employee and other employees of the
Company.
(b) During the term of this Agreement, the Company will pay Employee
an annual vehicle allowance of $6,000.00 in equal monthly
payments of $500.00. Employee will be personally responsible for
maintaining detailed business and personal use of vehicle logs of
mileage and expenses, sufficient to satisfy the requirement of
the Internal Revenue Service.
5. EMPLOYEE BENEFIT PLANS
(a) During the term of Employee's employment under this Agreement,
Employee shall be entitled to participate, to the extent he
and/or members of his family are eligible, in all employee
benefit plans in effect for Employees of the Company during the
term of this Agreement. Also, the Company shall purchase on the
life of Employee (I) life insurance in an amount equal to 2 1/2
times his then current annual base salary naming Employee's
designee as beneficiary.
(b) During the term of Employee's employment, Employee shall be
entitled to four weeks paid vacation, as well as paid holidays
given by the Company to its employees. Vacation time cannot be
carried over and accrued to the next year but must be taken in
the year earned, unless the Company determines, in case of
unusual and mitigating circumstances, to permit carryover of
vacation time.
<PAGE>
6. TERMINATION
(A) DEATH. Employee's employment hereunder shall terminate upon his
death and all obligations of the Company to the Employee will
cease as of the date of the Employee's death.
(B) DISABILITY. If, as a result of Employee's incapacity due to
physical or mental illness then Employee shall be deemed to be
disabled. Employee's employment hereunder shall terminate upon
his disability and all obligations of the Company to the Employee
expect provisions of the stock options will cease as of the date
of the Employee's disability. Provided that for purposes of this
subsection, "incapacity" shall mean any physical or mental
illness which substantially interferes with Employee's ability to
fulfill his duties under this Agreement.
(C) OTHER REASON. Any other reason other than cause under (d) below
or for reasons under (a) or (b) above.
(D) CAUSE. The Company may terminate Employee's employment hereunder
for Cause. For the purpose of this Agreement, the Company shall
have "Cause" to terminate Employee's employment hereunder upon
(I) Employee's conviction or, plea of "no contest" to, any
felony; (ii) material acts of fraud, dishonesty, misappropriation
of funds or property of the Company for Employee's own use or
embezzlement of any property of the company; or (iii) any
material breach by Employee of any specific provision of this
Agreement.
(E) NOTICE OF TERMINATION. Any termination by the Company pursuant to
subsections (b), (c) or (d) above shall be communicated by
written Notice of Termination to the Employee.
(F) DATE OF TERMINATION. The effective date of termination shall be
the date Notice of Termination is given.
7. COMPENSATION UPON TERMINATION.
(a) If Employee's employment shall be terminated pursuant to
subsection (d) above, he shall receive only his salary to the
Date of Termination.
(b) If Employee is terminated pursuant to subsections (a) or (b)
above, the Employee will be entitled to receive, as severance
compensation, an amount equal to one (1) month of Employee's
annual base salary, bonuses earned as of the date of termination
and one (1) month of benefits.
(c) If Employee is terminated under subsection 6(c) above, the
Employee shall be entitled to receive the greater of either one
year's current pay and benefits or the remaining term of the
Agreement. The termination salary amount will be paid as a lump
sum at termination. Employee will retain vested stock options.
<PAGE>
8. RESULTS OF THE EMPLOYEE'S SERVICES. The Company will be entitled to and
will own all the results and proceeds of the Employee's services under
this Agreement, including, without limitation, all rights throughout the
world to any copyright, patent, trademark or other right and to all
ideas, inventions, products, programs, procedures, formats, and other
materials of any kind created or developed or worked on by the Employee
during his employment by the Company.
9. CONFIDENTIALITY. Employee hereby acknowledges that certain information
and materials relating to the Company, its product and the various
phases of their operations including, without limitation, trade secrets,
formulas, know-how, specifications, drawings, consumer, distributorship
and supplier lists, books, manuals and other data (collectively,
"Confidential Materials"), heretofore or hereafter obtained by or
entrusted to him in the course of his association with the Company
(whether prior to or after the date hereof), is or will be of a
confidential or proprietary nature, which (a) may become the public
domain or (b) through no fault of the Employee becomes in the public
domain or is generally known. Employee shall, at all times, both during
and after the term of this Agreement, hold all of the Confidential
Materials in strictest confidence and not use for his own benefit or of
the benefit of any other person or directly or indirectly disclose or
suffer the disclosure of any of the Confidential Materials to any
person, firm, corporation, association or other entity to whom any
Confidential Materials have been disclosed or are threatened to be
disclosed by Employee, directly or indirectly, (other than in the
ordinary course of business of the Company), without the Company's prior
written consent. Upon the termination of Employee's employment, Employee
shall return all Confidential Materials to the Company.
10. NON-SOLICITATION. During this Agreement and for a period of one (1)
year following the conclusion of this Agreement (the "Limited Period"),
Employee shall not, directly or indirectly, hire, solicit, or encourage
to leave the employ of the Company or any affiliate entity, any person
employed by the company or any affiliated entity.
11. ENFORCEMENT OF CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
AGREEMENTS. Employee hereby acknowledges that the Company will not have
an adequate remedy at law in the event of any breach by him or any
provision of Section 9 or 10 of this Agreement and that the Company will
suffer irreparable damage and injury as a result of any such breach.
Accordingly, in the event of Employee's breach or threatened breach of
any provision of Section 9 or 10 of this Agreement, Employee hereby
consents to the granting of a temporary restraining order, a preliminary
injunction and/or permanent injunction against him or any court of
competent jurisdiction prohibiting him from committing or continuing any
such breach or threatened breach, but no action for any such relief
shall be deemed to waive the right of the Company to an action for
damages.
12. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given when delivered, if personally delivered,
or three (3) days after being mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
IF, TO EMPLOYEE:
John Toedtman
11 Birch Drive
Basking Ridge, New Jersey 07920
IF, TO THE COMPANY:
Board of Directors
The Translation Group, Ltd.
30 Washington Avenue
Haddonfield, New Jersey 08033
WITH A COPY TO
Michael C. Cascio, Esquire
12 E. Stow Road, Suite 150
Marlton, NJ 08053
or to such other address as a party may have furnished to the
other in writing in accordance herewith, except that notices
or change of address shall be effective only upon receipt.
13. EXPENSES OF LITIGATION; ARBITRATION. The Company and Employee each
hereby agree that in connection with any litigation or arbitration
arising under this Agreement that proceeds to judgment or an award, the
losing party of any claim arising thereunder shall pay to the prevailing
party all of its costs and expenses incurred in connection with the
prosecution or defense of such claim including, but not limited to, any
and all reasonable attorneys' fees.
