SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
CARNEGIE INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 13-3692114
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
11350 McCormick Road, Executive Plaza #3, Suite 1001
Hunt Valley, Maryland 21031
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code 410-785-7400
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock and Preferred Stock
(Title of Class)
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Introductory Statements
Carnegie International Corporation (the "Corporation") has prepared and
filed this Form 10-SB on a voluntary basis to make available reportable
information about the Corporation to existing shareholders and others interested
in the activities of the Corporation.
This registration statement on Form 10-SB (the "Registration
Statement") may be deemed to contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements in this Registration Statement or hereafter included in other
publicly available documents filed with the Securities and Exchange Commission,
reports to the Corporation's stockholders and other publicly available
statements issued or released by the Corporation involve known and unknown
risks, uncertainties and other factors which could cause the Corporation's
actual results, performance (financial or operating) or achievements to differ
from the future results, performance (financial or operating) or achievements
expressed or implied by such forward-looking statements. Such future results are
based upon management's best estimates based upon current conditions and the
most recent results of operations.
PART I
ITEM 1. BUSINESS
Corporate History
The Corporation was formed under the laws of the State of Colorado on
March 26, 1974, under the name "Entropy Limited," to engage in the development,
manufacture and sale of solar energy systems. In 1982, the Corporation ceased
operations when its inventory and working capital were depleted.
In September 1984, the Corporation was revived by reason of a merger
with Solenergy Corporation, which was also engaged in the solar energy business,
and at that time, changed its name to "Solenergy Corporation." The operations of
the combined companies were not successful and, as a result, the Corporation
again ceased its operations in June 1985. In September 1985, the Corporation
sold all of its assets and distributed the proceeds to its secured creditors.
In January 1992, the charter of the Corporation was revoked by the
State of Colorado for the failure to file mandatory reports. In August 1994, the
Corporation's former president caused the Corporation's charter to be reinstated
in the hope of arranging a transaction pursuant to which the stockholders might
receive some value. At that time, the name of the Corporation was changed to
"A&W Corporation, Inc." to reflect that the Corporation was no longer in the
solar energy business.
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In February 1996, the officers of the Corporation began discussions
with representatives of Grandname Limited, a British Virgin Islands corporation
("Grandname"). In March 1996, the Corporation entered into an Exchange Agreement
with Grandname pursuant to which the Corporation agreed to exchange up to
16,136,666 shares of its common stock for all of the issued and outstanding
stock of Electronic Card Acceptance Corporation, a Virginia corporation
("ECAC"), and DAR Products Corporation, a Maryland corporation ("DAR"). The
exact number of shares of common stock of the Corporation to be issued pursuant
to the Exchange Agreement was later determined to be 12,650,000. Grandname had
entered into agreements to acquire ECAC and DAR in exchange for stock of the
Corporation. The transaction closed on May 3, 1996 at which time (i) a 1 for 10
reverse stock split previously approved by the Board of Directors of the
Corporation became effective, so that its 10,000,000 shares of outstanding
common stock were reduced to 1,000,000, (ii) the 9,000,000 shares of the then
authorized but unissued common stock were issued to Grandname, and (iii) the
Corporation agreed to issue the additional 3,650,000 shares of common stock to
which Grandname was entitled pursuant to the Exchange Agreement, as soon as the
Corporation amended its charter to increase the authorized number of shares of
common stock.
As a result of the Exchange Agreement, ECAC and DAR became wholly-owned
subsidiaries of the Corporation. ECAC engages in the transaction processing and
servicing of credit card transactions for merchants. DAR owns and licenses a
patented Non-grip Technology(R) for application to a variety of handheld items
which minimizes or eliminates the need for the user to exert a gripping force.
On May 22, 1996, the Corporation changed its name to "Carnegie
International Corporation." On June 28, 1996, the stockholders of the
Corporation approved an amendment to its charter increasing its authorized
capital stock to 150,000,000 shares which consisted of 110,000,000 shares of
common stock, no par value ("Common Stock"), and 40,000,000 shares of preferred
stock, $1.00 par value ("Preferred Stock"). Immediately thereafter, the
Corporation issued the additional 3,650,000 shares pursuant to the Exchange
Agreement.
On July 15, 1997, the Corporation repurchased 1,585,000 shares of the
Corporation's common stock for $800,000 from the Estate of John Saah, which
received its shares as a stockholder of ECAC pursuant to the Exchange Agreement
with Grandname.
During the spring of 1997, the Board of Directors of the Corporation
made a decision to focus the future operations of the Corporation primarily in
the telecommunications industry rather than financial services due to declining
profit margins and increased competition in that industry. In implementation of
that business strategy, the Corporation effected in the period from April 1997
to August 1998, the following transactions.
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Sale of ECAC
On April 16, 1997, ECAC sold a portion of its merchant accounts to
First USA Merchant Services, Inc. for cash in the amount of $3,700,000.
On January 6, 1998, ECAC (Europe), Ltd., a subsidiary formed by the
Corporation to engage in credit card processing in Europe, was sold to Alpina
Tours, Ltd. for $250,000, evidenced by a promissory note due June 29, 1999, with
interest at 6% per annum. The note is secured by 125,000 shares of common stock
of the Corporation owned by the buyer.
On January 31, 1998, the Corporation sold all of the outstanding stock
of ECAC to Value Partners Limited, a Texas Limited Partnership for $100,000 in
cash and the retention by the Corporation of 40% of the gross profit derived
from the accounts of Franklin Bank which operates in suburban Detroit, Michigan.
Spinoff of DAR
On September 15, 1997, the Corporation's Board of Directors approved a
plan to spin-off DAR to the Corporation's stockholders since ownership of DAR
was not consistent with the telecommunications strategy. The Corporation formed
TimeCast Corporation, a Nevada corporation; transferred the stock of DAR to
TimeCast; and then, on October 29, 1997, distributed all of the stock of
TimeCast to the Corporation's stockholders pro-rata, on the basis of one share
of TimeCast for every three shares of the Corporation.
Acquisition of PTT and Talidan
On September 29, 1997, the Corporation acquired pursuant to Exchange
Agreements all of the stock of both Profit Thru Telecommunications (Europe)
Limited, a United Kingdom corporation ("PTT"), and Talidan Limited, a British
Virgin Islands corporation ("Talidan"), from Tiller Holding Limited, an Anguilla
company ("Tiller"). In consideration for the stock of PTT and Talidan, the
Corporation issued to the PTT-Talidan Shareholders an aggregate of 19,340,000
shares of the Corporation's common stock, two-year warrants to purchase
5,000,000 additional common shares at an exercise price of 50% of the average
market price of the Corporation's common stock for the 30 trading days prior to
exercise, and four-year options (the "Exchange Options") to purchase additional
common shares at an exercise price of $.001 per share for that number of shares
determined by dividing 2,500,000 by the average market price for the 30 trading
days prior to exercise. (See Item 8. "Description of Capital Stock" for a
description of the terms of the warrants and options.)
PTT is a telecommunications software company with its principal place
of business located in Sheffield, England and has developed a series of
interactive voice response software products and a multi-language automated
voice recognition system for commercial use. Talidan is a telecommunications
company with its principal place of business on the Isle of Man. Talidan
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creates call traffic for telecommunication carriers by promoting information and
entertainment services using their circuits. In June 1998, Talidan sold-off a
portion of its business. (See "Business - Talidan" below).
Contemporaneously with the PTT/Talidan closing, the Corporation entered
into a Preemption Agreement with Tiller granting the Corporation a right of
first refusal for a period of three years to purchase any telecommunications
businesses which Tiller desires to sell. In consideration thereof, the
Corporation issued four-year options (the "Preemption Options") to Tiller to
purchase shares of common stock at an exercise price of $.001 per share for that
number of shares determined by dividing 2,500,000 by the average market price
for the 30 days prior to exercise. (See Item 8. "Description of Capital Stock -
Preemption Options")
To the extent that the Exchange Options and Preemptive Options are not
fully exercised by the third anniversary of the date of issue, the holders may,
for a period of 30 days thereafter, exercise the remaining options in whole or
in part, and require the Corporation to purchase the resultant shares at the
price at which the number of shares was computed. The Corporation has recorded
in its financial statements a liability representing these put options of
$3,756,574 which is the discounted value of the stock options utilizing a 10%
discount rate over three years. (See Item 8. "Description of Capital Stock - Put
Options".)
Acquisition of ACC
The Corporation acquired as of February 1, 1998 all of the stock of
Harbor City Corporation, a Maryland corporation trading as ACC Telecom ("ACC"),
with its principal place of business in Columbia, Maryland, for 200,000 shares
of Series A Preferred Stock and $1,000,000 payable in 20 equal quarterly
installments over a five year period. ACC fits into the Corporation's developing
telecommunications business because it is a telephony dealer engaged in the
sale, installation and servicing of telephone equipment and will market the
software developed by PTT. (See Item 8. Description of Capital Stock)
Contemporaneously with the ACC acquisition, the Corporation entered
into a Buy-Back/Sell-Back Agreement (the "BBSB Agreement") with Barry N. Hunt
and Susan B. Hunt (the "Hunts"). The BBSB Agreement provides that for a period
of twenty-four (24) months from the date of the BBSB Agreement, (i) the Hunts
will have the option to buy back the ACC stock if MAVIS(TM) (as described
herein) is not reasonably marketable and (ii) the Corporation will have the
option to sell back the ACC stock if ACC is unable to pay for its expenses for
more than two consecutive months. In the event either party exercises its
option, the Series A Preferred Stock issued to the Hunts and the unpaid portion
of the $1,000,000 purchase price payable to the Hunts will both be cancelled.
Based on the developments to date, the Corporation does not believe that either
the Buy-Back option or the Sell Back option will be exercised.
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Option on Delaware telephony company
On July 22, 1998, the Corporation obtained an option to acquire a
company engaged in the sale, installation and servicing of telephone equipment,
in Delaware and adjoining states, subject to due diligence satisfactory to the
Corporation. The Corporation is to issue 5,000 shares of the Corporation's
common stock for the option. The purchase price for the business, if
consummated, will be $2,800,000 in cash or cash equivalents. For its last fiscal
year ending December 31, 1997, the revenues of the company to be acquired were
$1,400,000.
Acquisition of Victoria Restaurant
In addition to all of the above transactions related to the
Corporation's telecommunications strategy, the Corporation made one additional
acquisition. In order to provide cash flow to the Corporation in the period
prior to the time that the Corporation's telecommunications business becomes
self-sustaining, the Corporation acquired the Victoria Station Restaurant in
Virginia Gardens, Florida, effective in August, 1997. The purchase price for the
restaurant was cash in the amount of $140,000, a promissory note in the amount
of $185,000 payable in January 1998 and 25,000 shares of the Corporation's
common stock.
As of September 1, 1998, the Corporation had 43,810,208 shares of
common stock issued and outstanding and held by 1033 stockholders and 200,000
shares of Series A Preferred Stock held by the former owners of ACC.
Business
The Corporation is a holding company that operates several wholly owned
subsidiaries in the telecommunications, financial services and restaurant
industries. The Corporation has no direct operating assets or business activity,
but does provide management and other services to its subsidiaries. The
Corporation's telecommunication's business includes the development of
interactive voice response ("IVR") and voice recognition system software, the
marketing of international long distance call traffic through the promotion of
information and entertainment services, and the sale, installation and servicing
of telephone equipment. The Corporation's restaurant business consists of the
ownership and operation of one restaurant located in the Miami, Florida area.
The Corporation continues to be active in financial services in the processing
of credit card accounts through its subsidiary Electronic Card Processing, Inc.
("ECPI") which currently assists in the marketing of the credit card accounts of
the Franklin Bank and seeks to expand the customer base of that bank. The
Corporation will derive income from servicing such accounts and/or selling such
accounts.
The Corporation has twelve full-time employees.
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PTT
General. PTT is engaged in the development and marketing of interactive
voice response ("IVR") software products and a multi-language automated voice
recognition software product ("MAVIS"(TM)), a computer telephone integrated
("CTI") system. PTT was in the process of developing software through December
31, 1997 with only minor amounts of sales of its IVR software products. IVR
allows a user to access, store and carry out a variety of processing and
messaging services by using the caller's voice commands. The telephony industry
is developing a variety of new applications each year and expects to benefit
from the efficiencies and cost savings of this relatively new technology.
MAVIS(TM) creates an auto attendant for businesses that connects callers to an
individual or department using voice only without the need to key punch numbers.
MAVIS(TM) interfaces with Microsoft's Windows NT and Lernout &
Hauspie's ASR Run-Time and TTS Run-Time software programs. Lernout & Hauspie, a
Belgium company, is a world leader in the burgeoning market for multi-language
enhanced speech recognition, and its platform currently permits MAVIS(TM) to
operate in "American" English, "British" English, and German. The Corporation
will add additional languages to MAVIS(TM) capability in the future. MAVIS(TM)
can also provide voice mail and e-mail capabilities. A caller has the option to
access both voice mail and e-mail remotely through MAVIS(TM) without the need
for a computer by using text to speech technology to read the voice mail or
e-mail to the caller. The caller can then request that the voice mail or e-mail
be repeated, deleted or saved by stating the appropriate voice command instead
of pressing buttons on the telephone keypad.
MAVIS(TM) can be both retrofited to perform with most existing private
branch exchange ("PBX") equipment or can be incorporated into new PBX
switchboards. ACC and other telephony dealers engaged by the Corporation will
market MAVIS(TM) as an integrated addition to existing PBX systems. In addition,
the Corporation intends to negotiate with major manufacturers of multiple line
business phone systems and switchboards such as Comdial and Sprint for MAVIS(TM)
software to be incorporated into their hardware products.
MAVIS(TM) is currently being marketed for field trials in Great Britain
by PTT and in the United States by ACC and is currently operating in several
locations in Great Britain and in two locations in the United States. PTT is
currently seeking marketing partners throughout the United Kingdom and Europe
and ACC is doing the same throughout the United States. ACC believes that due to
its existing relationship with Comdial dealers in the United States it will be
able to establish a national dealer network for MAVIS(TM).
PTT has developed a variety of IVR software products which are
currently being marketed in Europe and will be marketed in the United States in
the future, including the following:
OrderMaster(TM): This product allows businesses to place orders from
various suppliers in a general voice box owned by PTT. The orders are
then forwarded
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to the supplier seamlessly. Conventional phone ordering requires calls
to each supplier individually by a certain time or, if placed after
business hours, require a voice mail to be provided and a response on
the next business day. OrderMaster(TM) allows the customer to place the
order at any time seven days a week which is transmitted to the
supplier instantly. PTT charges a fee for handling each order to the
supplier. This will allow the customer to reduce its internal costs by
eliminating answering services and providing timely updating of
inventory records.
WageMaster(TM): This product is an automated payroll designed for use
by small businesses over the telephone. Callers enter time and pay. The
software then calculates and records the deductions and sends a
facsimile similar to a pay stub to the client. PTT charges an annual
fee and a calculation fee.
Database Management: This is a software product which is used to
collect over the telephone a variety of information from individuals,
such as name, address, telephone number, identity and date of purchase
of products. Its first commercial application is planned to register
purchases. PTT charges a database management fee to the manufacturer of
the product.
Profiling: This is an IVR program used to analyze prospective employees
for companies. PTT has a contract for profiling applicants for
executive positions with a bank in the United Kingdom.
Travel Information: This product is used by travelers. A special
telephone number is advertised to the public. The caller states his
destination country and is informed of various information relative to
that country such as necessary inoculations. The caller pays a premium
telephone rate for this service and PTT receives a portion of such fee
from the telephone company.
Hotels: PTT has an agreement with British Travel Agents Accommodation
Register (the "Register") whereby the Register advertises hotel rooms
on behalf of the English and Scottish tourist boards in national
newspapers. The customer calls a free telephone number which allows the
customer to reserve a hotel room. The customer information is then
passed on to the relevant hotel instantly. PTT charges a fee to the
participating hotels for the maintenance of the hotel database.
Security Micro Dot: This is a security program to assist in the
recovery of stolen automobiles. The vehicle and its principal parts are
embedded with a serial number that is not visible to the naked eye. PTT
maintains a database of these serial numbers which may be accessed by
telephone. PTT is paid a maintenance fee and for calls made to the
database.
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Call-a-Card(TM): This is an interactive software program pursuant to
which a customer calls a special telephone number and dictates a
greeting message. A card is sent to the intended recipient giving him
or her a telephone number to call. When that number is called the
special recorded message is broadcast.
Employee Supervision: This program is designed for companies with a
large number of employees nationally or internationally that perform
services at a customer's business such as a cleaning service. The
employee is required to call a special telephone number when arriving
at and leaving the customer's business, which information is recorded
and sent to the client. If an employee doesn't call at the specified
time, a supervisor is called and informed.
Competition. There are many companies developing IVR and CTI software
products that have substantially greater technical, financial and marketing
resources as well as larger customer bases and greater name recognition than the
Corporation. The Corporation's competitors in the telephony oriented market for
messaging systems are independent suppliers, including Octel Communications,
Centigram Communications, Active Voice, Voysys, and Cellware Technologies. The
Corporation's competitors in the development of voice recognition systems are
independent companies such as Vocalis, Phillips and VCS, as well as PBX and key
telephone manufacturers such as Lucent Technologies, Northern Telecom, Siemens,
Executone, Panasonic and Toshiba which are seeking a voice recognition system
partner to integrate such systems into their equipment.
With respect to voice recognition systems the Corporation believes that
its MAVIS(TM) system can compete favorably with any other similar system being
currently marketed because MAVIS(TM) is the only such system that can be
integrated with most existing and all new PBX equipment and can be produced in
seven different languages. With respect to IVR products, the Corporation
believes that it can compete based on innovation of the Corporation's products,
early marketing, price, relationship with end-users, and the universality of
many of its software products.
Intellectual Property. The Corporation's success depends in part on its
ability to protect its proprietary technology. PTT believes that its success
will depend on its ability to design, develop and market new products and new or
enhanced applications, rather than on patent protection. However, the likelihood
of obtaining patents is evaluated with respect to each product and patent
applications are filed where appropriate. The Corporation has filed a patent
application on IVR software in England and under the Patent Cooperation Treaty
which permits filing in 95 countries worldwide upon designation within one year
and the payment of appropriate fees. The Corporation otherwise relies on a
combination of copyright, trademark and trade secret laws, nondisclosure and
other agreements and technical measures to protect its proprietary technology.
There can be no assurance that the Corporation will be able to obtain any
meaningful patent protection for its technology in the future or that measures
taken by the Corporation will be adequate to prevent or deter misappropriation
of its technologies or the development of
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technologies having similar performance characteristics. The Corporation
licenses certain portions of its technology from third parties under written
agreement such as the multi-language programs from Lernout & Hauspie which
require the Corporation to pay ongoing royalty payments.
Employees. PTT currently has eight employees consisting of four
programmers, two salesmen, one receptionist and one administrator. PTT expects
to increase its technical and sales personnel as additional products come online
and the distribution of MAVIS(TM) becomes widespread.
Talidan
General. Talidan is engaged in the business of creating call traffic
for small international telephone carriers by public promotion of information
and entertainment services using the telephone circuits of such carriers.
Telecommunication companies have agreements which determine how an imbalance of
telephone traffic to and from a country is handled. Generally, a payment is made
by the carrier from which the higher level of traffic originated. Talidan's
promotions create or increase an imbalance of call traffic in favor of its
associated telephone carriers. Talidan receives commissions from these carriers
as a percentage of the imbalance payments which these carriers receive from
their correspondent carriers. Talidan currently has contracts with international
carriers in Chile, Cook Islands, Moldova and Sao Tome and a contract with a
domestic carrier in Brazil utilizing circuits inside of that country.
The services promoted by Talidan use dedicated ranges of telephone
numbers allocated for that purpose. The most successful of the services are
those appealing to a late night adult audience. Advertisements for these
services are placed on television in Brazil and in print in newspapers and
magazines elsewhere. Callers respond to such ads and are charged by their local
telephone company for calls to the international destination. The originating
local carriers pay Talidan's international carrier who then pays Talidan.
The Corporation determined that the print media used to obtain its late
night audience was not consistent with the business image Carnegie wanted to
convey. As a result, on June 22, 1998, Talidan sold all of its business derived
from print media to Westshire Trading Company, Inc., a Bahamian corporation (the
"Buyer"). The Buyer intends to hire certain of Talidan's consultants including
Antony Redfern, Vice President of the Corporation. As part of the transaction,
Talidan released its consultants from their covenants not to compete with
respect to print media only. The purchase price was $2,340,000, with $640,000
allocated to the assets and $1,700,000 allocated to the release of the covenants
not to compete. The purchase price, together with interest at the rate of 7% per
annum, is payable in four equal quarterly installments of $585,000 each, the
first being in December 1998. The Buyer prepaid $225,000 of the first
installment in October. The Corporation's due diligence reflected that the Buyer
had sufficient assets to pay the purchase price. Revenues generated by the print
media were approximately $200,000 for the six months ended June 30, 1998 and
$400,000 for the year ended December 31, 1997.
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Talidan is currently generating call traffic in the following
countries: Austria, Brazil, Canada, Germany, India, Kuwait, Lebanon, Pakistan,
Philippines, Saudi Arabia, Singapore, United Arab Emirates and United States.
Talidan is currently terminating its call traffic in the following countries:
Chile, Cook Islands, Moldova, Nieu, New Guinea, Sao Tome, Sierra Leone and
Vanuatu.
Competition. Although Talidan is always alert to competitive threats,
it believes its ability to retain its business is dependent on its relationships
with its carriers and the success of its promotions. Talidan believes that its
relationships with its carriers are strong and does not anticipate the loss of
any of them in the near future. Talidan also endeavors to secure exclusive
advertising rights wherever possible to protect against competition.
Certain international carriers are now promoting a new concept which
allows each originating carrier to retain all of the monies that it collects in
respect of outbound call traffic. If this becomes universally accepted,
Talidan's business would be materially adversely affected.
Employees. Talidan does not have any employees as such. Talidan's
managing director, in the Isle of Man, and its marketing consultants, in
England, are all paid pursuant to consulting agreements. Talidan relies on
outside sources for its sales, marketing and advertising. Antony Redfern, an
officer of the Corporation, is a consultant to Talidan. Mr. Redfern has
approximately ten years experience in the marketing of telephone time and has
maintained contacts in this industry in many parts of the world.
ACC
General. ACC engages in the sale, installation and servicing of key
business telephones and systems including the new telecom technology such as
computer telephone integration, data cabling, networking, auto attendant and
voice-mail systems, video conferencing equipment and integrated voice response
systems. In addition, ACC has recently begun to market PTT's IVR products and
the MAVIS(TM) system to its customers. ACC is one of the leading
telecommunications hardware and software inter-connect dealers in the
Baltimore-Washington metropolitan area. ACC targets mostly small to mid-sized
businesses, providing flexible and cost effective phone systems, voice messaging
and call center facilities.
ACC's major revenues are derived from the sale, installation and
servicing of Comdial telecommunications equipment, which accounted for
approximately 97% of revenues in 1997. Comdial is a major manufacturer of
business telecom systems in the United States and in 1997 ACC Telecom was its
third largest commercial dealer. ACC also purchases equipment from Sprint's
North Supply and Alltel Corp.
Sales are made by ACC directly to business end-users by its sales
department which currently consists of ten employees. The sales department is
made up of highly trained and experienced personnel with on-going training to
cope with the ever-changing telecommunications
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technology. Marketing is achieved principally by heavy Yellow Page advertising
throughout the Baltimore-Washington regions and in Northern Virginia,
telemarketing and customer referrals. ACC currently has approximately 2,700
customers.
The market for ACC's products and equipment is subject to rapid
technological change, changes in customer requirements and frequent new product
introductions. However, the small-to-mid-sized business targeted by ACC is less
likely to rapidly change their phone system with every new technological change.
Generally, customers needs and expectations will require ACC to continuously
identify, test and market new equipment and features that keep pace with the new
technology, evolving industry standards and competitive offerings. These
activities will require ACC to make expenditures on testing equipment and on the
training of both sales and service personnel.
ACC has been approved as a bidder on contracts for the federal General
Services Agency and Department of Defense and Maryland's State Department of
Procurement. ACC recently obtained a contract for the purchase of equipment from
a federal agency totalling $252,000.
In the past few years, ACC has significantly increased its business in
Northern Virginia. As a result, ACC intends to locate a branch near Dulles
Airport in Northern Virginia to be able to more expeditiously serve its growing
customer base in that area.
Suppliers. ACC has long maintained a favorable relationship with its
suppliers such as Comdial's Key Voice, Sprint's North Supply, and Alltel Corp
for its main systems and products. Incidentals, such as computers, monitors,
keyboards, jacks, and cords are usually purchased through a variety of vendors
that are easily accessible. If ACC were to experience significant delays,
interruptions or reductions in its supply of Comdial key telephone systems, or
unfavorable changes to prices and delivery terms, ACC could be adversely
affected.
Competition. The telephone business systems market is highly
competitive and the Corporation believes competition may intensify as
manufacturers such as Lucent Technologies and Northern Telecom continue to
acquire smaller telecom companies. ACC's principal competitors are a few local
businesses which represent manufacturers such as Siemens, Panasonic, Northern
Telecom, Vodavi-North Star, and Toshiba. Lucent Technologies, Bell Atlantic, and
Executone sell directly to customers and through local businesses. The larger
companies have tremendous national advertising resources with greater name
recognition, substantially greater technical, financial and marketing resources,
as well as larger customer bases. The Corporation believes that by targeting the
small and mid-size businesses ACC has an edge in both pricing flexibility and
customer relations.
Competition for skilled and trained technicians and sales personnel is
intense. ACC's continued success depends on its ability to attract and retain
key personnel involved in its sales, technical, and administrative departments.
ACC's success also depends on the ability of its officers and key employees to
manage growth successfully and to smoothly and promptly replace
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needed positions and oversee the training of new personnel. Barry Hunt, the
founder of ACC in 1979, and its president and chief executive officer, has 19
years experience in the industry.
Employees. ACC employees 28 full-time personnel, including six in
administration, ten in sales and twelve in service. ACC has never had a work
stoppage and none of its employees are represented by a labor organization.
Victoria Station Restaurant
General. Victoria Station Restaurant is located at 6301 Northwest 36th
Street, Virginia Gardens, Florida and was opened in 1973. The Corporation
acquired the restaurant in August 1997. The restaurant is a full service steak
house which features quality steaks, barbecue ribs, chicken, fish, a salad bar
and a full liquor service. Victoria emphasizes consistent high quality
ingredients and generous portions at moderate prices in a casual dining
atmosphere. The restaurant attracts a diverse mix of customers, including
professionals and families, near Miami International Airport.
Competition. The restaurant industry is intensely competitive with
respect to price, service, location, and food quality, and there are many
well-established competitors, such as Outback Steakhouse, Inc., Tony Romas and
Graddy's, with substantially greater financial and other resources than
Victoria, that operate in Victoria's market area.
Employees. Currently, Victoria has 24 full-time and 26 part-time
employees. None of the employees are covered by a collective bargaining
agreement. The Corporation believes its employee relations to be good.
Regulatory Matters. Restaurants are subject to numerous federal, state
and local laws affecting health, sanitation and safety, as well as state and
local licensing of the sale of alcoholic beverages. The restaurant has all
appropriate food service and alcoholic beverage licenses. The failure to retain
or any delay in obtaining any such license could have a material adverse effect
on the restaurant's operations.
Victoria's operations are also subject to federal and state minimum
wage laws governing such matters as working conditions, overtime and tip
credits. Significant numbers of Victoria's food service and preparation
personnel are paid at rates related to the federal minimum wage and,
accordingly, further increases in the minimum wage could increase Victoria's
labor costs.
The Americans With Disabilities Act prohibits discrimination in
employment and public accommodations on the basis of disability. Under the Act,
Victoria could be required to expend funds to modify its restaurant to provide
service to disabled persons or make reasonable accommodations for the employment
of disabled persons.
- 13 -
<PAGE>
Financial Services
In May 1996, the Corporation acquired ECAC which was engaged in the
business of processing credit card accounts. In 1997, due to declining profit
margins and increased competition in credit card processing, the Corporation
decided to sell ECAC and to utilize the funds derived thereby to obtain and
finance operations in the telecommunications industry. As a result, the
Corporation sold approximately 75% of ECAC's accounts in April 1997, all of the
stock of ECAC in January 1998, and its start-up operation in Europe in January
1998. The Corporation retained a 40% interest in the future gross profit derived
by ECAC from the credit card accounts of Franklin Bank, which operates in
Southfield, Michigan, a suburb of Detroit. Currently one and one-half full time
equivalent employees of the Corporation, including a vice president of the
Corporation, are involved in expanding the customer base.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION
Overview
The current history of the Corporation began on May 3, 1996 with the
acquisition of ECAC and DAR. In early 1997, the Corporation decided to
concentrate its operations primarily in telecommunications rather than financial
services due to declining profit margins and increased competition in that
industry. From that time to the present, the Corporation has implemented the
following acquisitions and dispositions which have transformed the Corporation's
primary focus from financial services to telecommunications. In April 1997, the
Corporation sold a substantial portion of ECAC's merchant accounts; in August
1997, the Corporation acquired Victoria; in September 1997, the Corporation (i)
spun-off DAR and (ii) acquired PTT and Talidan; in January 1998, the Corporation
sold all of the stock of ECAC and a European affiliate; and in February 1998,
the Corporation acquired ACC.
During fiscal 1996, all of the Corporation's revenues were produced by
ECAC from its credit card processing business. During fiscal 1997, revenues were
contributed principally by ECAC, Talidan and Victoria. For the first six months
of 1998, revenues were contributed principally by Talidan, ACC and Victoria.
As part of the sale of ECAC in January 1998, the Corporation retained
40% of the future gross profit derived from the merchants utilizing the credit
card of Franklin Bank of Southfield, Michigan. The revenues are generated from
customers who have small to mid-size retail and professional businesses in
Michigan.
As a result of the transactions described herein the Corporation became
primarily a telecommunications company whose business segments are (i) the
development and marketing of interactive voice recognition and response
software, including a multi-language automated voice independent system known as
"MAVIS(TM)", (ii) the promotion of international telephone
- 14 -
<PAGE>
traffic through the marketing of information and entertainment services, and
(iii) the sale, installation and servicing of business telephones and system
solutions. Income is also currently derived from two other sources consisting of
(i) the ownership and operation of the Victoria Station Restaurant near Miami,
Florida, and (ii) 40% of the gross profit collected by ECAC from the accounts of
the Franklin Bank. The cash flow from these two sources will continue to provide
funding to the Corporation until the telecommunications businesses become
self-sustaining.
The Corporation expects that its marketing of IVR software and CTI
products developed by PTT have the greatest potential for growth of any of the
Corporation's business segments. The Corporation also believes that its
MAVIS(TM) system is currently unique in that it can integrate with any PBX being
currently marketed as well as a significant number currently in operation, and
can function in a number of languages. The Corporation intends to initially
market MAVIS(TM) in the United States and Europe through marketing relationships
with U.S. and international distributors and through the clients of telephony
companies that it owns or acquires. PTT has also developed a number of IVR
telephone software products including systems to place orders from suppliers,
automate payrolls, register purchases by customers, profile prospective
employees, protect merchandise from theft, make hotel reservations, and obtain
travel information. In addition, PTT has developed a greeting card program in
which a mailed card requests the recipient to dial a certain telephone number in
order to hear a greeting message. Although PTT's contributions to revenues in
1997 of $14,400 and the six months ended June 30, 1998 of $14,400 were minor,
the Corporation expects PTT's IVR programs and MAVIS(TM) to be the major
contributor to its revenues and earnings in the future.
Results of Operations
Due to the Corporation's acquisitions and dispositions that occurred in
1997 and the six months ended on June 30, 1998, the Corporation does not believe
that any comparison of results of 1997 to 1996 or the six months ended on June
30, 1998 to the six months ended on June 30, 1997 would be meaningful.
Fiscal Year Ended December 31, 1996
The Corporation had revenues of $3,256,291, all of which were
attributable to ECAC. Cost of fees and sales for 1996 were $2,522,030, operating
expenses were $1,224,689 and interest expense (net of interest income) was
$218,919, resulting in the Corporation incurring a net loss for the year of
$709,347.
ECAC's operations in 1996 consisted of the servicing of merchant
accounts and the building of service contract portfolios. The Corporation's
operations consisted of developing the organizational infrastructure for future
acquisitions.
- 15 -
<PAGE>
Fiscal Year Ended December 31, 1997
The Corporation realized operating revenues in 1997 of $3,245,810 and
income from the sale of a portion of ECAC's accounts of $3,700,000, or aggregate
revenues of $6,945,810. Cost of fees and sales for 1997 were $1,589,925,
operating expenses were $3,592,270, interest expense (net of interest income)
was $32,583 and the provision for income taxes was $50,867, resulting in the
Corporation realizing net income from continuing operations of $1,680,165. After
a loss from discontinued operations of $100,330, net income for the year was
$1,579,835.
Revenues attributable to ECAC in the amount of $5,056,223 consisted of
service revenue of $1,356,223 and revenue from the sale of the service contract
portfolio of $3,700,000. The sale of the portfolio was based on management's
belief that the future operations of the Company should be directed toward the
acquisition of businesses involved in the telecommunications industry. The
profit realized on the sale of the portfolio provided the funds necessary for
the Corporation to pursue acquisitions in this area.
In September, the Corporation acquired Talidan and PTT. The acquisition
of Talidan provided the Corporation with access to financial resources to
continue the development of MAVISTM and other software owned by PTT.
Victoria was acquired in 1997 in order to provide working capital to
the Corporation during the transition of principal operations to the
telecommunications industry.
The contribution (loss) of the Corporation and each operating
subsidiary to revenues and net income before income taxes for 1997 were as
follows:
Income
Revenues Before Taxes
Carnegie $ -- $ (1,463,835)1
ECAC 5,056,223 3,123,989
PTT 14,400 (75,318)
Talidan 1,202,512 140,885
Victoria 672,675 5,310
--------------- ---------------
$ 6,945,810 $ 1,731,032
============== ==============
- -------------------------------------
1 Expenses of the Corporation, including management services provided by the
Corporation to its subsidiaries.
Six Months Ended June 30, 1997
The Corporation had revenues of $4,831,107, all of which were
attributable to ECAC and $3,700,000 of which was attributable to ECAC's sale of
a substantial portion of its accounts. Cost of fees and sales for the six months
ended June 30, 1997 were $1,026,842, operating
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<PAGE>
expenses were $1,151,414, interest expense was $32,679 and provision for income
taxes was $394,075 resulting in the Corporation generating net income for the
six months ended June 30, 1997 of $2,226,097. ECAC's contribution to income
before income taxes for the period was $2,978,846.
The profits realized from the operations of ECAC were used by the
Corporation in pursuing the acquisition of businesses in the telecommunications
industry.
Six Months Ended June 30, 1998
The Corporation realized operating revenues for the six months ended
June 30, 1998 of $6,881,357 including $2,340,000 from the sale of a portion of
the business of Talidan. Cost of fees and sales for the six months ended June
30, 1998 were $2,770,868, operating expenses were $2,506,341, interest expense
(net of interest income) was $92,218 and the provision of income taxes was
$635,047, resulting in the Corporation realizing net income of $2,850,911.
During this period the Corporation acquired ACC, which is a
distributor of telephone systems to small and medium-size businesses.
Additionally, ACC will provide the sales and marketing support for the sale of
the MAVISTM system to customers who have existing telephone systems. The
revenues of ACC for the six months ending June 30, 1998 of $1,545,139 did not
include sales of the MAVISTM system.
During the year management concluded that certain aspects of
Talidan's operations were not consistent with the image that the Corporation
wanted to convey. As a result, the rights to certain telephone lines and
promotional materials were sold along with releases of certain consultants to
Talidan from their covenants not to compete for $2,340,000 evidenced by a note.
The proceeds of this note will be used by the Corporation to bring the MAVISTM
system to market. The loss of PTT consists of the operating costs of that
company that are not subject to deferral to later periods.
The contribution (loss) of the Corporation and of each operating
subsidiary to revenues and income before income taxes for the six months ended
June 30, 1998 were as follows:
Income
Revenues Before Taxes
Carnegie $ 0 $ 815,8841
PTT 14,400 (77,122)
Talidan 4,382,552 2,561,464
Victoria 939,266 59,134
ACC 1,545,139 126,598
--------------- -------------
$ 6,881,357 $ 3,485,958
=============== =============
- -------------------------------------
1 Represents gains from the sale of ECAC (Europe), from the disposition of ECAC
and from the sale of a portion of the business of Talidan offset by expenses of
the Corporation, including management services provided by the Corporation to
its subsidiaries.
- 17 -
<PAGE>
Plan of Operations
During the year ending December 31, 1998, and in 1999 the Corporation
intends to operate each of its business segments as follows:
PTT
Prior to July 1998, PTT had been a development stage company with
minimal income engaged in the development of a variety of IVR software and
MAVIS(TM), which is a multi-language automated voice recognition system. PTT has
completed development of a variety of IVR products and MAVIS(TM) is ready for
installation in field trials. As a result, PTT and the Corporation can now turn
their attention to marketing PTT's software products. PTT is currently marketing
its products directly in the United Kingdom and negotiating for marketing
partners throughout Europe. In the United States, ACC has begun field trials of
MAVIS(TM), will market PTT's IVR software products as well, and will seek
marketing partners throughout the United States. In addition, these products
will be marketed directly to the merchant accounts of Franklin Bank. PTT also
continues to develop additional IVR products, and to improve MAVIS(TM) as well
as to add additional languages in which MAVIS(TM) operates.
Talidan
Talidan expects that revenues on its retained business in 1998 will be
comparable to 1997. In addition, Talidan anticipates the receipt of $585,000 in
December 1998 and $1,755,000 in 1999 from the sale of a portion of its business
in June 1998. Talidan will attempt to generate additional business with other
international telephone carriers or to replicate its Brazilian domestic business
in other countries. Talidan has no such additional business and no assurance can
be given that it will obtain such business.
ACC
In 1998 and 1999, ACC will (i) continue to serve its existing
commercial accounts and solicit new accounts, (ii) expand its services to
governmental agencies, (iii) increase its hardware and software product lines,
(iv) market in its area of operations software products of PTT, including the
MAVIS(TM) system and (v) develop arrangements with other telephony dealers for
the marketing of MAVIS(TM) and PTT's IVR products throughout North America. ACC
also intends to open its first branch office in Virginia near Dulles Airport in
order to better serve its increasing business in Northern Virginia. Through June
30, 1998, ACC's revenues were substantially ahead of 1997 being $1,545,139
compared to $1,530,634 for all of 1997. In addition, ACC has landed a contract
with the Federal government for the sale of hardware in the
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<PAGE>
amount of $252,000. While it is too early to project ACC's revenues for the
year, 1998 revenues will be significantly higher than in 1997.
Financial Services
The Corporation will receive forty percent (40%) of the gross profit
derived by ECAC from credit card accounts of the Franklin Bank beginning in
March 1998. The Corporation estimates that it will obtain in 1998 approximately
$340,000 in revenues from servicing such accounts or from selling its interests
in them, but there can be no assurance that this figure will be attained. The
Corporation is presently engaged in efforts seeking to enlarge this customer
base. In the future the Corporation may consider taking advantage of its
expertise in credit card processing and becoming more active in that market if
it is satisfied with its then prevailing conditions.
Victoria Station Restaurant
The Corporation intends to continue to operate Victoria under its
ownership in essentially the same manner as it operated in the past except that
it may add an entertainment activity in the restaurant. The Corporation
estimates that revenues for the year will be ten percent (10%) higher than last
year.
Acquisitions
During the balance of 1998 and in 1999, the Corporation will seek to
acquire companies in the United States engaged in the sale, installation and
servicing of telephone equipment and systems or marketing relationships with
such companies. It is the intention of the Corporation to ultimately own or have
marketing relationships with a complex of such telephony companies operating
across the United States. The Corporation currently has an option to acquire one
such company operating in Delaware and adjoining states. The Corporation
believes that such coverage by its own telephony companies will be ideal for the
marketing to their customers of PTT's IVR products and the MAVIS(TM) system. The
Corporation expects that it will take a combination of stock and cash to acquire
any of such telephony companies and that the cash requirements will be met by a
combination of cash generated by the Corporation's operations, by the private
and public sales of stock and by lines of credit. There can be no assurances
that this strategy will be successful.
Working Capital and Liquidity
Cash needs of the Company have been met to date by a combination of
funds generated from operations, from borrowings, from the sale of assets and
from sales of the Corporation's stock for cash and for services. During the year
ended December 31, 1996, cash flow from operations was $688,227. For 1997, cash
flow from operations was $2,356,734, and proceeds from the sales of stock were
$229,541. In the six months ended June 30, 1998, the Corporation
- 19 -
<PAGE>
had a negative cash flow from operations of $55,727, and generated $960,810 in
proceeds from the sale of stock as well as $100,000 from the sale of ECAC's
stock. Debt from borrowings at December 31, 1996 and 1997 were $838,449 and
$1,324,997, respectively, and $708,082 at June 30, 1998.
In addition, in 1997, the Corporation issued 1,404,501 shares of Common
Stock for services rendered valued at $334,025. For the six months ended June
30, 1998, the Corporation issued 2,971,388 shares of Common Stock for services
rendered valued at $799,512.
The Corporation has made up for the loss of income from ECAC by the
acquisition of other income producing assets for stock, deferred cash payments
and/or relatively small amounts of upfront cash. PTT and Talidan were acquired
for stock; ACC was acquired for $1,000,000 payable over five years and stock;
and the Victoria Station Restaurant for cash in the amount of $325,000 and
stock.
Since the acquisition of PTT at the end of September 1997, the
Corporation has utilized its available cash flow primarily in the development of
PTT's MAVIS(TM) system and to a lesser extent in the development of its various
IVR software products. As of July 1, 1998, the cash requirements of PTT for
product development have been substantially reduced due to the start of
commercial sales of several completed IVR products and to the completion of the
development of the initial MAVIS(TM) system. As a result, the Corporation
believes that its funds from current operations will be sufficient to meet
operating expenses and debt service without any significant additional sales of
stock or any significant increase in debt. If unforeseen events cause increases
from time to time in the need for additional working capital, the Corporation
believes it will be able to satisfy substantially all of such temporary
operating funding requirements from lines of credit on commercially reasonable
terms.
The Corporation's plans for the balance of 1998 and 1999 call for it to
make additional acquisitions of companies engaged in the sale, installation and
servicing of telephone systems and equipment in areas of the United States in
addition to the Mid-Atlantic region where the Corporation currently owns an
operating subsidiary and has an option to acquire an additional company in the
telecommunications industry. If such acquisitions require substantial amounts of
cash the Corporation will have to issue additional stock or incur additional
debt. The Corporation believes that it will be able to generate such capital
from either or a combination of both of such sources on terms satisfactory to
the Corporation. If acquisitions are funded utilizing bank debt it is likely
that such debt would have to be secured at least with the assets of the company
to be acquired and possibly with additional assets of the Corporation.
Year 2000 Computer Systems Compliance
The term "Year 2000 Issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. These problems generally
- 20 -
<PAGE>
arise from the fact that most of the world's computer hardware and software have
historically used only two digits to identify the year and a date, often meaning
that the computer will fail to distinguish dates in the "2000's" from dates in
the "1900's."
The Corporation believes that its software is certified and fully Year
2000 compliant due to its recent modification of existing software and
conversion to new software or computer systems. The Corporation has also
conducted an internal review of all its computer systems and has contacted all
its software suppliers to determine whether there are any major areas of
exposure to the Year 2000 Issues. The Corporation believes that any Year 2000
Issues which may arise will not be significant and should be able to be funded
through the Corporation's normal operating revenue and income.
The Corporation has contacted most of its other vendors, suppliers and
significant customers to determine that their operation, products and services
are Year 2000 compliant or to monitor their progress toward Year 2000
compliance. Most of the these parties state that they intend to be Year 2000
compliant. Although some of the vendors and the suppliers may not be Year 2000
compliant, the Corporation believes that such failure would not have a major
impact on the Corporation due to the reliance on the Corporation's own
proprietary software. The Corporation believes that some of its customers may
not be Year 2000 compliant and may therefore have cash flow problems and become
a potential credit risk for the corporation. The Corporation believes that this
should not be a significant problem to the Corporation and may be a marketing
opportunity since its software is Year 2000 compliant.
ITEM 3. PROPERTIES
The Corporation owns no real estate.
The principal executive offices of the Corporation are located at
Executive Plaza 3, Suite 1001, Hunt Valley, Maryland 21031. The Corporation's
lease, which covers approximately 7,700 square feet, expires April 30, 2003. The
annual rent is $132,000, subject to increases of 3.5% per year.
The Corporation has subleased its prior offices in Owings Mills,
Maryland for its remaining term expiring in March 2003. Monthly payments are
required under the lease which escalate over the term of the lease starting with
$1,925 and ending with $2,100. The rent under the sublease covers the rent under
the lease to the Corporation.
PTT currently leases 1,900 square feet of office space in Sheffield,
England under a three year lease which expires January 2001 at an annual rent of
$33,000.
ACC's offices are located in 5,000 square feet of leased space in
Columbia, Maryland. The lease term is for five years expiring in August 2000 and
at an annual rent of $59,000.
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<PAGE>
The Victoria Station restaurant is located at 6301 Northwest 36th
Street, Virginia Gardens, Florida. The annual rent under the lease, which
expires in 2001, is $121,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table reflects the beneficial ownership of the
Corporation's Common Stock as of September 1, 1998, held by directors, executive
officers, each person known to Management of the Corporation to own
beneficially, directly or indirectly, more than 5% of the Corporation's Common
Stock, and all directors and executive officers as a group. Except as otherwise
indicated, the persons or entities listed below have sole voting and investment
power with respect to all Common Stock shown as beneficially owned by them.
Unless otherwise indicated, the address of all executive officers and directors
is the principal office of the Corporation.
<TABLE>
<CAPTION>
5% Beneficial Owners1 Number of Shares Percent of Class
- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Amphora Consultants Ventures Limited...... 23,150,000 7.19
The Croque Building
Road Town
Tortola, BVI
Tom Raffel2............................... 3,150,000 7.19
Sala 914, Avendia das Americas
Barra de Tijuca
Rio de Janeiro, RJ 22640
Brazil
Trident Limited........................... 2,266,669 5.17
3 Charles Street
St. Helier
Jersey JEZ 4SF
Channel Islands
Westover Holdings Limited2................ 3,150,000 7.19
Hemisphere House
9 Church Street
Hamilton, HMDX
Bermuda
- -------------------------------------
<FN>
1 All of the above Beneficial Owners received their shares of Common Stock of
the Corporation in exchange for shares of stock of PTT or Talidan. 2 Includes
shares of Common Stock that the above individuals have a right to acquire within
60 days pursuant to the exercise of warrants. Such shares are deemed outstanding
for the purpose of computing the percentage ownership of such individuals, but
are not deemed to be outstanding for the purpose of computing the percentage
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<PAGE>
ownership of any other person in the table. The above individuals also hold
certain stock options; however, the number of shares receivable upon exercise of
the options are not quantifiable because it is based on the average market price
of the shares for the 30 trading days prior to exercise.
</FN>
</TABLE>
Executive Officers and Directors Class
<TABLE>
<CAPTION>
Number Percent
of Shares of Class
<S> <C> <C> <C>
E. David Gable1........................... 1,748,0002 3.98
Lowell Farkas1............................ 725,000 1.65
Scott Caruthers........................... 792,5003 1.80
Stuart L. Agranoff ....................... 25,000 0.05
Richard Cohen ............................ 25,000 0.05
Lawrence E. Gable......................... 50,000 0.11
Antony Redfern............................ 0 0
David Pearl............................... 645,0003 1.47
Richard J. Greene......................... 104,673 0.23
All directors and executive officers
as a group (9 persons).................. 4,115,173 9.34
--------- ----
- -------------------------------------
<FN>
1 Includes shares of Common Stock that the above individuals have a right to
acquire within 60 days pursuant to the exercise of options. Such shares are
deemed outstanding for the purpose of computing the percentage ownership of such
individuals, but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person shown in the table. 2 These shares
were issued to Mr. Gable in exchange for shares of stock in DAR Products
Corporation and for services rendered in connection with the Exchange Agreement
with Grandname Limited. 3 These shares were issued to Messrs. Caruthers and
Pearl in exchange for shares in DAR Products Corporation.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Directors and Executive Officers
The directors and executive officers of the Corporation are as follows:
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<PAGE>
Name Age1 Position2
E. David Gable3 49 Chairman of the Board of Directors
and Chief Operating Officer
Lowell Farkas4 58 Director, President and Chief
Executive Officer
Scott Caruthers 53 Director
Stuart L. Agranoff 49 Director
Richard M. Cohen 47 Director
Lawrence Gable3 52 Vice President
Antony Redfern 40 Vice President
David Pearl 43 Secretary
Richard J. Greene 60 Chief Financial Officer and Treasurer
- -----------------------------
1 As of September 1, 1998
2 Each Director holds office until his successor has been duly elected and
qualified. All terms for positions of Director of the Corporation are for one
year. All officers of the Corporation serve at the will of the Directors.
3 E. David Gable and Lawrence Gable are brothers.
4 Pursuant to Lowell Farkas' employment agreement with the Corporation, he is
entitled to be a Director of the Corporation so long as he is the President of
the Corporation.
E. David Gable serves as the Chairman of the Board of the Directors and
Chief Operating Officer of the Corporation. He was elected Chairman in September
1996 and Chief Operating Officer in May 1997. From September 1996 thru May 1997,
Mr. Gable served as the Acting President and Chief Executive Officer of the
Corporation. From 1988 to 1993, Mr. Gable served as a Principal and President of
the All Star Automotive Group which consisted of fourteen automobile dealerships
located throughout Maryland, Virginia, West Virginia and Pennsylvania.
Lowell Farkas serves as the President and Chief Executive Officer of
the Corporation and as a Director. Mr. Farkas first became involved with the
Corporation in October 1996 when he began working as a part-time consultant. He
was appointed a Director and President and CEO in May 1997 and continues to
serve in these positions. Prior to joining the Corporation, Mr. Farkas served as
President and CEO of Mad Martha's Ice Cream, Inc. from 1995 to 1996. From 1992
to 1995, Mr. Farkas was a management consultant on a full-time basis to A.S.
Management Corporation which operated restaurants on the east coast.
Scott Caruthers has served as a Director of the Corporation since May
1996. Mr. Caruthers also serves as the Chairman of DAR Products Corporation and
TimeCast Corporation. Mr. Caruthers has served as a Director of DAR since 1988
and as Chairman of TimeCast Corporation since its inception in September 1997.
In 1987, Mr. Caruthers invented DAR's Non- grip Technology(R) and established an
exclusive worldwide license for this technology.
Stuart L. Agranoff has served as a Director of the Corporation since
August 1998. Mr. Agranoff is a general partner of Murphy & Partners, an equity
investment fund, in New York
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<PAGE>
City. From 1988 to 1997, he was employed by Citicorp Venture Capital, Ltd., an
investment group, as its Chief Financial Officer and Vice President. Mr.
Agranoff has also served as a Director of Farm Fresh, Inc., a privately-held
supermarket chain based in Norfolk, Virginia.
Richard M. Cohen has served as a Director of the Corporation since
September 1998. Mr. Cohen owns Richard M. Cohen Consultants, Inc., a financial
consulting firm, in New York City. From 1992 to 1996, he was employed by General
Media, Inc., a publishing and entertainment company engaged in the production
and sale of men's magazines, automotive publications and various entertainment
products, as its President.
Antony Redfern serves as a Vice President of the Corporation since
October 1997. Mr. Redfern is a consultant to Talidan. Mr. Redfern has been
working in telecommunications and voice computer technology since 1990 when he
joined Legion, Ltd. as its international business development director until
June 1996. While at Legion, Ltd, he was responsible for establishing successful
telecommunication businesses in Portugal, Brazil, Sao Tome, and South Africa.
From June 1996 to September 1997, Mr. Redfern was a consultant to various
companies. Mr. Redfern has a mechanical engineering background and has worked on
design projects in Europe and the Middle East.
Richard J. Greene was elected as Chief Financial Officer and Treasurer
of the Corporation in September, 1998. He has been a certified public accountant
since 1960 and has operated his own accounting and business consulting firm
since 1986.
Lawrence E. Gable serves as a Vice President of the Corporation since
May 1997. He is responsible for managing the Corporation's credit card
operations. From February 1996 thru February 1997, Mr. Gable served as a
consultant to ECAC. Prior thereto, Mr. Gable worked as a Sales Representative
for Shaw Industries, a Corporation engaged in the carpet and floor covering
industries.
David Pearl serves as Secretary of the Corporation since May 1997.
Previously, Mr. Pearl served as Acting Treasurer of the Corporation from
September 1996 thru May 1997. Since May 1988, Mr. Pearl served as a Director of
DAR Products Corporation and assisted in the research and development of
Non-grip Technology(R). Mr. Pearl currently serves as Vice President and
Treasurer of DAR Products Corporation. Mr. Pearl also co-founded and practiced
law at the law firm of Gershberg and Pearl from 1984 thru 1993.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning
compensation of certain of the Company's executive officers, including the
Company's Chief Executive Officer and all
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<PAGE>
executive officers whose total annual salary and bonus exceeded $100,000, for
the years ended December 1997 and 1996:
<TABLE>
<CAPTION>
Restricted Securities
Other Annual Stock Underlying All Other
Name Year Salary Bonus Compensation Awards Options/SARs Compensation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. David Gable 1997 $225,000 $ -- $ -- $ -- -- $ --
Lowell Farkas 1997 125,000 -- -- -- 400,000 --
E. David Gable 1996 100,000 -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Percent Of Total
Number of Options/SARs
Securities Granted To
Underlying Employees In Exercise Or
Options/SARs Fiscal Year Base Price Expiration
Name Granted (#) ($/Sh) Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lowell Farkas 400,000 100% $0.50 NA
</TABLE>
Stock Option Plan
General. On July 15, 1998, the Board of Directors of the Corporation
approved the Carnegie International Corporation 1998 Stock Option Plan (the
"Plan"). The purpose of the Plan is to provide incentives for directors,
officers and employees of the Corporation who may be designated for
participation and to provide additional means of attracting and retaining
competent personnel.
The Plan provides for the reservation of 2,000,000 shares of the
Corporation's Common Stock for issuance upon the exercise of options granted
under the Plan. The number of shares of Common Stock reserved for the grant of
options and the number of shares of Common Stock which are subject to
outstanding options granted under the Plan are subject to adjustment to give
effect to any stock splits, stock dividends, or other relevant changes in the
capitalization of the Corporation. The options granted under the Plan may be
Incentive Stock Options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") or Non-Qualified Stock Options which are not
intended to be Incentive Stock Options.
Administration and Grant of Options. The Plan is administered by a
committee of at least two directors appointed by the Board of Directors of the
Corporation (the "Committee"). The Committee designates from time to time those
directors, officers and employees of the Corporation or a subsidiary of the
Corporation to whom options are to be granted and who thereby become
participants in the Plan. No member of the Committee may vote upon or decide
- 26 -
<PAGE>
any matter relating to him or herself or a member of his or her immediate
family. The Committee may grant to participants in the Plan options to purchase
shares of Common Stock in such amounts as the Committee shall from time to time
determine.
Terms of Options. In the case of Incentive Stock Options, the option
exercise price per share is the Fair Market Value, as that term is defined in
the Plan, of the Common Stock of the Corporation on the date preceding the date
of grant, except that if the grantee then owns more than 10% of the combined
voting power of all classes of stock of the Corporation (a "Ten Percent
Shareholder"), the option exercise price will be 110% of Fair Market Value. In
the case of NonQualified Stock Options, the option exercise price per share is
determined in the discretion of the Committee. Each option granted under the
Plan will expire on the 10th anniversary of the date the option was granted
except (i) as otherwise stated by the Committee in the Option Agreement, or (ii)
on the 5th anniversary of the date the option was granted in the case of a Ten
Percent Shareholder.
No option may be transferred by an optionee other than by will or the
laws of descent and distribution. Options are exercisable only by the optionee
during his or her lifetime and only as described in the Plan. Options may not be
assigned, pledged or hypothecated, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer an option, or to
assign, pledge, hypothecate or otherwise dispose of an option in violation of
the Plan, or upon the levy of any attachment or similar process upon such option
or such rights, the option immediately becomes null and void.
In the event of the termination of employment or other relationship of
an optionee for any reason other than death, all unexercised options of the
optionee will terminate unless such options are exercised within 90 days after
the termination of employment. In the event of the death of an optionee, the
options may be exercised by the personal representative, administrator or a
person who acquired the right to exercise any such option, provided that such
option is exercised within one year after the death of the optionee.
Employment Agreements
Lowell Farkas entered into an employment agreement with the Corporation
effective May 15, 1997 (the "Farkas Agreement") pursuant to which he was
appointed President and Chief Executive Officer at an annual salary of $100,000
until September 1, 1997 increasing to $125,000 in the second year, $150,000 in
the third year, and $200,000 in the fourth year. The Farkas Agreement will
terminate on August 30, 2003 and is automatically renewable for one year terms
unless notified otherwise by the Board of Directors of the Corporation at least
90 days prior to the expiration of the then current term. As additional
compensation, Mr. Farkas will be paid a performance bonus annually, which will
be based upon the net profits of the Corporation for each year. Mr. Farkas also
received non-qualified stock options to purchase 400,000 shares of common stock
of the Corporation at $0.50 per share, the bid price on the date of the Farkas
Agreement. If the Corporation successfully completes a public offering of
5,000,000 shares of
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<PAGE>
the Corporation's stock which raises at least $5,000,000 or achieves a net
profit of $1,000,000 in any fiscal year, Mr. Farkas will receive options to
purchase an additional 500,000 shares of common stock at $0.10 per share. Mr.
Farkas is to be reimbursed for the cost of leasing and operating an automobile.
Upon termination of his employment with the Corporation, Mr. Farkas has an
option to acquire the rights and title to Corporation's Victoria Station
restaurant at a purchase price paid by the Corporation for the business plus the
depreciated value of improvements made after the acquisition.
E. David Gable entered into an employment agreement with the
Corporation effective April 8, 1998 (the "Gable Agreement") pursuant to which he
was employed as Chief Operating Officer at an annual salary of $200,000. The
Gable Agreement is for five years, automatically renewable on the same terms
unless notification of termination from the Board of Directors of the
Corporation at least 90 days prior to the expiration of the then current term.
As additional compensation, Mr. Gable will be paid a performance bonus annually,
which will be based upon the net profits of the Corporation each year. Mr. Gable
received stock options to purchase 1,000,000 shares of Common Stock of the
Corporation at $0.45 per share which shall become vested when the Corporation
has a consolidated pre-tax net income of at least $1,000,000 in two consecutive
quarters. These options must be exercised no later than December 31, 1999 or the
options will become void. In addition, if the Corporation successfully completes
a public offering of 5,000,000 shares of the Corporation's stock or raises at
least $5,000,000 in the Offering, Mr. Gable will receive options to purchase an
additional 500,000 shares of Common Stock at $0.10 per share. In the event the
Corporation terminates the Gable Agreement for its convenience prior to the
expiration thereof, the Corporation will provide Mr. Gable with written notice
of 90 days prior to the termination date, along with compensation in an amount
equal to five years of salary in the Gable Agreement.
David Pearl entered into an employment agreement with the Corporation
effective April 8, 1998 ("Pearl Agreement") pursuant to which he was employed as
Secretary at an annual salary of $75,000. The Pearl Agreement is for one year,
automatically renewable on the same terms unless notification from the Board of
Directors of the Corporation terminates the Pearl Agreement at least 90 days
prior to the expiration of the then current term. As additional compensation,
Mr. Pearl will be paid a performance bonus annually, which will be based upon
the net profits of the Corporation each year. Mr. Pearl received stock options
to purchase 250,000 shares of Common Stock of the Corporation at $0.45 per
share. These options must be exercised no later than December 31, 2001 or the
options will become void. In addition, if the Corporation successfully completes
a public offering of 5,000,000 shares of the Corporation's stock or raises at
least $5,000,000, Mr. Pearl will receive options to purchase an additional
100,000 shares of Common Stock at $0.10 per share. In the event the Corporation
terminates the Pearl Agreement for its convenience prior to the expiration
thereof, the Corporation will provide Mr. Pearl with written notice of 90 days
prior to the termination date, along with compensation in an amount equal to six
months of salary in the Pearl Agreement.
