As filed with the Securities and Exchange Commission on November 7, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
COMTELCO INTERNATIONAL INC.
(Name of Small Business Issuer in Charter)
---------------------------
Delaware 3661 13-3972779
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
---------------------------
ComTelco International Inc.
Hechtackerstrasse 41
CH-9014
St. Gallen, Switzerland
011 41 71 278 86 33
(Address, including zip code, and telephone number,
including area code, of registrant's executive offices)
---------------------------
Roland Steiner, President and Chief Executive Officer
ComTelco International Inc.
Hechtackerstrasse 41
CH-9014
St. Gallen, Switzerland
011 41 71 278 86 33
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
With copies to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, NY 10112
(212) 698-7700
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement
---------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. |x|
1
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
Registration Statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. |_|
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Security(1) Price(1) registration fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.00001 per share 2,000,000 $5.00 $10,000,000 $3,300
===========================================================================================================================
</TABLE>
- ----------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act.
---------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until such Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
2
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED ________ __, 1997
PROSPECTUS
COMTELCO INTERNATIONAL INC.
2,000,000 Shares
Common Stock
---------------------------
This Prospectus relates to 2,000,000 presently outstanding shares (the
"Shares") of common stock, par value $.00001 per Share ("Common Stock"), of
ComTelco International Inc., a Delaware corporation ("ComTelco" or the
"Company") which are being offered for sale by certain selling stockholders (the
"Selling Stockholders"). See "Selling Stockholders."
The Company will not receive any of the proceeds from the sales of the
Shares by the Selling Stockholders. The Shares may be offered from time to time
by the Selling Stockholders through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Act"). If any broker-dealers are
used by the Selling Stockholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any Shares as principals, any profits received by such
broker-dealers on the resales of the Shares, may be deemed to be underwriting
discounts or commissions under the Act. In addition, any profits realized by the
Selling Stockholders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the Shares offered by
the Selling Stockholders will be borne by the Company. Brokerage commissions, if
any, attributable to the sale of the Shares will be borne by the Selling
Stockholders. The Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Act.
The Shares offered by this Prospectus may be sold from time to time by the
Selling Stockholders or by transferees, commencing on the date of this
Prospectus. No underwriting arrangements have been entered into by the Company
or, to the Company's knowledge, the Selling Stockholders. The distribution of
the Shares by the Selling Stockholders may be effected in one or more
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such Shares as principals, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Stockholders in connection with sales
of the Shares.
The Company intends to apply for quotation of the Common Stock on the
Nasdaq SmallCap Market ("Nasdaq") under the proposed symbol "CMTE".
Unless otherwise specifically provided, all currency amounts in this
document are expressed in United States dollars and are preceded by "$".
---------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is ___________, 199_.
<PAGE>
- --------------------------------------------------------------------------------
Unless the context otherwise requires, all references to the "Company"
contained in this Prospectus refer to ComTelco International Inc., a Delaware
corporation ("ComTelco"), and its wholly-owned subsidiaries: ComTelco
(Deutschland) GmbH, a German corporation incorporated in June 1993 ("ComTelco
Germany"); ComTelco Softwarevertriebs-GmbH, an Austrian corporation incorporated
in November 1995 ("ComTelco Austria"), ComTelco Vertriebs AG, a Swiss
corporation incorporated in February 1997 ("ComTelco Vertriebs"), and ComTelco
Research AG, a Swiss corporation incorporated in February 1997 ("ComTelco
Research"). (ComTelco Germany, ComTelco Austria, ComTelco Vertriebs and ComTelco
Research are collectively referred to as the "Subsidiaries"). For purposes of
the Company's financial information contained herein, ComTelco and its four
Subsidiaries are treated on a consolidated basis unless the context otherwise
requires.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and, accordingly, should be read in
conjunction with such information, financial statements and notes. Each
prospective investor is urged to read this Prospectus in its entirety.
The Company
The Company designs, develops, manufactures and markets integrated
hardware and software products designed to enable users to monitor, manage and
integrate their telecommunications activities to achieve greater efficiency and
cost savings. The Company's products, which consist of telemanagement and
computer telephony systems, connect to and interface with most modern private
branch exchange switches ("PBXs"), as well as client/server computer networks,
and are able to process all modes of communication conducted through PBXs. The
Company's telemanagement systems consist of single and multi-site call
accounting, billing and cost distribution systems. The Company's computer
telephony systems presently consist of personal computer ("PC") screen-based
telephone dialing and faxing systems. All of the Company's products are modular
and scalable, enabling them to be integrated to form a more complete
telecommunications management system.
The Company's target market consists of corporations and other
organizations which are connected to external communications lines via one or
more PBXs. Presently, the Company's end-user customer base exceeds 3,500
installations, primarily located in Central Europe. The majority of the
Company's revenue has been generated from the sale of telemanagement systems.
For the six months ended August 31, 1997, approximately 78% of the Company's net
sales were derived from the sale of telemanagement systems and approximately 12%
of the Company's net sales was attributable to the sale of computer telephony
products. The Company launched the sale of its computer telephony products
during the year ended February 28, 1997 and anticipates a shift in its product
mix in favor of these products in subsequent periods.
The Company sells its products and systems to four primary
buyers/distributors: to original equipment manufacturers ("OEMs"), to
value-added resellers ("VARs"), to telecommunications service providers and, on
a selective basis, to end-users. Representative customers of the Company
include: OEMs such as Ericsson (Austria) GmbH, Ericsson Schweiz AG, Alcatel
(Austria) GmbH, Alcatel Schweiz AG, Philips Schweiz AG, Matra S.A., DeTeWe
Deutsche Telefonwerke GmbH; VARs such as GFT Genossenschaft fuer
Telekommunikation, EgTel Einkaufsgenossenschaft Telekommunikation, Slit
Telematique S.A., Kapsch Telekommunikationssysteme GmbH, Siemens (Austria) AG
and Siemens Schweiz AG; telecommunication service providers such as Swisscom AG
and the National Telephone Company of Austria ("Austrian PTT"); and end-users
such as Credit Suisse, Zuercher Kantonalbank (Zurich State Bank) and UNICEF.
The Company's telemanagement systems (call accounting), of which there are
presently four models, are comprised of proprietary hardware which monitors
communications transmitted through the user's PBXs. The recorded data is then
transmitted via an interface to the user's PC or client/server network
containing the Company's proprietary software. Reports can then be generated
directly from the PC terminals. Depending on the model, the Company's
telemanagement systems can process transmissions carried by single or multiple
telecommunication service providers and for users with up to 999 independent
company structures and up to 999 PBXs per company. As such, these systems can
and are being utilized by small companies with few employees as well as large
multinational companies with numerous branch offices.
The Company's computer telephony systems, presently consisting of PC
screen-based telephone dialing, faxing and cellular massaging systems, are
comprised of proprietary hardware and PC-resident proprietary software. These
systems allow users to dial
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
telephone numbers or send facsimiles over the Internet directly from their PC
screen from within any Windows(R) application, enabling them to utilize all
telephone and facsimile numbers accessible through their PC. The systems include
least-cost routing of transmissions which are designed to ensure that the
communication is routed in the cheapest manner available at the particular time
for the particular destination. Such routing may occur, for example, via a
leased communication line, the Internet or independent carriers.
The Company has also developed, and is currently in beta phase testing of,
a workstation-based telephone call recording system which permits users to
digitally record telephone conversations automatically or selectively. The
recorded conversations can be stored in a typical Windows(R) format, allowing
the files to be re-used in any multimedia application, transmitted via e-mail or
stored for later reference. The recording system is designed to be installed in
workstations on a selective basis without incurring costs associated with
installing larger centralized systems. The Company intends to develop additional
computer telephony systems which can be integrated with the Company's
telemanagement systems to enable users to communicate in a more efficient and
cost-effective manner.
Organization
ComTelco and its Subsidiaries were founded by Mr. August Steiner, the
Company's Chairman of the Board of Directors and majority stockholder. In June
1993 and November 1995, Mr. August Steiner founded ComTelco Germany and ComTelco
Austria, respectively, to provide marketing and other services for MDE AG
("MDE"), a Swiss corporation primarily engaged in the sale of medical equipment.
Mr. August Steiner owns the majority of the stock of MDE, and Messrs. Roland
Steiner, the Company's Chief Executive Officer and President, and Ramon Inauen,
the Company's Chief Operating Officer, own minority interests in MDE. In
December 1996, Mr. August Steiner purchased from MDE assets primarily consisting
of software and hardware development. The purchase price for the assets was
approximately $5,200,000, which amount represented MDE's cost of acquiring
and/or developing the assets. In February 1997, Mr. August Steiner founded
ComTelco Vertriebs and ComTelco Research and contributed to such companies
substantially all of the assets purchased from MDE, which assets presently
comprise substantially all of the Company's software and hardware development
assets. ComTelco was founded in Delaware on February 27, 1997. As of February
28, 1997, the Subsidiaries became wholly-owned subsidiaries of ComTelco in a
transaction pursuant to which Mr. August Steiner purchased 2,500,000 shares of
Common Stock from ComTelco in exchange for all of the outstanding equity
interests in each of the four Subsidiaries.
As of February 28, 1997, ComTelco issued 2,000,000 shares of Common Stock
to Interfinance Inv. Co. Ltd., a Hong Kong corporation ("Interfinance"), in
consideration of $4,000,000, the par value of which shares ($20) was paid in
cash and the balance of which was paid by delivery of a Promissory Note due on
February 28, 1998, in the principal amount of $3,999,980 (the "Interfinance
Note"). The Interfinance Note bears interest at 5.8% per annum and is secured by
a pledge to ComTelco of the shares of Common Stock issued to Interfinance. Under
the terms of the pledge agreement, the shares are subject to release of the
Company's security interest ratably upon partial repayment of the Interfinance
Note. As of October 31, 1997, Interfinance has repaid $1,505,000 of the
principal amount of the Interfinance Note from funds received from purchasers of
a portion of its shares. As a condition to the sale of the shares to
Interfinance, the Company entered into a Registration Rights Agreement dated as
of February 28, 1997, pursuant to which the Company agreed to register such
shares for resale under the Securities Act. See "Selling Stockholders and Plan
of Distribution."
The Company's corporate offices are located at Hechtackerstrasse 41,
CH-9014, St. Gallen, Switzerland. The Company's telephone number is
011-41-71-278-86-33.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Offering
Common Stock Offered by Selling Stockholders... 2,000,000 shares
Common Stock Presently Outstanding(1).......... 4,500,000 shares
Risk Factors................................... The shares of Common Stock
offered hereby involve a high
degree of risk and should be
purchased only by persons who
can afford to sustain the loss
of their entire investment. See
"Risk Factors."
Use of Proceeds................................ The Company will not receive
any proceeds from the sale of
the Shares offered hereby.
Proposed Nasdaq Trading Symbol(2).............. CMTE
- ----------
(1) Includes the 2,000,000 presently outstanding Shares being offered by the
Selling Stockholders.
(2) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Company intends to apply for quotation of the Common Stock on
the Nasdaq SmallCap Market. There can be no assurance, however, that such
application for listing will be approved, or if approved, will be
maintained. See "Risk Factors--Absence of Public Market; Risks of
Low-Priced Securities; Potential Volatility of Stock Price."
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Summary Financial Data
The following table sets forth summary historical financial data for the
Company for the years ended February 28, 1997, and 1996, as well as for the six
month periods ended August 31, 1997 and 1996. The historical financial data are
derived from the Consolidated Financial Statements included elsewhere in this
Prospectus. The summary historical financial data should be read in conjunction
with the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
August 31, Year Ended February 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue: .................................. $ 982,920 $ 171,588 $ 292,131 $ 0
Operating Expenses:
Research and development ............... 172,323 -- -- --
Marketing and Selling Expense .......... 179,937 -- -- --
Depreciation and Amortization .......... 429,769 4,107 7,685 2,922
General and Administrative Expense ..... 786,349 231,322 348,923 57,096
Total operating expenses .................. 1,568,378 235,429 356,608 60,018
(Loss) from Operations .................... (832,040) (82,001) (152,905) (60,018)
Interest income ........................... 112,024 27 149 9
Other Income (Expense) .................... (10,745) 1 (437) 1,215
Net (Loss) ................................ (730,761) (82,069) (153,193) (58,794)
Net Loss per share ........................ (0.16) (0.02) (0.04) (0.02)
----------- ----------- ----------- -----------
Shares used in computing net loss per share 4,500,000 3,700,000 3,700,000 3,700,000
<CAPTION>
August 31, 1997 February 28, 1997
--------------- -----------------
(Unaudited)
<S> <C> <C>
Balance Sheet Data:
Working Capital $ 3,727,748 $ 4,296,938
Total Assets 9,510,505 9,302,741
Current Liabilities 1,065,595 78,328
Long-term Liabilities -- --
Accumulated Deficit (954,446) (223,685)
Stockholders' Equity 8,444,910 9,224,413
</TABLE>
- ----------
(1) Net loss per common share is computed based upon the weighted average
number of shares of Common Stock outstanding during the periods and gives
effect to certain adjustments described below. The net loss calculations
give retroactive recognition to the issuance of 2,500,000 of the Company's
shares of Common Stock in exchange for all of the outstanding equity
interests in the Company's Subsidiaries. Also, pursuant to the
requirements of the Securities and Exchange Commission (the "Commission"),
all stock and warrants issued within the twelve months immediately
preceding the initial filing of the Registration Statement for the
Offering at a price below the anticipated Offering price, totaling
2,000,000 shares of Common Stock, have been included in the calculation
for all periods presented utilizing the "treasury stock method."
- --------------------------------------------------------------------------------
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below and elsewhere in this Prospectus. In
addition to the other information in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business before
purchasing the Common Stock offered hereby.
Limited Operating History; Net Losses
The Company has incurred net losses since inception. For the fiscal years
ended February 29, 1996 and February 28, 1997, the Company incurred net losses
from operations of $60,018 and $152,905, respectively. The Company's accumulated
deficit as of August 31, 1997 was $954,446. The Company's limited operating
history, as well as the Company's recent expansion into the computer telephony
business, makes the prediction of future operating results unreliable. There can
be no assurance that the Company will achieve profitability in the future. The
Company's prospects must be considered in light of the risks encountered by
companies in an early stage of development, particularly companies in new and
rapidly evolving markets. Future operating results will depend on many factors,
including the demand for the Company's products, the level of product and price
competition, the Company's success in attracting and retaining motivated and
qualified personnel, the ability of the Company to develop and market new
products and services and control costs, the acceptance and profitability of new
products the Company may introduce, and general economic conditions. Operating
results for future periods are subject to numerous uncertainties, and there can
be no assurance that the Company will attain or sustain profitability on an
annual or quarterly basis or otherwise be successful in addressing such
uncertainties. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Capital Requirements; Need for Additional Financing
In order to maintain its competitive position and to meet increasing
demands for providing quality products at competitive prices, the Company seeks
to expand both its product offerings and the geographic areas of business and
conducts an ongoing research and development program. Based on its plan of
operation, the Company believes that its existing resources, including the
proceeds which the Company expects to receive upon repayment of the balance of
the Interfinance Note, will be sufficient to fund the Company's operations at
least for the next 12 months. The Company may, however, need to raise additional
capital from public or private equity or debt sources in order to finance its
plan of operation. In addition, the Company may need to raise additional funds
in order to take advantage of unanticipated opportunities, including more rapid
international expansion or investments in, or strategic alliances with,
companies that are complementary to the Company's current operations, or to
develop new products or otherwise respond to unanticipated competitive
pressures. The Company's capital requirements may vary materially from those now
planned due to a number of factors, including the rate at which the Company can
produce its products, the success of the Company in marketing and selling its
products, the ability of the Company to develop new products in an efficient and
timely manner, the competitive position of the Company's products, and the
response of competitors to the Company's products. Also, should Interfinance
fail to pay the Interfinance Note when due, the Company will need additional
capital. There can be no assurance that additional financing will be available
when needed on terms acceptable to the Company, or at all. If additional funds
are raised by issuing equity securities, further dilution to existing
stockholders will result and future investors may be granted rights superior to
those of existing stockholders. Insufficient funds may prevent the Company from
implementing its business strategy or may require the Company to limit its
operations significantly. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Risks Associated with International Operations; Currency Fluctuations
Substantially all of the Company's business is conducted outside the
United States of America. There are certain risks inherent in doing business in
international markets, including tariffs, customs, duties and other trade
barriers, difficulties in staffing and managing foreign operations, problems in
collecting accounts receivable, longer accounts receivable payment cycles,
political instability, expropriation, nationalization and other political risks,
foreign exchange controls, technology export and import restrictions or
prohibitions, delays from customs brokers or government agencies, seasonal
reductions in business activity, subjection to multiple taxation regimes and
potentially adverse tax consequences, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company publishes its consolidated financial statements in United
States Dollars. However, all or substantially all of the Company's revenues and
expenses are denominated in currencies other than the United States Dollar. The
functional currencies for
6
<PAGE>
the Company's operations are primarily the United States Dollar, the Swiss
Franc, German Mark and Austrian Shilling. Certain of the Company's operations
record revenues in one currency while incurring costs in different currencies.
This currency imbalance has resulted, and may continue to result, in foreign
currency transaction gains and losses. Further, the Company is subject to risks
of currency exchange to the extent of currency fluctuations between the United
States Dollar and other currencies in which the Company transacts its business.
Currently, the Company does not actively hedge against exchange rate
fluctuations, although it may elect to do so in the future. Accordingly, changes
in exchange rates may have a material adverse effect on the Company's net sales,
cost of goods sold, gross margin and net income. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
Intense Competition; Pricing Pressure
The Company's business is characterized by intense competition, a trend of
declining average selling prices and performance enhancements of competing
products. The Company expects that competition will continue to be intense and
may increase from current or future competitors. In sales of telemanagement
(call accounting) systems, the Company competes primarily with Mer
Telemanagement, Inc. (Israel), Mind Systems Ltd., (Israel), Ring Master Pty.
Ltd. (Ireland), Soffing B.V. (Luxembourg), Moscom Corporation (USA) and Telco
Research, Inc. (USA), as well as numerous smaller regional competitors. In sales
of computer telephony products, the Company's main competitors are CTI Vision
Ltd. (United Kingdom), CTI Data Solutions, Inc. (USA), Callware Technologies,
Inc. (USA), Access Networking GmbH (Austria), Integro Advanced Computer Systems
(USA), Derlinda, Inc. (USA), Phonetastic Corporation (USA) and Dr. Neuhaus
(Germany).
Many of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
customer bases, than the Company. These competitors may respond more effectively
to new or emerging technologies and changes in customer requirements. There can
further be no assurance that one or more of the Company's customers or suppliers
will not develop competitive technology internally, thereby eliminating either
the need to obtain products from the Company or the willingness to provide
products to the Company. The Company expects to continue to experience increased
competition and significant price reductions, which could result in decreased
gross margin, loss of market share and lack of acceptance of the Company's
products. In the event of significant price competition in the market for the
Company's products, the Company believes that it must successfully develop and
introduce on a timely basis new products or products that incorporate new
features that can be sold at gross margins comparable to those on existing
products. To the extent that such new products are not developed in a timely
manner, do not achieve customer acceptance, or do not generate comparable gross
margins, the Company's profitability may decline. There can be no assurance that
the Company will be able to compete successfully in the future or that
competition will not have a material adverse effect on the Company s business,
financial condition and results of operations. See "Business--Marketing, Sales
and Distribution" and "Business--Competition."
Rapid Technological Change
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success will
depend to a substantial degree on its ability to develop and introduce in a
timely manner new products and improvements that meet changing customer
requirements and emerging industry standards. The development of new,
technologically advanced products and improvements is a complex and uncertain
process requiring high levels of innovation as well as the anticipation of
technology and market trends. There can be no assurance that the Company will be
able to identify, develop, manufacture, market, sell, or support new products
and improvements successfully, that new products or improvements will achieve
market acceptance, or that the Company will be able to respond effectively to
technology changes, emerging industry standards or product announcements by
competitors. New product announcements by the Company could cause its customers
to defer purchases of existing products or cause distributors to request price
protection credits or stock rotations. The Company's telemanagement and computer
telephony systems are designed for use by users which are connected to external
communications via one or more PBXs. Technological changes could result in
reduced industry utilization of PBXs as a means of communication or even PBX
obsolence. Any of the foregoing events could have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence on Telemanagement Products; New Product Lines
Approximately 90% of the Company's net sales for the fiscal year ended
February 28, 1997 were derived from the sale of telemanagement products (call
accounting systems). For the six-month period ended August 31, 1997,
approximately 78 % of the Company's net sales were derived from telemanagement
systems, and approximately 12% from computer telephony products. Although the
Company expects the proportion of its net sales derived from computer telephony
products to increase, telemanagement
7
<PAGE>
systems are expected to continue to account for the majority of net sales for
the foreseeable future. Many of the Company's competitors in the computer
telephony market are better positioned than the Company, having stronger brand
names, more extensive retail channel coverage, deeper consumer knowledge and
experience, and/or greater resources. Net sales and gross margins of the
Company's computer telephony products may be less predictable or less favorable
than its experience with telemanagement systems. In addition, the Company has
limited experience in the design, development, manufacture, marketing, and
support of these products, which are based on different technologies and
production processes. There can be no assurance that the Company will be
successful in this new market. See "Business--Products" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Dependence on OEMs, VARs and Telecommunications Service Providers
The Company markets its products primarily through distributors such as
OEMs, VARs and telecommunications service providers. This requires considerable
investments in marketing and technical support. The Company can only achieve a
return on such investment if it is able to make substantial sales to its
distributors and other customers over an extended period of time. Distributors,
however, may not purchase a product in sufficient volume as a result of changes
in end-users' preferences or their own decisions regarding product continuation,
further development and marketing. In many instances, the Company will not have
the opportunity or ability to influence its distributors' or end-user customers'
market behavior and may not recover its initial investment in developing and
introducing a new product. See "Business--Sales and Marketing." The Company's
sales have historically consisted primarily of telemanagement systems,
predominantly in Central Europe. The Company has limited experience in marketing
and selling other products and in other than that geographic region. As the
Company seeks to expand its product portfolio and the geographic regions in
which its products are sold, there can be no assurance that the Company will be
able to achieve sufficient market penetration with its products. The failure by
the Company to successfully develop its marketing capabilities could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
As of February 28, 1997, two customers, Alcatel (Austria) GmbH and the
Austrian PTT, represented 33% and 26% of total revenue, respectively. For the
six-month period ended August 31, 1997, one customer, the Zuercher Kantonalbank
(Zurich State Bank), accounted for approximately 16% of total revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview", "Business--Sales and Marketing" and
"Business--Competition."
Dependence on Key Personnel
The Company's success depends to a significant degree on the continued
services of its present executive management, including Mr. Roland Steiner, its
Chief Executive Officer and President, and other key personnel. The Company does
not maintain life insurance policies on the lives of any of its employees. The
loss of any of such employee could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
success also depends in part on successful assimilation and retention of key
personnel. Assimilation and retention of personnel may be more difficult since
the Company's management and key personnel are located in various places
worldwide, which requires the Company to coordinate different organizations
separated geographically and time-wise, and to integrate personnel with
disparate business backgrounds, cultures and languages. In addition, the Company
believes that its future success will depend on its ability to attract and
retain highly skilled managerial and other key personnel, the competition for
which is intense. There can be no assurance that the Company will be successful
in attracting and retaining such personnel, and the failure to attract and
retain key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Personnel" and "Management."
Product Return Risks
The Company is exposed to the risk of product returns by its customers.
Historical net sales may not be indicative of future net sales, in part because
a portion of the Company's net sales may result in increased inventory at the
distributor level. The short product life cycles of certain of the Company's
products and the difficulty in predicting future sales increase the risk that
new product introductions, price reductions or other factors affecting the
telemanagement and computer telephony industry would result in significant
product returns. Although the Company believes that it has provided adequate
allowances for projected returns, from time to time it may experience return
levels in excess of its accruals, and no assurance can be given that such
accruals will be sufficient for actual returns in future periods. In addition,
there can be no assurance that the accruals for price protection will be
sufficient, or that any future price changes will not have a material adverse
effect on the Company's results of operations. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and
"Business--Customer Service and Technical Support."
8
<PAGE>
Management of Growth
Execution and implementation of the Company's plan of operation will
require significant growth. The Company's current plans for growth will place a
significant strain on the Company's financial, managerial and other resources.
To efficiently manage its expected growth the Company will have to improve its
operational, financial and management information systems and to attract,
motivate and train key employees. If the Company's executives are unable to
manage growth effectively, the Company's business, operating results and
financial condition would be materially and adversely affected.
Dependence on Intellectual Property
The Company's success is heavily dependent upon proprietary technology.
The Company owns no patents and relies primarily on a combination of copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
contractual provisions to protect its proprietary rights. There can be no
assurance that others will not independently develop similar products or
duplicate the Company's products. As part of its confidentiality procedures, the
Company generally enters into nondisclosure agreements with its employees,
consultants and other third-party providers who work for the Company or have
access to confidential information. In addition, the Company limits access to
and distribution of its software, documentation and other proprietary
information. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy may become a problem. In addition, effective protection
of intellectual property rights may be unavailable or limited in certain
countries in which the Company currently sells products or in countries the
Company may target its sales efforts. Accordingly, there can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology. See "Business -- Intellectual Property."
There has also been a substantial amount of litigation in the software
industry regarding intellectual property rights. Although the Company has no
knowledge of any claims that it is infringing third parties' intellectual
property rights, there can be no assurance that third parties will not in the
future claim infringement by the Company with respect to current or future
products, trademarks or other proprietary rights. The Company expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in this industry segment is growing
and the functionality of products is increasingly overlapping. Any such claims,
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Voting Control
Mr. August Steiner, the Company's Chairman of the Board of Directors,
beneficially owns approximately 56% of the outstanding shares of Common Stock.
As a result, Mr. August Steiner is able to control most matters requiring
approval by the shareholders of the Company, including the election and removal
of directors and significant corporate transactions. Such control by Mr. August
Steiner could delay, defer or prevent a change in control of the Company, impede
a merger, consolidation, takeover or other business combination involving the
Company, or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. See "Management" and
"Principal Stockholders."
Future Sales of Restricted Securities; Registration Rights
All of the 4,500,000 currently outstanding shares of Common Stock,
including the 2,000,000 Shares offered hereby, have been issued and sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act. As such, all of such shares are "restricted securities" as
defined in Rule 144 promulgated under the Securities Act ("Rule 144"), and may
not be sold except pursuant to a current registration statement under the
Securities Act or an exemption from such registration requirements, such as that
afforded by Rule 144. The 2,000,000 Shares offered hereby generally will be
freely tradeable by persons other than affiliates of the Company, without
restriction or further registration under the Securities Act, if purchased from
the Selling Stockholders pursuant to a current registration statement. Absent a
current registration statement, such Shares may only be sold pursuant to an
exemption from registration such as Rule 144. Under Rule 144 (and subject to the
conditions thereof), all of the 2,500,000 shares owned by Mr. August Steiner
will become eligible for sale commencing February 28, 1998. The Registration
Statement of which this
9
<PAGE>
Prospectus forms a part has been filed by the Company pursuant to certain rights
granted to the Selling Stockholders with respect to the registration under the
Securities Act of the Shares. The sale of a substantial number of shares of
Common Stock or the availability of Common Stock for sale could adversely affect
the market price of the Common Stock prevailing from time to time. See
"Description of Securities--Registration Rights" and " Shares Eligible for
Future Sale".
No Dividends
Since its inception, the Company has not paid any dividends on the Common
Stock. The Company intends to retain future earnings, if any, to provide funds
for the operation of its business and, accordingly, does not anticipate to pay
any cash dividends on the Common Stock in the foreseeable future.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation law of the State of Delaware. In general, this law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" is defined to include mergers, asset sales and other transactions
potentially resulting in financial benefit to stockholders. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15 percent or more
of the corporation's voting stock.
These provisions could delay, defer or prevent a change of control of the
Company which could prevent the Company's stockholders from realizing a premium
through a non-negotiated change in control. The Company's stockholders, by
adopting an amendment to the Certificate of Incorporation or By-Laws of the
Company, may elect not to be governed by Section 203, effective twelve months
after adoption. Neither the Certificate of Incorporation nor the By-Laws of the
Company currently excludes the Company from restrictions imposed by Section 203.
Holding Company Structure; Reliance on Subsidiaries for Dividends
ComTelco is a holding company, the principal assets of which are its
Subsidiaries. While there are no restrictions under Swiss law, the German and
Austrian Subsidiaries may be subject to corporate law restrictions on their
ability to pay dividends to the Company. There can be no assurance that the
Company will be able to cause these Subsidiaries to declare and pay dividends or
make other payments it. The failure to receive such payments from its
Subsidiaries could have a material adverse effect upon the Company.
No Public Market; Risks of Low-Priced Securities; Potential Volatility of Stock
Price
Prior to this offering, there has been no public market for the Company's
Common Stock. The emergence of an active public trading market will, in part,
depend on a sufficient number of brokerage firms willing to engage in market
making activities with respect to the Company's Common Stock. There can be no
assurance that an active market will develop or continue for the Company's
Common Stock.
The Company plans to apply for listing of its Common Stock on the Nasdaq
SmallCap. The trading of the Common Sock on Nasdaq will be conditioned upon the
Company meeting certain asset, capital and surplus earnings and stock price
tests set forth by Nasdaq. Initial listing requirements include net tangible
assets of $4,000,000, public float of 1,000,000 shares, market value of public
float of $5,000,000, minimum bid price of $4.00, a minimum of 3 market makers, a
minimum of 300 shareholders of record, an operating history of one year and
adherence to certain corporate governance requirements. The Company believes
that it will be able to meet all such requirements, but there is no assurance
that it will satisfy all such requirements. To maintain eligibility for trading
on Nasdaq, the Company will be required to maintain net tangible assets in
excess of $2,000,000, and a minimum bid price of $1.00 per share. If the Company
is listed, but in the future should fail any of these tests, the Common Stock
may be delisted from trading on Nasdaq. The effects of delisting include the
limited release of the market prices of the Company's securities and limited
news coverage of the Company. Delisting may restrict investors' interest in the
Company's securities and materially adversely affect the trading market and
prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatile stock prices and possible delisting, low price stocks are subject to
additional risks of federal and state regulatory requirements and the potential
loss of effective trading markets. In particular, if the Common Stock were
delisted from trading on Nasdaq and the trading price of the Common Stock was
less than $5.00 per share, the Common Stock could be subject to Rule 15g-9 under
the Exchange Act which, among other things, requires that broker/dealers satisfy
special sales practice requirements, including making individualized written
suitability determinations and receiving purchasers' written consent, prior to
10
<PAGE>
any transaction. If the Company's securities were also deemed penny stocks under
the Securities Enforcement and Penny Stock Reform Act of 1990, this would
require additional disclosure in connection with trades in the Company's
securities, including the delivery of a disclosure schedule explaining the
nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of purchasers in
the Offering to sell their securities in the secondary market.
The market price of the Common Stock following this offering may be highly
volatile. Factors such as variations in the Company's revenue, earnings and cash
flow, the difference between the Company's actual results and the results
expected by investors and analysts and announcements of new product offerings,
marketing plans or price reductions by the Company or its competitors could
cause the market price of the Common Stock to fluctuate substantially. In
addition, the stock markets recently have experienced significant price and
volume fluctuations that particularly have affected companies in the Company's
industry and resulted in changes in the market prices of the stocks of many
companies that have not been directly related to the operating performance of
those companies. Such market fluctuations may materially adversely affect the
market price of the Common Stock.