14. ARBITRATION. Any and all controversies, claims or disputes arising out
of or relating to this Agreement, or the breach thereof (other than as
covered in Section 11), shall be solely and exclusively settled by
arbitration in accordance with the Commercial Arbitration Rules then in
effect (the "Arbitration Rules") of the American Arbitration Association
("AAA"). The arbitration shall take place in Haddonfield, New Jersey,
and the arbitrator shall be appointed by the mutual consent of the
parties. The arbitrator appointed by the parties or such panel, as the
case may be, is sometimes referred to herein as the "Arbitrator". Each
party hereby irrevocably consents to the sole and exclusive jurisdiction
and venue of the state and Federal courts located in the State of New
Jersey in connection with any matter arising out of the foregoing
arbitration or this Agreement, including but not limited to confirmation
of the award rendered by the Arbitrator and enforcement thereof by entry
of judgment thereon or by any other legal remedy. Service of process in
connection with any such arbitration or any proceeding to enforce an
arbitration award may be made in the manner set forth in Section 12 of
this Agreement or in any other manner permitted by applicable law.
15. .MISCELLANEOUS.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and superseded all prior
agreements, arrangements and understandings, written or oral,
between them as to such subject matter. There have been no
promises, statements, representations or other inducements to
this Agreement other than as set forth herein.
(b) This Agreement may not be amended, nor may any provision be
modified or waived, except by an instrument duly executed by both
parties.
(c) Either party's failure at any time to require performance of any
of the terms, provisions or conditions hereof shall not affect
such party's right thereafter to enforce this Agreement or be
deemed a waiver of any succeeding breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience or reference only, are not to be considered a
part of this Agreement and shall not affect the interpretation of
any provision hereof.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey applicable to contracts
made and to be wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns, including without
limitation, any corporation which may acquire all or
substantially all of the Company's assets and business or with or
into which the Company may be consolidated or merged. This
Agreement calls for the provision of personal services and,
accordingly, shall not be assignable by Employee except with
respect to (stock options). However, the restrictions of Section
9 shall be binding upon Employee's heirs, executors,
administrators and legal representatives.
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be effected except to the
extent necessary to delete such illegal, invalid or unenforceable
provision, unless such declaration shall substantially impair the
benefit of the remaining portions of this Agreement. IN WITNESS
WHEREOF, THIS Agreement has been executed by the Company and
Employee as of the date first written above.
THE TRANSLATION GROUP, LTD.
BY:______________________________(S)
Charles D. Cascio
President and CEO
BY:______________________________(S)
John Toedtman, Employee
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT, dated as of April 23, 1999, made by
The Translation Group, Ltd., a Delaware corporation with an address of 30
Washington Avenue, Haddonfield, New Jersey 08033 (the "PLEDGOR"), in favor of
Planet Access Networks, Inc., a New Jersey corporation with an address of 7
Waterloo Road, Suite 202, Stanhope, New Jersey 07874 (the "PLEDGEE").
RECITALS
Pursuant to the Stock Purchase Agreement, dated as of April
23, 1999 (as amended, supplemented or otherwise modified from time to time, the
"STOCK PURCHASE AGREEMENT"), among Pledgor and the Pledgee of even date
herewith, Pledgor has made a commitment to provide, on or before September 15,
1999 (i) $900,000 in immediately available funds to Pledgee; and either (ii)
additional financing in the amount of $4,000,000, less transaction related
costs, through an initial public offering of Pledgee's common stock; or (iii)
additional financing in the amount of $4,000,000 directly from Pledgor
(collectively, the "Commitments"). It is a condition precedent to the obligation
of the Pledgee to enter into the Stock Purchase Agreement that the Pledgor shall
have executed and delivered this Pledge Agreement to the Pledgee.
NOW, THEREFORE, in consideration of the premises and to induce
the Pledgee to enter into the Stock Purchase Agreement, the Pledgor hereby
agrees with the Pledgee, as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, terms
which are defined in the Stock Purchase Agreement and used herein shall have the
meanings given to them in the Stock Purchase Agreement.
(b) The following terms shall have the following meanings:
"ADDITIONAL PLEDGED STOCK" shall have the meaning provided in
any supplement to this Stock Pledge Agreement delivered pursuant to Section 5(e)
hereof.
"CODE" means the Uniform Commercial Code from time to time in
effect in the State of Missouri.
"COLLATERAL" means the Pledged Stock and all Proceeds.
"EVENT OF DEFAULT" means the failure of Pledgor to fulfill the
Commitments.
"ISSUER" means the issuer identified on Schedule I hereto.
<PAGE>
"PLEDGE AGREEMENT" means this Stock Pledge Agreement, as
amended, supplemented or otherwise modified from time to time.
"PLEDGED STOCK" means the shares of capital stock listed on
Schedule I hereto, together with all stock certificates, options or rights of
any nature whatsoever which may be issued or granted the Pledgor in respect of
the Pledged Stock while this Pledge Agreement is in effect.
"PROCEEDS" means all "proceeds" as such term is defined in
Section 9-306(1) of the Uniform Commercial Code in effect in the State of New
Jersey on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon or
distributions with respect thereto.
"SECURED OBLIGATIONS" is the collective reference to the
Obligations.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Pledge Agreement shall refer to this Pledge
Agreement as a whole and not to any particular provision of this Pledge
Agreement, and Section, Schedule, Annex, and Exhibit references are to this
Pledge Agreement unless otherwise specified. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.
2. PLEDGE; GRANT OF SECURITY INTEREST. The Pledgor hereby
delivers to the Pledgee all the Pledged Stock and hereby grants to the Pledgee,
a first security interest in the Collateral, as collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations.
3. STOCK POWERS. Concurrently with the delivery to the
Administrative Agent of each certificate representing one or more shares of the
Pledged Stock, the Pledgor shall deliver an undated stock power covering such
certificate, duly executed in blank with, if the Pledgee so requests, signature
guaranteed.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants that:
(a) the Pledgor is the record and beneficial owner of, and has
title to, the Pledged Stock, free of any and all Liens or options in
favor of, or claims of, any other Person, except the Lien created by
this Pledge Agreement; and
(b) upon delivery to the Pledgee of the stock certificates
evidencing the Pledged Stock (and assuming the continuing possession by
Pledgee of such stock certificate in accordance with the requirements
of applicable law), the Lien granted pursuant to this Pledge Agreement
will constitute a valid, perfected first priority Lien on the
Collateral in favor of the Pledgee, enforceable as such against all
creditors of the Pledgor and any Persons purporting to purchase any
Collateral from the Pledgor.