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<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Carnegie has a number of common officers, directors, and relationships
with TimeCast and DAR. Scott Caruthers, Chairman of TimeCast and DAR, serves as
Director of Carnegie. David Pearl, Director, Vice President and Treasurer of
DAR, serves as Secretary of Carnegie. E. David Gable, Director of DAR, serves as
Carnegie's Chairman and Chief Operating Officer. Gary Dahne, Vice President of
TimeCast and DAR, manages investor relations issues for Carnegie. Donna Ruff,
Secretary of DAR, is a Carnegie employee.
Carnegie expects to continue its business relations with TimeCast.
Carnegie made loans to DAR to fund its operations since Carnegie acquired all of
DAR's issued and outstanding shares in May 1996, and has agreed to continue to
loan funds to DAR to finance its operations until March 1999. Carnegie also has
committed to assist TimeCast with financial, administrative, and human resources
support, until March 1999. Carnegie anticipates that all future transactions
with TimeCast will be conducted on an arm's-length basis, on terms that Carnegie
and TimeCast believe, without an independent third party evaluation,will be no
less favorable to TimeCast than could have been obtained from unrelated third
parties.
The Corporation made advances to certain of its officers and directors
from time to time which were non-interest bearing and which do not have a
specified repayment date. The table below sets forth for each of the officers
and directors receiving advances first the highest amounts of advances during
the periods set forth below and then the amount of advances at the end of each
of the periods.
<TABLE>
<CAPTION>
Six Months to
Officer or Director 1996 1997 June 30, 1998
- ------------------- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
E. David Gable $25,778 $116,500 $67,469
Chairman of the Board 25,778 15,500 67,469
Scott Caruthers -- 175,000 2,000
Director -- 2,000 -0-
David Pearl -- 46,664 5,664
Secretary -- 5,664 -0-
</TABLE>
ITEM 8. DESCRIPTION OF CAPITAL STOCK
General. The Corporation's authorized capital stock consists of
110,000,000 shares of Common Stock, no par value per share, and 40,000,000
shares of Preferred Stock, par value $1.00 per share. As of September 1, 1998,
the Corporation had 43,810,208 shares of Common Stock issued and outstanding and
had 1,033 shareholders of record and 200,000 shares of Preferred Stock - Series
A issued to two shareholders of record. In addition, there are
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<PAGE>
outstanding warrants and options which were issued in connection with the
acquisition by the Corporation of PTT and Talidan options.
Pursuant to the Exchange Agreements with Tiller for the acquisition by
the Corporation of PTT and Talidan, at any time that Tiller receives a notice
from a PTT-Talidan shareholder of an intended sale of Carnegie shares Tiller is
to notify Carnegie and the members of the Board of Directors of Carnegie will
have a right of first refusal with respect to such shares for an eight day
period. The Directors of Carnegie have agreed that any exercise of such rights
will be for the account and benefit of the Corporation only and not for the
individual benefit of any director.
Common Stock. Each outstanding share of Common Stock is entitled to one
vote on any matter on which stockholders are entitled to vote, including
election of directors, and except as otherwise required by law with respect to
class voting rights, or provided in any resolution adopted by the Board of
Directors with respect to any series of Preferred Stock establishing the rights
of such series, the holders of Common Stock possess all voting powers. The
holders of shares of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available therefor after
payment of any preferential dividends that may then be issued and outstanding.
Upon any dissolution, liquidation or winding-up of the Corporation, holders of
Common Stock are entitled to share ratably in the net assets available for
distribution to stockholders after the payment of debts and other liabilities
subject to the prior rights of any issued Preferred Stock. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights or the
right to accumulate their shares in the election of directors or in any other
matter.
Preferred Stock. The Corporation's Articles of Incorporation authorizes
the Board of Directors to (without further action by the stockholders) issue
shares of Preferred Stock from time to time in one or more series, and to fix
the designations, preferences, conversion rights, voting powers, restrictions,
redemption provisions, limitations as to dividends, and other terms, provisions
and rights, as may be determined by the Board of Directors.
Each outstanding share of Series A Preferred Stock is entitled to ten
votes per share, not as a class, but along with the Common Stock. The Series A
Preferred Stock is convertible on May 18, 2000 into 2,000,000 shares of Common
Stock or $2,000,000 worth of Common Stock based on the fair market value price
per share of Common Stock on May 18, 2000, whichever is greater. The Series A
Preferred Stock becomes convertible prior to May 18, 2000 if the closing market
price of the Corporation's Common Stock is above $2.00 per share on any day or
the Corporation declares a dividend on its Common Stock. The Series A Preferred
Stock has a preference over Common Shares in the event of a corporate
liquidation. The Series A Preferred Stock is not entitled to dividends.
Warrants. In connection with its acquisition of PTT and Talidan, the
Corporation issued two-year warrants to the PTT-Talidan Shareholders to purchase
5,000,000 shares of Common Stock of the Corporation at an exercise price of 50%
of the average market price of the
- 30 -
<PAGE>
Corporation's Common Stock as quoted by the NASD Over the Counter Bulletin Board
Service ("OTCBB") for the 30 consecutive trading days before the exercise date.
The warrants may be exercised in whole or in part at any time prior to 5:00 p.m.
on September 29, 1999. Prior to the exercise of the Warrants, the holders will
not be entitled to vote, receive dividends or be deemed the holder of common
stock for any purpose. However, the warrants will be subject to an adjustment in
the event a common stock dividend is paid or if the common stock is subdivided
or reclassified. The Corporation is not required to issue any fractional shares
upon the exercise of the warrants. If a fractional interest in a share is
deliverable to the holder of the warrant, the Corporation will pay the cash
value thereof.
Exchange Options. The Corporation also issued to Tiller and the
PTT-Talidan Shareholders four-year options to purchase shares of Common Stock at
an exercise price of $.001 per share. The options may be exercised in whole or
in part at any time prior to September 28, 2001.
The total number of shares issuable pursuant to the options and
preemption options is to be determined by dividing 2,500,000 by the average
market price of the Corporation's shares as quoted by the OTCBB for the 30
consecutive trading days before the exercise date. In the event of the
occurrence of a capital transaction, including but not limited to, a share
dividend, share exchange, merger, reverse merger or other capital transaction of
an extraordinary nature, the number of shares and/or the market price, will be
appropriately adjusted.
Pre-emption Options. The Corporation issued options to Tiller pursuant
to the Preemption Agreement which granted to the Corporation rights of first
refusal on any telecommunication business which Tiller wished to sell.
The total number of shares issuable pursuant to the options and
preemption options is to be determined by dividing 2,500,000 by the average
market price of the Corporation's shares as quoted by the OTCBB for the 30
consecutive trading days before the exercise date. In the event of the
occurrence of a capital transaction, including but not limited to, a share
dividend, share exchange, merger, reverse merger or other capital transaction of
an extraordinary nature, the number of shares and/or the market price, will be
appropriately adjusted.
Put Options. To the extent the Exchange Options or the Preemption
Options are not fully exercised by the third anniversary of the date of issue,
the holder may, for a period of 30 days thereafter, exercise the remainder of
the option, in whole or in part, and require the Corporation to purchase the
resultant shares at the exercise price thereof. The Put Option must be exercised
by the holder by written notice to the Corporation within 30 days from the said
third anniversary.
Registration Rights. The shares of common stock issued to Tiller and
the PTT-Talidan Shareholders pursuant to the Exchange Agreements as well as the
shares of common stock underlying the warrants and options issued in connection
therewith have identical "piggyback" registration rights. If the Corporation
proposes to register any of its shares, it has to so notify
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<PAGE>
the holders of those securities. The holders have 20 days to notify the
Corporation of the number of shares the holders want registered. The Corporation
is then required to use reasonable efforts to register the shares for the
holder's benefit. The Corporation will bear all expenses of registration and the
holders will bear the underwriting commissions and the expenses of their
counsel.
The Corporation also agreed that when it met all of the requirements
necessary to effect a shelf registration it would use its best efforts to
effectuate and maintain such a shelf registration. The security holders agreed
not to sell the Corporation's shares for such period requested by the managing
underwriter not in excess of 120 days following the effective date of a
registration statement filed by the Corporation under the Securities Act of
1933.
- 32 -
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
Market Information. The Common Stock of the Corporation is traded on
the over-the-counter market. During the period of the Corporation's inactivity
from June 1985 through September 1996, there was no public trading of the
Corporation's shares.
Trading of the Corporation's Common Stock on the over-the-counter
market commenced in September 1996. The following table reflects the high and
low bid prices for the Corporation's Common Stock for each quarterly period
ended since trading commenced in September 1996. These quotations are based on
information supplied by market makers of the Corporation's Common Stock. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
1998 1997 1996
---- ---- ----
Price Range Price Range Price Range
Low High Low High Low High
1st Quarter $.22 $1.44 $.65 $1.20 $ -- $ --
2nd Quarter .42 .8125 .375 .9375 -- --
3rd Quarter .48 1.90 .375 1.375 -- --
4th Quarter -- -- .375 1.000 .75 2.125
Holders. As of September 1, 1998, there were 1033 holders of record of
the Corporation's Common Stock. At such date, 43,810,208 shares of Common Stock
were issued and outstanding.
Dividends. As of September 1, 1998, the Corporation has declared no
dividends and is not likely to do so in the near future.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS
Not Applicable.
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<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to sales of securities of the
Corporation issued or sold each year since May 3, 1996 which were not registered
under the Securities Act.
A. 1996
In May and June 1996, the Corporation issued to Grandname, Ltd., a
British Virgin Islands corporation, and the shareholders of Electronic Card
Acceptance Corporation, a Virginia corporation ("ECAC") and DAR Products
Corporation, a Maryland corporation ("DAR"), an aggregate of 12,650,000 shares
of common stock. These transactions were effected without registration under the
Securities Act in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act. Each of the recipients of such shares
represented that the shares were acquired for investment without a view to
distribution, the certificates representing such shares contained appropriate
restrictive legends and to date none of such shares have been transferred in
transactions in public markets of the United States.
B. 1997
(1) In August 1997, the Corporation issued 25,000 shares of its common
stock to a shareholder for the acquisition of the Victoria Station Restaurant.
These transactions were effected without registration under the Securities Act
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act. Each of the recipients of such shares represented that the
shares were acquired for investment without a view to distribution, the
certificates representing such shares contained appropriate restrictive legends
and to date none of such shares have been transferred in transactions in public
markets of the United States.
(2) In September 1997, the Corporation issued to Tiller Holdings
Limited and the shareholders of that Corporation, none of whom is a U.S. person,
in exchange for all of the outstanding stock of PTT and Talidan, 19,340,000
shares of the Corporations common stock, warrants to purchase an additional
5,000,000 shares at an exercise price of 50% of the average market price of the
Corporation's common stock for the 30 trading days prior to exercise and options
to purchase that number of additional shares, at an exercise price of $.001 per
share, determined by dividing 2,500,000 by the average market price for the 30
trading days prior to exercise. The transactions were effected without
registration pursuant to Regulation S under the Securities Act of 1933 in
reliance on the fact that the recipients of the securities were not U.S. persons
and on Section 4(2) of the Securities Act since the recipients represented that
the securities were acquired for investment and without a view to distribution.
The certificates representing the shares contained appropriate restrictive
legends and none of such shares to date have been sold in the United States or
to U.S. persons.
(3) In addition to the above shares, during 1997, the Corporation sold
2,846,119 shares for an aggregate consideration of $768,340 in cash or services
to 20 purchasers. Of these
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<PAGE>
purchasers, four were not U.S. persons, four were accredited investors, five
were friends of the officers or the employees of the Corporation, four were
affiliated with ECAC, and three were others. These transactions were effected
without registration under the Securities Act in reliance upon the exemption
provided by SEC Rule 504.
(4) During 1997, the Corporation sold 410,155 shares for an aggregate
consideration of $218,028 in cash or services to six purchasers. Of these
purchasers, one was not a U.S. person, two were officers or directors of the
Corporation and three were accredited investors. These transactions were
effected without registration under the Securities Act in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act. Each
of the recipients of such shares represented that the shares were acquired for
investment without a view to distribution, the certificates representing such
shares contained appropriate restrictive legends and to date none of such shares
have been transferred in transactions in public markets of the United States.
C. 1998
(1) On February 1, 1998, the Corporation issued to two shareholders of
Harbor City Corporation, trading as ACC Telecom, ("ACC"), 5,000 shares of Common
Stock and 200,000 shares of its Series A Preferred Stock, in partial
consideration for all of the outstanding stock of ACC. These transactions were
effected without registration under the Securities Act in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act. Each
of the recipients of such shares represented that the shares were acquired for
investment without a view to distribution, the certificates representing such
shares contained appropriate restrictive legends and to date none of such shares
have been transferred in transactions in public markets of the United States.
(2) Through August 1, 1998, the Corporation sold 2,763,688 shares for
an aggregate consideration of $968,878 in cash or services to 42 purchasers. Of
these purchasers, six were not U.S. persons, one was an accredited investor, one
was an employee of the Corporation, four were counsel to the Corporation or
their relatives thereof, two were accountants to the Corporation, sixteen were
relatives or friends of the officers or the employees of the Corporation, four
were related purchasers and eight were others. These transactions were effected
without registration under the Securities Act in reliance upon the exemption
provided by SEC Rule 504.
(3) Through August 1, 1998, the Corporation sold 3,757,534 shares for
an aggregate consideration of $708,671 in cash or services to 23 purchasers. Of
these purchasers, three were not U.S. persons, six were employees, officers or
directors of the Corporation two were counsel to the Corporation, one was an
accountant to the Corporation, four were relatives or friends of the officers or
the employees of the Corporation, four were related purchasers and three were
others. These transactions were effected without registration under the
Securities Act in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act. Each of the recipients of such shares
represented that the shares were acquired for investment without a
- 35 -
<PAGE>
view to distribution, the certificates representing such shares contained
appropriate restrictive legends and to date none of such shares have been
transferred in transactions in public markets of the United States.
Certain of the stock issuances described in paragraphs B(3) and C(2)
above may not have been in full compliance with the rules and regulations under
the Securities Act and applicable state securities laws. On July 31, 1998, the
Corporation offered to the purchasers (other than purchasers who are not U.S.
persons) a right to rescind their purchases and receive a full refund of their
purchase price, plus interest. No purchaser has elected to rescind. The
Corporation acknowledges that it may be subject to regulatory action by federal
and state securities regulatory authorities in connection with such sales.
However, the highest price per share paid by any purchaser was $0.85, and on
July 31, 1998 the average of the closing bid and asked prices in the
over-the-counter bulletin board market was $1.30. As a result, the Corporation
does not believe that it has any material liability to the purchasers in respect
of these sales.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the By-laws of the Corporation, each of the officers and
directors of the Corporation is entitled to indemnification for actions taken by
them or in the name of the Corporation to the fullest extent permitted by the
laws of the State of Colorado.
Under the Colorado Business Corporation Act ("CBCA"), a corporation
must indemnify a person who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the person was a party because the
person is or was a director or officer, against reasonable expenses incurred by
him or her in connection with the proceeding. Also, under the CBCA, a
corporation may indemnify a director or officer made a party to a proceeding
because the person is or was a director or officer against liability, including
reasonable expenses, incurred in a proceeding if (i) the person conducted
himself in good faith; (ii) the person reasonably believed, in the case of
conduct in an official capacity with the corporation, that his conduct was in
the corporation's best interests, and, in all other cases, that his or her
conduct was at least not opposed to the corporation's best interests; and (iii)
in the case of any criminal proceeding, the person had no reasonable cause to
believe that his conduct was unlawful.
The corporation may not indemnify an officer or director in connection
with (i) a proceeding in which the person was adjudged liable to the
corporation; or (ii) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding the director or officer was
adjudged liable on the basis that he or she derived an improper personal
benefit.
The Corporation may pay for or reimburse the reasonable expenses
incurred by an officer or director who is a party to a proceeding in advance of
final disposition of the proceeding if: (i) the officer or director furnishes to
the corporation a written affirmation of the person's good faith belief that he
or she has met the standard of conduct necessary for indemnification by the
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<PAGE>
Corporation; and (ii) the officer or director furnishes to the corporation a
written undertaking to repay the advance if its is ultimately determined that he
or she did not meet the standard of conduct; and (iii) a determination is made
that the facts then known to those making the determination would not preclude
indemnification under the Colorado indemnification provisions.
- 37 -
<PAGE>
PART F/S - FINANCIAL STATEMENTS
The following financial statements are provided:
The consolidated financial statements and related notes of the
Corporation and its subsidiaries for the six months ended June 30, 1998 and 1997
and the years ended December 31, 1997 and 1996, including the consolidated
balance sheets at June 30, 1998 and December 31, 1997, and the related
consolidated income statements and statement of changes in shareholders' equity
and cash flows for the six months ended June 30, 1998 and 1997 and the years
ended December 31, 1997 and 1996.
Financial Statements
Corporation
Independent Auditor's Report
Balance Sheet December 31, 1997
Statements of Operation and Equity for the years ended
December 31, 1997 and 1996
Statements of Cash Flow for the years ended December 31, 1997
and 1996
Schedules of Qualifying Accounts and Valuation Allowances for
the years ended December 31, 1997 and 1996
Pro Forma Unaudited Condensed Financial Statements for the
years ended December 31, 1997 and 1996
Talidan
Independent Accountant's Audit Report
Balance Sheet December 31, 1996
Statements of Operation and Equity for the year ended December
31, 1996
Statements of Cash Flow for the year ended December 31, 1996
- 38 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997 and 1996 and
June 30, 1998 and 1997 (Unaudited)
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997 and 1996 and
June 30, 1998 and 1997 (Unaudited)
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS 5
STATEMENTS OF EARNINGS (LOSS) 6
STATEMENTS OF STOCKHOLDERS' EQUITY 7
STATEMENTS OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Carnegie International Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Carnegie
International Corporation (a Colorado corporation) and Subsidiaries as of
December 31, 1997, and the related consolidated statements of earnings (loss),
stockholders' (deficit) equity, and cash flows for the years ended December 31,
1997 and 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Carnegie
International Corporation and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
We have also audited Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1997 and 1996. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
Grant Thornton LLP
Baltimore, Maryland
July 29, 1998
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
ASSETS 1997 1998
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 226,422 $ 52,042
Certificate of deposit-restricted 400,000 -
Accounts receivable 761,464 1,156,138
Due from former subsidiaries - 1,670,542
Note receivable - 1,739,690
Loans receivable 10,200 5,000
Inventory 32,575 218,551
Prepaid expenses 24,620 182,640
---------- -----------
Total current assets 1,455,281 5,024,603
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 484,217 1,095,851
OTHER ASSETS
Note receivable - 600,310
Security deposits and other assets 109,047 353,018
Loans receivable - officers and employees 301,201 123,773
Intangibles, less accumulated amortization of $117,619
in 1997 and $363,743 in 1998 6,487,587 7,016,379
---------- -----------
6,897,835 8,093,480
---------- -----------
$8,837,333 $14,213,934
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $1,155,385 $ 408,447
Current maturities of notes payable to stockholder and
affiliates 622,597 482,778
Accounts payable and accrued expenses 1,274,064 1,173,410
Income taxes payable 50,867 685,914
---------- -----------
Total current liabilities 3,102,913 2,750,549
LONG-TERM OBLIGATIONS
Long-term debt, less current maturities 169,612 299,635
Notes payable to stockholder and affiliates, less current
maturities - 700,846
Put option obligation 3,756,574 3,944,403
---------- -----------
3,926,186 4,944,884
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share,
40,000,000 authorized shares; none issued at
December 31, 1997, 200,000 issued at June 30, 1998 - 200,000
Common stock, no par with a stated value of $0.01;
110,000,000 shares authorized; 38,835,486 issued and
36,657,467 outstanding at December 31, 1997 and 40,582,834
issued and 37,804,815 outstanding at June 30, 1998 388,355 433,609
Additional paid-in capital 3,535,795 5,149,897
Accumulated (deficit) earnings (834,916) 2,015,995
---------- -----------
3,089,234 7,799,501
Less treasury stock at cost (2,778,019 shares) (1,281,000) (1,281,000)
---------- -----------
1,808,234 6,518,501
---------- -----------
$8,837,333 $14,213,934
========== ===========
</TABLE>
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended December 31, June 30,
------------------------ -------------------------
1997 1996 1998 1997
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Operating $3,245,810 $3,256,291 $4,541,357 $1,131,107
Sale of service contracts 3,700,000 - 2,340,000 3,700,000
---------- ---------- ---------- ----------
6,945,810 3,256,291 6,881,357 4,831,107
Cost of fees and sales
Processing fees 183,117 1,051,421 - 165,162
Commissions 1,103,889 1,298,851 1,627,518 848,438
Supplies 268,656 55,675 340,432 4,172
Equipment related expenses 28,919 99,421 802,918 6,892
Royalties 5,344 16,662 - 2,178
---------- ---------- ---------- ----------
Total cost of fees and sales 1,589,925 2,522,030 2,770,868 1,026,842
---------- ---------- ---------- ----------
Gross profit 5,355,885 734,261 4,110,489 3,804,265
Operating expenses (3,592,270) (1,224,689) (2,506,341) (1,151,414)
---------- ---------- ---------- ----------
Operating income (loss) 1,763,615 (490,428) 1,604,148 2,652,851
Other income (expense)
Interest expense (49,417) (226,063) (104,586) (32,679)
Interest income 16,834 7,144 12,368 -
Gain on sale of subsidiaries - - 1,974,028 -
---------- ---------- ---------- ----------
(32,583) (218,919) 1,881,810 (32,679)
---------- ---------- ---------- ----------
Income (loss) from continuing operations before
provision for income taxes 1,731,032 (709,347) 3,485,958 2,620,172
Provision for income taxes 50,867 - 635,047 394,075
---------- ---------- ---------- ----------
Net income (loss) from continuing operations 1,680,165 (709,347) 2,850,911 2,226,097
Discontinued operations
Loss from operation of TimeCast (100,330) - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $1,579,835 $ (709,347) $2,850,911 $2,226,097
========== ========== ========== ==========
Earnings (loss) per share
Basic:
Continuing operations $ 0.08 $ (0.08) $ 0.07 $ 0.13
Discontinued operations (0.01) - - -
---------- ---------- ---------- ----------
Net income $ 0.07 $ (0.08) $ 0.07 $ 0.13
========== ========== ========== ==========
Diluted:
Continuing operations $ 0.07 $ (0.08) $ 0.07 $ 0.13
Discontinued operations - - - -
---------- ---------- ---------- ----------
Net Income $ 0.07 $ (0.08) $ 0.07 $ 0.13
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock
---------------
Shares Amount
------ ------
<S> <C> <C>
Balance at January 1, 1996 - $ -
Net loss for the year ended December 31, 1996 - -
Reverse acquisition - -
Shares issued in connection with acquisitions - -
Share issued in lieu of compensation - -
------- -------
Balance at December 31, 1996 - -
Net income for the year ended December 31, 1997 - -
Disposition of DAR - -
Issuance of common stock - -
Shares issued in lieu of compensation - -
Shares issued in connection with acquisitions - -
Affiliates' forgiveness of note payable - -
Purchase of treasury shares - -
------- -------
Balance at December 31, 1997 - -
Net income for the six months ended June 30, 1998 - -
Issuance of common stock - -
Shares issued in lieu of compensation - -
Shares issued in connection with acquisitions 200,000 200,000
------- -------
Balance at June 30, 1998 (unaudited) 200,000 $200,000
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock paid-in (deficit) Treasury Stockholders'
Shares Amount capital earnings stock (deficit) equity
------ ------ ------- -------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
1,000 $ 1,000 $ 78,255 $(1,714,864) $ (59,795) $(1,695,404)
-- -- -- (709,347) -- (709,347)
999,000 9,000 (78,255) 9,460 59,795 --
8,350,000 83,500 -- -- 83,500
7,224,786 72,248 593,413 665,661
- ---------- -------- ---------- ----------- ----------- -----------
16,574,786 165,748 593,413 (2,414,751) -- (1,655,590)
-- -- -- 1,579,835 -- 1,579,835
-- -- 99,330 -- -- 99,330
420,400 4,204 225,337 -- -- 229,541
2,500,300 25,003 584,400 -- -- 609,403
19,340,000 193,400 1,880,815 -- -- 2,074,215
-- -- 152,500 -- -- 152,500
-- -- -- -- (1,281,000) (1,281,000)
- ---------- -------- ---------- ----------- ---------- -----------
38,835,486 388,355 3,535,795 (834,916) (1,281,000) 1,808,234
-- -- -- 2,850,911 -- 2,850,911
3,124,378 31,254 929,556 -- -- 960,810
1,399,989 14,000 584,546 -- -- 598,546
-- -- 100,000 -- -- 300,000
- ---------- -------- ---------- ----------- ---------- -----------
43,360,853 $433,609 $5,149,897 $ 2,015,995 $(1,281,000) $ 6,518,501
========== ======= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
Years ended December 31, June 30,
-------------------------- -------------------------
1997 1996 1998 1997
----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,579,835 $ (709,347) $2,850,911 $2,226,097
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 175,264 21,084 318,498 9,876
Issuance of common stock as compensation 448,177 665,661 598,546 133,750
Net book value of subsidiary sold - - (1,624,028) -
Changes in assets and liabilities
Accounts receivable (40,544) 98,914 (175,261) 38,756
Due from affiliates (513,194) (589,963) (388,770) -
Inventory (20,582) (7,993) (25,228) (12,654)
Prepaid expenses (24,248) 3,726 (158,392) (11,871)
Other assets 61,112 (91,818) - -
Accounts payable and accrued expenses 640,047 118,037 64,821 (47,987)
Accrued interest put option- - 187,829 - -
Income taxes payable 50,867 - 635,047 393,953
Note receivable - - (2,340,000) -
----------- ---------- ---------- ----------
Net cash provided by (used in) operating activities 2,356,734 688,227 (55,727) 2,729,920
Cash flows from investing activities
(Purchase) redemption of restricted certificate of deposit (400,000) - 400,000 -
Purchase of furniture and equipment (170,008) (19,559) (594,152) (42,355)
Deposits - - (280,855) (48,182)
Acquisition costs (530,628) (247,850) (121,754) -
----------- --------- ---------- ----------
Net cash used in investing activities (1,100,636) (267,409) (596,761) (87,593)
Cash flows from financing activities
Payments on notes payable (1,454,033) (839,504) (482,802) (734,194)
Proceeds from issuance of notes payable 990,568 433,134 - -
Purchase of treasury shares (800,000) - - (981,539)
Sale of common stock 229,541 - 960,810 -
Notes receivable (10,200) - 200 (10,000)
----------- --------- ---------- ----------
Net cash (used in) provided by financing
activities (1,044,124) (406,370) 478,208 (1,725,733)
----------- --------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 211,974 14,448 (174,380) 916,954
Cash at beginning of period 14,448 - 226,422 14,448
----------- --------- ---------- ----------
Cash at end of period $ 226,422 $ 14,448 $ 52,042 $ 931,042
=========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 8 -
<PAGE>
Supplemental schedule of non-cash investing activities:
During 1996, the Company purchased all of the stock of ECAC and DAR in a
reverse acquisition for 8,350,000 shares of common stock (94% of the
Company's outstanding shares). During the year ended December 31, 1997, the
Company purchased all of the stock of Talidan, PTT, and Victoria for
19,365,000 shares of common stock, warrants for 5,000,000 shares, options
and put option for shares valued at $5 million, representing an aggregate
price of $6,174,539, including cash and notes of $325,000.
During 1997 and 1996, respectively, 2,500,300 and 7,224,786 shares of the
Company's common stock were issued at a value of $609,403 and $665,661 as
compensation for services rendered by various consultants, attorneys, and
others.
During 1997, the Company acquired 1,078,019 shares of its common stock in
settlement of notes receivable from affiliates of $481,000 and cash of
$800,000.
During 1997, the Company spun-off a subsidiary with a deficit, which
increased stockholders' equity by $99,300.
During 1997, a stockholder relieved the Company of an obligation to make
payment on a note payable in the amount of $152,500.
Unaudited
During the six months ended June 30, 1998 the Company purchased all of the
outstanding stock of ACC Telecom for 200,000 shares of preferred stock and a
note for $814,962.
During the six months ended June 30, 1998 the Company disposed of all of the
common stock of ECAC, Inc and ECAC Europe, Inc. for combined receipts of
$350,000 in cash. These companies had liabilities in excess of assets of
$1,624,028 at the date of sale.
During the six months ended June 30, 1998 the company sold the rights to
certain telephone lines and the release of certain covenants not to compete
for a note in the amount of $2,340,000.
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Organization
Carnegie International Corporation (the Company or Carnegie) (formerly A&W
Corporation, Inc.) was incorporated in Colorado and discontinued operations
in September, 1985. In May, 1996, Carnegie acquired all of the outstanding
stock of DAR Products Corporation (DAR) and Electronic Card Acceptance
Corporation (ECAC) in exchange for 94% of its common stock pursuant a stock
purchase agreement with Grandname, Ltd. For accounting purposes, this
transaction has been reflected as a reverse acquisition with DAR and ECAC as
the acquirers.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
Carnegie and its wholly-owned subsidiaries: TimeCast Corporation
("TimeCast"), a Nevada corporation; Electronic Card Acceptance Corporation
("ECAC"), a Virginia corporation; Talidan Limited ("Talidan"), a British
Virgin Islands corporation; Profit Through Telecommunications (Europe)
Limited ("PTT"), a United Kingdom corporation; Talidan USA t/a Victoria
Station - Miami, Inc. ("Victoria"), a Florida corporation; ECAC Europe
("ECAC Europe"), a United Kingdom corporation; and in 1998, Harbor City
Corporation t/a ACC Telecom ("ACC Telecom"), a Maryland corporation.
In 1996, Grandname, Ltd., prior to combination with Carnegie, acquired DAR
and ECAC. The subsequent business combination with Carnegie has been
reflected as a reverse acquisition with DAR and ECAC as the acquirers, for
accounting purposes. Equity balances on January 1, 1996 represent DAR and
ECAC balances. Revenue and results of operations for DAR and ECAC are
included for the entire fiscal year 1996. The Company sold the stock of ECAC
on January 31, 1998.
- 9 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Principles of Consolidation - continued
TimeCast was formed in September, 1997 as a wholly owned subsidiary of
Carnegie. TimeCast became the holding company of DAR by exchanging TimeCast
shares for all of DAR's outstanding shares. TimeCast was spun-off on
September 15, 1997 in a distribution to the Company's stockholders.
Talidan and PTT were acquired on September 29, 1997 and Victoria was
acquired effectively on August 18, 1997. These acquisitions were accounted
for as purchases. Results of operations of these subsidiaries from their
dates of acquisition have been consolidated.
ACC Telecom was acquired in 1998 and was accounted for as a purchase.
Unaudited results of operations since February 1, 1998 have been
consolidated.
Significant intercompany transactions have been eliminated in consolidation.
Business Operations
The Company operates primarily in the United States, United Kingdom, and
South America. During 1997, the Company's business operations were 73% in
credit card processing in the United States; 17% in the marketing of
telephone time through international contracts for discounted telephone time
primarily in South America and Europe; 10% in restaurant operations in
Miami, Florida. During 1996, all of the Company's business operations were
in credit card processing. A description of the business operations of each
company follows:
o Carnegie provides management services to its wholly owned subsidiaries.
Carnegie has no direct domestic operating assets or business activity.
- 10 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Business Operations - continued
o TimeCast is engaged in the business of designing, manufacturing and
marketing physical fitness exercise devices and equipment, and muscular
development products, including Non-Grip Technology (R) related to
exercise and fitness equipment.
On September 15, 1997, TimeCast was spun-off in a distribution to the
Company's stockholders.
o ECAC is an independent sales organization providing bankcard services to
U.S. merchants. Its primary business objective is to build a portfolio of
customer service contracts between itself and individual merchants. When
the portfolio of contracts approximates 1,000 or more contracts the
Company will offer the portfolio for sale to financial institutions, or
other companies, involved in the credit card processing business. The
service contracts provide for the payment of fees by the individual
merchants to the company who in turn pays a financial institution for
service. On January 31, 1998, the stock of ECAC was sold.
o ECAC Europe is an independent sales organization providing bankcard
services to merchants in the United Kingdom. On January 6, 1998, the stock
of ECAC Europe was sold.
o Talidan markets telephone service through international contracts for
discounted telephone time.
o PTT is a telecommunications software company. Its software can be utilized
by voice recognition, touch-tone keypad, or bar code readers for a broad
range of applications. One of PTT's products is MAVIS(TM) (Multi-language
Automated Voice Independent System), an automated attendant system
allowing telephone callers to reach or leave messages for a person or a
department of a company, by verbally responding to prompts, without
pressing buttons on the telephone.
o Victoria operates a restaurant in Miami, Florida.
- 11 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Business Operations - continued
o ACC Telecom sells, installs and services telephone systems, voice mail
integration, computer technology, LAN operating systems and cable media
for businesses in the Washington, DC, Maryland and Northern Virginia
areas.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and reported revenue and
expenses during the reporting period. Actual results may differ from those
estimates.
Accounts Receivable
For financial reporting purposes, the Company utilizes the allowance method
of accounting for doubtful accounts. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses. The allowance is based on an experience factor and review of current
accounts receivable. Uncollectible accounts are written off against the
allowance accounts when deemed uncollectible. At December 31, 1997 and June
30, 1998 (unaudited), management estimates that all of the accounts
receivable are collectible.
Inventory
Inventory consists of credit authorization equipment and restaurant
supplies, which are carried at the lower of cost or market on a first-in,
first-out basis.
- 12 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Property, Plant and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
primarily on a straight-line basis. Accelerated depreciation methods are
used for tax purposes on certain assets. The estimated service lives used in
determining depreciation are five to seven years for machinery and
equipment. Leasehold improvements are amortized over the shorter of the
useful life of the asset or the lease term.
Maintenance and repairs are charged to expense as incurred; additions and
betterments are capitalized. Upon retirement or sale, the cost and related
accumulated depreciation of the disposed assets are removed and any
resulting gain or loss is credited or charged to operations.
Software Development Costs
The Company's voice recognition system MAVIS reached a stage of commercial
viability in 1997. The company continues to make enhancements to this
product in order to comply with the specific requirements of customers for
interface of this software with existing telephone systems. The costs
incurred to enhance the software are capitalized as incurred.
Intangibles
Intangibles represent costs in excess of net assets acquired in connection
with businesses acquired, acquisition costs, and noncompete agreements. The
costs in excess of net assets acquired in connection with businesses
acquired are being amortized to operations on a straight-line basis over 15
years, the acquisition costs are being amortized over 15 years and
noncompete agreements are being amortized over the term of the contracts.
The recoverability of carrying values of intangible assets is evaluated on a
recurring basis. The primary indicators are current or forecasted
profitability of the related business.
- 13 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Income Taxes
The Company records its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires the use of the liability method for financial reporting purposes.
Deferred and prepaid taxes are provided for on temporary differences in the
basis of assets and liabilities that are recognized in different periods for
financial and tax reporting purposes.
Earnings Per Share
Basic earnings per share amounts have been computed based on the weighted
average number of common shares outstanding. Diluted earnings per share
amounts reflect the increase in weighted average number of common shares
outstanding that would result from the assumed exercise of outstanding
options, calculated using the treasury stock method.
Revenue Recognition
ECAC recognizes income resulting from the sale of service contract
portfolios when title to these contracts is assigned to the purchaser. The
Company recognizes revenue from bank services pursuant to the terms of
service agreements that are based upon a percentage of sales volume
transacted by the merchant.
Talidan recognizes revenue from telephone sales on a monthly basis in
accordance with the service contracts it is party to. The monthly revenue is
based on the number of minutes of calls that are processed.
Victoria recognizes revenue monthly based on food and beverage sales at its
Miami, Florida restaurant.
ACC Telecom recognizes revenue from telephone sales and service when the
equipment is installed or service is provided.
- 14 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Revenue Recognition - continued
TimeCast, ECAC Europe, and PTT revenues were not material for the year ended
December 31, 1997. DAR revenues were not material for the year ended
December 31, 1996.
Stock-Based Compensation
Compensation costs for stock options are measured as the excess, if any, of
the quoted market price of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation for stock
awards is recorded based on the quoted market value of the Company's stock
at the time of grant.
Translation of Foreign Currencies
Assets and liabilities recorded in functional currencies other than U.S.
dollars are translated into U.S. dollars at the year-end rate of exchange.
Revenue and expenses are translated at the weighted-average exchange rates
for the year. The resulting translation adjustments are charged or credited
directly to a separate component of stockholders' equity. As of December 31,
1997 and 1996, there was no material adjustment required for foreign
currency translation.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Newly Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(SFAS 130), which is effective for fiscal years beginning after December 15,
1997. The Statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted SFAS 130 in the
fiscal year beginning January 1, 1998.
- 15 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Newly Issued Accounting Standards - continued
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), which is effective for fiscal
years beginning after December 15, 1997. The statement establishes revised
standards under which an entity must report business segment information in
its financial statements. The Company has adopted SFAS 131.
NOTE B - ACQUISITIONS
ACC Telecom
On May 18, 1998, with an effective date of February 1, 1998, the Company
acquired all of the outstanding stock of ACC Telecom for consideration of
$1,114,962 consisting of a $1,000,000 note payable in quarterly installments
over five years, plus 200,000 shares of the Company's Series A preferred
stock. After a two year vesting period, this preferred stock is convertible
into the greater of $2,000,000 worth or 2,000,000 shares of the Company's
common stock. In the event the Company declares a common stock dividend, or
the market price of the Company's common stock exceeds $2.00 per share, the
preferred stock may be converted prior to the end of the two year vesting
period.
PTT and Talidan
On September 29, 1997, the Company acquired all of the outstanding stock of
PTT and Talidan from Tiller Holding Limited ("Tiller") for an aggregate
price of $5,830,789 comprised of 19,340,000 shares of the Company's common
stock, warrants for five million shares, and options for shares valued at $5
million, exercisable at $0.001 per share, with a related put option valued
at $3,756,574. Management has reserved 100% of its treasury shares to
fulfill its obligation under the options.
The Agreement with Tiller also provides that the Company shall have a three
year right of first refusal for future dispositions by Tiller of companies
in the telecommunications industry.
- 16 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS - Continued
Victoria
On September 29, 1997, the Company acquired 100% of the stock of Victoria
and the assets of Jane Management Corporation (Collectively "Victoria"). The
agreement was effective August 18, 1997. Victoria operates the Victoria
Station restaurant in Miami, Florida. Consideration for the acquisitions was
cash of $140,000 and a note for $185,000, payable not later than January 15,
1998, plus 25,000 shares of the Company's stock valued at $18,750 ($0.75 per
share).
The above transactions have been recorded under the purchase method of
accounting and, accordingly, the results of operations of PTT and Talidan
from September 29, 1997 are included in the accompanying consolidated
financial statements. The operations of Victoria commenced August 18, 1997.
The fair value of assets acquired and liabilities assumed are summarized as
follows:
PTT Talidan Victoria
Current assets $ 16,000 $ 575,379 $ -
Property, plant and
equipment 32,000 - 225,000
Other assets - 3,341 75,000
Goodwill 1,699,315 4,471,513 43,750
Liabilities (745,600) (221,159) -
---------- ---------- --------
Purchase price $1,001,715 $4,829,074 $343,750
========= ========= =======
- 17 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS - Continued
ECAC and DAR
On May 3, 1996, the stockholders of the Company authorized a reverse stock
split of the Company's common stock so that each ten shares issued and
outstanding became one share of common stock. On the same day, the
stockholders approved the exchange of 8,350,000 of the Company's common
stock in a transaction that has been recorded as a reverse acquisition
with ECAC and DAR as the acquirers. Upon such exchange, the stockholders
of ECAC and DAR owned approximately 94% of the issued and outstanding
common stock of the Company and the Company's current stockholders
retained approximately 6%. Because of the nature of the transaction, no
goodwill has been recorded.
The following table reflects unaudited pro forma combined results of
operations of the Company and the acquisition of Talidan on the basis that
the acquisition had taken place at the beginning of the year for each of
the years presented:
1997 1996
----------- ----------
Revenues $11,180,677 $9,872,538
=========== ==========
Income from continuing operations $ 2,468,857 $ 462,049
Loss from discontinued operations (100,330) -
----------- ----------
Net income $ 2,368,527 $ 462,049
=========== ==========
Earnings per common share:
Basic
Continuing operations $ 0.08 $ 0.02
Discontinued operations - -
----------- ----------
Net income $ 0.08 $ 0.02
=========== ==========
Diluted
Continuing operations $ 0.08 $ 0.02
Discontinued operations - -
----------- ----------
Net income $ 0.08 $ 0.02
=========== ==========
- 18 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS - Continued
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1996 or
at the beginning of 1997 or of future operations of the combined companies
under the ownership and management of the Company.
NOTE C - DISPOSITIONS
On January 31, 1998, the Company entered into an agreement to sell the
outstanding shares of ECAC, its credit card processing subsidiary.
Consideration for the sale was $100,000 that was paid at closing. The
Company realized a gain on sale of the stock of approximately $1.7
million.
- 19 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - DISPOSITIONS - Continued
The Company has entered into a joint venture with the purchaser of ECAC
and a bank, whereby the Company receives a distribution of 40% of the
gross profit arising from the services sold to merchants that the Company
is instrumental in recruiting. The Company has the authority to direct
these customers to other financial institutions without the joint venture
partner's consent. Currently there is one and one half full time
equivalent employees of the Company devoted to the expansion of the
customer base. Revenues realized by the Company approximate the direct
cost of the Company's employees.
On January 6, 1998, the Company entered into an agreement to sell the
outstanding shares of ECAC Europe. The Company realized a gain on the sale
of stock of approximately $250,000. The Company has received a note
bearing interest at 6% as consideration. This note is due in June 1999.
On September 15, 1997, the Company's Board of Directors declared a
distribution of 100% of the common shares of TimeCast to the Company's
common shareholders of record at the close of business on September 15,
1997 (the "Spin-Off"). Common shares were distributed on the basis of one
share of TimeCast for every three shares of the Company's common stock
held by each shareholder.
The accumulated deficit of $99,330 attributable to TimeCast's operations
has been eliminated as a result of the spin-off and additional paid-in
capital has been increased accordingly.
Summarized income statement information relating to TimeCast's results of
operations (as reported in discontinued operations) is as follows:
Royalty income $ 5,400
Operating loss (100,330)
Net loss (100,330)
- 20 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - DISPOSITIONS - Continued
Sale of Certain Talidan Assets
On June 22, 1998 the Company sold to a company affiliated with one of its
directors for $2,340,000 the rights to certain telephone numbers, line
access, and advertising materials used in operations in South America for
a note. The lines sold consisted of those used for the late night adult
entertainment component of Talidan's operations. In addition to the sale
of the telephone lines, the Company agreed to release of certain
consultants to the Company from their covenant not to compete with the
Company. Sales related to this aspect of Talidan's operations were
approximately $200,000 at June 30, 1998 (unaudited) and $400,000 for the
year ended December 31, 1997. The Company has allocated $600,000 of the
note received to sale of the telephone lines and the balance of $1,740,000
has been allocated to the buy out of the covenant not to compete. The
Company charged $117,930 of purchased goodwill attributable to these lines
to operations. The note receivable requires four equal quarterly payments
of principal and interest. Payments begin not later than December 22,
1998. The accrues interest at 7%.
NOTE D - CERTIFICATE OF DEPOSIT - RESTRICTED
At December 31, 1997, the Company maintained a $400,000 certificate of
deposit, which was redeemed in 1998, that was assigned as collateral for a
note payable to First Mariner Bank.
The carrying value of the certificate of deposit approximates market value
at December 31, 1997.
NOTE E - LOANS RECEIVABLE - OFFICERS AND EMPLOYEES
The Company made advances to and has receivables from officers and
employees that amount to $301,201 as of December 31, 1997 and $123,773 at
June 30, 1998 (unaudited). The advances are non-interest bearing and do
not have a specified repayment date. These obligations have been reflected
as non-current assets.
- 21 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997
and June 30, 1998:
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
<S> <C> <C>
Vehicles $ 4,170 $ 214,999
Computer equipment and software 189,129 859,567
Furniture and office equipment 231,160 267,699
Leasehold improvements 40,000 40,000
Equipment held for lease 121,800 -
-------- ----------
Total property and equipment 586,259 1,382,265
Less accumulated depreciation and
amortization 102,042 286,414
-------- ----------
Property and equipment, net $484,217 $1,095,851
======== =========
</TABLE>
NOTE G - LEASE AGREEMENTS
The Company has entered into operating leases for office space in
Maryland, Florida and the United Kingdom. The lease terms range from 5 to
6 years and expire at various dates through March 2003. Total rent expense
charged to operations for the years ended December 31, 1997 and 1996 was
$45,623 and $40,048, respectively. Rent for the six months ended June 30,
1998 and 1997 (unaudited) was $134,628 and $34,786, respectively.
- 22 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE G - LEASE AGREEMENTS - Continued
The following is a schedule by year of base rentals due on operating
leases that have initial or remaining lease terms in excess of one year as
of December 31, 1997 and June 30, 1998:
(Unaudited)
Year December 31, 1997 June 30, 1998
---- ----------------- -------------
1998 $165,988 $184,260
1999 169,382 368,835
2000 172,405 349,588
2001 175,779 280,425
2002 144,574 157,095
NOTE H - LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1997 and June
30, 1998:
(Unaudited)
December 31, 1997 June 30, 1998
----------------- -------------
Convertible note $ 250,000 $ -
Envoy Medical Corporation 109,786
Treasury stock purchase 151,000 151,000
First Mariner Bank 398,665 -
Security Financial and Investment
Corporation 49,391 -
Various individuals 366,155 24,127
First Union Line of Credit - 85,555
Union Planter's Bank - 185,000
Other notes payable - 262,400
---------- --------
1,324,997 708,082
Less current maturities 1,155,385 408,447
---------- --------
$ 169,612 $299,635
========= =======
- 23 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE H - LONG-TERM DEBT - Continued
On November 19, 1997, the Company issued a convertible note payable for
cash in the amount of $250,000. The note bears interest at 10% and matures
on November 18, 1998. Interest is payable in semi-annual installments
beginning July 1, 1998. The note is convertible into shares of common
stock of the Company. The number of shares of common stock issuable upon
conversion of the note equals the lesser of (a) the closing price of the
shares of common stock on November 19, 1997 or (b) the amount of the
outstanding principal at the time a conversion notice is given, divided by
the conversion price, which is defined as seventy percent of the average
closing bid prices of the Company's common stock as reported by the NASD
over-the-counter bulletin board for the five consecutive trading days
immediately preceding the date of conversion. In May, 1998, the note was
converted into 1,206,250 shares of common stock at $.20 per share.
The Company is obligated on a note payable to Envoy Medical Corporation
with an outstanding principal balance at December 31, 1997 of $109,786.
This note bears interest at prime plus 3% and is due in June 1998. Monthly
payments on the note are the greater of $7,000 or twenty percent of
revenue earned from a certain customer. Payment on the note was overdue as
of December 31, 1997 and therefore the entire balance is due on demand.
The loan was paid in full as of June 30, 1998.
The Company is obligated on a note to the former shareholders of ECAC in
connection with the original acquisition. The unpaid balance of the note
is $151,000 at December 31, 1997 and June 30, 1998.
On June 11, 1997, the Company entered into a loan agreement with First
Mariner Bank. The loan has a balance of $398,665 at December 31, 1997. The
loan requires monthly interest payments at 7.26%. The loan was paid in
full on June 5, 1998. The loan is collateralized by a $400,000 certificate
of deposit.
The Company has a note payable to Security Financial and Investment
Corporation. The outstanding principal balance at December 31, 1997 was
$49,391, which bears interest at 12% per annum. The loan was paid in full
as of June 30, 1998.
- 24 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE H - LONG-TERM DEBT - Continued
The Company has notes payable to several individuals that have outstanding
balances aggregating $366,155 at December 31, 1997 and $24,127 at June 30,
1998 (unaudited). The notes are due on demand and accrue interest at rates
that vary from 10% to 20%.
In connection with the acquisition of Victoria Station restaurant, the
Company was obligated on a $185,000 note to a former shareholder of
Victoria Station, which was refinanced in 1998 with Union Planter's Bank.
The bank note bears interest at prime + 2 % (10.5% as of June 30, 1998)
and is payable in equal installments of $3,083 per month starting in May,
1998, with the balance due in full on January 15, 2001. The entire balance
of $185,000 was outstanding at June 30, 1998 (unaudited).
The Company is obligated on two revolving credit lines established with
First Union Bank used for the benefit of ACC Telecom. Both lines are due
on demand. One of the lines has an outstanding balance as of June 30, 1998
of $26,000 and bears an interest rate of 10.5% (prime + 2%). The other
line has a balance of $59,555 as of June 30, and bears interest at 9.0%.
The Company is obligated under several notes payable due to former
shareholders of the Company's PTT subsidiary. One of these former
shareholders, Applied Knowledge Limited, is currently controlled by
shareholders of Carnegie. The total amount outstanding on these notes at
the end of the year was (pound)131,000 or $209,600 at the June 30, 1998
exchange rate. These are non-interest bearing notes and are payable on
demand.
The Company is obligated under notes payable to several other individuals
on behalf of PTT. The total value of these notes at June 30, 1998 was
(pound)33,000 or $52,800 at the June 30, 1998 exchange rate. These are
non-interest bearing notes and are payable on demand.
- 25 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE H - LONG-TERM DEBT - Continued
Scheduled annual maturities of long-term debt are as follows:
(Unaudited)
Year December 31, 1997 June 30, 1998
---- ----------------- -------------
1998 $1,155,385 $408,447
1999 35,457 45,689
2000 10,469 46,865
2001 11,796 48,194
2002 13,293 49,688
Thereafter 98,597 109,199
The aggregate carrying value of the long-term debt at December 31, 1997
and June 30, 1998 approximates market value.
NOTE I - NOTES PAYABLE TO STOCKHOLDER AND AFFILIATES
Note payable to stockholder and affiliate are as follows:
(Unaudited)
December 31, 1997 June 30, 1998
----------------- -------------
Notes payable to Strongput
International, LLC $180,484 $ 239,889
Notes payable to individuals 257,113 162,007
Note payable to Barry and Susan Hunt - 781,728
-------- ----------
$437,597 $1,183,624
======= =========
At December 31, 1997 the Company was obligated on a 10% note payable to a
stockholder in the amount of $185,000, issued in connection with the
acquisition of Victoria. This note was paid in January 1998.
- 26 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE I - NOTES PAYABLE TO STOCKHOLDER AND AFFILIATES - Continued
The Company is obligated on a note due Strongput International LLC, a
management company partially owned by a shareholder. The note has an
unpaid principal balance of $180,484 at December 31, 1997 and $239,889 at
June 30, 1998 (unaudited). The note is due on demand and accrues interest
at 12% per annum.
The Company has other notes payable to several affiliated individuals and
entities with aggregate outstanding balances of $257,113 at December 31,
1997 and $162,007 at June 30, 1998 (unaudited). These notes are due on
demand and accrue interest at rates that vary from 10% to 12%.
In connection with the acquisition of ACC Telecom in February, 1998, the
Company signed a $1,000,000 million non-interest bearing note, payable in
quarterly payments over five years. At the time of the acquisition, the
note was valued at $814,962, based on a discount at the average
incremental borrowing rate of Carnegie International (8.37%) for the
period of the note. As of June 30, 1998 (unaudited), the outstanding
balance on the note is $781,728.
Scheduled annual maturities of these obligations are as follows:
(Unaudited)
Year December 31, 1997 June 30, 1998
----------- ----------------- -------------
1998 $622,597 $470,463
1999 - 145,956
2000 - 158,562
2001 - 172,256
2002 - 187,132
Thereafter - 49,255
- 27 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE J - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
(Unaudited)
December 31, 1998 June 30, 1998
----------------- -------------
Accounts payable $1,090,660 $ 986,366
Other accrued liabilities 161,308 158,474
Accrued interest 22,096 28,570
$1,274,064 $1,173,410
========= ==========
NOTE K - CAPITAL STOCK
Preferred Stock
In 1998, the Company issued 200,000 shares of non-cumulative preferred
stock in conjunction with the acquisition of ACC Telecom. This stock was
valued at $0.15 per share at the time of issuance. After a two year
vesting period, this preferred stock is convertible into the greater of
$2,000,000 worth or 2,000,000 shares of the Company's common stock. In
the event the Company declares a common stock dividend, or the market
price of the Company's common stock exceeds $2.00 per share, the
preferred stock may be converted prior to the end of the two year vesting
period. In the event of conversion the common stock is subject to
restrictions under Section 144 of the Securities Act of 1934.
Common Stock
During 1997, the Company entered into various transactions that included
issuance of its common stock. The number of shares issued in each
transaction was determined through negotiations among the parties. The
per share value of stock exchanged varied among transactions that were
similar in nature, based on the time the terms were agreed upon by the
parties. Exclusive of the shares exchanged in the purchase of PTT and
Talidan, per share values ranged from $0.20 to $0.80, during 1997. The
shares exchanged in the acquisitions of PTT and Talidan were subject to
restriction and blockage discounts resulting in a value of $0.11.
- 28 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE K - CAPITAL STOCK - Continued
Common Stock - continued
Of the 43,360,853 common shares issued as of June 30, 1998 (unaudited),
33,003,803 shares are restricted pursuant to Section 4 (2) of the
Securities Act of 1933 as amended, and 5,831,683 shares were issued
pursuant to Rule 504 of the Securities Act of 1934.
Treasury Stock
During 1997, the Company acquired 1,700,000 shares of common stock for
$800,000 ($.47 per share) in cash and 1,078,019 shares of its common
stock in settlement of notes receivable for $481,000 ($.45 per share)
from affiliates.
All treasury shares have been reserved to cover the options issued in
connection with the acquisition of Talidan.
Stock Options
The Company has entered into an option agreement with Tiller in
conjunction with the purchase of Talidan and PTT. This option, which
expires in 2001, provides that Tiller may purchase additional shares of
the Company's common stock at a price of one tenth of a cent ($.001) per
share. The number of shares that may be purchased will be determined by
dividing $2.5 million by the average market price of the common stock of
the Company as traded in the thirty days prior to exercise of the option.
The Company has also issued an option to Tiller to purchase shares in
exchange for the right of first refusal (The Preemptive Agreement) for
any telecommunication company that Tiller owns and offers for sale. This
option, which expires in 2000, provides that Tiller may purchase
additional shares of Company's common stock at a price of one tenth of a
cent ($.001) per share. The number of shares that may be purchased will
be determined by dividing $2.5 million by the average market price of the
common stock of the Company as traded in the thirty days prior to
exercise of the option.
- 29 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE K - CAPITAL STOCK - Continued
Stock Options - continued
The foregoing stock options have a Put Option associated with them. To
the extent that the options are not fully exercised on the third
anniversary of the issue date, the holder may, for a period of thirty
days following such anniversary, exercise the remainder of the option, in
whole or in part. The Company may be required by the holder to purchase
the resultant number of shares as determined in the agreement. The
Company has recorded its liability under the Put Option of $3,756,574
which represents the discounted value of the stock options utilizing a
10% discount rate at December 31, 1997 and $3,944,403 at June 30, 1998.
Stock Options Granted to Officers
As part of the Company's employment agreement with its Chief Executive
Officer, options for a total of 400,000 shares were issued on May 15,
1997. These options have an exercise price equal to the fair market value
at the date of grant. These 400,000 options vest as follows: 150,000 on
May 15, 1997, 150,000 on December 31, 1997, and 100,000 on September 1,
1998. Additional options for 500,000 shares covered have an exercise
price of $0.10 per share and vest upon the Company successfully
completing an offering of 5 million shares of Company stock or
$5,000,000, whichever is lower, or achieving a $1,000,000 net profit at
the end of a fiscal year. As of December 31, 1997 and June 30, 1998 none
of the options had been exercised.
On April 8, 1998 the Chief Operating Officer of the Company was granted
options to purchase 1,000,000 shares of common stock of the corporation
at an exercise price of $.45 per share. These options will vest when the
company achieves an operating pretax income of at least $1,000,000 for
each of two consecutive quarters. These options expire on December 31,
1999. Additional options for 500,000 shares covered have an exercise
price of $0.10 per share and vest upon the Company successfully
completing an offering of 5 million shares of Company stock or
$5,000,000, whichever is lower, or achieving a $1,000,000 net profit at
the end of a fiscal year. As of December 31, 1997 and June 30, 1998
(unaudited) none of the options had been exercised.
- 30 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE K - CAPITAL STOCK - Continued
Stock Options Granted to Officers - continued
---------------------------------
On April 8, 1998 the Secretary of the Company was granted options to
purchase 250,000 shares of Common stock of the corporation at an exercise
price of $0.45 per share. In addition, in the event the Company completes
a public offering of at least 5 million shares of common stock or
realized at least $5,000,000 through such an offering the Secretary will
have the option to purchase an additional 100,000 of common stock for
$0.10 per share. As of December 31, 1997 and June 30, 1998 (unaudited)
none of the options had been exercised.
The following table summarizes option activity during 1997:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
------ -----
<S> <C>
Options outstanding at beginning of year - $ -
Options exercised - -
Options granted 11,108,334 0.03
Options forfeited/expired - -
---------- -------
Options outstanding at end of year 11,108,334 $ 0.03
======
Option price range at end of year $0.001 to $0.23
Option price range for exercised shares $ -
Options available for grant at end of year $ -
Weighted-average fair value of options,
granted during the year $ 0.12
</TABLE>
- 31 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE K - CAPITAL STOCK - Continued
The following table summarizes options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted average
Number Weighted average remaining
outstanding Exercise prices exercise prices contractual life
<S> <C> <C> <C> <C> <C> <C>
11,108,334 $0.001 to $0.23 $0.03 3.31
</TABLE>
The fair value of each option grant is estimated on the date of grant,
using the Black-Scholes options-pricing model, with the following
weighted-average assumptions used for grants in 1997: risk free interest
rates that range from 5.90% to 6.48%; expected volatility rate of 200%,
and expected lives of 2 to 4 years.
The following table presents the pro forma 1997 earnings if the fair
values of options granted had been recognized as compensation expense on
a straight-line basis over the vesting period of the grant:
Pro forma
Net earnings $ 1,507,368
Earnings per share
Basic $ 0.07
Diluted $ 0.06
During 1997 and 1996, 2,500,300 and 7,224,786 shares of the Company's
common stock were issued as compensation for various consultants,
attorneys, and others at $.25 and $.09 per share or $609,403 and $665,661,
respectively.
- 32 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - INCOME TAXES
Earnings before income taxes is comprised as follows at December 31, 1997:
(Unaudited)
Year ended Six months ended
December 31, June 30,
------------------------ -------------------------
1997 1996 1998 1997
---------- --------- ---------- ----------
Domestic $1,665,465 $(709,347) $1,130,311 $2,620,172
Foreign 65,567 - 2,355,647 -
---------- --------- ---------- ----------
$1,731,032 $(709,347) $3,485,958 $2,620,172
========= ======== ========= =========
The Company's provision for income taxes is comprised as follows:
(Unaudited)
Year ended Six months ended
December 31, June 30,
------------------------ -------------------------
1997 1996 1998 1997
---------- --------- ---------- ----------
Domestic $ 50,867 $ - $ 635,047 $ 394,075
Foreign - - - -
--------- --------- ---------- ----------
$ 50,687 $ - $ 635,047 $ 394,075
========== ======== ========= =========
- 33 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - INCOME TAXES - Continued
The Company's provision for income taxes differs from the anticipated
United States statutory rate. Differences between the statutory rate and
the Company's provision are as follows at December 31, 1997:
December June
Taxes at statutory rate 34% 34%
Benefit of net operating loss
carryforward (28) (11)
Foreign tax rate differential (3) (3)
------ -----
3% 20%
====== =====
Deferred tax liabilities have not been recognized for basis differences
related to investments in the Company's United Kingdom subsidiaries. These
differences, which consist primarily of unremitted earnings intended to be
indefinitely reinvested, aggregated approximately $125,000 at December 31,
1997 and $1,111,000 at June 30, 1998. The Company has not determined the
amount of unrecognized deferred tax liabilities. Income taxes at June 30,
1998 include $364,531 (unaudited) attributable to foreign operations. This
provision is attributable to management's intent to transfer a portion of
the funds earned through foreign operations to the United States.