Enforceability of United States Judgments
All of the Company's directors and executive officers, as well as the
Selling Stockholders named herein, reside outside the United States of America,
and substantially all of the assets of the Company and such persons are located
outside the United States of America. In addition, the Company's offices are
located outside of the United States. As a result, it may be difficult or
impossible for investors to effect service of process upon such persons within
the United States of America or to enforce against such persons in United States
courts judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the federal securities laws of
the United States of America.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered hereby. See "Selling Stockholders and Plan of Distribution."
DIVIDEND POLICY
The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate to pay any cash dividends to its stockholders in the foreseeable
future. Any future determination as to dividend policy will be made by the Board
of Directors of the Company in its discretion, and will depend on a number of
factors, including the future earnings, if any, capital requirements, financial
condition and business prospects of the Company and such other factors as the
Board of Directors may deem relevant. See "Risk Factors--Absence of Dividends."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1997. This table should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
August 31, 1997
---------------
Short-term Debt $ --
Long-term Debt --
Stockholders' Equity:
Preferred Stock, $.01 par value; 2,000,000 shares
authorized, no shares issued and outstanding --
Common Stock, $.00001 par value, 30,000,000 shares
authorized, 4,500,000 shares issued and outstanding 45
Additional Paid-in Capital 9,454,733
Accumulated Deficit (954,446)
Cumulative Foreign Currency Translation Adjustments (55,422)
-----------
Total Capitalization $ 8,444,910
===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
ComTelco and its Subsidiaries were founded by Mr. August Steiner, the
Company's Chairman of the Board of Directors and majority stockholder. In June
1993 and November 1995, Mr. August Steiner founded ComTelco Germany and ComTelco
Austria, respectively, to provide marketing and other services for MDE, a Swiss
corporation primarily engaged in the sale of medical equipment. Mr. August
Steiner owns the majority of the stock of MDE, and Messrs. Roland Steiner, the
Company's Chief Executive Officer and President, and Ramon Inauen, the Company's
Chief Operating Officer, own minority interests in MDE. In December 1996, Mr.
August Steiner purchased from MDE assets, primarily consisting of software and
hardware development. The purchase price for the assets was approximately
$5,200,000 which amount represented MDE's cost of acquiring and/or developing
the assets. In February 1997, Mr. August Steiner founded ComTelco Vertriebs and
ComTelco Research and contributed to such companies substantially all of the
assets purchased from MDE, which assets presently comprise substantially all of
the Company's software and hardware development assets. ComTelco was founded in
Delaware on February 27, 1997. As of February 28, 1997, the Subsidiaries became
wholly-owned subsidiaries of ComTelco in a transaction pursuant to which Mr.
August Steiner purchased 2,500,000 shares of Common Stock from ComTelco in
exchange for all of the outstanding equity interests in each of the four
Subsidiaries.
The Company sells its products and systems to four primary
buyers/distributors: to OEMs, to VARs, to telecommunications service providers
and, on a selective basis, to end-users. Representative customers of the Company
include: OEMs such as Ericsson (Austria) GmbH, Ericsson Schweiz AG, Alcatel
(Austria) GmbH, Alcatel Schweiz AG, Philips Schweiz AG, Matra S.A., DeTeWe
Deutsche Telefonwerke GmbH; VARs such as GFT Genossenschaft fuer
Telekommunikation, EgTel Einkaufsgenossenschaft Telekommunikation, Slit
Telematique S.A., Kapsch Telekommunikationssysteme GmbH, Siemens (Austria) AG
and Siemens Schweiz AG; telecommunication service providers such as Swisscom AG
and the National Telephone Company of Austria ("Austrian PTT"); and end-users
such as Credit Suisse, Zuercher Kantonalbank (Zurich State Bank) and UNICEF.
The Company publishes its consolidated financial statements in United
States Dollars. The functional currencies for the Company's operations, however,
are primarily the United States Dollar, the Swiss Franc, German Mark and
Austrian Shilling. Fluctuations in exchange rates for these foreign currencies
against the United States Dollar may positively or adversely affect the
Company's results of operations. The Company does not actively hedge against
exchange rate fluctuations, although it may elect to do so in the future.
12
<PAGE>
Net Sales
Net sales increased by 473% from $171,588 for the six months ended August
31, 1996 (the "1996 Six Months") to $982,920 for the six months ended August 31,
1997 (the "1997 Six Months"). The increase is primarily attributable to
initiation of sales in Switzerland during the 1997 Six Months. Sales of
telemanagement systems accounted for approximately 100% and 78% of the Company's
net sales in the 1996 Six Months and the 1997 Six Months, respectively.
Approximately 12% of the Company's net sales for the 1997 Six Months was
attributable to the sale of computer telephony products, which products were
launched for sale during the year ended February 28, 1997. Prior to the year
ended February 28, 1997, the Company's efforts were devoted to the preparation
of entering its potential markets and no sales were generated prior to that
year. The Company anticipates a shift in its product mix in favor of computer
telephony products in subsequent periods.
Gross Profit
Gross profit as a percentage of net sales ("gross profit margin")
decreased by 14% from 89% for the 1996 Six Months to 75% for the 1997 Six
Months. The decrease is primarily attributable to duties which the Company
accrued during the 1997 Six Months. Gross profit margin for the 1997 Six Months
increased by 5% to 75% from 70% for the year ended February 28, 1997.
Marketing and Selling
Marketing and selling expense was $179,937 for the 1997 Six Months.
Marketing and selling expense for the 1996 Six Months was minimal and was
included as part of general and administrative expense. The increase is
primarily the result of initiation of selling efforts in Switzerland and
expansion of selling efforts in Austria and Germany.
Research and Development
Research and development expense was $172,323 for the 1997 Six Months.
Research and development expense for the 1996 Six Months was minimal and was
included as part of general and administrative expense. The increase reflects
the fact that the assets used in connection with the Company's research and
development activities were contributed to the Company subsequent to the 1996
Six Months. Software development costs incurred prior to technological
feasibility are expensed as incurred. The Company defines establishment of
technological feasibility as the completion of a working model. Software
development costs incurred subsequent to the establishment of technological
feasibility through the period of market availability of products are
capitalized and then depreciated over the estimated useful life of the product.
General and Administrative
General and administrative expense increased by 232% from $231,322 for the
1996 Six Months to $768,349 for the 1997 Six Months. The increase is primarily
attributable to increases in salaries, rent and professional fees associated
with expanded operations and financing activities.
Depreciation and Amortization
Depreciation and amortization expense increased from $4,107 for the 1996
Six Months to $429,769 for the 1997 Six Months. The increase primarily reflects
the amortization of software and hardware development assets acquired subsequent
to the end of the 1996 Six Months.
Liquidity and Capital Resources
Since 1993 the Company has financed its operations and capital
requirements primarily through cash flow from operations and additional equity
from its shareholders. As of August 31, 1997, the Company had working capital of
$3,727,748, including $3,439,980 owing to the Company at that date under the
Interfinance Note. At August 31, 1997, the Company had bank overdrafts in the
total amount of $174,760 which overdrafts are secured by the pledge of the
Company's cash accounts with a Swiss bank. The Company does not have any other
loans or other forms of debt apart from its accounts payables. The Company
intends to bridge cash flow shortfalls, should they arise, through short-term
borrowings in the currency of the subsidiary where such shortfalls arise.
As of February 28, 1997, ComTelco issued 2,000,000 shares of Common Stock
to Interfinance in consideration of $4,000,000, the par value of which shares
($20) was paid in cash and the balance of which was paid by delivery of the
Interfinance Note. The Interfinance Note bears interest at 5.8% per annum and is
secured by a pledge to ComTelco of the shares of Common Stock issued to
Interfinance. Under the terms of the pledge agreement, the shares are subject to
release of the Company's security interest ratably
13
<PAGE>
upon partial repayment of the Interfinance Note. As of October 31, 1997,
Interfinance has repaid $1,505,000 of the principal amount of the Interfinance
Note from funds received from purchasers of a portion of its shares.
Based on its plan of operation, the Company believes that its existing
resources, including the proceeds which the Company expects to receive upon
repayment of the balance of the Interfinance Note, will be sufficient to fund
the Company's operations at least for the next 12 months. The Company may,
however, need to raise additional capital from public or private equity or debt
sources in order to finance its plan of operation. In addition, the Company may
need to raise additional funds in order to take advantage of unanticipated
opportunities, including more rapid international expansion or investments in,
or strategic alliances with, companies that are complementary to the Company's
current operations, or to develop new products or otherwise respond to
unanticipated competitive pressures. The Company's capital requirements may vary
materially from those now planned due to a number of factors, including the rate
at which the Company can produce its products, the success of the Company in
marketing and selling its products, the ability of the Company to develop new
products in an efficient and timely manner, the competitive position of the
Company's products, and the response of competitors to the Company's products.
Also, should Interfinance fail to pay the Interfinance Note when due, the
Company will need additional capital. There can be no assurance that additional
financing will be available when needed on terms acceptable to the Company, or
at all.
BUSINESS
Overview
The Company designs, develops, manufactures and markets integrated
hardware and software products designed to enable users to monitor, manage and
integrate their telecommunications activities to achieve greater efficiency and
cost savings. The Company's products, which consist of telemanagement and
computer telephony systems, connect to and interface with most modern PBXs, as
well as client/server computer networks, and are able to process all modes of
communication conducted through PBXs. The Company's telemanagement systems
consist of single and multi-site call accounting, billing and cost distribution
systems. The Company's computer telephony systems presently consist of PC
screen-based telephone dialing and faxing systems. The Company's products are
modular and scalable, enabling them to be integrated to form a more complete
telecommunications management system.
The Company's target market consists of corporations and other
organizations which are connected to external communications lines via one or
more PBXs. Presently, the Company's end-user customer base exceeds 3,500
installations, primarily located in Central Europe. The majority of the
Company's revenue has been generated from the sale of telemanagement systems.
For the 1997 Six Months, approximately 78% of the Company's net sales were
derived from the sale of telemanagement systems, and the balance was
attributable to the sale of computer telephony products. The Company launched
the sale of its computer telephony products during the year ended February 28,
1997 and anticipates a shift in its product mix in favor of these products in
subsequent periods.
The Company sells its products and systems to four primary
buyers/distributors: to OEMs, to VARs, to telecommunications service providers
and, on a selective basis, to end-users. Representative customers of the Company
include: OEMs such as Ericsson (Austria) GmbH, Ericsson Schweiz AG, Alcatel
(Austria) GmbH, Alcatel Schweiz AG, Philips Schweiz AG, Matra S.A., DeTeWe
Deutsche Telefonwerke GmbH; VARs such as GFT Genossenschaft fuer
Telekommunikation, EgTel Einkaufsgenossenschaft Telekommunikation, Slit
Telematique S.A., Kapsch Telekommunikationssysteme GmbH, Siemens (Austria) AG
and Siemens Schweiz AG; telecommunication service providers such as Swisscom AG
and the National Telephone Company of Austria ("Austrian PTT"); and end-users
such as Credit Suisse, Zuercher Kantonalbank (Zurich State Bank) and UNICEF.
The Company's telemanagement systems (call accounting), of which there are
presently four models, are comprised of proprietary hardware which monitors
communications transmitted through the user's PBXs. The recorded data is then
transmitted via an interface the user's PC or client/server network containing
the Company's proprietary software. Reports can then be generated directly from
the PC terminals. Depending on the model, the Company's telemanagement systems
can process transmissions carried by single or multiple telecommunication
service providers and for users with up to 999 independent company structures
and up to 999 PBXs per company. As such, these systems can and are being
utilized by small companies with few employees as well as large multinational
companies with numerous branch offices.
The Company's computer telephony systems, presently consisting of PC
screen-based telephone dialing, faxing and cellular messaging systems, are
comprised of proprietary hardware and PC-resident proprietary software. These
systems allow users to dial telephone numbers or send facsimiles directly from
their PC screen from within any Windows(R) application, enabling them to use all
existing telephone and facsimile numbers accessible from their PC. The systems
include least-cost routing of transmissions which are designed to ensure that
the communication is routed in the cheapest manner available at the particular
time for the particular destination. Such routing may occur, for example, via a
leased communication line, the Internet or independent carriers.
14
<PAGE>
The Company has also developed, and is currently in beta phase testing of,
a workstation-based telephone call recording system which permits users to
digitally record telephone conversations automatically or selectively. The
recorded conversations can be stored in a typical Windows(R) format, allowing
the files to be re-used in any multimedia application, transmitted via e-mail or
simply stored for later reference. The system can be installed in workstations
on a selective basis without incurring the costs associated with installing
larger centralized systems. The Company intends to develop additional computer
telephony systems which can be integrated with the Company's telemanagement
systems to enable users to communicate in a more efficient and cost-effective
manner.
Organization
ComTelco and its Subsidiaries were founded by Mr. August Steiner, the
Company's Chairman of the Board of Directors. In June 1993 and November 1995,
Mr. August Steiner founded ComTelco Germany and ComTelco Austria, respectively,
to provide marketing and other services for MDE, a Swiss corporation primarily
engaged in the sale of medical equipment. Mr. August Steiner owns the majority
of the stock of MDE, and Messrs. Roland Steiner, the Company's Chief Executive
Officer and President, and Ramon Inauen, the Company's Chief Operating Officer,
own minority interests in MDE. In December 1996, Mr. August Steiner purchased
from MDE assets primarily consisting of software and hardware development. The
purchase price for the assets was approximately $5,200,000, which amount
represented MDE's cost of acquiring and/or developing the assets. In February
1997, Mr. August Steiner founded ComTelco Vertriebs and ComTelco Research and
contributed to such companies substantially all of the assets purchased from
MDE, which assets presently comprise substantially all of the Company's software
and hardware development assets. ComTelco was founded in Delaware on February
27, 1997. As of February 28, 1997, the Subsidiaries became wholly-owned
subsidiaries of ComTelco in a transaction pursuant to which Mr. August Steiner
purchased 2,500,000 shares of Common Stock from ComTelco in exchange for all of
the outstanding equity interests in each of the four Subsidiaries.
As of February 28, 1997, ComTelco issued 2,000,000 shares of Common Stock
to Interfinance, in consideration for $4,000,000, the par value of which shares
($20) was paid in cash and the balance of which was paid by delivery of a
Promissory Note due on February 28, 1998 in the principal amount of $3,999,980
(the "Interfinance Note"). The Interfinance Note bears interest at 5.8% per
annum and is secured by a pledge to ComTelco of the shares of Common Stock
issued to Interfinance. Under the terms of the pledge agreement, the shares are
subject to release of the Company's security interest ratably upon partial
repayment of the Interfinance Note. As of October 31, 1997, Interfinance has
repaid $1,505,000 of the principal amount of the Interfinance Note from funds
received from purchasers of a portion of its shares. As a condition to the sale
of the shares to Interfinance, the Company entered into a Registration Rights
Agreement dated as of February 28, 1997, pursuant to which the Company agreed to
register such shares for resale under the Securities Act.
Business Strategy
The Company's goal is to expand its business by focusing development and
marketing efforts on high value products designed to manage, monitor and
integrate corporate communications systems to achieve efficiency and substantial
cost savings. Key elements of the Company's strategy include:
Strategic Geographic Expansion
The Company will seek to position itself in strategic international
markets in which OEMs and other large customers are located. The Company expects
that this will enable it to provide required back-up support to its customers
and regional customization of its products. The Company intends to build a
network of sales-support and technical-support locations to strategically cover
significant markets. Further expansion of locations will be based on potential
sales and available partners.
Product and Technology Development
The Company attempts to focus its product and technology development
efforts on technology developments and standards which it believes will
represent the next generation of usage. The Company has developed applications
using industry-wide standards such as Computer Supported Telephony Application
(CSTA) and Microsoft's Telephony Application Programming Interface (TAPI)
protocol. The Company designed its product platforms for the Microsoft NT
operating system.
15
<PAGE>
Development of Scalable Corporate Communications Solutions
The Company is devoted to the development of open, scalable solutions
which can be marketed as individual products, but are designed to form a more
complete, global communications solution when combined. The Company believes
that its target customers will initially use one or several communication
applications to meet its immediate goals, and will then add further applications
and solutions to enhance productivity. By developing scalable solutions,
customers are able to purchase products for specific applications as desired.
These products can later be combined with other products without the need to
upgrade the entire system.
Joint Ventures and Intensification of Relations with OEMs and large customers
The Company will aggressively pursue joint ventures and try to intensify
its relations with OEMs and other large customers to increase its overall market
coverage. The Company believes that this will also reduce the number of markets
in which the Company will be required to devote marketing resources to promote
the Company's ideology for global communications solutions. Intensification of
relations with OEMs and large accounts will further enable the Company to
improve its awareness and knowledge of the areas of activity of its partners
which the Company expects will result in a closer customization of its products
and in closer bonds to its partners.
Expand Platform and Open Interfaces
The expansion of the product platform and open interfaces are among the
prime priorities in the development of the Company's products.
Telecommunications and data processing have historically not been interfaced.
The Company believes that communication management systems will become central
parts of modern corporate information technology systems. Thus the Company's
communication management systems are designed to be interfaced with
telecommunications and information technology.
Industry Background
Telecommunications management as conceived by the Company is the process
by which one or more modes of communication are managed, monitored, and
integrated in a manner designed to achieve high efficiency and substantial cost
savings. Telecommunication management initially took the form of call accounting
and was first utilized in its most basic form by telephone and telegraph
companies to help assure accurate and proper billing. As companies and other
users of telephone and telegraph services began to increasingly utilize these
communications services, they also started to employ call accounting systems.
For communications users, call accounting systems provided a means to monitor
and assess costs (either within a predefined work group or otherwise). Call
accounting allowed the detection of calls which were not directly affiliated
with a company's business, thus allowing the company to identify misuse of the
company's telephone lines. Call accounting made it possible to define the amount
of time spent on the phone by individuals or entire departments and allocating
the cost of telephony to appropriate profit centers. The process by which call
accounting is conducted has not changed significantly since the advent of the
PBX. A PBX is a hardware device which serves a switch, connecting the user's
internal telephone system with external telephone lines. With the popularization
of new modes of communication such as mobile telephones, pagers, facsimile,
Internet access and new communications devices such as Asynchronous Transfer
Mode (ATM) switches, routers, bridges, fax servers, and e-mail gateways,
traditional call accounting systems no longer suffice to accomplish the
end-users' entire communication management needs. Call accounting systems can
only report on communications (mostly only telephony) through a PBX. Call
accounting systems have traditionally been limited in application to a single
PBX rather than multiple PBXs which large organizations with numerous offices
may utilize. As a result, traditional call accounting systems have been limited
in their ability to provide a broad perspective of the communication of large
organizations.
The ComTelco Approach
The Company believes that the core of any modern communication management
system must comprise a central database, which accurately records information
about all incoming/outgoing communications to and from all communications users,
devices and services. The Company thus started the development of its products
with traditional call accounting technology when it was founded, enhancing its
products in a manner designed to permit migrating from call accounting through
telemanagement to complete communication management. The Company's
telemanagement systems suit the purpose of a core communication management
system because it forms a scalable platform for an organization's communication
management needs, interacting with peripheral computer telephony (CT)
applications. The Company's telemanagement systems, therefore, not only manage
and account for communications but are designed to make complex communications
procedures available to a wide range of business users. The Company's
telemanagement systems and computer telephony products are comprised of a number
of modular products with varying applications, permitting customers to combine
products to suit their specific needs in an effort to communicate more
efficiently. The Company's telemanagement systems include simple call accounting
products for a single PBX or a platform for global, corporate communications.
16
<PAGE>
The Company believes that it offers one of the leading telemanagement call
accounting systems in terms of both hardware and software, offering products
which are adaptable to both large and small users.
Products
Telemanagement
The Company introduced its first product line of telemanagement systems in
Austria in 1995, and has achieved a market share of approximately 85% in
Switzerland and 50% in Austria, respectively. Since December, 1996 the Company
has been aggressively marketing its telemanagement systems in Germany, and the
Company will continue to seek to market its products in other significant
markets.
The Company's telemanagement systems include a number of features which
the Company believes offer advantages over other available systems. The
Company's systems are offered in a number of models, for small single-site users
to multi-site global corporations. The Company's systems are designed to serve
as a platform for other computer telephony applications. Reports on all
connected communication devices can be generated. A report generator allows the
customer to exactly define the types of reports needed. The systems can be fully
automated to produce reports automatically. The Company believes it was the
first supplier of telemanagement systems to provide a 32-bit Windows NT
application. The Company's telemanagement systems rely on proprietary hardware
to collect communication data. Its proprietary hardware permits continuous 24
hour operation due to the fact that unlike in PBXs, there are no moving parts in
the Company's hardware, which could cause the system to break down. The
Company's systems interface with System Management Data Record (SMDR) ports,
making them compatible with most modern communications equipment. The Company's
systems can be installed at a single PBX site or multiple PBX sites, allowing
the connection of remote branch offices.
The Company's telemanagement systems include the following products:
CT-2.5 Low cost call accounting system. This system has a full-fledged network
system allowing 30 to 50 users (telephone extensions) to access the data
at the same time without the possibility of data loss; it is comprised
of the Company's proprietary hardware which the Company believes has a
very high degree of safety concerning data security and loss of data
records.
CT-2.6 Medium range call accounting system. This system has the same features
as the CT-2.5, but additionally provides call accounting for 50 to 300
users.
CT-2.7 Medium range call accounting system: This system has the same features
as CT-2.6, but also allows the handling of multisite call accounting.
The system can calculate multiple carriers rates including special rates
and discounts for each carrier. It can handle prefix based calculation
as well as distance based calculation, has a database including all
major cities, with prefix and longitude and latitude values for each,
thus allowing a distance calculation between any two major cities in the
world. Additionally, CT-2.7 allows multiple branch office's data to be
collected centrally.
MS32 High-end call accounting and telemanagement system: Multi-site,
multi-carrier operation. The system can generate reports consistent with
the user's organizational structure thus allowing insight into the
communications cost and behavior of divisions, departments, work groups
or individuals. The system can handle up to 999 independent company
structures, with 999 telecommunication systems or PBXs per company and
up to 9 organizational levels per company. The system can be used by
very large organizations with multiple branch offices and subsidiaries
worldwide. Users can compare historic data with rates and tariffs of
alternate carriers or infrastructure, enabling the user to predetermine
a more efficient means of conducting its telecommunications. The MS32
system covers a range of business situations, including: time sharing of
workplaces, and one person with multiple workplaces. The system can be
completely automated and all remote sites can be configured from one
central location.
Computer Telephony
The Company's computer telephony applications are developed on a client
server basis and have been devised as open systems to be able to operate from
within any Windows(R) application. The Company's computer telephony applications
are compatible with most existing personal computer networks. The system has
been developed and adapted to most major brands of PBX systems and can be
modified to work with almost any current generation PBX.
17
<PAGE>
Screen based dialing
The Company's screen based dialing system CD 1.7 allows users to dial
telephone numbers directly from their workstation screen from within any
Windows(R) application, enabling them to use all existing data available on
their networks. (customers, suppliers, employees, electronic telephone
directories, CD-ROM buyer's guides, call back requests by e-mail and many more.)
The system includes least cost routing, ensuring that the cheapest method of
communication is used at any particular time for any particular destination,
including leased lines (if such leased lines are available for the specified
type of communication).
Screen based faxing
The Company's screen based faxing product CD 1.0, the first units of which
were shipped in May 1997, works similarly to screen based dialing: the user
selects a fax number and a document from within any Windows(R) application,
enters a comment and title page if desired, and sends the document.
Alternatively, the user can print any document directly to the "virtual fax"
printer driver, enter or select the fax number from a list, and send, or simply
press the com-client hot key from within any application, enter or select the
fax number from a list, and send. The system fully supports least cost routing.
Screen based messaging
The Company's screen based messaging system allows users to highlight a
text from withing any Windows(R) application and to send such text to cellular
pagers or cellular telephones which are otherwise able to receive text messages.
Similarly, messages can be sent to e-mail boxes without having Internet access
or use of a browser or e-mail application.
Personal workstation based, digital, telephony recording devices
The Company is currently in beta phase testing of a telephony-recording
system, which allows the user to digitally record telephone calls at his
workstation manually or automatically. Each workstation can be configured to
record calls on demand, either by pressing a hot key or at the beginning of a
call through a pop up window which asks if the call should be recorded or not.
Alternatively, the system can be configured to record all calls and at the end
of a call, pop up a window, which prompts the user to indicate whether the
recording of the just completed call should be saved or discarded. The system
can also work on a client server base, recording all calls to a central file
server for later review. The recorded conversations can be stored in a standard
Windows format allowing the files to be reused in any multi media application,
distributed via e-mail or simply stored for further reference. The system
enhances any workstation to include the feature of call recording at a fraction
of the cost or large centralized systems. The system can also be used for
playing existing sound files over the telephone, providing an easy way to play
recurring information to a caller, or enabling another party to listen to a
phone conversation just held with someone else. The Company believes that
because of the features described, this telephony recording will be superior to
the currently available systems.
Technology
The Company's products have been designed and developed adhering to
international standards and specifications. The design and development of the
products require multiple engineering disciplines such as: mechanical,
electrical, electronic, high and low level software engineering. The design and
development of the Company's hardware takes place in Appenzell, Switzerland. The
production facility is ISO 9000 certified (ISO 9000 is an international
manufacturing standard) and fully equipped to handle four layer Printed Circuit
Boards (PCBs) and robotic, Surface Mounted Device (SMD) assembly. The Company is
conducting basic research in technologies such as: frame relay, Asynchronous
Transfer Mode (ATM), Synchronous Digital Hierarchy (SDH) and other broadband
communication protocols.
Most of the Company's research and development resources are devoted to
software design and development as well as to strategic product design.
Approximately 10% of the Company's research and development resources are
devoted to the development and design of hardware which has been out-sourced to
independent research facilities. Core hardware and technology design, however,
is conducted in the ComTelco development centers. See "Business -- Research and
Development."
The Company's products incorporate the following principal technologies:
I. Microprocessor technology. Microprocessors are incorporated into the
Company's telemanagement products. The Company employs microprocessors and
software design to permit for the simplest hardware and memory
requirements which can be used consistent with high execution speeds.
18
<PAGE>
II. Interface technology. The Company's products interface with a number of
systems and devices, both from a traditional telecommunications and an
information technology perspective. Interface capacities are sometimes
limited for a certain task to be performed. The Company therefore utilizes
interface design and implementation to allow for additional connectivity
options and improved data throughput.
III. Integrated Services Digital Network ("ISDN"). Many of the Company's
products are based on ISDN in all European protocols. The Company's OEM
customers often have proprietary ISDN protocols, which continuously
require the Company to maintain a high degree of ISDN expertise.
IV. Memory optimization and hardware compression technology. The Company's
telemanagement systems store large amounts of data, sometimes over a long
period of time. Large amounts of data must be stored and processed in
cost-effective independent hardware devices, which is accomplished through
hardware data compression and decompression.
V. Power management. Since the Company's telemanagement systems are required
to work even in the event of a power outage, the Company has developed
power management systems for its products which provide maximum
accumulator capacity during years of operation. In the event of a complete
black-out, the system can keep its customers from losing data for as long
as 14 days without auxiliary power. The Company's Phantom line driver is a
signal amplification device which can operate without its own power
supply, relying on power relayed by other products of the Company.
VI. Low level software development. The Company's engineers and programmers
from time to time work jointly with OEM customers to assist the customers
with the proper functioning of their own interfaces. The Company maintains
a team from the former Soviet Union space program which has developed low
level software development expertise for this purpose.
VII. High level and API software development. High level software development
and Application Programming Interface (API) design constitute the largest
portion of ComTelco's research and development force. All relevant
software development guidelines and standards are adhered to, to produce
software and user interfaces for products which are fully compatible to
its intended platforms.
Research and Development
The Company's subsidiary, ComTelco Research, is responsible for the four
research and development centers in Switzerland, Austria, Russia and China.
These centers have been geographically placed to address a variety of
international concerns and development specifications. As of October 1, 1997 the
Company employed at such centers a total of 19 full time employees, 17 of whom
are dedicated to software development. The Company out-sources most of its
hardware development to a Swiss company located in Appenzell, Switzerland.
Strategic development and research is conducted at the Company's
headquarters in Switzerland. Development engineers are involved in management
and product development and the coordination of all global research and
development activities. The Company believes that Switzerland is an ideal test
ground for new developments and pre-release beta testing.
The research and development center in Austria, was established since many
of the Company's OEM and other large customers have their European testing
centers for computer telephony products in Vienna. The research and development
center in Austria allows the Company to collect data on market developments and
trends. It also allows the Company to form a closer relationship with its OEM
customers through technical cooperation. The University of Vienna provides a
source of skilled development engineers.
At its research and development facility in Russia, the Company is able to
recruit former university level researchers at affordable cost.
In its latest center in China, the Company is able to have skilled
personnel do research and development at low cost and in close proximity to the
South East Asian market. The Company intends to expand the development center in
China, and may also open a hardware development center in China in early 1998.
The Company may seek to enter the United States market in the future and
may open a research and development center in the United States once an East
Coast sales and support office is established.
The Company acquired the assets used in connection with its research and
development activities in February 1997. No amounts were reported for research
and development expenses in any of the last two fiscal years, as all such
amounts were minimal and included as part of general and administrative expense.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<PAGE>
Marketing, Sales and Distribution
The Company's telemanagement and computer telephony products are sold
through the same distribution channels.
Apart from participation in trade shows, the Company has not been involved
in any major advertising or marketing campaigns. The Company intends to expand
its advertising and marketing efforts substantially in the second half of 1997
through professional public relations and media work, advertising campaigns and
direct mailings as well as a web site, intended to provide a potential customer
with live demo systems and existing users with technical support and product
updates. The Company has mainly focused its marketing activities on OEM and
large distribution accounts, and the Company believes that relations with OEM
and large distribution accounts will further its expansion. The Company's goal
is to achieve a mix of sales channels comprising of approximately 30% OEM and
large accounts, approximately 30% large over-regional VARs and large
distributors, approximately 20% small and medium regional dealers, approximately
10% large, global, corporate accounts and approximately 10% direct sales of
small and medium systems.
The Company maintains sales and distribution offices in Switzerland,
Germany, Austria, Russia and China.
Customer Service and Technical Support
The Company maintains customer service and technical support operations in
Switzerland, Germany, Austria, Russia and China. The Company provides different
levels of technical support to its large OEM accounts, to its distributors and
resellers, and to end-users who have purchased products from the Company or one
of its smaller distributors or resellers. All support is limited to installation
trouble shooting, technical problem solving or bug reporting. End-user problems,
which generally require proper user manual referencing, are handled on a pay per
call hotline. The coordination center for international technical support is
managed within ComTelco Research and is located in St. Gallen, Switzerland,
where German, English and French language support is provided. Key French
speaking accounts are serviced from the technical support in Geneva. Local
technical support is provided from Frankfurt for Germany, from Vienna for
Austria, from Shanghai for China and from Moscow for Russia. Hardware defects
are usually handled through the exchange of the defective devices and systems.
Key accounts with service contracts have access to technical support via a
dedicated hot line number, and can be accessed by the Company's remote
diagnostics and technical support feature which is included in all larger
installations of the Company's products.
The Company generally provides a 365-day limited warranty on its products.
Such warranty is limited to defective or non-functioning systems or parts
thereof and excludes malfunction through misuse. The Company offers service
contracts to its customers at generally 10% of the system price annually.