5. COVENANTS. The Pledgor covenants and agrees with the
Pledgee that, from and after the date of this Pledge Agreement until the Secured
Obligations are paid in full and the Commitments have been terminated:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution for, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the Pledgee's, hold the
same in trust for the Pledgee and deliver the same forthwith to the
Pledgee in the exact form received, duly endorsed by the Pledgor to the
Pledgee, if required, together with an undated stock power covering
such certificate duly executed in blank and with, if the Pledgee so
requests, signature guaranteed, to be held by the Pledgee, subject to
the terms hereof as additional collateral security for the Secured
Obligations. Any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of the Issuer shall be paid over to the
Pledgee as additional collateral security for the Secured Obligations,
and in case any distribution of capital shall be made on or in respect
of the Pledged Stock or any property shall be distributed upon or with
respect to the Pledged Stock pursuant to the recapitalization or
reclassification of the capital of the Issuer or pursuant to the
reorganization thereof, the property so distributed shall be delivered
to the Pledgee to be held by it for the ratable benefit of the Pledgees
and the Pledgor, subject to the terms hereof, as additional collateral
security for the Secured Obligations. If any sums of money or property
so paid or distributed in respect of the Pledged Stock shall be
received by the Pledgor, the Pledgor shall, until such money or
property is paid or delivered to the Pledgee, hold such money or
property in trust for the Pledgee as additional collateral security for
the Secured Obligations.
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<PAGE>
(b) The Pledgor shall maintain the security interest created
by this Pledge Agreement as a first, perfected security interest and
shall defend such security interest against the claims and demands of
all Persons whomsoever. At any time and from time to time, upon the
written request of the Pledgee, and at the sole expense of the Pledgor,
the Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Pledgee
may reasonably request for the purposes of obtaining or preserving the
full benefits of this Pledge Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel
paper shall be immediately delivered to the Pledgee, duly endorsed in a
manner satisfactory to the Pledgee, to be held as Collateral pursuant
to this Pledge Agreement.
(c) The Pledgor agrees to pay, and to save the Pledgee
harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions
contemplated by this Pledge Agreement.
6. CASH DIVIDENDS; VOTING RIGHTS. Unless an Event of Default
shall have occurred and be continuing and the Pledgee shall have given notice to
the Pledgor of the Pledgee's intent to exercise its corresponding rights
pursuant to Section 7 below, the Pledgor shall be permitted to receive all cash
dividends paid in the normal course of business of the Issuer in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate
right exercised or other action taken which would impair the Collateral or which
would be inconsistent with or result in any violation of any provision of the
Stock Purchase Agreement or this Pledge Agreement.
7. RIGHTS AND OBLIGATIONS OF THE PLEDGEE.
(a) If an Event of Default shall occur and be continuing and
the Pledgee shall give notice of its intent to exercise such rights to the
Pledgor and at the request of the Pledgee, all shares of the Pledged Stock shall
be registered in the name of the Pledgee or its nominee, and the Pledgee or its
nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Stock at any meeting of shareholders of
the Issuer or otherwise and (B) any and all rights of conversion, exchange,
subscription and any other rights, privileges or options pertaining to such
shares of the Pledged Stock as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other fundamental change in the corporate structure of the Issuer or upon the
exercise by the Pledgor or the Pledgee of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Stock with any
committee, depository, registrar or other designated agency upon such terms and
conditions as it may determine), all without liability except to account for
property actually received by it, but the Pledgee shall have no duty to exercise
any such right, privilege or option and shall not be responsible for any failure
to do so or delay in so doing.
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<PAGE>
(b) In the event that the Pledgee elects to exercise the
rights described in Section 7(a), the Pledgee shall be obligated to return to
Pledgor all consideration received pursuant to the Stock Purchase Agreement less
a $250,000 working capital advance.
8. REMEDIES. If an Event of Default shall have occurred and be
continuing, at any time at the Pledgee's election, the Pledgee's sole remedy
shall be the rights described in Section 7.
9. PLEDGEE'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) The Pledgor hereby irrevocably constitutes and appoints
the Pledgee as its true and lawful attorney-in-fact with full irrevocable power
and authority in the place and stead of the Pledgor and in the name of the
Pledgor or in the Pledgee's own name, from time to time in the Pledgee's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Pledge Agreement, including, without limitation, any financing statements,
endorsements, assignments or other instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys
shall lawfully do or cause to be done pursuant to the power of attorney granted
in Section 9(a). All powers, authorizations and agencies contained in this
Pledge Agreement are coupled with an interest and are irrevocable until this
Pledge Agreement is terminated and the security interest created hereby are
released.
10. LIMITATION ON DUTIES REGARDING COLLATERAL. The Pledgee's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Pledgee deals with similar
securities and property for its own account, except that the Pledgee shall have
no obligation to invest funds held by it and may hold the same as demand
deposits. The Pledgee shall not be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
11. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section
9-402 of the Code, the Pledgor hereby authorizes the Pledgee to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Pledgee reasonably determines
appropriate to perfect the security interests of the Pledgee under this Pledge
Agreement. A carbon, photographic or other reproduction of this Pledge Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.
12. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
5
<PAGE>
13. NOTICES. Notices, requests and demands to or upon the
Pledgee or the Pledgor hereunder shall be effected in the manner set forth in
Section ____ of the Stock Purchase Agreement.
14. SEVERABILITY. Any provision of this Pledge Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. PARAGRAPH HEADINGS. The paragraph headings used in this
Pledge Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. NO WAIVER. The Pledgee shall not by any act (except by a
written instrument pursuant to Section 18 hereof), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Pledgee, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Pledgee of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Pledgee would otherwise have
on any future occasion.
17. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING
LAW. None of the terms or provisions of this Pledge Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor, and the Pledgee, PROVIDED that any provision of this
Pledge Agreement may be waived by the Pledgee in a letter or agreement executed
by the Pledgee or by telex or facsimile transmission from the Pledgee. This
Pledge Agreement shall be binding upon the successors and assigns of the Pledgor
and shall inure to the benefit of the Pledgee and its respective successors and
assigns. This Pledge Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the state of New Jersey.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
Stock Pledge Agreement
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
THE TRANSLATION GROUP, LTD.
By:______________________________
Title:
<PAGE>
Stock Pledge Agreement
SCHEDULE I TO STOCK PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
STOCK
NAME OF CLASS OF CERTIFICATE NO. OF
ISSUER STOCK NO. SHARES
Planet Access Networks, Inc. Common ________ _________
DEVELOPMENT AND LICENSE AGREEMENT, dated as of April 15, 1999 (the "Agreement"),
between The Translation Group, Ltd., a corporation organized under the laws of
the State of Delaware ("TTGL") with an office at 30 Washington Avenue,
Haddonfield, New Jersey, 08033, and ESTEAM AB, a corporation organized under the
laws of Sweden ("EST") with an office at on 45 61 Kifissia, Athens, Greece.