Talidan is chartered in the British Virgin Islands, and is not subject to
tax in this jurisdiction. Additionally, the point of service is located in
countries in Africa that do not impose income taxes.
- 34 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - INCOME TAXES - Continued
Deferred taxes are comprised as follows at December 31, 1997 and June 30,
1998
(Unaudited)
1997 1998
Noncurrent tax asset
Domestic net operating loss
Carryforwards $639,378 $ 512,935
Basis difference in fixed assets (43,641) (43,641)
-------- ---------
Noncurrent deferred tax asset 595,737 469,294
Valuation allowance (595,73) (469,294)
Net deferred tax asset $ - $ -
======= ========
NOTE M - EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the
basic and diluted earnings per share (EPS) computations.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1997 1996
---------------------------------------- ----------
Income from
continuing Discontinued
operations operations Net Income Net income
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available to
common stockholder $ 1,680,165 $ (100,330) $ 1,579,835 $ (709,347)
========== ========== ========== =========
Weighted average number of
common shares outstanding 22,164,134 22,164,134 22,164,134 9,207,264
Basic EPS $ 0.08 $ (0.0) $ 0.07 $ (0.08)
========== =========== ========== =========
</TABLE>
- 35 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE M - EARNINGS PER SHARE - Continued
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1997 1996
---------------------------------------- ----------
Income from
continuing Discontinued
operations operations Net Income Net income
<S> <C> <C> <C> <C> <C> <C>
Diluted EPS
Income (loss) available to
common stockholder $ 1,680,165 $ (100,330) $ 1,579,835 $ (709,347)
Income impact of assumed
conversions - - - -
----------- ----------- ----------- ----------
Income (loss) available to
common stockholders on a
diluted basis $ 1,680,165 $ (100,330) $ 1,579,835 $ (709,347)
========== ========== ========== =========
Weighted average number of
common shares outstanding 22,164,134 22,164,134 22,164,134 9,207,264
Effect of dilutive securities -
stock options 912,489 - 912,489 -
----------- ----------- ----------- ----------
Adjusted weighted average
number of common shares
outstanding 23,076,623 22,164,134 23,076,623 9,207,264
========== ========== ========== =========
Diluted EPS $ 0.07 $ - $ 0.07 $ (0.08)
========== ========== ========== =========
</TABLE>
During 1997, options to purchase 7,159,720 shares at prices ranging
from $0.10 to $0.48 per share were outstanding, which were not included
in the computation of diluted EPS from discontinued operations since
inclusion of such shares would be antidilutive.
- 36 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE N - COMMITMENTS AND CONTINGENCIES
Financial Services Agreement
ECAC had a financial services agreement with Old Kent Bank for the
processing of credit card transactions which expired on December 31, 1994;
however, the parties continued to operate under the terms provided by the
expired agreement until October 1, 1996. On October 1, 1996, ECAC entered
into a settlement agreement under which ECAC's debt to Old Kent Bank was
liquidated and Old Kent Bank paid ECAC $325,000 as a final settlement. Of
the total debt forgiven, $513,529 related to amounts due in 1997 under
these contracts and were recognized as revenue in 1997.
On April 16, 1997, ECAC entered into an assignment agreement with First
USA Merchant Services, Inc. (First USA), under which ECAC agreed to
assign, sell, transfer and convey to First USA, and First USA agreed to
purchase from ECAC, all the Company's rights with respect to payments and
fees related to certain merchant accounts under a prior Independent Sales
Organization Marketing Agreement dated August 16, 1996. The consideration
paid by First USA was $3,700,000. The revenue recognized in this
transaction has been included in operating income for 1997. The company
continues to market credit card processing services and the building of
processing portfolios that may be packaged and sold in the future.
Litigation
As of December 31, 1997 and June 30,1998 the Company and its subsidiaries
were involved in two lawsuits involving the 1996 acquisitions and stock
transactions related to those acquisitions. In the opinion of management
and its counsel, these matters should be resolved favorably and will not
materially affect the financial position, results of operations or
liquidity of the Company.
Both of these suits were settled subsequent to June 30, 1998 for a total
of $17,952 of cash and the issuance of 353,000 shares of common stock
which is restricted under Section 144 of the Securities Act of 1934.
- 37 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE N - COMMITMENTS AND CONTINGENCIES - Continued
Employment Agreements
The Company has entered into an employment agreement with a key employee.
The agreement is for a two-year period commencing on May 15, 1997 and will
be extended on the same terms unless sooner terminated. In the event the
Company terminates without cause the employment of this employee, the
employee shall receive an amount equal to one year's salary in addition to
the balance of the salary due under the terms of the agreement. The
agreements contain a provision which cause all options granted through
this agreement to immediately vest if certain defined changes to the
Company's ownership occur.
The minimum amounts due under the agreement during the succeeding two-year
period, exclusive of contingent incentive compensation and salary
adjustments, are as follows:
Year Amount
1999 $125,000
2000 46,900
NOTE O - YEAR 2000 COMPUTER SYSTEMS COMPLIANCE AND CONTINGENCY
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in operations.
The Company does business with customers that rely on computers and
computer based telephone equipment. The Company does not have any basis to
draw a conclusion regarding the level of compliance achieved by these
businesses. In the event that either suppliers of services or customers
experience significant problems as a result of the Y2K problem it will
most likely have a significant effect on the Company's sales and ability
to purchase necessary services. The Company cannot quantify what the
potential loss of revenue and disruption to supply will be.
- 38 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE P - RELATED PARTY TRANSACTIONS
The Company was involved in various transactions with related parties.
Legal fees of approximately $187,000 and $3,000 were paid to a firm of
which a stockholder is the managing partner for the years ended December
31, 1997 and 1996, respectively.
The Company acquired 1,078,019 shares of its common stock in settlement of
notes receivable from stockholders. ECAC realized $152,500 of additional
paid-in-capital from the forgiveness of a note payable to a stockholder in
1997.
The Company in 1998 sold the rights to certain telephone lines and
intangibles to a company affiliated with one of its Directors (see Note
C). The Company holds a note receivable related to this sale in the amount
of $2,340,000 (unaudited).
The Company made advances to and has receivables from officers and
employees that amount to $301,201 as of December 31, 1997 and $123,733 at
June 30, 1998 (unaudited). The advances are non-interest bearing and do
not have a specified repayment date. Therefore, these obligations have
been shown as non-current assets.
As of December 31, 1997, the Company is obligated on a note payable
outstanding to a stockholder in the amount of $185,000, issued in
connection with the acquisition of Victoria. In January 1998, the note was
paid with the proceeds of a bank loan.
The Company is obligated on a note to Strongput International LLC, a
management company partially owned by a shareholder. The note has an
unpaid principal balance of $180,484 at December 31, 1997 and $239,889 at
June 30, 1998 (unaudited). The note is due on demand and accrues interest
at 12% per annum.
The Company has other notes payable to several affiliated individuals and
entities with aggregate outstanding balances of $257,113 at December 31,
1997 and $162,007 at June 30, 1998 (unaudited). These notes are due on
demand and accrue interest at rates that vary from 10% to 12%. Certain of
these notes are included in long term debt.
- 39 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE Q - FINANCIAL INFORMATION FOR BUSINESS SEGMENTS
In 1997, the Company operated in three industry segments:
telecommunications, financial services and restaurant. In 1996, the
Company operated in only the financial services industry.
Operating profit (loss) is income from operations before general corporate
expense. General corporate expense consists primarily of management
services incurred by Carnegie as the holding company for its wholly owned
subsidiaries.
Identifiable assets by industry segment are those assets that are used in
the Company's operations in each industry segment. Corporate assets are
principally cash and cash equivalents, capitalized acquisition costs,
notes receivable and certain fixed assets in Carnegie's office.
A summary of the Company's operations by industry segment follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------------------
Financial Tele-
Services communications Restaurant Corporate Consolidated
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $5,056,223 $1,216,912 $672,657 $ - $6,945,810
========= ========= ======= =========== =========
Operating profit (loss) $3,150,423 $ 63,207 $ 8,402 $(1,448,417) $1,763,615
Other income (expense) (16,434) 2,360 (3,092) (15,417) (32,583)
---------- ---------- -------- ---------- ----------
Income (loss) before
income taxes $3,123,989 $ 65,567 $ 5,310 $(1,463,835) $1,731,032
========= ========= ======= ========== =========
Identifiable assets $ 420,786 $6,981,506 $486,099 $ 948,942 $8,837,333
========= ========= ======= ========== =========
Depreciation of property,
plant and equipment $ 31,929 $ 6,400 $ 12,377 $ 6,939 $ 57,645
========= ========= ======= ========== ========
Amortization of goodwill $ - $ 102,847 $ 4,250 $ 10,522 $ 117,619
========= ========= ======= ========== ========
Capital expenditures $ 11,012 $ 100,000 $ 18,032 $ 40,964 $ 170,008
========= ========= ======= ========== ========
</TABLE>
- 40 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE Q - FINANCIAL INFORMATION FOR BUSINESS SEGMENTS - Continued
<TABLE>
<CAPTION>
1996
------------------------------------------
Financial
Services Corporate Consolidated
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $3,256,291 $ - $3,256,291
========= ========== =========
Operating profit (loss) $ 682,011 $(1,172,439) $ (490,428)
Other income (expense) 7,144 (226,063) (218,919)
---------- ----------- ----------
Income (loss) before income taxes $ 689,155 $(1,398,502) $ (709,347)
========= ========== =========
Identifiable assets $ 44,604 $ 53,781 $ 498,385
========= ========== =========
Depreciation of property, plan and
equipment $ 20,066 $ 1,018 $ 21,084
========= ========== =========
Amortization of goodwill $ - $ - $ -
========= ========== =========
Capital expenditures $ 14,473 $ 5,086 $ 19,559
========= ========== =========
</TABLE>
In 1997, the Company operated in three geographic regions. In 1996, all of the
Company's operations were domestic.
- 41 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE Q - FINANCIAL INFORMATION FOR BUSINESS SEGMENTS - Continued
A summary of the Company's operations by geographic region follows:
<TABLE>
<CAPTION>
South United
America Kingdom Domestic Consolidated
<S> <C> <C> <C> <C>
Operating revenues $ 1,202,512 $ 14,400 $ 5,728,898 $ 6,945,810
=========== ========= =========== ===========
Operating profit (loss) $ 138,525 $ (75,318) $ 1,700,408 $ 1,763,615
Other income (expense) 2,360 - (34,943) (32,583)
------------ ---------- ------------ ------------
Income (loss) before
income taxes $ 140,885 $ (75,318) $ 1,665,465 $ 1,731,032
=========== ========= =========== ===========
Depreciation of property,
plan and equipment $ - $ 6,400 $ 51,245 $ 57,645
=========== ========= =========== ===========
Amortization of goodwill $ 74,525 $ 28,322 $ 14,772 $ 117,619
=========== ========= =========== ===========
Capital expenditures $ - $ 100,000 $ 70,008 $ 170,008
=========== ========= =========== ===========
</TABLE>
NOTE R - SUBSEQUENT EVENTS
In March of 1998, the Company entered into a lease for a new corporate
headquarters in Hunt Valley, Maryland. The lease expires in 2003, requires
monthly payments of $11,007 and has stipulated rent increases of 3.5% per
year. The lease has an automatic renewal term of 5 years, unless the
landlord or Company gives other written notice.
- 42 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and in accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only
normal recurring accruals, which are necessary for a fair presentation of
the financial position, and the results of operations for the interim
periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year.
The financial statements, footnote disclosures and other information
should be read in conjunction with the financial statements and the notes
thereto for the years ended December 31, 1997 and 1996 included elsewhere
herein.
Acquisition
On February 1, 1998, the Company acquired all of the outstanding stock of
ACC Telecom for consideration of $1,314,962 consisting of a $1,000,000
million note payable in quarterly payments over five years, plus 200,000
shares of the Company's Series A preferred stock which are convertible
into the greater of $2,000,000 worth or 2,000,000 shares of the Company's
common stock after a two year waiting period (see Note B). The preferred
shares have been valued using the assumed conversion to 2,000,000 common
shares valued at $300,000 ($0.15 per share).
- 43 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS - Continued
Acquisition - continued
The above transaction has been recorded using the purchase method of
accounting and, accordingly, the results of operation of ACC Telecom from
February 1, 1998 are included in the accompanying consolidated financial
statements. The fair value of assets acquired and liabilities assumed are
summarized as follows:
Current assets $ 462,877
Property, plant and equipment 178,692
Other assets 4,360
Goodwill 1,005,491
Liabilities (336,458)
----------
Purchase price $1,314,962
=========
Disposition
On January 31, 1998, the Company entered into an agreement to sell the
outstanding shares of ECAC, its credit card processing subsidiary.
Consideration for the sale was $100,000 that was paid at closing. The
Company realized a gain on sale of the stock of approximately $1.7
million.
On January 6, 1998, the Company entered into an agreement to sell the
outstanding shares of ECAC Europe. The Company realized a gain on the
sale of stock of approximately $250,000.
- 44 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS - Continued
Earnings Per Share
The following table reconciles the numerators and denominators of the
basic and diluted earnings per share (EPS) computations.
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common stockholder $ 2,850,911 $ 2,226,097
=========== ===========
Weighted average number of common shares
outstanding 40,793,174 17,381,416
Basic EPS $ 0.07 $ 0.13
=========== ===========
Diluted EPS
Income available to common stockholder $ 2,850,911 $ 2,226,097
Income impact of assumed conversions - -
------------ ----------
Income available to common stockholders
on a diluted basis $ 2,850,911 $ 2,226,097
=========== ===========
Weighted average number of common shares
outstanding 40,793,174 17,381,416
Effect of dilutive securities - stock options 563,463 74,083
Effect of dilutive securities - convertible preferred
stock 1,467,711 -
------------ ----------
Adjusted weighted average number of
common shares outstanding 42,797,348 17,455,499
Diluted EPS $ 0.07 $ 0.13
=========== ===========
</TABLE>
- 45 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments
In the first six months of 1998, the Company operated in three industry
segments: telecommunications, financial services, and restaurant. In the
first six months of 1997, the Company operated only the financial services
industry.
Operating Profit (Loss) is income from operations before general corporate
expense. General corporate expense consists primarily of management
services incurred by Carnegie as the holding company for its wholly owned
subsidiaries.
Identifiable assets by industry segment are those assets that are used in
the Company's operations in each industry segment. Corporate assets are
principally cash and cash equivalents, capitalized acquisition costs,
notes receivable and certain fixed assets in Carnegie's office.
A summary of the Company's operations by industry segment follows:
<TABLE>
<CAPTION>
Six months ended June 30, 1998
------------------------------------------------------
Tele-
communications Restauran Corporate Consolidated
<S> <C> <C> <C> <C>
Operating revenues $ 5,942,091 $939,266 $ - $ 6,881,357
========== ======= ========== ==========
Operating profit (loss) $ 2,619,645 $ 62,721 $(1,163,441) $ 1,518,925
Other income (expense) (8,705) (3,587) 1,979,325 1,967,033
----------- -------- ----------- -----------
Income before income taxes $ 2,610,940 $ 59,134 $ 815,884 $ 3,485,958
========== ======= ========== ==========
Identifiable assets $10,932,317 $769,008 $ 2,130,609 $14,213,934
========== ======= ========== ==========
Depreciation of property,
plant and equipment $ 64,800 $ 18,502 $ 3,290 $ 86,592
========== ======= ========== ==========
Amortization of intangibles $ 201,819 $ 1,459 $ 28,628 $ 231,906
========== ======= ========== ==========
Capital expenditures $ 514,167 $ 44,644 $ 35,341 $ 594,152
========== ======= ========== ==========
</TABLE>
- 46 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments - continued
-------------------------------------------------------
The results of the operations of the credit card segment of the Company's
business have been included in the corporate segment on a net basis.
<TABLE>
<CAPTION>
Six months ended June 30, 1997
------------------------------
Financial
Services Corporate Consolidated
-------- --------- ------------
<S> <C> <C> <C>
Operating revenues $ 4,831,107 $ - $ 4,831,107
============ =========== =============
Operating profit (loss) $ 2,978,846 $ (325,995) $ 2,652,851
Other income (expense) - (32,679) (32,679)
------------- ------------ --------------
Income (loss) before income taxes $ 2,978,846 $ (358,674) $ 2,620,172
============ =========== =============
Identifiable assets $ 392,726 $ 1,187,699 $ 1,580,425
============ =========== =============
Depreciation of property, plant
and equipment $ 9,876 $ - $ 9,876
============ =========== =============
Amortization of intangibles $ - $ - $ -
============ =========== =============
Capital expenditures $ 42,355 $ - $ 42,355
============ =========== =============
</TABLE>
In the first six months of 1998, the Company operated in three geographic
regions. In the first six months of 1997, all of the Company's operations
were domestic.
- 47 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
and June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE S - NOTES TO UNAUDITED JUNE 30, 1998 AND 1997 CONSOLIDATED
FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments - continued
-------------------------------------------------------
A summary of the Company's operations by geographic region follows:
<TABLE>
<CAPTION>
Six months ended June 30, 1998
------------------------------
South United
America Kingdom Domestic Consolidated
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 4,382,552 $ 14,400 $ 2,484,405 $ 6,881,357
============== ============== ============= ==============
Operating profit (loss) $ 2,594,121 $ (70,722) $ (1,004,474) $ 1,518,925
Other income (expense) 1,172 (6,400) 1,972,261 1,967,033
--------------- --------------- -------------- ---------------
Income (loss) before
income taxes $ 2,595,293 $ (77,122) $ 967,787 $ 3,485,958
============== ============== ============= ==============
Identifiable assets $ 7,305,612 $ 2,203,871 $ 4,704,451 $ 14,213,934
============== ============== ============= ==============
Depreciation of property,
plant and equipment $ - $ 44,800 $ 41,792 $ 86,592
============== ============== ============= ==============
Amortization of intangibles $ 166,634 $ 36,644 $ 28,628 $ 231,906
============== ============== ============= ==============
Capital expenditures $ - $ 510,392 $ 83,760 $ 594,152
============== ============== ============= ==============
</TABLE>
- 48 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
SCHEDULE OF QUALIFYING ACCOUNTS AND VALUATION ALLOWANCES
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Charged
Balance to costs Charged Balance
beginning and to other end
of period expenses accounts Deductions of period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
Accumulated depreciation $ 54,273 $ 57,645 $ - $ 9,876 $ 102,042
Accumulated amortization
of intangibles - 117,619 - - 117,619
Valuation allowance on
deferred tax assets 273,808 321,929 - - 595,737
For the year ended
December 31, 1996
Accumulated depreciation 44,397 9,876 - - 54,273
Accumulated amortization
of intangibles - - - - -
Valuation allowance on
deferred tax assets - 273,808 - - 273,808
</TABLE>
- 49 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
The following pro forma unaudited condensed statements of earnings have been
prepared by taking December 31, 1997 and 1996 statements of earnings of Carnegie
International Corporation (the Company) and giving effect to the acquisition of
all of the outstanding stock of Talidan Limited (Talidan) by the Company as if
it occurred as of January 1, 1996. The revenues and results of operations
included in the following pro forma unaudited condensed statements of earnings
are not considered necessarily to be indicative of anticipated results of
operations for periods subsequent to the transaction, nor are they considered
necessarily to be indicative of the results of operations for the periods
specified had the transaction actually been completed as of January 1, 1996.
These financial statements should be read in conjunction with the notes to the
pro forma unaudited condensed statements of earnings, which follow and the
financial statements of Talidan and related notes thereto included herewith.
- 50 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------
Historical Pro forma
----------
Company Talidan adjustments Pro forma
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Operating $ 3,245,810 $ 4,234,867 $ - $ 7,480,677
Sale of service contracts 3,700,000 - - 3,700,000
-------------- ------------ --------- -----------
Total revenue 6,945,810 4,234,867 - 11,180,677
Cost of fees and sales
Processing fees 183,117 - - 183,117
Commissions 1,103,889 2,892,857 - 3,996,746
Supplies and merchant expenses 268,656 - - 268,656
Equipment related costs 28,919 - - 28,919
Royalties and commissions 5,344 - - 5,344
-------------- ------------ --------- -----------
Total costs of fees and sales 1,589,925 2,892,857 - 4,482,782
-------------- ------------ --------- -----------
Gross profit 5,355,885 1,342,010 - 6,697,895
Operating expenses (3,592,270) (57,377) (223,576) (a) (4,154,966)
-------------- ------------ -----------
(281,743) (b)
Operating income (loss) 1,763,615 1,284,633 (505,319) 2,542,929
Other income (expenses)
Interest expense (49,417) - - (49,417)
Interest income 16,834 9,378 - 26,212
-------------- ------------ --------- -----------
Total other (expense) income (32,584) 9,378 - (23,205)
-------------- ------------ --------- -----------
Income (loss) from continuing operations
before provision for income taxes 1,731,032 1,294,011 (505,319) 2,519,724
Provision for income taxes 50,867 - - 50,867
------ ------------ --------- -----------
Net income (loss) from continuing
operations 1,680,165 1,294,011 (505,319) 2,468,857
Discontinued operations (100,330) - - (100,330)
-------------- ------------ --------- -----------
Net income (loss) $ 1,579,835 $ 1,294,011 $(505,319) $ 2,368,527
============= =========== ======== ==========
Earnings (loss) per share:
Basic:
Continuing operations $ 0.08 $ 0.08
Discontinued operations (0.01) -
-------------- -----------
Net income $ 0.07 $ 0.08
============= ==========
Diluted:
Continuing operations $ 0.07 $ 0.08
Discontinued operations - -
-------------- -----------
Net income $ 0.07 $ 0.08
============== ===========
</TABLE>
- 51 -
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------
Historical Pro forma
----------
Company Talidan adjustments Pro forma
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Operating $ 3,256,291 $ 6,616,247 $ - $ 9,872,538
Sale of service contracts - - - -
-------------- ------------ --------- -----------
Total revenue 3.256,291 6,616,247 - 9,872,538
Cost of fees and sales
Processing fees 1,051,421 - - 1,051,421
Commissions 1,298,851 4,487,724 - 5,786,575
Supplies and merchant expenses 55,675 - - 55,675
Equipment related costs 99,421 - - 99,421
Royalties and commissions 16,662 - - 16,662
-------------- ------------ --------- -----------
Total costs of fees and sales 2,522,030 4,487,724 - 7,009,754
-------------- ------------ --------- -----------
Gross profit 734,261 2,128,523 - 2,862,784
Operating expenses (1,224,689) (296,863) (298,101) (a) (2,195,310)
-------------- ------------ -----------
(375,657) (b)
--------
Operating income (loss) (490,428) 1,831,660 (673,758) 667,474
Other income (expenses)
Interest expense (226,063) - - (226,063)
Interest income 7,144 13,494 - 20,638
-------------- ------------ --------- -----------
Total other (expense) income (218,919) 13,494 - (205,425)
-------------- ------------ --------- -----------
Income (loss) from continuing operations
before provision for income taxes (709,347) 1,845,154 (673,758) 462,049
Provision for income taxes - - - -
-------------- ------------ --------- -----------
Net income (loss) from continuing
operations (709,347) 1,845,154 (673,758) 462,049
Discontinued operations - - - -
-------------- ------------ --------- -----------
Net income (loss) $ (709,347) $ 1,845,154 $(673,758) $ 462,049
============= =========== ======== ===========
Earnings (loss) per share:
Basic:
Continuing operations $ (0.08) $ 0.02
Discontinued operations - -
-------------- -----------
Net income $ (0.08) $ 0.02
============= ===========
Diluted:
Continuing operations $ (0.08) $ 0.02
Discontinued operations - -
-------------- -----------
Net income $ (0.08) $ 0.02
============= ===========
</TABLE>
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<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
(a) To amortize the goodwill associated with the transaction based upon a
fifteen year life.
(b) To recognize interest expense on the Put Obligation associated with the
acquisition.
- 53 -
<PAGE>
Talidan Limited
FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1996 and
June 30, 1997 (Unaudited)
<PAGE>
Talidan Limited
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1996 and June 30, 1997 (Unaudited)
<PAGE>
C O N T E N T S
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEET 5
STATEMENT OF EARNINGS 6
STATEMENT OF RETAINED EARNINGS 7
STATEMENT OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Talidan Limited
We have audited the accompanying balance sheet of Talidan Limited (a British
Virgin Islands corporation) as of December 31, 1996, and the related statement
of earnings, retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Talidan Limited as of December
31, 1996, and the results of its operations and its cash flows for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Baltimore, Maryland
July 29, 1998
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
Talidan Limited
BALANCE SHEET
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 135,333
Accounts receivable 803,217
Prepaid expenses 129,740
-------------
$ 1,068,290
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 189,925
Accrued expenses 96,600
-------------
286,525
STOCKHOLDERS' EQUITY
Common stock 2
Retained earnings 781,763
-------
781,765
-------
$ 1,068,290
=============
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
Talidan Limited
STATEMENT OF EARNINGS
- --------------------------------------------------------------------------------
(Unaudited)
Year ended Six months ended
December 31, 1996 June 30, 1997
----------------- -------------
Sales $ 6,616,247 $ 2,974,922
Cost of sales 4,487,724 2,156,346
--------- ---------
Gross profit 2,128,523 818,576
Operating expenses
General and administrative expenses 296,863 101,377
Other income
Interest income 13,494 5,549
------ -----
NET INCOME $ 1,845,154 $ 722,748
============= ==========
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
Talidan Limited
STATEMENT OF RETAINED EARNINGS
- --------------------------------------------------------------------------------
Balance at January 1, 1996 $ 966,339
Net income 1,845,154
Distributions to stockholders (2,029,730)
----------
Balance at December 31, 1996 781,763
Net income 722,748
Distributions to stockholders (698,599)
--------
Balance at June 30, 1997 (unaudited) $ 805,912
=============
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
Talidan Limited
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Year ended Six months ended
December 31, 1996 June 30, 1997
----------------- -------------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net income $ 1,845,154 $ 722,748
Adjustments to reconcile net income to net cash
provided by operating activities
Changes in assets and liabilities
Accounts receivable (325,919) 297,549
Prepaid expenses 345,625 129,740
Accounts payable (564,596) 120,302
Accrued expenses 36,209 (72,950)
------ -------
Net cash provided by operating activities 1,336,473 1,197,389
Cash flows from financing activities
Distributions to stockholders (2,029,730) (698,599)
---------- --------
NET DECREASE IN CASH (693,257) 498,790
Cash at beginning of year 828,590 135,333
------- -------
Cash at end of year $ 135,333 $ 634,123
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Talidan Limited
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Nature of Business Operations
Talidan Limited (the Company or Talidan), a British Virgin Islands
corporation, is engaged in the business of creating call traffic for
small international telephone carriers by public promotion of
information and entertainment services using the telephone circuits of
such carriers. Talidan receives commissions from these carriers as a
percentage of certain payments, which these carriers receive from their
correspondent carriers.
Talidan is currently generating call traffic in the following
countries: Austria, Brazil, Canada, Germany, India, Kuwait, Lebanon,
Pakistan, Philippines, Saudi Arabia, Singapore, United Arab Emirates
and United States. Talidan is currently terminating its call traffic in
the following countries: Chile, Cook Islands, Moldova, Nieu, New
Guinea, Sao Tome and a contract with a domestic carrier in Brazil. All
of the Company's business is transacted in US dollars.
The Company extends credit to the carriers with which it does business.
Each customer's credit worthiness is evaluated on a case by case basis.
One customer represents approximately 30% of the Company's revenue and
one supplier represents approximately 30% of the Company's costs.
Management
The Company has no employees, but uses the services of a management
company, LTA Limited, which conducts all operations related to the
business of Talidan. Talidan's managing director, in the Isle of Man,
and its marketing consultants, in England, are paid on a commission
basis. Talidan relies on outside sources for its sales, marketing and
advertising.
9
<PAGE>
Talidan Limited
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and reported
revenue and expenses during the reporting period. Actual results may
differ from those estimates.
Accounts Receivable
The Company utilizes the allowance method of accounting for bad debts.
An allowance for potential credit loses is maintained based on ongoing
credit evaluations of customers. Uncollectible accounts are written off
against the allowance accounts when they are deemed uncollectible. At
December 31, 1996, management estimates that all of the accounts
receivable are collectible.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Income Taxes
The Company is chartered in the British Virgin Islands. Consequently,
it is not liable for the payment of income taxes.
Revenue Recognition
The Company recognizes revenue from telephone sales on a monthly basis
in accordance with its service contracts. Monthly revenue is based on
the number of minutes of calls which are processed.
Advertising Costs
The Company expenses all advertising costs when an advertisement first
runs. Expenditures made for advertising or media not yet run are
reported as prepaid expenses.
10
<PAGE>
Talidan Limited
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and June 30, 1997 (Unaudited)
NOTE B - CAPITAL STOCK
The Company has one class of common stock (share capital) outstanding.
This stock has no par value.
NOTE C - COMMITMENTS AND CONTINGENCIES
The Company has a management contract with LTA Limited, which calls for
annual payments of $144,000 per year through December 31, 1998. The
contact renews automatically and is subject to a six-month cancellation
by either party.
NOTE D - CASH BALANCES
All of the Company's cash is deposited in accounts located in the
United Kingdom.
NOTE E - RELATED PARTY TRANSACTIONS
The Company transacts business with its shareholders on a regular
basis. The shareholders provide advertising and call management and
general management services throughout the year. These shareholders are
not compensated for these services. Payment is made to the shareholders
in the form of distributions.
11
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit
Number
3.1 Articles of Incorporation, as amended
3.2 Bylaws
10.1 Employment Agreement between the Corporation and Lowell Farkas, as
amended
10.2 Employment Agreement between the Corporation and E. David Gable
10.3 Employment Agreement between the Corporation and David Pearl
10.4 1998 Stock Option Plan
10.5 Exchange Agreement between A&W Corporation, Inc. and Grandname
Limited
10.6 Assignment Agreement by and between First USA Merchant Services, Inc.
and Electronic Card Acceptance Corporation
10.7 Agreement between Tiller Holdings Limited and the Corporation
10.8 Form of Warrant
10.9 Form of Stock Option Agreement
10.10 Preemption Agreement
10.11 Stock and Asset Purchase Agreement for Victoria Station Restaurant
10.12 Purchase Agreement and Promissory Note between the Corporation and
the Alpina Tours, LLC
10.13 Stock Purchase Agreement between the Corporation and Value Partners,
Ltd.
10.14 Stock Purchase Agreement for Harbor City Corporation, t/a ACC Telecom
10.15 Buy-Back/Sell-Back Agreement for Purchase of Harbor City Corporation,
t/a ACC Telecom
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARNEGIE INTERNATIONAL CORPORATION
Dated: October ___, 1998 By: /s/ Lowell Farkas
Name: Lowell Farkas
Title: President
EXHIBIT 3.1
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Filed in the office of the Secretary of
State of the State of Colorado
March 26, 1974
ARTICLES OF INCORPORATION
We, the undersigned natural persons of the age of twenty-one years or
more, acting as incorporated of a corporation under the Colorado Corporation
Act, adopt the following Articles of Incorporation for such corporation:
FIRST: The name of the corporation is ENTROPY LIMITED
SECOND: The period of its duration is Perpetual
THIRD: The purpose or purposes for which the corporation is organized
are: To research, design, develop, manufacture, market, and provide consulting
services for energy and environmental systems.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is fifty thousand (50,000) of no par value.
FIFTH: Cumulative voting of shares of stock is authorized.
SIXTH: Provisions limiting or denying to shareholders the prescriptive
right to acquire additional or treasury shares of the corporation re: none.
SEVENTH: The address of the initial registered office of the
corporation is 745 S. 44th Boulder, Colorado 80303 and the name of its initial
registered agent at such address is M. W. Frank
EIGHTH: Address of the place of business: same
NINTH: The number of directors constituting the initial board of
directors of the corporation is four (4) and the names and addresses of the
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify are: (At
least 3.)
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NAME ADDRESS
M. W. Frank 745 S. 44th Boulder, Co. 80303
Elisabeth T. Frank 745 S. 44th Boulder, Co. 80303
Terry N. Fleener 7533 Lee Dr. Arvada, Co. 80005
Jane A. Fleener 7533 Lee Dr. Arvada, Co. 80005
TENTH: The name and address of each incorporated is: (At least 3.)
NAME ADDRESS
M. W. Frank 745 S. 44th Boulder, Co. 80303
Elisabeth T. Frank 745 S. 44th Boulder, Co. 80303
Terry N. Fleener 7533 Lee Dr. Arvada, Co. 80005
Dated: March 22 , 19 74
/s/ M. W. Frank
/s/ Elisabeth T. Frank
/s/ Terry N. Fleener
Incorporators
STATE OF Colorado }
} ss.
COUNTY OF Boulder }
I, Martha D. Rolland , a notary public, hereby certify that on the 22nd
day of March , 19 74 , personally appeared before me M. W. Frank, Elizabeth T.
Frank and Terry N. Fleener , who being by me first duly sworn, severally
declared that they are the persons who signed the foregoing document as
incorporators, and that the statements therein contained are true.
In witness whereof I have hereunto set my hand and seal this 22nd day
of March, A.C. 1974.
My commission expires My Commission expires Sept. 9, 1974 .
Submit in duplicate /s/ Martha D. Rolland
Notary Public
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ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
ENTROPY LIMITED
Pursuant to the provisions of Article 2 of Title 7 of Colorado Revised
Statutes (137), the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is ENTROPY LIMITED.
SECOND: The following amendments of the Articles of Incorporation were
adopted by the shareholders of the corporation on July 1, 1975, in the manner
prescribed by the Colorado Corporation Code:
(1) The Third Article of the original Articles of Incorporation is
amended to read as follows:
THIRD: The purpose for which the corporation is organized is to
transact the business of research, design, develop, manufacture, market
and provide consulting services for energy and environmental systems
and to conduct all other business not forbidden by law.
(2) Article Sixth of the original Articles of Incorporation is amended
to read as follows:
SIXTH: No shareholders of the corporation shall have any
preemptive or other right to subscribe to, purchase or acquire any
additional issues of shares of stock of the corporation of any class or
any series thereof or any other rights or securities of the
corporation, whether now or hereafter authorized, and whether or not
convertible into or evidencing or carrying a right to subscribe to,
purchase or acquire any shares of stock, rights or securities of the
corporation.
(3) The Articles of Incorporation are amended by the addition of a new
Article Eleventh as follows:
ELEVENTH: Any contract or other transaction between the
corporation and one or more of its Directors, or between the
corporation and any firm of which one or more of its Directors are
members or employees, or in which they are interested, or between the
corporation and
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any corporation or association of which one or more of its Directors
are shareholders, members, directors, officers, or employees, or in
which they are interested, shall be valid for all purposes,
notwithstanding the presence of such Director or Directors at the
meeting of the Board of Directors of the corporation, which acts upon,
or in reference to, such contract or transaction, and notwithstanding
his or their participation in such action, if the fact of such interest
shall be contained or known to the Board of Directors and the Board of
Directors shall, nevertheless, authorize, approve or ratify such
contract or transaction by a vote of a majority of the Directors
present, such _______ Director or Directors to be counted in
determining whether a quorum is present, but not to be counted in
calculating the majority necessary to _______ such vote. This Section
shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law
applicable thereto.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 25,700; and the number of shares entitled to vote thereon
was 25,700.
FOURTH: The number of shares voted for such amendment was 25,700; and
the number of shares voted against such amendment was 0.
DATED: July 11, 1975.
ENTROPY LIMITED
By /s/ M. W. Frank
Its President
and /s/
Its Secretary
STATE OF COLORADO )
County of Boulder ) ss
I, Mary Ann Baxter, a notary public, do hereby certify that on this
31st day of July, 1975, personally appeared before me M. W. Frank, who, being by
me first duly sworn,
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declared that he is the President of Entropy Limited, that he signed the
foregoing document as President of the corporation, and that the statements
therein contained are true.
/s/ Mary Ann Baxter
Notary Public
My commission expires: November 6, 1976
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ARTICLES OF AMENDMENT
to the
ARTICLES OF INCORPORATION
of
ENTROPY LIMITED
Pursuant to the provisions of Article 2 of Title 7 of Colorado Revised
Statutes(1973), the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is ENTROPY LIMITED.
SECOND: The following amendments of the Articles of Incorporation were
adopted by the shareholders of the corporation on February 28, 1976, in the
manner prescribed by the Colorado Corporation Code:
(1) The Third Article of the Articles of Incorporation is amended to
read as follows:
THIRD: The purpose for which the corporation is organized is to
transact the business of researching, designing, developing,
manufacturing, marketing and providing consulting services for energy
and environmental systems and to conduct all other business not
forbidden by law.
(2) Article Fifth of the Articles of Incorporation is amended to read
as follows:
FIFTH: Cumulative voting of shares of stock is not authorized.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 26,293; and the number of shares entitled to vote thereon
was 26,293.
FOURTH: The number of shares voted for such amendment was 26,293; and
the number of shares voted against such amendment was 0.
DATED: March 29, 1976.
ENTROPY LIMITED
By /s/ M. W. Frank
Its President
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and /s/ Henry L. Valentine
Its Secretary
STATE OF COLORADO )
County of Boulder ) ss
I, George A. _________, a notary public, do hereby certify that on this
24 day of March, 1976, personally appeared before me M. W. Frank, who, being by
me first duly sworn, declared that he is the President of Entropy Limited, that
he signed the foregoing document as President of the corporation, and that the
statements therein contained are true.
/s/ George A. ?
Notary Public
My commission expires Jan. 22, 1980
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RESTATED
ARTICLES OF INCORPORATION
OF
ENTROPY LIMITED
Pursuant to Section 7-2-112 of the Colorado Corporation Code, the
unassigned corporation, pursuant to a resolution duly adopted by its Board of
Directors, hereby adopts the following Restated Articles of Incorporation.
ARTICLE ONE
The name of the corporation is:
ENTROPY LIMITED
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The nature of the business, objects and purposes proposed to be
transacted, _______ and _______ on by the corporation are:
(a) To engage in any business relating directly or indirectly to the
development and ________ of all forms of energy; to build, manufacture,
___________________________.
(b)
(c) To establish, maintain and operate thermal and solar energy
laboratories, to carry on research of any kind and character and to produce,
manufacture and make, use or sell or otherwise dispose of the articles and
substances invented thereby; to own the inventions developed thereby, to protect
the same by letters patent and to grant licenses or make other lawful agreements
or arrangements for the employment or use of such inventions by other persons.
(d) To hold, have, purchase, mortgage and convey real and personal
property of any and all kinds and character, both within and without the State
of Colorado, and to carry on any other lawful business whatsoever which may seem
to the corporation capable of being carried on in connection with the above or
calculated directly or indirectly to promote the interests of the corporation or
to enhance the value of its properties; and to have, enjoy, and
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exercise all the rights, powers, and privileges which are now or which may
hereafter be conferred upon corporations organized under the laws of the State
of Colorado.
(e) To borrow and lend money and negotiate loans; to draw, accept,
endorse, buy, and sell promissory notes, bonds, stock and debentures.
The foregoing ________ shall be construed as the objects, purposes and
powers of the corporation; but the specific enumerations thereof shall not be
_____ to exclude any objects, purposes or powers which are lawful and in any way
incident to the proper conduct of the business of the corporation.
ARTICLE FOUR
The total amount of authorized __________ stock of the corporation
shall _____________________ no par value common stock.
_______________________________. Each _________________________________________
to one vote in the election of directors and upon all corporate questions
submitted to the vote of the stockholders.
The shares of the corporation may be issued by the corporation from
time to time without action by the stockholders for such consideration in money
or property real and personal actually received as well as services performed
necessary or proper for the business of the corporation as may be determined by
the Board of Directors. All or any portion of the shares which may be issued for
cash, property or rights of property or interest therein deemed by the Board of
Directors necessary and proper for carrying on the business of the corporation
shall, when issued, be fully paid and not allowable to further cost or
assessment; and the judgment and discretion of the Board of Directors in all
matters pertaining thereto shall be deemed conclusive for all purposes.
ARTICLE FIVE
Cumulative voting shares of stock is not authorized.
ARTICLE SIX
No shareholder of the corporation shall have any preemptive right or
other right to subscribe to purchase or acquire any additional issues of shares
of stock at the corporation of any class or any series thereof or any other
rights or securities of the corporation whether now or hereafter authorized and
whether or not convertible into or evidencing or carrying the right to subscribe
to purchase or acquire any share of stock, rights or securities of the
corporation.
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ARTICLE SEVEN
The ________________ constituting the Board of Directors of the
corporation shall _________________.
ARTICLE EIGHT
Any contract or other transaction between the corporation and one or
more of its directors, or between the corporation and any firm of which one or
more of its directors are members or employees or in which they are interested,
or between the corporation and any corporation or association of which one or
more directors are shareholders, members, directors, officers, or employees,
shall be valid ____ all purposes notwithstanding the presence of said director
or directors at the meeting of the Board of Directors of the corporation which
acts upon or in reliance upon or in reference to such contract or transaction,
and notwithstanding his or their participation in such action if the facts of
such interest shall be disclosed or known to the Board of Directors, and the
Board of Directors shall nevertheless authorize and approve such contract or
transaction by vote of the majority of the directors present, such interested
director or directors to be counted in determining whether a quorum is present
but not to be counted in calculating the majority necessary to carry such vote.
This section shall not be construed to invalidate any contract or other
transaction which otherwise would be valid under the common and statutory law
applicable thereto.
ARTICLE NINE
The corporation shall have the power to indemnify any director or
officer or former director or officer of the corporation, or any person who has
served at its request as a director or officer of another corporation in which
it owns shares of capital stock or of which ________ creditor, and the personal
representative ________________ against _________ actually and necessarily
________________ the defense of any action or ___________________ a party by
reason of being ________________________, except in relation to matters as to
which he is adjudged in such action or proceeding to be liable for negligence or
misconduct in the performance of duty; but such indemnification shall not be
deemed exclusive of any other rights to which the director or officer is
entitled under any bylaw, agreement, vote of shareholders, or otherwise.
ARTICLE TEN
The Board of Directors shall have the power to make such prudent Bylaws
as they may deem proper for the management of the affairs of the corporation,
not inconsistent with law,
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for the purpose of carrying on all of the business within the objects and
purposes of the corporation and to amend, alter, and repeal the same in whole or
in part.
The foregoing Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
heretofore amended and supersede the original Articles of Incorporation and all
amendments thereto.
EXECUTED by the undersigned Entropy Limited in duplicate on this 29th
day September, 1977.
ENTROPY LIMITED
/s/ M. W. Frank
President
/s/ Henry L. Valentine
Secretary
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, Deanna K. Johnson, a Notary Public, in and for the State and County
aforesaid, do hereby certify that on this 29th day of September, 1977, before me
personally appeared M. W. Frank and Henry L. Valentine, president and secretary
respectively, of Entropy Limited, a Colorado corporation, to me personally known
and known to me to be the same persons described in and who executed the
foregoing instrument, and severally acknowledged to me that they executed the
same as their free act and deed.
/s/ Deanna K. Johnson
Notary Public
My commission expires: September 21, 1980
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ENTROPY LIMITED
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is
ENTROPY LIMITED
SECOND: The following amendment was adopted by the shareholders of the
corporation on August 31, 1977 in the manner prescribed by the Colorado
Corporation Code:
ARTICLE THREE
The nature of the business, objects and purposes to be
transacted, promoted and carried on by the corporation are:
(a) To engage in any business relating directly or
indirectly to the development and application of all forms of
energy; to build, manufacture, fabricate, design, and develop
equipment and devices for the development of energy and the
application and uses of such energy.
(b) To engage in the research, development,
manufacturing and marketing of heating and cooling systems
utilizing solar energy.
(c) To establish, maintain and operate thermal and solar
energy laboratories, to carry on research of any kind and
character and to produce, manufacture and make, ____ and sell
or otherwise dispose of the articles ___________ invented
thereby; to own the inventions developed thereby, to protect
the same by ___________ and to grant licenses or make other
lawful agreements or arrangements for the employment or use
of such inventions by other persons;
(d) To hold, have, purchase, mortgage and convey real
and personal property of any and all kinds and character,
both
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within and without the State of Colorado, and to carry on any
other lawful business whatsoever which may seem to the
corporation capable of being carried on in connection with
the above or calculated directly or indirectly to promote the
interests of the corporation or to enhance the value of its
properties; and to have, enjoy, and exercise all the rights,
powers, and privileges which are now or which may hereafter
be conferred upon corporations organized under the laws of
the State of Colorado.
(e) To borrow and lend money and negotiate loans; to
draw, accept, endorse, buy, and sell promissory notes, bonds,
stock and debentures.
The foregoing clauses shall be construed as the objects,
purposes and powers of the corporation; but the specific
enumerations thereof shall not be held to exclude any
objects, purposes or powers which are lawful and in any way
incident to the proper conduct of the business of the
corporation.
ARTICLE FOUR
The total amount of authorized capital stock of the
corporation shall consist of 1__,000,000 shares of no par
value common stock. Each share shall have the same rights and
privileges as every other share and no distinction between
them shall exist. Each outstanding share of capital stock
shall be entitled to one vote in the election of directors
and upon all corporate questions submitted to the vote of the
stockholders.
The shares of the corporation ma be issued by the
corporation from time to time without action by the
stockholders for such consideration in money or property real
and personal actually ______ as well as services performed
______________ the business of the corporating party as may
be determined by the Board of Directors. All or any portion
of the shares which may be issued for such property or rights
of property or interest _______ deemed by the Board of
Directors necessary and proper for carrying on the business
of the corporation shall, when issued, be totally paid and
not allowable to further cost or assessment; and the
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judgment and discretion of the Board of Directors in all
matters pertaining thereto shall be deemed conclusive for all
purposes.
ARTICLE SIX
No shareholder of the corporation shall have any
preemptive right or other right to subscribe to purchase or
acquire any additional issues of shares of stock of the
corporation of any class or any series thereof or any other
rights or securities of the corporation whether now or
hereafter authorized and whether or not convertible into or
evidencing or carrying the right to subscribe to parties or
acquire any share of stock, rights or securities of the
corporation.
ARTICLE TWELVE
The corporation shall have the power to indemnify any
director or officer or former director or officer of the
corporation, or any person who has served at its request as a
director or officer of another corporation in which it owns
shares of capital stock _____ of which it is a creditor,
_______ personal representative of any such persons
___________ and necessarily incurred by him in connection
with the defense of any _______________ is made a party by
reason of _______________ such director or officer, except
_____________ matters as to which he shall be ___________
action or proceeding to be liable _____________ misconduct in
the performance _______________ indemnification shall not be
deemed ________ of any other rights to which such director
______________ entitled under any bylaw, ___________
_____holders, or otherwise.
ARTICLE THIRTEENTH
The Board of Directors shall have the power to make such
prudent Bylaws as they deem proper for the management of the
affairs of the corporation, not inconsistent with law, for
the purpose of carrying on all of the business within the
objects and purposes of the corporation and to amend, alter,
and repeal the same in whole or in part.
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THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 50,000; and the number of shares entitled to vote thereon
was 50,000.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon is a class were as follows:
CLASS NUMBER OF SHARES
Common, No Par Value _________
FIFTH: The number of shares voted for such amendment was __________;
and the number of shares voted _____ such amendment was none.
SIXTH: The number of shares of each class entitled to vote thereon is a
class ________ such amendment, ______, was:
CLASS NUMBER OF SHARES
Common, No Par Value ?
SEVENTH: The number, if not set forth in such amendment, in which any
exchange, reclassification, or _______ of issued shares provided for in the
amendment shall be _____________ is as follows:
No change.
EIGHTH: The manner in which such amendment affects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows:
No change.
ENTROPY LIMITED
By: /s/ M. W. Frank
President
and /s/ Henry L. Valentine
Secretary
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STATE OF COLORADO )
CITY AND ) ss.
COUNTY OF DENVER )
Before me, Deanna K. Johnson, a Notary Public, in and for the said
County and State, personally appeared M. W. Frank, who acknowledged before me
that he is the President of Entropy Limited.
In witness whereof I have hereunto set my hand and seal this 29th day
of September, 1977.
/s/ Deanna K. Johnson
Notary Public
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ARTICLES OF MERGER
OF
ENTROPY LIMITED
AND
SOLENERGY CORPORATION
To the Secretary of State
State of Colorado
Pursuant to the provisions of the Colorado Corporation Code governing
the merger of a foreign business corporation with and into a domestic business
corporation, the corporations hereinafter named do hereby adopt the following
articles of merger.
1. The names of the merging corporations are Solenergy Corporation,
which is a business corporation organized under the laws of the Commonwealth of
Massachusetts, and Entropy Limited, which is a business corporation organized
under the laws of the State of Colorado.
2. Annexed hereto and made a part hereof is the Agreement and Plan of
Merger for merging Solenergy Corporation with and into Entropy Limited as
approved by resolution of the Board of Directors of each of said corporations,
who duly approved the plan's adoption, the performance of its terms and other
requisite corporate actions.
3. The number of shares of Entropy Limited which were outstanding at
the time of the approval of the Agreement and plan of Merger by the shareholders
of Entropy Limited is 15,000,000 shares, all of which are of one class (common,
no par). Solenergy outstanding shares of common stock: 4,021,370.
The number of the aforesaid shares which were voted for the
Agreement and Plan of Merger is 11,783,529, and the number of said shares which
were voted against the same is -0- and 20,320 abstained. ***
4. The laws of the jurisdiction of organization of Solenergy
Corporation, the Commonwealth of Massachusetts, permit the merger of a business
corporation of the Commonwealth of Massachusetts with and into a business
corporation of another jurisdiction; and the merger of Solenergy Corporation
with and into Entropy Limited is in compliance with the laws of the Commonwealth
of Massachusetts, the jurisdiction of organization of Solenergy Corporation.
5. Entropy Limited will continue its existence as the surviving
corporation under the name Solenergy Corporation pursuant to the provisions of
the Colorado Corporation Code.
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*** All 4,021,370 shares of Solenergy common stock were voted for the
Agreement and Plan of Merger.
Dated: September 13, 1984
SOLENERGY CORPORATION
By: /s/ Robert W. Willis
President
ATTEST: /s/
Secretary-Clerk
Dated: September 13, 1984
ENTROPY LIMITED
By: /s/ M. W. Frank
President
ATTEST: /s/ Shirley K. Hazen
Secretary
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ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Act, C.R.S.
7-2-107, as amended, the undersigned corporation adopts the following Articles
of Amendment to its Restated Articles of Incorporation:
FIRST: The name of the Corporation is SOLENERGY CORPORATION.
SECOND: The following amendments were adopted by the Shareholders of the
Corporation on September 13, 1984, in the manner prescribed by the
Colorado Corporation Act, C.R.S. 7-2-107, as amended:
(1) ARTICLE ONE of the Restated Articles of Incorporation of the
Corporation shall be amended to state as follows:
The name of the Corporation is SOLENERGY CORPORATION.
(2) ARTICLE FOUR of the Restated Articles of Incorporation shall be
amended by a new first paragraph to state as follows:
Fifteen million (15,000,000) shares of issued and outstanding
Common Stock, no par value, of the Corporation shall be
reclassified and consolidated to provide that for each twenty
(20) shares issued and outstanding there shall be issued in
exchange one (1) share of New Common Stock, no par value,
which New Common Stock shall have identical rights in all
respects to the Common Stock to be cancelled. The total
amount of authorized capital stock of the Corporation
following the consolidation and reclassification shall
consist of 10,000,000 shares of no par value New Common
Stock. Each share shall have the same rights and privileges
as every other share and no distinction between them shall
exist. Each outstanding share of capital stock shall be
entitled to one vote in the election of directors and upon
all corporate questions submitted to the vote of
stockholders.
THIRD: 15,000,000 shares are outstanding and 15,000,000 shares are entitled to
vote on the amendment.
FOURTH: 11,783,529 shares voted for the amendment, zero shares voted against
the amendment, and 20,320 shares abstained from voting.
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FIFTH: The amendment provides for a reclassification and consolidation of the
15,000,000 issued and outstanding shares of the Corporation.
SIXTH: The amendment does not affect a change in the amount of stated capital
of the Corporation.
Dated: October 1, 1984.
ATTEST: SOLENERGY CORPORATION
/s/ Herbert Lemelman By: /s/ Robert W. Willis
Herbert Lemelman Robert W. Willis
Secretary President
COMMONWEALTH
STATE OF MASSACHUSETTS )
) ss.
COUNTY OF Suffolk )
Before me, Herbert Lemelman, a Notary Public in and for the said County
and State, personally appeared Robert W. Willis, who acknowledged before me that
he is the President of Solenergy Corporation and acknowledged that he signed the
foregoing Articles of Amendment to the Restated Articles of Incorporation as his
free and voluntary act and deed for the uses and purposes therein set forth, and
that the facts contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 9th day
of October, 1984.
My commission expires: June 10, 1988.
/s/ Herbert Lemelman
Notary Public - Herbert Lemelman
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_________ DIVISION
__________
DENVER, CO 80202
___-894-2251
CERTIFICATE OF RENEWAL
PURSUANT TO PROVISIONS OF THE COLORADO REVISED STATUTES, TITLE 7-8-124,
THE UNDERSIGNED HEREBY EXECUTE THE FOLLOWING CERTIFICATE OF
RENEWAL:
1. The name of the corporation at the time of dissolution SOLENERGY
CORPORATION .
2. New name under which the corporation is to be renamed (applicable only if
corporate name at time of dissolution is no longer available) A&W
Corporation, Inc. .
*3. The address of its registered office and the name of its registered agent
at such address is Company Corporation, 1600 Broadway, Denver, CO 80202 .
4. The period of duration is Perpetual .
5. The corporation was organized under the laws of Colorado on March 26, 1974
(date of incorporation)
6. The corporation was dissolved on Jan. 1992 for reason marked with an X
below:
X Corporation failed for 60 days to appoint and maintain a registered
agent in this state
Corporation failed to file corporate reports and pay requisite fees
7. The certificate of renewal is filed by authority of the Board of Directors
in the manner indicated with an X below:
X The directors of the corporation at the time the corporation was
dissolved
The directors newly elected by the shareholders of the corporation
By /s/ Anthony W. Adler
Its President
AND /s/ Robert W. Willis
Its Secretary
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ARTICLES OF EXCHANGE OF A&W CORPORATION, INC.
WITH DAR PRODUCTS CORPORATION AND ELECTRONIC CARD
ACCEPTANCE CORPORATION, N.A. AND GRANDNAME LIMITED
1. Attached hereto as Exhibit A is that certain Agreement Concerning
the Exchange of Stock between A&W Corporation, Inc. (the "Corporation") and
Grandname Limited ("Grandname"), a British Virgin Islands corporation, which
contains the plan pursuant to which the Corporation shall exchange up to
16,136,666 shares of its Common Stock in exchange for all of the issued and
outstanding shares of capital stock of DAR Products Corporation ("DAR"), a
Maryland corporation, and Electronic Card Acceptance Corporation, N.A. ("ECAC"),
a Virginia corporation; provided that of the shares of the Corporation to be
exchanged pursuant to such plan, 9,000,000 shall be exchanged upon the filing of
these Articles and up to 7,136,666 shall be exchanged upon the approval of
certain amendments to the Corporation's Restated Articles of Incorporation, as
amended (the "Exchange").
2. The name and address of the principal office of the acquiring
corporation is A&W Corporation, Inc., a Colorado corporation, 325 Prospect
Avenue, Mamaroneck, New York 10543.
3. Grandname is the sole shareholder of each of DAR and ECAC and voted
in favor of the Exchange. The Corporation has one class of shareholders,
constituting one voting group, and the number of votes cast by the shareholders
of the Corporation was sufficient to approve the Exchange at a special meeting
of shareholders of the Corporation held on May 3, 1996.
3. The effective date of the Exchange shall be the date these Articles
of Exchange are filed with the Secretary of State of Colorado.
IN WITNESS WHEREOF, the undersigned have executed theses Articles of
Exchange as of May 3, 1996.
GRANDNAME LIMITED A&W CORPORATION, INC.
By: /s/ E. David Gable By: /s/ Anthony W. Adler
Name: E. David Gable Name: Anthony W. Adler
Title: Authorized Signatory Title: President
DAR PRODUCTS CORPORATION ELECTRONIC CARD ACCEPTANCE
CORPORATION, N.A.
By: /s/ David S. Pearl By: /s/ David C. Stinson
Name: David S. Pearl Name: David C. Stinson
Title: President Title: Executive Vice President
<PAGE>
ARTICLES OF AMENDMENT TO RESTATED
ARTICLES OF INCORPORATION OF A&W CORPORATION, INC.
1. The name of the Corporation is A&W Corporation, Inc. (the
"Corporation").
2. The text of the amendment to the Articles of Incorporation of the
Corporation adopted is as follows:
ARTICLES ONE of the Restated Articles of Incorporation shall
be amended by deleting such ARTICLE in its entirety and
substituting therefor the following:
ARTICLE ONE: The name of the Corporation shall be Carnegie
International Corporation.
3. The foregoing amendment was adopted by a vote of the shareholders of
the Corporation at a meeting thereof held on May 3, 1996.
4. The number of votes cast for the foregoing amendment by the holders
of the Corporation's Common Stock entitled to vote thereon was sufficient for
approval by that voting group, such holders composing the only voting group of
the Corporation.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment to the Articles of Incorporation of the Corporation on this 3rd day of
May, 1996.
/s/ Anthony W. Adler
Anthony W. Adler, President
<PAGE>
AMENDMENT TO RESTATED
ARTICLES OF INCORPORATION OF
CARNEGIE INTERNATIONAL CORPORATION
1. The name of the Corporation is Carnegie International Corporation
(the "Corporation").
2. The text of the amendment to the Restated Articles of Incorporation
of the Corporation adopted is as follows:
ARTICLE FOUR of the Restated Articles of Incorporation shall be amended
by deleting such ARTICLE in its entirety and substituting therefor the
following:
ARTICLE FOUR
The total amount of authorized capital stock of the
Corporation shall consist of One Hundred Ten Million
(110,000,000) shares of Common Stock, no par value per share,
and Forty Million (40,000,000) shares of Preferred Stock,
value $1.00 per share.
The Board of Directors of the Corporation is hereby
expressly authorized to issue in one or more series any
shares of unissued Preferred Stock and to determine the
designation, preferences, conversion rights, voting powers,
restrictions, redemption provisions, limitations as to
dividends, and other terms, provisions and rights. The Board
of Directors shall cause the execution and filing with the
Secretary of State of Colorado of appropriate Articles of
Amendment to the Restated Articles of Incorporation of the
Corporation with respect to any such issuance of Preferred
Stock in accordance with the Colorado Business Corporation
Act.
3. The foregoing Amendment was adopted by a vote of the shareholders of
the Corporation at a meeting thereof held on June 28, 1996.
4. The number of votes cast for the foregoing amendment by the holders
of the Corporation's Common Stock entitled to vote thereon was sufficient for
approval by that voting group, such holders comprising the only voting group of
the Corporation.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment to the Restated Articles of Incorporation of the Corporation on this
28th day of June 1996.
/s/ Anthony Georgiou
Anthony Georgiou, President
EXHIBIT 3.2
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BY-LAWS
OF
A & W CORPORATION, INC.
(A COLORADO CORPORATION)
ARTICLE I
OFFICES
Section 1. Office. The registered office of the Corporation shall be
located in the City of Denver State of Colorado.