In the markets where the Company is active, it is insured against
liability resulting from malfunctioning of systems or components or errors
caused by its employees. The insurance coverage is set at 4,000,000 Swiss Francs
(approximately $2,700,000). Separate insurance policies are negotiated for each
new market in which the Company intends to becomes active.
Manufacturing
The Company has out-sourced all of its hardware manufacturing. Although
the Company presently utilizes only one manufacturer, kuk electronic AG ("kuk"),
a Swiss corporation located in Switzerland, the Company believes that there are
numerous manufacturers suitable for the Company's needs. During the year ended
February 28, 1997 the Company relied on MDE as its principal supplier, due to
MDE's ability to obtain volume pricing from manufacturers. See "Certain
Transactions." As the Company became able to obtain volume pricing on its own
during the 1997 Six Months, the Company replaced MDE with kuk as a principal
supplier. The Company is in possession of all proprietary documentation and
materials necessary for manufacturing, and the Company believes that it could
change manufacturers at any time without significant interruption of production
or incurring substantial additional expense. Certain hardware used in the
Company's computer telephony products is imported from Taiwan, fully assembled
pursuant to the Company's specifications. Such components can, however, also be
sourced at a number of other suppliers worldwide. Software media and printed
matter such as user and reference manuals are also out-sourced on an order basis
and can be updated regularly on the basis of digital information exchange.
Product packaging is out-sourced and shipped directly to the hardware
manufacturer where completed products
20
<PAGE>
are packaged, and delivered to the Company, ready to ship. All products are
distributed from Switzerland, either directly to large customers or to the
Company's subsidiaries for further distribution to smaller customers.
Competition
The Company's business is characterized by intense competition, which
results in decreasing sales prices and improvements of competing products. The
Company expects that competition will continue to be intense and may increase
from current or future competitors. In sales of telemanagement (call accounting)
products, the Company competes primarily with Mer Telemanagement, Inc. (Israel),
Mind Systems Ltd. (Israel), Ring Master Pty. Ltd. (Ireland), Soffing B.V.
(Luxembourg), Moscom Corporation (USA) and Telco Research., Inc. (USA), as well
as numerous smaller regional competitors. In sales of computer telephony
products, the Company's main competitors are CTI Vision Ltd. (United Kingdom),
CTI Data Solutions, Inc. (USA), Callware Technologies, Inc. (USA), Access
Networking GmbH (Austria), Integro Advanced Computer Systems (USA), Derlinda,
Inc. (USA), Phonetastic Corporation (USA) and Dr. Neuhaus (Germany).
Many of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
customer bases, than the Company. Unlike the Company which has no patent
protection, certain of the Company's competitors may have patents or
intellectual property rights which provide them with an advantage. These
competitors may be able to respond more effectively to new or emerging
technologies and changes in customer requirements. There can be no assurance
that one or more of the Company's customers or suppliers will not develop
competitive technology internally, thereby eliminating either the need to obtain
products from the Company or the willingness to provide products to the Company.
The Company expects to continue to experience increased competition and
significant price deterioration, which could result in decreased gross profit
margin, loss of market share and lack of acceptance of the Company's products.
In the event of significant price competition in the market for the Company's
products, the Company believes that it must successfully develop and introduce
on a timely basis new products or products that incorporate new features that
can be sold at gross margins comparable to those on existing products. To the
extent that such new products are not developed in a timely manner, do no
achieve customer acceptance or do not generate comparable gross margins, the
Company's profitability may decline. There can be no assurance that the Company
will be able to compete successfully in the future or that competition will not
have a material adverse effect on the Company s business, financial condition
and results of operations.
Intellectual Property
The Company's success is dependent upon proprietary technology. The
Company owns no patents and relies primarily on a combination of copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
contractual provisions to protect its proprietary rights. There can be no
assurance that others will not independently develop similar products or
duplicate the Company's products. As part of its confidentiality procedures, the
Company generally enters into nondisclosure agreements with its employees,
consultants and other third-party providers who serve the Company in any
technical capacity or who have access to confidential information of the
Company. In addition, the Company limits access to and distribution of its
software, documentation and other proprietary information. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy may become a
problem. In addition, effective protection of intellectual property rights may
be unavailable or limited in certain countries in which the Company currently
sells products or in countries the Company may target its sales efforts.
Accordingly, there can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.
Personnel
As of October 1, 1997 the Company had a total of 43 permanent and
temporary employees of whom 19 were in research and development, 3 where in
logistics, 10 were in sales, 6 were in administration and 5 were in technical
support. Of the total number of employees, 26 were in Switzerland, 3 were in
Austria, 3 were in Germany, 4 were in China and 7 were in Russia. None of the
Company's European employees are represented by a labor union or subject to
collective bargaining agreements. In certain foreign countries such as China the
Company is subject to laws regarding employee rights which include requirements
similar to collective bargaining agreements. The Company believes that there its
employee relations are good.
The Company's success depends to a significant degree on the continued
contributions of the Company's management and other key employees in the design,
development, marketing and sales areas. The loss of any such personnel could
have a material adverse
21
<PAGE>
effect on the Company's business, its financial condition and results of
operations. Certain of the Company's senior management and other key personnel
have recently joined the Company. The Company's success will depend in part on
the successful assimilation of these and other new employees. Assimilation and
retention of personnel may to some degree be negatively affected because the
Company's management and other key personnel are dispersed throughout various
locations world wide, which requires the Company to coordinate organizations
separated by geographical location and time zone and to integrate personnel with
disparate business backgrounds, cultures and languages. In addition, the Company
believes that the future success will depend on its ability to attract and
retain highly skilled managerial, engineering, operations, marketing and sales
personnel.
Facilities
The Company's operational headquarters comprise approximately 8,000 square
feet of office and storage space located in St. Gallen, Switzerland. The space
is leased from MDE. See "Certain Transactions." The annual rent is 145,352 Swiss
francs (approximately $100,000). The lease is for an indefinite period of time
and can be terminated by either party with six months' notice to the end of each
calendar quarter. The site houses the Company's corporate management, corporate
and Swiss administrations and accounting, European logistics, technical support
and research and development departments.
The Company's operational headquarters are located in Switzerland. The
Company also maintains sales and support offices in Germany and Austria. Its
software development centers are located in Switzerland, Austria, Russia and
China. The Company develops hardware in Switzerland.
Litigation
The Company is not a party to any legal proceedings.
MANAGEMENT
Directors, Executive Officers and Key Personnel of the Company
The Company's directors, executive officers and key personnel are as
follows:
Name Age Position with the Company
---- --- -------------------------
August Steiner(1)(2) 56 Chairman of the Board of Directors
Roland Steiner 31 President, Chief Executive Officer and Director
Ramon Inauen 33 Chief Operating Officer and Director
Claudia Sutter 31 Chief Financial Officer, Treasurer and Director
Klaus Brenner(2) 41 Director
Gian Franco Cocilovo(2) 58 Director
- ----------
(1) May be considered a founder of the Company as that term is defined under
the Securities Act of 1933.
(2) Member of the Audit Committee.
August Steiner has served as Chairman of the Board of Directors ComTelco
since inception. Since December 1992, he has also been Chairman and majority
stockholder of MDE, a Swiss corporation founded by Mr. August Steiner in 1990
and engaged in the sale of medical equipment. Prior to founding MDE, Mr. August
Steiner worked for Varian International, Inc. as Area Sales Manager from 1982 to
1990. From 1990 to 1992, Mr. August Steiner was self employed in the medical
equipment business.
Roland Steiner has served as Chief Executive Officer, President and a
director of ComTelco since inception. From July 1993 through January 1997, Mr.
Roland Steiner served as Vice President of MDE. From December 1992 through July
1993, he served as Managing Director of MDE. From March 1990 through November
1992, he was Manager of the telecommunications division of Telepax AG
("Telepax"), a Swiss telecommunications corporation.
22
<PAGE>
Ramon Inauen has served as Chief Operating Officer and a director of
ComTelco since inception. From July 1992 through January 1997, Mr. Inauen served
as Sales Manager of MDE. From December 1991 through July 1992, he was employed
by Telepax as Sales Manager.
Claudia Sutter has served as Chief Financial Officer and a director of
ComTelco since inception. From September 1996 through December 1996, she studied
United States accounting in Boston, Massachusetts. From May 1994 through August
1996, she served as Controller of L.N. Asset Management AG, a Swiss investment
company. From January 1987 through April 1994, she worked as an accountant for
ATAG Ernst & Young.
Klaus Brenner has served as a director of ComTelco since October 1, 1997.
Since 1996, Klaus Brenner has served as Chief Executive Officer of Brenner
Industrieholz-Spaene GmbH, Brenner Internationale Holz- und
Spaenehandelsgesellschaft and of Brenner Holding GmbH. From 1986 to 1996 Mr.
Brenner has served as the Chief Executive Officer of Brenner Bois Sprl., the
Belgian subsidiary of Brenner Holding GmbH. These companies are engaged in the
lumber business.
Gian Franco Cocilovo has served as a director of ComTelco since October 1,
1997. Since January 1997, Mr. Cocilovo has served as the President of EPS
d.o.o., an Italian corporation engaged in contracting for large building
projects. From 1989 to 1996 Mr. Cocilovo was Commercial Director of Inso in
Florence, a subsidiary of ENI which was sold to General Electric in 1993.
All directors hold their office until the next annual meeting of
stockholders of the Company and until their successors are elected and
qualified.
All officers of the Company serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company except that Mr. August Steiner is the father
of Mr. Roland Steiner.
Committees
The Board of Directors has one committee, an Audit Committee. The Audit
Committee has authority to annually recommend to the Board of Directors the
engagement of the Company's independent accountants and to review the
independence of the accounting firm, the audit and non-audit fees of the
independent accountants and the adequacy of the Company's internal control
procedures.
Director Compensation
Directors do not receive any cash compensation for their services as
members of the Board of Directors, although they are reimbursed for their
out-of-pocket expenses incurred in attending Board of Directors and Committee
meetings.
Directors' Limitation of Liability and Indemnification
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation includes provisions which (a) eliminate
the personal liability of directors for monetary damages resulting from breaches
of their fiduciary duty (except for liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL, or for any transaction from which the director derived an improper
personal benefit), and (b) indemnify the directors and officers to the fullest
extent permitted by the DGCL, including under circumstances under which
indemnification is otherwise discretionary. The Company's obligation to
indemnify each of its directors and officers applies with respect to all
liability and loss suffered and expenses incurred by such person in any action,
suit or proceeding in which such person was or is made or threatened to be made
a party or is otherwise involved by reason of the fact that such person is or
was a director or officer of the Company. The Company is also obligated to pay
the expenses of the directors and officers incurred in defending such
proceedings, subject to reimbursement if it is subsequently determined that such
person is not entitled to indemnification. The Certificate of Incorporation
further provides that if the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the DGCL as amended or supplemented.
The Company believes that the limitation of liability and indemnification
provisions in its Certificate of Incorporation will enhance the Company's
ability to continue to attract and retain qualified individuals to serve as
directors and officers. There is no pending litigation or proceeding involving a
director, officer or employee of the Company to which the indemnification
provisions would apply, and the Company is not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
23
<PAGE>
Executive Compensation
During the last three fiscal years the Company did not pay any salaries to
its executive officers nor any other salaries in excess of $100,000 per annum.
As of March 1, 1997, Mr. Roland Steiner, the Company's President and Chief
Executive Officer, is to be compensated at the rate of $100,000 per annum.
Employment Agreements
Effective March 1, 1997, the Company entered into employment agreements
with each of Mr. Roland Steiner, Ms. Claudia Sutter and Mr. Ramon Inauen, under
which such individuals are employed as Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer, respectively. Each agreement may be
terminated by either the Company or the executive with or without cause, upon
three months' notice in the case of Messrs. Steiner and Inauen and six months'
notice in the case of Ms. Sutter. Otherwise, each agreement will expire when the
executive reaches the age of 65. The agreements provide for annual salaries of
$100,000 for Mr. Steiner, $95,000 for Ms. Sutter and $90,000 for Mr. Inauen.
Bonuses and incentives are not part of the agreements and may be awarded at the
discretion of the Company. Each executive is entitled to four weeks' paid
vacation, reimbursement for medical aid from and after the second year of
employment, pension fund and social security contributions in accordance with
the Swiss law and reimbursement for business-related travel and other expenses.
Messrs. Steiner and Inauen are each entitled to a car when needed for business
purposes. Mr. Steiner has agreed to devote 40 hour per week and the majority of
his time to the business of the Company. Mr. Inauen and Ms. Sutter have each
agreed to devote 40 hours per week and all of their time to the Company. None of
the agreements contains restrictive covenants which extend beyond the term of
the agreements.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial ownership of the Company's outstanding
Common Stock by (i) each of the Company's directors, (ii) each of the executive
officers named in the table under "Management--Executive Compensation," (iii)
all directors and executive officers of the Company as a group, and (iv) each
other person known by the Company to beneficially own more than five percent of
the outstanding Common Stock.
Percentage of
Number of Shares Outstanding
Name of Beneficial Owner (1) Beneficially Owned(2) Common Stock
- -------------------------------------- ------------------------- ---------------
August Steiner 2,500,000 55.6%
Interfinance Inv. Co. Ltd. (3) 1,577,166 35.0%
Roland Steiner -- --
Ramon Inauen -- --
Claudia Sutter -- --
Klaus Brenner -- --
Gian Franco Cocilovo -- --
All directors and executive officers
as a group 2,500,000 55.6%
- ----------
(1) Unless otherwise indicated, the address of each beneficial owner is: c/o
ComTelco International, Inc., Hechtackerstrasse 41, CH-9014 St. Gallen,
Switzerland.
(2) Percentage of ownership is based on 4,500,000 shares of Common Stock
outstanding as of the date of this Prospectus.
(3) The address of Interfinance is Steinhaldenring 8, CH-8954 Geroldswil,
Switzerland.
24
<PAGE>
CERTAIN TRANSACTIONS
ComTelco and its Subsidiaries were founded by Mr. August Steiner, the
Company's Chairman of the Board of Directors and majority stockholder. In June
1993 and November 1995, Mr. August Steiner founded ComTelco Germany and ComTelco
Austria, respectively, to provide marketing and other services for MDE AG
("MDE"), a Swiss corporation primarily engaged in the sale of medical equipment.
Mr. August Steiner owns the majority of the stock of MDE, and Messrs. Roland
Steiner, the Company's Chief Executive Officer and President, and Ramon Inauen,
the Company's Chief Operating Officer, own minority interests in MDE. In
December 1996, Mr. August Steiner purchased from MDE assets primarily consisting
of software and hardware development. The purchase price for the assets was
approximately $5,200,000, which amount represented MDE's cost of acquiring
and/or developing the assets. In February 1997, Mr. August Steiner founded
ComTelco Vertriebs and ComTelco Research and contributed to such companies
substantially all of the assets purchased from MDE, which assets presently
comprise substantially all of the Company's software and hardware development
assets. ComTelco was founded in Delaware on February 27, 1997. As of February
28, 1997, the Subsidiaries became wholly-owned subsidiaries of ComTelco in a
transaction pursuant to which Mr. August Steiner purchased 2,500,000 shares of
Common Stock from ComTelco in exchange for all of the outstanding equity
interests in each of the four Subsidiaries.
As of February 28, 1997, ComTelco issued 2,000,000 shares of Common Stock
to Interfinance in consideration of $4,000,000, the par value of which shares
($20) was paid in cash and the balance of which was paid by delivery of the
Interfinance Note. The Interfinance Note bears interest at 5.8% per annum and is
secured by a pledge to ComTelco of the shares of Common Stock issued to
Interfinance. Under the terms of the pledge agreement, the shares are subject to
release of the Company's security interest ratably upon partial repayment of the
Interfinance Note. As of October 31, 1997, Interfinance has repaid $1,505,000 of
the principal amount of the Interfinance Note from funds received from
purchasers of a portion of its shares. As a condition to the sale of the shares
to Interfinance, the Company entered into a Registration Rights Agreement dated
as of February 28, 1997, pursuant to which the Company agreed to register such
shares for resale under the Securities Act. See "Selling Stockholders and Plan
of Distribution."
The Company and its two Swiss subsidiaries, ComTelco Research and ComTelco
Vertriebs, have leased from MDE office and storage space in Switzerland. MDE is
a Swiss corporation primarily engaged in the sale of medical equipment. Mr.
August Steiner owns the majority of the stock of MDE, and Messrs. Roland
Steiner, the Company's Chief Executive Officer and President, and Ramon Inauen,
the Company's Chief Operating Officer, own minority interests in MDE. To secure
these leases, the Company pledged bank accounts totaling 200,000 Swiss Francs
($135,686 at August 31, 1997) to MDE on February 28, 1997. The pledge agreement
does not restrict the Company from withdrawing or using any available cash
funds.
For a discussion of certain management compensation, including employment
agreements entered into with Messrs. Roland Steiner and Ramon Inauen and Ms.
Claudia Sutter, see "Management."
During the fiscal year ended February 28, 1997, the Company purchased the
majority of its inventory from MDE in the total amount of $83,969. See
"Business-Manufacturing."
During the fiscal year ended February 28, 1997, the Company received a
total of $43,269 as expense reimbursements from MDE.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that sales of the Shares
may be effected from time to time in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Shares or a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares directly to purchasers or through
broker-dealers that may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or
both(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Selling Stockholders and any broker-dealers that act in connection
with the sale of the Shares as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Act and any commission received by
them and any profit on the resale of the Shares and/or as principals might be
deemed to be underwriting discounts and commissions under the Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Act. The Company will not
receive any proceeds from sales of the
25
<PAGE>
Shares by the Selling Stockholders. Sales of the Shares by the Selling
Stockholders, or even the potential of such sales, could have an adverse effect
on the market price of the Common Stock.
There can be no assurance that Selling Stockholders will be able to sell
some or all of the Shares listed for sale herein. There is no established public
trading market for the Common Stock as of the date of this Prospectus. See "Risk
Factors-- Marketability of Securities."
Certain expenses of this registration will be borne by the Company. The
Company will not receive any of the proceeds from the sale of the Shares. There
are no material relationships between any of the Selling Stockholders and the
Company. Beneficial ownership of the Shares by each Selling Stockholder after
the sale will depend on the number of Shares sold by each Selling Stockholder.
The Shares offered by the Selling Stockholders are not being underwritten.
The following table sets forth certain information with respect to the
Selling Stockholders for whom the Company is registering the Shares for resale
to the public. The Company has been informed that all of the Selling
Shareholders reside outside of the United States of America.
<TABLE>
<CAPTION>
Beneficial Ownership Amount Number of shares to be beneficially
Selling Stockholder Prior to Offering to be Sold Owned if Full Amount is Sold
- ------------------- ----------------- ---------- ----------------------------
Amount Percent
<S> <C> <C> <C> <C>
Interfinance Inv. Co. Ltd. 1,577,166 35.0 1,577,166 0
Ulisse Albertalli 3,000 * 3,000 0
Adv. Aldo Ferrini 2,500 * 2,500 0
Key Consult S.A. 30,000 * 30,000 0
Banque Julius Baer SA 50,000 1.1 50,000 0
BHF-Bank (Schweiz) AG 30,000 * 30,000 0
Euromateco Establishment 10,000 * 10,000 0
Hanspeter Iselin 5,000 * 5,000 0
Rene Jourdan 12,000 * 12,000 0
Romofin AG 20,000 * 20,000 0
Triaxis Trust AG 70,000 1.6 70,000 0
Silvano Parrini 5,000 * 5,000 0
Roswitha Diem 10,000 * 10,000 0
E.M. Legarda-Burbano 500 * 500 0
Hans U. Muhmenthaler 2,000 * 2,000 0
Hubert Raub 1,000 * 1,000 0
Rolan Trifoglio 1,000 * 1,000 0
Value Mgmt & Research GmbH 30,000 * 30,000 0
Hedi Zullig 965 * 965 0
Wolfgang Muller 1,100 * 1,100 0
Bank Julius Bar & Co. AG 50,000 1.1 50,000 0
Peter Furter 2,069 * 2,069 0
BDL Banca Di Lugano 10,000 * 10,000 0
COOP Bank 1,100 * 1,100 0
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Amount Number of shares to be beneficially
Selling Stockholder Prior to Offering to be Sold Owned if Full Amount is Sold
- ------------------- ----------------- ---------- ----------------------------
Amount Percent
<S> <C> <C> <C> <C>
Maria Rese 1,000 * 1,000 0
Guyerzeller Bank AG 50,000 1.1 50,000 0
Gerhard Rese 6,000 * 6,000 0
Banque Paribas SA 5,000 * 5,000 0
Microsbank Zurich 7,200 * 7,200 0
Alpha Securities 4,400 * 4,400 0
GSL Galli, Schneider
& Lehner AG 2,000 * 2,000 0
</TABLE>
- ----------
* Denotes less than one percent.
27
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of the securities of the Company is
qualified in its entirety by reference to the Company's Certificate of
Incorporation which has been filed as an exhibit to the Registration Statement
on Form SB-2 of which this Prospectus forms a part.
Common Stock
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, par value $.00001 per share, of which 4,500,000 shares are outstanding as
of the date hereof. Holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the preceding
rights of any series of preferred stock which may from time to time be
outstanding, holders of Common Stock are entitled to receive ratably, dividends
when, as, and if declared by the Board of Directors out of funds legally
available therefor and, upon the liquidation, dissolution, or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on any
preferred stock. See "Risk Factors--No Dividends" and "Dividend Policy." Holders
of Common Stock have no preemptive rights and have no rights to convert their
Common Stock into any other securities. The outstanding Common Stock is validly
authorized and issued, fully paid in, and nonassessable.
Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, par value $.01 per share, of which no shares are outstanding as of the
date hereof. The preferred stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by stockholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such preferred stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue preferred stock
could discourage, delay, or prevent a takeover of the Company. See "Risk
Factors--Anti-Takeover Effects of Certain Provisions of Certificate of
Incorporation and Delaware Law."
Registration Rights
Pursuant to an agreement entered into with Interfinance as of February 28,
1997, the Company agreed to file a registration statement under the Securities
Act covering the resale of the 2,000,000 Shares being offered hereby. The
Company has not granted any other registration rights.
Transfer Agent and Registrar
The Company has appointed American Stock Transfer & Trust Company as
transfer agent and registrar for the Common Stock.
Delaware Anti-Takeover Law
The Company is subject to Section 203 of the DGCL ("Section 203") which,
subject to certain exceptions and limitations, prohibits a Delaware corporation
from engaging in any "business combination" with any "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the Board of Directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (for the purposes of determining the number of shares outstanding
under the DGCL, those shares owned (x) by persons who are directors and also
officers, and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, are excluded from the
calculation); or (iii) on or subsequent to such date, the business combination
is approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
28
<PAGE>
For purposes of Section 203, "a business combination" includes (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder; (iii)
subject to certain exceptions, any transaction which results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
Section 203 defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this Prospectus, the Company has outstanding 4,500,000
shares of Common Stock. Of such shares, all of the 2,000,000 Shares being
offered hereby are freely tradeable without restriction as long as a current
registration statement covering such shares is in effect under the Securities
Act except for any shares purchased by any person who is or thereby becomes an
affiliate of the Company, which shares will be subject to the resale limitations
contained in Rule 144 promulgated under the Securities Act.
All of the 2,500,000 currently outstanding shares of Common Stock not
being registered hereby are restricted securities within the meaning of Rule 144
and, if held for at least one year, will be eligible for sale in the public
market in reliance upon and subject to the limitations of Rule 144. In general,
under Rule 144, as currently in effect, a person (or persons whose shares are
aggregated), including a person who may be deemed to be an affiliate of the
Company as that term is defined under the Securities Act, is entitled to sell,
within any three month period, a number of shares beneficially owned for at
least one year that does not exceed the greater of (i) one percent of the number
of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. Furthermore, a person who is not deemed to have been an affiliate
of the Company during the ninety days preceding a sale by such person and who
has beneficially owned such shares for at least two years is entitled to sell
such shares without regard to the volume, manner of sale or notice requirements.
All 2,500,000 shares of restricted Common Stock not being registered hereby are
held by an affiliate of the Company, and will become eligible for sale under
Rule 144 commencing February 28, 1998.
Prior to the date of this Prospectus, there has been no public market for
the Company's securities. Following the date of this Prospectus, the Company
cannot predict the effect, if any, that market sales of the Common Stock, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the existing stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Company's securities.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other
legal matters will be passed upon for the Company and the Selling Stockholders
by Rubin Baum Levin Constant & Friedman, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of February 28,
1997 and February 29, 1996, respectively, and for the years thus ended have been
included herein and in the Registration Statement of which this Prospectus forms
a part in reliance on the report of Merdinger, Fruchter, Rosen & Corso, P.C.,
independent certified public accountants, appearing elsewhere herein, given on
the authority of that firm as experts in accounting and auditing.
29
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration
statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's Public Reference Section at 450 Fifth Street,
N.W., Washington D.C. 20549 or at certain of the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment
of the fees prescribed by the Commission. The Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Subsequent to this Offering, the Company will be a reporting company under
the Exchange Act. The Company intends to distribute to its stockholders annual
reports containing audited financial statements with a report therein by
independent public accountants after the end of each fiscal year. In addition,
if the Company is required to prepare such reports, the Company will make
available to its stockholders, upon request, quarterly reports for the first
free quarters of each fiscal year containing unaudited financial statements and
other information after the end of each fiscal quarter, upon written request to
the Secretary of the Company or otherwise as required by law.
30
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-11
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
COMTELCO INTERNATIONAL, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of COMTELCO
INTERNATIONAL, INC. AND SUBSIDIARIES as of February 28, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended February 28, 1997 and February 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES as of February 28, 1997, and the results of its operations and
its cash flows for the years ended February 28, 1997 and February 29, 1996 in
conformity with generally accepted accounting principles.
/s/ Merdinger, Fruchter, Rosen & Corso, P.C.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
March 1, 1997, except for
Note 2p, as to which date
is November 3, 1997
F-2
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1997 February 28,
(Unaudited) 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 525,869 $ 188,256
Accounts Receivable, net 622,426 51,127
Inventory 89,612 128,267
Subscription Receivable 3,439,980 4,000,000
Prepaid Expenses and Other Current Assets 115,457 7,616
----------- -----------
Total Current Assets 4,793,343 4,375,266
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $20,729 and $10,332 at
August 31, 1997 and February 28, 1997, respectively 200,536 114,932
----------- -----------
OTHER ASSETS
Software and Hardware Development Costs, at cost, net
of accumulated amortization at August 31, 1997 and
February 28, 1997 of $391,267 and $-0-, respectively 4,430,131 4,713,465
Organization Expense, at cost, net of accumulated
amortization at August 31, 1997 and February 28, 1997 of
$9,386 and $-0-, respectively 84,479 95,004
Deposits 2,016 4,074
----------- -----------
Total Other Assets 4,516,626 4,812,543
----------- -----------
TOTAL ASSETS $ 9,510,505 $ 9,302,741
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdrafts $ 174,760 $ --
Accounts Payable and Accrued Expenses 770,222 62,192
Accounts Payable - Related Parties 120,613 16,136
----------- -----------
Total Liabilities 1,065,595 78,328
----------- -----------
Commitments and Contingencies -- --
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value; 2,000,000 shares
authorized, no shares outstanding -- --
Common Stock, $.00001 par value; 30,000,000
shares authorized; 4,500,000 shares issued and
outstanding 45 45
Additional Paid-In Capital 9,454,733 9,454,733
Accumulated Deficit (954,446) (223,685)
Cumulative Foreign Currency Translation Adjustment (55,422) (6,680)
----------- -----------
Total Stockholders' Equity 8,444,910 9,224,413
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,510,505 $ 9,302,741
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Six Months Ended For The Year Ended
------------------------ -------------------
August 31, 1997 August 31, 1996 February 28, February 29,
(Unaudited) (Unaudited) 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 982,920 $ 171,588 $ 292,131 $ --
COST OF GOODS SOLD 246,582 18,160 88,428 --
----------- ----------- ----------- -----------
GROSS PROFIT 736,338 153,428 203,703 --
----------- ----------- ----------- -----------
Research and Development 172,323 -- -- --
Marketing and Selling Expense 179,937 -- -- --
Depreciation and Amortization 429,769 4,107 7,685 2,922
General and Administrative Expense 786,349 231,322 348,923 57,096
----------- ----------- ----------- -----------
1,568,378 235,429 356,608 60,018
----------- ----------- ----------- -----------
Loss From Operations (832,040) (82,001) (152,905) (60,018)
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Income 112,024 27 149 9
Interest Expense (6,558) 48 (1,121) (13)
Other Income (Expense) (4,187) (47) 684 1,228
----------- ----------- ----------- -----------
Total Other Income (Expenses) 101,279 (68) (288) 1,224
----------- ----------- ----------- -----------
Net Loss $ (730,761) $ (82,069) $ (153,193) $ (58,794)
=========== =========== =========== ===========
Loss Per Share $ (.16) $ (.02) $ (.04) $ (.02)
=========== =========== =========== ===========
Weighted Average Shares Outstanding 4,500,000 3,700,000 3,700,000 3,700,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Foreign Total
Common Stock Paid-In Accumulated Currency Stockholders'
Shares Amount Capital Deficit Adjustment Equity
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 27, 1997 -- $ -- $ -- $ -- $ -- $ --
Issuance of Common Stock 4,500,000 45 9,400,459 -- -- 9,400,504
Adjustments to Record Subsidiaries
Acquired in a Manner Similar to a
Pooling of Interest -- -- 54,274 (70,492) 1,056 (15,162)
Net Loss - For the Year Ended
February 28, 1997 -- -- -- (153,193) -- (153,193)
Foreign Currency Translation Adjustment -- -- -- -- (7,736) (7,736)
--------- ----------- ----------- ----------- ----------- -----------
Balance at February 28, 1997 4,500,000 45 9,454,733 (223,685) (6,680) 9,224,413
Net Loss - For the Six Months
Ended August 31, 1997 (Unaudited) -- -- -- (730,761) -- (730,761)
Foreign Currency Translation
Adjustment (Unaudited) -- -- -- -- (48,742) (48,742)
--------- ----------- ----------- ----------- ----------- -----------
Balance at August 31, 1997 (Unaudited) 4,500,000 $ 45 $ 9,454,733 $ (954,446) $ (55,422) $ 8,444,910
========= =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Six Months Ended For The Year Ended
------------------------ ------------------
August 31, 1997 August 31, 1996 February 28, February 29,
(Unaudited) (Unaudited) 1997 1996
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (730,761) $ (82,069) $(153,193) $ (58,794)
Adjustments to Reconcile Net Loss to
Net Cash Provided (Used) By Operating Activities:
Depreciation and Amortization 429,769 4,107 7,685 2,922
Changes in Certain Assets and Liabilities:
Increase in Accounts Receivable (585,613) (110,775) (51,127) --
Increase in Note Receivable -- -- -- --
(Increase) Decrease in Subscription Receivable 560,000 (24,088) -- 32,268
(Increase) Decrease in Inventory 36,653 -- (10,338) --
(Increase) Decrease in Prepaid Expenses and
Other Current Assets (110,104) 7,498 3,752 (10,515)
Increase (Decrease) in Accounts Payable and
Accrued Expense 726,086 71,114 (6,576) 66,697
Increase in Accounts Payable - Related Parties 108,292 34,436 -- --
----------- --------- --------- ---------
TOTAL CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 434,322 (99,777) (209,797) 32,578
----------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (266,441) (7,874) (7,408) (28,278)
----------- --------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (266,441) (7,874) (7,408) (28,278)
----------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdrafts and Loans 178,128 -- -- --
Sale of Common Stock -- 135,706 25,025
Additional Paid-In Capital -- 101,958 246,878 --
----------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 178,128 101,958 382,584 25,025
----------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH (8,576) (6,100) (5,653) (795)
----------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 337,433 (11,793) 159,726 28,530
CASH AND CASH EQUIVALENTS - BEGINNING 188,256 28,530 28,530 --
----------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 525,689 $ 16,737 $ 188,256 $ 28,530
=========== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 6,558 $ 50 $ 1,121 $ --
=========== ========= ========= =========
Cash Paid for Income Taxes $ -- $ -- $ -- $ --
=========== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES:
For the year ended February 28, 1997, a stockholder contributed the following assets as Additional Paid-In Capital:
Inventory $ 117,929
Property and Equipment 91,547
Software or Hardware Development Costs 4,713,465
Organization Costs 94,980
-----------
$ 5,017,921
===========
</TABLE>
2,000,000 shares of common stock were issued for $20 cash and a note receivable
in the amount of $3,999,980.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 1 - NATURE OF OPERATIONS
The Company is engaged primarily in the development and sale of
computer hardware and software products. The operations are based in
Switzerland, Germany and Austria.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying consolidated financial statements as of February
28, 1997 and for the year then ended include the accounts of
ComTelco International, Inc. ("the Company") and its wholly owned
subsidiaries:
1) ComTelco Vertriebs AG ("ComTelco Vertriebs"), incorporated
under the laws of Switzerland on February 7, 1997.