WITNESSETH
WHEREAS, EST is a software development company specializing in the
development of computer automated language translation systems and tailoring
such systems to specific applications;
WHEREAS, EST has developed, uses and continues to improve a computer
automated language translation software system know as the "BTR System";
WHEREAS, EST has demonstrated its technical ability by delivering a
computer automated language translation for patent/trademark applications to
CompuMark (a Thompson Company);
WHEREAS, EST wishes to develop certain computer translation programs
("Applications") hereinafter described and wishes TTGL to assist in the
development of and marketing of said Applications, and TTGL is willing to do so,
all on the terms hereinafter set forth;
WHEREAS, EST wishes to exclusively license to TTGL and TTGL wishes to
exclusively license from EST for a period of (15) years all rights, title and
interest in certain Applications and accompanying Manuals developed using the
BTR System and modifications, improvements and adaptations thereto;
NOW, THEREFORE, EST and TTGL agree as follows:
1. DEFINITIONS:
1.1 AFFILIATE. A company owned or controlled by another company.
1.2 APPLICATION. An Application is a customized version of the BTR System
and its modifications, improvements and adaptations to be used in performing
translations of specific text documents in a particular domain. An Application
will be defined by the corresponding Application Term Sheet(s).
1.2A IDENTIFIED APPLICATIONS. TTGL has identified four (4) Applications
("Identified Applications") that EST and TTGL believe can be developed using the
BTR System and modifications, improvements and adaptations thereto, will be
commercially viable and which EST and TTGL have agreed will be the subject
matter of an exclusive license from EST to TTGL. The Identified Applications are
set forth in Schedule "1" attached hereto.
<PAGE>
1.2B ADDITIONAL APPLICATIONS. TTGL has the right to identify four (4)
Applications in addition to the Identified Applications ("Additional
Applications") that it believes can be developed using the BTR System and
modifications, improvements and adaptations thereto and will be commercially
viable.
1.2c Identified Applications and Additional Applications are sometimes
collectively referred to as "Applications" which term will include any
modifications, improvements and adaptations thereof.
1.3 BTR SYSTEM. The BTR System is a computer software system developed by
EST, which when applied to appropriate hardware automatically performs language
translations without any human intervention. The BTR System is set forth with
more particularity in Exhibit "A" attached hereto and incorporated herein.
1.4 COMPUTER HARDWARE. Computer hardware is a tangible computational unit
designed to perform very large numbers of computations in a very short time.
Hardware includes, among other things, a central processing unit, displays,
keyboards, severs, printer, various memory and data storage units.
1.5 COMPUTER SOFTWARE. Computer software is a set of written instructions
allowing and directing the performance of computations on computer hardware.
Software may be "off-the-shelf" such as Oracle database management software, or
proprietary, which is created for a specific purpose, but not commercially
available.
1.6 EXCLUSIVE LICENSE. The grant of an exclusive worldwide License by EST
to TTGL for the four Identified Applications, the four Additional Applications
and accompanying Manuals for a period of fifteen (15) years ("License Term").
1.7 LANGUAGE RESOURCES. Language resources include those databases or other
bodies of data necessary to conduct a Project or develop an Application. They
may include dual language dictionaries, glossaries, terminology, and already
translated texts in multiple languages.
1.8 MANUAL. A Manual for each Application containing instructions for the
use of that Application which term will include any modifications, improvements
and adaptations thereof.
1.9 OPTION TERM. The Option Term means the period that the Option shall be
exercisable and valid.
1.10 PROJECT. A Project is a development task, which is narrow in scope and
of short duration. A Project is intended to test the applicability of the BTR
System in a particular topic, or it may be to solve a problem. A Project may
evolve into an Application.
<PAGE>
1.10a Applications and Projects are sometimes collectively referred to
as "Development Programs" unless specifically referred to.
2. OPTION.
2.1 GRANT OF OPTION. For good and valuable consideration EST hereby grants
TTGL an Option to extend this Agreement for an additional three years for the
purpose of completing the Identified Applications and/or developing four
Additional Applications, as the case may be.
2.2 EXERCISE OF OPTION. The Option must be exercised by giving written
notice to EST at any time prior to the expiration of the Option Term. Said
written notice shall identify Application(s) that will be completed and/or
developed, and to the extent possible, be accompanied by Program Development
Term Sheet(s).
2.2a In the event the Agreement is extended for an additional three-year
period, the same terms and conditions set forth in this Agreement shall apply.
Provided that TTGL's ******* Minimum monthly guarantee shall be increased to
******* but shall not be effective or operative during any month EST secures
funding from the EU in an amount greater than **** of said *******.
2.3 OPTION TERM. The Option Term shall be for a period of three (3) years
and shall commence upon the execution of this Agreement and shall remain valid
for three (3) years thereafter.
3. SCOPE OF WORK. EST shall provide development services in accordance with
the terms and conditions of this Agreement and in accordance with the
Application Term Sheet(s) and Project Term Sheet(s) which are or will be
attached to and made part of this Agreement.
3.1 APPLICATIONS. Applications will be described in Application Term Sheets
outlining the Development Program, including but not limited to, the system
specifications which are the targets of the development, and milestones defined
both by time and achievement and projected development costs. The first
Application Term Sheet is the initial Application Term Sheet for the Identified
Application of Financial Information and is attached as Exhibit "B".
3.2 PROJECT. Projects will be described in Project Term Sheets setting
forth a statement of the problem to be solved or a question to be answered
relating to the capability of the BTR System to solve certain translation
problems, including but not limited to, the specifications of the problem to be
addressed, and milestones defined both by time and achievement and projected
development costs. The first Project Term Sheet is the initial Project Term
Sheet for the Identified Application of Financial Information and is attached as
Exhibit "C".
<PAGE>
4. LICENSE.
4.1 APPLICATIONS AND MANUALS. EST will use its best efforts to develop
Applications and Manuals that meet the specifications set forth in the Program
Development Term Sheet. EST will deliver each Application and the Manual
therefor to TTGL not later than the delivery date specified in relevant Program
Development Term Sheet.
4.1a Each Application will operate on computer agreed upon by TTGL and
EST in the relevant Program Development Term Sheets ("Computers").
4.2 GRANT OF EXCLUSIVE LICENSE. For good and valuable consideration EST
hereby grants TTGL the exclusive, irrevocable, worldwide license to financially
exploit the four (4) Identified Applications, the four (4) Additional
Applications and accompanying Manuals during the License Term and subject to the
terms and provisions of this Agreement. The Exclusive License granted to TTGL
under this Section 4.2 is subject to the following exceptions: 1) EST may use
any of the eight (8) Applications but may not sell, license, rent, market,
distribute or otherwise exploit any Application during the relevant License
Term.