Section 2. Additional Offices. The Corporation may also have offices
and places of business at such other places both within and without the State of
Colorado as the Board of Directors may from time to time determine or the
business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Time and Place. The annual meeting of the shareholders for
the election of directors and all special meetings of shareholders for that or
for any other purpose may be held at such time and place within or without the
State of Colorado as may be fixed from time to time by the Board of Directors
and as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of shareholders shall be
held each year on such date in the first six months of the Corporation's fiscal
year as shall be designated by the Chairman of the Board or in the absence of
such designation, on the first Monday of May if not a legal holiday, and if a
legal holiday, then on the next business day, at a time to be stated in the
notice of the meeting, or on such other date and time as shall be designated
from time to time by the Board of Directors, or in a duly executed waiver of
notice of the meeting, at which meeting the shareholders shall elect a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Notice of Annual Meeting. Unless otherwise required by law,
written or printed notice of the annual meeting stating the place, date and hour
of the meeting shall be given not less than 10 nor more than 60 days before the
date of the meeting, either personally or by mail or telegram, by or at the
direction of the President, the Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting.
Section 4. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chairman of the Board or the
Board of Directors, and shall be called by the Chairman of the Board or the
Secretary at the request in writing of a majority of the directors,
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or at the request in writing of shareholders owning at least lot in amount of
shares of the Corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of shareholders, stating the place, date and hour of the
meeting, the purpose or purposes for which the meeting is called, and by or at
whose direction it is being issued, unless otherwise required by law, shall be
given not less than 10 nor more than 60 days before the date of the meeting,
either personally or by mail, by or at the direction of the Chairman of the
Board, the Secretary or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting.
Section 6. Business Limitations. The business transacted at any special
meeting of shareholders shall be limited to the purposes stated in the notice.
Section 7. Quorum. Except as otherwise provided by statute, the holders
of a majority of the shares of the Corporation issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
necessary to and shall constitute a quorum for the transaction of business at
all meetings of the shareholders. If, however, such quorum shall not be present
or represented at any meeting of the shareholders, the shareholders entitled to
vote thereat present in person or represented by proxy shall have the power to
adjourn the meeting from time to time until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
Section 8. Voting. At any meeting of the shareholders, every
shareholder having the right to vote shall be entitled to vote in person or by
proxy. Except as otherwise provided by law or the certificate of incorporation,
each shareholder of record shall be entitled to one vote for every share of
stock standing in his name on the books of the Corporation. All elections shall
be determined by a plurality vote, and, except as otherwise provided by law or
the certificate of incorporation, all other matters shall be determined by a
vote of a majority of the shares present or represented at such meeting and
voting on such questions.
Section 9. Proxies. Every proxy must be executed in writing by the
shareholder or by his attorney-in-fact. No Proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where an irrevocable proxy is permitted by
law.
Section 10. Inspectors. The Board of Directors in advance of any
shareholders' meeting may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at a shareholders' meeting may, and on the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. In
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case any person appointed as inspector fails to appear or act, the vacancy may
be filled by the Board in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector, before entering upon the discharge of his
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 ability.
Section 11. Consents. Whenever shareholders are required or permitted
to take any action by vote, such action may be taken without a meeting on
written consent setting forth the action so taken, signed by the holders of all
outstanding shares entitled to vote thereon.
ARTICLE III
DIRECTORS AND COMMITTEES
Section 1. General. The business of the Corporation shall be managed by
its Board of Directors (the "Board").
Section 2. Number. The number of directors that shall constitute the
entire Board shall be such number between three and nine as shall be fixed from
time to time by the Board or by vote of the shareholders of the Corporation.
Section 3. Election; Tenure. Directors shall be elected at the annual
meeting of the shareholders, except as provided in Section 6 of this Article
III; and each director shall be elected to serve until his successor has been
elected and has qualified.
Section 4. Requirements. Directors shall be at least eighteen years of
age, but need not be shareholders of the corporation.
Section 5. Resignation. Any director may resign at any time.
Section 6. Vacancies. Newly created directorships resulting from an
increase in the Board and all vacancies occurring in the Board may be filled by
the affirmative vote of the remaining directors, though less than a quorum of
the Board. A director elected to fill a vacancy shall be elected for the
unexpired portion of the term of his predecessor in office. A director elected
to fill a newly created directorship shall serve until the next succeeding
annual meeting of shareholders and until his successor shall have been elected
and qualified.
Section 7. Resignation and Removal of Directors. Any director may
resign at any time by giving notice to the Chairman of the Board, the President
or to the Board of Directors, in writing or by telegraph, cable or wireless. Any
such resignation shall take effect at the time specified therein or, if no time
is.so specified, upon its receipt by the Chairman of the Board, the President or
by the Board of Directors; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
director or directors of the
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Corporation may be removed*either with or without cause at any time by the vote
of the holders of a majority of the stock entitled to vote then outstanding, and
thereupon the term of office of such director or directors who shall have been
so removed shall forthwith terminate, and there shall be a vacancy or vacancies
in the Board of Directors.
Section 8. Books. The Board may keep the books of the Corporation,
except such as are required by law to be kept within the State of Colorado,
outside the State of Colorado at such place or places as they may from time to
time determine.
Section 9. Compensation. The Board, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the Corporation as directors,
officers or otherwise.
Section 10. Consents. Whenever the Board of Directors or any committee
thereof is required or permitted to take any action, such action may be taken
without a meeting if all members of the Board or such committee consent in
writing to the adoption of a resolution authorizing the action.
Section 11. Executive and Other Committees. The Board may, by
resolution adopted by a majority of the entire Board, designate from among its
members an executive committee and other committees, each consisting of two or
more directors, and each of which, to the extent provided in the resolution,
shall have all the authority of the Board, except that no such committee shall
have authority as to the following matters:
(1) The submission to the shareholders of any action that needs
shareholders' approval under the Delaware General Corporation Law.
(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) Authorize distributions.
(4) Amend the Corporation's Articles of Incorporation.
(5) Adopt, amend or repeal by-laws.
(6) Approve a plan of merger not requiring shareholder approval.
(7) Authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the Board.
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(8) Authorize or approve the issuance of shares, or a contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares; except that the
Board may authorize a committee or an officer to do so within limits
specifically prescribed by the Board.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Place. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Colorado.
Section 2. First Meeting. The first meeting of each newly elected Board
shall be held immediately following the annual meeting of shareholders at which
such Board is elected, and no notice of such meeting to the newly elected
directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present.
Section 3. Regular Meetings. Regular meetings of the Board may be held
upon such notice, or without notice, and at such time and at such place as shall
from time to time be determined by the Board.
Section 4. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, or if there be none, the President, on two
days' notice to each director, either personally, or by mail, or by telegram or
by facsimile; special meetings shall be called by the Chairman of the Board or
Secretary in like manner and on like notice on the written request of a majority
of the directors then in office.
Section 5. Quorum. At all meetings of the Board, a majority of the
entire Board shall constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at the time of the vote if a quorum
is present shall be the act of the Board, except as may otherwise be
specifically provided by law. If a quorum shall not be present at any meeting of
the Board, the directors present thereat may adjourn the meeting from time to
time until a quorum shall be present. Notice of any such adjournment shall be
given to any directors who were not present and, unless announced at the
meeting, to the other directors.
Section 6. Use of Conference Telephone. Any one or more members of the
Board of Directors or any committee thereof may participate in any meeting of
such Board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
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ARTICLE V
NOTICES
Section 1. Forms; Delivery. Notices to directors and shareholders shall
be in writing, stating the place, day and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
and may be given personally, by mail, or by transmitting such notice with
confirmed delivery (including, by telex, cable, facsimile or other form of
recorded communication, provided that delivery of such notice in written form is
confirmed in writing) to his residence or usual place of business. Notice by
mail shall be deemed to be given at the time when deposited in the post office
or letter box, in a post-paid sealed wrapper addressed to directors or
shareholders at their addresses appealing on the records of the Corporation.
Section 2. Waiver. Whenever a notice is required to be given by any
statute, the certificate of incorporation or these by-laws, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to such notice.
Attendance by any director at a meeting of the Board or any committee, for which
notice is required, without protesting, prior thereto or at its commencement,
shall constitute a waiver of notice by him. Attendance by any shareholder at a
meeting of shareholders, in person or by proxy, without protesting, prior to the
conclusion of the meeting, shall constitute a waiver of notice by him.
ARTICLE VI
OFFICERS
Section 1. Executive Officers. The Board may elect a Chairman of the
Board, President, one or more Vice Presidents, a Secretary and a Treasurer. The
Board may also elect one or more Assistant Secretaries and Assistant Treasurers,
and such other officers as it may from time to time determine. Any two or more
offices may be held by the same person except as provided by statute. None of
the officers need be members of the Board of Directors or shareholders.
Section 2. Authority and Duties. All officers, as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these by-laws, or, to the
extent not so provided, by the Board.
Section 3. Term of Office; Removal. All officers shall be elected by
the Board and shall hold office for such term as may be prescribed by it, and
until their respective successors have been elected and qualified, or until
their earlier resignation or removal.
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Section 4. Compensation. The compensation bi all officers of the
Corporation shall be fixed by the Board, and the compensation of other agents
shall either be so fixed or shall be fixed by officers thereunto duly
authorized.
Section 5. Vacancies. If an office becomes vacant for any reason, the
Board may fill such vacancy. Any officer so elected shall serve only until such
time as the unexpired term of his predecessor shall have expired, unless
reelected.
Section 6. The Chairman of the Board. The Chairman of the Board shall
be the chief executive officer of the Corporation, shall preside at all meetings
of the shareholders and directors, shall be ex officio a member of all standing
committees, shall have general and active management and control of,the business
and affairs of the Corporation subject to the control of the Board and shall see
that all orders and resolutions of the Board and the Shareholders are carried
into effect.
Section 7. The President. The President shall be the chief operating
officer of the Corporation. In the absence or disability of the Chairman of the
Board, the President shall perform the duties and exercise the powers of the
Chairman of the Board and shall generally assist the Chairman and perform such
other duties as the Board may prescribe.
Section 8. Vice Presidents. The Vice President or, if there be more
than one, the Vice Presidents in the order of their seniority or in any other
order determined by the Board, shall, in the' absence or disability of the
President, perform the duties and exercise the powers of the President, and
shall generally assist the Chairman and the President and perform such other
duties as the Board may prescribe.
Section 9. The Secretary. The Secretary shall attend all meetings of
the Board and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the Board, and shall perform such other duties as may be prescribed
by the Board or the Chairman, under whose supervision he shall act. He shall
keep in safe custody the seal of the Corporation and when authorized affix the
same to any instrument requiring it, any when so affixed it shall be attested by
his signature or by the signature of the Treasurer or an Assistant Secretary or
Assistant Treasurer. He shall keep in safe custody the certificate books and
shareholders' records and such other books and records as the Board may direct
and shall perform all other duties incident to the office of Secretary.
Section 10. The Treasurer. The Treasurer shall have the care and
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board. The Treasurer shall disburse the funds of the
- 7 -
<PAGE>
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and directors, whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board, the Treasurer
shall give the Corporation a bond for such term, in such sum and with such
surety or sureties as shall be satisfactory to the Board for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
ARTICLE VII
SHARE CERTIFICATES
Section 1. Form; Signature. The certificates for shares of the
Corporation shall be in such form as shall be determined by the Board and shall
be numbered consecutively and entered in the books of the Corporation as they
are issued. Each certificate shall exhibit the registered holder's name and the
number and class of shares, and shall be signed by the Chairman of the Board,
President or a Vice President and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, and shall bear the seal of the Corporation,
or a facsimile thereof. Where any such certificate is countersigned by a
transfer agent, or registered by a registrar, the signature of any such officer
may be a facsimile signature. In case any officer who signed, or whose facsimile
signature or signatures were placed on any such certificate shall have ceased to
be such officer before such certificate is issued, it may nevertheless be issued
by the Corporation with the same effect as if he were such officer at the date
of issue.
Section 2. Lost Certificates. The Board may direct a new share
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost or destroyed. When authorizing such issue of a new
certificate or certificates, the Board may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates or his legal representative, to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
Section 3. Registration of Transfer. Upon surrender to the Corporation
or any 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 or such transfer
agent to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person registered on its books
- 8 -
<PAGE>
as the owner of shares to receive dividends or other distributions, and to vote
as such owner, and to hold liable for calls and assessments a person registered
on its books as the owner of shares, and shall not be bound to recognize any
equitable or legal claim to or interest in such share or shares on the part of
any other person.
Section 5. Record Date. For the purpose of (a) determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or (b) determining shareholders entitled to receive payment
of any dividend or the allotment of any rights, or (c) taking any other action
affecting the interests of shareholders, the Board may fix, in advance,.a record
date. Such date shall not be more than 60 nor less than 10 days before the date
of any such meeting, nor more than 60 days prior to any other action. In each
such case, except as otherwise provided by law, only such persons as shall be
shareholders of record on the date so fixed shall be entitled to notice of, and
to vote at, such meeting and any adjournment thereof, or to express such consent
or dissent, or to receive payment of such dividend, or such allotment of rights,
or otherwise to be recognized as shareholders for the related purpose,
notwithstanding any registration of transfer of shares on the books of the
Corporation after any such record date so fixed.
Section 6. List of Shareholders. A list of shareholders as of the
record date, certified by the corporate Officer responsible for its preparation
or by a transfer agent shall be produced at any meeting upon the request thereof
to prior thereto of any shareholder. If the right to vote at any meeting is
challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Subject to any applicable provisions of the
certificate of incorporation, dividends upon the outstanding shares of the
Corporation may be declared by the Board at any regular or special meeting,
pursuant to law, and may be paid in cash, in property, or in shares of the
Corporation.
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 from time to time, in its absolute discretion, thinks 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 shall think conducive to the interest of the Corporation,
and the Board may modify or abolish any such reserve in the manner in which it
was created.
- 9 -
<PAGE>
Section 3. Instruments Under Seal. All deeds, bonds, mortgages,
contracts, and other instruments requiring a seal may be signed in the name of
the Corporation by the Chairman of the Board, the President or by any other
officer authorized to sign such instrument by the Chairman of the Board, the
President or the Board.
Section 4. Checks; Other Instruments. All checks or demands for money
and notes or other instrument evidencing indebtedness or obligations of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board.
Section 6. Seal. The corporate seal shall have inscribed thereon-the
name of the Corporation, the year of its organization and the words "Corporate
Seal Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE IX
AMENDMENTS
Section 1. Power to Amend. These by-laws may be amended or repealed or
new by-laws may be adopted by the affirmative vote of a majority of the Board at
any regular or special meeting. If any by-law regulating an impending election
of directors is adopted, amended or repealed by the Board, there shall be set
forth in the notice of the next meeting of shareholders for the election of
directors the by-law so adopted, amended or repealed, together with precise
statement of the changes made. By-laws adopted by the Board may be amended or
repealed by the shareholders.
ARTICLE X
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Indemnification. Each of the officers and directors of the
Corporation shall be entitled to indemnification for actions taken by them by or
in the name of the Corporation to the fullest extent permitted by the laws of
the State of Colorado.
- 10 -
EXHIBIT 10.1
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT is by and between Carnegie International Corporation, with an office
and place of business at 114919 Cronbridge Drive, Suite 9, Owings Mills, MD
21117 (hereinafter called "Corporation"), acting herein by its Secretary, duly
authorized by its Board of Directors, and Lowell Farkas of Woodbridge,
Connecticut (hereinafter called "Employee").
Corporation desires to employ Employee as President, Chief Executive Officer and
as a Director of the Corporation under the terms and conditions set forth herein
and Employee desires to be so employed.
NOW, THEREFORE, the parties agree as follows:
1. Employment. Corporation agrees to employ Employee and Employee agrees to be
so employed in the capacity of President and Chief Executive Officer.
2. Term. Employment shall be for a term of two years commencing on May 15,
1997, unless the Employee shall have received written notification from the
Board of Directors of Corporation that this employment agreement will not be
renewed at least 90 days prior to its expiration, then this agreement shall
be extended, without further formalities, on the same terms and conditions.
3. Board of Directors. Employee shall at all times discharge his duties in
consultation with and under the supervision of the Corporation's Board of
Directors and he shall be a Director of the Corporation. In the performance
of his duties, Employee shall make his principal office in such place as the
Corporation's Board of Directors and Employee may from time to time agree.
4. Salary. Corporation shall pay to Employee as compensation for his services
the sum of $100,000.00 per year from May 15, 1997 until September 1, 1997.
Being September 1, 1997 the rate increases to $125,000.00 per year. The
amount shall be paid in equal biweekly installments.
5. Additional Compensation. A performance bonus shall be paid annually. The
bonus will be determined and based upon the net profits of Corporation for
each year.
6. Stock Options. Employee shall have the option of purchasing 400,000 shares
of common stock of the Corporation at bid on the date this agreement is
signed, upon the following terms and conditions. The right to exercise such
option to purchase 150,000 shares of stock to be issued by the Corporation
shall become vested upon execution of this agreement. The right to purchase
150,000 shares shall vest on December 1, 1997 provided this agreement shall
not have been terminated. The right to purchase the remaining 100,000 shares
shall vest on September 1, 1998 provided this agreement shall not have been
terminated. The above shares shall be part of a Qualified Stock Option Plan.
In addition to the foregoing Employee shall have the right to purchase as
additional
<PAGE>
500,000 shares to be issued by the Corporation at .10 cents per share upon
the Corporation successfully completing a offering of 5.0 million shares of
Corporation stock or $5,000,000 which ever is lower or achieving $1,000,000
net profit at the end of a fiscal year, these shares will be part of an
Unqualified Option Plan.
In the event that the Corporation or more than 50% of its outstanding shares
shall be sold to one person or entity or Corporation shall merge with
another entity then Employees right to exercise all of the aforesaid options
may be exercised by him upon such sale or merger.
7. Insurance benefits. The Corporation shall maintain insurance programs,
including but not limited to, full medical and dental insurance expense
coverage plans for the benefit of Employee and his family, as well as life
insurance on the life of Employee with beneficiaries designated by him in an
amount equal to at least two times his annual salary. The employee may elect
to have the Corporation reimburse employee for some or all of the above
coverage.
8. Expenses.
a. Reimbursement. The Corporation shall reimburse Employee for all
reasonable and necessary expenses incurred in carrying out his duties
under this agreement. Employee shall present to the Corporation from
time to time an itemized account of such expenses in any form required
by the Corporation.
b. Automobile. The Corporation recognizes the Employee's need for an
automobile for business purposes. It, therefore, shall provide or
reimburse Employee's cost for a leased automobile, including all
related maintenance, repairs, insurance, and other costs. The
automobile shall be of a value not to exceed $35,00.00 or, if of a
greater value, as authorized by the Board of Directors.
9. Termination. This agreement may be terminated for the following reasons:
a. For Cause: Corporation may terminate this agreement for cause because
of Employee's gross and intentional failure to perform the duties of
President and Chief Executive Officer of Corporation.
b. Disability: employer shall have the right to terminate this agreement
on 30 days notice to Employee if, because of mental or physical
disability Employee shall be determined by competent medical authority
to be incapable for a period of 90 days from fully performing any or
all of his obligations as President and Chief Executive Officer of
Corporation. In this event Corporations obligations under this
agreement shall terminate 52 weeks after the determination of such
disability.
- 2 -
<PAGE>
c. Convenience of the Corporation: In the event Employee's employment is
terminated by the Corporation for reasons of convenience to the
Corporation and not due to any cause as provided above, the Corporation
agrees to provide to employee written notice 90 days prior to the
effective date of termination plus one years salary in addition to the
balance of salary due under the terms of this agreement.
10. Additional Agreement. The employee may at its option acquire the rights and
title to the Victoria Station located in Virginia Gardens, Florida on the
following terms and conditions: The employee may elect to apply the monetary
provisions of 9 (b) or 9 (c) to the purchase price. The price shall be equal
to the Companies purchase price for the business plus the deprecated value
of improvements. The price will include all beverage and operating
licensees, lease and equipment free and clear of all debts. The balance of
the purchase price (the difference between the compensation due under
provisions 9 (b) or 9 (c)) will be in the form of a 10 year note at 10%
interest with a 5 year balloon.
11. Indemnity. Corporation shall indemnify Employee and hold him harmless for
all acts or decisions made by him in good faith which performing services
for the Corporation. Corporation shall use its best efforts to obtain
insurance coverage for him covering his acts or decisions during the terms
of his employment against lawsuits. Corporation shall pay all expenses
including attorneys fees actually and necessarily incurred by employee in
connection with the defense of such act or decision in any suit or
proceeding and in connection with any related appeal including the cost of
settlement.
12. Notices. All notices required or permitted to be given under this agreement
shall be given by certified mail, return receipt requested, to the parties
at the following addresses or to such other addresses as either may
designate in writing to the other party:
If to Corporation:
Carnegie International Corporation
If to Employee:
Lowell Farkas
69 Country Club Drive
Woodbridge, CT 06525
13. Governing Law. This agreement shall be construed and enforced in accordance
with the laws of the State of Maryland.
- 3 -
<PAGE>
14. Entire Contract. This agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to all matters
herein. There are no other agreements, conditions or representations, oral
or written, express or implied, with regard thereto. This agreement may be
amended only in writing, signed by both parties.
15. Headings. Headings in this agreement are for convenience only and shall not
be used to interpret or construe its provisions.
16. Counterparts. This agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same agreement.
17. Binding Effect. The provisions of this agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns.
In Witness Whereof, Corporation has by its appropriate officers, signed and
affixed its seal and Employee has signed and sealed this agreement.
CORPORATION
ATTEST: Carnegie International Corporation
/s/ BY: /s/ David Pearl
DAVID PEARL, CORPORATE SECRETARY
WITNESS: EMPLOYEE
/s/ BY: /s/ Lowell Farkas
LOWELL FARKAS
- 4 -
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
It is this 30th day of June, 1998 and the Corporation desires to amend the
Employment Agreement now in place with Lowell Farkas as follows:
1. The term of the Employment Agreement is extended through August 30,
2003
2. Commencing September 1, 1998 thru August 31, 1999 Mr. Farkas will be
paid a salary of $150,000/year.
3. Commencing September 1, 1999 thru August 30, 2003 Mr. Farkas will be
paid a salary of $200,000/year.
In all other respects, the Employment Agreement with Mr. Farkas now in place,
shall remain the same.
In Witness Whereof, the Employee and the Corporation has this Agreement.
WITNESS:
/s/ /s/ Lowell Farkas
Lowell Farkas, Employee
CARNEGIE INTERNATIONAL CORPORATION
/s/ /s/ E. David Gable
By: E. David Gable, Chairman
- 5 -
EXHIBIT 10.2
<PAGE>
It is this 8th day of April, 1998 agreed by and between Carnegie International
Corporation, with an office and place of business at 11350 McCormick Drive,
Suite 1001, Executive Plaza III, Hunt Valley, MD., 21031 (hereinafter called
"Corporation"), duly authorized by its Board of Directors, and E. David Gable
(hereinafter called "Employee").
Corporation desires to employ Employee as Chairman of the Board of Directors and
Chief Operating Officer of the Corporation under the terms and conditions set
forth herein and Employee desires to be so employed.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Employment. Corporation agrees to employ Employee and Employee agrees to be
so employed in the capacity of Chairman of the Board and Chief Operating
Officer. Heretofore, employee has served as a consultant.
2. Term. Employment shall be for a term of five (5) years commencing on April
8, 1998, unless the Employee shall have received written notification from
the Board of Directors of Corporation that this Employment Agreement will
not be renewed at least 90 days prior to its expiration, then this Agreement
shall be extended, without further formalities, on the same terms and
conditions.
3. Salary. Corporation shall provide to Employee as a compensation for his
services $200,000.00 compensation.
4. Insurance Benefits. The Corporation shall maintain medical and dental
insurance programs. The Corporation shall pay 100% of the expense incurred
for these for the Employee and his family.
5. Additional Compensation. A performance bonus shall be paid annually. The
bonus will be determined and based upon the net profits of the Corporation
for each year. Employee will be entitled to a company automobile.
6. Stock Options. Employee shall have the option of purchasing 1,000,000 shares
of common stock of the Corporation at the bid price on the date this
Agreement is signed, or $.45 per share, upon the following terms and
conditions:
(i) The right to exercise such option to purchase 1,000,000 shares of
stock to be issued by the Corporation shall become vested when the
Corporation has a consolidated pre-tax net income of $1,000,000 or
more in 2 consecutive quarters. These quarters can include the time
when employee was a consultant to the Corporation. The above shares
shall be part of a qualified stock option plan if one has been
established by the Corporation at the time of the exercise of the
option.
(ii) The options must be exercised no later than December 31, 1999 or the
options will become void.
<PAGE>
(iii) In addition to the foregoing, Employee shall have the right to
purchase an additional 500,000 shares to be issued by the Corporation
at $.10 per share upon the Corporation successfully completing an
Offering of 5,000,000 shares of Corporate stock or $5,000,000
whichever is lower. These shares will be part of an Unqualified Option
Plan.
7. Expenses. Reimbursement. The Corporation shall reimburse Employee for all
reasonable and necessary expenses incurred in carrying out his duties under
this Agreement. Employee shall present to the Corporation an itemized
account of such expenses in any form required by the Corporation.
8. Termination. This Agreement may be terminated for the following reasons:
(a) For Cause: Corporation may terminate this Agreement for cause because
of Employee's gross and intentional failure to perform the duties of
Chief Operating Officer.
(b) Disability: Employer shall have the right to terminate this Agreement
on 30 days notice to Employee if, because of mental or physical
disability Employee shall be determined by competent medical authority
to be incapable for a period of 90 days from fully performing any or
all of his obligations of his position within the Corporation. In this
event Corporation's obligations under this Agreement shall terminate
52 weeks after the determination of such disability.
(c) Convenience of the Corporation: In the event Employee's employment is
terminated by the Corporation for reasons of convenience of the
Corporation and not due to any cause as provided above, the
Corporation agrees to provide to Employee written notice 90 days prior
to the effective date of termination plus five (5) years salary to the
balance of salary due under the terms of this Agreement.
9. Indemnity. Corporation shall indemnify Employee and hold him harmless for
all acts or decisions made by him in good faith while performing services
for the Corporation. Corporation shall use its best efforts to obtain
insurance coverage for him covering his acts or decisions during the term of
his employment against lawsuits. Corporation shall pay all expenses
including attorneys fees actually and necessarily insured by Employee in
connection with the defense of such act or decision in any suit or
proceeding and in connection with any related appeal including the cost of
settlement.
10. Notices. All Notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the following addresses or to such other addresses as either may
designate in writing to the other party.
- 2 -
<PAGE>
If to the Corporation:
Carnegie International Corporation
11350 McCormick Rock, Suite 1001
Executive Plaza III
Hunt Valley, MD 21031
If to Employee:
E. David Gable
1612 Lyndale Ct.
Bel Air, MD 21014
11. Governing Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of Maryland.
12. Entire Contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to all matters
herein. There are no other agreements, conditions, or representatives, oral
or written, express or implied, with regard thereto. This Agreement may be
amended only in writing, signed by both parties.
13. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
14. Binding Effect. The provisions of this Agreement shall be binding upon the
inure to the benefit of both parties and their respective successors and
assigns.
In Witness Whereof, Corporation has by its appropriate officers, signed and
affixed its seal and Employee has signed and sealed this Agreement.
ATTEST CARNEGIE INTERNATIONAL CORPORATION
/s/ By: /s/ Lowell Farkas
Lowell Farkas, President
WITNESS EMPLOYEE
/s/ By: /s/ E. David Gable
David Pearl
- 3 -
EXHIBIT 10.3
<PAGE>
EMPLOYMENT AGREEMENT
It is this 8th day of April, 1998 agreed by and between Carnegie International
Corporation, with an office and place of business at 11350 McCormick Drive,
Suite 1001, Executive Plaza III, Hunt Valley, MD., 21031 (hereinafter called
"Corporation"), duly authorized by its Board of Directors, and David Pearl
(hereinafter called "Employee").
Corporation desires to employ Employee and Employee agrees to be so employed in
the capacity of Corporate Secretary of the Corporation under the terms and
conditions set forth herein and Employee desires to be so employed.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Employment. Corporation agrees to employ Employee and Employee agrees to be
so employed in the capacity of Corporate Secretary. Heretofore, employee has
served as Secretary, and briefly as Acting Treasurer, but without an
employment contract.
2. Term. Employment shall be for a term of one (1) year commencing on April 8,
1998, unless the Employee shall have received written notification from the
Board of Directors of Corporation that this Employment Agreement will not be
renewed at least 90 days prior to its expiration, then this Agreement shall
be extended, without further formalities, on the same terms and conditions.
3. Salary. Corporation shall provide to Employee as a compensation for his
services $75,000.00 compensation.
4. Insurance Benefits. The Corporation shall maintain medical and dental
insurance programs. The Corporation shall pay 100% of the expense incurred
for these for the Employee and his family.
5. Additional Compensation. A performance bonus shall be paid annually. The
bonus will be determined and based upon the net profits of the Corporation
for each year. Employee will be entitled to a company automobile.
6. Stock Options. Employee shall have the option of purchasing 250,000 shares
of common stock of the Corporation at the bid price on the date of this
agreement, or $.45 per share. These shares shall be part of a qualified
stock option plan if one has been established by the Corporation at the time
of the exercise of the option. These options must be exercised no later than
12/31/01 or the option will become void. In addition, employee shall have
the right to purchase an additional 100,000 shares to be issued by the
Corporation at $.10 per share upon the Corporation successfully completing
an Offering of 5,000,000 shares of Corporate stock or $5,000,000, whichever
is lower. These shares will be part of an unqualified option plan.
<PAGE>
7. Expenses. Reimbursement. The Corporation shall reimburse Employee for all
reasonable and necessary expenses incurred in carrying out his duties under
this Agreement. Employee shall present to the Corporation an itemized
account of such expenses in any form required by the Corporation.
8. Termination. This Agreement may be terminated for the following reasons:
(a) For Cause: Corporation may terminate this Agreement for cause because
of Employee's gross and intentional failure to perform the duties of
Corporate Secretary.
(b) Disability: Employer shall have the right to terminate this Agreement
on 30 days notice to Employee if, because of mental or physical
disability Employee shall be determined by competent medical authority
to be incapable for a period of 90 days from fully performing any or
all of his obligations of his position within the Corporation. In this
event Corporation's obligations under this Agreement shall terminate
52 weeks after the determination of such disability.
(c) Convenience of the Corporation: In the event Employee's employment is
terminated by the Corporation for reasons of convenience of the
Corporation and not due to any cause as provided above, the
Corporation agrees to provide to Employee written notice 90 days prior
to the effective date of termination plus six (6) months salary to the
balance of salary due under the terms of this Agreement.
9. Indemnity. Corporation shall indemnify Employee and hold him harmless for
all acts or decisions made by him in good faith while performing services
for the Corporation. Corporation shall use its best efforts to obtain
insurance coverage for him covering his acts or decisions during the term of
his employment against lawsuits. Corporation shall pay all expenses
including attorneys fees actually and necessarily insured by Employee in
connection with the defense of such act or decision in any suit or
proceeding and in connection with any related appeal including the cost of
settlement.
10. Notices. All Notices required or permitted to be given under this Agreement
shall be given by certified mail, return receipt requested, to the parties
at the following addresses or to such other addresses as either may
designate in writing to the other party.
If to the Corporation:
Carnegie International Corporation
11350 McCormick Rock, Suite 1001
Executive Plaza III
Hunt Valley, MD 21031
- 2 -
<PAGE>
If to Employee:
David Pearl
101 Masters Court
Westminster, MD 21158
11. Governing Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of Maryland.
12. Entire Contract. This Agreement constitutes the entire understanding and
agreement between the Corporation and Employee with regard to all matters
herein. There are no other agreements, conditions, or representatives, oral
or written, express or implied, with regard thereto. This Agreement may be
amended only in writing, signed by both parties.
13. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
14. Binding Effect. The provisions of this Agreement shall be binding upon the
inure to the benefit of both parties and their respective successors and
assigns.
In Witness Whereof, Corporation has by its appropriate officers, signed and
affixed its seal and Employee has signed and sealed this Agreement.
ATTEST CARNEGIE INTERNATIONAL CORPORATION
/s/ By: /s/ Lowell Farkas
Lowell Farkas, President
WITNESS EMPLOYEE
/s/ By: /s/ David Pearl
David Pearl
- 3 -
EXHIBIT 10.4
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
1998 STOCK OPTION PLAN
1. Purpose. The purpose of this 1998 STOCK OPTION PLAN ("Plan") is to
further the interests of CARNEGIE INTERNATIONAL CORPORATION (the "Company") by
providing incentives for directors, officers and employees of the Company or a
subsidiary who may designated for participation therein and to provide
additional means of attracting and retaining competent personnel. The options
granted hereunder may be Incentive Stock Options as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or Non-Qualified
Stock Options which are not intended to be Incentive Stock Options.
2. Administration. The Plan shall be administered by committee of not
less than two (2) directors appointed by the Board of Directors of the Company
(the "Committee"). Subject to the provisions of the Plan and applicable law, the
Committee is authorized to interpret the Plan and to prescribe, amend and
rescind rules and regulations relating to the Plan and to any options granted
thereunder, and to make all other determinations necessary or advisable for the
administration of the Plan. No member of the Committee shall vote upon or decide
any matter relating to himself or a member of his immediate family or to any of
his rights or benefits (or rights or benefits of a member of his immediate
family) under the Plan. The Board may remove members, add members and fill
vacancies on the Committee from time to time. No member of the Board or the
Committee shall be liable for any action made in good faith with respect to the
Plan or any options granted hereunder.
3. Limitation on Aggregate Shares; Adjustments. The Company has
reserved 2,000,000 shares of its common stock, no par value (the "Shares"), for
issuance upon the exercise of options granted under this Plan. If any option
granted under the Plan shall terminate, be forfeited or expire unexercised, in
whole or in part, the Shares so released from option shall be available for
future options granted under the Plan. The Company shall reserve and keep
available such number of Shares as will satisfy the requirements of all
outstanding options granted under the Plan. Appropriate adjustment shall be made
to the number of Shares available for the grant of options and the number of
Shares which are subject to outstanding options granted under this Plan in order
to give effect to any stock splits, stock dividends, or other relevant changes
in the capitalization of the Company occurring after the adoption of this Plan
by the Board of Directors of the Company. The decision of the Committee as to
the amount and timing of any such adjustment shall be conclusive.
4. Grant of Options.
(a) The Committee shall determine and designate from time to time
those directors, officers and employees of the Company or a subsidiary of the
Company to whom options are to be granted and who thereby become participants in
the Plan. The Committee may grant to such participants options to purchase
Shares in such amounts as the Committee shall from time to time determine.
Participation in the Plan shall not confer any right of continuation of service
as an employee of the Company or of any subsidiary.
<PAGE>
(b) The granting of an option shall take place only when a written
Option Agreement substantially in the form of Exhibit A hereto is executed by
the Company and the participant and delivered to the participant. All options
under this Plan shall be evidenced by such written Option Agreement between the
Company and the optionee. Such Option Agreement shall contain such further terms
and conditions, not inconsistent with the foregoing, related to the grant or the
time or times of exercise of options as the Committee shall prescribe.
5. Option Exercise Price.
(a) In the case of Incentive Stock Options, the option exercise
price per Share shall be Fair Market Value of the common stock of the Company on
the date preceding the date of grant, except that if the grantee then owns stock
of the Company possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company (a "Ten Percent
Shareholder"), the option exercise price per Share shall be one hundred and ten
percent (110%) of Fair Market Value.
(b) In the case of Non-Qualified Stock Options, the option
exercise price per Share shall be the price determined by the Committee in its
discretion.
(c) The term "Fair Market Value" shall mean (i) if the common
stock of the Company is listed on any established national or regional stock
exchange, or quoted on the National Association of Security Dealers Automated
Quotation System, or publicly traded in an established securities market, the
closing price on such exchange or system or in such market and (ii) if there is
no such closing price, the mean between the highest bid and lowest asked price
on such date or the closest date to the date of grant that such bid and asked
prices are available.
6. Exercise Period. Each option granted under the Plan will expire on
the 10th anniversary of the date the option was granted except (i) as otherwise
specified by the Committee in the Option Agreement, or (ii) on the 5th
anniversary of the date the option was granted in the case of a Ten Percent
Shareholder.
7. Limitation Upon Transfer of Options. No option shall be transferable
by an optionee otherwise than by will or the laws of descent and distribution.
Options shall be exercisable only by the optionee during his or her lifetime and
only in the manner set forth herein. Options may not be assigned, pledged or
hypothecated, and shall not be subject to execution, attachment or similar
process. Upon any attempt to transfer an option, or to assign, pledge,
hypothecate or otherwise dispose of an option in violation of this provision, or
upon the levy of any attachment or similar process upon such option or such
rights, this option shall immediately lapse and become null and void.
- 2 -
<PAGE>
8. Termination of Options.
(a) In the event of the termination of employment or other
relationship of an optionee (including a director) for any reason other than
death, all unexercised options of the optionee will terminate, be forfeited and
will lapse unless such options are exercised by the optionee (or his or her
personal representative) within 90 days after the optionee's employment or other
relationship with the Company is terminated.
(b) In the vent of the death of an optionee, the option may be
exercised by the personal representative, administrator or a person who acquired
the right to exercise any such option by bequest, inheritance or death of the
optionee, within one year after the death of the optionee.
9. Exercise of Options. To exercise an option, the optionee (or his or
her successor) shall give written notice to the Company's Secretary at the
Company's principal place of business accompanied by full payment for the Shares
being purchased and a written statement that the Shares are purchased for
investment and not with a view toward distribution; however, this statement will
not be required in the event the Shares subject to the option are registered
under the Securities Act of 1933, as amended. If the option is exercised by the
successor of an optionee following his or her death, proof shall be submitted,
satisfactory to the Committee, of the right of the successor to exercise such
deceased optionee's option.
10. Manner of Payment. An Optionee may pay the option price for the
Shares being purchased upon exercise of the option either (i) in cash or by
check made payable to the order of the Company, (ii) with Shares of the Company,
to the extent the Fair Market Value of such Shares on the date of exercise
equals the option price for the Shares being purchased, or (iii) a combination
of (i) and (ii) above. The Company shall have the right to withhold and deduct
from the number of Shares deliverable upon the exercise of any options hereunder
a number of Shares having an aggregate Fair Market Value equal to the amount of
any taxes and other charges that the Company is obligated to withhold or deduct
from amounts payable to the participant.
11. Shares Certificates. Certificates representing Shares issued
pursuant to this Plan which have not been registered under the Securities Act of
1933 shall bear a legend to the following effect:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred unless registered under the provisions of that
Act or if an exemption from registration is available."
The Company shall not be required to transfer or deliver any
certificate or certificates for Shares purchase upon any exercise of an option:
(i) until after compliance with
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<PAGE>
all then applicable requirements of law; and (ii) prior to admission of such
Shares to listing on any stock exchange on which the Company's outstanding
Shares may then be listed. In no event shall the Company be required to issue
fractional Shares to an optionee.
12. Registration. If the Company shall be advised by its counsel that
Shares deliverable upon any exercise of an option are required to be registered
under the Securities Act of 1933, or that the consent of any other authority is
required for their issuance, the Company may effect such registration or obtain
such consent, and delivery of the Shares by the Company may be deferred until
such registration is effected or consent obtained.
13. Issuance of Shares. No Shares shall be issued until full payment
such Shares has been made. An optionee shall have no rights as a shareholder
with respect to optioned Shares until the date the option shall have been
properly exercised and all conditions to the exercise of the option and purchase
of Shares shall have been complied with in all respects to the satisfaction of
the Company. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such option is
exercised, except as otherwise provided herein.
14. Amendments and Termination. The Board of Directors may amend,
suspend, discontinue or terminate the Plan, but no such action may, without the
consent of the holder of any option granted hereunder, alter or impair such
option, except as provided in this Plan.
15. Period of Plan.
(a) The Plan has been adopted by the Board of Directors on, and,
subject to subsection (b) hereof, the Plan shall be effective as of, July 15,
1998. Unless extended or earlier terminated by the Board of Directors, the Plan
shall continue in effect until, and shall terminate on, the tenth anniversary of
the effective date of the Plan. Unless so extended no additional options may be
granted on or after the tenth anniversary of the effective date hereof.
(b) The effectiveness of all options granted under this Plan are
subject to the approval of this Plan by the shareholders of the Company within
12 months after the date this Plan was adopted by the Board of Directors, as
specified above.
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<PAGE>
EXHIBIT A
CARNEGIE INTERNATIONAL CORPORATION
1998 STOCK OPTION AGREEMENT
THIS AGREEMENT is made this ____ day of_____________, 19__, by and
between CARNEGIE INTERNATIONAL CORPORATION, a Colorado corporation (the
"Company"), and _____________________________ (the "Optionee).
WHEREAS, the Board of Directors of the Company considers it desirable
and in the Company's interest that the Optionee be given an opportunity to
purchase its shares of common stock, no par value ("Shares"), pursuant to the
terms and conditions of the Company's 1998 Stock Option Plan (the "Plan") to
provide an incentive for the Optionee and to promote the interests of the
Company.
NOW, THEREFORE, it is agreed as follows:
1. Grant of Option. The Company hereby grants to Optionee an option to
purchase from the Company ________________ Shares ("Option Shares") at the
exercise price per Share set forth below. Subject to earlier expiration or
termination of the option granted hereunder, this option shall expire on the
10th anniversary of the date hereof.
2. Period of Exercise of Option. The Optionee shall be entitled to
exercise the Option granted hereunder to purchase that number of Option Shares
on and after the date and at the exercise price set forth below:
Exercise Date No. of Shares Exercise Price Per Share
in each case, together with the number of Option Shares which Optionee was
theretofore entitled to purchase.
3. Additional Exercise Periods.
(a) In the event of the death of the Optionee, the option may be
exercised to the extent it was exercisable on the date of death by the personal
representative, administrator or a person who acquired the right to exercise any
such option by bequest, inheritance or death of the
- 5 -
<PAGE>
Optionee, within one year after the date of death of the Optionee. After such
period, this option will terminate, be forfeited and lapse.
(b) In the event of the termination of the Optionee's employment
for any reason other than death, the option may be exercised by the Optionee to
the extent that it was exercisable on the date of termination of the Optionee's
employment within ninety (90) days after such termination. After such period
this Option will terminate, be forfeited and lapse.
4. Method of Exercise. In order to exercise the options granted
hereunder, Optionee must give written notice to the Secretary of the Company at
the Company's principal place of business, substantially in the form of Exhibit
A hereto, accompanied by full payment of the exercise price for the Option
Shares being purchased, in accordance with the terms and provisions of the Plan.
5. Manner of Payment. An Optionee may pay the option price for Shares
purchased upon exercise of this Option either (i) in cash or by check payable to
the order of the Company, (ii) with Shares of the Company, to the extent the
Fair Market Value of such Shares on the date of exercise equals the option price
for the Shares purchased, (iii) with options to purchase Shares to the extent of
the difference between the exercise price of such options and the Fair Market
Value of the Shares subject to such options (i.e., the spread) or (iv) a
combination of (i), (ii) and (iii) above. The Company shall have the right to
withhold and deduct from the number of Shares deliverable upon the exercise of
any options hereunder a number of Shares having an aggregate Fair Market Value
equal to the amount of taxes and other charges that the Company is obligated to
withhold or deduct from amounts payable to the participant.
6. Limitation upon Transfer. This Option may not be transferred by the
Optionee other than by will and the laws of descent and distribution as stated
above, may not be assigned, pledged or hypothecated, and shall not be subject to
execution, attachment or similar process. This Option is exercisable only by the
Optionee during his or her lifetime, and only in the manner set forth herein.
Upon any attempt to transfer this Option, or to assign, pledge, hypothecate or
otherwise dispose of this Option in violation of this provision, or upon the
levy of any attachment or similar process upon such Option or such rights, this
Option shall immediately lapse and become null and void.
7. Plan; Applicable Law. This Option Agreement is subject in all
respects to the provisions of the Plan, a copy of which has been provided to the
Optionee. This Option Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado, excluding its provisions relating to
conflicts of laws.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
CARNEGIE INTERNATIONAL CORPORATION
By:_____________________________(SEAL)
OPTIONEE:
________________________________(SEAL)
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<PAGE>
EXHIBIT A
Date:_____________________
Secretary
CARNEGIE INTERNATIONAL CORPORATION
To the Secretary:
I hereby exercise my option to purchase ______________ shares of common
stock, no par value ("Shares"), of Carnegie International Corporation accordance
with the terms set forth in the Carnegie International Corporation 1998 Stock
Option Agreement.
In full payment for such exercise, please find enclosed
|_| check in the amount of $____________
|_| Shares having a Fair Market Value of $__________
I authorize the Company to withhold a number of Shares equal to any withholding
obligation applicable to me.
Very truly yours,
-----------------------------------
-----------------------------------
Print Name
- 8 -
EXHIBIT 10.5
<PAGE>
AGREEMENT
CONCERNING THE EXCHANGE OF STOCK
BETWEEN
A&W CORPORATION, INC.
AND
GRANDNAME LIMITED
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
EXCHANGE OF SECURITIES............................................ 1
1.1 Exchange of Shares....................................... 1
1.2 Exemption from Registration.............................. 1
1.3 Tax-Free Reorganization.................................. 2
1.4 Costs.................................................... 2
1.5 Rights and Privileges.................................... 2
1.6 Additional Documentation................................. 2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF GRANDNAME....................... 2
2.1 Organization............................................. 2
2.2 Capital.................................................. 3
2.3 Subsidiaries............................................. 3
2.4 Directors and Officers................................... 3
2.5 Financial Statements..................................... 3
2.6 Absence of Changes....................................... 4
2.7 Absence of Undisclosed Liabilities....................... 4
2.8 Tax Returns.............................................. 4
2.9 Investigation of Financial Condition..................... 4
2.10 Patents, Trade Names and Rights.......................... 4
2.11 Compliance with Laws..................................... 4
2.12 Litigation............................................... 4
2.13 Authority................................................ 5
2.14 Ability to Carry Out Obligations......................... 5
2.15 Full Disclosure.......................................... 5
2.16 Assets................................................... 6
2.17 Material Contracts.............................. 6
2.18 Indemnification.......................................... 6
2.19 Indemnification of Officers and Directors................ 6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF A&W............................. 6
3.1 Organization............................................. 6
3.2 Capital.................................................. 7
3.3 Subsidiaries............................................. 7
3.4 Directors and Officers................................... 7
- i -
<PAGE>
Page
3.5 Financial Statements..................................... 7
3.6 Absence of Undisclosed Liabilities....................... 7
3.7 Tax Returns.............................................. 7
3.8 Investigation of Financial Condition..................... 7
3.9 Patents, Trade Name and Rights........................... 8
3.10 Compliance with Laws..................................... 8
3.11 Litigation............................................... 8
3.12 Authority................................................ 8
3.13 Shareholder Approval..................................... 8
3.14 Ability to Carry Out Obligations......................... 8
3.15 Full Disclosure.......................................... 9
3.16 Assets................................................... 9
3.17 Material Contracts....................................... 9
3.18 Indemnification.......................................... 9
3.19 Subsequent Filings....................................... 9
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
GRANDNAME AND ITS SHAREHOLDERS.................................... 9
4.1 Share Ownership.......................................... 9
4.2 Investment intent........................................ 10
4.3 Rules 144 and 145........................................ 10
4.4 Legend................................................... 10
ARTICLE V.
COVENANTS......................................................... 11
5.1 Investigative Rights..................................... 11
5.2 Conduct of Business...................................... 11
ARTICLE VI.
CONDITIONS PRECEDENT TO A&W'S PERFORMANCE......................... 11
6.1 Conditions............................................... 11
6.2 Agreement to Register Restricted Shares.................. 11
6.3 Accuracy of Representations.............................. 12
6.4 Performance.............................................. 12
6.5 Absence of Litigation.................................... 12
6.6 Officer's and Shareholder's Certificate.................. 12
6.8 Legal Opinion............................................ 12
- ii -
<PAGE>
Page
ARTICLE VII.
CONDITIONS PRECEDENT TO GRANDNAME'S AND
THE GRANDNAME SHAREHOLDERS' PERFORMANCE........................... 12
7.1 Conditions............................................... 12
7.2 Accuracy of Representations.............................. 13
7.4 Absence of Litigation.................................... 13
7.5 Directors of A&W......................................... 13
7.6 Officers of A&W.......................................... 13
7.7 Officer's Certificate.................................... 13
7.8 Legal opinion............................................ 14
ARTICLE VIII.
CLOSING........................................................... 14
8.1 Closing.................................................. 14
8.2 Conditions Precedent to Closing.......................... 15
ARTICLE IX.
MISCELLANEOUS..................................................... 15
9.1 Captions and Headings.................................... 15
9.2 No Oral Change........................................... 15
9.3 Non-Waiver............................................... 16
9.4 Time of Essence.......................................... 16
9.5 Entire Agreement......................................... 16
9.6 Choice of Law............................................ 16
9.7 Counterparts............................................. 16
9.8 Notices.................................................. 16
9.9 Binding Effect........................................... 17
9.10 Mutual Cooperation....................................... 17
9.11 Brokers.................................................. 17
9.12 Announcements............................................ 17
9.13 Expenses................................................. 17
9.14 Survival of Representations and Warranties............... 17
9.15 Exhibits................................................. 17
- iii -
<PAGE>
AGREEMENT
THIS AGREEMENT made this 1st day of March, 1996 by and between A&W
CORPORATION, INC. ("A&W"), and GRANDNAME LIMITED, a British Virgin Islands
corporation ("Grandname") and the representative of each of the shareholders of
Grandname, whose name appears on the signature page of this Agreement (the
"Grandname Shareholders").
WHEREAS, A&W is a public corporation, having registered certain of its
securities under the Securities Act of 1933, as set forth in that certain
Registration Statement bearing File Number 33-2-88941 as amended (which is
hereby incorporated by reference); and
WHEREAS, Grandname is a closely held British Virgin Islands
corporation, which intends to exchange shares of the corporations described
below in exchange for A&W shares;
WHEREAS, A&W desires to acquire all of the issued and outstanding
common stock of Electronic Card Acceptance corporation ("ECAC") and DAR Products
Corporation ("DAR") from Grandname, making ECAC and DAR wholly owned
subsidiaries of A&W; and
WHEREAS, the respective Boards of Directors of the Companies have
adopted Plans of Reorganization to effect the transactions contemplated herein
and have submitted same to the respective shareholders; and
WHEREAS, each of the parties desires to assist the others in effecting
the transaction pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt and
sufficiency of which is hereby acknowledged, on the following terms and
conditions:
ARTICLE I.
EXCHANGE OF SECURITIES
1.1 Exchange of Shares. Subject to all the terms and conditions of this
Agreement, A&W agrees to exchange 16,136,666 previously authorized but unissued
unregistered shares of A&W no par value common stock (after the actions
described in Section 3.13 below) (the "A&W Shares") in exchange for all of the
issued and outstanding shares of ECAC and DAR (the "ECAC and DAR Shares")
1.2 Exemption from Registration. The parties hereto intend that the A&W
Shares to be exchanged to Grandname shall be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act") pursuant to
Section 4(2) of the Act, and the rules and regulations promulgated thereunder
and exempt from the registration requirements of the sister states. In
furtherance thereof, the representative of each Grandname Shareholder will
<PAGE>
execute and deliver to A&W on the closing date an investment letter suitable to
A&W's counsel, in form substantially as per Exhibit 1.2 hereto.
1.3 Tax-Free Reorganization. The parties intend to effect this
transaction as a non-taxable reorganization pursuant to Section 368(a) (1) of
the Internal Revenue Code of 1986, as amended, at least insofar as such
transaction pertains to the A&W Shareholders. A&W shall be the surviving or
parent corporation after the reorganization.
1.4 Costs. Each party shall bear its own costs associated with this
Agreement, the closing of this Agreement, and all ancillary or related measures,
including without limitation, costs of attorney fees, accountancy fees, filing
fees, travel, or other costs or expenses, without right or recourse from the
other except, in the event the exchange of the A&W shares for the ECAC and DAR
Shares is completed, Grandname shall pay the reasonable attorneys' and
accountants' fees of A&W up to $15,000. Grandname shall not be responsible for
any other costs or expenses of A&W.
1.5 Rights and Privileges. Upon closing of this Agreement, Grandname
shall be immediately vested with control of A&W, owning in aggregate
approximately ninety-four percent (94%) of all issued and outstanding shares of
A&W as combined, as shown in Schedule 1.5 hereto. Without further documentation
or action, Grandname may appoint the directors and officers of A&W and shall
otherwise be vested with all rights and privileges associated with ownership of
the issued and outstanding restricted shares. To the extent that the acquisition
of such shares could or might trigger any breach of contract, rights of
reversion or rescission, or other-wise require approvals or consents, A&W by
closing this Agreement, shall fully release and quitclaim any and all rights and
claims as against Grandname, its officers, directors and shareholders arising
therefrom.
1.6 Additional Documentation. The parties acknowledge that further
agreements and documents, in addition to the Exhibits appended or to be appended
hereto, may be required in order to effect the transactions contemplated
hereunder. Each party agrees to provide and execute such other and further
agreements or documentation as, in the opinions of respective counsel, are
reasonably necessary to effect the transactions contemplated hereunder and to
maintain regulatory and legal compliance.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF GRANDNAME
Grandname hereby represents and warrants to A&W that:
2.1 Organization. (a) ECAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has all
necessary corporate powers to own properties and to carry on its business as now
owned and operated by it, and is duly
- 2 -
<PAGE>
qualified to do business and is in good standing in each of the states where its
business requires qualification.
(b) DAR is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all necessary
corporate powers to own properties and to carry on its business as now owned and
operated by it, and is duly qualified to do business and is in good standing in
each of the states where its business requires qualification.
2.2 Capital. (a) The authorized capital stock of ECAC consists solely
of 1, 000 common shares of no par value common stock, of which 1,000 shares are
currently issued and outstanding. All of the issued and outstanding shares of
ECAC are duly and validly issued, fully paid and nonassessable. There are no
outstanding subscriptions, options, rights, warrants, debentures, instruments,
convertible securities or other agreements or commitments obligating ECAC to
issue or to transfer from treasury any additional shares of its capital stock of
any class.
(b) The authorized capital stock of DAR consists solely of 5,000
common shares of no par value of which 1,000 shares are currently issued and
outstanding. All of the issued and outstanding shares of DAR are duly and
validly issued, fully paid and nonassessable. There are no outstanding
subscriptions, options, rights, warrants, debentures, instruments, convertible
securities or other agreements or commitments obligating DAR to issue or to
transfer from treasury any additional shares of its capital stock of any class.
2.3 Subsidiaries. (a) ECAC does not have any subsidiaries or own any
interest in any other enterprise.
(b) DAR does not have any subsidiaries or own any interest in any
other enterprise.
2.4 Directors and Officers. (a) Exhibit 2.4(a) hereto contains the
names and titles of all directors and officers of ECAC as of the date of this
Agreement.
(b) Exhibit 2.4 (b) hereto contains the names and titles of all
directors and officers of DAR as of the date of this Agreement.
2.5 Financial Statements. Grandname has delivered to A&W the audited
financial statements of ECAC as of June 30, 1995 and for the periods then ended,
and those of DAR as of June 30, 1995, respectively and the unaudited financial
statements a& of December 31, 1995 for both companies. The financial statements
have been prepared in accordance with generally accepted accounting principles
and practices consistently followed by ECAC and DAR throughout the periods
indicated, and fairly present the financial position of ECAC and DAR as of the
dates of the balance sheets included in the financial statements and the results
of operations for the periods indicated.
- 3 -
<PAGE>
2.6 Absence of Changes. Since the date of ECAC's and DAR's most recent
financial statements included in the Exhibits, there has not been any change in
the financial conditions or operations of ECAC or DAR, except f or changes in
the ordinary course of business, which changes have not, in the aggregate, been
materially adverse.
2.7 Absence of Undisclosed Liabilities. As of the date of ECAC's and
DAR's most recent balance sheets included in the Exhibits, neither ECAC nor DAR
had any material debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected in such balance sheets.
2.8 Tax Returns. Within the times and in the manner prescribed by law,
ECAC and DAR have filed all federal, state and local tax returns required by law
and have paid all taxes, assessments and penalties due and payable. The
provisions for taxes, if any, reflected in the Exhibits are adequate for the
period indicated. There are no present disputes as to the taxes of any nature
payable by ECAC and DAR.
2.9 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein, A&W and
its legal counsel and accountants shall have the opportunity to meet with the
legal counsel of ECAC and DAR and accountants of ECAC and DAR to discuss the
financial conditions of ECAC and DAR. ECAC and DAR shall make available to A&W
all' books and records of ECAC and DAR.
2.10 Patents, Trade Names and Rights. To the best of its knowledge,
each of ECAC and DAR owns and holds all necessary patents, franchise rights,
trademarks, service marks, trade names, inventions, processes, know-how, trade
secrets, copyrights, licenses and other rights necessary to its business as now
conducted or proposed to be conducted. ECAC and DAR are not infringing upon or
otherwise acting adversely to the right or claimed right of any person with
respect to any of the foregoing.
2.11 Compliance with Laws. ECAC and DAR have complied with, and are not
in violation of, applicable federal, state or local statutes, laws and
regulations (including, without limitation, any applicable building, zoning or
other law, ordinance or regulation) affecting their properties or the operation
of their businesses.
2.12 Litigation. Neither ECAC nor DAR is a party to any suit, action,
arbitration or legal, administrative or other proceeding, or governmental
investigation which is pending or, to the best knowledge of ECAC and DAR,
threatened against or affecting either ECAC or DAR or its business, assets or
financial condition. Neither ECAC nor DAR are in default with respect to any
order, writ, injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality applicable to it. Neither ECAC nor DAR are
engaged in any material lawsuits to recover monies due it.
- 4 -
<PAGE>
2.13 Authority. (a) The Board of Directors of ECAC has authorized the
execution of this Agreement and the consummation of transactions contemplated
herein, and ECAC has full power and authority to execute, deliver and perform
this Agreement, and this Agreement is a legal, valid and binding obligation of
ECAC and is enforceable in accordance with its terms and conditions.
(b) The Board of Directors of DAR has authorized the execution of
this Agreement and the consummation of transactions contemplated herein, and DAR
has full power and authority to execute, deliver and perform this Agreement, and
this Agreement is a legal, valid and binding obligation of DAR and is
enforceable in accordance with its terms and conditions.
(c) The Board of Directors of Grandname has authorized the
execution of this Agreement and the consummation of transactions contemplated
herein, and Grandname has full power and authority to execute, deliver and
perform this Agreement, and this Agreement is a legal, valid and binding
obligation of Grandname and is enforceable in accordance with its terms and
conditions. The ability of Grandname to carry out its obligations under this
Agreement is the same as set forth with respect to ECAC in Section 2.14 as if
Grandname were named in such Section 2.14 in all respects.
2.14 Ability to Carry Out Obligations. (a) The execution and delivery
of this Agreement by ECAC and the performance by ECAC of its obligations
hereunder in the time and manner contemplated will not cause, constitute or
conflict with or result in (a) any breach or violation of any of the provisions
of or constitute a default under any license, indenture, mortgage, instrument,
article of incorporation, bylaw, or other agreement or instrument to which ECAC
is a party, or by which it may be bound, nor will any consents or authorizations
of any party other than those hereto be required; (b) an event that would permit
any party to any agreement or instrument to terminate it or to accelerate the
maturity of any indebtedness or other obligation of ECAC; or (c) an event that
would result in the creation or imposition of any lien, charge or encumbrance on
any asset of ECAC.
(b) The execution and delivery of this Agreement by DAR and the
performance by DAR of its obligations hereunder in the time and manner
contemplated will not cause, constitute or conflict with or result in (a) any
breach or violation of any of the provisions of or constitute a default under
any license, indenture, mortgage, instrument, article of incorporation, bylaw,
or other agreement or instrument to which DAR is a party, or by which it may be
bound, nor will any consents or authorizations of any party other than those
hereto be required; (b) an event that would permit any party to any agreement or
instrument to terminate it or to accelerate the maturity of any indebtedness or
other obligation of DAR; or (c) an event that would result in the creation or
imposition of any lien, charge or encumbrance on any asset of DAR.
2.15 Full Disclosure. None of the representations and warranties made
by Grandname herein or in any exhibit, certificate or memorandum furnished or to
be furnished by
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Grandname, or on its behalf, contains or will contain any untrue statement of
material fact or omit any material fact the omission of which would be
misleading.