2) ComTelco Research AG ("ComTelco Research"), incorporated under
the laws of Switzerland on February 7, 1997.
3) ComTelco (Deutschland) GmbH (formerly MDE ComTelco Vertriebs
GmbH) ("ComTelco Germany"), incorporated under the laws of
Germany in June, 1993.
4) ComTelco Softwarevertriebs GmbH (formerly MDE ComTelco
Softwareentwicklungs-und Vertriebs-GmbH) ("ComTelco Austria"),
incorporated under the laws of Austria on November 24, 1995.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
The consolidated statements of operations and cash flows for the
year ended February 29, 1996 reflect the combined accounts of
ComTelco Germany and ComTelco Austria.
b) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
c) Inventory
Inventory consisting of finished goods is stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis.
d) Accounts Receivable
Accounts receivable are realizable at the amounts stated in the
accompanying statement of financial position and, therefore, no
allowance for doubtful accounts is necessary.
e) Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance, repairs and renewals are charged to expense, whereas
major additions are capitalized. The cost and accumulated
depreciation of assets retired, sold or otherwise disposed of are
eliminated from the accounts and resulting gains or losses, if any,
are reflected through the statement of income. Property and
equipment includes assets covered by capital leases with
corresponding obligations recorded under debt.
Depreciation is computed over the estimated useful asset lives using
the straight-line method.
F-7
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Organization Costs
Organization costs consist of legal and other administrative costs
incurred in relation to the formation of the Company and its
subsidiaries. These costs have been capitalized and will be
amortized over a period of five years.
g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
h) Software Development Costs
Acquired computer software costs have been capitalized in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", and are reported at the lower of unamortized
cost or net realizable value. Commencing upon initial product
release, these costs will be amortized over the estimated life.
i) Translation of Foreign Currency
The Company translates the foreign currency financial statements of
its foreign subsidiaries in accordance with the requirements of SFAS
No. 52, "Foreign Currency Translation". Assets and liabilities are
translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during
the period. Resulting translation adjustments are recorded as a
separate component in stockholders' equity. Foreign currency
transaction gains and losses are included in determining net income.
j) Bank Overdraft
As a result of maintaining a consolidated cash management system,
the Company maintains overdraft positions at certain banks. Such
overdraft positions are included in current liabilities.
k) Loss Per Share
Loss per share has been calculated based upon the weighted average
number of shares outstanding and does not include shares issuable on
exercise of outstanding options or warrants, if any, since such
inclusion would be anti-dilutive. Weighted average common shares
outstanding were 4,500,000.
l) Income Taxes
Income taxes are provided for based on the liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income Taxes".
The liability method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
temporary differences between the reported amount of assets and
liabilities and their tax bases.
m) Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages,
but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company
has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and
related Interpretations. Accordingly, compensation cost for stock
options, if any, is measured as the excess, if any, of the quoted
market price of the Company's stock, if any, at the date of the
grant over the amount an employee must pay to acquire the stock.
n) Long-Lived Assets
In March 1995, SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", was
issued. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to
F-8
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company
has adopted this statement and determined that no impairment loss
need be recognized for applicable assets of continuing operations.
o) Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued a
new statement titled "Earnings Per Share" (SFAS No. 128). This
statement is effective for both interim and annual periods ending
after December 15, 1997 and specifies the computation, presentation,
and disclosure requirements for earnings per share for entities with
publicly held common stock or potential common stock. After the
effective date, all prior-period EPS data presented shall be
restated to conform with the provisions for SFAS No. 128.
p) Interim Financial Information
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which
in the opinion of management, are necessary to fairly state the
Company's financial position, the results of its operations and cash
flows for the periods presented. The results of operations for the
six months ended August 31, 1997 are not necessarily indicative of
results for the entire fiscal year ending February 28, 1998.
NOTE 3 - ACQUISITIONS
As of February 28, 1997, the Company acquired all of the issued and
outstanding shares of the four entities named in Note 2. This
acquisition was effected through the exchange of the Company's newly
issued shares for the subsidiary shares outstanding. The subsidiary
shares were all held by one individual, and this individual was in
control of the Company immediately before and after the exchange of
shares.
Due to the fact that the exchange of shares occurred among entities
under common control, the financial statements reflect the
historical financial statements of the entities acquired, similar to
a pooling of interests.
The financial information presented for the year ended February 29,
1996 reflects the combined financial data of ComTelco Germany and
ComTelco Austria, which were at that time separate unconsolidated
entities.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1997 is summarized as
follows:
Automobile $ 24,419
Furniture, Fixtures & Equipment 100,845
---------
125,264
Less: Accumulated Depreciation (10,332)
---------
$ 114,932
=========
Depreciation expense for the year ended February 28, 1997 was
$7,685.
NOTE 5 - SOFTWARE AND HARDWARE DEVELOPMENT COSTS
Software and Hardware development costs have been contributed to a
subsidiary of the Company by its stockholder. (See Note 6).
F-9
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company and its subsidiaries have entered into various
transactions with another company, MDE AG, a company controlled by
the Company's Chairman of the Board of Directors and its majority
stockholder. Certain other executive officers of the Company are
minority stockholders of MDE AG.
The following table summarizes the transactions between the Company
and MDE AG during the year ended February 28, 1997 and the related
payable balances outstanding at February 28, 1997:
Purchases $83,969
Accounts Payable 16,136
Expense Reimbursements Received From MDE AG 43,269
During the six months ended August 31, 1997, the Company paid rent
totaling $93,736 to MDE AG.
In addition, the Company has pledged cash totaling $135,686 at
February 28, 1997 in favor of MDE AG to secure lease obligations
owing to MDE AG. These funds are available for withdrawal by the
Company at any time.
As mentioned in Notes 5, the Company's majority stockholder has
contributed computer software and hardware development to the
Company. These assets were acquired by the stockholder from MDE AG.
NOTE 7 - SIGNIFICANT CUSTOMERS
The following summarizes the concentration of sales and accounts
receivable for customers with revenue in excess of 10% of total
revenue:
Percentage of February 28, 1997
Percentage of Revenue Accounts Receivable
--------------------- -------------------------------
Customer A 33% 2%
Customer B 26% 74%
For the six month period ended August 31, 1997, one customer
accounted for approximately 16% of total revenue for the period and
represented approximately 12% of accounts receivable at August 31,
1997.
NOTE 8 - MAJOR SUPPLIERS
The Company purchases the majority of its inventory from MDE AG, a
related party (See Note 6), at MDE AG's cost. MDE AG purchases
approximately 63% of its inventory from two vendors.
No purchases of inventory were made from MDE AG during the six
months ended August 31, 1997. During the six month period ended
August 31, 1997, the Company purchased approximately 36% of its
inventory from one supplier. This supplier represented approximately
10% of accounts payable at August 31, 1997.
F-10
<PAGE>
COMTELCO INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE 9 - SUBSCRIPTION RECEIVABLE
As of February 28, 1997, the Company entered into a stock
subscription agreement with Interfinance Inc. Co., Ltd. (ITC) to
sell common stock of the Company as follows:
The sale of 2,000,000 shares of the Company's common stock in
exchange for $20 in cash and a promissory note due on February 28,
1998 in the principal amount of $3,999,980, bearing interest at 5.8%
per annum. The note is secured by the 2,000,000 shares of common
stock. The shares securing the note will be released ratably as the
note is paid down. As of August 31, 1997, $560,000 principal amount
of this note has been repaid and 279,999 shares have been released.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company has pledged two cash accounts, totaling $135,686 at
February 28, 1997, in favor of MDE AG, a related party (See Note 6).
This arrangement does not legally restrict withdrawal or usage of
available cash funds.
The Company has entered into several noncancelable operating lease
agreements for office space. The minimum lease payments under these
lease agreements for each of the next five years ending February 28
are as follows:
1998 $ 265,150
1999 265,150
2000 223,758
2001 40,825
2002 16,950
Rent expense included in the financial statements totaled $26,716
and $4,392 for the years ended February 28, 1997 and February 29,
1996, respectively.
During the six month periods ended August 31, 1997 and 1996 rent
expense included in the financial statements totaled $104,012 and
$16,742, respectively.
F-11
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with the Offering made
hereby, and, if given or made, such information or representations must not be
relied upon as having been authorized by the Company or by the Underwriters.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such an offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create any implication that there had been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the dates as of which such
information is furnished.
---------------------------
TABLE OF CONTENTS
Page
Prospectus Summary.......................................................... 2
Risk Factors................................................................ 6
Use of Proceeds............................................................. 11
Dividend Policy............................................................. 11
Capitalization.............................................................. 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 12
Business.................................................................... 14
Management.................................................................. 22
Principal Stockholders...................................................... 24
Certain Transactions........................................................ 25
Selling Stockholders and Plan of Distribution............................... 25
Description of Securities................................................... 28
Shares Eligible for Future Sale............................................. 29
Legal Matters............................................................... 29
Experts..................................................................... 29
Available Information....................................................... 30
Index to Financial Statements............................................... F-1
---------------------------
Until _______, 199_ (25 days from the date hereof) all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as an underwriter
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
2,000,000 Shares
COMTELCO INTERNATIONAL INC.
Common Stock
---------------------------
PROSPECTUS
---------------------------
__________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"),
the Registrant has broad powers to indemnify its directors, officers and other
employees. These sections (i) provide that the statutory indemnification and
advancement of expenses provisions of the DGCL are not exclusive, provided that
no indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (ii) establish procedures for
indemnification and advancement of expenses that may be contained in the
certificate of incorporation or by-laws, or, when authorized by either of the
foregoing, set forth in a resolution of the stockholders or directors or an
agreement providing for indemnification and advancement of expenses, (iii) apply
a single standard for statutory indemnification for third-party and derivative
suits by providing that indemnification is available if the director or officer
acted in good faith, for a purpose which he reasonably believed to be in the
best interests of the corporation, and, in criminal actions, had no reasonable
cause to believe that his conduct was unlawful, and (iv) permit the advancement
of litigation expenses upon receipt of an undertaking to repay such advance if
the director or officer is ultimately determined not to be entitled to
indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled.
The Registrant's By-laws provide that the Registrant shall indemnify its
officers and directors, as such, to the fullest extent permitted by applicable
law, and that expenses reasonably incurred by any such officer or director in
connection with a threatened or actual action or proceeding shall be advanced or
promptly reimbursed by the Registrant in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if and to the extent that it is
ultimately determined that such officer or director is not entitled to
indemnification.
Article Seventh of the Registrant's Certificate of Incorporation provides
that to the fullest extent permitted by the DBCL no director of the Registrant
shall be held personally liable to the Registrant or its stockholders for
monetary damages for any breach of duty in his capacity as a director.
The Registrant's By-Laws provide that the Registrant will indemnify its
directors, officers and employees against judgments, fines, amounts paid in
settlement and reasonable expenses to the fullest extent permitted under the
DGCL.
Item 25. Other Expenses of Issuance and Distribution.
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by ComTelco
International, Inc. (the "Registrant").
Nasdaq SmallCap Market application fee ..... $ 10,000
Printing expenses .......................... 15,000
Fees and expenses of counsel ............... 80,000
Fees and expenses of accountants ........... 120,000
Transfer agent and registrar fees .......... 5,000
Blue sky fees and expenses ................. 15,000
Miscellaneous .............................. 10,000
Total ................................. $255,000
========
Item 26. Recent Sales of Unregistered Securities.
Set forth below is information as to securities of the Registrant sold
within the past three years which were not registered under the Securities Act
and were issued based upon the exemption from registration provided by Section
4(2) of the Act. All sales are believed to have been made to sophisticated
accredited investors. No underwriters were involved in any of the sales and
there were no underwriting discounts or commissions paid.
II-1
<PAGE>
As of February 28, 1997, Mr. August Steiner purchased 2,500,000 shares of
Common Stock from the Registrant in exchange for all of the outstanding equity
interests in each of the Registrant's four Subsidiaries.
As of February 28, 1997, Interfinance purchased 2,000,000 shares of Common
Stock from the Registrant for the consideration of $4,000,000: the par value of
the shares of $20 was paid in cash and the balance of $3,999,980 was paid by
delivery of a Promissory Note due on February 28, 1998. This Interfinance Note
bears interest at 5.8% per annum and is secured by a pledge to ComTelco of the
shares of Common Stock issued to Interfinance. Under the terms of the pledge
agreement, the shares are subject to release of ComTelco's security interest
ratably upon partial repayment of the Interfinance Note.
Item 27. Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of the Registrant.
3.2 By-Laws of the Registrant.
4.1 Specimen form of Common Stock certificate.(1)
5.1 Opinion of Rubin Baum Levin Constant & Friedman regarding
legality.(1)
10.1 Employment Contract between the Registrant and Roland Steiner
dated as of February 20, 1997.
10.2 Employment Contract between the Registrant and Ramon Inauen
dated as of February 20, 1997.
10.3 Employment Contract between the Registrant and Claudia Sutter
dated as of February 20, 1997.
10.4 Manufacturing Agreement between ComTelco and kuk electronic AG
dated as of May 31, 1996.(1)
10.5 Lease Agreement between MDE and the Registrant dated as of
March 3, 1997.(1)
10.6 Lease Agreement between MDE AG and ComTelco Research dated as
of March 3, 1997.(1)
10.7 Lease Agreement between MDE AG and ComTelco Vertriebs dated as
of March 3, 1997.(1)
10.8 5.8% Promissory Note issued by Interfinance Inv. Co. Ltd. to
the Registrant dated as of February 28, 1997.
10.9 Security and Pledge Agreement between Interfinance Inv. Co.
Ltd. and the Registrant dated as of February 28, 1997
10.10 Subscription Agreement between Interfinance Inv. Co. Ltd. to
the Registrant dated as of February 28, 1997.
10.11 Registration Rights Agreement between Interfinance Inv. Co.
Ltd. and the Registrant dated as of February 28, 1997.
10.12 Equity Purchase Agreement between Mr. August Steiner and the
Registrant dated as of February 28, 1997.
10.13 Agreement for the Contribution of Assets, Software and
Hardware Developments by August Steiner to ComTelco (Research)
AG.
10.14 Agreement for the Contribution of Assets, Software and
Hardware Developments by August Steiner to ComTelco
(Vertriebs) AG.
11.1 Statement regarding computation of loss per share.
21.1 Subsidiaries of Registrant.
23.1 Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
24.1 Power of Attorney (included with the signature page to the
registration statement).
- ----------
(1) To be filed by amendment.
Item 28. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any
II-2
<PAGE>
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The Registrant will:
(1) File during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement;
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for the filing on Form SB-2 and authorized the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City New York, New York, on November 6, 1997.
COMTELCO INTERNATIONAL, INC.
By: /s/ Roland Steiner
-------------------------------------
Roland Steiner
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Roland Steiner and August
Steiner, and each of them, his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and all documents relating thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing necessary or advisable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Roland Steiner Chief Executive Officer, November 6, 1997
- ----------------------------- President and Director
Roland Steiner (Principal Executive Officer)
/s/ August Steiner Chairman of the Board of November 6, 1997
- ----------------------------- Directors
August Steiner
/s/ Ramon Inauen Chief Operating Officer November 6, 1997
- ----------------------------- and Director
Ramon Inauen
/s/ Claudia Sutter Chief Financial Officer, November 6, 1997
- ----------------------------- Treasurer and Director
Claudia Sutter (Principal Financial and
Accounting Officer)
/s/ Klaus Brenner Director November 6, 1997
- -----------------------------
Klaus Brenner
/s/ Gian Franco Cocilovo Director November 6, 1997
- -----------------------------
Gian Franco Cocilovo
II-4
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "COMTELCO INTERNATIONAL INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF FEBRUARY, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[Seal of Delaware Secretary's Office]
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
2722296 8100 AUTHENTICATION: 8353443
971065899 DATE: 02-28-97
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ComTelco International Inc.
FIRST: The name of the Corporation is ComTelco International Inc.
SECOND: The address of the registered office of the Corporation in the State of
Delaware is No. 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is United Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of Capital Stock which the Corporation shall
have authority to issue is 32,000,000 shares, of which 30,000,000 shares shall
be Common Stock of the par value of $.00001 per share, and 2,000,000 shall be
Preferred Stock of the par value of $.01 per share.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
are as follows:
A. COMMON STOCK
1. Dividends may be paid upon the Common Stock as and when declared
by the Board of Directors out of any funds legally available therefor.
2. Except as otherwise provided by statute or by any express
provision of this Certificate, all rights to vote and all voting power shall be
exclusively vested in the Common Stock and the holders thereof shall be entitled
to one vote for each share for the election of directors and upon all other
matters.
B. PREFERRED STOCK
1. The Board of Directors of the Corporation is authorized, subject
to limitations prescribed by law and the provisions of this Article FOURTH, to
provide for, from time to time, in one or more series of any number, the
issuance of shares of Preferred Stock, and, by filing a certificate pursuant to
the General Corporation Law of the State of Delaware, to establish the number of
shares to be included in each such series and to fix the designation, relative
rights, preferences, qualifications and limitations of the shares of each such
series. The
<PAGE>
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of each of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of the series, whether dividends
shall be cumulative and, if so, from which date or dates, and whether they shall
be payable in preference to, or in another relation to, the dividends payable on
any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges,
and, if so, the terms and conditions of such conversion or exchange, including
provision for adjustment of the conversion or exchange rate in such events as
the Board of Directors shall determine;
e. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all such shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking
fund to be applied to the purchase or redemption of shares of that series and,
if so, the terms and amounts of such sinking fund;
g. The rights and restrictions of the shares of the series upon the
creation of indebtedness of the Corporation or any subsidiary;
h. The right of the shares of that series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and whether such rights shall be in preference to or in another
relation to the comparable rights of any other class or classes or series of
stock; and
i. Any other relative, participating optional or other special,
rights, qualifications, limitations or restrictions of that series.
C. GENERAL
1. The Corporation shall be entitled to treat the person in whose
name any share, right or option is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim to or
interest in such share, right or option on the part of
- 2 -
<PAGE>
any other person, whether or not the Corporation shall have notice thereof, save
as may be expressly provided by the laws of the State of Delaware.
FIFTH: The name and mailing address of the sole incorporator are as follows:
Name Mailing Address
----
Rachel Abarbanel 30 Rockefeller Plaza - 29th Floor
New York, New York 10112
SIXTH: (a) The number of Directors of the Corporation which shall constitute the
whole Board of Directors shall be such as from time to time shall be fused by or
in the manner provided in the By-Laws but in no case shall the number be less
than one. Except as may otherwise be required by law, vacancies in the Board of
Directors and newly created directorships resulting from any increase in the
authorized number of Directors may be filled by a majority of the Directors then
in office, though less than a quorum.
(b) All corporate powers of the Corporation shall be exercised by
the Board of Directors except as otherwise provided herein or by law. In
furtherance and not in limitation of the powers conferred by statute and by law
the Board of Directors is expressly authorized to make, amend, alter, change,
add to or repeal By-Laws of the Corporation, without any action on the part of
the stockholders.
SEVENTH: (a) No contract or transaction between the Corporation and one or more
of its Directors, or between a corporation and any other corporation,
partnership, association or other organization in which one or more of its
Directors or officers are Directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because such
Directors or officers are present at or participate in the meeting of the Board
of Directors or the committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if:
(1) The material facts as to his or their relationship or
interest and as to the contact or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contact or transaction by the affirmative votes of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders ratified to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
- 3 -
<PAGE>
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
In any case described in this Section, any common or interested Director may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors or any committee which shall authorize any such contract or
transaction and may vote thereat to authorize any such contract or transaction.
Any Director of the Corporation may vote upon any contract or other transaction
between the Corporation and any subsidiary or affiliated corporation without
regard to the fact that he is also a Director of such subsidiary or affiliated
corporation.
(b) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a Director of
this Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director.
(c) Any contract, transaction or act of the Corporation or of the
Board of Directors which shall be ratified by a majority of a quorum of the
stockholders entitled to vote at any annual meeting or at any special meeting
called for that purpose shall be as valid and binding as though ratified by
every stockholder of the Corporation; provided, however, that any failure of the
stockholders to approve or ratify such contract, transaction or act when and if
submitted to them shall wt be deemed in any way to invalidate the same or to
deprive the Corporation, its Directors or officers of their right to proceed
with such contract, transaction or act.
(d) Each Director, officer and employee, past or present, of the
Corporation, and each person who serves or may have served at the request of the
Corporation as a Director, Trustee, officer or employee of another corporation,
association, trust or other entity and their respective heirs, administrators
and executors, shall be indemnified by the Corporation in accordance with, and
to the fullest extent permitted by, the provisions of the General Corporation
Law of the State of Delaware as it may from time to time be amended. Each agent
of the Corporation and each person who serves or may have served at the request
of the Corporation as an agent of another corporation, or as an employee or
agent of any partnership, joint venture, trust or other enterprise may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
same extent as provided herein with respect to Directors, officers and employees
of the Corporation. The provisions of this paragraph (d) shall apply to any
member of any Commit appointed by the Board of Directors as fully as though such
person shall have been an officer or Director of the Corporation.
(e) The provisions of this Article SEVENTH shall be in addition to
and not in limitation of any other rights, indemnities, or limitations of
liability to which any Director or officer may be entitled, as a matter of law
or under any By-Law, agreement, vote of stockholders or otherwise.
- 4 -
<PAGE>
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said Court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the Court to which she said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation. Elections of Directors
need not be by written ballot unless the By-Laws of the Corporation shall so
provide.
TENTH: The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon officers, Directors and stockholders herein are granted
subject to this reservation.
IN WITNESS WHEREOF, the undersigned has executed this Certificate and does
affirm the contents hereof as true under the penalties of perjury this 25th day
of February 1997.
/s/ Rachel Abarbanel
-----------------------------------------
Rachel Abarbanel, Incorporator
- 5 -
BY-LAWS
OF
COMTELCO INTERNATIONAL INC.
(a Delaware corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be located at United Corporate Services,
Inc., 15 East North Street in the City of Dover, County of Kent.
SECTION 2. Other Offices. The Corporation may maintain offices or places
of business at such other locations within or without the State of Delaware as
the Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All meetings of the stockholders of the
Corporation for the election of Directors or for any other purpose shall be held
at any such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of the stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of meeting or in a duly executed waiver
thereof. At such annual meeting, the stockholders shall elect, by a plurality
vote, a Board of Directors and transact such other business as may properly be
brought before the meeting.
SECTION 3. Special Meetings. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors or the Chairman of the Board, if one shall have been elected.
-1-
<PAGE>
SECTION 4. Notice of Meetings; Waiver. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date and place shall be given to each stockholder of
record entitled to vote thereat not less than ten nor more than sixty days
before the date of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice. Notice shall
be given personally or by mail and, if by mail, shall be sent in a postage
prepaid envelope, addressed to the stockholder at his or her address as it
appears on the records of the Corporation. Notice by mail shall be deemed given
at the time when the same shall be deposited in the United States mail, postage
prepaid. Notice of any meeting shall not be required to be given to any person
who attends such meeting, except when such person attends the meeting in person
or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
SECTION 5. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. Quorum; Adjournments. The holders of a majority of the voting
power of the issued and outstanding stock of the Corporation entitled to vote
thereat, present in person or repre sented by proxy, shall constitute a quorum
for the transaction of business at all meetings of stockholders, except as
otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, or, in his or her absence or if one
shall not have been elected, the President, shall act as Chairman of the
meeting. The Secretary or, in his or her absence or inability to act, the person
whom the Chairman of the meeting shall appoint secretary of the meeting, shall
act as Secretary of the meeting and keep the minutes thereof.
-2-
<PAGE>
SECTION 8. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the Chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his or her name on the record of
stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7
of Article V of these By-Laws as the record date for the
determination of the stockholders who shall be entitled to notice of
and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which
notice thereof shall be given, or, if notice is waived, at the close
of business on the date next preceding the day on which the meeting
is held.
SECTION 10. Proxies. Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his or her attorney-in-fact, but no proxy shall be
voted after three years from its date, unless the proxy provides for a longer
period. Any such proxy shall be delivered to the Secretary of the meeting at or
prior to the time designated in the order of business for so delivering such
proxies. When a quorum is present at any meeting, the vote of the holders of a
majority of the voting power of the issued and outstanding stock of the
Corporation entitled to vote thereon, present in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of statute or of the Certificate of
Incorporation or of these By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the Chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his or her proxy,
if there be such proxy, and shall state the number of shares voted.
SECTION 11. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the Chairman of the meeting shall, or if inspectors shall not
have been appointed, the Chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his or her ability. The inspectors shall determine the number of shares of
capital stock of the Corporation outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stock-
-3-
<PAGE>
holders. On request of the Chairman of the meeting, the inspectors shall make a
report in writing of any challenge, request or matter determined by them and
shall execute a certificate of any fact found by them. No director or candidate
for the office of director shall act as an inspector of an election of
Directors. Inspectors need not be stockholders.
SECTION 12. Action by Consent. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any provision of statute or of the Certificate of
Incorporation or of these By-Laws, the meeting and vote of stockholders may be
dispensed with, and the action taken without such meeting and vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
stock of the corporation entitled to vote thereon were present and voted.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The number
of Directors constituting the initial Board of Directors shall be as determined
in the resolutions of the Incorporator of the Corporation electing the Initial
Board of Directors. Thereafter, the number of Directors may be fixed, from time
to time, by the affirmative vote of a majority of the entire Board of Directors
or by action of the stockholders of the Corporation. Any decrease in the number
of Directors shall be effective at the time of the next succeeding annual
meeting of stockholders unless there shall be vacancies in the Board of
Directors, in which case such decrease may become effective at any time prior to
the next succeeding annual meeting to the extent of the number of such
vacancies. Directors need not be stockholders. Except as otherwise provided by
statute or these By-Laws, the Directors (other than members of the initial Board
of Directors) shall be elected at the annual meeting of stock holders. Each
director shall hold office until his or her successor shall have been elected
and qualified, or until his or her death, or until he shall have resigned, or
have been removed, as herein after provided in these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting
-4-
<PAGE>
is not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by two or more Directors of the cor poration or by the President.
SECTION 7. Notice of Meetings. Notice of each special meeting of the Board
of Directors (and of each regular meeting for which notice shall be required)
shall be given by the Secretary as hereinafter provided in this Section 7, in
which notice shall be stated the time and place of the meeting. Except as
otherwise required by these By-Laws, such notice need not state the purposes of
such meeting. Notice of each such meeting shall be mailed, postage prepaid, to
each director, addressed to him at his or her residence or usual place of
business, by first class mail, at least two days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopy or other similar means, or be delivered to him
personally or be given to him by telephone or other similar means, at least
twenty-four hours before the time at which such meeting is to be held. Notice of
any such meeting need not be given to any director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting, except when he shall attend for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 8. Quorum and Manner of Acting; Adjournment. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Certificate of Incorporation or these
By-Laws, the act of a majority of the entire Board of Directors shall be the act
of the Board of Directors. In the absence of a quorum at any meeting of the
Board of Directors, a majority of the Directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place of any such
adjourned meeting shall be given to all of the Directors unless such time and
place were announced at the meeting at which the adjournment was taken, in which
case such notice shall only be given to the Directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. The Directors shall act only as a Board and the individual Directors
shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in his or her absence, another director chosen by a majority
-5-
<PAGE>
of the Directors present) shall act as Chairman of the meeting and preside
thereat. The Secretary or, in his or her absence, any person appointed by the
Chairman shall act as Secretary of the meeting and keep the minutes thereof.
SECTION 10. Resignations. Any Director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether
arising from death, resignation, removal (with or without cause), an increase in
the number of Directors or any other cause, may be filled by the vote of a
majority of the Directors then in office, though less than a quorum, or by the
sole remaining Director or by the stockholders at the next annual meeting
thereof or at a special meeting thereof. Each Director so elected shall hold
office until his or her successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Any Director may be removed, either with
or without cause, at any time, by the holders of a majority of the voting power
of the issued and outstanding capital stock of the Corporation entitled to vote
at an election of Directors.
SECTION 13. Compensation. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of Directors
for services to the Corporation in any capacity.
SECTION 14. Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, including an executive commi ttee, each committee to consist of one
or more of the Directors of the Corporation. The Board of Directors may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the Corporation to be affixed
to all papers which require it. Each such committee shall serve at the pleasure
of the Board of Directors and have such name as may be determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors.
SECTION 15. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be
-6-
<PAGE>
taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceed ings of the Board of
Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, the
Secretary and the Treasurer. If the Board of Directors wishes, it may also elect
as an officer of the Corporation a Chairman of the Board and may elect other
officers (including one or more Assistant Treasurers and one or more Assistant
Secretaries) as may be necessary or desirable for the business of the
Corporation. Any two or more offices may be held by the same person, and no
officer except the Chairman of the Board need be a Director. Each officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified, or until his or her death, or until he or she shall have
resigned or have been removed, as hereinafter provided in these By-Laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his or her resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed, either
with or without cause, at any time, by the Board of Directors at any meeting
thereof.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall
have been elected, shall be a member of the Board, an officer of the Corporation
and, if present, shall preside at each meeting of the Board of Directors or the
stockholders. He shall advise and counsel with the President, and in his or her
absence with other executives of the Corporation, and shall perform such other
duties as may from time to time be assigned to him by the Board of Directors.
SECTION 5. The President. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at each
meeting of the Board of Directors or the stockholders. He shall perform all
duties incident to the office of President and chief executive officer and such
other duties as may from time to time be assigned to him by the Board of
Directors.
-7-
<PAGE>
SECTION 6. Vice-President. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his or her absence or in
the event of his or her inability or refusal to act, the Vice- President, or if
there shall be more than one, the Vice-Presidents in the order determined by the
Board of Directors (or if there be no such determination, then the
Vice-Presidents in the order of their election), shall perform the duties of the
President, and, when so acting, shall have the powers of and be subject to the
restrictions placed upon the President in respect of the performance of such
duties.