4.3 DURATION OF LICENSE. TTGL's License to the Application(s) and Manual(s)
shall commence upon the execution of this Agreement and shall extend until the
fifteenth (15th) anniversary from the date of TTGL's acceptance of each
Application successfully developed by EST. The periods of fifteen (15) years
under this Section 4.3 will survive the termination of this Agreement ("License
Term(s)"). Provided that, TTGL's right to financially exploit a particular
Application under said License shall only become valid upon finalized funded
development for said Application. Upon the expiration of each fifteen (15) year
period the relevant License shall be converted to a Royalty-Free Non-Exclusive
License.
4.4 ACCEPTANCE AND REJECTION. Upon receipt of each Application and Manual,
whether initially or on resubmission, TTGL will test the Application and examine
the Manual and will accept the same if they are satisfactory. TTGL will not
unreasonably withhold or delay its acceptance. If TTGL finds either the
Application or Manual or both unsatisfactory, TTGL will return the same to EST
with an explanation of the changes it desires. EST will use its best efforts to
make the changes requested by TTGL, and, upon completion of the changes, EST
will resubmit the Application, the Manual or both, as the case may be, to TTGL
for acceptance. If, within ninety (90) days after the application is delivered,
TTGL fails to notify EST of any changes that it wishes in the Application or
Manual, TTGL will be deemed to have accepted the Application or Manual. If TTGL
accepts the modified version, then all the provisions of this Agreement will
apply to that Application and to the Manual therefor as if TTGL had initially
accepted them.
4.5 Upon delivery to and acceptance by TTGL of an Application and Manual or
a modification to either, EST will furnish TTGL, without charge, (i) two master
disks from which copies of the Application may be produced for use on the
Computers, (ii) the object codes for the Application, and (iii) the mechanicals
or master copies of the Manual from which printed copies can be made.
<PAGE>
4.6 Notwithstanding acceptance of an Application and Manual by TTGL, EST
will correct any errors or defects in the Application for one year following the
acceptance of the final Application or the duration of this Agreement and any
extensions hereto, whichever is earlier.
4.7 For purposes of marketing each Application and Manual which TTGL
accepts under this Agreement, TTGL will, at its expense, produce copies of the
Application from the master disks and cause copies of the Manual to be printed.
TTGL may add to the Applications devices to guard against unauthorized copying,
but TTGL does not warrant that any such device will prevent such copying.
4.8 During the License Term, EST will not produce, except for that
Application, any computer program dealing with the topic or subject matter of
that Application.
4.9 Royalty;
(i) During the License Term TTGL will pay EST a royalty of ** of TTGL's
"Net Sales" (as hereinafter defined) from any sale, rental or other exploitation
by TTGL of any Application or Manual. For purposes of this Agreement, the term
"Net Sales" means all monies received by TTGL from the sale, rental or
exploitation of the Applications and Manuals less credits or refunds for items
returned and excluding, commissions, discounts, allowances, duties and freight
charges, sales and use taxes, tariffs, duties and other governmental charges
applicable to the sale, and normal and customary handling charges. TTGL's
obligation to pay EST said ** royalty shall be binding upon TTGL and its
successors, heirs, executors, administrators and legal representatives and inure
to the benefit of EST's successors and assigns.
(ii) TTGL will pay the Royalties to EST semiannually within (60) sixty
days following each six month period in a Royalty Year. For purposes of this
Agreement, a Royalty Year will commence at the time any commercial Application
first generates revenue.
(iii) TTGL will maintain complete and accurate records of all Net Sales
of the Applications and Manuals. EST may examine, at its own expense, any copy
of such records on reasonable notice. Provided, however, EST's right to conduct
an audit of any copy of such records shall be limited to once a year.
(iv) TTGL may credit against amounts which it owes EST under this
Section any overpayments that TTGL has made to EST.
(v) TTGL's obligation to pay royalties under this Agreement with
respect to the exploitation of any Application in any jurisdiction will cease
for such Application upon a determination by a court of competent jurisdiction,
after all appeals, if
<PAGE>
any, and after the time for any appeal had expired, that the Applications is not
entitled to copyright in that jurisdiction or that the copyright to the
Application in that jurisdiction is otherwise invalid. The provisions of this
Section are without prejudice to any claim TTGL may have for breach of warranty
under this Agreement.
5. REPRESENTATIONS OF EST. EST represents and warrants to TTGL:
5.1 EST will use its best efforts to complete Development Programs on time
and within budget.
5.2 EST has on its premises and available for its use all of the computer
hardware and computer software necessary to conduct all contemplated Development
Programs in an efficient manner, or will promptly notify TTGL of the need for
such computer hardware and computer software.
5.3 EST has on its premises and available for its use all of the language
resources necessary to conduct all contemplated Development Programs in an
efficient manner, or will promptly notify TTGL of the need for such language
resources.
5.4 At all times during the term of this Agreement, EST will assure
priority scheduling for TTGL work ahead of any other work which EST may perform
for others.
5.5 Additional Warranties and Representations. EST represents and warrants
to TTGL:
(i) Except to the extent set forth in Section 5.5(ii), EST has all of
the rights in and to the BTR System;
(ii) EST has granted a limited license ("Limited License") to
CompuMark/Thompson to use and distribute the BTR System within the
Patent/Trademark sector of the Intellectual Property Right market (A copy of
said Limited License is attached hereto Exhibit "D");
(iii) this Agreement, copy of which has been provided to
CompuMark/Thompson, does not give rise to any claims by CompuMark/Thompson
against EST for any violation or breach of any obligation that EST may have to
CompuMark/Thompson and does not give rise to any claims by CompuMark/Thompson
against TTGL (A copy of a letter from an Authorized Representative of
CompuMark/Thompson reflecting the accuracy of the substance of this Section
5.5(iii) is attached hereto as Exhibit "E");
(iv) to the best of its knowledge, EST warrants to TTGL (i) that each
Application and Manual will not violate or infringe any patent, copyright,
trademark, service mark, right of privacy or other right, will not contain any
libelous or defamatory material or any material which EST is not duly authorized
to use, and will not misuse or misappropriate any trade secret or confidential
information, (ii) that any approvals or permissions required in connection with
the production, manufacture, use or exploitation
<PAGE>
of each Application and Manual have been obtained or will have been obtained
prior to the initial submission to TTGL and will be and will remain in effect
during the License Term with respect to the applicable Application and Manual
(but this warranty does not apply to any permission required with respect to a
computer operating system or programming utility, which permission TTGL is
required to obtain), (iii) that EST has the right, power and authority to grant
to TTGL the rights it has granted under this Agreement, (iv) that the
Applications and Manuals will all be original and none will be in the public
domain, (v) that each of the Applications and Manuals will be entitled to
copyright and to the protections afforded such materials by copyright law and
(vi) that each Application will operate properly on the Computer for which it is
designed, will be free from defects, will not cause damage to the Computers for
which it is designed or to any data stored in those Computers, and will conform
to the description thereof and will operate in accordance with the instructions
and specifications therefor contained in the Manual;
(v) EST will use its best efforts to insure the Identified Applications
and the Additional Applications will conform to the description thereof and will
operate in accordance with the Program Development Term Sheets;
(vi) there is no litigation or claim pending or threatened with respect
to the BTR System;
(vii) the execution, delivery and performance of this Agreement has
been duly authorized by EST's board of directors. EST has all requisite
capacity, power and authority to execute and deliver this Agreement and each
other agreement, document instrument or certificate contemplated by this
Agreement or to be executed in connection with the consummation of the
transactions contemplated by this Agreement, and to perform fully its
obligations hereunder and thereunder. This Agreement has been duly and validly
authorized, executed and delivered by EST and this Agreement constitutes legal,
valid and binding obligations of EST, enforceable against EST regardless of
whether enforcement is sought in a proceeding at law or in equity.