2.16 Assets. Each of ECAC and DAR have good and marketable title to all
of its property, free and clear of all liens, claims and encumbrances, except as
otherwise indicated on their respective financial statements.
2.17 Material Contracts. Except as described on Schedule 2.17, neither
ECAC nor DAR have any material contracts.
2.18 Indemnification. Grandname agrees to indemnify, defend and hold
A&W, its officers and directors, harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorney fees, that it shall incur or suffer, which arise out of, result or
relate to any breach of, or failure by Grandname to perform any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or to be furnished
by Grandname under this Agreement. Grandname represents that the indemnification
of this section shall inure to the benefit of A&W and its Shareholders in all
respects. Grandname has conducted an investigation to the satisfaction of
Grandname's counsel.
2.19 Indemnification of Officers and Directors. The parties acknowledge
and agree that prior to execution of this Agreement, each party had separately
adopted resolutions and bylaws affording indemnification, to the fullest extent
permitted by law, of all officers, directors, promoters, attorneys and other
responsible persons, past or present, which arises out of or pertains to any
action or omission taken in good faith while serving in such capacity on behalf
of the Corporation. The parties hereby agree that each shall, to the fullest
extent permitted by law, retain and maintain such indemnification provisions
with respect to its officers and directors and that each party shall hereafter
continuously maintain the fullest indemnification of officers and directors as
permitted by law.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF A&W
A&W represents and warrants to Grandname that:
3.1 Organization. A&W is a corporation duly organized, validly existing
and in good standing under the laws of Colorado, has all necessary corporate
powers to own its properties and to carry on its business as now owned and
operated by it, and is duly qualified to do business and is in good standing in
each of the states where its business requires qualification.
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3.2 Capital. The authorized capital stock of A&W consists of 10,000,000
shares of common stock, no par value of which 10,000,000 shares of common stock
are currently issued and outstanding. All of the issued and outstanding shares
are duly and validly issued, fully paid and nonassessable. Except for options to
purchase 500,000 shares of A&W common stock at $.001 per share in the name of
Robert Willis, there are no outstanding subscriptions, options, rights,
debentures, instruments, convertible securities or other agreements, commitments
or obligations of A&W to issue or to transfer from treasury any additional
shares of its capital stock of any class.
3.3 Subsidiaries. A&W does not have any subsidiaries or own any
interest in any other enterprise.
3.4 Directors and Officers. The names and titles of all directors and
officers of A&W are as set forth in A&W's Disclosure Document and have not
changed as of the date of this Agreement.
3.5 Financial Statements. The audited financial statements of A&W as of
December 31, 1995 and for the period then ended will be promptly submitted to
Grandname. The financial statements have been prepared in accordance with
generally accepted accounting principles and practices consistently followed by
A&W throughout the period indicated, and fairly present the financial
position,of A&W as of the date of the balance sheet included in the financial
statements and the results of operations for the period indicated.
3.6 Absence of Undisclosed Liabilities. As of the date of the updated
financial statements, A&W did not have any material debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected in such balance sheet.
3.7 Tax Returns. A&W has filed federal, state and local income tax
returns for fiscal year 1994. Returns for 1995 have not been filed. Upon
consummation of the closing, Grandname's designated management, as new
management of the Company, will prepare and file all appropriate subsequent
returns. Management of A&W, subsequent to their resignations, shall render
reasonable assistance in providing information necessary for preparation and
filing of appropriate returns. There are no present disputes as to taxes of any
nature payable to or by A&W.
3.8 Investigation of Financial Condition. Without in any manner
reducing or otherwise mitigating the representations contained herein, Grandname
and its legal counsel and accountants shall have the opportunity to meet with
A&W's legal counsel and accountants to discuss the financial condition of A&W.
A&W shall make available to Grandname all books and records of A&W.
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3.9 Patents, Trade Name and Rights. To the best of its knowledge, A&W
is not infringing upon or otherwise acting adversely to the right or claimed
right of any person with respect to any of the foregoing.
3.10 Compliance with Laws. A&W has complied with, and is not in
violation of, applicable federal, state or local statutes, laws and regulations
(including, without limitation, any applicable building, zoning or other law,
ordinance or regulation) affecting its properties or the operation of its
business.
3.11 Litigation. A&W is not a party to any suit, action, arbitration or
legal, administrative or other proceeding, or governmental investigation which
is pending or, to the best knowledge of A&W, threatened against or affecting A&W
or its business, assets or financial condition. A&W is not in default with
respect to any order, writ, injunction or decree of any federal, state, local or
foreign court, department, agency or instrumentality applicable to. it. A&W is
not engaged in any material lawsuits to recover monies due it.
3.12 Authority. The Board of Directors of A&W has authorized the
execution of this Agreement and the consummation of transactions contemplated
herein, and A&W has full power and authority to execute, deliver and perform
this Agreement, and this Agreement is a legal, valid and binding obligation of
A&W and is enforceable in accordance with its terms and conditions.
3.13 Shareholder Approval. Upon execution of this Agreement, A&W shall
notice a special meeting of its shareholders. Ratification of this Agreement by
a two-thirds majority of the shareholders shall be a condition to closing of
this Agreement as shall be amendments to the Articles of Incorporation of A&W
to: (i) approve a reverse split of A&W's Common stock, no par value, to provide
that for each ten (10) shares of A&W Common Stock outstanding, shareholders of
record shall be entitle to receive in exchange therefor one (1) share of such
Common Stock, no par value; (ii) authorize a maximum of 50,000,000 shares of
additional Common Stock; and (iii) authorize the issuance of up to 20 000,000
shares of a new class of $1.00 par value blind; Preferred Stock. All outstanding
options, warrants or other rights to purchase shares of Common Stock of A&W
shall be deemed to be converted into similar rights to purchase shares of Common
Stock of A&W; provided, however, that (x) the number of shares of Common Stock
into which A&W options, warrants or other rights of A&W can be converted shall
be reduced by ninety four percent (94%). In all other respects, the terms of
such options, warrants or other rights shall remain unchanged.
3.14 Ability to Carry Out Obligations. The execution and delivery of
this Agreement by A&W in the time and manner contemplated will not cause,
constitute or conflict with or result in (a) any breach or violation of any of
the provisions of or constitute a default under any license, indenture,
mortgage, instrument, article of incorporation, bylaw, or other agreement or
instrument to which A&W is a party, or by which it may be bound, nor will any
consents or authorizations of any party other than those hereto be required; (b)
an event that
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would permit any party to any agreement or instrument to terminate it or to
accelerate the maturity of any indebtedness or other obligation of A&W; or (c)
an event that would result in the creation or imposition of any lien, charge or
encumbrance on any asset of A&W.
3.15 Full Disclosure. None of the representations and warranties made
by A&W herein or in any exhibit, certificate or memorandum furnished or to be
furnished by A&W, or on its behalf, contains or will contain any untrue
statement of material fact or omit any material fact the omission of which would
be misleading.
3.16 Assets. A&W has good and marketable title to all of its property,
free and clear of all liens, claims and encumbrances, except as otherwise
indicated.
3.17 Material Contracts. A&W has no material contracts.
3.18 Indemnification. A&W agrees to indemnify, defend and hold
Grandname and its shareholders harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including interest, penalties and reasonable
attorney fees, that it shall incur or suffer, which arise out of, result or
relate to any breach of, or failure by A&W to perform any of its
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit or other instrument furnished or to be furnished
by A&W under this Agreement.
3.19 Subsequent Filings. Upon closing, management designated by
Grandname, as new management of A&W, shall prepare and file all required filings
before federal and state authorities as it shall determine, including the
Securities and Exchange Commission and state "blue sky" regulatory authorities.
such filings may include Forms 10-K, SB, 10-QSB, 8-K, if any, as such new
management may deem appropriate.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
GRANDNAME AND ITS SHAREHOLDERS
By execution of Exhibit 1. 2 hereto, Grandname and its shareholders
will represent, among other things, that:
4.1 Share Ownership. The ECAC and DAR Shareholders hold the number of
ECAC and DAR Shares set forth in Exhibit 1.1(A) hereto. Such shares are owned of
record and beneficially by each holder thereof and are not subject to any lien,
encumbrance or pledge of a beneficial interest of any kind. Each ECAC and DAR
Shareholder has the authority to exchange such shares pursuant to this
Agreement.
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4.2 Investment intent. Each ECAC and DAR Shareholder understands that
the A&W Shares are being offered for exchange in reliance upon the exemption
provided in Section 4(2) of the Act for nonpublic offerings and that:
(a) The A&W Shares are being acquired solely for the account of
each ECAC and DAR Shareholder, for investment purposes only, and not with a view
to, or for sale in connection with, any distribution thereof and with no present
intention of distributing or reselling any part of the A&W Shares;
(b) Each ECAC and DAR Shareholder will not dispose of the A&W
Shares or any portion thereof unless and until counsel for A&W shall have
determined that the intended disposition is permissible and does not violate the
Act or any applicable state securities laws, or the rules and regulations
thereunder;
(c) A&W has made all documentation pertaining to all aspects of
the Exchange Offer available to him and to his qualified representatives, if
any, and has offered such person or persons any opportunity to discuss the
Exchange Offer with the officers of A&W.
(d) Each ECAC and DAR Shareholder has relied solely upon A&W's
Disclosure Document to be dated on or before the closing date, and any
independent investigations made by such Shareholder or his representatives;
(e) Each ECAC and DAR Shareholder is knowledgeable and experienced
in making and evaluating investments of this nature and desires to accept the
A&W Shares on the terms and conditions set forth;
(f) Each ECAC and DAR Shareholder is able to bear the economic
risk of an investment in the A&W Shares; and
(g) Each ECAC and DAR Shareholder understands that an investment
in the A&W Shares is not liquid, and such shareholder has adequate means of
providing for current needs and personal contingencies and has no need for
liquidity in this investment.
4.3 Rules 144 and 145. Each ECAC and DAR Shareholder shall furnish
written acknowledgement that the shares are subject to the restrictions of Rules
144 and 145 as promulgated by the Securities and Exchange Commission; that such
shareholder intends to comply with the requirements of said Rules; and a written
representation warranty that none of the restricted shares held by present
stockholders of ECAC and DAR will be offered for sale, except in compliance with
said Rules.
4.4 Legend. Each ECAC and DAR Shareholder acknowledges that the
certificates evidencing the A&W Shares acquired pursuant to this Agreement will
have a legend placed thereon stating that the A&W Shares have not been
registered under the Act or any state
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securities laws and setting forth or referring to the restrictions on
transferability and sale of the A&W Shares as per the standard legend of the
Corporation's transfer agent, for restricted shares.
ARTICLE V.
COVENANTS
5.1 Investigative Rights. From the date of this Agreement until the
closing Date, each party shall provide to the other party, and such other
party's counsel, accountants, auditors and other authorized representatives,
full access during normal business hours and upon reasonable advance written
notice to all of each party's properties, books, contracts, commitments and
records for the purpose of examining the same. Each party shall furnish the
other party with all information concerning each party's affairs as the other
party may reasonably request.
5.2 Conduct of Business. Prior to Closing, A&W and ECAC and DAR shall
each conduct its business in the normal course and shall not sell, pledge or
assign any assets without the prior written approval of the other party, except
in the normal course' of business. None of these corporations shall amend its
Articles of Incorporation or Bylaws (except as may be described in this
Agreement), declare dividends, redeem or sell stock or other securities, incur
additional or newly-funded liabilities, acquire or dispose of fixed assets,
change employment terms, enter into any material or long-term contract,
guarantee obligations of any third party, settle or discharge any balance sheet
receivable for less than its stated amount, pay more on any liability than its
stated amount, or enter into any other transaction other than 'in the normal
course of business. Exceptions to this provision are specifically agreed to be
any contract or agreement, by Grandname, ECAC or DAR relating to any
acquisition, including employment agreements, all of which shall be described to
A&W upon consummation.
ARTICLE VI.
CONDITIONS PRECEDENT TO A&W'S PERFORMANCE
6.1 Conditions. The A&W Shareholders' obligations hereunder shall be
subject to the satisfaction at or before the closing of all the conditions set
forth in this Article VI. A&W may waive any or all of these conditions in whole
or in part without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by A&W of any other condition of or other
rights or remedies, at law or in equity, if Grandname or any Grandname
Shareholders shall be in default of any of its representations, warranties or
covenants under this Agreement.
6.2 Agreement to Register Restricted Shares. In the event that any
restricted shares of any restricted shareholder, officer, director, founding
stockholder, 5% or more shareholder, or other insider of Grandname or any
affiliate of such persons shall be registered for public offering or sale
subsequent to closing, then A&W, at A&W's expense, shall additionally
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offer to register, on a pro rata basis, the remaining restricted shares of the
principal shareholders of A&W set forth on Schedule 6.2, which are all of the
principal shareholders of A&W. Thereafter, upon request of A&W's principal
stockholders to register restricted shares, the corporation shall so register
such shares contemporaneously with the registration of any other restricted
shares and at the sole expense of the Corporation, on the same basis and at the
same time as such other restricted shares shall be registered.
6.3 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Grandname in this Agreement or
in any written statement that shall be delivered to A&W by Grandname under this
Agreement shall be true and accurate on and as of the Closing Date as though
made at that time.
6.4 Performance. Grandname shall have performed, satisfied and complied
with all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
6.5 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against Grandname on or before the Closing Date.
6.6 Officer's and Shareholder's Certificate. Grandname shall have
delivered to A&W certificates dated the Closing Date and signed by the President
of Grandname and the representative of the Grandname Shareholders certifying
that each of the conditions specified herein applicable to them have been
fulfilled.
6.7 Acquisition of Assets by A&W. Grandname shall have consummated the
acquisition of all of the issued and outstanding capital stock of ECAC and DAR,
all of which stock shall be free and clear of all liens, encumbrances, pledges
or other beneficial interest of any kind.
6.8 Legal Opinion. Grandname shall have delivered to A&W the legal
opinion of its counsel substantially in the form set forth in Exhibit 6.8.
ARTICLE VII.
CONDITIONS PRECEDENT TO GRANDNAME'S AND
THE GRANDNAME SHAREHOLDERS' PERFORMANCE
7.1 Conditions. Grandname and the Grandname Shareholders' obligations
hereunder shall be subject to the satisfaction at or before the Closing of all
the conditions set forth in this Article VII. Grandname and the Grandname
Shareholders may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver
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of a condition shall constitute a waiver by Grandname or such Grandname
Shareholders of any other condition of or any of Grandname's or such
Shareholders' other rights or remedies, at law or in equity, if A&W shall be in
default of any of its representations, warranties or covenants under this
Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by A&W in this Agreement or in any
written statement that shall be delivered to Grandname and Grandname
Shareholders by A&W under this Agreement shall be true and accurate on and as of
the Closing Date as though made at that time.
7.3 Performance. A&W shall have performed, satisfied and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
7.4 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened against A&W on or before the Closing Date.
7.5 Directors of A&W. Effective on Closing, A&W shall have fixed the
size of its Board of Directors of not less than three nor more than nine
directors. Each of the present directors of A&W shall have submitted his
resignation as a director of A&W effective on the Closing Date; provided,
however, that for a period of one year after the Closing, Anthony B. Adler shall
act as an observer to all meetings of the Board of Directors. Anthony B. Adler
shall not be entitled to vote on any matter that comes before the Board, but
shall be entitled to receive communications delivered to members of the Board.
Effective on the closing of the transaction contemplated by this Agreement, and
thereafter (until otherwise determined by the shareholders of A&W) the Board of
Directors of the surviving Corporation shall consist of directors designated by
Grandname each of whom shall hold office until the next annual meeting of the
shareholders of A&W, and until his successor shall have been duly elected and
shall have qualified, or until his earlier death, resignation, or removal.
Effective at the closing, the then principal officers of A&W shall
resign and shall be replaced by the persons designated by Grandname each of whom
shall hold office until the next annual meeting of the Board of Directors of A&W
and until his successor shall have been duly elected or appointed and shall have
qualified, or until his earlier death, resignation, or removal.
7.6 Officers of A&W. Effective on the Closing Date, the new Board of
Directors of A&W shall be entitled to elect new officers of A&W.
7.7 Officer's Certificate. A&W shall have delivered to Grandname and
the Grandname Shareholders, a certificate dated the Closing Date and signed by
an authorized officer
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of A&W certifying that each of the conditions specified in Sections 7.1 through
7.8 hereof have been fulfilled.
7.8 Legal opinion. A&W shall have delivered to Grandname the legal
opinion of its counsel substantially in the form set forth in Exhibit 7.8.
ARTICLE VIII.
CLOSING
8.1 Closing. The closing of this transaction shall be held at the
offices of A&W prior to or on about April 1, 1996, or at such other place and
time as is mutually agreeable to the parties. At the closing:
(a) Grandname shall deliver to A&W Copies Of Exhibit 1.2 executed
by Grandname and on behalf of all of its purchasing shareholders;
(b) A&W shall deliver to Grandname certificates or window tickets
representing the number of A&W Shares for which the ECAC and DAR Shares have
been exchanged, pursuant to the share computations set forth in Exhibit 1.1(A)
hereto;
(c) A&W shall deliver (i) an officer's, certificate dated the
Closing Date, that all representations, warranties, covenants and conditions set
forth in this Agreement on behalf of A&W are true and correct as of, or have
been fully performed and complied with by, the Closing Date and (ii) the legal
opinion of counsel as set forth in Exhibit 7.8;
(d) A&W shall deliver a signed consent and/or Minutes of the
Meetings of the Board of Directors of A&W approving this Agreement and each
matter to be approved by the directors of A&W under this Agreement;
(e) Grandname shall deliver (i) an officer's certificate dated the
Closing Date, that all representations, warranties, covenants and conditions set
forth in this Agreement on behalf of Grandname are true and correct as of, or
have been fully performed and complied with by the Closing Date and (ii) the
legal opinion of its, counsel as set forth in Exhibit 6.8 hereto; and
(f) Grandname shall deliver a signed consent and/or minutes of the
directors of Grandname approving this Agreement and each matter to be approved
by the directors of Grandname under this Agreement.
(g) Grandname shall deliver to A&W all certificates representing
the ECAC and DAR equity, duly endorsed for transfer with all applicable taxes
thereon paid.
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<PAGE>
8.2 Conditions Precedent to Closing. Closing shall be contingent upon
the following:
(a) Satisfactory examination and verification of the adequacy and
accuracy of all representations and warranties of the respective parties,
including those contained in the financial statements;
(b) Satisfactory verification that, neither the transactions
contemplated herein nor any other material aspect of the respective companies
shall, in the opinion of counsel, be reasonably likely to cause any stop-order,
litigation, breach of contract, federal, state or local administrative
proceeding, or similar default or defalcation;
(c) Satisfactory verification that each of ECAC and DAR has
certified or certifiable financial statements, prepared by independent auditors,
the comply with the requirements of Regulation SB promulgated by the United
States Securities and Exchange commission.
(d) Satisfactory evidence that all pre-closing conditions or
obligations have been fulfilled or complied with;
(e) Satisfactory evidence that there are no rights of dissent or
appraisal in favor of any ECAC or DAR. Shareholder, no preemptive rights with
respect to any shares or class of shares, no requirement for fairness hearings,
fairness opinions, or similar regulatory processes, and no rights to rescission
or injunctive relief, unless the above rights have been waived or released in
accordance with applicable law; and
(f) Necessary approvals of shareholders, directors, administrative
agencies, or state level corporate commissioners have been obtained.
ARTICLE IX.
MISCELLANEOUS
9.1 Captions and Headings. The article and paragraph headings
throughout this Agreement are for convenience and reference only and shall not
define, limit or add to the meaning of any provision of this Agreement.
9.2 No Oral Change. This Agreement and any provision hereof may not be
waived, changed, modified or discharged orally, but only by an agreement in
writing signed by the party against whom enforcement of any such waiver, change,
modification or discharge is sought.
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9.3 Non-Waiver. The failure of any party to insist in any one or more
cases upon the performance of any of the provisions, covenants or conditions of
this Agreement or to exercise any option herein contained shall not be construed
as a waiver or relinquishment for the future of any such provisions, covenants
or conditions. No waiver by any party of one breach by another party shall be
construed as a waiver with respect to any other subsequent breach.
9.4 Time of Essence. Time is of the essence of this Agreement.and of
each and every provision.
9.5 Entire Agreement. This Agreement contains the entire Agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings.
9.6 Choice of Law. This Agreement and its application shall be governed
by the laws of the State of New York.
9.7 Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.8 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
Anthony B. Adler
A&W Corporation, Inc.
325 Prospect Avenue
Mamaroneck, N.Y. 10543
with a copy to:
Colin Harley; Esq.
2 South Meadow
P.O. Box 264
Woodbury, CT 06738
(203) 263-2469 (phone)
(203) 263-5327 (fax)
and
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Grandname Limited
c/o E. David Gable
3068 Sounding Drive
Edgewood, Maryland 21040
with a copy to:
Edward Obstler, Esq.
Gordon Feinblatt
233 East Redwood Street
Baltimore, Maryland 21202
9.9 Binding Effect. This Agreement shall inure to and be binding upon
the heirs, executors, personal representatives, successors and assigns of each
of the parties to this Agreement.
9.10 Mutual Cooperation. The parties hereto shall cooperate with each
other to achieve the purpose of this Agreement and shall execute such other and
further documents and take such other and further actions as may be necessary or
convenient to effect the transaction described herein.
9.11 Brokers. The parties hereto represent that no other broker has
brought about this Agreement, and no other finder's fee has been paid or is
payable by either party, except that Grandname represents that Dan Brecher is
entitled to ownership of a portion of the shares of A&W Corporation, Inc. to be
delivered by A&W to Grandname upon the close hereof, in accordance with a letter
agreement dated November 22, 1995, signed by David Pearl as agent for Grandname.
Each party hereto shall indemnify and hold the other harmless against any and
all claims, losses, liabilities or expenses which may be asserted against it as
a result of its dealings, arrangements or agreements with any such broker.
9.12 Announcements. The parties will consult and cooperate with each
other as to the timing and content of any public announcements regarding this
Agreement.
9.13 Expenses. Subject to Section 1.4 hereof, each party will pay its
own legal, accounting and other out-of-pocket expenses incurred in connection
with this Agreement.
9.14 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties set forth in this Agreement
or in any instrument, certificate, opinion or other writing provided for herein
shall survive the Closing.
9.15 Exhibits. As of the execution hereof, the parties have provided
each other with the exhibits described herein. Any material changes to the
exhibits shall be immediately disclosed to the other party.
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AGREED AND ACCEPTED as of the date first above written.
A&W CORPORATION, INC.
By: /s/ Anthony B. Adler
Anthony B. Adler, President
ATTEST:
/s/
Corporate Secretary
[corporate seal)
GRANDNAME LIMITED
By: /s/
ATTEST:
/s/
Corporate Secretary
[corporate seal]
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EXHIBIT 10.6
<PAGE>
ASSIGNMENT AGREEMENT
This ASSIGNMENT AGREEMENT (this "Agreement") is made and entered into
this 16th day of April, 1997, by and between FIRST USA MERCHANT SERVICES, INC.,
a Nevada corporation with its principal place of business at 1601 Elm Street,
7th Floor, Dallas, Texas 75201 ("First USA") and ELECTRONIC CARD ACCEPTANCE
CORPORATION, a Virginia corporation with its principal place of business at 4900
Seminary Road, Suite 550, Alexandria, Virginia 22311 ("Company").
WHEREAS, Company has agreed to assign, sell, transfer and convey to
First USA, and First USA has agreed to purchase from Company, all of Company's
rights with respect to payments and fees related to certain merchant accounts,
under that certain Independent Sales Organization Marketing Agreement dated
August 16, 1996 (the "ISO Agreement"); and
WHEREAS, the parties desire to terminate the ISO Agreement and
First USA desires to purchase any and all rights of the Company under the ISO
Agreement as well as in and to certain merchant accounts, upon the terms and
conditions provided herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, First USA and Company hereby agree as follows:
1. TERMINATION OF ISO AGREEMENT. The parties hereby agree that except
with respect to the surviving sections specifically referenced herein, the ISO
Agreement is hereby terminated. The parties hereby agree that all provisions of
the ISO Agreement are hereby terminated except that Sections 5, 6 and 7, 10(C)
and 12 shall survive termination of the ISO Agreement.
2. PURCHASE OF RIGHTS UNDER MERCHANT ACCOUNTS. Company hereby sells,
assigns, transfers and conveys to First USA, and First USA hereby purchases for
the consideration set forth herein and receives from Company, free and clear of
any and all Liens, any and all rights, title, interests and claims of the
Company under the ISO Agreement and with respect to all merchant accounts
solicited or referred by the Company pursuant to the ISO Agreement, including
without limitation any and all fees, discount rates, commissions, and other fees
with respect to such merchant accounts (such merchants are referred to herein as
the "Merchants," and such accounts are referred to herein as the "Merchant
Accounts"). A list of each of the Merchants and Merchant Accounts is contained
in Schedule A hereto. For purposes of this Agreement, "Liens" shall include all
liens, debts, options, pledges, security interests, rights of first refusal,
claims, commitments, encumbrances, or any other restrictions, liabilities or
charges of every nature, kind and description whatsoever.
3. NO LIABILITIES. First USA is not hereby assuming or agreeing to pay,
discharge or otherwise be responsible for any debt, liability, commitment,
undertaking or any other obligation of Company, whether known or unknown,
absolute or contingent or otherwise.
<PAGE>
4. CONSIDERATION. The maximum consideration (the "Purchase Price") to
be paid by First USA to Company for the transaction described herein is
$3,700,000, of which $500,000 is hereby paid to and receipt is acknowledged by
the Company. The Company shall, within ninety (90) days from the date hereof,
use its best efforts to deliver executed contracts with all Merchants, in a form
agreed to by First USA, to First USA. At such time First USA shall pay the
Company a proportionate amount of the Purchase Price relative to the number of
executed Merchant contracts delivered (i.e., if executed contracts for 100% of
the Merchants are delivered, First USA shall pay $3.2 million to the Company; if
75% of Merchant contracts are delivered. First USA shall pay $2.275 million to
the Company).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS. Company hereby
represents, warrants and covenants to First USA, as of the date hereof and the
Effective Date, as follows:
(a) The execution, delivery and performance of this Agreement by
Company has been duly authorized and approved by all necessary corporate or
other action, and this Agreement is legally binding on and enforceable against
Company in accordance with its terms. The execution and delivery of this
Agreement does not violate the provisions of Company's articles of incorporation
or bylaws, each as amended to the date hereof, or any judgment, decree,
mortgage, agreement, law, indenture or other instrument applicable to Company.
No notice to, filing with, authorization of, exemption by, or consent or
approval of any third person is necessary for the consummation by Company of the
transactions contemplated by this Agreement, or for the performance of Company's
obligations hereunder.
(b) Company has fully performed its services under the ISO
Agreement with respect to each Merchant and Merchant Account. There is no
action, suit, proceeding, claim or investigation pending or, to the best of
Company's knowledge, threatened, by any Merchant with against or with respect to
the Company. All of the Merchants are listed on Schedule A attached hereto and
constitute all of the merchants referred by Company to First USA pursuant to the
ISO Agreement. Company is not a party to, and has not entered into, any
agreements, understandings or arrangements with any of the Merchants.
(c) Company is not aware of any information necessary to enable a
prospective purchaser to make an informed investment decision to purchase the
interests to the ISO Agreement and the Merchants and Merchant Accounts described
herein, which has not been expressly disclosed in writing, nor of any fact which
materially adversely affects the business, operations, properties, prospects or
conditions, financial or otherwise, of the Merchants and Merchant Accounts which
has not been disclosed in writing to First USA.
(d) This Agreement conveys all rights, title and interests, free
and clear of all Liens, of Company in the ISO Agreement and in the Merchant
Accounts.
- 2 -
<PAGE>
6. MISCELLANEOUS.
(a) Amendment and Waiver. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
(b) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed, registered or certified mail, postage
prepaid, as follows:
If to First USA: First USA Merchant Services, Inc.
1601 Elm Street, 8th Floor
Dallas, Texas 75201
Attention: Elena Anderson,
Group Executive
with a copy to: First USA Paymentech, Inc.
1601 Elm Street, 47th Floor
Dallas, Texas 75201
Attention: Philip Taken,
General Counsel
If to Company: Electronic Card Acceptance Corporation
550 Seminary Road, Suite 550
Alexandria, Virginia 22311
Attention: ___________________
(c) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Severability. If any term or condition of this Agreement
should be held invalid by a court, arbitrator or tribunal of competent
jurisdiction in any respect, such invalidity shall not affect the validity of
any other term or condition hereof. If any terms or condition of this Agreement
should be held to be unreasonable as to time, scope or otherwise by such a
court, arbitrator or tribunal, it shall be construed by limiting or reducing it
to the minimum extent so as to be enforceable under then applicable law. The
parties hereto acknowledge that they would have executed this Agreement with any
such invalid term or condition excluded or with any such unreasonable term so
limited or reduced.
- 3 -
<PAGE>
(f) Indemnification. The Company shall indemnify First USA for all
costs, damages, expenses and liabilities relating to or arising from (i)
transactions of Merchants occurring on or prior to the Effective Date and (ii)
any claims or rights of any third parties in or to the Merchant Accounts.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Amendment as of the date first above written.
FIRST USA MERCHANT SERVICES, INC. ELECTRONIC CARD ACCEPTANCE
CORPORATION
By: /s/ Nancy W. Newton By: /s/ E. D. Gable
Name: Nancy W. Newton Name: E. D. Gable
Title: Group Manager Title: Chairman
- 4 -
EXHIBIT 10.7
<PAGE>
Private & Confidential
DATED as of 29 September, 1997
TILLER HOLDINGS LIMITED (1)
and
CARNEGIE INTERNATIONAL CORPORATION (2)
---------------------------------------------
AGREEMENT
for sale/purchase of the entire issued share
capitals of Profit Thru Telecommunications
(Europe) Limited and Talidan Limited
---------------------------------------------
Norton Rose
London
<PAGE>
CONTENTS
Page
Recitals
Clause Heading
1 Definitions and interpretation.................................... 1
2 Purpose of this Agreement ......................................... 4
3 Sale of the Sale Shares ........................................... 5
4 Consideration ..................................................... 5
5 Completion ........................................................ 6
6 Post Completion matters ........................................... 7
7 Representations and warranties ................................... 10
8 Releases, waivers etc ............................................ 11
9 Underwriter Indemnity............................................. 12
10 Notices .......................................................... 14
11 Miscellaneous .................................................... 15
12 Successors and Assigns ........................................... 16
13 Applicable law and submission to jurisdiction .................... 16
Schedule
Warranties of the Purchaser ............................................... 17
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<PAGE>
THIS DEED is dated as of 29 September, 1997 and is made BETWEEN:
(1) CARNEGIE, INTERNATIONAL CORPORATION a Colorado corporation whose
registered office is at 11419 Cronridge Drive, Suite 9, Owings Mills,
Maryland 21117 ("the Purchaser"); and
(2) TILLER HOLDINGS LIMITED (No. 59205) whose registered office is at
Gilwell Offices, P.O. Box 2, The Valley, Anguilla ("the Seller").
NOW IT IS HEREBY AGREED as follows:
1. Definitions and interpretation
1.1 In this Agreement unless the context otherwise requires:
"the 1933 Act" means the US Securities Act of 1933;
"Associate" means any person, partnership, joint venture, corporation
or other form of enterprise which directly or indirectly controls, is
controlled by, or is under common control with, a party and, for the
purposes of this definition, "control" means possession, directly or
indirectly of the power to direct or cause the direction of management
and policies through ownership of voting securities, contract, voting
trust or otherwise and in respect of an individual, means the spouse,
parents, step-children, adopted children or grand-children or the
trustees of any trust established for the benefit of the same;
"business day" means a day on which banks are ordinarily open for the
transaction of normal banking business in London and New York;
"CA 1985" means the Companies Act 1985;
"Carnegie Share" means a share of common stock in the capital of
Carnegie;
"the Companies" means each of PTT and Talidan;
"Completion" means completion of the sale and purchase of the Sale
Shares by the performance by the parties of their respective
obligations under clause 5;
"the Completion Date" means the date upon which Completion takes place
in accordance with Clause 5;
"the Consideration Securities" means the aggregate number of new
Carnegie Shares to be issued (fully paid) by the Purchaser to the
Seller pursuant to clause 4, issued pursuant to an exercise of the
Warrants or issued pursuant to an exercise of the Option, the share
certificates therefor to carry the following legend:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
<PAGE>
THE UNITED STATES SECURITIES ACT OF 1933 (THE "ACT) OR
WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE. AND ACCORDINGLY
MAY NOT BE OFFERED, SOLD. PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A TO A
PERSON THAT IT AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER
(QIB-) PURCHASING FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF ANOTHER QIB, OR (2) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF
REGULATION S, OR (3) PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED
BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES."
"the Exchange Act" means the US Exchange Act;
"the Existing PTT Shareholders" means each of Trident Limited, Applied
Knowledge Ltd., Colin Rickson, Rick Gannon, Shirley Brealey, David
Penman and C&H Consultancy Services Ltd. who hold, in aggregate, the
entire issued share capital of PTT at the date hereof;
"the Existing Talidan Shareholders" means First Nominees Limited and
First Directors Limited who hold, in aggregate, the entire issued share
capital of Talidan at the date hereof;
"Options" means the options evidenced by the option agreements in the
agreed forms, the principal details of which are set out in clause 4;
"PTT" means Profit Thru Telecommunications (Europe) Limited, a company
incorporated in England with registered number 2744902;
"the PTT Agreement" means the agreement between the Seller and the
Existing PTT Shareholders providing for its acquisition of the PTT
Shares;
"the PTT Shares" means 10,000 issued Ordinary Shares of 11 each of PTT
being the entire issued* share capital of PTT, to be acquired by the
Seller pursuant to the PTT Agreement;
- 2 -
<PAGE>
"the Purchaser's Counsel" means Gershberg & Pearl, LLP of 1. 1419
Cronridge Drive, Suite 7, Owings Mills, Maryland 21117; "related
company" in relation to any company means any subsidiary or holding
company of that company or any subsidiary of that holding company;
"the Sale Shares" means the PTT Shares and the Talidan Shares;
"Security Interest" means a mortgage, lien, pledge, charge,
hypothecation or other security interest (or an agreement or commitment
to create any of them), but excluding:
(a) any lien arising in the ordinary course of business to secure
amounts which are not material;
(b) any unpaid seller's or supplier's lien arising in the ordinary
course of either PTT's or Talidan's trading business to secure
amounts due in respect of goods or services sold or supplied; and
(c) liens arising by operation of law, including a banker's lien;
"Seller's Solicitors" means Norton Rose of Kempson House, Camomile
Street, London EC3A 7AN;
"the Service Agreement" means the service agreement in the agreed form
between the Seller and the Purchaser;
"subsidiary" means a subsidiary (as defined by sections 736 and 736A CA
1985) or a subsidiary undertaking (as defined by section 258 CA 1985);
"Talidan" means Talidan Limited, a company incorporated in the British
Virgin Islands with registered number 71695;
"the Talidan Agreement" means the agreement between the Seller and the
Existing Talidan Shareholders providing for its acquisition of the
Talidan Shares;
"the Talidan Shares" means 20 issued Ordinary Shares of $1 each of
Talidan being the entire issued share capital of Talidan, to be
acquired by the Seller pursuant to the Talidan Agreement;
"Warrants" means as more particularly defined in clause 4;
"Warranties" means the representations and warranties referred to in
clause 7.1 and as set out in schedule 1.
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<PAGE>
1.2 In this Agreement unless the context otherwise requires:
(a) references to a clause or schedule are to a clause, of or a
schedule to, this Agreement, references to this Agreement include
its schedules and references in a schedule or part of a schedule
to a paragraph are to a paragraph of that schedule or that part of
that schedule;
(b) references to this Agreement or any other document or to any
specified provision of this Agreement or any other document are to
this Agreement, that document or that provision as in force for
the time being and as amended from time to time in accordance with
the terms of this Agreement or that document or, as the case may
be, with the agreement of the relevant parties;
(c) words importing the singular include the plural and vice versa,
words importing a gender include every gender and references to
persons include corporations, partnerships and other
unincorporated associations or bodies of persons;
(d) the contents table and the descriptive headings to clauses,
schedules and paragraphs are inserted for convenience only, have
no legal effect and shall be ignored in the interpretation of this
Agreement;
(e) the words and phrases "other", "including" and "in particular"
shall not limit the generality of any preceding words or be
construed as being limited to the same class as the preceding
words where a wider construction is possible.
1.3 In this Agreement, unless the context otherwise requires:
(a) "enactment" means any statute or statutory provision (whether of
the United Kingdom or elsewhere), subordinate legislation, as
defined by section 21(l) Interpretation Act 1978, and any other
subordinate legislation made under any such statute or statutory
provision;
(b) a reference to any enactment shall be construed as including a
reference to:
(i) any enactment which that enactment has directly or
indirectly replaced (whether with or without modification);
and
(ii) that enactment as re-enacted, replaced or modified from time
to time, whether before, on or after the date hereof.
2. Purpose of this Agreement
2.1 This is an Agreement for the sale and purchase of the Sale Shares.
- 4 -
<PAGE>
2.2 This Agreement shall supersede as from the date hereof the letter of
intent dated 25th July, 1997 between the parties ("the Letter of
Intent").
3. Sale of the Sale Shares
3.1 The Seller shall sell to the Purchaser and the Purchaser shall purchase
from the Seller the Sale Shares.
3.2 The Seller shall sell and transfer such title as it shall have in and
to the Sale Shares.
3.3 Title to, beneficial ownership of, and any risk attaching to, the Sale
Shares shall pass on Completion, and the Sale Shares shall be sold and
purchased together with all rights and benefits attached or accruing to
them at Completion (including the right to receive all dividends,
distributions or any return of capital declared, paid or made by the
Company on or after Completion) save to the extent provided in the PTT
and Talidan Agreements.
4. Consideration
4.1 The consideration for the sale of the Sale Shares shall be the issue to
the Seller of:
(a) in respect of the PTT Shares, of 9.34 million new Carnegie Shares;
and
(b) in respect of the Talidan Shares, of:
(i) 10 million new Carnegie Shares;
(ii) warrants in the agreed form ("Warrants") exercisable, in
whole or in part (by notification to the Purchaser in the
agreed form), at any time during the period of 24 months
after Completion, to subscribe for a further 5 million
Carnegie Shares at a subscription price per Carnegie Share
equal to 50 per cent. of the average market price of the
Carnegie Shares as quoted by the NASD Over the Counter
Bulletin Board Service ("OTCBB") for the 30 consecutive
trading days before exercise; and
(iii) Options:
(A) to be evidenced by an agreement in the agreed form; and
(B) to entitle the Seller or any assignee of such right
such right notified to the Purchaser (the Seller and/or
any such assignees being "Option Holders") at any time
to have issued to it or them for the consideration set
out therein new Carnegie Shares having an aggregate
value (at the average price ("the Price") per Carnegie
- 5 -
<PAGE>
Share quoted by the NASD Over the Counter Bulletin
Board Service ("OTC1313") for the 30 consecutive
trading days prior to the date of the service of the
relevant exercise notice) of $2,500,000.
4.2 The Consideration Securities shall be validly issued, fully paid and
nonassessable, and shall be issued free of all stamp taxes, liens and
encumbrances and shall rank paripassu in all respects with the Carnegie
Shares in issue:
(a) at the date hereof (in the case of the shares the subject of
clause 4.1(b)(ii)) and
(b) on the date of their issue, in the case of shares issued pursuant
to exercise of any Warrants or upon the exercise of any Option
save that such Carnegie Shares shall be subject to the applicable
transfer restrictions under US Securities Laws and the Certificates to
be delivered by the Purchaser in respect thereof shall be endorsed with
the agreed US Securities Laws legends.
5. Completion
Completion shall take place immediately following execution when all
(but not part only unless the Purchaser and the Seller shall so agree)
of the following business shall be transacted:
5.1 completion of the PTT and Talidan Agreements;
5.2 the Seller shall deliver (in the manner agreed between the parties) to
the Purchaser (to the extent not delivered prior thereto):
(a) transfers in relation to the Sale Shares duly executed and
completed in favour of the Purchaser together with the
certificates therefor and the duly executed powers of attorney or
other authorities under which any of the transfers have been
executed and certified copies of the Minutes recording the
Resolution of the Board of Directors of the Seller authorizing the
sale of the Sale Shares held by the Seller and the execution of
transfers in respect of them;
(b) legal opinions in respect of the Companies in the agreed form;
(c) service agreements in the agreed form;
(d) copies of the completion documentation relating to Tiller's
acquisition of PTT and Talidan, including evidence of the
appointment of the Carnegie nominated director for each of those
companies; and
- 6 -
<PAGE>
(e) a duly executed copy of the Service Agreement.
5.3 The Purchaser shall:
(a) issue the Consideration Securities to the Seller (and to its
permitted assignees) in accordance with clauses 4. 1 (a) and 4. 1
(b) and certificates in respect of those Consideration Securities
duly executed in favour of the Seller (or as it shall direct) and
certified copy of the minutes of the board of directors of the
Purchaser authorizing the acquisition of the Sale Shares and the
issue of the Consideration Securities and approving those further
matters noted at clause 5.2(b) below provided in consideration of
the Sale Shares;
(b) deliver to the Seller duly executed original copies of each of the
following:
(i) the Warrants in the agreed. form pursuant to clause
4.1(b)(ii);
(ii) the Option Agreement in the agreed form pursuant to clause
4.1 (b)(iii); and
(iii) a duly executed copy of the Service Agreement;
(c) cause the transfers of Carnegie Shares by the Seller to any of the
sellers under each of the PTT Agreement or the Talidan Agreement
(or as they shall direct) and as have otherwise been agreed by the
Purchaser to be resolved to be registered (subject only, where
applicable, to their being duly stamped); and
(d) pay to the Seller (and its assignees) an amount equal to one half
of any required stamp duty, stamp duty reserve tax or other taxes
payable by the Seller (and its assignees) as a result of its
acquisition and disposal of the PTT Shares and/or the Talidan
Shares and as a result of the acquisition of the Sale Shares by
the Purchaser.
6. Post Completion matters
6.1 The Seller hereby declares that for so long as it remains the
registered holder of any of the Sale Shares after Completion it will:
(a) hold the Sale Shares and the dividends and other distributions of
profits or surplus or other assets declared, paid or made in
respect of them after Completion and all rights arising out of or
in connection with them in trust for the Purchaser and its
successors in title; and
- 7 -
<PAGE>
(b) deal with and dispose of the Sale Shares and all such dividends,
distributions and rights as are described in clause 6.1(a) as the
Purchaser or any such successor may direct.
6.2 (a) The Seller hereby appoints the Purchaser as its lawful attorney
for the purpose of receiving notices of and attending and voting
at all meetings of the members of either PTT or Talidan, or to the
extent that it is able to do so to give directions to the Existing
PTT Shareholders and Existing Talidan Shareholders pursuant to the
agreements with them in respect thereof from Completion to the day
on which the Purchaser or its Nominee is entered in the register
of members of the respective companies as the holder of the
relevant Sale Shares.
(b) For such purpose the Seller hereby:
(i) undertakes that it shall forward to the Purchaser any
notices received by it in respect of its holding of Sale
Shares; and
(ii) authorizes the Purchaser to complete in such manner as it
thinks fit and to return proxy cards, consents to short
notice and any other document required to be signed by it in
its capacity as a member.
6.3 The Seller shall execute or, so far as it is able, procure from any
necessary third party such execution of all such documents and/or shall
do or, so far as it is able, procure the doing of such acts and things
as the Purchaser shall after Completion reasonably require in order to
give effect to this Agreement and any documents entered into pursuant
to it and to give to the Purchaser the full benefit of all the
provisions of those agreements.
6.4 The Seller hereby undertakes with the Purchaser that it will:
(a) save to the extent required pursuant to the agreements between the
Seller and the Existing Talidan Shareholders and the Existing PTT
Shareholders in relation to the respective sale of the Talidan
Shares and the PTT Shares to the Seller and as otherwise agreed
with the Purchaser, shall not without the Purchaser's prior
written consent dispose of any of the Consideration Securities
(other than in a private transaction with a Non-US Person or as
otherwise agreed from time to time by the Purchaser) within the
year immediately following Completion, or such shorter period
being the applicable statutory restriction period under Regulation
S of Rule 144 of the 1933 Act (the applicability of such
restriction being evidenced by a legal opinion prepared by US
Counsel to the Purchaser) without prejudice to the right of the
Seller to transfer Consideration Securities to Qualified
Institutional Buyers (as defined under Rule 144A of the 1933 Act)
or under Regulation S to Non-US Persons (as defined under that
Regulation) or pursuant to such other exemption from registration
under the 1933 Act as being applicable subject to the
- 8 -
<PAGE>
further restriction that save as expressly set out the beginning
of this paragraph, no transfer (other than in a private
transaction with a Non-US Person and/or as otherwise agreed from
time to time by the Purchaser) shall be made within 90 days from
Completion;
(b) in the event that pursuant to either of the PTT Agreement or the
Talidan Agreement, the Seller receives notice ("a transfer
notice") of an intended sale by any of the Existing PTT
Shareholders or the Existing Talidan Shareholders (as applicable),
as soon as practicable following receipt of a transfer notice, the
Seller shall notify the Purchaser and the Purchaser shall Have a
period from receipt thereof until 8 business days prior to the
final date for notification of an intention to take up the subject
rights in which to notify the Seller of the number of offered
shares which the members of the Purchaser's Board at such time in
aggregate wish to take up. Any such notice shall be irrevocable
and shall commit the Purchaser to procure payment by such members
of all sums due in respect of the shares the subject of such
notice and to be acquired by them in accordance with the
provisions of this clause. If the members of the Purchaser's Board
on the one hand and the Seller (together with its permitted
assignees) on the other hand both wish to take up 50 per cent. or
more of the offered Shares each shall be entitled to 50 per cent.
of the offered shares. If either wishes to acquire less than their
50 per cent., the other shall be entitled to acquire the balance.
The Seller shall exercise its pre-emption rights so as to give
effect to this clause and the Purchaser shall indemnify the Seller
for any payment or other liabilities in respect of those shares to
be acquired on behalf of the members of its board;
(c) not during the period from the Completion Date until the first
anniversary of the issue of the Consideration Shares to be issued
pursuant to clause 4.1 ceasing to be subject to transfer
restrictions under the 1933 Act or (if earlier until the second
anniversary of the Completion Date) dispose (other than in a
private transaction with a Non-US Person and as otherwise agreed
from time to time by the Purchaser), in any one calendar month, of
Carnegie Shares amounting to 5 per cent. of its total holding of
Carnegie Shares acquired pursuant to this agreement. Unexercised
rights under this clause 6.4(c) will not carry forward to a
subsequent month. This restriction will not apply to the transfer
of any Carnegie Shares to any of (i) a related company of the
Seller, (ii) the members of the Board (or their Associates) from
time to time of the Seller; (iii) the Existing Talidan
Shareholders; and (iv) the Existing PTT Shareholders, with any of
such shares thereby being acquired by the relevant seller being
deemed added to the number of Carnegie Shares of such person held
post Completion; (d) notwithstanding clauses 6.4(a) to (c) above
inclusive, the Seller shall be entitled to sell its holding of
Carnegie Shares in any public offering or placing of Carnegie
Shares by Carnegie or otherwise relating to shares in Carnegie
save that the aggregate of the Carnegie Shares to be sold by the
Seller shall, when aggregated with those Carnegie Shares
- 9 -
<PAGE>
being sold by the Existing Talidan Shareholders, the Existing PTT
Shareholders and each of the members of the Board from time to
time of the Purchaser at that time, be limited to the greater of:
(i) 25 per cent. of the total number of Carnegie Shares which
are the subject of the offering; or
(ii) Carnegie Shares having a value (as determined by reference
to the average price quoted by NASD Over the Counter
Bulletin Board Service ("OTCBB") for the 30 consecutive
trading days prior to public offer or placing or other offer
being completed) $7.5 million.
Subject to this limit, the Seller shall be entitled to sell all or
part of its holding of Carnegie Shares under the secondary
offering pro-rata to its holdings of Carnegie Shares at that date.
The sale of Carnegie Shares pursuant to this clause 6.4(d) shall,
if required by any party, be overseen by an independent third
party agreed between the parties.
6.5 The Purchaser shall cause such persons as may be nominated by the
Seller in writing to be validly appointed as an additional member of
the board of the Purchaser, such appointment to take effect from the
Completion Date, and to be on such terms as may be agreed between the
parties. Save in the circumstances provided for in Clause 6.6 below, at
no time shall the Purchaser be obliged to appoint more than two persons
nominated by the Seller to be members of the board of the Purchaser.
6.6 If at any time after the Completion Date the Purchaser offers for sale
any Carnegie Shares in a public offering or placing, then the Seller
shall be entitled to nominate a person to be appointed as the Chairman
of the Board of the Purchaser, such person to be validly appointed by
the Purchaser prior to the offering of Carnegie Shares.
7. Representations and warranties
7.1 In consideration of the Seller entering into this Agreement the
Purchaser hereby acknowledges that it has represented and warranted to
the Seller (for itself and as trustee for its successors in title) in
the terms set out in schedule 1.
7.2 The Warranties shall not in any respect be extinguished or affected by
Completion.
7.3 The Purchaser hereby acknowledges that in respect of the Sale Shares
and the Companies:
(a) the Seller has given and gives no warranty or representation nor
has the Purchaser relied on any representation made by the Seller
or its advisers;
- 10 -
<PAGE>
(b) the Purchaser has conducted its own due diligence exercise and
satisfied itself as to any disclosures made to it; and
(c) it is fully aware of all the terms and provisions of each of the
PTT Agreement and the Talidan Agreement and shall not require the
Seller to take or refrain from taking any action thereunder that
could result in the Seller being in breach of those agreements.
7.4 The Parties agree that the remedy of rescission will not be available
after Completion.
7.5 The Seller hereby assigns to the Purchaser such interest as it has in
each of the representations and warranties granted in its favour
pursuant to (and subject to the terms of) each of the PTT Agreement and
the Talidan Agreement.
7.6 The Purchaser hereby undertakes to indemnify the Seller in respect of
all costs incurred by the Seller in respect of any claim made or
threatened against the Seller in respect of the Consideration
Securities and any Warranty or Representation given or made by the
Seller under the PTT Agreement and/or the Talidan Agreement.
8. Releases, waivers etc.
8.1 Either party may, in its discretion, in whole or in part release,
compound or compromise, or waive its rights or grant time or indulgence
in respect of, any liability to it under this Agreement.
8.2 Neither the single or partial exercise or temporary or partial waiver
by either party of any right, nor the failure by either party to
exercise in whole or in part any right or to insist on the strict
performance of any provision of this Agreement, nor the discontinuance,
abandonment or adverse determination of any proceedings taken by either
party to enforce any right or any such provision shall (except for the
period or to the extent covered by any such temporary or partial
waiver) operate as a waiver of, or preclude any exercise or enforcement
or (as the case may be) further or other exercise or enforcement by
either party of, that or any other right or provision.
8.3 The giving by the Purchaser of any consent to any act which by the
terms of this Agreement requires such consent shall not prejudice the
right of either party to withhold or give consent to the doing of any
similar act.
8.4 Notwithstanding the foregoing, the Seller shall not provide or agree
any waiver or release to or in favour of the holders of Carnegie Shares
issued pursuant to the PTT Agreement or the Talidan Agreement without
the prior written consent of the Purchaser save in respect of a waiver
of any rights of pre-emption in respect of Carnegie Shares granted at
or prior to Completion.
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<PAGE>
9. Underwriter Indemnity
9.1 The parties acknowledge that they do not characterize the role of the
Seller as an underwriter however in the event the Seller or any of its
directors, officers, employees and agents shall be construed by the SEC
or other appropriate authority to be an underwriter (in any such case
"Underwriter") within the meaning of Section 15 of the 1933 Act or
Section 20 of the Exchange Act this clause shall apply and the Seller
receives the benefit of this clause for itself and as trustee for the
other persons indemnified pursuant to this clause 9. The Purchaser will
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of Section 15 of the 1933
Act or Section 20 of the Exchange Act (each being an "indemnified
person"), from and against any and all losses, claims, liabilities,
expenses and damages (including, without limitation, any and all
investigative, legal and other expenses reasonably incurred in
connection with, and any and all amounts paid in settlement of, any
action, suit or proceeding between any of the indemnified parties and
any indemnifying parties or between the Purchaser and any third party,
or otherwise, or any claim asserted, which settlement has been approved
by the indemnifying party), as and when incurred, to which any
Underwriter, or any such person, may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in
any pre-pricing prospectus supplement, the registration statement or
the prospectus or any amendment or supplement to the registration
statement or the prospectus, or any application or other document
executed by or on behalf of the Company or based on written information
furnished by or on behalf of the company filed in any jurisdiction in
order to qualify the shares under the securities laws thereof or filed
with the Commission, the omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to
make the statements in it not misleading, or (iii) any act or failure
to act by any Underwriter in connection with, or relating in any manner
to, the Shares or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, liability,
expense or damage arising out of or based upon matters covered by
sub-clause (i) or (ii) above (provided that the Purchaser shall not be
liable under this sub-clause (iii) to the extent it is finally
judicially determined by a court of competent jurisdiction that such
loss, claim, liability, expense or damage resulted from any such acts
or failures to act undertaken or omitted to be taken by such
Underwriter due to its wilful misconduct) or (iv) on any other matter,
provided that the Purchaser will not be liable to an Underwriter to the
extent that such loss, claim, liability, expense or damage arises from
the sale of Consideration Shares in a public offering to any person by
such Underwriter and is based solely on an untrue statement or omission
or alleged untrue statement or omission made in reliance on and in
conformity with information relating to such Underwriter furnished in
writing to the Company by or on behalf of such Underwriter expressly
for inclusion in the registration statement any pre-pricing prospectus
supplement or the prospectus.
- 12 -
<PAGE>
This indemnity agreement will be in addition to any liability that the
Company might otherwise have to any person who is an indemnified party
hereunder.
9.2 Any person that proposes to assert the right to be indemnified under
this clause 9 will, promptly after receipt of notice of commencement of
any action against such person in respect of which a claim is to be
made against the Purchaser under this clause 9, notify the Purchaser of
the commencement of such action, enclosing a copy of all material
papers served, but the omission so to notify the Purchaser (or to copy
such material to it) will not relieve it from any liability that it may
have to any indemnified party under the foregoing provisions of this
clause 9. If any such action is brought against any indemnified party
and it notifies the Purchaser of its commencement, the Purchaser will
be entitled to participate in and, to this extent that it elects by
delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified
party, to assume the defence of the action, with Counsel reasonably
satisfactory to the indemnified party and after notice of the Purchaser
to the indemnified person of its election to assume the defence, the
Purchaser will not be liable to the Seller for any legal or other
expenses incurred after the date of such notice which relate to
unnecessary duplication of the legal costs involved in such defence,
except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in
connection with the defence.
9.3 In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the
foregoing paragraphs of this clause 9 is applicable in accordance with
its terms but for any reason is held to be unavailable from the
Purchaser, the Purchaser will contribute to the total losses, claims,
liabilities, expenses and damages, including any investigative, legal
and other expenses reasonably incurred in connection with, and any
amount paid consistent with the Agreement in settlement of, any action,
suit or proceeding or any claim asserted, less any net contribution
received by the indemnified party otherwise than from the Purchaser.
Any indemnified person entitled to contribution, promptly after receipt
of notice of commencement of any action against such person in respect
of which a claim for contribution may be made under this clause 9,
shall notify the Purchaser from whom contribution may be sought~ within
one (1) year from the date of receipt of notice of any such claim.
9.4 The indemnity and contribution agreements contained in this clause 9
and the representations and warranties of the Purchaser contained in
this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor
or (iii) any termination of this Agreement.
- 13 -
<PAGE>
10. Notices
10.1 Except as otherwise provided in this Agreement, every notice under this
Agreement shall be in writing and shall be deemed to be duly given if
it (or the envelope containing it) identifies the party to whom it is
intended to be given as the addressee and:
(a) it is delivered by being handed personally to the addressee (or,
where the addressee is a corporation, any one of its Directors or
its Secretary); or
(b) it is delivered by a specialist courier firm whose delivery is
(unless the giving of such a receipt is refused) receipted by the
intended recipient; or
(c) it is delivered by facsimile transmission with a hard copy
despatched in accordance with the above procedure, and, in proving
the giving or service of such notice, it shall be conclusive
evidence to prove that the notice was duly given within the
meaning of this clause 10.1.
10.2 The addresses for service of notice are as follows:
For the Seller:
Name: Tiller Holdings Limited
Address: Gilwell Offices, P.O. Box 2, The Valley,
Anguilla
For the attention of: Rob Sheard
With a copy to Rob Sheard on fax number: 44 171499 9900
For the Purchaser:
Name: Carnegie International Corporation
Address: 11419 Cronridge Drive, Suite 9, Owings Mills,
Maryland 21117
Fax number: 1 410 902 7105
For the attention of: Lowell Farkas
With a copy to the Purchaser's Counsel on fax number: 1 410 654 3880.
10.3 For the purposes of this clause 10 "notice" shall include any request
demand, instructions, communication or other document.
- 14 -
<PAGE>
11. Miscellaneous
11.1 All provisions of this Agreement shall so far as they are capable of
being performed or observed continue in full force and effect
notwithstanding Completion except in respect of those matters then
already performed.
11.2 The Parties hereby undertake that this Agreement and the terms set out
herein, shall remain confidential and shall not be disclosed to any
party except to the extent required by law or any regulatory body to
the Existing PTT Shareholders, the Existing Talidan Shareholders and
the respective professional advisers and consultants engaged for the
purposes of the transaction referred to herein. Each the Parties
undertakes, following entry into of this Agreement not to disclose the
contents of Agreement, in whole or in part, to any third person until
such time as the Purchaser and the Seller agree that it is appropriate,
or as circumstances render it necessary to make a public announcement
of the transaction, or subject to any legal or regulatory requirements.
Save to the extent required by law or regulation, any such announcement
is in turn to be agreed between the Purchaser and the Seller.
11.3 Time shall be of the essence of this Agreement as regards any such
time, date or period fixed by this Agreement for the performance of any
obligation by any of the' parties hereto whether as originally fixed or
as altered in any manner provided herein.
11.4 This Agreement (together with all documents which are required by its
terms to be entered into by the parties or any of them) sets out the
entire agreement and understanding between the parties in connection
with the Companies and the sale and purchase and other matters
described in it.
11.5 No purported alteration of this Agreement shall be effective unless it
is in writing, refers specifically to this Agreement and is duly
executed by each party hereto.
11.6 Each provision of this Agreement is severable and distinct from the
others. The parties intend that every such provision shall be and
remain valid and enforceable to the fullest extent permitted by law. If
any such provision is or at any time becomes to any extent invalid,
illegal or unenforceable under any enactment or rule of law, it shall
to that extent be deemed not to form part of this Agreement but (except
to that extent in the case of that provision) it and all other
provisions of this Agreement shall continue in full force and effect
and their validity, legality and enforceability shall not be thereby
affected for impaired, provided that the operation of this clause would
not negate the commercial intent and purpose of the parties under this
Agreement.
11.7 If any provision of this Agreement is illegal or unenforceable as a
result of any time period being stated to endure for a period in excess
of that permitted by a regulatory authority, that provision shall take
effect with a time period that is acceptable to the
- 15 -
<PAGE>
relevant regulatory authorities subject to it not negating the
commercial intent of the parties under this Agreement.
11.8 This Agreement may be entered into in the form of two or more
counterparts each executed by one or more of the parties but, taken
together, executed by all and, provided that all the parties so enter
into the Agreement, each of the executed counterparts, when duly
exchanged or delivered, shall be deemed to be an original, but, taken
together, they shall constitute one instrument.
11.9 Each of the parties shall be responsible for its respective legal and
other costs incurred in relation to the negotiation, preparation and
completion of this Agreement and all ancillary documents.
12. Successors and assigns
12.1 This Agreement shall be binding on and shall enure for the benefit of
the successors in title and personal representatives of each party.