SECTION 7. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors
or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the Corporation;
and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 8. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
-8-
<PAGE>
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his or her duties, in such amount and with such
surety as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a Director of
the Corporation.
ARTICLE V
Capital Stock
SECTION 1. Stock Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board or the President or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restriction of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that
-9-
<PAGE>
the Corporation will furnish without charge to each stockholder who so requests
the designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. Facsimile; Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost, Stolen or Destroyed Certificates. The Board of Directors
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his or her legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of capital stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment there of, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting
-10-
<PAGE>
of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 8. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
Indemnification of Directors and Officers
SECTION 1. General. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or procee ding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, provided that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view
-11-
<PAGE>
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 1 and 2 of
this Article VI. Such determination shall be made (a) by the Board of Directors
by a majority vote of a quorum consisting of Directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders.
SECTION 5. Advances for Expenses. Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VI.
SECTION 6. Rights Not-Exclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
SECTION 7. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any lia bility
asserted against him and incurred by him in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article VI.
SECTION 8. Definition of Corporation. For the purposes of this Article VI,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this
-12-
<PAGE>
Article VI with respect to the resulting or surviving corporation as he would if
he had served the resulting or surviving corporation in the same capacity.
SECTION 9. Survival of Rights. The indemnification and advancement of
expenses provided by or granted pursuant to this Article VI shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
General Provisions
SECTION 1. Dividends. Subject to any applicable provisions of law and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors. Dividends may be paid in cash, property or
shares of stock of the Corporation, unless otherwise provided by statute or the
Certificate of Incorporation.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
-13-
<PAGE>
SECTION 7. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may, or
may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new by-laws adopted (a) by
action of the stockholders entitled to vote thereon at any annual or special
meeting of stockholders or (b) if the Certificate of Incorporation so provides,
by action of the Board of Directors at a regular or special meeting thereof. Any
by-law made by the Board of Directors may be amended or repealed by action of
the stockholders at any annual or special meeting of stockholders.
-14-
ComTelco
International Inc.
Employment Contract
between
ComTelco International Inc.
Hechtackerstrasse 41
9014 St. Gallen
Switzerland
(Company)
and
Roland Steiner
Rotelistrasse 6
9000 St. Gallen
Switzerland
(Employee)
The Company will employ the Employee and the Employee will be employed by the
Company as set fourth in the following contract:
Position of Employee in the Company:
The Employee will serve as Chief Executive Officer (CEO) of the Company.
Function within the Company:
As the Company's CEO the Employee shall supervise all ComTelco management and
staff, all operations, subsidiaries and companies directly or indirectly, fully
or partially owned by the Company. He shall explicitly supervise other officers
and senior management of the Company and report on a timely basis to the board
of directors on the activities, successes and failures ongoing in the Company.
He will be responsible for timely financial and other reports to the board of
directors, shareholders and other entities needing such information as specified
by the board of directors, the company's by-laws or as law may require. He shall
undertake everything in his power to allow the Company to operate profitably, to
force sales, timely development of new products and to ensure efficiency in the
operation of the Company's business.
Duties & Responsibilities in the Company (including but not limited to):
Primarily, all aspects of the Company's business in any context.
Secondarily the supervision and management of other senior management and
officers.
Directly reporting to:
Chairman of the board of directors and to the board of directors.
Starting date of the employment relationship:
March 1, 1997.
Probation Period:
This Contract replaces previous agreements with the Company, therefor no
probation period is required.
- 1 -
<PAGE>
Termination of employment:
a. by the Company: 3 months after the dismissal by the board of directors.
b. by the Employee: 3 months after the resignation to the board of directors.
c. on the Employee's 65th birthday.
Working hours:
40 hours per week.
Overtime:
No overtime compensation is granted to the Employee.
Paid Vacation:
4 weeks of paid vacation per year (20 working days).
Reimbursement:
$100,000 per year, paid out in 13 equal monthly salaries, December of each year
having an additional 13th salary.
Bonuses & Incentives:
No bonuses or incentives are part of this contract.
Social Security:
Social security is paid as requested by Swiss federal law.
Medical Aid:
During the first year, medical aid is to be fully paid by the Employee.
As of the second year of employment, medical aid is covered by the Company.
Pension Fund:
Pension fund contributions are paid according to Swiss federal law.
Motor Vehicle allowance:
The Company shall make available a motor vehicle, when needed for business
purposes.
Secondary Business and Employment:
The Employee agrees to devote the majority of his time to his office and not to
engage in other activities that would interfere with the fulfillment of his
responsibilities.
The Employee may hold other offices with other companies, including serve as a
director or consultant to other companies, as long as such companies do not
directly or indirectly compete with the Company's business.
The Employee may as long as such companies do not directly or indirectly compete
with the Company's business.
Workplace:
Primary place of work is the Company's head office. Offices in other Company
locations can be implemented as needed.
Business Travel:
All business and business related travel is covered by the Company.
Expenses:
All expenses incurred directly in connection with business by the Employee, any
accompanying staff member, consultant or customer of the Company, are covered by
the Company.
Tools:
- 2 -
<PAGE>
The Company shall provide to the Employee such tools as are necessary to perform
the duties hereunder.
Signatures:
The Employee, acting as CEO, in good faith enacting the will, targets and goals
of the board of directors, has the right to sign for and on behalf of the
Company and its subsidiaries where law permits. The Employee will undertake,
wherever possible and feasible to provide any document with a second signature
from another member of the board of directors or of the senior management.
Non Disclosure:
The Employee agrees not to disclose any information in connection with his
duties for and on behalf of the Company to any party outside the Company unless
the disclosure of such information is directly connected to the fulfillment of
the will, goals and targets of the board of the directors and the shareholders
of the Company.
The Employee agrees to lead and manage the Company to the best of his ability,
bearing the interests of its shareholders in mind and to follow the
instructions, will, goals and targets of the board of directors in good faith
and according to his best knowledge.
St. Gallen, February 20, 1997
ComTelco ComTelco Roland Steiner
International Inc. International Inc. Rotelistrasse 6
9000 St Gallen
Switzerland
- ------------------------------------ ---------------------- ------------------
August Steiner Claudia Sutter Roland Steiner
Chairman of the Board of Directors CFO, Director Employee
- 3 -
ComTelco
International Inc.
Employment Contract
between
ComTelco International Inc.
Hechtackerstrasse 41
9014 St. Gallen
Switzerland
(Company)
and
Ramon Inauen
Reggenschwilerstr. 28
9402 Moerschwil
Switzerland
(Employee)
The Company will employ the Employee and the Employee will be employed by the
Company as set fourth in the following contract:
Position of Employee in the Company:
Ramon Inauen is employed as Chief Operating Officer (COO).
Function within the Company:
As the Company's COO the Employee shall supervise all ComTelco operations and
staff. He shall be responsible for all aspects of daily business and operations
of the Company, its subsidiaries and companies directly or indirectly, fully or
partially owned by the Company. He shall supervise other members of the senior
management of the Company and report on a timely basis to the board of directors
on the activities, successes and failures ongoing in the Company. He shall be
responsible for timely financial and business activity reports to the board of
directors and other entities needing such information as specified by the board
of directors. He shall undertake everything in his power to allow the Company to
operate profitably, to force sales of the Company and to ensure efficiency in
the operation of the Company's business. He shall actively take part in the
management of the Company and shall keep himself informed of all aspects of the
Company and its business, focusing on daily business, organization, sales and
marketing aspects.
Duties & Responsibilities in the Company (including but not limited to):
Primarily, all aspects of the Company's business in any context.
Secondarily, the supervision and management of other members of the senior
management and of officers.
The Employee shall suggest to the Board and implement strategy and strategic
directions of the Company, and shall report to the board of directors on a
timely basis on all aspects in connection with the operation of the Company.
He shall assist in the collection of data for periodic financial and other
reporting, such as quarterly and annual reports, for the board, shareholders and
the SEC.
The Employee shall assist in possible acquisitions and/or mergers in which the
company may partake, and he shall assist or conduct foundation of new companies.
The Employee shall assess and evaluate all aspects of the Company's business
from an operational, marketing and sales point of view.
- 1 -
<PAGE>
Directly reporting to:
To the CEO and the board of directors.
Starting date of the employment relationship:
March 1,1997.
Probation Period:
This Contract replaces previous agreements with the former parent of the
Company, therefor no probation period is required.
Termination of employment:
a. by the Company: 3 months after the dismissal by the board of directors.
b. by the Employee: 3 months after the resignation to the board of directors.
c. on the Employee's 65th birthday.
Working hours:
40 hours per week.
Over Time:
No overtime compensation is granted to the Employee.
Paid Vacation:
4 weeks of paid vacation per year (20 working days).
Reimbursement:
$90,000 per year, paid out in 13 equal monthly salaries, December of each year
having an additional 13th salary.
Bonuses & Incentives:
No bonuses or incentives are part of this contract.
Social Security:
Social security is paid as requested by Swiss federal law.
Medical Aid:
During the first year, medical aid is to be fully paid by the employee. As of
the second year of employment, medical aid is covered by the Company.
Pension Fund:
Pension fund contributions are paid according to Swiss federal law.
Motor Vehicle allowance:
The Company shall make available a motor vehicle, when needed for business
purposes.
Secondary Business and Employment:
The Employee agrees to devote all of his time to his office and not to engage in
other activities that would interfere with the fulfillment of his
responsibilities. The Employee may hold other offices in other companies with
the permission of the board of sirectors, as long as such companies do not
directly or indirectly compete with the Company's business.
Workplace:
Primary place of work is the Company's head office. Offices in other Company
locations can be implemented as needed.
- 2 -
<PAGE>
Business Travel:
All business and business related travel is covered by the Company.
Expenses:
All expenses incurred directly in connection with business by the Employee, any
accompanying staff member, consultant or customer of the Company, are covered by
the Company.
Tools:
The Company shall provide the Employee with such tools as he requires to perform
his duties hereunder.
Signatures:
The Employee, acting as COO, in good faith enacting the will, targets and goals
of the board of directors, and the Company, has the right to sign for and on
behalf of the Company and its subsidiaries where law permits. The Employee shall
undertake, wherever possible and feasible to provide any document with a second
signature from another member of the board of Directors or of senior management.
Any transaction exceeding the value of $100,000 is subject to approval by the
CEO.
Any transaction exceeding the value of $500,000 is subject to approval by the
CEO and the board.
Non Disclosure:
The Employee agrees not to disclose any information in connection with his
duties for and on behalf of the Company to any parties outside the Company
unless the disclosure of such information is directly connected to the
fulfillment of the will, goals and targets of the board of the directors and the
shareholders of the Company.
The Employee agrees to lead and manage the Company to the best of his ability,
bearing the interests of Company's shareholders in mind and to follow the
instructions, will, goals and targets of the board of directors in good faith
and according to his best knowledge.
This Contract replaces any preceding contract of agreement entered into by the
parties to this Contract prior to the date hereof.
This contract is entered into under the laws of Switzerland.
Place of Jurisdiction is St. Gallen, Switzerland.
St. Gallen, February 20, 1997
ComTelco ComTelco Ramon Inauen
International Inc. International Inc. Reggenschwilerstr. 28
9402 Moerschwil
Switzerland
- ----------------------------------- ------------------- ----------------------
August Steiner Roland Steiner Ramon Inauen
Chairman of The Board of Directors CEO, Director Employee
- 3 -
ComTelco
International Inc.
Employment Contract
between
ComTelco International Inc.
Hechtackerstrasse 41
9014 St. Gallen
Switzerland
(Company)
and
Claudia Sutter
Konsumstrasse 20
9240 Uzwil
Switzerland
(Employee)
The Company will employ the Employee and the Employee will be employed by the
Company as set fourth in the following contract:
Position of Employee in the Company:
Claudia Sutter is employed as Chief Financial Officer (CFO).
Function within the Company:
As the Company's CFO the Employee shall supervise all the Company's financials
and staff, employed for the purpose of accounting, financial reporting and
administration. The Employee shall be responsible for all financial operations
and controlling of the Company, its subsidiaries and companies directly or
indirectly, fully or partially owned by the Company. She shall explicitly
supervise other senior management of the Company and report on a timely basis to
the board of directors on the activities, successes and failures ongoing in the
Company. She shall be responsible for timely financial and controlling reports
to the board of directors, shareholders and other entities needing such
information as specified by the board of directors, the company's by-laws or as
law may require. She shall undertake everything in her power, to allow the
Company to operate profitably, and allow smooth operation of the Company from a
financial point of view and to ensure efficiency in the operation of the
Company's business. She shall actively take part in the management of the
Company and shall keep herself informed of all aspects of the Company and i's
business, focusing on financial, controlling, administrative and organizational
aspects.
Duties & Responsibilities in the Company (including but not limited to):
Primarily, all aspects of the Company's business in any context.
Secondarily, the supervision and management of other members of senior
management and of officers.
She shall report to the board of directors on a timely basis on all aspects in
connection with the financials of the Company.
The Employee shall organize and invite members to the board of director
meetings, and she shall organize and invite the shareholders to the annual
shareholders meeting.
The Employee shall assist in possible acquisitions and/or mergers in which the
company may partake and in the founding or conducting of new companies.
She shall assess and evaluate all aspects of the Company's business from a
financial and cash flow point of view.
- 1 -
<PAGE>
Directly reporting to:
To the CEO and the board of directors.
Starting date of the employment relationship:
March 1,1997.
Probation Period:
The probation period is set for 3 months from the starting date, during which
each party can terminate the agreement with 2 weeks' notice.
Termination of employment:
a. by the Company: 6 months after the dismissal by the board of directors.
b. by the Employee: 6 months after the resignation to the board of directors.
c. on her 65th birthday.
Working hours:
40 hours per week.
Overtime:
No overtime compensation is granted to the Employee.
Paid Vacation:
4 weeks of paid vacation per year (20 working days).
Reimbursement:
$ 95,000 per year, paid out in 13 equal monthly salaries, December of each year
having an additional 13th salary.
Bonuses & Incentives:
No bonuses or incentives are part of this contract.
Social Security:
Social security is paid as requested by Swiss federal law.
Medical Aid:
During the first year, Medical aid is to be fully paid by the Employee. As of
the second year of employment, medical aid is covered by the Company.
Pension Fund:
Pension fund contributions are paid according to Swiss federal law.
Motor Vehicle allowance:
When a motor vehicle is used for business purposes, such use is reimbursed at
$.7 per kilometer.
Secondary Business and Employment:
The Employee agrees to devote the all of her time to her office and not to
engage in other activities that would interfere with the fulfillment of her
responsibilities.
The Employee may hold other offices in other companies with the permission of
the board of directors, as long as such companies do not directly or indirectly
compete with the Company's business.
Workplace:
Primary place of work is the Company's head office. Offices in other Company
locations can be implemented as needed.
- 2 -
<PAGE>
Business Travel:
All business and business related travel is covered by the Company.
Expenses:
All expenses incurred directly in connection with business by the Employee, any
accompanying staff member, consultant or customer of the Company, are covered by
the Company.
Tools:
The Company will provide to the Employee such tools as she requires to perform
her duties hereunder.
Signatures:
The Employee, acting as CFO, in good faith enacting the will, targets and goals
of the board of directors, and the Company, has the right to sign for and on
behalf of the Company and its subsidiaries where law permits. The Employee will
undertake, wherever possible and feasible, to provide any document with a second
signature from another member of the board of directors or of the senior
management.
Any transaction exceeding the value of $100,000 is subject to approval by the
CEO.
Any transaction exceeding the value of $500,000 is subject to approval by the
CEO and the board of directors.
Non Disclosure:
The Employee agrees not to disclose any information in connection with her
duties for and on behalf of the Company to any party within or outside the
Company, unless the disclosure of such information is directly connected to the
fulfillment of the will, goals and targets of the board of the directors and the
shareholders of the Company.
The Employee agrees to lead and manage the Company to the best of her ability,
bearing the interests of Company's shareholders in mind and to follow the
instructions, will, goals and targets of the board of directors in good faith
and according to her best knowledge.
This contract replaces any preceding contract or agreement entered into by the
parties to this Contract prior to the date hereof.
This contract is entered into under the laws of Switzerland.
Place of Jurisdiction is St. Gallen, Switzerland.
St. Gallen, February 25, 1997
ComTelco ComTelco Claudia Sutter
International Inc. International Inc. Konsumstrasse 20
9240 Uzwil
Switzerland
- ------------------------------------ -------------------- --------------------
August Steiner Roland Steiner Claudia Sutter
Chairman of The Board of Directors CEO, Director Employee
- 3 -
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE RESOLD BY HOLDER UNLESS IT IS SUBSEQUENTLY
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS
AVAILABLE IN CONNECTION WITH SUCH RESALE.
5.8% PROMISSORY NOTE
U.S. $3,999,980 As of February 28, 1997
FOR VALUE RECEIVED the undersigned, INTERFINANCE INV. CO. LTD. a Hong Kong
corporation, having an address at Limmattalstr 10, CH-8954 Geroldswil,
Switzerland ("Maker"), promises to pay, on February 28, 1998, in lawful money of
the United States, to COMTELCO INTERNATIONAL INC., a Delaware corporation,
having an address at c/o Walter Epstein, Esq. Rubin Baum Levin Constant &
Friedman, 30 Rockefeller Plaza, New York, New York 10112 ("Holder"), or assigns,
the principal amount of Three Million Nine Hundred Ninety Nine Thousand Nine
Hundred Eighty (U.S. $3,999,980) UNITED STATES DOLLARS, together with interest
thereon at an annual rate of 5.8% from the date of this Note until this Note is
paid in full.
All payments due and payable on this Note shall be made directly by wire
transfer of immediately available funds to an account designated by Holder to
Maker in writing, or at such other bank or agency or, in such other manner as
Holder shall have designated by written notice to Maker.
Maker represents and warrants as follows:
(i) Maker is a company duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of organization and each
other jurisdiction where the character of the property owned or leased by Maker,
or the nature of the business conducted by Maker, makes such qualification
necessary;
(ii) Maker has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as proposed to be conducted;
(iii) Maker has all necessary corporate power and has taken,
or caused to be taken, all corporate and shareholder action required to make all
the provisions of this Note and any other agreements and instruments executed in
connection herewith and therewith the valid and enforceable obligations they
purport to be; and
(iv) No authorization, consent, approval, license, exemption
of or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary for, or in connection with, the offer, issuance, sale,
execution or delivery by Maker, or for the performance by it of its obligations
under, this Note.
This Note shall, at the option of the Holder, without notice or demand,
forthwith become due and payable if any one or more of the following events
(which events are hereinafter referred to individually as an "Event of Default"
and collectively as "Events of Default") shall occur:
(i) Any payment of principal, interest or any other amount due under
the Note is not made when and as such payment is due;
(ii) Any covenant, warranty, representation or other statement made
by or on behalf of Maker in this Note, or in any instrument furnished in
compliance with this Note, is false in any material respect when made;
(iii) Maker shall commence any case, proceeding or other action (a)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or
- 1 -
<PAGE>
(b) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or Maker shall
make a general assignment for the benefit of its creditors;
(iv) There shall be commenced against Maker, any case, proceeding or
other action of a nature referred to in clause (iii) above which (a) results in
the entry of an order for relief or any such adjudication or appointment and (b)
remains undismissed, undischarged or unbonded for a period of 60 days;
(v) There shall be commenced against Maker any case, proceeding or
other action seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its assets;
(vi) Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (iii), (iv) or (v) above; or
(vii) Maker shall default under any agreement or instrument for
borrowed money or for the deferred purchase price of property or services or
evidenced by notes, bonds or other instruments.
If this Note is past due and is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceedings, then Maker shall pay to Holder all attorneys' fees, costs and
expenses incurred in connection therewith in addition to all other amounts due
hereunder.
Maker and any and all others who are now or may become liable for all or
any part of the obligations of Maker under this Note (all of the foregoing being
referred to collectively herein as the "Obligors") agree to be jointly and
severally bound hereby and jointly and severally (i) waive presentment and
demand for payment, notices of nonpayment and dishonor, protest of dishonor and
notice of protest; (ii) waive all notices in connection with the delivery and
acceptance hereof and all other notices in connection with the performance,
default or enforcement of the payment hereof or hereunder; (iii) waive any and
all lack of diligence and delays in enforcement of the payment hereof; (iv)
agree that the liability of each of the Obligors shall be unconditional and
without regard to the liability of any other person or entity for the payment
hereof and shall not in any manner be affected by any indulgence or forbearance
granted or consented to by Holder to any of them with respect hereto; (v)
consent to any and all extensions of time, renewals, waivers or modifications
which may be granted by the Holder with respect to the payment or other
provisions hereof, and to the release of any security at any time given for the
payment hereof or any part hereof, with or without substitution, and to the
release of any person or entity liable for the payment hereof; and (vi) consent
to the addition of any and all other makers, endorsers, guarantors and other
obligors for the payment hereof, and agree that the addition of any such
Obligors or security shall not affect the liability of any of the Obligors for
the payment hereof.
Maker may prepay this Note in whole or in part, together with all accrued
and unpaid interest hereon, without the prior consent of Holder and without
penalty or premium. All payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be endorsed by the holder
hereof on the schedule attached hereto and made a part hereof, or on a
continuation thereof which shall be attached hereto and made a part hereof, or
otherwise recorded by such holder in its internal records; provided, however,
that the failure of the holder hereof to make such a notation or any error in
such a notation shall not in any manner affect the obligation of the Maker to
make payments of principal and interest in accordance with the terms of this
Note.
The obligations of Maker hereunder are absolute and unconditional and are
not subject to any advances, offsets or counterclaims which Maker, its
successors or assigns, or any subsidiary or affiliate of any of them, may now or
hereafter have against the Holder.
Maker agrees that in any litigation arising out of or relating to this
Note, it will waive trial by jury and not impose any setoff or counterclaim of
any nature or description, and Maker shall be absolutely and unconditionally
liable hereunder.
This Note shall be binding upon any successor to Maker.
Maker agrees that this Note and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with the laws and
decisions of the State of Delaware, without reference to the principles of
conflicts of laws.
- 2 -
<PAGE>
INTERFINANCE INV. CO. LTD.
By:
----------------------------------
Name: Ulrich Ernst
Title: President
Payments
Payments Unpaid Principal Balance Name of Person
Date Principal/Interest of Note Making Notation
- ---- ------------------ ------- ---------------
- 3 -
SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE AGREEMENT made as of February 28, 1997
between INTERFINANCE INV. CO. LTD. a Hong Kong corporation, having an address at
Limmattalstr 10, CH-8954 Geroldswil (the "Pledgor") and COMTELCO INTERNATIONAL
INC., a Delaware corporation, having an address at c/o Walter M. Epstein, 30
Rockefeller Plaza, 29th Floor, New York, New York, 10112 (the "Pledgee").
W I T N E S S E T H:
WHEREAS, the Pledgor, on the date of execution of this Security and
Pledge Agreement has issued a Promissory Note payable to the order of the
Pledgee (the "Note;" capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Note);
WHEREAS, in connection with the execution of the Note the Pledgor
has agreed to enter into this Security and Pledge Agreement to secure the
indebtedness represented by the Note as provided herein;
WHEREAS, the Pledgor is pledging the amount of shares of capital
stock owned by the Pledgor set forth on Schedule A attached hereto and made a
part hereof (the "Pledged Shares").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and in order to induce Pledgee to enter into the
Subscription Agreement of even date herewith between the parties hereto (the
"Subscription Agreement") and to accept the Note, the parties hereto agree as
follows:
SECTION 1. Pledge. As collateral security for the due and punctual
payment of the Note, together with accrued interest thereon, the Pledgor hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto the
Pledgee, and grants to the Pledgee a security interest in (in each case, for the
benefit of the Pledgee and any other holder of the Note), the following
collateral (the "Pledged Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares; and
(ii) all cash, securities, dividends and other property and
proceeds at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing;
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights, titles,
interests, privileges and preferences appertaining or incidental thereto, unto
the Pledgee, its successors and assigns, forever, subject, however, to the
terms, covenants and conditions herein set forth.
SECTION 2. Representations, Warranties and Agreements. The Pledgor
hereby represents, warrants and agrees as follows:
(a) The Pledgor is the legal and equitable owner of the
Pledged Shares free and clear of all liens, security interests, charges
and encumbrances of every kind and nature (other than those created by
this Security and Pledge Agreement and by the Subscription Agreement); the
Pledgor has good and lawful authority to pledge, assign and deliver the
Pledged Shares in the manner hereby done or contemplated; and no consent
or approval of any governmental body or regulatory authority, or of any
securities exchange, is or will be necessary to the validity of the rights
created hereunder.
SECTION 3. Registration in Nominee Name. The Pledgee shall have the
right to appoint one or more sub-agents for the purpose of retaining physical
possession of the certificates or instruments representing or evidencing the
Pledged Collateral, which may be held (in the discretion of the Pledgee) in the
name of the pledgor, endorsed or assigned in blank or in favor of the Pledgee,
or in the name of the Pledgee or any nominee or nominees of the Pledgee or a
sub-agent
- 1 -
<PAGE>
appointed by the Pledgee. In addition, the Pledgee shall at all times have the
right to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations
for any purpose consistent with its performance of this Security and Pledge
Agreement. All certificates representing the Pledged Collateral shall bear a
legend indicating that the shares are subject to this Security and Pledge
Agreement.
SECTION 4. Voting Rights; Dividends, Etc. (a) So long as an Event of
Default does not exist:
(i) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to the
Pledged Collateral or any part thereof for any purpose.
(ii) The Pledgor shall be entitled to receive and retain any
and all cash dividends payable on the Pledge Collateral.
(iii) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of
attorney, dividend orders, and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting
and/or consensual rights and powers which it is entitled to exercise
pursuant to subsection (i) above and/or to receive the dividends which it
is authorized to receive and retain pursuant to subsection (ii) above.
(b) If an Event of Default shall exist, all rights of the Pledgor to
exercise the voting and/or consensual rights and powers which it is entitled to
exercise pursuant to Section 4(a)(i) and/or to receive the dividends which it is
authorized to receive and retain pursuant to Section 4(a)(ii) shall cease, and
all such rights shall thereupon become vested in the Pledgee who shall have the
sole and exclusive right and authority to exercise such voting and/or consensual
rights and powers and/or to receive and retain the dividends which the Pledgor
would otherwise be authorized to retain pursuant to Section 4(a)(ii). Any and
all money and other property paid over to or received by the Pledgee pursuant to
the provisions of this subsection (b) shall be retained by the Pledgee as part
of the Pledged Collateral and be applied in accordance with the provisions
hereof.
SECTION 5. Remedies With Respect to the Pledged Collateral Upon
Default. Upon the occurrence and continuance of an Event of Default:
(a) The Pledgee shall have and may exercise all of the rights and
remedies of a secured party under the Uniform Commercial Code of the State of
Delaware (the "Code") in effect at such time. The Pledgee may sell any of the
Pledged Collateral at any public or private sale for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as the
Pledgee may deem commercially reasonable, and apply the proceeds realized
thereby, after first deducting all costs and expenses of the Pledgee (including
reasonable counsel fees) incurred in the realization of such proceeds, to the
amounts due under the Note. The Pledgor agrees that, to the extent any notices
shall be required by law with respect to the Pledgee's exercise of its rights
and remedies as a secured creditor, ten days' prior written notice shall be
sufficient for such purposes. The Pledgee shall not be obligated to make any
sale of Pledged Collateral regardless of any notice therefor having been given.
The Pledgee may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor or by other means, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. To the extent permitted by the Code, the Pledgee may bid in for
the Pledged Collateral at any public or private sale and apply in payment of
such bid, all or any part of the Note.
(b) The Pledgee shall be authorized at any such sale (if, on the
advice of counsel, it deems it advisable to do so) to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing such portion of the Pledged Collateral for their account for
investment.
(c) In view of the position of the Pledgee in relation to any
securities or instruments now or hereafter included in the Pledged Collateral,
or because of other present or future circumstances, a question may arise under
the Securities Act of 1933, as amended, as now or hereafter in effect, or any
similar statute hereafter enacted analogous in purpose or effect (such Act and
any such similar statute as from time to time in effect being hereinafter called
the Federal Securities Laws) with respect to any disposition of the Pledged
Collateral permitted hereunder. The Pledgor understands
- 2 -
<PAGE>
that compliance with the Federal Securities Laws may strictly limit the course
of conduct of the Pledgee if the Pledgee were to attempt to dispose of all or
any part of the Pledged Collateral and may also limit the extent to which or the
manner in which any subsequent transferee of any Pledged Collateral may dispose
of the same. Similarly, there may be other legal restrictions or limitations
affecting the Pledgee in any attempt to dispose of all or any part of the
Pledged Collateral under applicable Blue Sky or other state securities laws or
similar laws analogous in purpose or effect. Under applicable laws, in the
absence of an agreement to the contrary, the Pledgee may perhaps be held to have
certain general duties and obligations to the Pledgor to make some effort
towards obtaining a fair price even though the Note may be discharged or reduced
by the proceeds of a sale at a lesser price. The Pledgor clearly understands
that the Pledgee is to have any such general duty and obligation to the Pledgor
and the Pledgor will not attempt to hold the Pledgee responsible for selling all
or any part of the Pledged Collateral at any particular price even if the
Pledgee shall accept the first offer received or does not approach more than one
possible purchaser. Without limiting the generality of the foregoing, the
provisions of this Section would apply if, for example, the Pledgee were to
place all or any part of the Pledged Collateral for its own account, or if the
Pledgee placed all or any part of the Pledged Collateral privately with a
purchaser or purchasers. The provisions of this Section will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Pledgee sells.
SECTION 6. Release and Termination. (a) Simultaneously with the
whole or partial repayment of the Note, the Pledgee shall release and deliver to
the Pledgor or to such person as the Pledgor shall designate in writing, in
accordance with the provisions of this Agreement, the percentage of Pledged
Shares then held hereunder determined by dividing the principal amount of the
Note which is prepaid by the principal outstanding balance of the Note
immediately prior to such prepayment. All amounts of Pledged Shares to be
released in accordance with this Section 6(a) shall be rounded down to the
nearest whole amount of Pledged Shares.
(b) This Security and Pledge Agreement shall terminate when all
indebtedness secured hereby and all obligations of the pledgor hereunder have
been fully paid and performed, at which time the Pledgee shall reassign and
redeliver (or cause to be so reassigned and redelivered), without recourse upon
or warranty by the Pledgee except for acts or omissions of Pledgee or anyone
holding under Pledgee and a the expense of the Pledgor (for taxes and other
expenses not caused by the Pledgee or anyone holding under Pledgee), to the
Pledgor, or to such person or persons as the Pledgor shall designate, against
receipt, such of the Pledged Collateral (if any) as shall not have been
previously released pursuant to (a) above or sold or otherwise applied by the
Pledgee pursuant to the terms hereof and shall still be held by it hereunder,
together with the appropriate instruments of reassignment and release.
SECTION 7. Further Assurances. The Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Pledgee may at any time
reasonably request in connection with the administration or enforcement of this
Security and Pledge Agreement or related to the Pledged Collateral or any part
thereof or in order to better assure and confirm unto the Pledgee its rights,
powers and remedies hereunder. The Pledgor hereby consents and agrees that the
issuer of the Pledged Collateral or any registrar or transfer agent or trustees
for any of the pledged Collateral shall be entitled to accept the provisions
hereof as conclusive evidence of the rights of the Pledgee to effect any
transfer pursuant to Section 3, notwithstanding any other notice or direction to
the contrary heretofore or hereafter given by the Pledgor or any other person to
such issuer or to any such registrar or transfer agent or trustees.