(viii) TTGL alone will have the Exclusive License throughout the world
to the Identified Applications and Additional Applications and the sole right to
apply for patents, copyrights, trademarks, service marks and other rights with
respect to the Identified Applications, Additional Applications and Manuals
during the License Term.
(ix) The representations and warranties of EST will survive this
Agreement. EST will indemnify TTGL against any liability and will hold TTGL
harmless from and pay any loss, damage, cost and expense (including, without
limitation, legal fees, court costs and the cost of appellate proceedings) which
TTGL incurs arising out of a breach of any of said representations and
warranties or any claim against TTGL alleging facts which, if true, would result
in a breach of any said representations and warranties.
<PAGE>
(x) The representations and warranties, obligations under this
Agreement and any obligations of indemnity of EST shall be assignable, and shall
be binding upon EST and its successors, heirs, executors, administrators and
legal representatives and inure to the benefit of TTGL's successors and assigns.
(xi) EST shall not use the BTR System for translation projects
competitive with any Application as defined herein, currently, or which from
time to time may be, produced, distributed or marketed by TTGL or any affiliated
entity without prior written approval from TTGL.
6. REPRESENTATIONS OF TTGL. TTGL represents and warrants to EST:
6.1 TTGL will use its best efforts to identify and define four (4)
Additional Applications for EST to develop.
6.2 TTGL will use its best efforts to commercialize such Applications which
EST successfully develops.
6.3 TTGL recognizes that EST's obligation to afford priority to TTGL's
Development Programs over work for others may result in EST experiencing
financial hardships in meeting its basic operating expenses of approximately
********** per month ("Operating Expenses"). Accordingly, TTGL guarantees that
it will pay EST a minimum of ******* per month on or before the 15th day of each
month during the term of this Agreement for EST's Operating Expenses ("*******
Minimum"). Provided further that, notwithstanding anything herein to the
contrary, TTGL's monthly obligation to pay EST said ******* Minimum shall
terminate upon the second anniversary of this Agreement or if EST secures
funding from the EU in an amount greater than **** of said ******* Minimum,
whichever is later.
6.4 During the Term of this Agreement TTGL will provide development funding
in addition to the ******* Minimum for any Development Program that TTGL may
request EST to develop. Such development funding may include language resources,
computer hardware and computer software and any other development costs that
TTGL and EST may jointly deem necessary for a Development Program.
6.5 During the Term of this Agreement TTGL will provide funding for
additional Operating Expenses incurred by EST above the ******* minimum if EST
reasonably demonstrates that its actual Operating Expenses exceed ******* per
month as a direct result of any Development Program for TTGL, i.e., EST works on
two Development programs simultaneously.
6.6 Additional Warranties and Representations. TTGL represents and warrants
to EST:
(i) the execution, delivery and performance of this Agreement has been
duly authorized by TTGL's board of directors. TTGL has all requisite capacity,
power and authority to execute and deliver this Agreement and each other
agreement,
<PAGE>
document, instrument or certificate contemplated by this Agreement or to be
executed in connection with the consummation of the transactions contemplated by
this Agreement, and to perform fully its obligations hereunder and thereunder.
This Agreement has been duly and validly authorized, executed and delivered by
TTGL and this Agreement constitutes legal, valid and binding obligations of
TTGL, enforceable against TTGL regardless of whether enforcement is sought in a
proceeding at law or in equity.
(ii) TTGL will indemnify EST against any liability and will hold EST
harmless from and pay any loss, damage, cost and expense (including, without
limitation, legal fees, court costs and the cost of appellate proceedings) which
EST incurs arising out of a breach of any of said representations and warranties
or any claim against EST alleging facts which, if true, would result in a breach
of any said representations and warranties.
6.7 TTGL and EST agree that EST shall have the right to use or otherwise
employ the BTR System in accordance with this Agreement for the following uses
and purposes;
(i) EST shall have the exclusive right to employ the BTR System to
either perform research and development projects for the EU Authorities or to
enter into contracts with the EU Authorities.
(ii) EST shall have the exclusive right to employ the BTR System to
perform projects for the CompuMark/Thompson.
7. TERM AND TERMINATION.
7.1 The Term of this Agreement shall be three (3) years commencing on the
date of execution of this Agreement. Provided that the Term of this Agreement is
subject to TTGL's Option as well as the Termination provisions contained herein.
7.2 EST may terminate this Agreement upon 30 days written notice that TTGL
has failed to remit to EST the ******* Minimum in accordance with section 6.3 of
this Agreement. Provided that said notice of termination shall be without effect
in the event TTGL cures such failure to remit said ******* Minimum within 30
days from TTGL's receipt of said written notice.
7.3 Either party may terminate this Agreement upon 90 days written notice
after the first anniversary from the date of execution of this Agreement.
Provided further that, any notice given by EST under this Section will only be
effective upon the completion of any Development Programs currently in progress
and will not act to terminate the License Term.
7.4 Sections 4, 8 and 9 will survive such termination.
<PAGE>
8. COPYRIGHT.
8.1 Subject to the rights granted to TTGL under this Agreement, EST will
own all copyright and all other proprietary rights in and to each Application
and Manual. EST will have the sole and exclusive right to register in its name
in the United States and elsewhere the copyrights applicable to each Application
and Manual. Without prejudice to EST's rights under Section 5(a), TTGL may, at
its expense, arrange to register in EST's name United States and, to the extent
TTGL deems advisable, foreign copyrights and renewals thereof for the
Application and Manual. EST will execute such documents and take such other
action as may be required to effect any such registration.
8.2 If, during the term of this Agreement, either party believes that any
copyright or other proprietary right in any Application or Manual is being
infringed or injured, such party will give written notice thereof to the other.
If, after consultation, the parties proceed jointly, then the cost and recovery
arising out of such prosecution shall be shared equally. If no agreement is
reached for joint action, TTGL may proceed as it sees fit, bearing all costs
incidental thereto and retaining all the benefits arising therefrom. If EST does
not proceed jointly with Licenses, EST will cooperate with TTGL and permit TTGL
to proceed in EST's name, at TTGL's own cost and for TTGL's benefits; and TTGL
will hold EST harmless from and pay all costs connected with said proceeding.