12.2 The benefit of this Agreement (including the Warranties) shall be
freely assignable by either party and, in the event of any such
assignment, all references in this Agreement to either party shall be
deemed to include its assigns.
12.3 The Purchaser hereby consents to the Seller assigning certain of its
rights to Tigan Capital Holdings Limited and others.
13. Applicable law and submission to jurisdiction
This Agreement shall be governed by and construed in accordance with
English law.
IN WITNESS whereof this Agreement has been entered into as a Deed the day and
year first above written.
- 16 -
<PAGE>
Schedule
Warranties of the Purchaser
1. The Purchaser is a public company duly incorporated and validly
existing under the laws of the State of Colorado.
2. The Purchaser has the requisite corporate power and authority under its
Articles of Incorporation to enter into, execute, deliver and perform
its obligations under this Agreement and other documents to be entered
into by it pursuant to this Agreement.
3. The execution and delivery of this Agreement and the other documents to
be entered into by the Purchaser pursuant to this Agreement and the
performance of the Purchaser's obligations under them have been duly
authorized by all necessary corporate action on the part of the
Purchaser (whether under its Articles of Association or otherwise).
4. This Agreement and any other documents to be entered into by the
Purchaser pursuant to this Agreement constitute and the other documents
executed by the Purchaser which are to be delivered at Completion will,
when executed, constitute legal, valid and binding obligations of the
Purchaser in accordance with their respective terms.
5. The execution and delivery of, and the performance by the Purchaser of
its obligations under, any compliance with the provisions of, this
Agreement and other documents to be entered into pursuant to this
Agreement will not result in any breach or violation by the Purchaser
of any provision of its Articles of Incorporation.
6. No consent, authorization, license or approval of the Purchaser's
shareholders or of any governmental, administrative, judicial or
regulatory body, authority or organization is required to authorize the
execution, delivery, validity, enforceability or admissibility in
evidence of this Agreement or other documents to be entered into
pursuant to this Agreement or the performance by the Purchaser of its
obligations under them.
7. The Consideration Securities have been properly issued in accordance
with all applicable regulations.
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<PAGE>
EXECUTED AND DELIVERED ) /s/
by TILLER HOLDINGS LIMITED ) -------------------------------
in the presence of: /s/ ) Director
EXECUTED AND DELIVERED )
by CARNEGIE ) /s/ Lowell Farkas
INTERNATIONAL CORPORATION ) -------------------------------
in the presence of: /s/ ) Director
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EXHIBIT 10.8
<PAGE>
Form of Warrant
Certificate number: _____
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER
JURISDICTION OF THE UNITED STATES. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND ACCORDINGLY MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE
WITH RULE 144A TO A PERSON THAT IT AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER (QIB) PURCHASING FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER QIB, OR (2) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S, OR (3) PURSUANT
TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
WARRANT TO PURCHASE _____________ SHARES OF COMMON STOCK
Carnegie International Corporation
(a Colorado Corporation)
Not Transferable Or Exercisable Except
Upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Eastern Daylight Savings Time, on September 29, 1999.
Carnegie International Corporation, a Colorado corporation (the
"Company") hereby certifies that ____________________________, it registered
successors and permitted assigns registered on the books of the Company
maintained for such purposes as the registered holder hereof (the "Holder"), for
value received, is entitled to purchase from the Company the number of fully
paid and non-assessable shares of Common Stock of the Company (the "Shares")
stated above at the purchase price defined herein (the "Exercise Price") (the
number of Shares and Exercise Price being subject to adjustment as hereinafter
provided) upon the terms and conditions herein provided.
1. Exercise of Warrants.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Warrant Certificate, with the attached Purchase Form duly
executed, at the principal office of the Company at 11419 Cronridge Drive, Suite
9, Owings Mills, Maryland 21117, or at such other
<PAGE>
place as the Company may designate by notice to the Holder hereof, together with
a certified or bank cashier's check payable to the order of the Company in the
amount of the Exercise Price times the number of Shares being purchased, the
Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Warrant may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Warrant
Certificate or Warrant Certificates of like tenor entitling the Holder to
purchase the number of Shares as to which this Warrant has not been exercised.
(b) This Warrant may be exercised in whole or in part at any time or
times prior to 5:00 o'clock P.M., Eastern Daylight Savings time, on September
29, 1999.
2. Exercise Price.
(a) The exercise price of the Warrant shall be fifty percent (50%) of
the average "Market Price" of the Carnegie Shares as quoted by the NASD Over the
Counter Bulletin Board Service ("OTCBB") for the 30 consecutive trading days
before the exercise date. The term "Market Price" shall be defined as (i) the
closing price of the Shares; or (ii) the highest closing price if the Shares
trade on more than one market or exchange; or (iii) the mean between the highest
bid and the lowest asked prices.
(b) The Company hereby agrees to maintain such records on a daily basis
so as to have the ability to provide the Holder with the Exercise Price on any
given day. The Holder may request such information from the Company at any
reasonable time.
3. Exchange and Transfer of Warrant.
(a) This Warrant (i) at any time or times prior to the exercise hereof,
upon presentation and surrender to the Company, may be exchanged, alone or with
other Warrants of like tenor registered in the name of the Holder, for another
Warrant or other Warrants of like tenor in the name of such Holder exercisable
for the same aggregate number of Shares as the Warrant or Warrants surrendered,
(ii) may not be sold, transferred, hypothecated, or assigned, in whole or in
part, after thirty (30) days prior to the expiration hereof, without the prior
written consent of the Company.
(b) Notwithstanding anything to the contrary herein, Tiller shall have
the right to assign this Warrant, in whole or in part, to the Talidan
Shareholders, or beneficial owners thereof, immediately upon receipt hereof or
as other wise agreed with the Company, or to any private "family type trusts" or
similar transfers, provided such is a completely private transaction and
provided the transferee intends to and shall be bound to the terms hereof ad
provided said transfer is not otherwise in violation of the appropriate US and
state securities laws. As a result of any such assignment the Company shall
cancel this warrant and reissue such warrants in such smaller amounts consistent
with the terms hereof.
- 2 -
<PAGE>
4. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or in
equity; provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Warrant, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Warrant Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited those expressed herein and the Holder
of this Warrant, by its acceptance hereof, consents to and agrees to be bound by
and to comply with all the provisions of this Warrant Certificate, including,
without limitation, all the obligations imposed upon the Holder hereof by
Sections 3 and 6 hereof. In addition, the Holder of this Warrant Certificate, by
accepting the same, agrees that the Company may deem and treat the person in
whose name this Warrant Certificate is registered on the books of the Company
maintained for such purpose as the absolute, true and lawful owner for all
purposes whatsoever, notwithstanding any notation of ownership or other writing
thereon, and the Company shall not be affected by any notice to the contrary.
(b) No Holder of this Warrant Certificate, as such, shall be entitled
to vote or receive dividends or to be deemed the holder of Shares for any
purpose, nor shall anything contained in this Warrant Certificate be construed
to confer upon any Holder of this Warrant Certificate, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any action by the Company, whether upon any recapitalization, issue
of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise, receive notice of meetings or other action affecting stockholders
(except for notices provided for herein), receive dividends, subscription
rights, or otherwise, until this Warrant shall have been exercised and the
Shares purchasable upon the exercise thereof shall have become deliverable as
provided herein; provided, however, that any such exercise on any date when the
stock transfer books of the Company shall be closed shall constitute the person
or persons in whose name or names the certificate or certificates for those
Shares are to be issued as the record holder or holders thereof for all purposes
at the opening of business on the next succeeding day on which such stock
transfer books are open, and the Warrant surrendered shall not be deemed to have
been exercised, in whole or in part as the case may be, until the next
succeeding day on which stock transfer books are open for the purpose of
determining entitlement to dividends on the Company's common stock.
5. Shares Underlying Warrants.
The Company covenants and agrees that all Shares delivered upon
exercise of this Warrant shall, upon delivery and payment therefor, be duly and
validly authorized and issued, fully-paid and non-assessable, and free from all
stamp-taxes, liens, and charges with respect to the purchase thereof; and such
Shares shall rank in pari passu in all respects with the issued Stock of the
Company at the date of issue. In addition, the Company agrees at all times to
- 3 -
<PAGE>
reserve and keep available an authorized number of Shares sufficient to permit
the exercise in full of this Warrant together with any other warrants, options
or conversion rights.
6. Disposition of Warrants or Shares.
(a) The holder of this Warrant Certificate and any transferee hereof or
of the Shares issuable upon the exercise of the Warrant Certificate, by their
acceptance hereof, hereby understand and agree that this warrant and the shares
of common stock issuable upon the exercise hereof have not been registered under
either the securities act of 1931 (the "Act") or applicable state securities
laws (the "State Acts"). This warrant and the Shares to be acquired hereunder
shall be for investment and not with a view to distribution or resale and shall
not be subject to a security interest, sold, pledged, hypothecated, donated, or
otherwise transferred (whether or not for consideration) by the holder, subject
to the terms of section 3(b) hereof or in compliance with the exemptions
provided by the legend set out in section 6(b) below, without (1) an effective
registration statement for such shares under the act, or (2) upon the issuance
to the company of a favorable opinion of counsel and/or submission to the
company of such evidence as may be satisfactory to counsel to the company, in
each such case, to the effect that any such transfer shall not be in violation
of the Act and the State Acts, which opinion shall not be unreasonably withheld,
or (3) in compliance with rule 144 of the General Rules and Regulations under
the Act.
It shall be a condition to the transfer of this Warrant that any transferee
thereof deliver to the Company its written agreement to accept and be bound by
all of the terms and conditions of this Warrant Certificate.
(b) The stock certificates of the Company that will evidence the shares
of Common Stock with respect to which this Warrant may be exercisable will be
imprinted with a conspicuous legend in substantially the following form:
THIS SECURITY AND ANY SECURITY EVIDENCED OR REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "ACT") OR
WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICT10N OF
THE UNITED STATES. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUT10N 0R RESALE, AND ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A
TO A PERSON THAT IT AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A
QUALIFIED INSTITUTIONAL BUYER (QIB) PURCHASING FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF ANOTHER QIB, OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
RULE 903 OR 904 OF REGULATION S, OR (3) PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY RULE 144. THEREUNDER
(IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES.
- 4 -
<PAGE>
The Company does not currently file periodic reports with the Securities and
Exchange Commission ("SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended. Except as provided in Section 9 of this
Warrant, the Company has not agreed to register any of the Holder's Shares with
respect to which this Warrant may be exercisable for distribution in accordance
with the provisions of the Act or the State Acts. Hence, it is the understanding
of the Holders of this Warrant that by virtue of the provisions of certain rules
respecting "restricted securities" promulgated by the SEC, the Shares with
respect to which this Warrant may be exercisable may be required to be held for
up to 2 years pursuant to Rule 144 or Regulation S of the Act, subject to the
prohibitions of said rule and regulation, unless said Shares become registered,
or unless another exemption from such registration is available, in which case
the Holder may still be limited as to the number of Shares with respect to which
this Warrant may be exercised that may be sold.
7. Adjustments.
The number of Shares purchasable upon the exercise of each Warrant
and/or the Exercise Price per Share may be subject to adjustment from time to
time upon the occurrence of any of the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in Shares or, (ii)
subdivide its outstanding Shares into a greater number of Shares, (iii) combine
its outstanding Shares into a smaller number of Shares, or (iv) issue, by
reclassification of its Shares, any shares of its capital stock, the amount of
Shares purchasable upon the exercise of each Warrant immediately prior thereto
shall be adjusted so that the Holder shall be entitled to receive upon exercise
of the Warrant that number of Shares which such Holder would have owned or would
have been entitled to receive after the happening of such event had such Holder
exercised the Warrant . minediately prior to the record date, in the case of
such dividend, or the effective date, in the case of any such subdivision,
combination or reclassification or in such manner as the Company's auditors
confirm to be equitable. An adjustment made pursuant to this subsection (a)
shall be made whenever any of such events shall occur, but shall become
effective retroactively after such record date or such effective date, as the
case may be, as to Warrants exercised between such record date or effective date
and the date of happening of any such event.
(b) No adjustment shall be required unless such adjustment would
require an increase or decrease of at least 1% in the number of Shares
purchasable hereunder, provided, however, that any adjustments which by reason
of this subsection (b) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 7 shall be made to the nearest one-hundredth of a Share.
(c) No adjustment shall be made in any of the following cases:
i) Upon the grant or exercise of stock options now or hereafter
granted, or under any employee stock option or stock purchase plan now or
hereafter authorized, to the
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<PAGE>
extent that the aggregate of the number of Shares which may be purchased under
such options and the number of Shares issued under such employee stock purchase
plan is less than or equal to 10% of the number of Shares outstanding on January
1 of the year of the grant or exercise;
ii) Shares issued upon the conversion of any of the Company's
convertible or exchangeable securities;
iii) Shares issued in connection with the acquisition by the
Company or by any subsidiary of the Company of 80% or more of the assets of
another corporation or entity, and Shares issued in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more of
the voting shares of another corporation (including Shares issued in connection
with such acquisition of voting shares of such other corporation subsequent to
the acquisition of an aggregate of 80% of such voting shares), Shares issued in
a merger of the Company or a subsidiary of the Company with another corporation
in which the Company or the Company's subsidiary is the surviving corporation,
and Shares issued upon the conversion of other securities issued in connection
with any such acquisition or in any such merger; and
iv) Shares issued pursuant to this Warrant and pursuant to all
stock options and warrants outstanding on the date hereof.
(d) Notice to Warrant Holders of Adjustment. Whenever the number of
Shares purchasable hereunder is adjusted as herein provided, the Company shall
cause to be mailed to the Holder in accordance with the provisions of this
Section 7 a notice (i) stating that the number of Shares purchasable upon
exercise of this Warrant have been adjusted, (ii) setting forth the adjusted
number of Shares purchasable upon the exercise of a Warrant, and (iii) showing
in reasonable detail the computations and the facts, including the amount of
consideration received or deemed to have been received by the Company, upon
which such adjustments are based.
(e) Notwithstanding anything to the contrary herein, in the event of
the occurrence of a capital transaction, including but not limited to, a share
dividend, share exchange, merger, reverse merger or other capital transaction of
an extraordinary nature, which shall make the computation of the Exercise Price,
as set forth in Section 2 hereof, inaccurate or inappropriate, the said method
of computation shall be appropriately revised.
8. Fractional Shares.
The Company shall not be required to issue any fraction of a Share upon
the exercise of Warrants. If more than one Warrant shall be surrendered for
exercise at one time by the same Holder, the number of full Shares which shall
be issuable upon exercise thereof shall be computed on the basis of the
aggregate number of Shares with respect to which this Warrant is exercised. If
any fractional interest in a Share shall be deliverable upon the exercise of
this Warrant, the Company shall make an adjustment therefor in cash equal to
such fraction multiplied by the Current Market Price of the Shares on the
business day next preceding the day of exercise.
- 7 -
<PAGE>
9. Registration Rights.
(a) i) If the Company at any time elects or proposes to register any of
its Shares (the "Registration Shares") under the Securities Act of 1933 (the
"Act") on Forms S-1, S-2, S-3 or S-18, or any successor registration statement
forms in effect at such time (a "Registration Statement") with the Securities
and Exchange Commission (the "SEC") pursuant to which Shares owned by any
shareholder of the Company may be registered, the Company shall give thirty (30)
days prior written notice (the "Registration Notice") to the Holder of its
intention to register the Registration Shares. Notwithstanding anything to the
contrary herein, Holder shall have no rights under this section pertaining to
Warrants which remain unexercised at the time of any registration.
ii) Within twenty (20) days after the Registration Notice shall
have been given to the Holder, the Holder shall give written notice to the
Company (the "Holder Notice"), stating the number of Shares to be registered
(the "Holder Shares") and the states in which the Holder wishes to register the
Shares.
iii) The Company shall use reasonable efforts to register the
Holder Shares under the Act and the applicable state securities laws (the "State
Acts") designated by the Holder in the Holder Notice. Anything contained herein
to the contrary notwithstanding, the Company shall have the right to withdraw
and discontinue registration of the Holder Shares at any time prior to the
effective date of such Registration Statement if the registration of the
Registration Shares is withdrawn or discontinued.
iv) The Company shall not be required to include any of the Holder
Shares in any Registration Statement unless the Holder agrees, if so requested
by the Company, to: (A) offer and sell the Holder Shares to or through an
underwriter selected by the Company and, to the extent possible, on
substantially the same terms and conditions (but in no event on less favorable
terms and conditions) under which the Registration Shares are to be offered and
sold; (B) comply with any arrangements, terms and conditions with respect to the
offer and sale of the Shares to which the Company may be required to agree; and
(C) enter into any underwriting agreement containing customary terms and
conditions, including provisions for the indemnification of the underwriters.
(b) If the offering of the Registration Shares by the Company is, in
whole or in part, an underwritten public offering, and if the managing
underwriter determines and advises the Company in writing that the inclusion in
such Registration Statement of all of the Holder Shares,: together with the
Shares of other persons who have exercised their right to include their Shares
in the Registration Statement (collectively referred to as the "Aggregate
Shares") would adversely affect the marketability of the offering of the
Registration Shares, then the Holder shall be entitled to register a proportion,
as determined in Subsection (b)(i) below, of such number of Aggregate Shares as
the managing underwriter determines may be included without such adverse
- 8 -
<PAGE>
effects ("Aggregate Underwriter Shares"), subject to the terms, exceptions and
conditions of this Section 9.
i) The proportion of the Aggregate Underwriter Shares which the
Holder in its capacity as such shall be entitled to register shall be equal to
the ratio which the Holder Shares bears to the Aggregate Shares.
(c) The Company shall bear all costs and expenses of registration of
the Registration Shares; provided, however, that the Holder shall bear all costs
and expenses directly related to registration of the Holder Shares, including
its proportionate amount of underwriters discounts and commissions, and expenses
of counsel for the Holder.
(d) It shall be a condition precedent to the Company's obligation to
register any Holder Shares pursuant to this Section 9 that the Holder provide
the Company with all information and documents, and shall execute, acknowledge,
seal and deliver all documents reasonably necessary, to enable the Company to
comply with the Act, the State Acts, and all applicable laws, rules and
regulations of the SEC or of any State Securities Commission, in relation to the
Holder's Shares.
(e) The Holder shall indemnify and hold harmless the Company, each of
its directors and officers who have signed the Registration Statement, each
person, if any, who is a controlling person or the Company and any underwriter
from and against any and all losses, claims, damages, expenses or liabilities
(including amounts paid in settlement and reasonable attorneys' fees) (the
"Liabilities"), on a several basis, to which they or any of them may become
subject under the Act, under any State Act or at common law or otherwise insofar
as the Liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or prospectus (as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, which statement or omission was made in
reliance upon and in conformity with information furnished to the Company by the
Holder in connection therewith.
(f) Shelf Registration. The Company hereby agrees that in the event it
shall meet all of the requirements necessary to file a Form S-3 to effectuate a
"Shelf Registration" in accordance, with the applicable securities laws of the
United States, and it shall in all respects be eligible for and qualify for the
same, it shall use its best efforts to effectuate and maintain a Shelf
Registration.
10. Loss or Destruction.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant Certificate and, in the case
of any such loss, theft or destruction, upon delivery of an indemnity agreement
or bond satisfactory in form, substance and amount to the Company or, in the
case of any such mutilation, upon surrender and cancellation of this Warrant
- 9 -
<PAGE>
Certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant Certificate of like tenor.
11. Survival.
The various rights and obligations of the Holder hereof as set forth
herein shall survive the exercise of the Warrants represented hereby and the
surrender of this Warrant Certificate.
12. Governing Law.
This Option shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland. In the event of any ambiguity
or conflict between this instrument and the Agreement of Purchase between the
Parties, this instrument shall control.
13. Notices.
Whenever any notice, payment of any purchase price, or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or United States
registered or certified mail, return receipt requested, postage prepaid, and
will be deemed to have been given or delivered on the date such notice, purchase
price or other communication is so delivered or posted, as the case may be; and,
if to the Company, it will be addressed to the address specified in Section I
hereof, and if to the Holder, it will be addressed to the registered Holder at
his address as it appears on the books of the Company.
IN WITNESS WHEREOF, Carnegie International Corporation has caused this
instrument to be signed in its corporate name under its corporate seal by its
President this ___ day of ________________ 1997.
ATTEST: Carnegie International Corporation
/s/ By: /s/Lowell Farkas
Lowell Farkas, President
- 10 -
<PAGE>
PURCHASE FORM
Date
TO: Camegie International Corporation
The undersigned hereby irrevocably elects to exercise the attached
Warrant Certificate to the extent of ___________ shares of the Common Stock, par
value $0.00 per share, of ______________ and hereby makes payment of $ in
accordance with the provisions of Section 1 of the Warrant Certificate in
payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
(Please typewrite or print in block letters)
Address:
By:
- 11 -
EXHIBIT 10.9
<PAGE>
Certificate number: _____
Form of Stock Option Agreement
This Option, and the underlying securities issuable upon the exercise
hereof, have not been registered under the Securities Act of 1933, as amended,
and applicable state securities laws and neither this Option nor such underlying
securities may be assigned, hypothecated, pledged, sold or otherwise transferred
or encumbered except as provided in this Option.
COMMON STOCK OPTION
Carnegie International Corporation
(a Colorado Corporation)
For value received, Carnegie International Corporation (the "Corporation")
hereby grants to ___________________ (the "Holder"), subject to the terms and
conditions hereinafter set forth, the option to purchase such number of shares
of the common stock without par value (the "Common Stock") of the Corporation as
shall, immediately upon the exercise of this Option by the Holder, be issued
(the "Shares").
1. Term and Exercise.
(a) This Option may be exercised by the Holder for all, or any
part, of the Shares of the Common Stock subject to this Option at any time or
times prior to the expiration of this Option, which expiration shall occur four
(4) years from the original issue date (the "Issue Date") being 29th September,
1997.
(b) The Holder shall exercise this Option by surrender to the
Corporation of this Option with the Purchase Form attached hereto as Exhibit A,
duly executed, accompanied by payment in cash or by check of the price
hereinafter set forth for the Shares of the Common Stock so purchased (the
"Option Price").
(c) Within fifteen (15) business days of an exercise of this
Option by the Holder as herein above provided, the Corporation shall cause to be
issued in the name of and delivered to the Holder a certificate or certificates
for the Shares of the Common Stock so purchased. The Corporation covenants and
agrees that all of the Shares of the Common Stock which may be issued and
delivered upon the due exercise of this Option by the Holder shall, upon such
issuance and delivery, be fully paid and non-assessable and free from all stamp
taxes, liens and charges and such Shares shall rank in pari passu in all
respects with the issued stock of the Corporation at the date of issue. The
Corporation agrees at all times to reserve and hold available a sufficient
number of Shares of the authorized but unissued Common Stock of the Corporation,
to cover the Shares of the Common Stock issuable upon the exercise of this
Option, together with any other outstanding options, warants or conversion
rights.
<PAGE>
2. Option Price.
The Option Price at which the Shares of the Common Stock shall be
purchased upon the exercise of this Option shall be one tenth of one cent
($.001) per share.
3. Number of Shares to be Issued.
(a) The total number of shares which may be issued pursuant to
this Option shall be determined by dividing the number 2,500,000 by the average
Market Price of the Corporation Shares as quoted by the NASD Over the Counter
Bulletin Board Service ('OTCBB") for the thirty (30) consecutive trading days
before the exercise date. The Holder may elect to exercise all or part of the
Option. The term "'Market Price" shall be defined as (i) the closing price of
the Shares; or (ii) the highest closing price if the Shares trade on more than
one market or exchange; or (iii) the mean between the highest bid and the lowest
asked prices.
(b) Notwithstanding anything to the contrary herein, in the event
of the occurrence of a capital transaction, including but not limited to, a
share dividend, share exchange, merger, reverse merger or other capital
transaction of an extraordinary nature which shall make the computation of the
number of shares or the Market Price, as set forth in paragraph (a) of section 3
hereof, inaccurate or inappropriate, the said method of computation shall be
appropriately revised.
(c) The Corporation hereby agrees to maintain such records on a
daily basis so as to have the ability to provide the Holder with the average
Market Price on any given day. The Holder may request such information from the
Corporation at any reasonable time.
4. Put Option.
To the extent that the Option is not fully exercised on the third
anniversary of the Issue Date, the Holder may, for a period of thirty (30) days
following such anniversary exercise the remainder of the Option, in whole or in
part, and require the Corporation to purchase the resultant number of shares, in
accordance with Section 3 above, at the price at which the number of Shares was
computed. The Put Option shall be exercised by the Holder by forwarding written
notice to the Corporation (the "Put Notice"), which shall be received within
thirty (30) days from the said third anniversary. In the event the Put Option
shall be elected, Corporation shall remit payment within thirty (30) days of its
receipt of the Put Notice. Any payments received after said date shall accrue
interest at the rate of six (6%) percent per annum.
5. Legend on Shares.
The stock certificates of the Corporation that will evidence the
shares of Common Stock with respect to which this Option may be exercisable will
be imprinted with a conspicuous legend in substantially the following form:
- 2 -
<PAGE>
THIS SECURITY AND ANY SECURITY EVIDENCED OR REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER
JURISDICTION OF THE UNITED STATES. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE
WITH RULE 144A TO A PERSON THAT IT AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER (QIB) PURCHASING FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF ANOTHER QIB, OR(2) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S, OR (3) PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
The Corporation does not currently file periodic reports with the Securities and
Exchange Commission ("SEC") pursuant to the provisions of the Securities
Exchange Act of 1934, as amended. Except as provided in Section 5 of this Stock
Option Agreement, the Corporation has not agreed to register any of the Holder's
Shares with respect to which this Option may be exercisable for distribution in
accordance with the provisions of the Act or the State Acts. Hence, it is the
understanding of the Holders of this Option that by virtue of the provisions of
certain rules respecting "restricted securities" promulgated by the SEC, the
Shares with respect to which this Option may be exercisable may be required to
be held for up to 2 years pursuant to Rule 144 or Regulation S of the Act,
subject to the prohibitions of said rule and regulation, unless said Shares
become registered, or unless another exemption from such registration is
available, in which case the Holder may still be limited as to the number of
Shares with respect to which this Option may be exercised that may be sold.
6. Non-Transferabilily.
This Option shall not be pledged, hypothecated, sold or otherwise
transferred or encumbered by the Holder except as set out in the legend referred
to in section 5 above. Notwithstanding the above, Holder shall have the right to
assign this Option, in whole or in part, to the Talidan shareholders, or
beneficial owners, immediately upon receipt hereof, to any private "family type
trusts" or similar transfers, provided such is a completely private transaction
and provided the transferee intends to and shall be bound to the terms hereof or
as otherwise agreed with the Corporation and provided said transfer is not
otherwise in violation of the appropriate US and state securities laws. As a
result of any such assignment, the Corporation shall cancel this Option and
reissue such Options in such smaller amounts in a similar form hereto consistent
with the terms hereof.
- 3 -
<PAGE>
7. Registration Rights.
(a) (i) If the Corporation at any time elects or proposes to
register any of its Shares (the "Registration Shares") under the Securities Act
of 1933 (the "Act") on Forms S-1, S-2, S-3 or S-18, or any successor
registration statement forms in effect at such time (a "Registration Statement")
with the Securities and Exchange Commission (the "SEC") pursuant to which Shares
owned by any shareholder of the Corporation may be registered, the Corporation
shall give thirty (30) days prior written notice (the "Registration Notice") to
the Holder of its intention to register the Registration Shares. Notwithstanding
anything to the contrary herein, Holder shall have no rights under this section
pertaining to Options which remain unexercised at the time of any registration.
(ii) Within twenty (20) days after the Registration Notice
shall have been given to the Holder, the Holder shall give written notice to the
Corporation (the "Holder Notice"), stating the number of Shares to be registered
(the "Holder Shares") and the states in which the Holder wishes to register the
Shares. In the event the Registration Notice is given by the Corporation prior
to the time that this Option is otherwise exercisable pursuant to Section 1(b)
hereof, the Holder Notice shall be accompanied by this Option Certificate
together with a duly executed Purchase Form and payment of the Exercise Price
for the Holder Shares in accordance with Section 1 hereof.
(iii) The Corporation shall use reasonable cfforts to
register the Holder Shares under the Act and the applicable state securities
laws (the "State Acts") designated by the Holder in the Holder Notice. Anything
contiined herein to the contrary notwithstanding, the Corporation shall have the
right to withdraw and discontinue registration of the Holder Shares at any time
prior to the effective date of such Registration Statement if the registration
of the Registration Shares is withdrawn or discontinued.
(iv) The Corporation shall not be required to include any of
the Holder Shares in any Registration Statement unless the Holder agrees, if so
requested by the Corporation, to: (A) offer and sell the Holder Shares to or
through an underwriter selected by the Corporation and, to the extent possible,
on substantially the same terms and conditions (and in any event on no less
favourable terms and conditions) under which the Registration Shares are to be
offered and sold; (B) comply with any arrangements, terms and conditions with
respect to the offer and sale of the Shares to which the Corporation may be
required to agree; and (C) enter into any underwriting agreement containing
customary terms and conditions, including provisions for the indemnification of
the underwriters.
(b) If the offering of the Registration Shares by the Corporation
is, in whole or in part, an underwritten public offering, and if the managing
underwriter determines and advises the Corporation in writing that the inclusion
in such Registration Statement of all of the Holder Shares, together with the
Shares of other persons who have exercised their right to include their Shares
in the Registration Statement (collectively referred to as the "Aggregate
Shares")
- 4 -
<PAGE>
would adversely affect the marketability of the offering of the Registration
Shares, then the Holder shall be entitled to register a proportion, as
determined in Subsection (b)(i) below, of such number of Aggregate. Shares as
the managing underwriter determines may be included without such adverse effects
("Aggregate Underwriter Shares"), subject to the terms, exceptions and
conditions of this Section 7.
(i) The proportion of the Aggregate Underwriter Shares which
the Holder in its capacity as such shall be entitled to register shall be equal
to the ratio which the Holder Shares bears to the Aggregate Shares.
(c) The Corporation shall bear all costs and expenses of
registration of the Registration Shares; provided, however, that the Holder
shall bear all costs and expenses directly related to registration of the Holder
Shares, including its proportionate amount of underwriters discounts and
commissions, and expenses of counsel for the Holder.
(d) It shall be a condition precedent to the Corporation's
obligation to register any Holder Shares pursuant to this Section 7 that the
Holder provide the Corporation with all information and documents, and shall
execute, acknowledge, seal and deliver all documents reasonably necessary, to
enable the Corporation to comply with the Act, the State Acts, and all
applicable laws, rules and regulations of the SEC or of any State Securities
Commission.
(e) The Holder shall indemnify and hold harmless the Corporation,
each of its directors and officers who have signed the Registration Statement,
each person, if any, who is a controlling person or the Corporation and any
underwriter from and against any and all losses, claims, damages, expenses or
liabilities (including amounts paid in settlement and reasonable attorneys'
fees) (the "Liabilities"), on a several basis, to which they or any of them may
become subject under the Act, under any State Act or at common law or otherwise
insofar as the Liabilities arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or prospectus (as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, which statement or omission was made in
reliance upon and in conformity with information fiimished to the Corporation by
the Holder in connection therewith.
(f) Shelf Registration. The Company hereby agrees that in the
event it shall meet all of the requirements necessary to file a Form S-3 to
effectuate a "Shelf Registration" in accordance with the applicable securities
laws of the United States, and it shall in all respects be eligible for and
qualify for the same, it shall use its best efforts to effectuate and maintain a
Shelf Registration.
- 5 -
<PAGE>
8. Loss or Destruction.
Upon receipt of evidence satisfactory to the Corporation of the
loss, theft, destruction, or mutilation of this Option Agreement and, in the
case of any such loss, theft or destruction, upon delivery of an indemnity
agreement or bond satisfactory in form, substance and amount to the Corporation
or, in the case of any such mutilation, upon surrender and cancellation of this
Option Agreement, the Corporation at its expense will execute and deliver, in
lieu thereof, a new Option Agreement of like tenor.
9. Survival.
The various rights and obligations of the Holder hereof as set
forth herein shall survive the exercise of the Options represented hereby and
the surrender of this Option Agreement.
10. Notices.
Any notice or other communication to the Corporation or to the
Holder of this Option shall be in writing and any such notice or communication
shall be deemed duly given or made if mailed by registered or certified mail,
return receipt requested, postage prepaid, and if to the Corporation: to the
Corporatioifs office at 11419 Cronridge Drive, Suite 9, Owings Mills, Maryland
21117 or at such other address as the Corporation may designate by notice to the
Holder, and if to such Holder: to _________________________________ or at such
other address as the Holder may designate by notice to the Corporation.
11. Governing Law.
This Option shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland. In the event of any ambiguity
or conflict between this instrument and the Agreement of Purchase between the
Parties, this instrument shall control.
12. Successors and Assigns.
All of the provisions of this Option shall be binding upon the
Corporation and its successors and assigns and the Holder, its successors and
permitted assigns.
- 6 -
<PAGE>
IN WITNESS WHEREOF, Carnegie International Corporation has caused this
instrument to be signed in its corporate name under its corporate seal by its
President this ______ day of _____________________, 1997.
ATTEST: Carnegie International Corporation
/s/ By: /s/ Lowell Farkas
Lowell Farkas, President
- 7 -
<PAGE>
EXERCISE FORM
OPTION AGREEMENT
Date
TO: Carnegie International Corporation
The undersigned hereby irrevocably elects to exercise the attached
Option Agreement to the extent of _________________ shares of the Common Stock,
par value $0.00 per share, of ___________________ and hereby makes payment of
$__________ in accordance with the provisions of Section 2 of the Option
Agreement in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
(Please typewrite or print in block letters)
Address:
------------------------------------
By:
- 8 -
EXHIBIT 10.10
<PAGE>
PRE-EMPTION AGREEMENT
This Pre-emption Agreement is dated as of 29th September 1997, between
Carnegie International Corporation, a Colorado Corporation ("Carnegie") and
Tiller Holdings Ltd, an Anguillan Corporation ("Tiller").
In consideration of the mutual consents and obligations herein set
forth, the parties hereto hereby agree as follows:
1. Definitions and Interpretation
Unless the contrary is provided or the context otherwise requires
the term and expressions used in this Agreement shall have the
same meaning as in the agreement dated 30th September 1997 between
Carnegie and Tiller for the sale and purchase of the entire issued
share capital of each of Profit Thru Telecommunications (Europe)
Limited and Talidan Limited (the "Purchase Agreement").
2. Right of Pre-emption
If, during the period of three years from the date hereof (the
"Pre-emption Period") Tiller wishes to dispose of any interest it
may have in any telecommunications business, it shall first offer
such interest to Carnegie and Carnegie shall have 10 days
therefrom to confirm whether or not it wishes to accept such offer
after which time Tiller shall be entitled to market such interest
to any other party.
3. Options
3.1. In consideration of entering into this agreement, Carnegie
shall issue to Tiller or its successors and assigns an
option which:
(a) is evidenced by an agreement in the agreed form;
(b) entitles Tiller (or its assignee) at any time during
the Pre-emption Period to have issued to it or them
for the consideration set out therein new Carnegie
Shares having an aggregate value (at the average price
("the Price") per Carnegie Share quoted by the NASD
Over the Counter Bulletin Board Service ("OTCBB") for
the 30 consecutive trading days prior to the date
of the service of the relevant exercise notice) of
$2,500,000.
3.2. On the date of their issue, the shares issued pursuant to
the Option shall have the same rights and shall rank pari
passu in all respects with the Carnegie Shares then in
issue.
<PAGE>
In witness whereof this Agreement has been entered into on the day and
year first above written.
Executed for and on behalf of ) /s/ Lowell Farkas
As President
Carnegie International Corporation )
Executed for and on behalf of ) /s/
Duly Authorized
Tiller Holdings Ltd. )
- 2 -
EXHIBIT 10.11
<PAGE>
VICTORIA STATION MIAMI, INC.
AND
JANE MANAGEMENT CORPORATION
STOCK AND ASSET PURCHASE AGREEMENT
THIS STOCK AND ASSET PURCHASE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into this 29th day of September, 1997, by and
between Carnegie International Corporation, a Corporation of the State of
Colorado (hereinafter referred to as "Carnegie"), Talidan USA, Inc., a
Corporation of the State of Maryland (hereinafter referred to as "Talidan")
Munir Saltoun, Individually (hereinafter referred to as "Saltoun"), Victoria
Station Miami, Inc. (hereinafter referred to as the "Victoria"), a Corporation
of the State of Florida, Jane Management Corporation (hereinafter referred to as
"Jane"), a Corporation of the State of Florida and A.S. Management Corporation
(hereinafter referred to as "A.S."), a Corporation of the State of Connecticut.
Talidan and Carnegie shall hereinafter be collectively referred to as
"Purchaser". Saltoun, A.S. and Jane shall hereinafter be collectively referred
to as "Seller". Victoria and Jane shall hereinafter be collectively referred to
as the "Companies" or "Company."
EXPLANATORY STATEMENT
Saltoun owns two hundred (200) shares of Common Stock of Victoria,
which represents One Hundred Percent (100%) of the issued and outstanding
Victoria Stock, (hereinafter referred to as the "Shares"). Victoria owns the
lease rights and liquor license relating to Victoria Station Restaurant located
at 6301 Northwest 36' Street, Virginia Gardens, Florida 33166 (hereinafter
referred to as the "Premises" or "Virginia Gardens location"). Jane owns One
Hundred percent (100%) of the assets used in the operation of the Premises
including equipment, furniture, fixtures and the like (hereinafter referred to
as the "Assets"), but excluding the real property owned by a Third Party as well
as the assets specifically enumerated herein as being owned by Victoria and A.S.
and except for assets (See Exhibit A list) provided by and owned by certain
vendors. A.S. owns all proprietary interests related to Trademarks and Service
Marks for Victoria Station Restaurants, including those attributable to the
Premises, which A.S. shall hereby grant a license for same to Victoria,
simultaneous with Carnegie's acquisition of Victoria, for use outside of certain
New England states (hereinafter referred to as the "Marks") as provided in a
License Agreement of even date. The Shares, Marks and Assets shall hereinafter
be collectively referred to as the "Property".
Talidan shall purchase the Assets from Jane and Carnegie shall purchase
the Stock from Saltoun, together with such relative rights, preferences and
limitations as appertain to said Property, as are hereinafter provided by this
Agreement. Jane and Saltoun shall issue, sell, transfer and deliver said
Property to Carnegie and Talidan, respectively, upon the terms and conditions
provided by this Agreement.
NOW, THEREFORE, in consideration of the Explanatory Statement, which
shall constitute a substantive part of this Agreement, and the mutual covenants,
promises, agreements,
<PAGE>
representations and warranties hereinafter set forth, the receipt and
sufficiency of which are hereby acknowledged, Purchaser, Seller and Company do
hereby covenant, promise, agree, represent and warrant as follows:
1. Closing; Purchase of Shares and Assets:
1.1. The closing (hereinafter referred to as the "Closing") of the
purchase of the Property provided by this Agreement shall take place
simultaneously with the execution of this Agreement, or on such other day as
Purchaser and Seller shall agree in writing, at the law offices of Gershberg and
Pearl, LLP and Murai Wald Biondo & Moreno, respectively, through an escrow
arrangement agreeable to the parties unless the place and means of closing is
changed pursuant to a writing signed by all parties hereto (hereinafter, such
day shall be referred to as the "Closing Date", and such law offices shall be
referred to as the "Closing Place.")
1.2. On the Closing Date and at the Closing Place, Saltoun shall
issue, sell, transfer and deliver to Carnegie the Shares, which Shares shall in
each instance be represented by one or more stock certificates of Victoria duly
registered in the name of Carnegie (a copy of which is attached hereto as
Exhibit A1), and Jane shall sell, transfer and deliver all the Assets of Jane
pursuant to a Bill of Sale (a copy of which is attached hereto as Exhibit A2)
and List of Assets (a copy of which is attached hereto as Exhibit A3).
1.2.1. Cut-Off Date: The Parties hereby agree that for
purposes of calculating income, expenses, assets, liabilities, accounts
receivable and accounts payable, the effective date of all such calculations
shall be 12:00 A.M., August 18, 1997 (the "Cut-Off Date"), regardless of the
date of completion of this Agreement.
1.2.2. Post Closing-Adjustments: Seller and Purchaser agree
that a representative of Purchaser shall visit Seller's premises where books and
records are maintained to reconcile said books for the purpose of determining
the total Virginia Gardens location revenue and expenses earned and incurred,
respectively, after the Cut-Off Date until the date that revenue begins to be
deposited and expenses begin to be disbursed from a new separate bank account in
Carnegie's or one of its subsidiaries' name. Said visit shall occur within the
later of thirty (30) days after closing or within such reasonable time period
after closing that allows Talidan to become registered to do business in Florida
and open a business bank account in Florida. The cash basis net income/(loss)
after the Cut-Off Date shall be determined by subtracting such expenses after
cut-off from such revenue after cut-off and taking into account and excluding
adjustments made between the parties prior thereto (as reflected on a Schedule
of Closing Adjustment included herewith as Exhibit A4). If there is net income,
such net income shall be transferred to Talidan's new bank account. If there is
a net loss, Talidan shall reimburse Saltoun for same, if it has not already done
so.
1.3. Purchase Price: The purchase price for the Property shall be
Three Hundred and Twenty-Five Thousand Dollars ($325,000) and 25,000 shares of
Carnegie stock to
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be paid as follows (plus an amount equal to the cash on hand and in the bank of
the Companies as of the Cut-Off Date, utility deposits and reimbursement for
certain equipment as specified on the Schedule of Closing Adjustments included
herewith as Exhibit A4):
1.3.1. $140,000 which was paid to Saltoun on or before July
18, 1997, vesting in Carnegie on the Cut-Off Date, subject to the provisions of
this Agreement, complete possession, ownership and control of the Shares and the
management and operations of Victoria and its assets and the Marks, vesting in
Talidan complete possession, ownership and control of the Assets of Jane,
including but not limited to the leases, equipment, liquor license, trade and
service marks (for use outside of New England), building and other improvements
and assets relating thereto for each such entity (subject to the terms of
Section 1.6). Carnegie shall be responsible for liabilities of Victoria incurred
subsequent to the Cut-Off Date and for financial, license and tax reporting of
Victoria subsequent thereto, except as provided to the contrary herein. Seller
and Victoria shall cooperate in and facilitate the immediate transfer of
possession, ownership and control of the Property including all assets and
operations relating to the Virginia Gardens location, as of the closing date.
1.3.2. $185,000 payable not later than January 15, 1998. Said
Principal balance shall accrue simple interest at the rate of ten percent (10%)
per annum payable monthly on the outstanding balance accruing from the Cut-Off
Date. Carnegie may at its option pay off or pay down the balance before January
15, 1998 with no penalty. A Promissory Note (hereinafter referred to as the
"Note") reflecting this obligation shall be secured by the Shares and by the
Assets, pursuant to a Stock Pledge Agreement (the "Stock Pledge Agreement"),
Security Agreement (the "Security Agreement") and Financing Statement, all in
form and substance satisfactory to Seller and Purchaser consistent with
reasonable industry practice.
1.3.3. In the event Carnegie does not tender the balance of
$185,000 in accordance with Section 1.1.2. above, Saltoun shall retain the One
Hundred Forty Thousand ($140,000) payment under Section 1.3.1., the possession,
and control of the Property shall immediately be given and revert back to the
Seller and Seller shall be entitled to pursue its remedies under the Stock
Pledge Agreement and the Security Agreement. Carnegie shall be responsible to
fund on the Closing Date or by wire transfer within twenty-four (24) hours
thereafter, an operating account based on a reasonable estimate of cash flow
needs, to be agreed upon in writing by the parties hereto. If the initial
deposit in the operating account is not adequate, Carnegie shall provide
additional funding, based on a monthly review of the account by the parties
hereto. The working capital provided by Carnegie shall be returned to Carnegie,
minus losses or plus income after the Cut-Off Date, as the case may be, upon
payment of the balance of the Note. If the balance of the note is not paid,
operating income shall revert to A.S. Management. However, A.S. Management
and/or Saltoun shall reimburse Carnegie for any deposits which Carnegie funded,
replaced or for which Carnegie reimbursed Seller or Victoria.
1.3.4. Adjustments: All expenses and income, accruals,
bonuses, salaries, taxes, insurance, deposits, vacation leave or the like shall
be adjusted as of the Cut-Off
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Date, such that Seller shall pay all such expenses and receive all income before
such date, and Carnegie shall be responsible for such expenses and receive all
income on the Closing Date and thereafter. Carnegie shall reimburse Seller on
the Closing Date for all prepaid insurance, property taxes, utility deposits,
licenses, etc., paid or reasonably estimated to be paid by Seller as of the
Cut-off Date. The reimbursement to Seller shall be setoff by outstanding
liabilities of Seller, accrued vacation, taxes, utilities, surcharges, payroll,
payables, or expenses paid after the Cut-Off Date that were incurred prior to
the Cut-Off Date or other similar items as of the Cut-Off Date. All
reimbursements and setoffs are subject to verification by Purchaser through
examination of underlying documentation within fourteen (14) days of Closing.
1.3.5. Seller shall be reimbursed on the Closing Date for
food and beverage inventory as of the Cut-Off Date.
1.3.6. Any income from the Virginia Gardens location prior to
the payment of the outstanding balance of the purchase price shall be placed in
a new bank account approved by Carnegie with sole signatory authority by Saltoun
until such time as the outstanding balance of the Note is paid in full. Saltoun
shall use the income as well as the working capital provided by Carnegie, as
provided in Section 1.3.3 hereof, in the new account to pay all expenses
attributable to the Virginia Gardens location that are incurred subsequent to
Carnegie taking ownership, possession and control thereof. All net income and/or
net cash flow shall remain in the new account until the balance of the Note is
paid, at which time Carnegie only may use such funds. Saltoun shall provide
Carnegie with daily activity reports on a weekly basis indicating details of
income and expense activity. Saltoun shall also provide a statement of income
and expenses on a monthly basis. Upon payment of the outstanding balance of the
purchase price, signatory authority for the new account shall be transferred to
a designee of Carnegie and Saltoun's name and signatory authority shall be
removed.
1.3.7. Carnegie shall cause its designee to transfer 25,000
shares (Exhibit A5) to Saltoun or his designee of Carnegie Common stock without
legend and without current restrictions on or about the Closing Date.
1.3.8. At closing Purchaser shall receive a credit in the
amount of $1,250.00 for repairs or replacements to the air conditioning system
which Purchaser deems necessary.
1.3.9. The Purchase Price shall be allocated as follows:
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1) Equipment $175,000
2) Furniture and Fixtures 25,000
3) Leasehold Improvements 25,000
4) Liquor License 60,000
5) Lease 15,000
6) Goodwill 20,000
7) Covenant Not To Compete 5,000
1.4. Purchaser acknowledges that, prior to the execution of this
Agreement, it has conducted a due diligence investigation of the operations of
the Virginia Gardens location and the Assets, including, without limitation, an
investigation of the financial operations of the Virginia Gardens location, the
books and records of Seller relating to the same and the condition of the
Premises and the Assets, and Purchaser is satisfied with the results of the
investigation, except as provided to the contrary herein in Section 1.3.8
hereof. Purchaser has had an opportunity to investigate all matters which
Purchaser has deemed relevant concerning the Shares and the Assets and has had
an opportunity to discuss the same with the officers of the Companies and of
A.S.
1.4.1. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS MAY
OTHERWISE BE SPECIFICALLY AND EXPRESSLY PROVIDED FOR HEREIN, NEITHER SELLER NOR
VICTORIA HAS MADE ANY REPRESENTATIONS, WARRANTIES, OR AGREEMENTS CONCERNING THE
SHARES, THE VIRGINIA GARDENS LOCATION OR THE ASSETS, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. PURCHASER SHALL ACCEPT THE PREMISES AND THE ASSETS IN THEIR
"AS IS, WHERE IS" CONDITION AS OF THE CLOSING DATE, "WITH ALL FAULTS."
1.5. There shall be no debt of Victoria as of and including the
Cut-Off Date (see Certificate of No Debts included herewith as Exhibit B).
Seller shall pay to Purchaser as an adjustment at closing an amount equal to the
payables, accrued vacation, payroll, taxes and the like of Seller which
Purchaser will pay on behalf of Seller, pursuant to Section 1.3.4. hereof The
Parties agree that Purchaser is not responsible for any debts of Jane and all
such debts shall be paid in full by Seller as of the Cut-Off Date.
1.5.1. Anything to this Agreement to the contrary
notwithstanding, all claims of the Companies against insurance companies prior
to the Cut-Off Date, and all proceeds therefrom, shall belong solely to Seller
and shall not be transferred to Purchaser as part of the transactions
contemplated hereby. Prior to the closing, to the extent necessary, Victoria
will assign any such claims made by Victoria to Seller or its designee. All
legal expenses or other expenses in connection with such claims shall be the
sole responsibility of Seller. Purchaser agrees after the closing to execute any
and all documents which may be reasonably necessary to confirm and ratify unto
Seller, or its designee, the ownership of all such insurance claims.
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1.6. OPERATION RESTRICTIONS DURING NOTE PERIOD
From the date of closing until the Note has been satisfied,
Carnegie shall own and operate the Companies subject to the following terms:
1.6.1. Saltoun shall manage and control the financial and
accounting component of the Companies' business, including all accounts
receivable and payable in accordance with Section 1.3.6. hereof, in a new
separate bank account in a name or names designated by Carnegie.
1.6.2. Carnegie shall keep the Assets and the Premises in
good repair and working order.
1.6.3. Carnegie shall not until the Note is paid in full
incur any liabilities related to the Virginia Gardens location except in the
ordinary course of business consistent with the past practices of the Virginia
Gardens location.
1.6.4. No changes shall be made to salary levels of
Management or hourly employees that existed as of June 1, 1997.
1.6.5. No changes shall be made to the menu, marketing,
pricing or vendor agreements without the prior approval of the Seller.
1.6.6. No agreements shall be entered for the Virginia
Gardens location accepting any "discount cards" such as IGT, Transmedia, etc.
1.6.7. No changes to the management of the Virginia Gardens
location shall be made without Seller's approval which shall not be unreasonably
withheld.
1.6.8. Carnegie shall keep the Virginia Gardens location and
the Assets insured against all risks for which the Virginia Gardens location and
the Assets are currently insured by Seller and Victoria, including general
liability and all risk property and casualty insurance. Such insurance policies
shall be issued by companies reasonably acceptable to Seller. Such policies
shall provide for coverage in amounts at least as high as currently carried by
Seller and Victoria and with deductibles not higher than those provided under
the policies carried by Seller and Victoria. Seller shall be named as an
additional insured on all such policies.
1.6.9. Victoria shall not issue, sell, pledge, or dispose of
or authorize the issuance, sale, pledge or disposition of any shares of its
stock or any of its assets. Carnegie shall not sell, pledge, dispose of or
encumber any of the Assets.
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1.6.10. Carnegie shall operate the Virginia Gardens location
in the ordinary course of business, consistent with past practices, and shall
not permit Victoria to enter into any transactions other than in the ordinary
course of business consistent with past practices. No agreement shall be entered
into by Victoria or by Purchaser with respect to the Virginia Gardens location
which are not cancelable at will, without penalty, other than routine service
contracts for such periods as such service contracts currently provide.
2. Representations and Warranties of the Seller and Victoria
Seller and Victoria represent and warrant to Purchaser as follows:
2.1. Seller is, and as of the Closing Time will be the valid and
legal owner of the Property being transferred hereby and owns the Property free
and clear of any and all liens and encumbrances. The Seller owns all assets of
and relating to Victoria Station Restaurant located at 6301 Northwest 36th
Street, Virginia Gardens, Florida 33166 (hereinafter referred to as the
"Virginia Gardens location), including but not limited to the leases, equipment,
liquor license, trade and service marks (for use outside of New England),
building and other improvements and assets relating thereto. More specifically,
Jane owns all the assets except for the liquor license and lease rights which
are owned by Victoria, the Marks which are owned by A.S. and the stock of
Victoria which is owned by Saltoun.
Saltoun represents and warrants that he owns one hundred
percent (100%) of the stock of A.S., that A.S. has served as the Management
Company for Victoria and Jane and has fairly and accurately in all material
respects reflected and allocated all assets, liabilities, income and expenses
related to both the management and results of operations of the Companies on the
books and records of Jane, which has been presented to Carnegie in summary form
for the periods ended December 31, 1995 and December 31, 1996 respectively and
designated as V15 to differentiate the income and expenses relating to
management and operation of the Virginia Gardens location from income and
expenses related to other assets or endeavors that are managed by A.S.
2.2. Seller and Victoria have the requisite and proper authority
to enter into the within agreement and to transfer, assign and sell the Property
in accordance with the terms hereof
2.3. Companies are, and at the Closing Time will be, corporations
duly organized, validly existing and in good standing under the laws of Florida.
Company has, and at the Closing Date will have, the power and authority to own,
lease and operate its properties and to conduct its business as such business is
now being conducted by Company. A complete and correct copy of the appropriate
documents including, but not limited to the certificate of incorporation, as
amended, and the by-laws, as amended, of Company, are attached to this Agreement
collectively as Exhibit C and are incorporated by reference herein, and no
changes therein will be made subsequent to the date hereof and prior to the
Closing Time.
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2.4. Victoria has validly authorized, issued, and has outstanding,
and, except as hereinafter set forth in this Section 2.2, on the Closing Date
will have authorized, issued and outstanding, fully paid and non-assessable, Two
Hundred (200) shares of its common stock. Upon issuance, sale, transfer and
delivery of the Shares to Purchaser, the shares of Victoria Common Stock issued
and outstanding will constitute One Hundred Percent (100%) of the issued and
outstanding capital stock of Victoria. Except as hereinafter set forth in this
Section 2.4, Victoria does not have outstanding, and on the Closing Date will
not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or to sell assets or shares of common stock or
any such options, rights, warrants, convertible securities or obligations.
Victoria has not issued, and hereby warrants and represents that it shall not
issue any Stock options (hereinafter referred to as the "Options"), which grant
to the holders thereof the right to purchase in the aggregate any shares of the
Company Common Stock.
2.5. When issued, sold, transferred and delivered to Purchaser
upon payment of the consideration set forth in Section I hereof, the Property
will be fully paid and non-assessable, free and clear of all mortgages, pledges,
liens, security interests, conditional sale agreements, charges, encumbrances
and restrictions of every nature, except for those created pursuant to the terms
of this Agreement.
2.6. Except as set forth on Exhibit D, Company has filed all tax
returns, as appropriate, country wide, state and local, and all related
information required to be filed prior to the date hereof, and at the Closing
Time shall have filed all tax returns, as appropriate, and all related
information required to be filed prior to the Closing Time. To the best
knowledge of Seller and Victoria, the amounts reflected in the Balance Sheet for
taxes are sufficient for the payment of all accrued and unpaid federal, state
and local taxes of all types, including interest and penalties thereon, of
Company for or on account of which Company is or may become liable in any manner
whatsoever for the years noted above and for all prior periods.
2.7. Since July 1, 1997:
2.7.1. The business of Companies have been operated, and
prior to the Closing Date will be operated, only in the ordinary course.
2.7.2. Except as set forth in Exhibit D1, there has been, and
prior to the Closing Date there will be, no material adverse change,
individually or in the aggregate, in Company's condition (financial or
otherwise) or in Company's assets, liabilities or business.
2.7.3. There has been, and prior to the Closing Date there
will be, no damage, destruction or loss to the Company or any of its contracts,
assets, inventory, accounts, or other properties, or other events or conditions
of any character, or any pending or threatened developments, individually or in
the aggregate, which would materially and adversely affect the
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Marks of A.S. or the Company's condition (financial or otherwise) or Company's
assets, liabilities or business.
2.8. Except as set forth in Exhibit D I attached hereto and
incorporated by reference herein, there is, and on the Closing Date there will
be, no material action, suit, proceeding or investigation pending or, to the
knowledge of Company, threatened, against or affecting Company or any of its
assets. Company is not, and on the Closing Date will not be, in default under or
with respect to any judgment, order, writ, injunction or decree of any court or
of any federal, state, municipal or other governmental authority, department,
commission, board, agency or other instrumentality. To Seller's knowledge,
Company has, and on the Closing Date will have, complied in all material
respects with all laws, rules, regulations and orders applicable to it and to
its business; has, and on the Closing Date will have, performed in all material
respects all of its material obligations and duties to be performed by it to the
extent required in accordance with their respective terms; and is not, and on
the Closing Date will not be, in default under or in material breach of any
material contract, agreement, commitment or other instrument to which it is
subject or a party or under which it is bound.
2.9. Seller and Victoria have not, and on the Closing Date will
not have, incurred any liability, obligation or duty for any finder's, agents or
broker's fee or commission in connection with this Agreement or the transactions
contemplated hereby.
2.10. The Board of Directors of the Company and A.S., pursuant to
the power and authority legally vested in it, has duly authorized the execution,
sealing and delivery of this Agreement by the Seller and Victoria, Common Stock
of Victoria, Assets of Jane, Marks of A.S. and the transactions hereby
contemplated, and no action, confirmation or ratification by any stockholder of
the Company, Seller, or by any other person, entity or governmental authority is
required in connection therewith. The Seller and Victoria have the power and
authority to execute, seal and deliver this Agreement, to consummate the
transactions hereby contemplated and to take all other actions required to be
taken by them pursuant to the provisions hereof. The Seller and Victoria have
taken all actions required by law, the Company's and A.S.'s certificate of
creation or incorporation, as amended, its bylaws, as amended, or otherwise to
authorize the execution, sealing and delivery of this Agreement and the
issuance, sale, transfer and delivery of the Property pursuant to the provisions
hereof. This Agreement is valid and binding upon the Seller and Victoria in
accordance with its terms. Neither the execution, sealing and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
constitute a violation or breach of the certificate of incorporation, as
amended, or the by-laws, as amended, of the Company or A.S., or any agreement,
stipulation, order, writ, injunction, decree, law, rule or regulation applicable
to Victoria or the Seller.
2.11. Attached hereto as Exhibit E and incorporated by reference
herein is a list of all officers and directors of each Company and all
beneficial owners of the issued and outstanding Company Common Stock, and the
number of shares of the Company Common Stock
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owned of record and beneficially by each such officer, director and beneficial
owner. To the best knowledge of Company, the information set forth on Exhibit E
is true and correct.
2.12. To Seller's knowledge neither this Agreement nor any written
information, statement, list or certificate furnished or to be furnished to
Purchaser pursuant to this Agreement or in connection with this Agreement or any
of the transactions contemplated by this Agreement contains or, on the Closing
Date will contain any untrue statement of a material fact or omits or, on the
Closing Date will omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.
2.13. Seller's and Victoria's Release. Seller and Victoria hereby
warrant, represent and acknowledge that they shall execute at the time of
closing a release of all claims which reflects Seller and Victoria's complete
release and discharge of any claims it may have against Victoria, both
individually and as an officer or Director of the Company, except for those
considerations due as set forth in this Agreement. Such release shall be
attached hereto and incorporated herein by reference as Exhibit F.
2.14. [Intentionally left blank]
2.15. Seller shall accurately maintain the books of account of
Victoria, Talidan or any other entity operating the Virginia Gardens location on
behalf of Purchaser, pay bills and deposit revenue until the Note is paid in
full. Seller shall indemnify and hold purchaser harmless from any and all losses
due to Seller's intentional misconduct or gross negligence during the period in
which Seller is managing the financial operations of the Virginia Gardens
location as provided in Section 1.6 above.
2.16. No Subsidiaries: The Seller and Victoria hereby acknowledge
that the Company does not have any subsidiaries and does not, directly or
indirectly, own any interest in or control any corporation, partnership, joint
venture or other business entity.
2.17. Licenses; Permits; Related Approvals: Victoria possesses all
licenses, permits, consents, approvals, authorizations, qualifications and
orders (hereinafter collectively referred to as the "Permits") of all
governments and governmental agencies lawfully required for the Company to
conduct its restaurant business in all jurisdictions where business is
conducted. All of the Permits are in full force and effect and no suspension,
modification, or cancellation of any Permits is pending or threatened. A list of
the Permits is attached hereto as Exhibit G and incorporated herein by
reference.