SECTION 8. Binding Agreement; Assignment. This Security and Pledge
Agreement, and the terms, covenants and conditions hereof, shall be binding upon
and inure to the benefit of the parties hereto, and their respective successors
and assigns, except that the Pledgor shall not be permitted to assign this
Security and Pledge Agreement or any interest herein or in the Pledged
Collateral, or any part hereof, or otherwise pledge, encumber or grant any
option with respect to the Pledged Collateral, or any part thereof, or any cash
or property held by the Pledgee as collateral under this Security and Pledge
Agreement.
SECTION 9. Governing Law; Terms. This Security and Pledge Agreement
shall be governed by, and construed and enforced in accordance with, the law of
the State of Delaware without regard to conflict of law principles. Unless
otherwise defined herein, terms defined in Article 9 of the Uniform Commercial
Code in the State of Delaware are used herein as therein defined.
- 3 -
<PAGE>
SECTION 10. Notices. All notices, claims, requests, demands,
deliveries and other communications hereunder shall be in writing and shall be
given as set forth in the Note Purchase Agreement to the addresses set forth in
the Note Purchase Agreement.
SECTION 11. Miscellaneous. Neither this Security and Pledge
Agreement nor any provision hereof may be amended, modified, waived, discharged
or terminated orally nor may any of the Pledged Collateral be released or the
pledge or the security interest created hereby extended, except by an instrument
in writing duly signed by or on behalf of the Pledgee. Any consent or waiver
given hereunder by Pledgee shall be binding upon its successors and assigns.
Each successor or assign of the Pledgee agrees that the Pledgee is constituted
such successor's or assign's agent for the purpose of executing any waivers or
consents with respect to this Security and Pledge Agreement. The Section
headings used herein are for convenience of reference only and shall not define
or limit the provisions of this Security and Pledge Agreement.
SECTION 12. Counterparts. This Security and Pledge Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Security and
Pledge Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date first above written.
PLEDGOR:
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
-------------------------------
Name: Ulrich Ernst
Title: __________
PLEDGEE:
COMTELCO INTERNATIONAL INC.
By: \s\ August Steiner
-------------------------------
Name: August Steiner
Title: Chairman
- 4 -
<PAGE>
Schedule A
Name of Company Certificate No. Amount of Shares
ComTelco _______________ 2,000,000
International Inc.
- 5 -
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, INTERFINANCE INV. CO. LTD.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
-------------------------------------
does hereby sell, assign and transfer unto -------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(________) Shares of the _____________ Capital Stock of ComTelco International
Inc. standing in its name on the books of said Corporation represented by
Certificate No. ____ herewith, and do hereby irrevocably constitute and appoint
_______________ attorney to transfer the said stock on the books of said
Corporation with full power of substitution in the premises.
Dated ___________
INTERFINANCE INV. CO. LTD.
By:
-------------------------------
Name:
Title:
Signature Guaranteed:
- -------------------------------
- 6 -
COMTELCO INTERNATIONAL INC.
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of February 28, 1997, by and between
ComTelco International Inc., a Delaware corporation (the "Company"), having an
address c/o Walter M. Epstein, Esq., 30 Rockefeller Plaza, 29th Floor, New York,
New York, and the subscriber signatory hereto (the "Subscriber").
1. Subscription. The Subscriber agrees with the Company to subscribe for
and agrees to purchase and pay for 2,000,000 shares (the "Shares") of the
Company's Common Stock, par value $.00001 per share (the "Common Stock"), for an
aggregate purchase price of $4,000,000 consisting of $[20.00] in cash and a
secured promissory note in the amount of $3,999,980 (the "Note"). This
subscription is submitted to the Company in accordance with and subject to the
terms and conditions described in this Subscription Agreement.
The Subscriber acknowledges that this subscription for the Shares is
subject to acceptance by the Company. The Subscriber acknowledges that the
Company reserves the right to accept or reject any subscriptions in whole or in
part. Subject to the terms hereof, this subscription will become effective upon
its acceptance by the Company.
The check of the Subscriber payable to the Company in the amount of
$20.00 and the Note manually executed by the Subscriber accompanies the delivery
of this Subscription Agreement.
In the event this subscription is not accepted by the Company, any
consideration tendered will be promptly refunded in full without interest.
2. Representations of the Subscriber. The Subscriber hereby
represents and warrants to the Company that:
(a) the subscription hereunder is being made by the Subscriber as
principal for the Subscriber's own account and not for the benefit
of any other person;
(b) the Subscriber is a resident of the jurisdiction set out on the
signature page hereof;
(c) this agreement constitutes a legal, valid, binding and enforceable
obligation of the Subscriber;
(d) the Subscriber will not make any offers to sell the Shares or sell
any of the Shares except in accordance with the terms of this
Subscription Agreement;
(e) the Subscriber has such knowledge, sophistication and experience in
business and financial matters that it is capable of evaluating the
merits and risks of an investment in the Shares, and at the present
time, it could afford a complete loss of such investment;
(f) the Subscriber acknowledges that the Company and counsel for the
Company will rely upon the accuracy and truth of the Subscriber's
representations in Sections 2 and 3 hereof and the Subscriber hereby
consents to such reliance;
<PAGE>
2
(g) the Subscriber has access to the same kind of information which
would be available in registration statements filed by the Company
under the Securities Act;
(h) neither the United States ("U.S.") Securities and Exchange
Commission (the "SEC") nor any state securities commission has
approved any of the Shares offered or passed upon or endorsed the
merits of the offering;
(i) the Subscriber acknowledges that all documents, records, and books
pertaining to the investment in the Shares have been made available
for inspection by him, his attorney, accountant, purchaser
representative or tax advisor (collectively, the "Advisors");
(j) the Subscriber and the Advisors have had a reasonable opportunity to
ask questions of and receive answers from a person or persons acting
on behalf of the Company concerning the offering of the Shares and
all such questions have been answered to the full satisfaction of
the Subscriber and his Advisors;
(k) in evaluating the suitability of an investment in the Company, the
Subscriber has not relied upon any representation or other
information (oral or written) other than as contained in documents
or answers to questions so furnished to the Subscriber or his
Advisors by the Company;
(l) the Subscriber is unaware of, and in no way relying on, any form of
general solicitation or general advertising in connection with the
offer and sale of the Shares;
(m) the Subscriber has such knowledge and experience in financial, tax,
and business matters so as to enable him to utilize the information
made available to him in connection with the offering of the Shares
to evaluate the merits and risks of an investment in the Shares and
to make an informed investment decision with respect thereto;
(n) the Subscriber is not relying on the Company respecting the tax and
other economic considerations of an investment in the Shares, and
the Subscriber has relied on the advice of, or has consulted with,
only his own Advisors;
(o) the Subscriber is acquiring the Shares solely for his own account
for investment and not with a view to distribution, other than in
accordance with the terms hereof;
(p) the Subscriber must bear the economic risk of the investment
indefinitely because none of the Shares may be sold, hypothecated or
otherwise disposed of unless subsequently registered under the Act
and applicable state securities laws or an exemption from
registration is available;
(q) the Subscriber has adequate means of providing for its current needs
and foreseeable contingencies and has no need for its investment in
the Shares to be liquid;
(r) the Subscriber has completed accurately the Subscriber Questionnaire
attached hereto as Exhibit A and meets the requirements of at least
one of the suitability standards for an "accredited investor;" and
(s) the Subscriber: (i) if a natural person represents that the
Subscriber has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and all
other related agreements or certificates and to carry out the
provisions hereof and
<PAGE>
3
thereof; (ii) if a corporation, partnership, association, joint
stock company, trust, unincor porated organization or other entity
represents that such entity was not formed for the specific purpose
of acquiring the Shares, such entity is validly existing under the
laws of the state of its organization, the consummation of the
transactions contemplated hereby is authorized by, and will not
result in a violation of state law or its charter or other
organizational documents, such entity has full power and authority
to execute and deliver this Subscription Agreement and all other
related agreements or certificates and to carry out the provisions
hereof and thereof, this Subscription Agreement has been duly
authorized by all necessary action, this Subscription Agreement has
been duly executed and delivered on behalf of such entity and is a
legal, valid and binding obligation of such entity; and (iii) if
executing this Subscription Agreement in a representative or
fiduciary capacity, represents that it has full power and authority
to execute and deliver this Subscription Agreement in such capacity
and on behalf of the subscribing individual, ward, partnership,
trust, estate, corporation, or other entity for whom the Subscriber
is executing this Subscription Agreement, and such individual, ward,
partnership, trust, estate, corporation, or other entity has full
right and power to perform pursuant to this Subscription Agreement
and make an investment in the Company, and that this Subscription
Agreement constitutes a legal, valid and binding obligation of such
entity; and
3. Acknowledgments; representations and covenants of the Subscriber with
respect to U.S. securities laws; securities transfers.
(a) The Subscriber understands that the Shares have not been registered
(i) under the U.S. Securities Act of 1933, as amended (the
"Securities Act") with the SEC in reliance upon the exemption from
such registration requirements afforded by Regulation S under the
Securities Act, governing the offer and sale of securities that
occur outside the U.S., or (ii) with any state securities
commission. The Subscriber understands that the Shares may not be
offered, sold, transferred or otherwise disposed of in the U.S., its
territories or possessions, or to persons known to be residents of
the U.S. or to a "U.S. person" within the meaning of Regulation S
under the Securities Act ("U.S. Person"; see the definition of U.S.
Person annexed hereto as Exhibit B) until the earlier to occur of
the effectiveness of a registration statement registering the Shares
under the Securities Act or the expiration of the restricted period
(as defined by Regulation S under the Securities Act) and thereafter
only if the Shares are registered under the Securities Act or an
exemption from the registration requirements under the Securities
Act is available.
(b) The Subscriber hereby represents and warrants that the Subscriber is
not a resident of the U.S. and is not otherwise deemed to be a U.S.
Person.
(c) The Subscriber agrees that if it should resell or transfer the
Shares it will do so only (a) outside the United States in
compliance with Rule 904 under the Securities Act, (b) pursuant to
the exemption from registration provided by Rule 144 under the
Securities Act (if available) or other applicable exemption under
the Securities Act and state securities laws; (c) in a transaction
that does not require registration under the Securities Act or any
applicable state laws, or (d) pursuant to a registration statement
that has been declared effective under the Securities Act.
(d) The Subscriber agrees that it will give each person to whom it
transfers the Shares notice of any restrictions on transfer of such
Shares, if then applicable. If a transfer of Shares is proposed to
be made, the holder (or beneficial holder, as the case may be) will
be required to furnish to the Company or the Company's transfer
agent, such certifications, legal
<PAGE>
4
opinions, or other information as may reasonably be requested to
confirm that the proposed transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act.
(e) Each certificate representing the Shares will bear the following
legend (unless such Shares have been transferred pursuant to a
registration statement that has been declared effective under the
Securities Act):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON
EXCEPT AS SET FORTH IN THE FOLLOWING SEN TENCE. THE HOLDER HEREOF
AGREES THAT: (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON
STOCK EVIDENCED HEREBY EXCEPT (A) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (B) PURSUANT TO
THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR OTHER THEN APPLICABLE EXEMPTION
UNDER THE SECURITIES ACT AND STATE SECURITIES LAWS, (C) IN A
TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES
ACT OR ANY APPLICABLE STATE LAWS, OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
(AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER);
(2) PRIOR TO ANY SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 1(D) ABOVE), IT WILL FURNISH TO THE COMPANY OR THE TRANSFER
AGENT FOR THE COMMON STOCK SUCH CERTIFICATIONS, LEGAL OPINIONS, OR
OTHER INFORMATION AS THE COMPANY OR SUCH TRANSFER AGENT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR STATE
SECURITIES LAWS; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE
COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
(f) The Subscriber understands and agrees that any disposition of the
Shares in violation of this Agreement shall be null and void, and
that no transfer of the Shares likely will be made by the Company or
the Company's transfer agent upon the Company's stock transfer books
unless there has been compliance with the terms of this Agreement.
The Subscriber also understands and agrees that the Company likely
will issue stop transfer instructions to the Company's transfer
agent instructing such transfer agent not to transfer the
certificate(s) evidencing the Shares to U.S. Persons, and that any
such stop transfer instructions will only be removed to permit
transfers made in compliance with the terms of this Agreement.
(g) The Subscriber (i) acknowledges that the Shares have not been
registered under the Securities Act and that the Company has no
obligation to so register any of the Shares, (ii)
<PAGE>
5
represents and warrants that the Subscriber is acquiring beneficial
ownership of the Shares for the Subscriber's own account and not for
the account or benefit of a U.S. Person or other person, and (iii)
agrees that the Subscriber will not transfer or otherwise dispose of
any of the Shares unless such transfer or other disposition is
registered under the Securities Act or is in accordance with
Regulation S under the Securities Act or otherwise is exempt from
registration under the Securities Act.
4. Covenants. The Subscriber acknowledges that in making its decision to
subscribe for the Shares, it has not relied upon the advice of any adviser to
the Company or of any other third party.
5. Further Assurances. Each of the parties hereto agrees to execute and
deliver such documents, make such filings and do all such things as are required
by, and to comply with the provisions of the Securities Act, any other
applicable securities legislation and any orders, policies, rules or regulations
of the SEC, the National Association of Securities Dealers, Inc. or other
relevant regulatory authorities concerning the issuance by the Company and the
purchase, holding and resale by the Subscriber of the Shares.
6. Modification. This Subscription Agreement shall not be modified or
waived except by an instrument in writing signed by the party against whom any
such modification or waiver is sought.
7. Assignability. This Subscription Agreement and the rights and
obligations hereunder are not transferable or assignable by the Subscriber.
8. Blue Sky Qualification. The Subscriber's right to purchase Shares under
this Subscription Agreement are expressly conditioned upon the exemption from
qualification of the offer and sale of the Shares from applicable Federal and
state securities laws. The Company shall not be required to qualify this
transaction under the securities laws of any jurisdiction and, should
qualification be necessary, the Company shall be released from any and all
obligations to maintain its offer, and may rescind any sale contracted, in the
jurisdiction.
9. Survival; Indemnification. All of the covenants, representations and
warranties contained herein shall survive the closing of the purchase and sale
of the Shares hereunder. The Subscriber agrees to indemnify and hold harmless
the Company and each director, officer, employee, agent or representative
thereof from and against any and all loss, damage or liability and related costs
and expenses (including but not limited to, reasonable attorneys' fees and costs
of investigation) due to or arising out of a breach of any covenant,
representation or warranty made by him in this Agreement.
10. Agreement. The Subscriber agrees that by executing this subscription
agreement an irrevocable agreement of purchase and sale of the Shares shall be
created upon its acceptance by the Company. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by all parties.
11. Notices. All notices or other communications given or made hereunder
shall be in writing and shall be delivered or mailed by registered or certified
mail, return receipt requested, postage prepaid to the Subscriber at the address
set forth on the signature page hereof, and to the Company at the address set
forth in the first paragraph hereof.
12. Offering Restrictions. The Shares have not been registered under the
Securities Act and the Subscriber agrees that during the restricted period (as
such term is defined in Regulation S) it will not sell any of the Shares within
the U.S. or to, or for the account or benefit of, U.S. Persons except pursuant
to an effective registration statement registering the Shares under the
Securities Act, in accordance with
<PAGE>
6
Regulation S under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. Neither the Subscriber, its
affiliates nor any persons acting on its behalf have engaged or will engage in
any directed selling efforts (as such term is defined in Regulation S) with
respect to the Shares and the Subscriber has complied with and will comply with
the offering restrictions requirement of Regulation S for as long as such
requirement is applicable. If any sales of the Shares are made by the Subscriber
during the restricted period (as defined in Regulation S) pursuant to Regulation
S then the Subscriber hereby agrees to make such sales in compliance with
Regulation S.
13. Governing Law. Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be governed by, and constituted in accordance
with, the laws of the State of Delaware without regard to the choice of law
principles thereof.
14. Validity. The holding of any provision of this Subscription Agreement
to be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Subscription Agreement, which shall remain in
full force and effect.
15. Time. Time shall be of the essence hereof.
16. Inurement. This agreement shall inure to the benefit of and be binding
upon the respective legal representatives and successors of the parties.
17. Counterparts. This Subscription Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this subscription by
signing any of such counterpart and delivering the same by telex, telecopy,
telegraph, cable or otherwise in writing (each delivery by any of such means to
be deemed to be "in writing" for purposes of this subscription agreement).
Subscriber:
Interfinance Inv. Co. Ltd.
By: /s/ Ulrich Ernst
----------------------------------------
Name: Ulrich Ernst
Title: President
Subscriber's Address for Notices and
Delivery of Securities:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Subscription accepted as of February 28, 1997
COMTELCO INTERNATIONAL INC.
By: /s/ August Steiner
-------------------------------
Name: August Steiner
<PAGE>
7
Title: Chairman
<PAGE>
Exhibit A to Subscription Agreement
INVESTOR QUESTIONNAIRE
ALL INVESTORS MUST INITIAL THE FOLLOWING:
___ The undersigned understands that the representations contained in this
Investor Questionnaire qualifying or disqualifying it as an accredited
investor as that term is defined in Rule 501 of Regulation D promulgated
under the Act are made for the purpose of inducing a sale of securities to
the undersigned. The undersigned understands and acknowledges that the
Company will rely upon such representations. The undersigned hereby
represents that the statement or statements initialed below are true and
correct in all respects, and the undersigned will notify the Company
immediately of any material change in any of the information contained in
such statement or statements. The undersigned understands that any false
representations may constitute a violation of law and that any company or
person who suffers damages as a result of such false representations may
have a claim against it for damages.
AN INVESTOR SHOULD INITIAL ANY OF THE FOLLOWING STATEMENTS THAT APPLY TO IT:
___ (a) The undersigned certifies that it is an accredited investor because it
is either (i) a bank as defined in Section 3(a)(2) of the Act, or savings
and loan association or other institution as defined in Section 3(a)(5)(a)
of the Act whether acting in its individual or fiduciary capacity, (ii) a
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, (iii) an insurance company as defined in Section
2(13) of the Act, (iv) an investment company registered under the
Investment Company Act of 1940 or a business development company
registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of such Act, (v) a
small business investment company licensed by the United States Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958, (v) a plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,00,000, or (vii) an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974
if investment decisions are made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or an
employee benefit plan that has total assets in excess of $5,000,000 or, if
a self-directed plan, with investment decisions made solely by persons
that are accredited investors.
___ (b) The undersigned certifies that it is an accredited investor because it
is a private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940.
___ (c) The undersigned certifies that it is an accredited investor because it
is an organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, business trust, or partnership with total assets in
excess of $5,000,000.
___ (d) The undersigned certifies that it is an accredited investor because it
is a trust, with total asses in excess of $5,000,000, whose purchases of
securities are directed by a person who has such knowledge and experience
in financial and business matters that he/she is capable of evaluating the
merits and risks of an investment in the Company.
___ (e) The undersigned certifies that it is an accredited investor because it
is an entity in which all of the equity owners are accredited investors.
Each such equity owner must also properly complete and submit a Investor
Questionnaire as if such equity owner was a shareholder. If this section
applies a questionnaire for individuals is available upon request from the
Company.
<PAGE>
1
Exhibit B to Subscription Agreement
Definition of "U.S. Person"
Regulation S. Rule 902(o) provides:
(1) "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the
benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary organized,
incorporated, or (if an individual) resident in the United States;
and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing in
securities not registered under the Act, unless it is organized or
incorporated, and owned, by accredited investors (as defined in Rule
501(a) who are not natural persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1), of this rule, any discretionary
account or similar account (other than an estate or trust) held for the benefit
or account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United States
shall not be deemed a "U.S. person."
(3) Notwithstanding paragraph (o)(1), any estate of which any professional
fiduciary acting as executor or administrator is a U.S. person shall not be
deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect to
the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1), any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S. person
if a trustee who is not a U.S. person has sole or shared investment discretion
with respect to the trust assets, and no beneficiary of the trust (and no
settlor if the trust is revocable) is a U.S. person.
<PAGE>
2
(5) Notwithstanding paragraph (o)(1), an employee benefit plan established
and administered in accordance with the law of a country other than the United
States and customary practices and documentation of such country shall not be
deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1), any agency or branch of a U.S.
person located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons;
and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or
banking regulations, respectively, in jurisdictions where located.
(7) The International Monetary Fund, the International Bank of
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans shall not be deemed
"U.S. persons."
For the purposes of the foregoing "United States" means the United
States of America, its territories and possessions, any State of the United
States, and the District of Columbia.
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of February 28, 1997, between COMTELCO INTERNATIONAL,
INC., a Delaware corporation (the "Company"), having an address c/o Walter M.
Epstein, Esq., 30 Rockefeller Plaza, 29th Floor, New York, New York, and
INTERFINANCE INV. CO. LTD., a Panamanian corporation, having an address at
Limmattalstrasse 10/P.O. Box 13, CH 8954 Geoldswil, Switzerland
("Interfinance").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Interfinance is purchasing in a private placement (the "Private Placement") from
the Company an aggregate of 2,000,000 shares (the "Shares") of the Company's
Common Stock, $.00001 par value per share (the "Common Stock"), which will be
issued in consideration of $20.00 in cash and a secured Promissory Note due on
February 28, 1998 in the principal amount of $3,999,980; and
WHEREAS, in connection with the Private Placement the Company has agreed
to register the Shares pursuant to the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
mutually agree as follows:
1. Registration of the Shares.
(a) Within 180 days of the date of this Agreement, the Company shall
file a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), with the Securities and Exchange
Commission (the "SEC"). The Registration Statement shall register the Shares for
resale under the Act and shall include Interfinance and any Transferees as
selling shareholders. A "Transferee" shall be any person or entity that is
included on a list delivered by Interfinance to the Company prior to the
effective date of the Registration Statement (the "Effective Date"), which list
shall name all persons or entities to whom Interfinance has, prior to the
Effective Date, validly transferred Shares. Collectively, Interfinance and the
Transferees are referred to herein as the "Holders."
(b) Once filed, the Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible and, if any
stop order shall be issued by the SEC in connection therewith, to use its
reasonable efforts to obtain the removal of such order. Following the effective
date of the Registration Statement, the Company shall, upon the request of a
Holder, forthwith supply such reasonable number of copies of the Registration
Statement, prospectus and other documents necessary or incidental to the
registration as shall be reasonably requested by such Holder to permit such
Holder to make a public distribution of such Holder's Shares. The Company will
use its reasonable efforts to qualify the Shares for sale in such states as the
Holders of such securities shall reasonably request, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to general service of process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction. The obligations of the Company hereunder with respect to the
Shares of each Holder are expressly conditioned on each Holder furnishing to the
Company such appropriate information concerning such Holder, such Holder's
Shares and the terms of each such Holder's offering of such Shares as the
Company may reasonably request.
(c) The Company shall bear the entire cost and expense of the
registration of the Shares; provided, however, that each Holder shall be solely
responsible for the fees of any counsel retained by such Holder in connection
with such registration and any transfer taxes or underwriting discounts,
commissions or fees applicable to the Shares sold by such Holder pursuant
thereto.
(d) Neither the filing of the Registration Statement by the Company
pursuant to this Agreement nor the making of any request for prospectuses by any
Holder shall impose upon any Holder any obligation to sell such Holder's Shares.
(e) A Holder, upon receipt of notice from the Company that an event
has occurred which requires a post-effective amendment to the Registration
Statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of Shares until the Holder receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
2. Indemnification.
<PAGE>
(a) The Company shall indemnify and hold harmless the Holders from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in the Registration Statement, any
other registration statement filed by the Company under the Act, any
post-effective amendment to such registration statements, or any prospectus
included therein required to be filed or furnished by reason of this Agreement
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except, with
respect to each Holder, insofar as such losses, claims, damages or liabilities
are caused by any such untrue statement or omission based upon information
furnished or required to be furnished in writing to the Company by such Holder
expressly for use therein, which indemnification shall include each person, if
any, who controls each Holder within the meaning of the Act and each officer,
director, employee and agent of each Holder; provided, however, that the
indemnification in this paragraph (c) with respect to any prospectus shall not
inure to the benefit of any Holder (or to the benefit of any person controlling
any Holder) on account of any such loss, claim, damage or liability arising from
the sale of Shares by any Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to such Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by such Holder to the purchaser
prior to such sale; and provided further, that the Company shall not be
obligated to so indemnify any Holder or other person referred to above unless
such Holder or other person, as the case may be, shall at the same time
indemnify the Company, its directors, each officer signing the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Act, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement of a material fact contained in the Registration
Statement, any registration statement or any prospectus required to be filed or
furnished by reason of this Agreement or caused by any omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims, damages or
lia bilities are caused by any untrue statement or omission based upon
information furnished in writing to the Company by such Holder expressly for use
therein.
(b) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
3. Governing Law; Jurisdiction.
(a) The Shares, when issued, will be delivered in New York. This
Agreement shall be deemed to have been made and delivered in the State of New
York and shall be governed as to validity, interpretation, construction, effect
and in all other respects by the internal laws of the State of New York.
(b) The Company and Interfinance each (a) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement, or any
other agreement entered into between the Company and pursuant to the Private
Placement or the Registration Statement shall be instituted exclusively in New
York State Supreme Court, County of New York, or in the United States District
Court for the Southern District of New York, (b) waives any objection which the
Company or Interfinance may have now or hereafter to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company and Interfinance each further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York or
in the United States District Court for the Southern District of New York.
4. Amendment. This Agreement may only be amended by a written instrument
executed by the Company and Interfinance.
5. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
-2-
<PAGE>
6. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or five days after such notice mailed by registered or certified mail,
postage prepaid, return receipt requested to the address set forth on the first
page of this Agreement.
8. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
9. Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
COMTELCO INTERNATIONAL INC.
By: /s/ August Steiner
-------------------------------------
August Steiner, Chairman
INTERFINANCE INV. CO. LTD.
By: /s/ Ueli Ernst
-------------------------------------
Ueli Ernst, President
-3-
EQUITY PURCHASE AGREEMENT
AMONG
COMTELCO INTERNATIONAL INC.
AND
AUGUST STEINER
As of February 28, 1997
<PAGE>
TABLE OF CONTENTS
1. Definitions
2. Purchase and Sale of Target Interests
(a) Basic Transaction
(b) Purchase Price
(c) The Closing
(d) Deliveries at the Closing
3. Representations and Warranties Concerning the Transaction
(a) Representations and Warranties of the Seller
(b) Representations and Warranties of the Buyer
4. Representations and Warranties Concerning the Targets
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Noncontravention
(d) Brokers' Fees
(e) Title to Assets/Intellectual Property
(f) Subsidiaries
(g) Undisclosed Liabilities
(h) Legal Compliance
(i) Contracts
(j) Disclosure
5. Pre-Closing Covenants
(a) General
(b) Notices and Consents
(c) Operation of Business
(d) Preservation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
6. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Covenant Not to Compete
(f) Certificates
7. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Seller
8. Remedies for Breaches of This Agreement
(a) Survival of Representations and Warranties
(b) Indemnification Provisions for Benefit of the Buyer
(c) Indemnification Provisions for Benefit of the Seller
(d) Matters Involving Third Parties
(e) Other Indemnification Provisions
9. Tax Matters
(a) Section 338(h)(10) Election
(b) Tax Periods Ending on or Before the Closing Date
(c) Tax Periods Beginning Before and Ending After the Closing Date
(d) Cooperation on Tax Matters
-i-
<PAGE>
(e) Tax Sharing Agreements
(f) Certain Taxes
10. Termination
(a) Termination of Agreement
(b) Effect of Termination
11. Miscellaneous
(a) Press Releases and Public Announcements
(b) No Third-Party Beneficiaries
(c) Entire Agreement
(d) Succession and Assignment
(e) Counterparts
(f) Headings
(g) Notices
(h) Governing Law
(i) Amendments and Waivers
(j) Severability
(k) Expenses
(l) Construction
(m) Incorporation of Exhibits, Annexes, and Schedules
(n) Specific Performance
(o) Submission to Jurisdiction
Disclosure Schedule -- Exceptions to Representations and Warranties Concerning
the Targets
-ii-
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of February 28, 1997, by and among ComTelco
International Inc., a Delaware corporation (the "Buyer"), and August Steiner, an
individual (the "Seller"). The Buyer and the Seller are referred to collectively
herein as the "Parties."
The Seller owns all of the outstanding capital stock of each of ComTelco
GmbH, a German corporation ("CT Germany"), ComTelco (Research) AG, a Swiss
corporation ("CT Research"), ComTelco (Vertriebs), a Swiss corporation ("CT
Switzerland"), and ComTelco Softwareenticklungs und Vertriebs GmbH, an Austrian
corporation ("CT Austria") (each, a "Target" and collectively, the "Targets").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the shares of
capital stock or other equity interests of the Targets owned by the Seller, in
return for the Shares (as such term is hereinafter defined).
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Assets" means all of the rights and assets identified on Exhibit A
attached hereto.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Share" means any share of the Common Stock, par value $.00001 per
share, of the Buyer.
"Closing" has the meaning set forth in ss.2i below.
"Closing Date" has the meaning set forth in ss.2i below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Targets and their Subsidiaries, if any, that is not already
generally available to the public.
"Disclosure Schedule" has the meaning set forth in ss.4 below.
"Financial Statement" has the meaning set forth in ss.4(g) below.
<PAGE>
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in ss.8(d) below.
"Indemnifying Party" has the meaning set forth in ss.8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodi ments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Purchase Price" has the meaning set forth in ss.2(b) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings,(c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Shares" has the meaning set forth in ss.2(b) below.
-2-
<PAGE>
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target" or "Targets" has the meaning set forth in the preface above.
"Target Interests" means the shares of capital stock or other equity
interests of each Target.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code ss.59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss.8(d) below.
2. Purchase and Sale of Target Interests.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell and transfer to the Buyer, all of the Target Interests owned by the
Seller for the consideration specified below in this ss.2.
(b) Purchase Price. In full payment for the Target Interests (the
"Purchase Price"), the Buyer agrees to issue and deliver to the Seller at the
Closing 2,500,000 shares of the Buyer Shares (the "Shares").
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place commencing at 9:00 a.m. local time on
the business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Buyer and the Seller may
mutually determine (the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyer the various certificates, instruments, and documents referred to in
ss.7(a) below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in ss.7(b) below, (iii) the
Seller will deliver to the Buyer stock certificates representing all of the
Target Interests owned by the Seller, endorsed in blank or accompanied by duly
executed assignment documents (in each case with signatures guaranteed by a bank
or other institution which is acceptable as an eligible guarantor under the laws
of the applicable jurisdictions), and (iv) the Buyer will issue and deliver to
the Seller the consideration specified in ss.2(b) above.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this ss.3(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this ss.3(a))
with respect to the Seller.
(i) Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any
-3-
<PAGE>
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which he or it is bound or to which any
of his or its assets is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which the Buyer
could become liable or obligated.
(iv) Investment. The Seller (A) understands that the Shares have not
been registered under the Securities Act, or under any state securities
laws, and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (B) is
acquiring the Shares for his own account for investment purposes, and not
with a view to the distribution thereof, (C) is a sophisticated investor
with knowledge and experience in business and financial matters, (D) has
received certain information concerning the Buyer and has had the
opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Shares, (E) is
able to bear the economic risk and lack of liquidity inherent in holding
the Shares, and (F) is an Accredited Investor as such term is defined in
the Securities Act.