EST will not proceed on its own unless TTGL advises EST in writing that TTGL has
decided not to take any action in the matter. In such case, EST may proceed as
it sees fit, bearing all costs incidental thereto and retaining all the benefits
arising therefrom.
9. CONFIDENTIALITY.
9.1 TTGL hereto acknowledges and agrees that all information (the
"Confidential Information") concerning the BTR System and modifications,
improvements and adaptations thereto not resulting from Development Projects for
TTGL, is highly confidential and that EST will suffer irreparable damage if the
Confidential Information is disclosed to third parties. TTGL will protect the
Confidential Information with equal caution as if it were its own.
9.2 EST hereto acknowledges and agrees that all information (the
"Confidential Information") concerning modifications, improvements and
adaptations to the BTR System resulting from Development Projects for TTGL,
Development Programs, Applications, Manuals, Project Term Sheets and Application
Term Sheets is highly confidential and that TTGL will suffer irreparable damage
if the Confidential Information is disclosed to third parties. EST will protect
the Confidential Information with equal caution as if it were its own.
9.3 The parties shall not use the Confidential Information for any purpose,
other than for the purposes contemplated under the Agreements identified herein,
and, unless specifically authorized to do so under the Agreements identified
herein, neither party shall disclose, provide, or make available any of the
Confidential Information in any form to any person, except to employees,
consultants, marketing and sales agents, or other persons whose access is
necessary to enable the party to fulfill its obligations under the Agreements
identified herein.
<PAGE>
9.4 Notwithstanding anything herein to the contrary, a party shall not be
deemed to have breached this Section if the said party can prove that the
Confidential Information at issue is information which, (i) is in the public
domain or becomes publicly available through no act or failure to act of said
party, (ii) was or is rightfully acquired by said party, or (iii) becomes
independently available to said party without breach of any Agreements
identified herein by said party and otherwise not in violation of the
non-breaching party's rights under any other Agreement.
10. NON-SOLICITATION & NON-COMPETITION. During the License Term, EST shall
not, except with the prior written approval of TTGL in each instance, directly
or indirectly, (i) hire, solicit, or encourage to leave the employ of TTGL or
any affiliate entity, any person employed by TTGL or any affiliated entity; (ii)
participate in the solicitation of any business of any type presently conducted
or which may from time to time be conducted by TTGL or any affiliated entity
from any person or entity which was, or which from time to time may be, a
customer of TTGL or any affiliated entity; (iii) be engaged or interested,
directly or indirectly, as an officer, director, stockholders (excepting less
than one (1%) percent interest in a publicly traded company), employee, partner,
individual proprietor, investor or consultant, or in any other manner or
capacity whatsoever, in any business that involves the production, distribution
or marketing of products or services competitive with any Application as defined
in the L & D Agreement, currently, or which from time to time may be, produced,
distributed or marketed by TTGL or any affiliated entity, in any place in which
TTGL or any affiliated entity conducts such a business. If any provision of
Section would be held to be unenforceable because of the scope, duration or area
of its applicability, the court making such determination shall have the power
to, and shall, modify such scope, duration or area, or all of them, to the
minimum extent necessary to make such modified form.
11. ENFORCEMENT OF CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION
AGREEMENTS. EST hereby acknowledges that the TTGL will not have an adequate
remedy at law in the event of any breach by her of any provision of Section 9 or
10 of this Agreement and that TTGL will suffer irreparable damage and injury as
a result of any such breach. Accordingly, in the event of EST's breach or
threatened breach of any provision of Section 9 or 10 of this Agreement, EST
hereby consents to the granting of a temporary restraining order, preliminary
injunction and/or permanent injunction against it or any court of competent
jurisdiction prohibiting EST from committing or continuing any such breach or
threatened breach.
12. MISCELLANEOUS.
12.1 NOTICES. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be deemed duly given
when delivered to the respective offices of TTGL and EST at the addresses
specified in this Agreement, unless notified otherwise of an address change in
writing at least thirty (30) days in advance.
<PAGE>
12.2 HEADINGS. Headings of this Agreement are for convenience only and
shall not affect the interpretation of the terms of this Agreement.
12.3 WAIVER. If either party should waive any breach of any provision of
this Agreement, it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provision hereof.
12.4 SEVERABILITY. It is the intent of the parties that in case any one or
more of the provisions contained in this Agreement shall be held to be invalid
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
12.5 This Agreement shall be binding upon and inure to the benefit of EST
and its successors and assigns, including without limitation, any corporation
which may acquire all or substantially all of EST's assets and business or with
or into which EST may be consolidated or merged.
12.6 This Agreement shall be binding upon and inure to the benefit of TTGL
and its successors and assigns, including without limitation, any corporation
which may acquire all or substantially all of TTGL's assets and business or with
or into which TTGL may be consolidated or merged.
12.7 GOVERNING LAW. This agreement will be governed by the laws of the
State of New Jersey, U.S.A.
IN WITNESS WHEREOF, by their signature below, the parties hereto hereby agree to
the foregoing terms and conditions.
"EST" "TTGL"
By:_____________________ By:_____________________
Name:___________________ Name:___________________
Title:__________________ Title:__________________
<PAGE>
SCHEDULE I
- --------------------------------------------------------------------------------
A. FINANCIAL INFORMATION: Target Applications for automated translation in the
financial arena may include, but are not limited to:
- - company annual reports - financial statements.
- - quarterly reports - company research reports
- - news releases - credit reports
- - proxies - business section of newspapers
- - initial public offerings/secondary - tv/cable financial news
- - accounting standards - financial public relations
- --------------------------------------------------------------------------------
B. MEDICAL/PHARMACEUTICAL: Target Applications for automated translation in the
medical arena may include, but are not limited to:
- - medical device product labels
- - drug "product inserts"
- - technical paper abstracts
- - Material Safety Data Sheet (MSDS) for pharmaceutical raw materials
- - government regulations/rulings/news
- - precis of medical trade press/journals/news
- - financial application products
- --------------------------------------------------------------------------------
C. ENVIRONMENTAL: Target Applications for automated translation in the
environmental arena may include, but are not limited to:
- - Material Safety Data Sheets (MSDS) and their international equivalents
- - International government regulations and news concerning air, water,
biological and solid pollutants, inclining levels, disposal,
transportation, remediation, etc.