2.18. No Real Property: Except as set forth on Exhibit H attached
hereto and incorporated herein by reference, the Company does not own or have
any interest in any real estate.
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2.19. Condition of Personal Property: Attached hereto as Exhibit I
and incorporated by reference herein is a true, correct and complete list of all
personal property, owned by the Company or used by the Company in the conduct of
its business, including, but not limited to, all equipment, machinery and
fixtures, (collectively, the "Personal Property"), indicating whether it is
owned or the manner in which the Personal Property is otherwise utilized by the
Company. The Company has sole and exclusive, good and merchantable title to all
of the Personal Property owned by it, free and clear of all pledges, claims,
liens, restrictions, security interests, charges and other encumbrances.
2.20. Certain Contracts. Attached hereto as Exhibit J and
incorporated by reference herein is a true, correct and complete list and copy
of all contracts under which, the Company is provided or is providing services
(collectively, the "Service Contracts"). To Seller's knowledge, each of the
Service Contracts is in full force and effect, is valid and binding upon each of
the parties thereto and is fully enforceable by the Company against the other
party thereto in accordance with its terms. Neither Seller nor the Company has
any notice of, or any reason to believe that there is or has been any actual,
threatened or contemplated, termination or modification of any of the Service
Contracts. To Seller's knowledge, no party to any of the Service Contracts is in
breach of or in default thereunder, nor has any event occurred which, with the
lapse of time, notice or election, may become a breach or default by the Company
or any other party to or under any of the Service Contracts. All payments
required to be made by Seller pursuant to the Service Contracts have been paid
in full through August 18, 1997.
2.21. Contracts, Licenses, and Other Agreements. Attached hereto
and incorporated by reference herein are the following:
2.21.1. Exhibit K, a true, correct and complete list and copy
(or where they arc oral, true, correct and complete written summaries) of all
leases of the Company relating to real property.
2.21.2. Exhibit L, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
leases of the Company relating to personal property.
2.21.3. Exhibit M, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
licenses, franchises, assignments or other agreements of the Company and/or A.S.
relating to trademarks, trade names, patents, copyrights and service marks (or
applications therefor), unpatented designs or styles, know-how and technical
assistance.
2.21.4. Exhibit O, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
employment, compensation and consulting agreements, contracts, understandings or
arrangements of the Company with any officer, director, employee, broker, agent,
consultant, salesman or other
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Person, including the names, starting dates of employment, term of employment,
functions and aggregate compensation (including salary, bonuses, commissions and
other forms of compensation).
2.21.5. Exhibit P, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements of the Company for the purchase, sale or lease of goods, materials,
supplies, machinery, equipment, capital assets and services having a cost in
excess of Two Thousand Five Hundred Dollars ($2,500.00) in any one instance or
in excess of Ten Thousand Dollars ($10,000.00) in the aggregate.
2.21.6. Exhibit Q, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements and arrangements of Victoria for the borrowing or lending of money,
on a secured or unsecured basis, or guaranteeing, indemnifying or otherwise
becoming liable for the obligations or liabilities of any other Person or
entity.
2.21.7. Exhibit R, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements and understandings of the Company other than those listed in Exhibits
O through Q which are material in nature, involve the payment or receipt, in any
twelve (12) month period, of more than Five Thousand Dollars ($5,000.00) or have
a term of more than the twelve (12) months.
To Seller's knowledge, each of the agreements, arrangements
and understandings listed in Exhibits K through R (hereinafter collectively
referred to as the "Commitments") is in full force and effect, is valid and
binding upon each of the parties thereto and is fully enforceable by Victoria
against the other party thereto in accordance with its terms. Neither Seller nor
Victoria has any notice of, or any reason to believe, that there is or has been
any actual, threatened or contemplated termination or modification of any of the
Commitments. To Seller's knowledge, no party to any of the Commitments is in
breach of or in default thereunder, nor has any event occurred which, with the
lapse of time, notice or election, may become a breach or default by the Company
or any other party to or under any of the Commitments. Victoria has the right to
quiet enjoyment of all real properties leased to it for the full term of the
lease thereof All payments required to be made by Victoria and Jane pursuant to
any of the Commitments have been paid in full through August 18, 1997.
2.22. Insurance: Attached hereto as Exhibit S and incorporated by
reference herein is a list of all insurance policies of the Company, setting
forth with respect to each policy the name of the insurer, a description of the
policy, the dollar amount of coverages, the amount of the premium, the date
through which all premiums have been paid, and the expiration date. Each
insurance policy relating to the insurance referred to in Exhibit S is in full
force and effect, is valid and enforceable, and the Company is not in breach of
or in default under any such policy. Neither Seller nor the Company have any
notice of or any reason to
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believe that there is or has been any actual, threatened, or contemplated
termination or cancellation of any insurance policy relating to the insurance
referred to in Exhibit S.
2.23. Pension Plans: Seller and Victoria hereby acknowledge that
the Company does not maintain any pension, profit sharing, ESOP, stock option,
incentive bonus, hospitalization, major medical, dental, optical, prescription,
drug, health insurance, life insurance, or other benefit plan for the benefit of
any employee as the term "Employee Benefit Plan" is defined in ERISA, Section 3,
except as set forth on Exhibit U.
2.24. Employee Relations and Employment Agreements:
2.24.1. None of the Company's employees is represented by a
labor organization, and no petition for representation has ever been filed with
the National Labor Relations Board. Seller and Victoria are not aware of any
union organizational activity with respect to the Company, and have no reason to
believe that any such activity is being contemplated.
2.24.2. To Seller's knowledge, the Company is not in
violation in any material respect of any applicable equal employment opportunity
laws, wage and hour laws, occupational safety and health laws, federal labor
laws or any other laws of any government or governmental agency relating to
employment.
2.24.3. The Company has not entered into written employment
agreements and all employees can be terminated at will. The Company has no
contractual obligation or special termination or severance arrangements with
respect to any employee.
2.24.4. The Company has paid all wages due including all
required taxes, insurance and withholding thereon, and will continue to do so
through the Cut-Off Date.
2.24.5. Attached hereto as Exhibit V and incorporated herein
by reference, is a list of all accrued vacation, sick leave, and accrued
bonuses, if any, as of the Cut-Off Date.
2.24.6. Seller and the Company shall supply to Purchaser a
list of all employees of the Company, including the date of hire of each,
position, present salary, amount of bonus paid in the last year, and announced
termination date, if any, as Exhibit W.
2.24.7. Patents; Trademarks; Service Mark; Related Contracts.
Attached hereto as Exhibit X and incorporated by reference herein, is a true,
correct and complete list of all of A.S's patents, trademarks, tradenames, or
trademark or tradename registrations, service marks, and copyrights or copyright
registrations (the "Proprietary Rights") related to the Companies. To Seller's
knowledge, all of the Proprietary Rights are valid, enforceable, in full force
and effect and free and clear of any and all security interests, liens, pledges
and
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<PAGE>
encumbrances of any nature or kind. Neither A.S., Seller or Victoria has
licensed, leased or otherwise assigned, transferred or granted any right to use
any of its Proprietary Rights to any other Person or entity, and to Seller's
knowledge, no Person or entity is infringing upon A.S.'s Proprietary Rights.
A.S. and Company have not infringed and are not infringing upon any patent,
trademark, tradename, or trademark or tradename registration, service mark,
copyright, or copyright registration of any other Person or entity. Seller and
Victoria have filed all necessary and appropriate documents and paid all
necessary fees to maintain the integrity of the Proprietary Rights until the
year 2002.
2.25. Seller agrees that after closing Seller shall execute any
and all documents which may be reasonably necessary to carry out the terms,
conditions and intention of this agreement and to facilitate the transfer of the
property, to ratify unto Purchaser such property and to facilitate the
operations of Victoria by Purchaser.
2.26. Seller and Victoria shall transfer to Purchaser or
Purchaser's designee all title, rights and interests in any deposits (as
reflected on Exhibit A4) owned by Seller or Victoria related to the Virginia
Gardens location. A letter requesting such transfer shall be prepared by Seller
and or Victoria in order to accomplish the transfer (See Exhibit X).
2.27. There are no bulk transfer laws in Florida applicable to
this transaction (See Opinion Letter of Counsel, Exhibit 2).
2.28. The bonus Agreement for employees as of June 1, 1997, has
not been modified.
2.29. To the best knowledge of such Seller and Victoria, the
issuance, sale, transfer and delivery of the Property pursuant to the provisions
of this Agreement will not constitute a violation or breach of any agreement,
stipulation, order, writ, injunction or decree applicable to the Seller or
Victoria.
3. Representations, Warranties and Covenants of Purchaser.
Purchaser represents, warrants and covenants to Seller as follows:
3.1. Purchaser is, and on the Closing Date will be, a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado.
3.2. The Board of Directors of Purchaser, pursuant to the power
and authority legally vested in it, has duly authorized the execution, sealing
and delivery of this Agreement by Purchaser and the transactions hereby
contemplated, and no action, confirmation or ratification by the stockholders of
Purchaser or by any other person, entity or governmental authority is required
in connection therewith. Purchaser has the power and authority to execute, seal
and deliver this Agreement, to consummate the transactions hereby contemplated
and to take
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<PAGE>
all other actions required to be taken by it pursuant to the provision, hereof.
Purchaser has taken all actions required by law, its articles of incorporation,
its by-laws or otherwise to authorize the execution, sealing and delivery of
this Agreement. This Agreement is valid and binding upon Purchaser in accordance
with its terms. Neither the execution, sealing and delivery of this Agreement
nor the consummation of said transactions will constitute any violation or
breach of the articles of incorporation or the by-laws of Purchaser, or any
agreement, order, writ, injunction, decree, law, rule or regulation applicable
to Purchaser.
3.3. The transfer of 25,000 Shares (Exhibit A5) to Saltoun or his
designee of Carnegie Common Stock without legend and without current
restrictions shall be effected by Carnegie's designee or assignee on or about
the Closing Date.
4. Further Agreements:
4.1. Contingency: This Agreement shall be contingent upon A.S.
executing an assignment or license to Purchaser for all Proprietary Rights
including but not limited to the rights to the Patents, Trademarks, Service
Marks or related intangible proprietary interests existing in connection with
the Company's Business as it relates to Victoria Station in the form of Exhibit
hereto.
4.2. Seller's Agreement Not to Compete: The Parties hereby
acknowledge that Seller shall not establish a restaurant or bar within five (5)
miles of the Virginia Gardens location, directly or indirectly, for a period of
three (3) years from the date of this Agreement.
5. Conditions Precedent to Obligation and Duty of Purchaser to Acquire
the Property:
5.1. The obligation and duty of Purchaser to purchase the Property
from Seller as contemplated by this Agreement are subject to the fulfillment and
satisfaction on the Closing Date of each of the following conditions precedent,
any or all of which may be waived in whole or in part at or prior to the Closing
Date by Purchaser:
5.1.1. All representations and warranties of the Seller and
Victoria contained in this Agreement and expressly made at the Closing Date
shall be true and correct at the Closing Date, in all material respects, and all
of the other representations and warranties of Seller and Victoria contained in
this Agreement shall be true and correct at the Closing Date as though each of
such representations and warranties was made at such time.
5.1.2. Seller and Victoria shall have performed and complied
in all material respects with all covenants and agreements on their part
required by this Agreement in material respects to be performed or complied with
prior to or at the Closing Date.
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<PAGE>
5.1.3. Purchaser shall have received certificates of the
officers and directors of Company, whose signatures, such as President, shall be
attested by the Secretary of Company or an independent third party if Signatory
and Secretary are the same person, dated as of the Closing Date, in form
reasonably satisfactory to Purchaser, certifying to the fulfillment and
satisfaction of each of the conditions precedent specified in Sections 5.1.1.
and 5.1.2. of this Agreement.
5.1.4. Purchaser shall receive the written opinions of the
legal counsel (See Exhibit B 1) for Seller and Victoria, dated the Closing Date,
expressly stating that:
(a) Victoria and Jane are corporations duly organized,
validly existing and in good standing. Victoria and Jane have the power and
authority to own, lease and operate its properties and to conduct its business
as such business is now being conducted by them.
(b) Victoria is authorized to issue Two Hundred (200)
shares of Common Stock.
(c) Except as set forth on Exhibit D I to this
Agreement, such counsel does not know of any material action, suit, proceeding
or investigation pending or threatened against Victoria or affecting Victoria or
any of its assets.
(d) The Board of Directors of Company, pursuant to the
powers and authority legally vested in it, has duly authorized the execution,
sealing and delivery of this Agreement by Company, the transactions hereby
contemplated, and no action, confirmation or ratification by the stockholders or
Personal Representatives or Executors of any deceased stockholders of Company or
by any other person, entity or governmental authority is required in connection
therewith which has not been obtained. Seller and Victoria have the power and
authority to execute, seal and deliver this Agreement, to consummate the
transactions hereby contemplated and to take all other actions required to be
taken by or pursuant to the provisions hereof. Company has taken all actions
required by law, its certificate of incorporation, as amended, its by-laws, as
amended, or otherwise to authorize the execution, sealing and delivery of this
Agreement and the issuance, sale, transfer and delivery of the Shares pursuant
to the provisions hereof. This Agreement is valid and binding upon Seller and
Victoria.
(e) There are no Bulk Sales laws in Florida applicable
to this transaction.
5.2. The obligation and duty of Seller to sell the Shares and
Assets to Purchaser as contemplated by this Agreement are subject to fulfillment
and satisfaction on the Closing Date of each of the following conditions
precedent, any or all of which may be waived in whole or in part prior to the
Closing Date by Seller:
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<PAGE>
5.2.1. All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
at the Closing Date as though each of such representations and warranties was
made at such time.
5.2.2. Purchaser shall have performed and complied in all
material respects with all covenants and agreements on their part required by
this Agreement to be performed or complied with prior to or at the Closing Date.
5.2.3. Purchaser shall have received certificates of the
officers and directors of Purchaser, whose signatures, such as President, shall
be attested by the Secretary of Purchaser or an independent third party if
Signatory and Secretary are the same person, dated as of the Closing Date, in
form reasonably satisfactory to Seller, certifying to the fulfillment and
satisfaction of each of the conditions precedent specified in Section 5.2.1. and
5.2.2. of this Agreement.
5.2.4. Seller shall have received the written opinion of
legal counsel for Purchaser, dated the Closing Date, containing the opinions
with respect to Purchaser which Seller's counsel is required to provide with
respect to the Companies under Section 5.1.4(a) and (d).
6. Indemnification:
6.1. Saltoun, Jane, A.S. and Victoria shall each indemnify and
hold harmless Purchaser from and against any and all actions, suits,
proceedings, demands, causes of action, damages, liabilities, claims, losses,
costs and expenses (including reasonable attorneys' and experts' fees) paid or
incurred by Purchaser by reason of or arising out of or in connection with:
6.1.1. The breach by Saltoun, Victoria, Jane or A.S. of any
representation or warranty contained in this Agreement or in any certificate
delivered to Purchaser pursuant to the provisions of this Agreement.
6.1.2. The failure of Saltoun, Victoria, Jane or A.S. to
perform or comply with any covenant or agreement required by this Agreement to
be performed or complied with by each such person or entity.
6.1.3. Debts and or liabilities incurred, accruing or arising
prior to the CutOff Date attributable to Saltoun, Victoria, Jane or A.S.
including, but not limited to, contract liabilities, tort liability and tax
liability, other than those assumed by Purchaser pursuant to the terms of this
Agreement or for which credit has been given to Purchaser. Purchaser shall have
the right to setoff against any and all amounts owed by Purchaser to Seller for
any amounts owed or incurred by Purchaser in connection with any and all
liability imposed by this Section 6. Notwithstanding anything to the contrary
contained in this agreement, this provision 6.1.3 shall be fully enforceable
with no time limitation.
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<PAGE>
6.2. Carnegie shall indemnify and hold Seller and Victoria
harmless from and against any and all actions, suits, proceedings, demands,
causes of actions, damages, liabilities, claims, losses, costs and expenses
(including reasonable attorneys' and experts' fees) paid or incurred by any of
them by reason of or arising out of in connection with:
6.2.1. The breach by Purchaser of any of the representations
or warranties contained in this Agreement or in any certificate delivered to
Seller pursuant to provisions of this Agreement;
6.2.2. The failure by Purchaser to perform or comply with any
covenant or agreement required by this Agreement to be performed or complied by
Purchaser.
6.2.3. Debts and liabilities incurred or arising after the
Cut-Off Date attributable to Purchaser or Victoria, including, but no limited
to, all liabilities to employees of the Companies for which credit against the
purchase price is given to Purchaser on the Closing Date, except Seller and
Victoria shall be responsible for such debts and liabilities incurred or arising
after the Cut-Off Date due to the negligence of Seller and or Victoria prior to
the Cut-Off Date.
6.3. Saltoun, Victoria, Jane or A.S. shall not be liable with
respect to any claim, action, suit, liability, loss, damage, or expense as a
result of or arising out of a breach of the representations and warranties set
forth in Section 2 of this Agreement which has not been asserted, threatened,
instituted, incurred or discovered within a period (the "Indemnification
Period') of one (1) year following the Closing Date. Indemnification resulting
from the other matters for which indemnification is provided in this Agreement
shall not be subject to any time limitation, other than the requirement on the
part of the indemnified party to give prompt notice as provided below.
6.4. Purchaser shall not be liable to indemnify Saltoun, Victoria,
Jane or A.S. with respect to any claim, action, suit, liability, loss, damage or
expense as a result of or arising out of a breach of the representations and
warranties contained in Section 3 of this Agreement which has not been asserted,
threatened, instituted, incurred or discovered within the Indemnification Period
of the later of i) One (1) year following the Closing Date or ii) the date when
the Note is paid in full. Indemnification resulting from the other matters for
which indemnification is provided in this Agreement shall not be subject to any
time limitation, other than the requirement on the part of the indemnified party
to give prompt notice as provided below.
6.5. With respect to any claim, action, suit, liability, loss,
damage or expense asserted, threatened, instituted, paid or incurred or
discovered by or against an indemnified party, within the applicable
Indemnification Period, if any, the obligation to indemnify shall continue
through the final disposition or settlement of any such matter and the full
satisfaction of the indemnification obligation.
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<PAGE>
6.6. If a party (an "Indemnified Party"), receives notice or has
knowledge of any matter which it believes the other party hereto (the
"Indemnitor") is obligated to provide indemnification pursuant to this Section 6
(a "Claim"), the Indemnified Party will within a reasonable period of time (A)
after receipt of such notice or otherwise first becoming knowledgeable of a
Claim, give the Indemnitor written notice of the assertion of such Claim; and
(B) finnish the Indemnitor with all relevant information and copies of all
pertinent documents relating to the Claim in the Indemnified Party's possession
or control or within a reasonable period of time after the Indemnified Party's
receipt thereof, as the case may be.
6.7. The failure of the Indemnified Party to give notice of the
Claim promptly will not affect the Indemnified Party's rights to indemnification
hereunder, except if, and only to the extent that, the Indemnitor's defense of
such Claim is actually prejudiced by reason of such failure to give timely
notice.
6.8. The Indemnitor will undertake and continuously defend such
Claim with counsel of reputable standing, and the Indemnified Party may
participate in such defense by counsel of its own choosing at its own expense.
6.9. If the Indemnified Party is required to pay any amount with
respect to said Claim, such amount shall be promptly paid by the Indemnitor to
the Indemnified Party upon the Indemnified Party giving the Indemnitor a written
request therefor.
6.10. If the Indemnitor does not timely undertake or continuously
defend any such Claim, then the Indemnified Party will have the right to employ
separate counsel in any such action and to participate in the defense thereof,
and the reasonable fees and expenses of such counsel will be the Indemnitor's
obligation and direct responsibility. Furthermore, the Indemnified Party will
then have the right to defend or dispose of the Claim in such manner as it deems
advisable for Indemnitor's account and risk and for the purpose hereof as if
such defense or disposition had been made or undertaken by the Indemnitor.
6.11. The Indemnitor agrees, unless it timely assumes the defense
of any Claim hereunder, to pay the Indemnified Party's costs of defending any
Claim, including, without limitation, reasonable attorney's and paralegal fees,
accountants' fees, witness fees and court costs, promptly after written demand
therefor is given by the Indemnified Party to the Indemnitor.
6.12. If the Indemnitor timely undertakes the defense of any
Claim, then so long as the Indemnitor, in good faith, is continuously contesting
or defending the Claim: (A) the Indemnified Party shall not admit any liability
with respect thereto, or settle, compromise, pay or discharge the same without
the prior written consent of the Indemnitor; (B) the Indemnified Party shall
cooperate with the Indemnitor in the contest or defense of the Claim; (C) the
Indemnified Party shall accept any settlement of the Claim, provided such
settlement is effected by monetary payment only and adequate arrangements for
such payment, to the Indemnified Party's reasonable satisfaction, are made by
the Indemnitor and the Indemnified Party is provided
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<PAGE>
with a full release of all Claims made; and (D) the Indemnitor will provide the
Indemnified Party with all information regarding the contest or defense of the
Claim and allow counsel for the Indemnified Party to monitor, at the Indemnified
Party's sole expense, all proceedings in connection with the Claim.
6.13. Neither the Indemnitor nor the Indemnified Party may admit
any liability with respect to any Claim or settle, compromise, pay or discharge
the same without the prior written consent of the other party if such
settlement, compromise, payment or discharge could in any way expose such other
party to the payment of funds which are not subject to a claim of reimbursement
or indemnification from the settling, compromising or paying party.
6.14. The Indemnified Party shall use reasonable efforts to
preserve the status quo, not incur any penalties and not prejudice the
Indemnitor's defense of any Claim prior to the Indemnitor undertaking the
defense of such Claim.
6.15. Anything in this Section 6 to the contrary notwithstanding,
if there is a reasonable probability that an indemnifiable Claim may materially
and adversely affect the Indemnified Party other than as a result of money
damages or other money payments, the Indemnified Party, upon giving the
Indemnitor reasonably prompt written notice thereof, shall have the right to
defend, compromise or settle such indemnifiable Claim; provided, however, that
no compromises or settlement which would result in the payment of money shall be
made, executed or delivered without the prior written consent of the Indemnitor,
which consent shall not be unreasonably withheld.
6.16. Any payment required by an Indemnitor pursuant to this
Section 6 shall be reduced by any insurance proceeds actually recovered
(excluding any deductible or self-insured retention) by the Indemnified Party as
a result thereof from a policy of insurance owned by any person. Any tax benefit
received by the Indemnified Party by reason of any action of the Indemnitor
shall reduce any payment required to be made by the Indemnitor to the
Indemnified Party arising therefrom.
7. Miscellaneous:
7.1. All of the covenants, promises, agreements, representations
and warranties set forth in this Agreement shall survive all closings under this
Agreement for the periods herein provided, and shall be binding and enforceable
notwithstanding any knowledge (other than as specifically herein disclosed) on
the part of a party hereto with respect to the matter involved.
7.2. At any reasonable time upon prior reasonable notice by
Purchaser (whether at or after the Closing Date), Seller and Victoria shall
execute, acknowledge, seal and deliver such further instruments and documents
and take such other actions as Purchaser may reasonably request more effectively
to vest in Purchaser full right, title and interest in and to the
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<PAGE>
Property as shall be issued, sold, transferred and delivered under this
Agreement, and to secure for Purchaser the full benefits intended to be secured
by this Agreement.
7.3. All writings, notices and other communications under this
Agreement shall be in writing and addressed as follows:
If to Purchaser, to: Carnegie International Corporation
11419 Cronridge Drive, Suite 9
Owings Mills, Maryland 21117
With a copy to: Lewis A. Dardick, Esquire
Gershberg and Pearl, LLP
11419 Cronridge Drive, Suite 7
Owings, Maryland 21117
If to Seller, to: Munir Saltoun
c/o A.S. Management Corp.
760 Summer Street
Stamford, Connecticut 06901
with a copy to: Rene V. Murai, Esquire
Murai Wald Biondo & Moreno
25 S.E. 2nd Avenue
Miami, Florida 33131
Any such writing, notice or communication by telegram shall be deemed given when
received at the address specified above. Any such writing, notice or
communication other than by telegram shall be deemed given when deposited in the
appropriate international or United States mails, postage prepaid, first class,
registered or certified mail, return receipt requested, and addressed as
hereinabove provided. Any such address may be changed by notice to the other
parties to this Agreement as provided in this Section 7.3.
7.4. This Agreement shall be governed by and construed and
enforced in all respects in accordance with the laws of the State of Maryland,
United States of America.
7.5. This Agreement contains the full, complete and exhaustive
agreement between the parties hereto. This Agreement may be amended only by an
instrument in writing executed, sealed and delivered by Seller, Victoria and
Purchaser.
7.6. Nothing expressed or implied in this Agreement is intended or
shall be construed to confer or give any person or entity other than the parties
hereto any rights or remedies under or by reason of this Agreement.
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<PAGE>
7.7. This Agreement may be executed simultaneously or in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
7.8. Unless the context otherwise requires, the words such as
"herein", "hereinafter", "hereby", "hereto", "hereof" and "hereunder" refer to
this Agreement as a whole and not merely to a Section in which such words
appear. As used herein and unless the context otherwise requires, the singular
shall include the plural and vice-versa, and the masculine gender shall include
the feminine and neuter, and vice-versa.
7.9. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, legal representatives, successors and
permitted assigns.
7.10. The headings for this Agreement are intended for convenience
of reference only and shall be given no effect in the construction or
interpretation of this Agreement.
7.11. Carnegie shall have the right to assign its rights, title
and interests under this Agreement and to the Property to any of its wholly
owned subsidiaries. This shall not impair any of Carnegie's obligations under
this Agreement.
IN WITNESS WHEREOF, the parties have executed, sealed and delivered
this Agreement the day and year first herein above set forth.
PURCHASER:
ATTEST: CARNEGIE INTERNATIONAL CORPORATION
/s/ By: /s/ Lowell Farkas
Lowell Farkas, President
TALIDAN USA, INC.
By: /s/ Lowell Farkas
Lowell Farkas, President
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<PAGE>
VICTORIA:
ATTEST: VICTORIA STATION MIAMI, INC.
/s/ By: /s/ Munir Saltoun
MUNIR SALTOUN, President
WITNESS: SELLERS:
/s/ /s/ Munir Saltoun (SEAL)
MUNIR SALTOUN, Individually
ATTEST: A.S. MANAGEMENT CORPORATION
/s/ By: /s/ Munir Saltoun (SEAL)
MUNIR SALTOUN, President
ATTEST: JANE MANAGEMENT CORPORATION
/s/ By: /s/ Munir Saltoun (SEAL)
MUNIR SALTOUN, President
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<PAGE>
VICTORIA STATION MIAMI, INC.
AND
JANE MANAGEMENT CORPORATION
STOCK AND ASSET PURCHASE AGREEMENT
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Section
Nos.
<S> <C> <C> <C> <C> <C> <C>
A. List of Assets Owned By Vendors Explanatory
Statement
A1. Stock Certificate of Victoria Station Miami, Inc. in the name of 1.2.
Carnegie International Corporation
A2. Bill of Sale for purchase of Assets of Jane Management 1.2.
Corporation
A3. List of Tangible Assets of Jane Management Corporation 1.2.
excluding the Fixtures and Leasehold Improvements
A4. Schedule of Closing Adjustments 1.2.2.
A5. Letter Acknowledging Initiation of Transfer of 25,000 shares of 1.3.7.
Carnegie International Corporation
B. Certificate of No Debts 1.5.
B1. Opinion Letter of Counsel Relating to Seller and Victoria's 2.2.
Authority to Sell the Property, Enter Into this Agreement and 5.1.(a)
Other Issues Related to this Transaction
C. Certificate of Incorporation and By-Laws of Jane and Victoria 2.3.
D. Listing of Exemptions to Filing of Tax Returns 2.6.
D1. Listing of Material Adverse Changes, Suits and Claims 2.7.2.
2.8.
E. List of Officers, Directors and Shareholders of Jane and Victoria 2.11.
F. Release of Victoria by Seller and Victoria 2.13.
G. List of Permits and Licenses and Related Approvals 2.17.
- 1 -
<PAGE>
H. List of Real Property 2.18.
I. List of Personal Property 2.19.
J. List of Service Contracts performed by the Companies 2.20.
K. List of Leases for Real Property 2.21.1.
L. List of Leases for Personal Property 2.21.2.
M. List and copy of Licenses, Franchises, Assignments or 2.21.3.
Agreements relating to Trademarks, Tradenames, Copyrights,
Patents, Service Marks, etc.
0. List and copy of Employment and Consulting Agreements 2.21.4.
P. List of Agreements for Purchase of Goods, Materials and 2.21.5.
Services
Q. List and copy of Notes, Guarantees 2.21.6.
R. Material Contracts in excess of $5,000.00 2.21.7.
S. List of Insurance 2.22.
T. List of Claims 2.8.
U. List of Employee Benefits 2.23.
V. List of Accrued Vacation, Sick Leave, and Bonus 2.24.5.
W. List of Employees 2.24.6.
X. List of Patents and Trademarks 2.24.7.
Y. Letter directing transfer of Deposits 2.26.
</TABLE>
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EXHIBIT 10.12
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, hereinafter referred to as the "Agreement" is
made and entered into this 6th day of January, 1998, by and between Carnegie
International Corporation, hereinafter referred to as "Seller" and Alpina Tours,
LLC, a Virginia Corporation, hereinafter collectively referred to as
"Purchaser", regarding the transfer of all right title and interest in and to
the Corporation known as Electric Card Acceptance (Europe) Limited, hereinafter
referred to as the "Business".
R E C I T A L S
WHEREAS, Seller is the owner of One Hundred Percent (100%) of the
Business;
WHEREAS, the Seller has offered to sell all of Seller's right, title
and interest in and to the business and the Purchaser has agreed to purchase all
of Seller's right, title and interest in and to the Business; and
WHEREAS, it is agreed by all of the Parties concerned that the purchase
be consummated under the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the above Recitals, which shall
constitute a substantive part of this Agreement, and the mutual covenants,
promises, agreements, representations and warranties hereinafter set forth.
Purchase and Seller, hereby covenant, promise, agree, represent, and warrant as
follows:
1. TRANSFER OF RIGHT, TITLE AND INTEREST: Subject to the terms and
conditions provided herein, Seller agrees to sell, convey transfer, sign and
deliver to Purchaser and Purchaser hereby agrees to purchase, acquire and accept
for and in consideration provided herein all of Seller's right title and
interest in and to the Business, including the percentage of lease rights,
goodwill, assets and all other interests owned by the Business, pertaining to
said right title and interest.
2. CLOSING FOR PURCHASE OF RIGHT TITLE AND INTEREST: The consummation
of the purchase provided by this Agreement, hereinafter referred to as the
"Closing" shall take place on January 6, 1998, or at such other time as the
Parties may agree in writing, at the law offices of Gershberg ad Pearl, LLC,
11419 Cronridge Drive, Suite 7, Owings Mills, Maryland 21117. Said day should be
referred to as "Closing Date".
3. PURCHASE PRICE: The Purchase Price to be paid by the Purchaser under
this Agreement shall be Two Hundred Fifty Thousand Dollars ($250,000) which
shall be evidenced by a confessed judgment Promissory Note made by Purchaser
payable to Seller which shall be executed by Purchaser, jointly and severally,
and delivered to Seller at Closing and provide for payment of the entire balance
on or before June 29, 1999. As security for payment on the Promissory Note.
Purchaser shall give Seller One Hundred Twenty-Five
<PAGE>
Thousand (125,000) shares that it owns in Seller. The value of the shares on
June 29, 1999 may be credited towards Buyer's purchase price. The Note may be
paid without penalty.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE BUSINESS: The
Seller hereby represents and warrants to the Purchaser as follows:
A. The Business has, and at the time of Closing will have the
power and authority to own, lease and operate its properties and to conduct its
business as such business is now being conducted by the Business.
B. There has been, and prior to the Closing Date there will be, no
material adverse change individually or in the aggregate, of the Business'
position (financial or otherwise), or in the Business' assets or liabilities.
C. Seller hereby acknowledges that Purchaser has been given the
opportunity to review cash disbursement records, bank statements, and payroll
records since the inception of the business.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER: Purchaser represents
and warrants to Seller as follows:
A. That Purchaser is qualified and competent to operate the
Business, and that Frank T. Simpson who is a principal of Purchaser has in fact
operated the Business for the Seller since its inception.
B. Purchaser hereby acknowledges that it has had the opportunity
to review, and has in fact reviewed the checkbook, records of cash
disbursements, bank records and payroll records for the Business since its
inception.
6. RESTRICTION OF TRANSFER OF RIGHT TITLE AND INTEREST:
Purchaser hereby agrees not to sell, convey, pledge, assign or
otherwise transfer the security it has placed into the custody of the Seller
without the prior written consent of the Seller unless and until Purchaser has
satisfied its obligation set forth in Section 3 hereof.
7. PERTAINING LAW: All matters regarding the interpretation of this
Agreement and all documents pertaining thereto shall be construed in accordance
with the laws of the State of Maryland.
8. CAPTIONS: The marginal captions set forth in this Agreement are for
convenience and reference only, and in no way define or limit the contents or
substance of this Agreement.
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<PAGE>
9. ENTIRE AGREEMENT: The terms and conditions of this Agreement as set
forth herein, including any documents attached hereto, constitute the entire
contract and agreement between the Parties. No representations or promises other
than as set forth between the Parties have been made by any of the Parties as an
inducement to enter into this Agreement, and each party affirms that in entering
into this Agreement, it has relied on no promises or representations, other than
those expressly set forth herein. No amendments to this Agreement, verbal or
otherwise shall have a force or binding effect upon any party, its agent,
employees or successors, unless first duly approved and executed in writing by
Purchaser and Seller. This Agreement shall survive the closing.
10. SEVERABILITY: In the event that any provision or clause of this
Agreement conflicts with applicable law, such conflict shall not affect any
other provision of this Agreement which shall be given effect without the
conflicting provision, and to this end, the provisions of this Agreement are
declared to be severable.
IN WITNESS WHEREOF, the Parties have executed this Agreement the day
and year first above written.
SELLER
ATTEST: CARNEGIE INTERNATIONAL CORPORATION
/s/ /s/ Lowell Farkas
By: Lowell Farkas, President
PURCHASER
ATTEST: ALPINA TOURS, LLC
/s/ /s/ Frank T. Simpson
By: Frank T. Simpson, President
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<PAGE>
PROMISSORY NOTE
$250,000 January 6, 1998
Owings Mills, Maryland
FOR VALUE RECEIVED, Alpina Tours, LLC, a Virginia Corporation, Maker,
promises to pay to the order of Carnegie International Corporation, its heirs,
personal representatives, or assigns, the principal sum of Two Hundred Fifty
Thousand Dollars ($250,000) which shall be due and payable on June 29, 1999, if
no sooner paid. Interest shall accrue at a rate of six percent (6%) per annum.
Payment shall be made in lawful money of the United States of America
at such place as may be designated by Carnegie International Corporation or the
holder of this Note.
Maker and each and every endorser and guarantor hereof waive
presentment, protest and demand, notice of protest, demand and dishonor, and
nonpayment of this Note, and agree to pay all costs of collection when incurred,
including reasonable attorney's fees, and to perform and comply with each of the
covenants, conditions, provisions and agreements contained in every instrument
evidencing or securing this said indebtedness.
And further, Maker does hereby empower any attorney of any Court of
record within the United States or elsewhere to appear for it, after default
herein, and after one or more complaints filed, confess judgment against it as
of any term for the above sum, with costs of suit and attorney's commissions of
fifteen percent (15%), for collection and release of all errors, and without
stay of execution and inquisitions, any extension upon any levy on real estate
is hereby waived, and condemnation agreed to, and the exemption of personal
property from levy and sale on the execution hereof, is also hereby expressly
waived, and no benefit of exemption be claimed under and by virtue of any
exemption law now in force or which may be hereafter passed.
This Note is secured via One Hundred Twenty-Five Thousand (125,000)
shares owned by Maker.
MAKER
ATTEST: ALPINA TOURS, LLC
/s/ /s/ Frank T. Simpson
By: Frank T. Simpson, President
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EXHIBIT 10.13
<PAGE>
Illegibility due to poor condition of original document
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 30th of January, 1998 by and between Carnegie International
Corporation, a Colorado corporation ("Seller"), Electronic Card Acceptance
Corporation, a Virginia corporation (the "Company") and Value Partners, Ltd., a
Texas Limited Partnership ("Buyer"). Seller, the Company and Buyer are sometimes
referred to collectively as the "Parties".
RECITALS:
1. Seller owns 1,000 shares (the "Shares") of the common stock, no par
value per share of the Company, which constituteS all of the issued and
outstanding shares of capital stock of the Company.
2. The Company is engaged in the business of credit card processing
(the "Business").
3. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller, on the terms and conditions hereinafter set forth, all of the Shares.
4. The foregoing recitals are true and correct, which recitals,
together with the exhibits and schedules referred to hereafter, are hereby
incorporated into this Agreement without further reference thereto.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and covenants of the Parties hereinafter expressed
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which is hereby acknowledged, and intending to be legally bound, the Parties
hereto covenant and agree as follows:
1. Agreement to Sell and Purchase
1.1 Purchase and Sale of Shares. On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date (as that term is
hereinafter defined) Seller shall convey, transfer, assign, sell and deliver to
Buyer the Shares and Buyer shall acquire, accept and purchase, free and clear of
all Liens (as hereinafter defined) and subject to no conditions, restrictions or
contingencies, all of the Shares and all rights, title and interest therein.
<PAGE>
Illegibility due to poor condition of original document
2. Consideration to be Paid by Buyer.
2.1 Purchase Price for the Shares. In exchange for the Shares,
Buyer shall pay to Seller, on the terms and subject to the conditions set forth
in this Agreement, on the Closing Date (as hereinafter defined) the aggregate
purchase price of one hundred thousand U.S. Dollars ($100,000.00). Such purchase
price shall be paid by the Buyer to the Seller, at the Closing, by wire transfer
as directed by Seller.
3. Closing.
3.1 Time and Place. The closing of the transaction herein
contemplated (the "Closing") shall take place at the offices of Bergman, Yonks,
Stein & Bird, L.L.P., 4514 Travis Street, Travis Walk Suite 300, Dallas, Texas
75205 on January 29, 1998.
3.2 Actions to be taken at Closing by Sellers. At the Closing,
Sellers shall deliver to Buyer the following documents which shall constitute a
condition precedent to Buyer's obligations to close hereunder:
(a) Copies, certified by the Secretary of the Company and
Seller, of (i) the Articles of Incorporation of the Company and all amendments
thereto, (ii) the Bylaws of the Company and all amendments thereto, (iii)
resolutions of the Board of Directors of the Company and the Seller authorizing
the execution, delivery and performance of this Agreement, and (iv) the
incumbency of the officers of the Company and the Seller executing this
Agreement;
(b) The certificate referred to in Sections 9.2.1 and 9.2.2
hereof duly executed by the applicable officers of the Sellers;
(c) Stock certificates evidencing all of the Shares, duly
endorsed in blank or accompanied by stock powers duly executed in blank and in
proper form for transfer;
(d) Certificates issued by the appropriate governmental
authorities evidencing the existence and good standing of, and the payment of
all franchise and other similar taxes by, the Company in the State of Virginia;
(e) Executed opinion of counsel for Sellers, dated as of the
Closing Date, in the form of Exhibit B hereto;
(f) The resignation letters described in Section 7.9 hereto;
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Illegibility due to poor condition of original document
(g) All other certificates, opinions, instruments, and other
documents required by this Agreement to effect the transactions contemplated
hereby, in such form and substance as is reasonably satisfactory to the Buyer.
3.3 Actions to be taken at Closing by Buyer. At the Closing, Buyer
shall deliver the following, which shall constitute a condition precedent to
Seller's obligations to close hereunder:
Payment of the Purchase Price by wire transfer of immediately
available good federal Ruids in the amount of one hundred thousand U.S. Dollars
($100,000.00) as set forth in paragraph 2.1 herein.
4. Representations and Warranties of Seller and the Company. Seller and
Company jointly and severally represent and warrant to Buyer as follows:
4.1 Organization and Good Standing. The Company is duly organized,
validly existing and in good standing under the laws of the State of Virginia,
with full corporate power and authority to conduct the Business as it is now and
has since its organization been conducted and to own, lease or operate its
assets. The Company is qualified to do business and is in good standing in the
State of Virginia, which is the only jurisdictions in which the nature of the
Business conducted by the Company or the character of the Company's properties
makes such qualification necessary. The Company does not own, directly or
indirectly, any debt or equity securities issued by any corporation or any
interest in any partnership, joint venture or other business enterprise. The
Company is a "C Corporation" as that term is defined in the Internal Revenue
Code of 1986, as amended (the "Code").
4.2 Capital Stock. The entire authorized capital stock of the
Company consists of 1,000 shares of common stock, no par value per share, which
shares are validly issued and outstanding, fully paid and nonassessable, have
not been issued in violation of the preemptive rights of any person, and all of
which are owned by Seller.
There are no (i) outstanding equity securities of the Company
of any kind or character, other than the Shares, (ii) outstanding subscriptions,
options, warrants, calls, preemptive rights, or other agreements or commitments
(whether written or oral) obligating the Company to issue any additional shares
of capital stock of any class, (iii) options or rights with respect to any of
the foregoing, or (iv) outstanding securities convertible or exchangeable into
any shares of stock of any class of any of the foregoing. There arc no articles
or certificates of incorporation, bylaws, written or oral agreements or
instruments (including options, warrants, or convertible securities) that relate
to the voting of, restrict the transfer of, or require the Company to issue or
sell, or that create rights in any person with respect to, any of the Shares or
any shares
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<PAGE>
Illegibility due to poor condition of original document
of capital stock or other securities of the Company. The Company has not paid
dividend or distributed any assets to, or repurchased any of its capital stock
from, any shareholder.
4.3 Authorization of Agreement. The Company has full power and
authority to enter into this Agreement and all other agreements and documents to
be executed by the Company in connection herewith and to consummate the
transactions contemplated hereby. This Agreement and all other agreements and
instruments to be executed by the Company in connection herewith have been (or
upon execution will have been) duly executed and delivered by the Company, and
have been (or upon execution will have been) duly authorized by all necessary
action and constitute (or upon execution will constitute) legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except (i) as limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and (ii) that the availability of specific
performance, injunctive relief or other equitable remedies is subject to the
discretion of the court before which any such proceeding therefor may be
brought.
4.4 Agreement Not in Breach of Other Instruments or Contracts. The
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated hereby will not result in a breach of any of the
terms and provisions of, or constitute a default under, or conflict with, (i)
any Contract (as hereinafter defined) or any other material agreement, indenture
or other instrument to which the Company is a party, or by which he, she or it
is bound; (ii) the Company's Articles of Incorporation or Bylaws; (iii) any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (iv) any law, rule or regulation applicable to the Company.
4.5 Litigation. Except as disclosed on Schedule 4.9, there are no
claims, disputes, actions, arbitrations, mediations, proceedings (at low or in
equity) or investigations of any nature pending or, to the Company's knowledge,
threatened against or involving the Company, the Business or any of the
officers, directors, or employees of the Company in connection with the
Business.
4.6 Contracts. (a) Schedule 4.6(a) hereto sets forth a true and
correct list of each contract or agreement pertaining to the Business, whether
oral or written, between the Company and any of its customers (collectively, the
"Customer Contracts").
(b) Schedule 4.6(b) hereto sets forth a true and correct list
of each contract or, agreement pertaining to the Business other than the
Customer Contracts (including without limitation the Lease and any leases of
personal property), whether oral or written, to which the Company is a party
(collectively, the "Other Contracts"), (the Other Contracts and the Customer
Contracts are referred to collectively as the "Contracts"). The Company has
heretofore delivered or made available to Buyer true, correct and complete
copies of the Other Contracts.
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<PAGE>
Illegibility due to poor condition of original document
(c) Except as set forth in Schedule 4.6(c) hereto:
(i) Each Contract is a valid and binding agreement of
the Company, and the Company and Seller have no knowledge that any Contract is
not a valid and binding agreement of the other parties thereto, and each
Contract is in full force and effect;
(ii) The Company has fulfilled all obligations required
pursuant to each Contract to have been performed by the Company on its part
prior to the date hereof, and the Company and Seller have no reason to believe
that the Company will not be able to fulfill, when due, all of the Company's
obligations under the Customer Contracts that remain to be performed after the
date hereof;
(iii) There has not occurred any default under any
Contract on the part of the Company; the Company and Seller have no knowledge
that any repudiation of, or default under, any Contract on the part of the other
parties thereto has occurred; and the Company has no knowledge that any event
has occurred which with the giving of notice or the lapse of time, or both,
would constitute a default under any Contract; and
(iv) The Company and Seller have no knowledge of any
fact or circumstance that reasonably can be expected in the future to the
Company or any other party thereto to be in default under any Contract.
4.7 Title. Fixed Assets. The Company has good and marketable tide
to all assets, free and clear of all liens, claims and encumbrances of any kind
or nature. All assets of any kind or nature are set forth in the various
schedules attached hereto. Schedule 4.7 attached hereto sets forth a true and
correct list of all of the leasehold improvements, vehicles, facsimile machines,
computer, and equipment of the Company pursuant hereto, as well as the location
thereof, Such assets have been, and will continue to be, maintained in
accordance with normal industry practice and are and will be in good operating
condition (except for ordinary wear and tear) and are capable of being used in
the Business as presently being conducted without present need for repair or
replacement except in the ordinary course of business.
4.8 Financial Statements. Schedule 4.8 sets forth the Company's
financial statements as of and for the twelve-month period ended September 30,
1997. Such financial statements were prepared from the books and records of the
Company in accordance with generally accepted accounting principles and fairly
present the operating results of the Company for that period.
4.9 Conduct of Business. Except as set forth in Schedule 4.9
hereto, the Company has not: (i) entered into any material contracts and/or
transactions; (ii) sold or transferred any of its assets except in the ordinary
course of the Business, (iii) mortgaged,
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<PAGE>
Illegibility due to poor condition of original document
pledged, or encumbered any of the assets of the Company, except Liens for taxes
not due; (iv) materially amended, modified, or terminated any material contract;
(v) materially altered the manner of keeping the Company's books, accounts,
billings or records or the accounting practices therein reflected; or (vi)
increased the compensation or rate of compensation or other benefits payable or
to become payable to any employees of the Company or otherwise entered into any
compensation agreements (whether written or oral) with respect to their
employees.
4.10 Regulatory Approvals. The Company and the Seller have
obtained all consents, approvals, authorizations and other requirements
prescribed by any law, rule or regulation that are necessary for the execution
and delivery by the Company and Seller of this Agreement and the consummation of
the transaction contemplated hereby.
4.11 Accounts Receivable. All of the accounts receivable recorded
on the financial statements described in Schedule 4.8 hereof are based on actual
and bona fide rendition of services or provision of products by the Company in
the course of its business and are payable by third party obligors or persons
that the Company has identified as being obligated to do so. Except as accrued
on the balance sheets of the Company described in Section 4.8 hereof, neither
the Company nor the Seller is aware of any event or condition that causes them
to believe that any such account receivable will not be collected in due course.
4.12 Inventories. The Company's inventories are usable in the
ordinary course of business of the Company at a value that is no less than the
value at which such inventories are carried by the Company, subject only to the
reserve for inventory write down as adjusted for operations and transactions
through the Closing Date in accordance with generally accepted accounting
principles and the past custom and practice of the Company. Such inventories are
adequate for the conduct of the Business and inventory levels are consistent
with the normal operating requirements of the Company. No item included in the
inventories, materials or supplies of the Company is pledged as collateral or
held on consignment from others. Obsolete or discontinued items do not
constitute a material part of such inventories, materials and supplies. All such
inventory items are standard quality goods saleable in the ordinary course of
business.
4.13 Compliance with Law. The Business as conducted by the Company
has not violated. and on the date hereof does not violate any federal, state,
local or foreign laws, regulations or orders (including, but not limited to, any
of the foregoing relating to employment discrimination, occupational safety,
environmental protection, conservation, or corrupt practices), except where the
failure to comply would not have a material adverse effect on the results of
operations, condition (financial or otherwise), assets, properties, Business or
prospects of the Company. The Company has not received any notice within three
(3) years of the date hereof of any such violation.
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<PAGE>
Illegibility due to poor condition of original document
4.14 Conflict of Interest. Except as disclosed on Schedule 4.14
hereto, no officer, director or shareholder of Seller or the Company or any
affiliate of any such person now has, or within the last three (3) years had,
either directly or indirectly (i) an equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or entity
that purchased any products from the Company, contracted for services in
connection with the Business as conducted by the Company, or otherwise did
business with the Company or (ii) a beneficial interest in any Contract,
commitment or agreement with regard to the Business to which the Company is or
was a party or under which the Company was obligated or bound or to which its
properties may be or may have been subject.
4.15 Permits and Licenses. The Company possess all the permits and
licenses listed on Schedule 4.15. Such permits and licenses constitute all the
permits and licenses necessary to conduct the Business as conducted by the
Company. All such permits and licenses are valid and subsisting and in full
force and effect. The consent or approval of any governmental authority or third
party for the consummation of the transactions contemplated hereby has been
obtained by the Company. There are no proceedings pending, or to the knowledge
of the Company, threatened that seek the revocation, cancellation, suspension or
any modification of any license or permit necessary to conduct the Business as
now being conducted. The Company is in material compliance with all the terms of
all permits and licenses necessary to conduct the Business as now being
conducted.
4.16 Taxes and Fees. Except as disclosed in Schedule 4.16 hereto,
the Company has timely filed and paid, or adequately provided for, except for
FICA 97, any and all Taxes, levied, assessed or imposed upon any of the property
of the Company or salaries and wages paid by the Company, and the Company has
(a) timely filed all Tax returns and reports required by federal, state and
local government authorities; (b) the returns so filed are correct, true and
complete and fairly reflect the Taxes of the Company for the period covered
thereby; (c) any and all such Taxes have been paid or are otherwise provided for
by the Company; and (d) the Company is not involved in any dispute regarding any
Taxes with any government authority nor has it received any deficiency, audit or
other indication of deficiency from any government authority, not otherwise
disclosed to Buyer; (e) no Internal Revenue Service audit of the Company is
pending or threatened and the results of any completed audits are properly
reflected in the Company's financial statements. For the purposes of this
Agreement, "Taxes" shall mean all taxes, charges, fees, levies, penalties,
imports, duties, or other assessments, including without limitation, income,
payroll, employment, withholding, social security, excise, property, sales, and
use and franchise taxes imposed by the United States, or any state, county,
local or foreign government or a subdivision or agency thereof, and including
any interest, penalties or additions attributable thereto.
4.17 Employment by Buyer. Seller acknowledges that it is not
imposing on Buyer or the Company any obligation to retain or to employ any
employees of the Company
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<PAGE>
Illegibility due to poor condition of original document
subsequent to Closing. To the extent any of such employees are employed by Buyer
or the Company following the Closing, such employment shall be on terms and
conditions determined by Buyer and Buyer shall have no obligation to offer such
employees the same or similar wages, salaries or benefits as are paid or
provided by the Company prior to the Closing. The Company's employee are subject
to no collective bargaining agreements or other contracts with a labor union or
otherwise, contingent or otherwise, nor are any employees represented by any
labor union.
4.18 Employee Benefit Plan; ERISA.
(a) Schedule 4.18 attached hereto lists all material employee
pension and welfare plans or arrangements, within the meaning of Sections 3(l)
and 3(2) of the Employment Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, pension or profit sharing or thrift
plans, company contributions to medical benefit, death benefit and disability
programs, and vacation and sick leave policies ("Employee Benefit Plans") that
the Company maintains or to which the Company contributes. Except as set forth
on such Schedule 4.18, the Company does not pay for accrued sick leave time in
cash and has no monetary liability for accrued sick leave time.
(b) Each of the Employee Benefit Plans, if any, of the
Company are, and have been, maintained and administered in compliance with
applicable requirements of the Internal Revenue Code of 1986, as amended (the
"Code") and ERISA, except where such noncompliance would, in the aggregate, not
have a material adverse effect on the Business or the financial condition of the
Company. Seller and the Company believe there are no such plans.
4.19 Insurance. Schedule 4.19 sets forth a true, correct and
complete list of all policies of insurance to which the Company is a party or is
a beneficiary or named insured. The Company has in full force and effect, with
all premiums due thereon paid, the policies of insurance set forth therein. All
the material insurable properties of the Company are insured in amounts and
coverages and against risks and losses which are adequate and usually insured
against by persons holding or operating similar properties in similar
businesses.
4.20 No Adverse Changes. Except as may have been caused by any
federal, state, or local government legislation, rule or regulation, there has
been no material adverse change in the Business or the financial condition of
the Company in the last three years.
4.21 Environmental, Matters, etc. The use and operation of the
Company's assets and the conduct of the business as presently conducted comply
with all federal. state and local laws and regulations relating to health,
safety and the environment (collectively, the "Environmental Laws").
Specifically, and without limiting the generality of the foregoing, (a) all
hazardous or toxic materials have been disposed of in accordance with
Environmental Laws, (b) no material citations, fines or penalties have been
assessed, threatened or asserted under
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<PAGE>
Illegibility due to poor condition of original document
Environmental Laws in connection with the conduct of the Business; and (c) the
Company has not received any formal written notice from a governmental entity of
any violation of Environmental Laws or any permit.
4.22 Licenses and Copyrights. The operation of the Business is not
infringing upon or otherwise acting adversely to any copyright, trademark,
trademark right, service mark, service name, trade name, patent, patent right,
license, trade secret or franchise owned by any person or persons, and there is
no such claim or action pending or, threatened with respect thereto. The Company
has all necessary copyrights, trademarks, trade names, service marks, service
names or patents necessary to conduct the Business, except for those the absence
of which would, in the aggregate, not have a material adverse effect on the
Business of the Company. A list of all copyrights, trademarks, trade names,
service marks, service names and patents related to the conduct of the Business
is set forth on Schedule 4.22 attached hereto.
4.23 Bank Accounts. Set forth as Schedule 4.23 hereto is a true,
correct and complete list setting forth the names and addresses of all banks,
other institutions and state governmental departments at which the Company has
accounts, deposits or safety deposit boxes, or special deposits, including those
required to be held by state governmental departments, with the nature of such
account and the names of all persons authorized to draw on or give instructions
with respect to such accounts or deposits, or to have access thereto, and the
names and addresses of all persons, if any, holding a power-of-attorney on
behalf of the Company. All cash in such accounts is held in demand deposits and
is not subject to any restriction or limitation as to withdrawal.
4.24 [deleted]
4.25 Disclosure. The information provided and to be provided to
Buyer by the Company and Seller in this Agreement or in the schedules attached
hereto or in any other writing pursuant hereto does not and will not contain any
untrue statement of a material fact or omit or will not omit to state a material
fact required to be stated herein or therein or necessary to make the statements
and facts contained herein or therein, in light of the circumstances in which
they are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available to Buyer by Sellers and/or the Company
were or will be complete and accurate records of such documents.
4.26 No Violation. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
or violation of any term or provision of, or constitute a default under, any
charter provision, bylaw, agreement, mortgage, note, obligation, contract, bond,
license, indenture, instrument, order, decree, law or regulation to which the
Company and/or the Seller is a party or which is otherwise applicable to any of
them.
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<PAGE>
Illegibility due to poor condition of original document
4.27 Corporate Records. True and correct copies of the article of
incorporation and bylaws of the Company We been delivered to Buyer. The
corporate minute books of the Company submitted to Buyer for review correctly
reflect all corporate action taken at all the meetings (or by written consent in
lieu thereof) of their respective directors and shareholders and correctly
record all resolutions thereof.
4.28 Commitments. The Company has in all material respects
performed all obligations to be performed by it under all contracts, agreements
and commitments to which it is a party, and there is not under any such
contracts, agreements or commitments any existing default or event of default or
event which with notice or lapse of time or both would constitute default.
4.29 Loans With Affiliates. The Company is not indebted to Seller
or any entity or person related to or controlled by Seller or any affiliate
thereof. As of the Closing all advances or loans made by the Company to any
shareholder, officer, director, employee, affiliate or agent of the Company or
the Seller will have been repaid in full, with accrued interest to the date of
repayment.
4.30 Investments in Competitors. The Seller does not own directly
or indirectly any interest or have any investment in any corporation, business
or other person which is a competitor or potential competitor of, or which
otherwise directly or indirectly does business with the Company.
5. Representations of Sellers. Seller represents and warrants that:
5.1 Title to the Shares. Seller has good and indefeasible tide to
the Shares free and clear of any Liens. For purposes hereof, the term "Liens"
shall include lions, security interests, pledges, claims, rights of first
refusal, options, charges, liabilities, obligations, agreements, restrictions,
and other encumbrances of any kind, The delivery to Buyer of the instruments of
transfer or ownership contemplated by this Agreement of the shares will vest
good and marketable title to all of the Shares in Buyer, free and clear of all
Liens.
5.2 Organization and Good Standing. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, and is not required to be qualified as
a foreign corporation in any jurisdiction. Seller has M corporate power to own
its properties and to conduct business currently being conducted by it. This
Agreement has been duly executed and delivered by Seller and is a valid and
binding agreement of Seller.
5.3 Ownership of Shares. The shares are owned of record and
beneficially by Seller. Seller possesses full authority and legal right to sell,
transfer and assign the entire legal
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Illegibility due to poor condition of original document
and beneficial ownership of the Shares, free from all Liens, including claims
and encumbrances of any kind; and there are no outstanding rights or obligations
granted by Seller to purchase or acquire any of the Shares. Upon transfer of the
Shares to Buyer hereunder at the Closing, Buyer will receive entire legal and
beneficial interest in the Shares, free and clear of all Liens, including liens,
claims, options and encumbrances and subject to no legal or equitable
restrictions of any kind.
5.4 Authorization of Agreement. Seller has full power and
authority to enter into this Agreement and all other agreements and documents to
be executed by Seller in connection herewith and to consummate the transactions
contemplated hereby. This Agreement and all other agreements and instruments to
be executed by each Seller in connection herewith have been (or upon execution
will have been) duly executed and delivered by Seller, and have been (or upon
execution will have been) duly authorized by all necessary action and constitute
(or upon execution will constitute) legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their respective terms,
except (i) as limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) that the availability of specific performance, injunctive relief or other
equitable remedies is subject to the discretion of the court before which any
such proceeding therefor may be brought.
5.5 Agreement Not in Breach of Other Instruments or Contracts. The
execution and delivery of this Agreement by Seller and the consummation of the
transactions contemplated hereby will not result in a breach of any of the terms
and provisions of, or constitute a default under, or conflict with, (i) any
contract or any other material agreement, indenture or other instrument to which
Seller or the Company is a party, or by which either is bound, (ii) the
Company's Articles of Incorporation or Bylaws; (iii) any judgment, decree, order
or award of any court, governmental body or arbitrator; or (iv) any law, rule or
regulation applicable to Seller.
6. Representation and Warranties of Buyer. Buyer represents and
warrants to Sellers that:
6.1 Organization and Corporate Authority. Buyer is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Texas and has all requisite power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement and all other agreements herein contemplated to be executed in
connection herewith have been (or upon execution will have been) duly executed
and delivered by Buyer, have been (or upon execution will have been) effectively
authorized by all necessary action, corporate or otherwise (including approval
by the general partner), and constitute (or upon execution will constitute)
legal, valid and binding obligations of Buyer enforceable against Buyer in
accordance with their respective terms, except (i) as limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
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enforcement of creditors' rights generally and (ii) that the availability of
specific performance, injunctive relief or other equitable remedies is subject
to the discretion of the court before which any such proceeding therefor may be
brought.
6.2 Agreement Not in Breach of Other Instruments. Neither the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby nor the fulfillment of the terms hereof will result in a
breach of any of the terms or provisions of, or constitute a default under, or
conflict with, (i) any material agreement, indenture or other instrument to
which Buyer is a party or by which it is bound; (ii) Buyer's Articles of
Incorporation or Bylaws; (iii) any judgment, decree, order or award of any
court, governmental body or arbitrator applicable to Buyer; or (iv) any law,
rule or regulation applicable to Buyer, which breach or default would prevent
Buyer from performing its obligations under this Agreement.