(v) Target Interests. The Seller holds of record and owns
beneficially all of the issued and outstanding Target Interests of each of
the Targets. The Seller owns the Target Interests free and clear of any
restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. The Seller is not a party to any option, warrant, purchase right,
or other contract or commitment that could require the Seller to sell,
transfer, or otherwise dispose of any capital stock of the Targets (other
than this Agreement). The Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of
any capital stock of the Targets.
(vi) Disclosure. The representations and warranties contained in
this ss.3(a) do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
and information contained in this ss.3(a) not misleading.
(b) Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this ss.3(b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3(b)).
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
-4-
<PAGE>
(iii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Target Interests with
a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
(vi) Disclosure. The representations and warranties contained in
this ss.4 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this ss.3(b) not misleading.
4. Representations and Warranties Concerning the Targets. The Seller
represents and warrants to the Buyer that the statements contained in this ss.4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
ss.4), except as set forth in the disclosure schedule delivered by the Seller to
the Buyer on the date hereof and initialed by the Parties (the "Disclosure
Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this ss.4.
(a) Organization, Qualification, and Corporate Power. Each of the Targets
and their respective Subsidiaries, if any, is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Targets and their respective Subsidiaries, if any, is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required. Each of the Targets and
their Subsidiaries, if any, has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and in which it presently proposes to engage and to own and
use the properties owned and used by it. Section 4(a) of the Disclosure Schedule
lists the directors and officers of each of the Targets and their Subsidiaries,
if any. The Seller has delivered to the Buyer correct and complete copies of the
charter and bylaws (as amended to date) of comparable organizational documents
of each of the Targets and their respective Subsidiaries, if any. The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of each of the Targets and their respective
-5-
<PAGE>
Subsidiaries, if any, are correct and complete. None of the Targets and their
respective Subsidiaries, if any, is in default under or in violation of any
provision of its charter or bylaws.
(b) Capitalization. The entire authorized and issued and outstanding
capital stock of each of the Targets is as set forth on ss.4(b) of the
Disclosure Schedule. All of the issued and outstanding Target Interests have
been duly authorized, are validly issued, fully paid, and nonassessable, and are
held of record by the Seller. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the Targets
to issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to any of the Targets.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Targets.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Targets or their Subsidiaries,
if any, is subject or any provision of the charter or bylaws of any of the
Targets and their respective Subsidiaries, if any, or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any of the Targets or their respective Subsidiaries,
if any, is a party or by which any of them is bound or to which any of their
assets are subject (or result in the imposition of any Security Interest upon
any of its assets). None of the Targets or their respective Subsidiaries, if
any, needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) Brokers' Fees. None of the Targets or their respective Subsidiaries,
if any, has any Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement.
(e) Title to Assets/Intellectual Property. The Targets and their
respective Subsidiaries, if any, have good and marketable title to, or a valid
leasehold interest in, the Assets, free and clear of all Security Interests, and
the Assets constitute all properties, rights and assets used or held for use in
connection with the call accounting and computer telephony business as conducted
by the Seller or its Affiliates. To the extent the Assets constitute
Intellectual Property, the Seller is not aware of any claims asserted against
any party relating to the potential infringement of or conflict with such Assets
and the Seller is not aware of any proprietary rights of others which might be
infringed by such Assets.
(f) Subsidiaries. The Targets have no Subsidiaries.
(g) Undisclosed Liabilities. None of the Targets or their respective
Subsidiaries, if any, has any Liability (and there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), which have
not been disclosed in writing to the Buyer.
(h) Legal Compliance. Each of the Targets, their respective Subsidiaries,
if any, and their respective predecessors and Affiliates has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply.
(i) Contracts. Prior to the date of this Agreement, all material contracts
of the Targets dated prior to the date of this Agreement have been disclosed to
the Buyer, and the Targets have either delivered to the Buyer, or given the
Buyer the opportunity to review, all such material contracts.
-6-
<PAGE>
(j) Disclosure. The representations and warranties contained in this ss.4
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this ss.4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in ss.7 below).
(b) Notices and Consents. The Seller will cause each of the Targets and
their respective Subsidiaries, if any, to give any notices to third parties, and
will cause each of the Targets and their respective Subsidiaries, if any, to use
its reasonable best efforts to obtain any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in ss.4(i)
above. Each of the Parties will (and the Seller will cause each of the Targets
and their respective Subsidiaries, if any, to) give any notices to, make any
filings with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in ss.3(a)(ii), ss.3(b)(ii), and ss.4i above.
(c) Operation of Business. The Seller will not cause or permit any of the
Targets or their respective Subsidiaries, if any, to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller will not
cause or permit any of the Targets or their respective Subsidiaries, if any, to
(i) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or (ii) redeem, purchase, or otherwise acquire any
of its capital stock.
(d) Preservation of Business. The Seller will cause each of the Targets
and their respective Subsidiaries, if any, to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause each of
the Targets and their respective Subsidiaries, if any, to permit,
representatives of the Buyer to have full access at all reasonable times, and in
a manner so as not to interfere with the normal business operations of the
Targets and their respective Subsidiaries, if any, to all premises, properties,
personnel, books, records (including Tax records), contracts, and documents of
or pertaining to each of the Targets and their respective Subsidiaries, if any.
(f) Notice of Developments. The Seller will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in ss.4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in ss.3 above. No
disclosure by any Party pursuant to this ss.5(f), however, shall be deemed to
amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and the Seller will not cause or
permit any of the Targets or their respective Subsidiaries, if any, to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, any of the Targets or
their respective Subsidiaries, if any, (including any acquisition structured as
a merger, consolidation, or share exchange) or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Seller will not
vote the Target Interests in favor of any such acquisition structured as a
merger, consolidation, or share exchange. The Seller will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
-7-
<PAGE>
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ss.8 below). The
Seller acknowledges and agrees that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Targets and their
Subsidiaries, if any.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any of the Targets or their respective Subsidiaries, if any, each of
the other Parties will cooperate with him or it and his or its counsel in the
contest or defense, make available their personnel, and provide such testimony
and access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under ss.8 below).
(c) Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of any of the Targets or their respective
Subsidiaries, if any, from maintaining the same business relationships with the
Targets or their respective Subsidiaries, if any, after the Closing as it
maintained with the Targets and their respective Subsidiaries, if any, prior to
the Closing. The Seller will refer all customer inquiries relating to the
businesses of the Targets and their respective Subsidiaries, if any, to the
Buyer from and after the Closing.
(d) Confidentiality. The Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his or its possession.
In the event that the Seller is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, the Seller will notify the Buyer promptly of the
request or requirement so that the Buyer may seek an appropriate protective
order or waive compliance with the provisions of this ss.6(d). If, in the
absence of a protective order or the receipt of a waiver hereunder, the Seller
is, on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, that the Seller may disclose
the Confidential Information to the tribunal; provided, however, that the Seller
shall use his or its reasonable best efforts to obtain, at the reasonable
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not apply
to any Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(e) Covenant Not to Compete. For a period of two years from and after the
Closing Date, the Seller will not engage directly or indirectly in any business
that any of the Targets or their respective Subsidiaries, if any, conducts as of
the Closing Date in any geographic area in which any of the Targets or their
respective Subsidiaries, if any, conducts that business as of the Closing Date;
provided, however, that no owner of less than 1% of the outstanding stock of any
publicly traded corporation shall be deemed to engage solely by reason thereof
in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this ss.6(e) is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
-8-
<PAGE>
(f) Certificates. Each certificate representing the Shares will be
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR
AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.
Each holder desiring to transfer any of the Shares first must furnish the Buyer
with (i) a written opinion reasonably satisfactory to the Buyer in form and
substance from counsel reasonably satisfactory to the Buyer by reason of
experience to the effect that the holder may transfer the Shares as desired
without registration under the Securities Act and (ii) a written undertaking
executed by the desired transferee reasonably satisfactory to the Buyer in form
and substance agreeing to be bound by the recoupment provisions and the
restrictions on transfer contained herein.
(g) Further Assurances. Seller shall execute and deliver, from time to
time after the date hereof upon the request of the Buyer, such further
conveyance instruments, and take such further actions, as may be necessary or
desirable to evidence more fully the transfer of ownership of all the Target
Interests to the Buyer, or the original ownership of all the Target Interests on
the part of the Buyer, to the fullest extent possible. Seller agrees to (i)
execute, acknowledge, and deliver any affidavits or documents of assignment and
conveyance regarding the Target Interests, (ii) provide testimony in connection
with any proceeding affecting the right, title, interest, or benefit of the
Buyer in and to the Target Interests and Assets, and (iii) perform any other
acts deemed necessary to carry out the intent of this Agreement. In furtherance
of this Agreement, Seller hereby acknowledges that, from this date forward, the
Buyer has succeeded to all of Seller's right, title, and standing to (i) receive
all rights and benefits pertaining to the Target Interests and Assets, (ii)
institute and prosecute all suits and proceedings and take all actions that the
Buyer, in its sole discretion, may deem necessary or proper to collect, assert,
or enforce any claim, right, or title of any kind in and to any and all of the
Target Interests and Assets, and (iii) defend and compromise any and all such
actions, suits, or proceedings relating to such transferred and assigned rights,
title, interest, and benefits, and do all other such acts and things in relation
thereto as the Buyer, in its sole discretion, deems advisable.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(a) and ss.4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
(iii) the Targets and their respective Subsidiaries, if any, shall
have procured all of the third party consents specified in ss.5(b) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Buyer to own the Target Interests and to
control the Targets and their respective Subsidiaries, if any, or (D)
affect adversely the right of any of the Targets or their respective
Subsidiaries, if any, to own its assets and to operate its businesses (and
no such injunction, judg ment, order, decree, ruling, or charge shall be
in effect);
-9-
<PAGE>
(v) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Targets and their
respective Subsidiaries, if any, other than those whom the Buyer shall
have specified in writing prior to the Closing;
(vi) the Board of Directors of each of the Targets shall have
adopted a resolution approving the transfer, in accordance with the
provisions of this Agreement, of the Target Interests of such Target owned
by the Seller, and such resolution shall be in full force and effect on
and as of the Closing Date; and
(vii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will, unless otherwise set forth in this
Agreement, be reasonably satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this ss.7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by the Seller in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b) above
shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and
no such injunction, judgment, order, decree, ruling, or charge shall be in
effect); and
(iv) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will, unless otherwise set forth in this
Agreement, be reasonably satisfactory in form and substance to the Seller.
The Seller may waive any condition specified in this ss.7(b) if he executes a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty or covenant at
the time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean any of the Seller has
breached) any of its representations, warranties, and covenants contained
herein (other than the covenants in ss.2(a) above and the representations
and warranties in ss.3(a) above), and, if there is an applicable
-10-
<PAGE>
survival period pursuant to ss.8(a) above, provided that the Buyer makes a
written claim for indemnification against any of the Seller pursuant to
ss.11(h) below within such survival period, then the Seller agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(ii) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean any of the Seller has
breached) any of his covenants in ss.2(a) above or any of his
representations and warranties in ss.3(a) above, and, if there is an
applicable survival period pursuant to ss.8(a) above, provided that the
Buyer makes a written claim for indemnification against the Seller
pursuant to ss.11(h) below within such survival period, then the Seller
agrees to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(iii) The Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability
of any of the Targets or their respective Subsidiaries, if any, (x) for
any Taxes of the Targets or their respective Subsidiaries, if any, with
respect to any Tax year or portion thereof ending on or before the Closing
Date (or for any Tax year beginning before and ending after the Closing
Date to the extent allocable (determined in a manner consistent with
ss.9(c)) to the portion of such period beginning before and ending on the
Closing Date), to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) shown on the
face of the Targets' most recent financial statements (rather than in any
notes thereto), as such reserve is adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice
of the Targets and their respective Subsidiaries, if any, in filing their
Tax Returns.
(c) Indemnification Provisions for Benefit of the Seller. In the event the
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to ss.11(h) below within such
survival period, then the Buyer agrees to indemnify the Seller from and against
the entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this ss.8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15
days after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with
-11-
<PAGE>
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder,
(C) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemni fied Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests
of the Indemnified Party, and (E) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with ss.8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in ss.8(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this ss.8.
(e) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Seller hereby agrees that he will not make any claim
for indemnification against any of the Target and its Subsidiaries by reason of
the fact that he or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by the Buyer
against the Seller (whether such action, suit, proceeding, complaint, claim, or
demand is pursuant to this Agreement, applicable law, or otherwise).
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between the Buyer and the Seller for certain tax matters
following the Closing Date:
(a) Section 338(h)(10) Election. The Seller agrees, if so directed by the
Buyer, to join with Buyer in making an election under Section 338(h)(10) of the
Code (and any corresponding elections under state, local, or foreign tax law)
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the stock of each of the Targets hereunder. Seller will pay any Tax,
including any liability of the Targets for Tax resulting from the application to
it of Treasury Regulation ss. 1.338(h)(10)-1(f)(5), attributable to the making
of the Section 338(h)(10) Election and will indemnify the Buyer, Targets, and
their respective Subsidiaries, if any, against any Adverse Consequences arising
out of any failure to pay such Tax. The Seller will also pay any state, local,
or foreign Tax (and indemnify the Buyer, the Targets, and their respective
Subsidiaries, if any, against any Adverse Consequences arising out of any
failure to pay such Tax) attributable to an election under state, local or
foreign law similar to the election available under Section 338(g) of the Code
(or which results from the making of an election under Section 338(g) of the
Code) with respect to the purchase and sale of the stock of the Targets
hereunder.
(b) Tax Periods Ending on or Before the Closing Date. The Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Targets and their respective Subsidiaries, if any, for all periods
ending on or prior
-12-
<PAGE>
to the Closing Date which are filed after the Closing Date other than income Tax
Returns with respect to periods for which a consolidated, unitary or combined
income Tax Return of Seller will include the operations of the Targets and their
respective Subsidiaries, if any. The Buyer shall permit the Targets and their
respective Subsidiaries, if any, to review and comment on each such Tax Return
described in the preceding sentence prior to filing. The Seller shall reimburse
the Buyer for Taxes of the Targets and their respective Subsidiaries, if any,
with respect to such periods within fifteen (15) days after payment by the Buyer
or the Target, and their respective Subsidiaries, if any, of such Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the last balance sheet of the
Targets prepared prior to the Closing Date.
(c) Tax Periods Beginning Before and Ending After the Closing Date. The
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Targets and their respective Subsidiaries, if any, for Tax
periods which begin before the Closing Date and end after the Closing Date.
Seller shall pay to Buyer within fifteen (15) days after the date on which Taxes
are paid with respect to such periods an amount equal to the portion of such
Taxes which relates to the portion of such Taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the last balance
sheet of each of the Targets prepared prior to the Closing Date. For purposes of
this Section, in the case of any Taxes that are imposed on a periodic basis and
are payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period, and
(y) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Targets and their respective Subsidiaries, if any.
(d) Cooperation on Tax Matters.
(i) The Buyer, the Targets and their respective Subsidiaries, if
any, and the Seller shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder. The Targets and their respective Subsidiaries, if any, and the
Seller agree (A) to retain all books and records with respect to Tax
matters pertinent to the Targets and their respective Subsidiaries, if
any, relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent
notified by the Buyer or the Seller, any extensions thereof) of the
respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
the Targets and their respective Subsidiaries, if any, or Seller, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) The Buyer and the Seller further agree, upon request, to
provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
-13-
<PAGE>
(e) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Targets and their respective
Subsidiaries, if any, shall be terminated as of the Closing Date and, after the
Closing Date, the Targets and their respective Subsidiaries, if any, shall not
be bound thereby or have any liability thereunder.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
City Transfer Tax and any similar tax imposed in other states or subdivisions),
shall be paid by Seller when due, and Seller will, at their own expense, file
all necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and fees,
and, if required by applicable law, the Buyer will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
10. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement as
provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event any of the
Seller has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has
notified the Seller of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred within 60 days of the date of this
Agreement, by reason of the failure of any condition precedent under
ss.7(a) hereof (unless the failure results primarily from the Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Seller has
notified the Buyer of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach or (B) if the
Closing shall not have occurred within 60 days of the date of this
Agreement, by reason of the failure of any condition precedent under
ss.7(b) hereof (unless the failure results primarily from any of the
Seller themselves breaching any representation, warranty, or covenant
contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to ss.10(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
-14-
<PAGE>
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient at the
addresses set forth on the signature page hereto. Any Party may send any notice,
request, demand, claim, or other communication hereunder to the intended
recipient at the address set on the signature page hereto using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT
TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties, the Targets, and their respective
Subsidiaries, if any, will bear his or its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. The Seller agrees that none of the Targets nor
their respective Subsidiaries, if any, has borne or will bear any of the
Seller's costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant
-15-
<PAGE>
contained herein shall have independent significance. If any Party has breached
any representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in ss.10(o) below),
in addition to any other remedy to which they may be entitled, at law or in
equity.
(o) Submission to Jurisdiction. EACH OF THE PARTIES SUBMITS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN KENT COUNTY, DELAWARE, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES
THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. EACH PARTY ALSO AGREES NOT TO BRING ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY OTHER COURT. EACH
OF THE PARTIES WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF
ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER
SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.
(p) Power of Attorney. To effectuate the terms of Section 6(g) hereof,
Seller hereby names and irrevocably constitutes and appoints Buyer with the full
power of substitution therein, as Seller's true and lawful attorney-in-fact to
exercise the rights assigned by Seller to Buyer under this Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: COMTELCO INTERNATIONAL INC.
/s/ Robert Steiner
-----------------------------------------
Name: Robert Steiner
Title: President and CEO
Address for notice:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
With a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
/s/ August Steiner
SELLER: -----------------------------------------
Name: August Steiner
Address for notice:
August Steiner
Guisan Strasse 94
CH-9010 St. Gallen
Switzerland
With a copy to:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
-17-
<PAGE>
EXHIBIT A
ASSETS
All of the machinery, equipment, tools, furniture, furnishings, office
equipment, supplies, inventory, plant, spare parts and other tangible personal
property located at all locations mentioned in the locations list below, and all
of the Intellectual Property used or held for use in connection with the
computer telephony business as conducted by Seller or any of its Affiliates,
including, without limitation, mentioned in the assets list below.
List of Assets:
Existing Products:
ComTax 2.5 (FDD & LAN) Call Accounting System
ComTax 2.6 (HW Version) Call Accounting System
ComTax 2.7 16 bit including carriers & sites, Call Accounting System
ComTax MS32 Multisite, 32bit Telemanagement & Call Accounting System
ComTax Box 1.9 Hardware System for Data mass storage.
CTI Server Server Platform for CTI Products
ComDial 1.71 PC/LAN based communication client
ComLog 1.1 Workstation based Call Logging /Recording client
CL A/D interface Hardware for use with call logging/recording system
ComList Corporate electronic communication directory and connection
system
ComFax LAN based, client/server system for fax handling over the
Internet
Projects under Development:
(Products which are past the stage of technical feasibility)
C-client New generation of communication client 16 and 32bit
ComTax 32 Graphics engine and update for ComTax MS32
ComTax junior Ultra low-cost call accounting system incl. Hw and SW
LAN based Call logging Server system for ComLog as Client/Server implementation
ComTax Duplex New hardware for bi- directional communication with PBX's
ComTax VVVVVV Report, query and retrieval system over the Internet.
ComTax Archive On-Line archiving of call records to CD or DAT
LCR Dynamic Least Cost Routing for all communication services
CSTA server CSTA/TAPI/TSAPI converter for future PBX connectivity
Trade Mark registrations:
ComTax Europe OMPI reg. No. 649354
<PAGE>
ComDial Europe OMPI reg. No. 649353
Basic Research in progress:
Java Virtual Machine based call account handling
ATM bandwidth brokering
Management and accounting for all communication services
Virtual PBX
List of Tangible Assets
Room E6
Desk combination 1
Office Chair 1
Korpus 1
Rollo file cabinet 2
Personal Computer 1
Modem 1
Comfort telephone set DX 1
Plants and pictures
Room E4
Desk combination 1
Rollo file cabinet 2
Leather Chairs 2
Office Chair 1
Korpus 3
Personal Computer dev. 1
Personal Computer test systems 6
PBX Hicom 100 (for tests) 1
System Telephone set DX 2
Note Book Computer
Room E3
Table combination 2
Desk combination 2
Rollo file cabinet 3
Bookshelves 1
Office Chair 2
Leather Chair 2
Misc. CD's & Software
Library of Books
Personal Computer (dev.) 1
Personal Computer (test) 5
Colour flat bed scanner 1
Modem 2
Portable phone 1
System Telephone set DX 2
Room W2
Desk combinations 2
Leather Office Chairs 2
Conf. Table 1
Conf. Chairs 4
Korpus 2
Rollo File Cabinets 4
- 2 -
<PAGE>
Personal Computer 1
Note Book Computer 1
System Telephone set DX 2
Handy Ericsson GSM 2
R&D Center Moscow
Desks 7
Chairs 12
Ethernet hubs 8port 2
Personal Computer (dev.) 10
Personal Computers (test) 4
File Servers 2
PBX Hicom 120 (for test) 1
Modem 1
Note Book Computer 1
R&D Center Shanghai
Desk combinations 6
Chairs 6
File Cabinets 3
Personal Computers (dev.) 4
Personal Computers (test) 3
File Server 1
Modem 1
Misc. Books Software & CD's
St. Gallen, Switzerland
Room E7
Desk combinations 2
Office Chair 2
Bookshelves 2
Rollo file cabinet 1
Personal Computer 1
Note Book Computer 2
System telephone set DX 2
Portable Phone 1
Room E8
Documentation and Leaflets
Office supplies
Room E5
Furniture for exhibition booth
Bistro standing table 3
Bistro tables 3
Wardrobe 1
Bistro chairs 7
Personal Computer (demo) 4
Plants and pictures
Kitchen East
Espresso Machine 1
Table 1
Room E10
Desk combinations 1
Korpus 2
- 3 -
<PAGE>
Rollo file cabinets 1
Leather Chair 1
Office chair 1
Note Book Computer 1
System telephone DX 1
Portable telephone 1
Room Ell
Desk combination 1
Rollo file cabinets 2
Korpus 1
Note Book Computer 1
Office chair 1
System telephone DX 1
Room E12
Office table 2
Office chair 2
Rollo file cabinet 1
Korpus 2
Personal Computer 2
Cabling system incl. Hub 1
System telephone DX 1
Room E2
Desk combination 1
leather chair 2
Personal Computer 2
shelves 2
documentation shelves 1
Hesa Glass exhibit stand 1
System telephone DX 1
Room El
Desk combination 2
Rollo file cabinet 1
Personal Computer 1
Office chair 1
Korpus 1
Ink Jet printer 1
Leather chair 1
System telephone DX 1
Room W7
Desk combination 1
Office chair 1
Korpus 1
Rollo file cabinet 3
Photo copier 1
Laser printer 1
Personal computer 1
system telephone DX 1
Speed dial console DX 1
Room W6
Desk combination 1
Book shelf 2
Cupboard 1
- 4 -
<PAGE>
Office chair 1
Leather chair 1
Personal Computer 2
Rollo file cabinet I
Korpus 2
System telephone DX 1
Room W9
PBX, Nitsuko DX 1
Cabling system 1
File Server 1
ComDial 1
ComTax 1
Leather chair 2
Metal cupboards 2
Desk 4
Workbench 1
Table 1
Rollo file cabinets 1
Cupboard 1
Metal shelf system 8
Korpus 1
Office chair 1
Fork lift 1
Transportation trolley 2
Personal Computer 5
System telephone DX 1
Store Room
Metal shelf system 9
Table 1
Chair 1
Inventory as audited per 28.Feb.1997
Ort ArtNr. Artikelbeschreibung Anzahl
1 Produktion
110000 ComTax Windows Software Version CTS-K D 0.00
110005 ComTax Windows Saftwareversion CTS-G F 0.00
120000 ComTax Windows Standard CTB-K D 0.00
120006 Update ComTax Version 2.5 - Version 2.6 0.00
120103 ComTax Standard A4713 CTB-K F 0.00
120300 ComTax Standard Ver. 2.6 Tald 0.00
120402 ComTax Standard PTT CTB-G D 0.00
120403 ComTax Standard PTT CTB-K F 0.00
210004 ComDiaI 50 User Lizenz 0.00
410000 Benutzerhandbuch ComTax MDE Deutsch 23.00
410001 Benutzerhandbuch ComTax MDE Franzosisch 15.00
410002 Benutzerbandbuch ComTax MDE Englisch 8.00
410004 Technikerhandbuch ComTax MDE Deutsch 13.00
410005 Technikerhandbuch ComTax MDE Franzosisch 13.00
410006 Technikerhandbuch ComTax MDE Englisch 6.00
410008 Benutzerbandbuch ComTax Alcatel Deutsch 11.00
410009 Benutzerbandbuch ComTax Alcatel Franz. 18.00
410014 Benutzertiandbuch ComTax Ericsson Deutsch 10.00
410015 Benutzerhandbuch ComTax Ericsson Franz. 8.00
- 5 -
<PAGE>
410020 Benutzerhandbuch ComTax Tald Deutsch 10.00
410021 Technikerhandbuch ComTax Tald Deutsch 28.00
420000 Benutzerhandbuch ComDial MDE Deutsch 44.00
420002 Benutzerhandbuch ComDial MDE Franzosisch 20.00
420003 Benutzerbandbuch ComDial MDE Englisch 7.00
420006 Benutzerbandbuch Comfort Dial Lan dt.Al 13.00
420012 Benutzerbandbuch ComDial Ericsson Deut. 8.00
420013 Benutzerhandbuch ComDial Ericsson Franz. 0.00
420020 Benutzerhandbuch ComDial Philips 6.00
810001 Hicom Verbindungskabel 5.00
810003 Monitor Kabel DB 9m/f 1.8mt. 1.00
810006 ParalleIdruckerkabel (Typ A) 3.Om 1.00
810007 25polige 1: 1 Kabel (RS232 ST-ST) Typ B 2.00
810008 Tastaturkabel CIBM XT/AT-komp. (TypB) 3.00
810009 Tastatur-Adpter XT-Tastatur an PS/2 1.00
810103 Disketten 3.5" MF-HD formatiert 1.44M13 200.00
810400 Brucke fur Parallel DB25 Anschluss 1.00
810401 Parallel Anschluss mannlich 25 Pin 1.00
810402 Adapter Parallel DI325/R.145 1.00
810405 D-SUB-Steckverbinder-Buchse 9 polig 10.00
810406 D-SUB 25 polig Buchse Seriell wablich 17.00
810407 D-Sup 25 polig Buchse mannlich 10.00
810408 D-SUB 25polig Seriell Anschluss mannlich 23.00
810409 D-SUB-Steckverbinder 9 polig 9.00
810412 Linedriver MDEPABX-AV2.0 14.00
810414 BNC Steckverbinder T-Stuck 1.00
810415 Modular-Stecker 6. Pos. 4Kont. Flachkabel 15.00
810416 Modular-Stecker 4Pos. 4Kont. Flachkabel 12.00
810417 AT nach XTIPS/2 Adapter DB2-r--DB9 Buchse 9.00
810418 Dongle SteckerlAdapter Hasp 50.00
810419 D-Suph-Steckerverbindung 25polig 10.00
810424 JumperBox Kit DB 25mlf mit 25 Verbindern 0.00
810425 Opto Bridge ST/BU 2.00
810428 Steckverbinder BNC RG-M Stecker gerade 3.00
810430 Link-Kabel 9-9pol. (Typ B) 2.00
810500 Koax Kabel 1.00
810601 Pilot Mouse Logitech Win95 Serial-Port 3.00
810700 Data Fax Modem 19200 bps P 192MX 2.00
810800 Monitor monochrom W 5.00
810902 Netzadapter MDE 7.00
811000 Netzkabel grau Schweiz 1.00
811001 Netzkabel schwarz Schweiz 12.00
811002 Netzkabel Deutschlandtosterreich 2.00
811003 Apparate-Verbindungskabel 1.5m 2.00
811004 Bildschirmkabel RS232 gpolig ST-BU 5.00
811104 Ethernet Netzvtwk-Karte 0.00
811300 Tastatur Windows 95 Chicony 0.00
811400 PC 486f75 Datavan, 4M13 RAM, HDD - 22.00
811401 ComTax-Box MDE komplett 23.00
811402 ComTax Box Telecorn PTT komplett 29.00
811403 ComTax Box Telecom Takt komplett 28.00
811404 ComTax Box Ericsson komplett 5.00
811405 ComTax Box Alcatel komplett 5.00
- 6 -
<PAGE>
811406 ComDial-PC MDE 2.00
811500 C. P. U. Cooler Ventilator 4.00
820000 BNC RG-58 Knickschutzhulle schwarz 10.00
820500 Installation Kit 25' HardDisk Drive 6.00
840004 Xerox Telecopier 7020f7021 0.00
890000lLuftpoisterl(Uverts Innenmasse 15x24cm 40.001
890001 Stuipschachtel 30. 1 x21.3x5.5 komplett 22.00
890002 Faltbox 280x230x172 26.00
890100 Break-Out-Box 2.00
890101 Service-Kit Profi 0.00
2 Keller
310000 Eitel Phone Manager 20.00
310001 Voice Interface 0.00
810001 Hicom Verbindungskabei 1.00
810003 Monitor Kabel DB 9m/f 1.8mt. 18.00
810005 Telefon Kabel 4 Ader 180.00
810006 Paralleidruckerkabel (Typ A) 3.Om 11.00
810007 AT Modemkabei 102.00
810008 Tastaturkabei f.IBM XTIAT-komp. (TypB) 1.00
810101 Floppy Drive 5 117' 1.00
810103 Disketten 3.5" MF-HD formatiert 1.44M13 1000.00
810106 3 M CD Recordable 65OMB 74. Min. 27.00
810300 Harddisk 2 117' 1 DE 20OMB 69.00
810400 Bdicke fur Parallel DB25 Anschluss 1.00
810401 Parallel Anschluss mannlich 25 Pin 1.00
810402 Adapter Parallel DB25/RJ45 1.00
810404 Switch Box Steckbrilcke 2.00
810414 BNC Steckverbinder T-Stuck 117.00
810415 Modulan-Stecker 6. Pos. 4Kont. Flachkabei 200.00
810416 Modular-Stecker 4Pos. 4Kont. Flachkabei 250.00
810417 Modular RJ45 Stecker 250.00
810500 Koax Kabel 1.00
810601 Pilot Mouse Logitech Win95 Serial-Port 2.00
810602 Mouse-Matte Antistatisch 2.00
810900 UPS 11.00
810902 Netzadapter MDE 14.00
811000 Netzkabei grau Schweiz 51.00
811001 Netzkabel schwarz Schweiz 38.00
811002 Netzkabel Deutschland/Osterreich 62.00
811003 Apparate-Verbindungskabel 1.5m 10.00
811100 Token Ring Netzkarte 9.00
811101 Teles 1,2 FaxModemkarten 173.00
811103 Teles ISDN Card SO/16 48.00
811104 Ethernet Netzwerk-Karte 20.00
811109 Aktive-PC Karte V.24/MSV1 1.00
811301 Num. Keypad Seriell 16.00
811400 Datavan ComDial PC 61.00
811401 ComTax-Box MDE komplett 0.00
811402 ComTax Box Telecom PTT komplett 0.00
811403 ComTax Box Takt komplett 3.00
811404 ComTax Box Ericsson komplett 3.00
811406 ComDial-PC MDE 2.00
- 7 -
<PAGE>
811410 ComDial-PC MDE Gehause 49.00
820500 Installation Kit 2,5" HardDisk Drive 40.00
840000 Toner Schwarz 42001540015600 3.00
840003 Toner Laser Jet 4 HP 92298 2.00
890000 Luftpolsterkuverts Innenmasse 15x24em 300.00
890002 Faltbox 280x230x172 250.00
890003 Rillfix Versandkuverts Klebeverschluss 200.00
3 Buro Technik
710100 Kopierpapier 188000.00
710120 Ibico Thermobindemappen 1400.00
710500 Prospelde ComDial franzosisch 2700.00
710600 Prospekte ComDial englisch 2300.00
710700 Prospekte ComDial deutsch 300.00
720500 Prospekte ComTax franz. 200.00
7206M Prospekte ComTax englisch 2500.00
720700 Prospekte ComTax deutsch 4200.00
4 Buro
890003 Rillfix Versandkuverts Klebeverschluss 28.00
5 Produktion Schrank
810100 Floppy Drive 3 1r2" 18.00
810102 CD-Rom 8x Speed, Anschluss IDE Adapi 0.00
810106 3 M CD Recordabie 65OMB 74.Min. 1.00
810300 Harddisk 2 117 IDE 20OMB 0.00
810301 Harddisk 3 117' 1 DE (Rat) 24.00
810424 JumperBox Kit 25m7f 0-Modem 18.00
810600 Pilot Maus seriell Muttilingual 2.00
811100 Token Ring Netzkarte 7.00
811103 Teles ISDN Card SO/16 1.00
811104 Ethernet Netzvverk-Karte 20.00
811111 Disk-Controller I DE mit Bios, ISA 1.00
811112 Teles On-Line-J Karte D 4.00
811201 Speicher Modul zu CT13 27.00
811202 RAM Modul 1 MB 30 Pin 22.00
811207 4MB-Module 72Pin,32bit 60ns 11.00
811208 Speicher Modul zu CTI3 32.00
811211 Prozessor Texas Instruments TMS370 25.00
811303 Tastatur CH Win95 Mitsumi 105 Tasten 1.00
811402 ComTax Box Telecom PTT komplett 5.00
820000 Dialogic 8 Port Vice Boards f. ComDial
Anlalog 3.00
890200 MS-DOS 6.22 Software komplett 14.00
890201 Windows fur Wortsg. 3.11 inid. DOS 6.22 1.00
6 Entwicklungsburo 11
8400051 Data Tapes 3M DAT 4mm 120m 15.00
7 Ersatzmaterial/Techniker Fahrzeuge (3x VW Passat)
8103001 Harddisk 2 1 IZ' 1 DE 20OMB 6.00
811100 Token Ring Netzkarte 3.001
811103 Teles ISDN Card SO/16 3.00
811104 Ethernet Netzwerk-Karte 9.00
811208 Speicher Modul zu CTB 9.00
- 8 -
<PAGE>
811401 ComTax-Box MDE komplett 9.00
811406 ComDial-PC MDE 9.00
8 Buro Genf
811401 ComTax-Box MDE komplett 3.00
811104 Ethernet Netzwerk-Karte 4.00
811406 ComDial-PC MDE 4.00
811100 Token Ring Netzkarte 1.00
9 Buro Moscow
811401 ComTax-Box MDE komplett 6.00
811406 ComDial-PC MDE 7.00
811100 Token Ring Netzkarte 1.00
811109 Aktive-PC Karte V.24/MSV1 1.00
10 Buro Shanghai
811401 ComTax-Box MDE komplett 4.00
811406 ComDial-PC MDE 6.00
811100 Token Ring Netzkatte 1.00
11 Im Transport
8114041ComTax Box Ericsson komplett 20.001
811405 ComTax Box Alcatel komplett 10.00
- 9 -
<PAGE>
Disclosure Schedule to the Equity Purchase Agreement
among ComTelco International, Inc. and August Steiner
As of February 28, 1997
Section 4(a): All Directors and Officers of each Target
o ComTelco (Research) AG:
- Sole Member of the Board of Directors: Roland Steiner
- Officer: August Steiner
o ComTelco (Vertriebs) AG:
- Sole Member of the Board of Directors: Roland Steiner
- Officer: August Steiner
o ComTelco Softwarevertriebs-GmbH
- Directors: There is no board of directors
- Officer/Manager: Harald Swoboda
o ComTelco (Deutschland) GmbH
- Directors: There is no board of directors
- Officers/Managers: Roland Steiner, Ramon Inauen and August Steiner
Section 4(b): Authorized and issued and outstanding cpaital of each Target
o ComTelco (Research) AG:
- Authorized capital: 100,000 Swiss Francs
- Issued and outstanding capital: 100,000 Swiss Francs
o ComTelco (Vertriebs) AG:
- Authorized capital: 100,000 Swiss Francs
- Issued and outstanding capital: 100,000 Swiss Francs
o ComTelco Softwarevertriebs-GmbH
- Authorized capital: 500,000 Austrian Shillings
- Issued and outstanding capital: 500,000 Austrian Shillings
o ComTelco (Deutschland) GmbH
- Authorized capital: 50,000 German Marks
- Issued and outstanding capital: 50,000 German Marks
Agreement
for the Contribution
of
Assets, Software and Hardware
Developments
by
August Steiner
to
ComTelco (Research) AG
This agreement has the purpose of the transfer of legal ownership of all
mentioned assets, technology, inventory, systems and sub systems, software code
and hardware blue prints as well as accompanying documentation and all rights to
developed or partially developed products, systems and components as well as
inventory or other goods mentioned herein to ComTelco (Research) AG,
Hechtackerstrasse 41, 9014 St. Gallen, Switzerland.