- - Certificates of Analysis or analogies documents reflecting instrumental
analyses of compounds or molecules
- - Bills of Lading for shipments
- - Standard Operation Procedures for manufacturers, processing and
handling chemicals and other compounds covered by environmental
regulations
<PAGE>
- --------------------------------------------------------------------------------
D. SOFTWARE GENERAL, SOFTWARE SPECIAL USE, SOFTWARE ERP AND TELECOMMUNICATIONS:
Target Applications for automated translation in the information technology
arena may include, but are not limited to:
- - General Information Technology Application
- - Translation of general software, e.g. operating systems
- - Specified software, e.g. CAD/CAM software
- - Enterprise Reservice Planning ("ERP") software, e.g.
manufacturing, accounting, supply chain management
- - Telecommunications hardware and software including technical/operating
manuals and applicable software
- - All above applications include translation of software itself, software
manuals, software "help," and software documentation
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
---------
Description of BTR System
<PAGE>
EXHIBIT B
---------
INITIAL APPLICATION TERM SHEET FOR THE IDENTIFIED APPLICATION OF FINANCIAL
INFORMATION
Application #1
Topic: Financial Statement Translations
Code Name:
Target Specifications: System will automatically translate the
following with no human interaction:
Income Statement (P&L)
Balance Sheet
Cash Flow
Notes to Financial Statements
Bi-directional in the following languages:
English, French, German, Spanish, Portuguese, Italian.
Translation tune:
Choice of hardware platform, software, language and
compiling protocols will allow translation of each statement
in less than one minute and notes in less than 5 minutes.
System design will allow for human post editing/correction.
<PAGE>
EXHIBIT C
---------
Initial Project Term Sheet for the Identified Application of Financial
Information
PROJECT #1
Topic: International Accounting standards Committee
Published Accounting Standards
Tasks: Input 250,000 words in English which have
already been translated (and aligned) in
German and Spanish.
Compare new 60,000 standards to above to
determine word count leverage.
Compare "publication" reference to existing
standards to determine word count leverage.
PROJECT #2
Topic: Microsoft manuals
Tasks: TTGL will provide 2 million to 5 million
words each of English with aligned Dutch
translations of Microsoft manuals and
similar documents.
1. Determine translation leverage on new
Microsoft texts.
<PAGE>
EXHIBIT D
---------
A copy of CompuMark/Thompson Limited License.
<PAGE>
EXHIBIT E
---------
A copy of a letter from an Authorized Representative of CompuMark/Thompson
reflecting the accuracy of the substance Section 5.6(iii)
<PAGE>
AGREEMENT ("Agreement"), dated as of __________, 1999, between The
Translation Group, Ltd., a corporation organized under the laws of the State of
Delaware with an office at 30 Washington Avenue, Haddonfield, New Jersey, 08033,
(the "Company"), and Gurdun Magnusdottir.
NOW, the Company and Gudrun agree as follows:
1. Gudrun will be eligible for stock options to purchase shares 100,000 of
The Translation Group, Ltd. common stock at $[market price on day of closing]
per share. These options will be subject to the provisions of The Translation
Group, Ltd. 1995 Stock Option Plan and the specific terms of the Individual
Grant; and will vest in Gudrun as follows:
i. The first third (1/3) shall vest upon the achievement of $5,000,000
in gross revenues received by the Company in any one (1) Royalty Year as defined
herein arising from the commercialization of Application(s) pursuant to the
Licensing and Development Agreement by and among the Company and EST dated
__________, __, 1999 ("L & D Agreement").
ii. The second third (1/3) shall vest upon the achievement of
$10,000,000 in gross revenues received by the Company in any one (1) Royalty
Year as defined herein arising from the commercialization of Application(s)
pursuant to the L & D Agreement.
iii. The final third (1/3) shall vest upon the achievement of
$15,000,000 in gross revenues received by the Company in any one (1) Royalty
Year as defined herein arising from the commercialization of Application(s)
pursuant to the L & D Agreement.
iv. For purposes of this Agreement, Royalty Year shall commence on the
first day any Application generates revenue and end one day prior to the first
anniversary of said date. By way of example, if the Financial Information
Application in the L & D Agreement generated revenues on October 16, 1999, the
Royalty Year would be October 16, 1999 through October 15, 2000. In addition,
the Royalty Year would remain the same throughout the term of this Agreement as
well as during the term of the Individual Grant of stock options.
2. All compensation payable to Gudrun under this Agreement is stated in a
gross amount and will be subject to all applicable withholding taxes, or other
normal deductions, and any other amounts required by law to be withheld.
3. MISCELLANEOUS.
(a) This Agreement sets forth the entire understanding between the
parties as to the subject matter hereof and superseded all prior agreements,
arrangements and understandings, written or oral, between them as to such
subject matter. There have been no promises, statements, representations or
other inducements to this Agreement other than as set forth herein.
<PAGE>
(b) This Agreement may not be amended, nor may any provision be
modified or waived, except by an instrument duly executed by both parties.
(c) Either party's failure at any time to require performance of any of
the terms, provisions or conditions hereof shall not affect such party's right
thereafter to enforce this Agreement or be deemed a waiver of any succeeding
breach.
(d) Paragraph headings contained in this Agreement have been inserted
for convenience or reference only, are not to be considered a part of this
Agreement and shall not affect the interpretation of any provision hereof.
(e) This Agreement shall be governed and construed in accordance with
the laws of the State of New Jersey applicable to contracts made and to be
wholly performed within said State.
(f) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which the Company may be consolidated or merged.
(g) If any provision of this Agreement or the application of any
provision to this Agreement is declared to be illegal, invalid or otherwise
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall not be affected except to the extent necessary to delete such
illegal, invalid or unenforceable provision, unless such declaration shall
substantially impair the benefit of the remaining portions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Gudrun as of the date first written above.
THE TRANSLATION GROUP, LTD.
BY:________________________________
Name:
Title:
BY:________________________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit (27)
Financial Data Schedule
For Period Ended March 31, 1999
The St. Lawrence Seaway Corporation
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF THE TRANSLATION GROUP, LTD FOR THE PERIOD ENDED MARCH 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,895,970
<SECURITIES> 0
<RECEIVABLES> 928,401
<ALLOWANCES> 71,140
<INVENTORY> 0
<CURRENT-ASSETS> 3,600,888
<PP&E> 1,781,597
<DEPRECIATION> 773,878
<TOTAL-ASSETS> 6,135,841
<CURRENT-LIABILITIES> 1,461,455
<BONDS> 178,254
0
0
<COMMON> 2,278
<OTHER-SE> 4,493,854
<TOTAL-LIABILITY-AND-EQUITY> 6,135,841
<SALES> 5,987,002
<TOTAL-REVENUES> 5,987,002
<CGS> 4,832,359
<TOTAL-COSTS> 4,832,359
<OTHER-EXPENSES> 3,824,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,461
<INCOME-PRETAX> (2,544,846)
<INCOME-TAX> (396,160)
<INCOME-CONTINUING> (2,148,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,148,686)
<EPS-BASIC> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