<PAGE>
August Steiner, residing in St. Gallen Switzerland, (Contributor) agrees to
contribute to ComTelco (Research) AG, St. Gallen, Switzerland, (Recipient) the
following:
Products:
All licenses, source codes and compiled programs and parts thereof, developed
under MDE AG and all products resulting or existing out of any such development,
acquired from MDE AG.
All hardware components developed under MDE AG including all drawings, parts
lists, documentation, PCB layouts and all other materials related to the
development and production of any hardware or firmware.
Firmware components will be delivered in digital form and in a compiled EPROM
version. As well as documentation thereto.
All existing Products packaging, leaflets, manuals, and other documentation
related to MDE developments its products, partly or fully developed.
Trade Marks, Trade Names:
All trademarks registrations of trademarks, rights to product names and
descriptions, slogans, model descriptions and all other marketing and sales
related materials, referring to products developed under MDE AG.
Other Equipment and Materials:
All equipment and materials related to the developments of MDE AG, including but
not restricted to all items listed in Annex hereto.
Documents and Files:
All files and documents related to current and past developments under MDE AG,
in electronic or paper form.
Competition:
August Steiner will not be involved in or peruse, solicit or otherwise engage in
any activities similar to or competing against the business or area of any of
the products or system developments mentioned in this agreement, for a period of
at least 5 year other than directly associated with the business of ComTelco
(Research) AG or it s sister or parent companies. He will hand over any requests
for any such business to ComTelco exclusively and not hinder ComTelco in future
business or developments in any way. August Steiner will commit MDE AG staff to
keep any previous or current development related information confidential.
<PAGE>
Staff:
ComTelco (Research) AG may take over any employees from August Steiner or MDE AG
deemed necessary for the full utilization and continuance of development or use
of the assets.
Change in ownership:
August Steiner will ensure that all the conditions of this agreement are adhered
to if a change in ownership occurs within the next 12 month of the purchase
date.
Continuation of business:
Both the contributor and the recipient will render their services and do
anything in their power to ensure that the assets may be used and utilized and
/or sold to other entities, whenever necessary or possible.
Outline of Sale / Sales price:
The assets are contributed to ComTelco as a capital increase by August Steiner
and taken over as additional assets by ComTelco (Research) AG as independently
and fully functioning systems and parts thereof. If needed, August Steiner or
MDE AG will make available to ComTelco any other needed information if they are
used in conjunction of utilizing the mentioned assets.
All assets, tangible or not, involved in the operation and development of the
mentioned systems and components, software or hardware, are included in the
sales price, in particular, but not restricted to all items listed in Annex A
which is an integral part of this agreement.
ComTelco agrees to take over into it s books as follows:
USD 74440.00 for Office Equipment (Annex A1)
USD 2500000.00 for Intellectual Property and developed Products (Annex A2)
USD 4447648.00 for Software Development and related materials (Annex A3)
The agreement will take affect after its signature by both parties.
St. Gallen, Switzerland February 28, 1997
The Contributor ComTelco (Research)
Hechtackerstrasse 41
9014 St. Gallen
/s/ August Steiner Switzerland
August Steiner /s/ Roland Steiner
Guisanstrasse 94
9010 St.Gallen Roland Steiner
- 2 -
<PAGE>
EXHIBIT A
ASSETS
(August Steiner - ComTelco Research AG)
All of the machinery, equipment, tools, furniture, furnishings, office
equipment, supplies, inventory, plant, spare parts and other tangible personal
property located at all locations mentioned in the locations list below, and all
of the Intellectual Property used or held for use in connection with the
computer telephony business as conducted by Seller or any of its Affiliates,
including, without limitation, mentioned in the assets list below.
Locations list:
Hechtackerstrasse 39, 9014 St Gallen, Switzerland
Lian Heng Bldg, No 8, 394 Lane, Yan An (W) Rd Shanghai P R C
15 Marshal Timoshenko str, I2356 Moscow, Russia R
List of Assets:
Annex A3
Existing Products:
ComTax 2.5 (FDD & LAN) Call Accounting System
ComTax 2.6 (HW Version) Call Accounting System
ComTax 2.7 16 bit including carriers & sites, Call Accounting System
ComTax MS32 Multisite, 32bit Telemanagement & Call Accounting System
ComTax Box 1.9 Hardware System for Data mass storage.
CTI Server Server Platform for CTI Products
ComDial 1.71 PC/LAN based communication client
ComLog 1.1 Workstation based Call Logging/Recording client
CL A/D interface Hardware for use with call logging / recording system
ComList Corporate electronic communication directory and connection
system
ComFax LAN based, client/Userver system for fax handling over the
Internet
Annex A2
Projects under Development:
(Products which are past the stage of technical feasibility)
C-client Newgeneration of communication client 16 and 32bit
ComTax 32 Graphics engine and update for ComTax MS32
ComTax junior Ultra low-cost call accounting system incl. Hw and SW
LAN based Call logging Server system for ComLog as Client/Server implementation
- 3 -
<PAGE>
ComTax Duplex New hardware for bi-directional communication with PBXs
ComTax WWW Report, query and retrieval system over the Internet.
ComTax Archive On-Line archiving of call records to CD or DAT
LCR Dynamic Least Cost Routing for all communication services
CSTA server CSTA /TAPI/TSAPI converter for future PBX connectivity
Trade Mark registrations:
ComTax Europe OMPI reg. No. 649354
ComDial Europe OMPI reg. No. 649353
Basic Research in progress:
Java Virtual Machine based call account handling
ATM bandwidth brokering
Management and accounting for all communication services
Virtual PBX
Annex A1
List of Tangible Assets
Hechtackerstrasse 39
9014 St.Gallen, Switzerland
Room E6
Desk combination 1
Office Chair 1
Korpus 1
Rollo file cabinet 2
Personal Computer 1
Modem 1
Comfort telephone set DX 1
Plants and pictures
Room E4
Desk combination 1
Rollo file cabinet 2
Leather Chairs 2
Office Chair 1
Korpus 3
Personal Computer dev. 1
Personal Computer test systems 6
PBX Hicom 100 (for tests) 1
- 4 -
<PAGE>
System Telephone set DX 2
Note Book Computer
Room E3
Table combination 2
Desk combination 2
Rollo file cabinet 3
Bookshelves 1
Office Chair 2
Leather Chair 2
Misc. CD's & Software
Library of Books
Personal Computer (dev.) 1
Personal Computer (test) 5
Colour flat bed scanner 1
Modem 2
Portable phone 1
System Telephone set DX 2
Room W2
Desk combinations 2
Leather Office Chairs 2
Conf. Table 1
Conf. Chairs 4
Korpus 2
Rollo File Cabinets 4
Personal Computer 1
Note Book Computer 1
System Telephone set DX 2
Handy Ericsson GSM 2
15 Marshal Timoshenko str, 12356 Moscow, Russia
Desks 7
Chairs 12
Ethernet hubs 8port 2
Personal Computer (dev.) 10
Personal Computers (test) 4
File Servers 2
PBX Hicom 120 (for test) 1
Modem 1
Note Book Computer 1
- 5 -
<PAGE>
Lian Heng Bld6 No 8, 394 Lane, Yan An (W) Rd, Shanghai, P.R.C.
Desk combinations 6
Chairs 6
File Cabinets 3
Personal Computers (dev.) 4
Personal Computers (test) 3
File Server 1
Modem 1
Misc. Books Software & CD's
- 6 -
Agreement
for the Contribution
of
Assets, Software and Hardware
Developments
by
August Steiner
to
ComTelco (Vertriebs) AG
This agreement has the purpose of the transfer of legal o vnership of all
mentioned assets, inventory, systems and sub systems and other goods mentioned
herein to ComTelco (Vertriebs) AG, Hechtackerstrasse 41, 9014 St. Gallen,
Switzerland.
<PAGE>
August Steiner, residing in St.Gallen Switzerland, (Contributor) agrees to
contribute to ComTelco (Vertriebs) AG, St.Gallen, Switzerland, (Receipient) the
following:
Equipment and Materials:
All office equipment and materials mentioned in Annex A atached hereto.
Competition:
August Steiner will not be involved in or peruse, solicit or otherwise engage in
any activities similar to or competing against the business or area of any of
the products or system developments mentioned in this agreement, for a period of
at least 5 year other than directly associated with the business of ComTelco
(Vertriebs) AG or its sister or parent companies. He will hand over any requests
for any such business to ComTelco exclusively and not hinder ComTelco in future
business or developments in any way. August Steiner will commit MDE AG staff to
keep any previous or current development related information confidential.
Staff:
ComTelco (Vertriebs) AG may take over any employees from August Steiner or MDE
AG deemed necessary for the full utilization and continueance of development or
use of the assets.
Change in ownership:
August Steiner will ensure that all the conditions of this agreement are adhered
to if a change in ownership occurs within the next 12 month of the purchase
date.
Continuation of use of Assets:
Both the contributor and the receipient will render their services and do
anything in their power to ensure that the assets may be used and utilized
and/or sold to other enteties, whenever necessary or possible.
Outline of Sale / Sales price:
The assets are contributed to ComTelco as a capital increase by August Steiner
and taken over as additional assets by ComTelco (Vertriebs) AG as independently
and fully functioning systems and parts thereof. If needed, August Steiner or
MDE AG will make available to ComTelco any other needed information if they are
used in conjunction of utilizing the mentioned assets.
All assets, tangible or not, involved in the operation and development of the
mentioned systems
<PAGE>
and components, software or hardware, are included in the sales price, in
particular, but not restricted to all items listed in Annex A which is an
integral part of this agreement.
ComTelco agrees to take into it s books, additional paid in capital as follows:
USD 60,500.00 for Office Equipment (Annex A1)
USD 173,828.00 for Inventory, parts and components (Annex A2)
The agreement will take affect after its signature by both parties.
St. Gallen, Switzerland, February 28, 1997
The Contributor ComTelco (Vertriebs)
Hechtackerstrasse 41
9014 St. Gallen
/s/ August Steiner Switzerland
August Steiner /s/ Roland Steiner
Guisanstrasse 94
9010 St.Gallen Roland Steiner
<PAGE>
EXHIBIT A
ASSETS
(AugustSteiner- ComTelco VertriebsAG)
All of the machinery, equipment, tools, furniture, furnishings, office
equipment, supplies, inventory, plant, spare parts and other tangible personal
property located at all locations mentioned in the locations list below, and all
ofthe Intellectual Property used or held for use in connection with the computer
telephony business as conducted by Seller or any of its Affiliates, including,
without limitation, mentioned in the assets list below.
Locations list:
Hechtackerstrasse 39, 9014 St Gallen, Switzerland
List of Assets:
Annex 1
Hechtackrstrasse St. Gallen, Switzerland
Room E7
Desk combinations 2
Office Chair 2
Bookshelves 2
Rollo file cabinet 1
Personal Computer 1
Note Book Computer 2
System telephone set DX 2
Portable Phone 1
Room E8
Documentation and Leaflets
Office supplies
RoomE5
Fumiture for exhibition booth
Bistro standing table 3
Bistro tables 3
Wardrobe 1
Bistro chairs 7
Personal Computer (demo) 4
Plants and pictures
Kitchen East
Espresso Machine 1
<PAGE>
Table 1
Room E10
Desk combinations 1
Korpus 2
Rollo file cabinets 1
Leather Chair 1
Office chair 1
Note Book Computer 1
System telephone DX 1
Portable telephone 1
Room E11
Desk combination 1
Rollo file cabinets 2
Korpus 1
Note Book Computer 1
Office chair 1
System telephone DX 1
Room E12
Office table 2
Office chair 2
Rollo file cabinet 1
Korpus 2
Personal Computer 2
Cabling system incl. Hub 1
System telephone DX 1
Room E2
Desk combination 1
leather chair 2
Personal Computer 2
shelves 2
documentatlon shelves 1
Hesa Glass exhibit stand 1
System telephone DX 1
Room E1
Desk combination 2
Rollo file cabinet 1
Personal Computer 1
Office chair 1
Korpus 1
Ink Jet pnnter 1
<PAGE>
Leather chair 1
System telephone DX 1
Room W7
Desk combination 1
Office chair 1
Korpus 1
Rolio file cabinet 3
Photo copier 1
Laser printer 1
Personal computer 1
system telephone DX 1
Speed dial console DX 1
Room W6
Desk combination 1
Book shelf 2
Cupboard 1
Office chair 1
Leather chair 1
Personal Computer 2
Rollo file cabinet 1
Korpus 2
System telephone DX 1
Room W9
PBX, Nitsuko DX 1
Cabling system 1
File Server 1
ComDial 1
ComTax 1
Leather chair 2
Metal cupboards 2
Desk 4
Workbench 1
Table 1
Rollo file cabinets 1
Cupboard 1
Metal shelf system 8
Korpus 1
Office chair 1
Fork lift 1
Transportation trolley 2
Personal Computer 5
System telephone DX 1
<PAGE>
Store Room:
Metal shelf system 9
Table 1
Chair 1
Inventory as audited per 28.Feb.1997
Ort Art.Nr. Artikelbeschreibung Anzahl
1 Produktion
110000 ComTax Wlndows Software Version CTS-K D 0.00
110005 ComTax Wndows Softwareversion CTS-G F 0.00
120000 ComTax Wlndows Standard CTB-K D 0.00
120006 Update ComTax Version 2.5 - Version 2.6 0.00
120103 ComTax Standard A4713 CTB-K F 0.00
120300 ComTax Standard Ver. 2.6 Takt 0.00
120402 ComTax Standard PTT CTB-G D 0.00
120403 ComTax Standard PTT CTB-K F 0.00
210004 ComDial 50 User Lizenz 0.00
410000 Benutzerhandbuch ComTax MDE Deutsch 23.00
410001 Benutzerhandbuch ComTax MDE Franzosisch 15.00
410002 Benutzerhandbuch ComTax MDE Englisch 8.00
410004 Technikerhandbuch ComTax MDE Deutsch 13.00
410005 Technikerhandbuch ComTax MDE Franzosisch 13.00
410006 Technikerhandbuch ComTax MDE Englisch 6.00
410008 Benutzerhandbuch ComTax Alcatel Deutsch 11.00
410009 Benutzerhandbuch ComTax Alcatel Franz. 18.00
410014 Benutzerhandbuch ComTax Ericsson Deutsch 10.00
410015 Benutzerhandbuch ComTax Ericsson Franz. 8.00
410020 Benutzerhandbuch ComTax Takt Deutsch 10.00
410021 Technikerhandbuch ComTax Takt Deutsch 28.00
420000 Benutzerhandbuch ComDial MDE Deutsch 44.00
420002 Benutzerhandbuch ComDial MDE Frarizosisch 20.00
420003 Benutzerhandbuch ComDial MDE Englisch 7.00
420006 Benutzerhandbuch Comfort Dial Lan dt.AI 13.00
420012 Benutzerhandbuch ComDial Ericsson Deut. 8.00
420013 Benutzerhandbuch ComDial Ericsson Franz. 0.00
420020 Benutzerhandbuch ComDial Philips 6.00
810001 Hicom Verbindungskabel 5.00
810003 Monitor Kabel DB 9m/f 1.8mt. 1.00
810006 Paralleldruckerkabel (Typ A) 3.0m 1.00
810007 25polige 1:1 Kabel (RS232 ST-ST) Typ B 2.00
10008 Tastaturkabel f.lBM XT/AT-komp. (TypB) 3.00
810009 Tastatur-Adpter XT-Tastatur an PS/2 1.00
<PAGE>
810103 Disketten 3.5" MF-HD formatiert 1.44MB 200.00
810400 Brucke fur Parallel DB25 Anschluss 1.00
810401 Parallel Anschluss mannlich 25 Pin 1.00
810402 Adapter Parallel DB25/RJ45 1.00
810405 D-SUB-Steckverbinder-Buchse 9 polig 10.00
810406 D-SUB 25 polig Buchse Seriell weiblich 17.00
810407 D-Sup 25 polig Buchse mannlich 10.00
810408 D-SUB 25polig Seriell Anschluss mannlich 23.00
810409 D-SUB-Steckverbinder 9 polig 9.00
810412 Linedriver MDEPABX-AV2.0 14.00
810414 BNC SteckverbinderT-Stuck 1.00
810415 Modular-Stecker 6.Pos. 4Kont. Flachkabel 15.00
810416 Modular-Stecker 4Pos. 4Kont. Flachkabel 12.00
810417AT nach XT/PS/2 Adapter DB25-DB9 Buchse 9.00
810418 Dongle Stecker/Adapter Hasp 50.00
810419 D-Sup-Steckerverbindung 25pdig 10.00
810424JumperBox Kit DB 25m/f mit 25 Verbindern 0.00
810425 Opto Bridge ST/BU 2.00
810428 Steckverbinder BNC RG-58 Stecker gerade 3.00
810430 Link-Kabel 9-9pd. (Typ B) 2.00
810500 Koax Kabel 1.00
810601 Pilot Mouse Logitech Wn95 Serial-Port 3.00
810700 Data Fax Modem 19200 bps P 192MX 2.00
810800 Monitor monochrom 9" 5.00
810902 Netzadapter MDE 7.00
811000 Netzkabel grau Schweiz 1.00
811001 Netzkabel schwarz Schweiz 12.00
811002 Netzkabel Deutschland/Osterreich 2.00
811005 Apparate-Verbindungskabel 1.5m 2.00
811004 Bildschirmkabel RS232 9polig ST-BU 5.00
811104 Ethernet Netzwerk-Karte 0.00
811300 Tastatur Windows 95 Chicony 0.00
811400 PC 486/75 Datavan, 4MB RAM, HDD 22.00
811401 ComTax-Box MDE komplett 23.00
811402 ComTax Box Telecom PTT komplett 29.00
811403 ComTax Box Telecom Takt komplett 28.00
811404 ComTax Box Ericsson komplett 5.00
811405 ComTax Box Alcatel komplett 5.00
811406 ComDial-PC MDE 2.00
811500 C.P.U. Coder Ventilator 4.00
820000 BNC RG58 Knickschutzhulle schwarz 10.00
820500 Installation Kit 2,5" HardDisk Drive 6.00
840004 Xerox Telecopier 7020/7021 0.00
890000 Luftpolsterkuverts Innenmasse 15x24cm 40.00
890001 Stulpschachtel 30.1x21.3x5.5 komplett 22.00
<PAGE>
890000 Faltbox 280x230x172 26.00
890100 Break-Out-Box 2.00
890101 Service-Kit Profi 0.00
2 Keller
310000 Eltel Phone Manager 20.00
310001 Voice Interface 0.00
810001 Hicom Verbindungskabel 1.00
810003 Monitor Kabel DB 9m/f 1.8mt. 18.00
810005 Telefon Kabel 4 Ader 180.00
810006 Paralleldruckerkabel (Typ A) 3.0m 11.00
810007 AT Modemkabel 102.00
810008 Tastaturkabel f.lBM XT/AT-komp. (TypB) 1.00
810101 Floppy Drive 5 1/2" 1.00
810103 Disketten 3.5" MF-HD formatiert 1.44MB 1000.00
810106 3 M CD Recordable 650MB 74.Min. 27.00
810300 Harddisk 2 1/2" IDE 200MB 69.00
810400 Brucke fur Parallel DB25 Anschluss 1.00
810401 Parallel Anschluss mannlich 25 Pin 1.00
810402 Adapter Parallel DB25/RJ45 1.00
810404 Switch Box Steckbrucke 2.00
810414 BNC Steckverbinder T-Stuck 117.00
810415 Modular-Stecker6.Pos. 4Kont. Flachkabel 200.00
810416 Modular-Stecker4Pos. 4Kont. Flachkabel 250.00
810417 Modular RJ45 Stecker 250.00
810500 Koax Kabel 1.00
810601 Pilot Mouse Logitech Win95 Serial-Port 2.00
810602 Mouse-Matte Antistatisch 2.00
810900 UPS 11.00
810902 Netzadapter MDE 14.00
811000 Netzkabel grau Schweiz 51.00
811001 Netzkabel schwarz Schweiz 38.00
811002 Netzkabel Deutschland/Osterreich 62.00
811003 Apparate-Verbindungskabel 1.5m 10.00
811100 Token Ring Netzkarte 9.00
811101 Teles 1,2 Fax,Modemkarten 173.00
811103 Teles ISDN Card S0/16 48.00
811104 Ethernet Netzwerk-Karte 20.00
811109 Aktive-PC Karte V.24/MSV1 1.00
811301 Num. Keypad Seriell 16.00
811400 Datavan ComDial PC 61.00
811401 ComTax-Box MDE komplett 0.00
811402 ComTax Box Telecom FR W l komplett 0.00
811403 ComTax Box Takt komplett 3.00
811404 ComTax Box Ericsson komplett 3.00
<PAGE>
811406 ComDial-PC MDE 2.00
811410 ComDial-PC MDE Gehause 49.00
820500 Installation Kit 2,5" HardDisk Drive 40.00
840000 Toner Schwarz 4200/5400/5600 3.00
840003 Toner Laser Jet 4 HP 92298 2.00
890000 Luftpdsterkuverts I nnenmasse 15x24cm 300.00
890002 Faltbox 280x230x172 250.00
890003 Rillfix Versandkuverts Klebeverschluss 200.00
3 Buro Technik
710100 Kopierpapier 188000.00
710120 I bico Thermobindemappen 1400.00
710500 Prospekte ComDial franzosisch 2700.00
710600 Prospekte ComDial englisch 2300.00
710700 Prospekte ComDial deutsch 300.00
720500 Prospekte ComTax franz. 200.00
720600 Prospekte ComTax englisch 2500.00
720700 Prospekte ComTax deutsch 4200.00
4 Buro
890003 Rillfix Versandkuverts Klebeverschluss 28.00
5 Produktion Schrank
810100 Floppy Drive 3 1/2" 18.00
810102 CD-Rom 8x Speed, Anschluss IDE Adapi 0.00
810106 3 M CD Recordable 650MB 74.Min. 1.00
810300 Harddisk 2 1/2" IDE 200MB 0.00
810301 Harddisk 3 1/2" IDE (Rot) 24.00
810424 JumperBox Kit 25m7f 0-Modem 18.00
810600 Pilot Maus seriell Multilingual 2.00
811100 Token Ring Netzkarte 7.00
811103 Teles ISDN Card S0/16 1.00
811104 Ethernet Netzwerk-Karte 20.00
811111 Disk-Controller IDE mit Bios, ISA 1.00
811112 Teles On-LineEl Karte D 4.00
811201 Speicher Modul zu CTB 27.00
811202 RAMModul 1MB30Pin 22.00
811207 4MB-Module 72Pin,32tit 60ns 11.00
811208 Speicher Modul zu CTB 32.00
811211 Prozessor Texas Instruments TMS370 25.00
811303 Tastatur CH Win95 Mitsumi 105 Tasten 1.00
811402 ComTax Box Telecom FiT t komplett 5.00
820000 Dialogfic 8 Port Vice Boards f. ComDial
Anlalog 3.00
890200 MS-DOS 6.22 Software komplett 14.00
<PAGE>
890201 Windowfs fur Worksg. 3.11 ink DOS 6.22 1.00
6 Enhxticklungsburo 11
840005|Data Tapes 3M DAT 4mm 120m 15.00
7 Ersatmlaterial/Techniker Fahrzeuge (3x VW' Passat)
810300 Harddisk 2 1/2" IDE 200MB 6.00
811100 Token Ringf Netzkarte 3.00
811103 Teles ISDN Card S0/16 3.00
811104 Ethemet NetzNerk-Karte 9.00
811208 Speicher Modul zu CTB 9.00
811401 ComTax-Box MDE komplett 9.00
811406 ComDial-PC MDE 9.00
8 Buro Genf
811401 ComTax-Box MDE komplett 3.00
811104 Ethemet Netzwerk-Karte 4.00
811406 ComDial-PC MDE 4.00
0 81110C Token Ring Netzkarte 1.00
9 Buro Moscow
811401 ComTax-Box MDE komplett 6.00
811406 ComDial-PC MDE 7.00
811100 Token Ring Netzkarte 1.00
811109 Aktive-PC Karte V.24/MSV1 1.00
10 Buro Shanghai
811401 ComTax-Box MDE komplett 4.00
811406 ComDial-PC MDE 6.00
811100 Token Ring Netzkarte 1.00
11 Im Transport
811404 ComTax Box Ericsson komplett 20.00
811405 ComTax Box Alcatel komplett 10.00
ComTelco International, Inc. and Subsidiaries
Computation of Net (Loss) Per Share
<TABLE>
<CAPTION>
Six Months Ended August 31, Years Ended
--------------------------------------------------------------------
1997 1996 February 28, 1997 February 29, 1996
--------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net(Loss) used for per share amounts $ (730,761) $ (82,069) $ (153,193) $ (58,794)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 4,500,000 2,500,000 2,500,000 2,500,000
Add: Common equivalent shares
(determined using the "treasury
stock" method) representing shares
issued during the past year at a price
below the estimated initial public
offering price ($5) 1,200,000 1,200,000 1,200,000
----------- ----------- ----------- -----------
Weighted average number of shares used in the
calculation of loss per share 4,500,000 3,700,000 3,700,000 3,700,000
=========== =========== =========== ===========
Net (Loss) per common share $ (0.16) $ (0.02) $ (0.04) $ (0.02)
=========== =========== =========== ===========
</TABLE>
1
Subsidiaries of the Registrant
Name of Subsidiary and Name Jurisdiction of Incorporation
- --------------------------- -----------------------------
under which Subsidiary does Business
- ------------------------------------
ComTelco (Research) AG Switzerland
ComTelco (Vertriebs) AG Switzerland
ComTelco (Deutschland) GmbH Germany
ComTelco Softwarevertriebs-GmbH Austria
[LETTERHEAD OF MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.]
Accountant's Consent
The Board of Directors and Stockholders
ComTelco International Inc.
We consent to the use of our report included herein and to the reference
to our firm under the heading "experts" in the Prospectus.
/s/ Merdinger, Fruchter, Rosen & Corso P.C.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
New York, New York
November 6, 1997