6.3 Regulatory Approvals. Buyer has obtained all consents,
approvals, authorizations and other requirements prescribed by any law, rule or
regulation that are necessary for the execution and delivery by Buyer of this
Agreement and the consummation of the transactions contemplated hereby.
6.4 Litigation. No legal action, suit, arbitration, mediation or
proceeding (at law or in equity) or judicial, administration or governmental
investigation is pending or, to the knowledge of Buyer, threatened against Buyer
or its general partner that would prevent the timely acquisition by Buyer of the
Shares or impair Buyer's ability (financial or otherwise) to consummate the
transactions contemplated by this Agreement.
6.5 Disclosure. No information provided, or to be provided, by
Buyer to Seller with respect to the transactions contemplated hereby and no
representation or warranty made by Buyer contained in this Agreement or in any
other writing furnished pursuant hereto contains or will contain an untrue
statement of a material fact or omits or will omit to state a material fact
required to be stated herein or therein or necessary to make the statements and
facts contained herein or therein, in light of the circumstances under which
they were or are made, not false or misleading.
6.6 Buyer's Status. (a) Buyer is acquiring the Shares for its own
account WITH no present intention of reselling or otherwise distributing the
same or participating in a distribution of same except pursuant to an offering
of shares duly registered under the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws, or under other
circumstances that, in the opinion of counsel for the Company at the time, would
not require registration of the Shares under the Securities Act. Buyer is an
accredited investor as defined under the Securities Act. Buyer acknowledges that
it has been advised and is aware that (i) Seller is relying upon an exemption
under the Securities Act predicated upon Buyer's
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representations and warranties contained in this Section 6.6 in connection with
the offer and sale of the Shares pursuant to this Agreement and (ii) the Shares
in the hands of Buyer will be restricted stock within the meaning of Rule 144
promulgated pursuant to the Securities Act and unless, and until, registered
under the Securities Act, may be subject to limitations upon its resale
(including, among others, pertinent requirements of Rule 144 and limitations on
the amount of stock that can be resold and the time of resale) set forth in Rule
144 or in administrative interpretations by the Commission of the Securities
Act, or in other rules and regulations promulgated thereunder by the Commission,
in effect at the time of the proposed sale or other disposition of the Shares.
(b) Without limiting its right and ability to rely on the
representations and warranties of the Company and the Seller contained in the
Agreement and the agreements, documents and certificates delivered pursuant to
this Agreement, Buyer (i) represents that it is knowledgeable and experienced in
financial and business affairs generally and the industry in which the Business
is operated and is capable of evaluating the merits and risks of the
transactions contemplated by the Agreement and (ii) acknowledges that it has had
access to and has engaged in an examination of the Company's assets, books,
records, contracts and documents and other aspects of the transactions
contemplated by this Agreement. Buyer further acknowledges that it has had an
opportunity to direct inquiries to representatives of the Company with respect
to any matter it has deemed relevant to the transactions contemplated by this
Agreement.
7. Certain Understandings and Agreements of the Parties.
7.1 Conduct of Business/Material Change. Seller and the Company
agree that the Business of the Company shall be conducted from the date hereof
through the Closing Date in accordance with prior practice and in die ordinary
course of the Business, and without limiting the generality of the foregoing,
the Company shall not (except with the prior written consent of Buyer): (i)
enter into any material contracts and/or transactions; (ii) sell or transfer any
of its assets except in the ordinary course of the Business, (iii) mortgage,
pledge, or encumber any of the assets of the Company, except Liens for taxes not
due; (iv) materially amend, modify, or terminate any Contract; (v) materially
alter the manner of keeping the Company's books, accounts, billings or records
or the accounting practices therein reflected; or (vi) increase the compensation
or rate of compensation or other benefits payable or to become payable to any
employees of the Company or otherwise entering into any compensation agreements
(whether written or oral) with respect to their employees. The Company shall
maintain insurance in amounts mid kinds substantially identical to that
currently in effect upon all of its assets and properties, and with respect to
the conduct of its Business. Prior to the Closing, the Company and the Seller
shalt promptly inform Buyer in writing of any material adverse change in the
Business, its operations or to its assets. Notwithstanding such disclosure to
Buyer, Seller shall not be relieved of any liability for, nor shall the
providing of information by Seller or the
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Company to Buyer be deemed a waiver of, the breach of any representation or
warranty contained in this Agreement.
7.2 Preservation of Organization. Seller and the Company shall use
their respective best efforts to preserve for Buyer the Business of the Company
as well as the Company's favorable business relationships with its suppliers,
customers, and others with whom business relationships exist. Such efforts shall
include, but not be limited to, providing adequate funding to service all
accounts in a timely and professional manner, consistent with the prior business
practices of Seller and the Company.
7.3 Cooperation in Litigation. Each of the Parties hereto will
fully cooperate with the other in the defense or prosecution of any litigation
or proceeding already instituted or which may be instituted hereafter against or
by such party relating to, or arising out of the conduct of, the Business of the
Company prior to or after the Closing Date (other than litigation arising out of
the transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
directors, employees and agents reasonably incurred in connection with providing
such cooperation.
7.4 Changes in Assets. Neither Seller nor the Company will alter
the physical Contents or character of the Company's assets so as to affect the
nature of the Business or materially change the dollar valuation thereof.
7.5 No Discussion or Negotiation with Others. Between the date
hereof and the Closing Date, Seller and the Company will use their respective
best efforts to prevent the disclosure of any of the terms or conditions hereof
to any other person, and as along as this Agreement shall remain in effect
neither Seller nor the Company nor any officer, director, shareholder, employee
or agent of the Company will be authorized by Seller or the Company to negotiate
with any person with respect to the sale of the Business, the capital stock of
the Company, the assets of the Company or any portion thereof.
7.6 Consummation of Transaction. Seller of the Company and Buyer
cooperate with each other and their respective counsel and accountants in
connection with any steps required to be taken as part of their respective
obligations under this Agreement and will each use their respective reasonable
efforts to perform or fulfill all conditions and obligations to be performed or
fulfilled by them under this Agreement in order for the transactions
contemplated hereby shall be consummated.
7.7 Resignations. Seller shall _________ of the officers and
directors of the Company to resign from all such positions as of the Closing
Date except as consented to in writing by Buyer.
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8. Indemnification.
8.1 Indemnification of Sellers. Seller shall indemnify and hold
harmless Buyer, its partners, agents and employees in respect of any and all
claims, losses, damages, liabilities and expenses (including, without
limitation, settlement costs and all reasonable legal, accounting and other
expenses for investigating or defending any ____________ or threatened actions)
reasonably incurred by Buyer in connection with each and all of the
____________.
(a) any breach of any representation or warranty made by
Seller or the Company in this Agreement;
(b) any breach of any covenant, agreement or obligation of
Seller or the Company contained in this Agreement or any other instrument
contemplated by this Agreement;
(c) any misrepresentation contained in any statement or
certificate furnished by Seller for the Company pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement;
(d) any claims, including without limitation, claims for
Taxes arising from the operation of the Business prior to the Closing Date.
8.2 Indemnification by Buyer. Buyer shall indemnify and hold
harmless Seller, its officers, directors, agents, employees and shareholders in
respect of any and all claims, losses, damages, liabilities and expenses
(including, without limitation, settlement costs and any reasonable legal,
accounting or other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by Seller, in connection with each and
all of the following:
(a) any breach of any representation or warranty made by
Buyer in this Agreement;
(b) any breach of any covenant, agreement or obligation of
Buyer contained in this Agreement or any other instrument contemplated by this
Agreement;
(c) any misrepresentation contained in any statement or
_____________ furnished by Buyer pursuant to this Agreement or in connection
with the transaction contemplated by this Agreement; and
(d) any claims, including without limitation, claims for
Taxes arising from the operation of the Business subject to the Closing Date.
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8.3 Claims for Indemnification. Whenever any claim shall
______________ indemnification hereunder, the party entitled to indemnification
(the "indemnified party")____________ promptly notify the other party or parties
(the "indemnifying party") of the claim and __________________ known, the facts
constituting the basis for such claim. In the event of any claims
_________________ indemnification hereunder resulting from or in connection with
any claim or legal _________ a third party, notice shall be delivered by
indemnified party within ten (10) business days _______ receipt of any such
claim (provided that failure to provide timely notice shall not _____
indemnified party's rights hereunder so long as such failure does not materially
____________ indemnifying party's ability to defend such claim) and the notice
to the indemnifying party _______ specify, if known, the amount or an estimate
of the amount of the liability arising therefrom ____ the indemnified party
shall not settle or compromise any claim by a third party for which it is
_______ to indemnification hereunder, without the prior written consent of the
indemnifying party ____ shall not be unreasonably withheld unless suit shall
have been instituted against ________ indemnifying party shall not have taken
control of such suit after notification thereof as provided in Section 8.4 of
this Agreement. Neither the indemnified party nor the indemnifying party shall
settle or compromise any claim by a third party for which indemnification is
available __________ if the terms of such settlement or compromise admits the
liability with respect to such claims ______ other party hereto unless the other
party, in its sole discretion, consents to such settlement compromise.
8.4 Defense by Indemnifying Party. In connection with any claim to
indemnify hereunder resulting from or arising out of any claim or legal
proceeding ____________ who is not a party to this Agreement, the indemnifying
party at its sole cost and expense upon written notice to the indemnified party,
assume the defense of any such claims _________ proceeding if it acknowledges to
the indemnified party in writing its obligations to indemnify the indemnified
party with respect to all elements of such claim. The indemnified party shall be
entitled to participate in (but not control) the defense of any such action,
with its __________ at its own expense. If the indemnifying party does not
assume the defense of any such _______ litigation resulting therefrom, (a) the
indemnified, party may defend against such _________ litigation, in such manner
as it may deem appropriate, and (b) the indemnifying party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense. If the indemnifying party thereafter seeks to question
the manner in which the indemnified party defended such third party claim of the
amount or nature of any such settlement, the indemnifying party shall have the
burden to prove by a preponderance of the evidence that the indemnified party
did not defend or settle such third party claim In a reasonably prudent manner.
8.5 Manner of Indemnification. All indemnification by Buyer or
Seller hereunder shall be effected by payment of cash or delivery of a certified
or official bank check in the amount of the indemnification liability.
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8.6 Survival of Representation. The obligation to indemnify the
other party pursuant to Sections 8.1(a) and (c) or Sections 8.2(a) or (c) shall
be limited in that all representations and warranties made by the parties herein
or in any certificate, instrument or document famished in connection herewith
shall survive the Closing and any investigation at any time made by or on behalf
of the parties hereto only until the second anniversary of the Closing Date,
with the exception of fraudulent misrepresentations and warranties,
9. Conditions to Closing.
9.1 Conditions to Obligations of Each Party. No claim, action,
suit. investigation, or other proceeding shall be pending or threatened before
any court or governmental agency which presents a substantial risk of the
restraint or prohibition of the transactions contemplated by this Agreement or
the obtaining of material damages or other relief in connection therewith.
9.1.1 Compliance with Law. There shall have been obtained all
permits, approvals, and consents of all governmental bodies or agencies
necessary or appropriate so that consummation of the transactions contemplated
by this Agreement will be in compliance with applicable laws and so that Buyer
and the Company will be eligible to operate the Business.
9.2 Conditions to Obligations of Buyer. The obligations of Buyer
to consummate the transactions contemplated hereby shall be, at the option of
Buyer, subject to the fulfillment, at or prior to the Closing Date, of the
following additional conditions:
9.2.1 Representations and Warranties. The representations and
warranties of the Company and Seller contained in this Agreement or in any other
document of such parties delivered pursuant hereto shall be true and correct on
the Closing Date, and at the Closing, Seller shall have delivered to Buyer a
certificate to such effect (signed by the President and Chief Financial Officer
of the Company and the Seller.
9.2.2 Performance of Covenants. Each of the obligations of
the Company and Seller to be performed by it on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed on or
before the Closing Date, and at the Closing Sellers shall have delivered to
Buyer a certificate to such effect (signed by the President and Chief Financial
Officer of the Company and the Seller.
9.2.3 Authority. All actions required to be taken by, or on
the part of, the Company and Seller to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by, the Board of
Directors of the Company and each Seller.
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9.2.4 No Adverse Changes. Between the date of this Agreement
and the Closing Date there shall not have occurred any material damage,
destruction or loss of any of the Company's assets whether or not covered by
insurance, which has had or may reasonably be expected to have a material and
adverse effect on the Business or any prospects of the Company, nor shall there
have occurred, any other event or condition which has had or which reasonably
may be expected to have a material and adverse effect on the results of
operations, condition (financial or otherwise), assets, properties, Business or
prospects of the Company.
9.2.5 Consents. All consents or approvals required to be
obtained by the Seller or the Company for the consummation of the transactions
contemplated hereby shall have been obtained.
9.2.6 Closing Documents. All documents required to have been
delivered by Seller and the Company to, Buyer pursuant to the terms hereof shall
have been delivered.
Buyer may waive any of the conditions specified in this
Section 9.2 if it executes a writing, so stating, at or prior to the Closing.
9.3 Conditions to Obligations of Seller. The obligation of Seller
to consummate the transactions contemplated hereby shall be, at the option of
Seller, subject to the fulfillment, at or prior to the Closing Date, of the
following additional conditions:
9.3.1 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement or in any document delivered
pursuant hereto shall be true and correct on the Closing Date with the same
effect as if made on the Closing Date, and at the Closing Buyer shall have
delivered to Seller a certificate to such effect (signed by the Managing Partner
of Buyer).
9.3.2 Performance of Covenants. Each of the obligations of
Buyer to be performed on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed on or before the Closing Date, and
at the Closing, Buyer shall have delivered to Seller a certificate to such
effect (signed by the Managing Partner of Buyer).
9.3.3 Authority. All actions required to be taken by, or on
the part of, Buyer to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Buyer.
9.3.4 Consents. All consents or approvals required to be
obtained by Buyer for the consummation of the transactions contemplated hereby
shall have been obtained.
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9.3.5 Closing Documents. All documents required to have been
delivered by Buyer to Seller pursuant to the terms hereof shall have been
delivered.
Seller way waive any of the conditions specified in this Section 9.3 if it
executes a writing, so stating, at or prior to Closing.
10. Termination and Abandonment.
10.1 Termination. This Agreement may be terminated:
(a) at any time by mutual consent of the Company, Seller and
Buyer.
(b) by either party upon notice to the other party if such
party is not in default hereunder and the Closing hereunder has not taken place
on or before 5:00 p.m., E.S.T. January 30, 1998;
(c) by Seller upon notice to Buyer if all the conditions in
Section 9.3 have not been satisfied or waived by January 30, 1998 5:00 p.m.
E.S.T.;
(d) by Buyer upon notice to Seller and the Company if all the
conditions set forth in Sections 9.2 have not been satisfied or waived by
January 30, 1998 at 5:00 P.M. E.S.T., 1997;
(e) by Buyer upon notice to Seller and the Company if Buyer
determines in its reasonable discretion that there has occurred any event that
has had or that reasonably may be expected to have a material and adverse effect
on the results of operations, condition (financial or otherwise), assets,
properties, business or prospects of the Company.
11. Effect of Company Representations. Seller is not entitled to rely
upon the representations, warranties, covenants and obligations of the Company
contained herein and may not assert any claim against the Company, or the Buyer
or any other party related to either, including for contribution or indemnity
resulting from such representations and warranties, covenants or obligations.
Such representations and warranties, covenants and obligations are for the
benefit of the Buyer only and do not waive or obviate the requirement that any
representation or warranty, covenant or obligation of Seller be accurate and/or
enforceable as if the Company were not a party thereto. Seller is responsible
for such representations, warranties, covenants, statements and obligations of
the Company herein as if such were made by the Seller.
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12. Miscellaneous.
12.1 Definition of Knowledge. For purposes of this Agreement, any
statement that references the knowledge or belief of any party hereto shall be
deemed to be a reference to the knowledge or belief, as applicable, after
reasonable investigation, of the general partner, officers, directors and
shareholders of such party.
12.2 Notices. Other than as required as to a condition to Closing.
All notices, requests, demands, consents and other communications required or
permitted under this Agreement shall be in writing and shall be deemed given
upon receipt if delivered by courier, overnight delivery or telecopy or-two (2)
business days after mailed by certified or registered mail, postage prepaid,
return receipt requested, to the parties, their successors in interest or their
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
If to Buyer: Value Partners, Ltd.
2200 Ross Avenue
Suite 4660 W
Dallas, Texas 75201
Attn: Timothy 0. Ewing
With a copy to: Bergman, Yonks, Stein & Bird, L.L.P.
4514 Travis Street
Travis Walk Suite 300
Dallas, Texas 75205
Attn: Jack R. Bird
If to Seller: Carnegie International Corporation
11419 Cronridge Drive, Suite 9
Owings Mill, Maryland 21117
Attn: David Gable
With a copy to: Richard L. Gershberg
Gershberg and Pearl, L.L.P.
11419 Cronridge Ave, Suite 7
Owings Mills, Maryland 21117
12.3 Assignability and parties in Interest. This Agreement shall
not be assignable by any of the parties hereto, except that Buyer may assign
this Agreement and all of its rights and obligations hereunder to any affiliate
of Buyer. This Agreement shall inure to the benefit of and be binding upon Buyer
and Seller and permitted successors and assigns.
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12.4 Governing Law. This Agreement and all transactions
contemplated by this Agreement shall be governed by, and construed and enforced
in accordance with, the internal laws of the State of Texas without regard to
principles of conflicts of laws.
12.5 Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which shall constitute but one and the same instrument, parties hereby
acknowledge that signatures by faxed transmission are acceptable.
12.6 Further Assurances and Access to Information. Each of the
parties hereto agree to execute, acknowledge and deliver and cause to be done,
executed, acknowledged, all such farther acts, assignments, transfers and
assurances as shall reasonably be requested of it in order to carry out this
Agreement and give effect thereto. Accordingly, without in any manner limiting
the specific rights and obligations set forth in this Agreement, the parties
declare their intention to cooperate each with the other in effecting the terms
of this Agreement.
12.7 Indemnification for Brokerage. Seller, on the one hand, and
Buyer, on the other hand, each represent and warrant to the other that no
broker, finder, consultant or salesman has acted on its behalf in connection
with this Agreement or the transactions contemplated hereby. Each party hereto
agrees to indemnify and hold and save harmless the others from and against any
cost, fee, damages, claims and liabilities (including reasonable attorney's
fees) arising out of any claim or demand for commissions or other compensation
by any broker, finder, consultant or salesman or similar agent claiming by
reason of its relationship with any Party hereto or its representatives,
employees or agents. The provisions of this Section 12.7 shall survive Closing
or the earlier termination of this Agreement.
12.8 Publicity. Seller and Buyer agree that press releases and
other announcements to be made by either of them prior to the Closing with
respect to the transactions contemplated hereby shall be subject to mutual
agreement. Notwithstanding the foregoing, Sellers and Buyer may respond to
inquiries relating to this Agreement and the transactions contemplated hereby by
the press, securities analysts, employees, or customers (and may issue press
releases or issue and file any reports without inquiry when necessary or
desirable in light of applicable securities laws) without any notice or further
consent of the other.
12.9 Complete Agreement. This Agreement, the exhibits hereto, the
schedules hereto and the documents delivered or to be delivered pursuant to, or
in connection with, this Agreement contain or will contain the entire agreement
between the parties hereto with respect to the transactions contemplated herein
and shall supersede all previous and contemporaneous oral and all previous
written negotiations, commitments, and understandings.
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12.10 Modifications, Amendments and Waivers. At any time prior to
the Closing Date or termination of this Agreement, the parties may, by written
agreement:
(a) extend the time for the performance of any of the
obligations or other acts of the parties hereto;
(b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement;
(c) waive compliance with any of the covenants or agreements
contained in this Agreement; and
(d) amend or supplement any of the provisions of this
Agreement.
No modification, waiver, amendment, discharge or change of
this Agreement shall be valid unless the same is in writing and signed by the
party against whom the enforcement of any such modification, waiver, amendment,
discharge or change is sought.
12.11 Interpretation. The headings contained in this Agreement are
for convenience of reference only, are not to be considered a part hereof and
shall not limit or otherwise affect in any way the meaning or interpretation of
this Agreement. For purposes of this Agreement, the term "person" shall include
without limitation any corporation, partnership, estate, trust, association,
branch, bureau, subdivision, individual, government instrumentality and other
entity. All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular, or plural, as the identity of the party
or parties, or their personal representatives, successors or assigns may
require.
12.12 Severability. Any provision of this Agreement which is
invalid, illegal, or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of affecting in any way the remaining
provisions hereof in such jurisdiction or rendering that or any other provision
of this Agreement invalid, illegal, or unenforceable in any other jurisdiction.
12.13 Expenses of Transactions. All fees, costs and expenses
incurred by Buyer, the Company or Seller in connection with the transactions
contemplated by this Agreement shall be borne by the party incurring the same,
unless otherwise expressly provided herein.
12.14 Failure to Require Performance. The failure or delay of any
party at any time to require performance by another party of any provision of
this Agreement, even if known, shall not affect the right of such party to
require performance of that provision or to exercise any right, power or remedy
hereunder. Any waiver by any party of any breach of any provision of this
Agreement should not be construed as a waiver of any continuing or succeeding
breach of
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such provision, a waiver of the provision itself, or a waiver of any right,
power or remedy under this Agreement. No notice to or demand on any party In any
case shall, of itself, entitle such party to any other or further notice or
demand in similar or other circumstances.
12.15 Prevailing Party. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation on connection with any provision of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all such fees, taxes,
costs and expenses incident to arbitration, appellate, bankruptcy and
post-judgment proceedings), incurred in that action or proceeding, in addition
to any other relief to which such party or parties may be entitled. Attorneys'
fees shall include, without limitation, paralegal fees, investigative fees.
administrative costs, sales and use taxes and alt other charges billed by the
attorney to the prevailing party.
12.16 Remedies. Except as otherwise expressly provision herein, no
remedy herein conferred upon any party is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise. No single or partial exercise by
any party of any right, power or remedy hereunder shall preclude any other or
further exercise thereof.
12.17 Construction. The Buyer, the Company and Seller 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 Buyer and Seller 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.
12.18 Execution Date. The "date of execution of this Agreement" or
"execution date" shall mean the last day upon which it becomes fully executed by
Seller the Company and Buyer.
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Illegibility due to poor condition of original document
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first written above.
VALUE PARTNERS, LTD.
By: /s/ Timothy G. Ewing
Timothy G. Ewing
Managing Partner of Ewing &
Partners general partner of
Value Partners, Ltd.
CARNEGIE INTERNATIONAL CORPORATION
By:
Its:
ELECTRONIC CARD ACCEPTANCE CORPORATION
By: /s/ David C. Stinson
Its: President
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<PAGE>
Illegibility due to poor condition of original document
MANAGING PARTNERS CERTIFICATE UNDER SECTION 9.3
I, Timothy G. Ewing, Managing Partner of Ewing & Partners, general
partner of Value Partners, Ltd. ("Buyer"), do hereby certify, pursuant to
Section 9.3 of the certain Stock Purchase Agreement (the "Agreement"), dated as
of January 30, 1998, by and among Carnegie International Corporation, a Colorado
corporation (the "Seller") Electronic Card Acceptance Corporation, a Virginia
corporation (the "Company') and Buyer, as follows:
1. I am the managing partner of Ewing & Partners, Ltd., the general
partner of Buyer.
2. The representations and warranties of Buyer contained in the
Agreement or any other document delivered pursuant thereto are deemed to be made
again as of the date hereof and are true and correct as of the date hereof
3. The Buyer has performed and complied with all covenants, obligations
and agreements required by the Agreement to be performed and complied with by
Buyer on or before Closing Date and at the Closing as those terms are defined in
the Agreement.
IN WITNESS WHEREOF, the undersigned, being duly and authorized to
deliver the certificate on behalf of Buyer, has executed this certificate as of
the 30th day of January 1996.
VALUE PARTNERS, LTD.
By: /s/ Timothy G. Ewing
Timothy G. Ewing
Managing Partner of Ewing &
Partners general partner of
Value Partners, Ltd.
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<PAGE>
Illegibility due to poor condition of original document
NOTIFICATION OF VALUE PARTNERS, LTD.
Pursuant to paragraph 7.9 of that certain Stock Purchase Agreement by
and between Carnegie International Corporation, a Colorado corporation
("Seller"), Electronic Card Acceptance Corporation, a Virginia corporation
("Company") and Value Partners, Ltd. ("Buyer") dated as of January 30, 1998,
Buyer hereby directs Carnegie and ECAC that David Stinson shall not resign as
officer and director of ECAC.
VALUE PARTNERS, LTD.
By: /s/ Timothy G. Ewing
Timothy G. Ewing
Managing Partner of Ewing &
Partners general partner of
Value Partners, Ltd.
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EXHIBIT 10.14
<PAGE>
HARBOR CITY CORPORATION
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into this 18th day of May, 1998 by and between
Carnegie International Corporation, a Corporation of the Stale of Colorado
(hereinafter referred to as "Carnegie" or "Purchaser") Barry Hunt, Individually
(hereinafter referred to as "Mr. Hunt"), Susan B. Hunt, Individually
(hereinafter referred to as "Ms. Hunt) and Harbor City Corporation, t/a ACC
Telecom (hereinafter referred to as the "Company"), a Corporation of the State
of Maryland. Mr. Hunt and Ms. Hunt shall hereinafter collectively be referred to
as "Seller".
EXPLANATORY STATEMENT
Seller owns One Thousand (1,000) shares of Common Stock of the Company,
which represents One Hundred Percent (100%) of the issued and outstanding
Company Stock, (hereinafter referred to as the "Shares"). The Company owns One
Hundred percent (100%) of the assets used in the operation of the Company
including but not limited to equipment, furniture, fixtures, inventory, contract
rights, lease rights for the Premises of the Company located at 6410 Dobbin
Road, Unit A, Columbia, Maryland 21045 (hereinafter referred to as the
"Premises"), and any and all other assets related to the business of the Company
(hereinafter referred to as the "Assets").
Carnegie shall purchase the Shares from Seller, together with such
relative rights, preferences and i limitations as appertain to said Shares, as
are hereinafter provided by this. Agreement. Seller shall issue, sell, transfer
and deliver said Shares to Carnegie upon the terms and conditions provided by
this Agreement.
NOW, THEREFORE, in consideration of the Explanatory Statement, which
shall constitute a substantive part of this Agreement, and the mutual covenants,
promises, agreements, representations and warranties hereinafter set forth, the
receipt and sufficiency of which are hereby acknowledged by the Parties hereto,
Purchaser, Seller and the Company do hereby covenant, promise, agree, represent
and warrant as follows:
1. Closing Purchase of Shares:
1.1. The closing (hereinafter referred to as the "Closing" of the
Shares provided by this Agreement shall take place simultaneously with the
execution of this Agreement, or on such other day as Purchaser and Seller shall
agree in writing, at the law offices of Gershberg and Pearl, LLC through an
escrow arrangement agreeable to the parties unless the place and means of
closing is changed pursuant to a writing signed by all parties hereto
(hereinafter, such day shall be referred to as the "Closing Date", and such law
offices shall be referred to as the "Closing Place.")
1.2. On the Closing Date and at the Closing Place, Seller shall
issue, sell, transfer and deliver to Carnegie the Shares, which Shares shall in
each instance be
<PAGE>
represented by one or more stock certificates of the Company duly endorsed to
Carnegie or accompanied by stock powers duly executed in blank for transfer on
the books of the Company, which shall convey ownership rights, title and
interest to the shares and the Assets of the Company effective as of the Cut-Off
Date, February 28, 1998, including all Assets on the List of Assets (a copy of
which is attached hereto as Exhibit A2).
1.2.1. Cut-Off Date: The Parties hereby agree that for
purposes of calculating purchase price adjustments, if any, due to changes in
the amount of assets, liabilities, including inventory, cash, accounts
receivable and accounts payable and the like from the October 31, 1997 amounts
presented to Carnegie by Seller compared to said amounts on February 28, 1998,
the effective date of all such calculations shall be 12:00 A.M., February 28,
1998 (the "Cut-Off Date"), regardless of the date of completion of this
Agreement.
1.2.2. Post Closing Adjustments: Seller and Purchaser agree
that a representative of Purchaser shall visit Seller's premises where books and
records are maintained to reconcile said books for the purpose of determining
any adjustments as of the Cut-Off Date. Said visit shall occur within fourteen
(14) days after closing or at such time as records are made available by the
Company to allow calculations of any adjustments. Adjustments shall be made to
the purchase price only if there is a decrease in the net assets
(assets-liabilities) of the Company existing as of October 31, 1997 (See
Schedule of Closing Adjustments included herein as Exhibit A-3).
1.3. Purchase Price: The Purchase Price of the Shares shall be as
follows:
1.3.1. Purchaser shall issue to Seller Two Hundred Thousand
(200,000) shares of Preferred Series A restricted stock of Carnegie
International Corporation which shall be convertible to Rule 144 Restricted
Legend Common Stock of Carnegie (hereinafter "Rule 144 Stock") twenty-four (24)
months (the "Period") from the Closing Date, as follows:
1.3.1.1. In the event the Seller elects to convert said
Preferred Shares to Rule 144 Stock prior to the expiration of the Period, Seller
shall receive Rule 144 Legend stock with a value equal to Two Million Dollars
($2,000,000.00) based on the Value, as set forth in Section 1.3.1.3. below.
Seller shall have said right of early conversion only in the event the common
stock of Carnegie closes above Two Dollars ($2.00) per share. Carnegie shall
initiate the conversion of said shares within three (3) business days after the
receipt of written notice of Seller's valid request for conversion.
1.3.1.2. In the event the Seller does not request
conversion as set forth in Section 1.3.1.1., prior to the expiration of the
Period, Seller shall receive the greater of
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(i) Rule 144 Stock with a value of Two Million
Dollars ($2,000,000.00) based upon the conversion value set forth in Section
1.3.1.3. below; or
(ii) Two Million shares of Rule 144 Stock, (which
shall be considered higher in Value than Two Million Dollars ($2,000,000) if the
Value of the Common Stock of Carnegie is above $1.00 per share as computed on
the business day immediately preceding the expiration of the Period.
1.3.1.3. The Value of each share of Rule 144 Stock for
conversion calculation purposes shall be based on the average Market closing
price of Carnegie's Common Stock on the five (5) business days immediately
preceding the conversion date. For the purposes of this section " Market" shall
include the price quoted for Carnegie's Common Stock by the NASD Over the
Counter Bulletin Board Service (OTCBB).
1.3.2. One Million Dollars ($1,000,000.00) to be paid in quarterly
installments over a period of five (5) years in the amount of Fifty Thousand
Dollars ($50,000.00) per quarter, with the first payment to be paid at closing.
The remaining payments shall begin on September 1, 1998 and shall continue to be
paid on the first day of each calendar quarter thereafter. Carnegie shall assume
the liabilities of ACC as set forth in Exhibit B as of the closing date which
shall be substantially the same as those reflected on the estimated fiscal year
ended October 31, 1997 tax return of ACC provided to Carnegie, excluding tax
liabilities and also excluding the seventeen percent (17%) interest portion of a
December 3, 1979 Promissory Note to Barry Hunt in the amount of Fourteen
Thousand Dollars ($14,000). The interest rate on said Note shall be adjusted to
one point over the Prime Rate as published in 'the Wall Street Journal.
1.3.3. The purchase of the Shares shall vest in Carnegie on the
Cut-Off Date, subject to the provisions of this Agreement, complete possession,
ownership and control of the Shares and the management and operations of the
Company and ownership of the Assets, including but not limited to the leases,
equipment, fixtures, inventory, cash, accounts receivable, contract rights with
equipment suppliers and others, goodwill, leasehold improvements and assets
relating thereto; provided, however, that Barry Hunt shall continue to manage
the daily operations of the Company, including decisions on hiring and
terminating personnel. Seller and the Company shall cooperate in and facilitate
the immediate transfer of possession, ownership and control of the Shares and
Assets including all assets and operations relating to the Premises of the
Company.
1.3.4. Purchaser acknowledges that, prior to the execution of this
Agreement, it has conducted a due diligence investigation of the operations of
the Company and the Assets, including, without limitation, an investigation of
the financial operations.of the Premises, the books and records of Seller
relating to the same and the condition of the Premises and the Assets, and
Purchaser is satisfied with the results of the investigation, except as provided
to the contrary herein. Purchaser has had an opportunity to investigate all
matters which
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Purchaser has deemed relevant concerning the Shares and the Assets and has had
an opportunity to discuss the same with the officers of the Company.
1.3.5. Seller and the Company acknowledge that they have performed
a due diligence test of the Multi-Language Automated Voice Intelligent System
(MAVIS) owned by Purchaser through one of its subsidiaries and Seller and the
Company have determined that MAVIS will operate in a reasonable commercial
manner on PBX, Analogue and Digital Phone Systems. Barry Hunt, Susan Hunt and
the Company are satisfied as to the results of such test.
1.3.6. There shall be no debt of the Company as of and including
the CutOff Date, except for any amount substantially the same as that
represented to Purchaser as existing at October 31, 1997. Purchaser shall not be
liable for any tax liability or other liabilities of any kind whatsoever
relating to or incurred by the Company or its owners up to and including the
Cut-Off Date, and Seller shall indemnify Purchaser and hold Purchaser harmless
from any of said tax or other liabilities.
1.3.7. The Certified Financial Statements of Carnegie as of and
for the period ending December 31, 1997, fairly present the outstanding debt of
Carnegie as of such date.
2. Representations and Warranties of the Seller and the Company;
Seller and the Company represent and warrant to Purchaser as
follows:
2.1. Sellers are, and as of the Closing Time will be the valid and
legal owners of the Shares and related Assets being transferred hereby and own
the Shares free and clear of any and all liens and encumbrances (See Certificate
of No Debts - Exhibit B). The Seller through the ownership of the Shares owns
all of the Assets of and relating to the Company located at 6410 Dobbin Road,
Unit A, Columbia, Maryland 21045 (hereinafter referred to as the "Premises"),
including but not limited to the leases, equipment, inventory, furniture,
fixtures and the like and assets relating thereto.
Sellers represent and warrant that they own the Shares that
represent one hundred percent (100%) of the stock of the Company and have fairly
and accurately in all material respects reflected and allocated all assets,
liabilities, income and expenses related to both the management and results of
operations of the Company on the books and records of the Company, which have
been presented to Carnegie for the periods ended October 31, 1997, January 31,
1998 and February 28, 1998, respectively.
2.2. Sellers have the requisite and proper authority to enter into
the within agreement and to transfer, assign and sell the Shares in accordance
with the terms hereof.
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<PAGE>
2.3. The Company is, and at the Closing Time will be, a
corporation duly organized, validly existing and in good standing under the laws
of Maryland, the Company has, and at the Closing Date will have, the power and
authority to own, lease and operate its properties and to conduct its business
as such business is now being conducted by Company. A complete and correct copy
of the articles of incorporation, as amended, and the by-laws, as amended, of
the Company, are attached to this Agreement collectively as Exhibit C and are
incorporated by reference herein, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Time.
2.4. The Company has validly authorized, issued, and has
outstanding, and on the Closing Date will have authorized, issued and
outstanding, fully paid and non-assessable, One Thousand (1,000) shares of its
common stock. Upon issuance, sale, transfer and delivery of the Shares to
Purchaser, the shares of the Company Common Stock issued and outstanding will
constitute One Hundred Percent (100%) of the issued and outstanding capital
stock of the Company. Except as hereinafter set forth in this Section 2.4, the
Company does not have outstanding, and on the Closing Date will not have
outstanding, any options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contracts or
commitments to issue or to sell assets or shares of common stock or any such
options, rights, warrants, convertible securities or obligations. The Company
has not issued, and hereby warrants and represents that it shall not issue any
Stock Options (hereinafter referred to as the "Options"), which grant to the
holders thereof the right to purchase in the aggregate any shares of the Company
Common Stock.
2.5. The Shares are fully paid and non-assessable, free and clear
of all mortgages, pledges, liens, security interests, conditional sale
agreements, charges, encumbrances and restrictions of every nature, except for
those created pursuant to the terms of this Agreement.
2.6. Except as set forth on Exhibit D, Company has properly and
accurately filed all tax returns, as appropriate, country wide, state and local,
and all related information required to be filed prior to the date hereof, and
at the Closing Time shall have filed all tax returns, as appropriate, and all
related information required to be filed prior to the Closing Time. To the best
knowledge of Seller and the Company, the amounts reflected in the Balance Sheet
for taxes are sufficient for the payment of all accrued and unpaid federal,
state and local taxes of all types, including interest and penalties thereon, of
the Company for or on account of which Company is or may become liable in any
manner whatsoever for periods prior to the Closing Date.
2.7. Since November 1, 1979
2.7.1. The business of the Company has been operated, and up
to the Closing Date will be operated, only in the ordinary course.
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<PAGE>
2.7.2. Except as set forth in Exhibit D1, there has been, and
prior to the Closing Date there will be, no material adverse change,
individually or in the aggregate, in Company's condition (financial or
otherwise) or in Company's assets, liabilities or business. There also has been
no material adverse change, individually or in the aggregate, in the Company's
condition (financial or otherwise) or in the Company or its Assets, liabilities
or business from the status that was represented to Purchaser as existing at
October 31,.1997 compared to the status at the Closing Date.
2.7.3. There has been, and prior to the Closing Date there
will be, no damage, destruction or loss to the Company or any of its contracts,
assets, inventory, accounts, or other properties, or other events or conditions
of any character, or any pending or threatened developments, individually or in
the aggregate, which would materially and adversely affect the Company's
condition (financial or otherwise) or Company's assets, liabilities or business.
2.8. Except as set forth in Exhibit D1 attached hereto and
incorporated by reference herein, there is, and on the Closing Date there will
be, no material action, suit, proceeding or investigation pending or, to the
knowledge of Company, threatened, against or affecting the Company or any of its
assets. Company is not, and on the Closing Date will not be, in default under or
with respect to any judgment, order, writ, injunction or decree of any court or
of any federal, state, municipal or other governmental authority, department,
commission, board, agency or other instrumentality. To Seller's and Company's
knowledge, Company has, and on the Closing Date will have, complied in all
material respects with all laws, rules, regulations and orders applicable to it
and to its business; has, and on the Closing Date will have, performed in all
material respects all of its material obligations and duties to be performed by
it to the extent required in accordance with their respective terms; and is not,
and on the Closing Date will not be, in default under or in material breach of
any material contract, agreement, commitment or other instrument to which it is
subject or a party or under which it is bound.
2.9. Seller and the Company have not, and on the Closing Date will
not have, incurred any liability, obligation or duty for any finder's, agents or
brokers fee or commission in connection with this Agreement or the transactions
contemplated hereby.
2.10. The Board of Directors of the Company, pursuant to the power
and authority legally vested in it, has duly authorized the execution, sealing
and delivery of this Agreement by the Seller and the Company, Common Stock of
the Company, and the transactions hereby contemplated, and no action,
confirmation or ratification by any stockholder of the Company, Seller, or by
any other person, entity or governmental authority is required in connection
therewith. The Seller and the Company have the power and authority to execute,
seal and deliver this Agreement, to consummate the transactions hereby
contemplated and to take all other actions required to be taken by them pursuant
to the provisions hereof. The Seller and the Company have taken all actions
required by law, the Company's certificate of creation or incorporation, as
amended, its bylaws, as amended, or otherwise to authorize the execution,
sealing and delivery of this Agreement and the issuance, sale, transfer and
delivery of the Shares
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<PAGE>
and related Assets pursuant to the provisions hereof. This Agreement is valid
and binding upon the Seller and the Company in accordance with its terms.
Neither the execution, sealing and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a violation
or breach of the Articles of Incorporation, as amended, or the by-laws, as
amended, of the Company, or any agreement, stipulation, order, writ, injunction,
decree, law, rule or regulation applicable to the Company or the Seller.
2.11. Attached hereto as Exhibit E and incorporated by reference
herein is a list of all officers and directors of the Company and all beneficial
owners of the issued and outstanding Company Common Stock, and the number of
shares of the Company Common Stock owned of record and beneficially by each such
officer, director and beneficial owner. To the best knowledge of Company, the
information set forth on Exhibit E is true and correct.
2.12. To Seller's knowledge neither this Agreement nor any written
information, statement, list or certificate furnished or to be furnished to
Purchaser pursuant to this Agreement or in connection with this Agreement or any
of the transactions contemplated by this Agreement contains or, on the Closing
Date will contain any untrue statement of a material fact or omits or, on the
Closing Date will omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances in which they are
made, not misleading.
2.13. Seller's and the Company's Release: Seller and the Company
hereby warrant, represent and acknowledge that they shall execute at the time of
closing a release of all claims which reflects Seller and the Company's complete
release and discharge of any claims it may have against the Company, both
individually and as an officer or Director of the Company, except for those
considerations due as set forth in this Agreement. Such release shall be
attached hereto and incorporated herein by reference as Exhibit F.
2.14. [Intentionally left blank]
2.15. Seller has and will continue until the Closing Date to
accurately maintain the books of account of the Company, or any other entity
operating at the Premises or as successor to the Company. Seller shall indemnify
and hold Purchaser harmless from any and all losses due to Seller's intentional
misconduct or gross negligence during the period in which Seller is managing the
financial operations of the Company.
2.16. No Subsidiaries: The Seller and the Company hereby
acknowledge that the Company does not have any subsidiaries and does not,
directly or indirectly, own any interest in or control any corporation,
partnership, joint venture or other business entity.
2.17. Licenses; Permits; Related Approvals: The Company possesses
all licenses, permits, consents, approvals, authorizations, qualifications and
orders (hereinafter collectively referred to as the "Permits") of all
governments and governmental agencies lawfully
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<PAGE>
required for the Company to conduct its business in all jurisdictions where
business is conducted. All of the Permits are in full force and effect and no
suspension, modification, or cancellation of any business or permits is pending
or threatened. A list of the business/permits is attached hereto as Exhibit G
and incorporated herein by reference.
2.18. No Real Property: Except as set forth on Exhibit H attached
hereto and incorporated herein by reference, the Company does not own or have
any interest in any real estate.
2.19. Condition of Personal Property: Attached hereto as Exhibit I
and incorporated by reference herein is a true, correct and complete list of all
personal property, owned by the Company or used by the Company in the conduct of
its business, including, but not limited to, all inventory, equipment, machinery
and fixtures, (collectively, the "Personal Property"), indicating whether it is
owned or the manner in which the Personal Property is otherwise utilized by the
Company. The Company has sole and exclusive, good.and merchantable title to all
of the Personal Property owned by it free and clear of all pledges, claims,
liens, restrictions, security interests, charges and other encumbrances, except
as provided to the contrary in Exhibit I.
2.20. Certain Contracts. Attached hereto as Exhibit J and
incorporated by reference herein is a true, correct and complete list and copy
of all contracts under which the Company is provided or is providing services
(collectively, the "Service Contracts"). To Seller's knowledge, each of the
Service Contracts is in full force and effect is valid and binding upon each of
the parties thereto and is fully enforceable by the Company against the other
party thereto in accordance with its terms. Neither Seller nor the Company has
any notice of, or any reason to believe that there is or has been any actual,
threatened or contemplated, termination or modification of any of the Service
Contracts. To Seller's knowledge, no party to any of the Service Contracts is in
breach of or in default thereunder, nor has any event occurred which, with the
lapse of time, notice or election, may become a breach or default by the Company
or any other party to or under any of the Service Contracts. All payments
required to be made by Seller pursuant to the Service Contracts have been paid
in full through See Exhibit J.
2.21. Contracts, Licenses, and Other Agreements. Attached hereto
and incorporated by reference herein are the following:
2.21.1. Exhibit K, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
leases of the Company relating to real property.
2.21.2. Exhibit L, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
leases of the Company relating to personal property.
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<PAGE>
2.21.3. Exhibit M, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
licenses, franchises, assignments or other agreements of the Company and/or
Seller relating to trademarks, trade names, patents, copyrights and service
marks (or applications therefor), unpatented designs or styles, know-how and
technical assistance.
2.21.4. Exhibit O, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
employment, compensation and consulting agreements, contracts, understandings or
arrangements of the Company with any officer, director, employee, broker, agent,
consultant salesman or other Person, including the names, starting dates of
employment term of employment, functions and aggregate compensation (including
salary, bonuses, commissions and other forms of compensation).
2.21.5. Exhibit P, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements of the Company for the purchase, sale or lease of goods, materials,
supplies, machinery, equipment, capital assets and services having a cost in
excess of Two Thousand Five Hundred Dollars ($2,500.00) in any one instance or
in excess of Ten Thousand Dollars ($10,000.00) in the aggregate.
2.21.6. Exhibit Q, a true, correct and complete list and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements and arrangements of the Company for the borrowing or lending of
money, on a secured or unsecured basis, or guaranteeing, indemnifying or
otherwise becoming liable for the obligations or liabilities of any other Person
or entity.
2.21.7. Exhibit R, a true, correct and complete fist and copy
(or where they are oral, true, correct and complete written summaries) of all
agreements and understandings of the Company other than those listed in Exhibits
O through Q which are material in nature, involve the payment or receipt, in any
twelve (12) month period, of more than Five Thousand Dollars ($5,000.00) or have
a term of more than the twelve (12) months.
To Seller's knowledge, each of the agreements, arrangements
and understandings listed in Exhibits K through R (hereinafter collectively
referred to as the "Commitments") is in full force and effect, is valid and
binding upon each of the parties thereto and is fully enforceable by the Company
against the other party thereto in accordance with its terms. Neither Seller nor
the Company has any notice of, or any reason to believe, that there is or has
been any actual, threatened or contemplated termination or modification of any
of the Commitments. To Seller's knowledge, no party to any of the Commitments is
in breach of or in default thereunder, nor has any event occurred which, with
the lapse of time, notice or election, may become a breach or default by the
Company or any other party to or under any of the Commitments. The Company has
the right to quiet enjoyment of all real properties leased
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<PAGE>
to it for the full term of the lease thereof. All payments required to be made
by the Company pursuant to any of the Commitments have been paid in full through
See Exhibits K-R.
2.22. Insurance: Attached hereto as Exhibit S and incorporated by
reference herein is a list of all insurance policies of the Company, setting
forth with respect to each policy the name of the insurer, a description of the
policy, the dollar amount of coverages, the amount of the premium, the date
through which all premiums have been paid, and the expiration date. Each
insurance policy relating to the insurance referred to in Exhibit S is in full
force and effect, is valid and enforceable, and the Company is not in breach of
or in default under any such policy. Neither Seller nor the Company have any
notice of or any reason to believe that there is or has been any actual,
threatened, or contemplated termination or cancellation of any insurance policy
relating to the insurance referred to in Exhibit S.
2.23. Pension Plans: Seller and the Company hereby acknowledge
that the Company does not maintain any pension, profit sharing, ESOP, stock
option, incentive bonus, hospitalization, major medical, dental, optical,
prescription, drug, health insurance, life insurance, or other benefit plan for
the benefit of any employee as the term "Employee Benefit Plan" is defined in
ERISA, Section 3, except as set forth on Exhibit T.
2.24. Employee Relations and Employment Agreements:
2.24.1. None of the Company's employees is represented by a
labor organization, and no petition for representation has ever been filed with
the National Labor Relations Board. Seller and the Company are not aware of any
union organizational activity with respect to the Company, and have no reason to
believe that any such activity is being contemplated.
2.24.2. To Seller's knowledge, the Company is not in
violation in any material respect of any applicable equal employment opportunity
laws, wage and hour laws, occupational safety and health laws, federal labor
laws or any other laws of any government or governmental agency relating to
employment.
2.24.3. The Company has not entered into written employment
agreements and all employees can be terminated at will. The Company has no
contractual obligation or special termination or severance arrangements with
respect to any employee. The Company and Seller further represent and warrant
that there have been and will be no changes in employment or corporation salary
agreements between the Company and its employees, officers, directors or
contractors from January 1, 1998 up till and including the date of Closing.
2.24.4. The Company has paid all wages due including all
required taxes, insurance and withholding thereon, and will continue to do so
through the Closing Date.
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<PAGE>
2.24.5. Attached hereto as Exhibit U and incorporated herein
by reference, is a list of all accrued vacation, sick leave, and accrued
bonuses, if any, as of the Cut-Off Date.
2.24.6. Seller and the Company shall supply to Purchaser a
list of all employees of the Company, including the date of hire of each,
position, present salary, amount of. bonus paid in the last year, and announced
termination date, if any, as Exhibit V.
2.24.7. Patents; Trademarks; Service Marks; Related
Contracts. Attached hereto as Exhibit W and incorporated by reference herein, is
a true, correct and complete list of all patents, trademarks, trade names, or
trademark or trade name registrations, service marks, and copyrights or
copyright registrations (the "Proprietary Rights") related to the Company. To
Seller's knowledge, all of the Proprietary Rights are valid, enforceable, in
full force and effect and free and clear of any and all security interests,
liens, pledges and encumbrances of any nature or kind. Neither Seller or the
Company has licensed, leased or otherwise assigned, transferred or granted any
right to use any of its Proprietary Rights to any other Person or entity, and to
Seller's knowledge, no Person or entity is infringing upon the Proprietary
Rights. The Company has not infringed and are not infringing upon any patent,
trademark, trade name, or trademark or trade name registration, service mark,
copyright, or copyright registration of any other Person or entity. Seller and
the Company have filed all necessary and appropriate documents and paid all
necessary fees to maintain the integrity of the Proprietary Rights until the
year See Exhibit W.
2.25. Seller agrees that after Closing Seller shall execute any
and all documents which may be reasonably necessary to carry out the terms,
conditions and intention Of this agreement and to facilitate the transfer of the
property, to ratify unto Purchaser such Shares and/or property and to facilitate
the operations of the Company by Purchaser.
2.26. Seller and the Company shall transfer to Purchaser or
Purchaser's designee all title, rights and interests in any deposits (as
reflected on Exhibit X) owned by Seller or the Company related to the Premises
and/or the Company's business.
2.27. There are no bulk transfer laws in Maryland applicable to
this transaction (See Opinion Letter of Counsel, Exhibit B1).
2.28. To the best knowledge of such Seller and the Company, the
issuance, sale, transfer and delivery of the Shares and related Assets pursuant
to the provisions of this Agreement will not constitute a violation or breach of
any agreement, stipulation, order, writ, injunction or decree applicable to the
Seller or the Company.
3. Representations, Warranties and Covenants of Purchaser.
Purchaser represents, warrants and covenants to Seller as follows:
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<PAGE>
3.1. Purchaser is, and on the Closing Date will be, a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado.
3.2. The Board of Directors of Purchaser, pursuant to the power
and authority legally vested in it, has duly authorized the execution, sealing
and delivery of this Agreement by Purchaser and the transactions hereby
contemplated, and no action, confirmation or ratification by the stockholders of
Purchaser or by any other person, entity or governmental authority is required
in connection therewith. Purchaser has the power and authority to execute, seal
and deliver this Agreement, to consummate the transactions hereby contemplated
and to take all other actions required to be taken by it pursuant to the
provision, hereof. Purchaser has taken all actions required by law, its articles
of incorporation, its by-laws or otherwise to authorize the execution, sealing
and delivery of this Agreement. This Agreement is valid and binding upon
Purchaser in accordance with its terms. Neither the execution, sealing and
delivery of this Agreement nor the consummation of said transactions will
constitute any violation or breach of the articles of incorporation or the
by-laws of Purchaser, or any agreement, order, writ, injunction, decree, law,
rule or regulation applicable to Purchaser.
3.3. Purchaser covenants that for the twenty-four (24) month
period commencing on the Closing Date, Purchaser will maintain the Company as a
wholly owned subsidiary of Purchaser, and will not sell transfer or encumber the
Shares, the Premises or the Property, merge the Company into another entity or
otherwise transfer the Shares, without the prior written consent of Barry Hunt.
4. Further Agreements:
4.1. Seller's Agreement Not to Compete: The Parties hereby
acknowledge that Seller shall not establish a business telephone sales,
installation and/or services business in the same market as the Company operates
at the time of acquisition of the shares, directly or indirectly, for a period
of two (2) years from the date of this Agreement.
4.2. Marketing of Software: The Company shall serve as the
exclusive marketing agent in North America of the Multi-Language Automated Voice
Intelligent System (MAVIS) software owned by Carnegie. The Company shall be
reimbursed by Carnegie for the reasonable expenses of marketing MAVIS approved
by Lowell Farkas or E. David Gable until such time as MAVIS sales permit
absorption of such expenses by the Company. If Seller or Purchaser exercise
their respective rights to Buy-Back or Sell-Back the Shares of the Company, the
Company shall no longer serve as the exclusive marketing agent of MAVIS in North
America. A separate Licensing Agreement relative to MAVIS shall be negotiated in
good faith between the Parties hereto should a Buy-Back or Sell-Back be
exercised by either Seller or Purchaser.
The Seller shall have a first right of refusal to be the
exclusive marketing agent in North America of all future telecommunications
software products developed
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<PAGE>
by Carnegie's subsidiary, Profit Thru Telecommunications Limited CPM or a
subsidiary of PTT, for a period of thirty (30) days after receipt of notice of
said products from Carnegie.
5. Conditions Precedent to Obligation and Duty of Purchaser to Acquire
the Property:
5.1. The obligation and duty of Purchaser to purchase the Property
from Seller as contemplated by this Agreement are subject to the fulfillment and
satisfaction on the Closing Date of each of the following conditions precedent,
any or all of which may be waived in whole or in part at or prior to the Closing
Date by Purchaser:
5.1.1. All representations and warranties of the Seller and
the Company contained in this Agreement and expressly made at the Closing Date
shall be true and correct at the Closing Date, in all material respects, and all
of the other representations and warranties of Seller and the Company contained
in this Agreement shall be true and correct at the Closing Date as though each
of such representations and warranties was made at such time.
5.1.2. Seller and the Company shall have performed and
complied in all material respects with all covenants and agreements on their
part required by this Agreement in material respects to be performed or complied
with prior to or at the Closing Date.
5.1.3. Purchaser shall have received certificates of the
officers and directors of Company, whose signatures, such as President, shall be
attested by the Secretary of Company or an independent third party if Signatory
and Secretary are the same person, dated as of the Closing Date, in form
reasonably satisfactory to Purchaser, certifying to the fulfillment and
satisfaction of each of the conditions precedent specified in Sections 5.1.1.
and 5.1.2. of this Agreement.
5.1.4. Purchaser shall receive the written opinions of the
legal counsel (See Exhibit B1) for Seller and the Company, dated the Closing
Date, stating that:
(a) The Company is a corporation duly organized, validly
existing and in good standing. The Company has the power and authority to own,
lease and operate its properties and to conduct its business as such business is
now being conducted by them.
(b) The Company is authorized to issue Five Thousand
(5,000) shares of Company Common Stock.
(c) Except as set forth on Exhibit D1 to this Agreement,
such counsel does not know of any material action, suit, proceeding or
investigation pending or threatened against the Company or affecting the Company
or any of its assets.
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<PAGE>
(d) The Board of Directors of Company, pursuant to the
powers and authority legally vested in it, has duly authorized the execution,
sealing and delivery of this Agreement by Company, the transactions hereby
contemplated, and no action, confirmation or ratification by the stockholders or
Personal Representatives or Executors of any deceased stockholders of Company or
by any other person, entity or governmental authority is required in connection
therewith which has not been obtained. Seller and the Company have the power and
authority to execute, seal and deliver this Agreement, to consummate the
transactions hereby contemplated and to take all other actions required to be
taken by or pursuant to the provisions hereof Company has taken all actions
required by law, its certificate of incorporation, as amended, its by-laws, as
amended, or otherwise to authorize the execution, sealing and delivery of this
Agreement and the issuance, sale, transfer and delivery of the Shares pursuant
to the provisions hereof. This Agreement is valid and binding upon Seller and
the Company.
(e) There are no Bulk Sales laws in Maryland applicable
to this transaction.
5.2. The obligation and duty of Seller to sell the Shares and
related Assets to Purchaser as contemplated by this Agreement are subject to
fulfillment and satisfaction on the Closing Date of each of the following
conditions precedent, any or all of which may be waived in whole or in part
prior to the Closing Date by Seller:
5.2.1. All representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
at the Closing Date as though each of such representations and warranties was
made at such time.
5.2.2. Purchaser shall have performed and complied in all
material respects with all covenants and agreements on their part required by
this Agreement to be performed or complied with prior to or at the Closing Date.
5.2.3. Seller shall have received certificates of the
officers and directors of Purchaser, whose signatures, such as President shall
be attested by the Secretary of Purchaser or an independent third party if
Signatory and Secretary are the same person, dated as of the Closing Date, in
form reasonably satisfactory to Seller, certifying to the fulfillment and
satisfaction of each of the conditions precedent specified in Section 5.2.1. and
5.2.2. of this Agreement.
5.2.4. Seller shall have received the written opinion of
legal counsel for Purchaser, dated the Closing Date, containing the opinions
with respect to Purchaser which Seller's counsel is required to provide with
respect to the Companies under Section 5.1.4(a) and (d) and that Purchaser has
reserved for issuance the common stock reasonably for the transaction
contemplated herein.
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<PAGE>
6. Indemnification:
6.1. Sellers individually and collectively and the Company shall
each indemnify and hold harmless Purchaser from and against any and all actions,
suits, proceedings, demands, causes of action, damages, liabilities, claims,
losses, costs and expenses (including reasonable attorneys' and experts' fees)
paid or incurred by Purchaser by reason of or arising out of or in connection
with:
6.1.1. The breach by Sellers (individually and jointly) or
the Company of any representation or warranty contained in this Agreement or in
any certificate delivered to Purchaser pursuant to the provisions of this
Agreement.
6.1.2. The failure of Sellers individually or collectively
and or the Company to perform or comply with any covenant or agreement required
by this Agreement to be performed or complied with by each such person or
entity.
6.1.3. Debts and or liabilities incurred, accruing or arising
up to and including the Cut-Off Date attributable to Seller or the Company
including, but not limited to, contract liabilities, tort liability and tax
liability, other than those assumed by Purchaser pursuant to the terms of this
Agreement. Purchaser shall have the right to setoff against any and all amounts
owed by Purchaser to Seller for any amounts owed or incurred by Purchaser in
connection with any and all liability imposed by this Section 6. Notwithstanding
anything to the contrary contained in this agreement, this provision 6.1.3 shall
be fully enforceable with no time limitation.
6.2. Carnegie shall indemnify and hold Seller and the Company
harmless from and against any and all actions, suits, proceedings, demands,
causes of actions, damages, liabilities, claims, losses, costs and expenses
(including reasonable attorneys' and experts' fees) paid or incurred by any of
them by reason of or arising out of in connection with:
6.2.1. The breach by Purchaser of any of the representations
or warranties contained in this Agreement or in any certificate delivered to
Seller pursuant to provisions of this Agreement;
6.2.2. The failure by Purchaser to perform or comply with any
covenant or agreement required by this Agreement to be performed or complied by
Purchaser.
6.2.3. Debts and liabilities incurred or arising after the
Cut-Off Date attributable to Purchaser or the Company, except Seller shall be
responsible for such debts and liabilities incurred or arising after the Cut-Off
Date due to the negligence of Seller and or the Company up to and including the
Cut-Off Date.
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<PAGE>
6.3. With respect to any claim, action, suit, liability, loss,
damage or expense asserted, threatened, instituted, paid or incurred or
discovered by or against an indemnified party, within the applicable
Indemnification Period, if any, the obligation to indemnify shall continue
through the final disposition or settlement of any such matter and the full
satisfaction of the indemnification obligation.
6.4. [Intentionally Left Blank]
6.5. If a party (an "Indemnified Party"), receives notice or has
knowledge of any matter which it believes the other party hereto (the
"Indemnitor") is obligated to provide indemnification pursuant to this Section 6
(a "Claim"), the Indemnified Party will within a reasonable period of time (A)
after receipt of such notice or otherwise first becoming knowledgeable of a
Claim, give the Indemnitor written notice of the assertion of such Claim; and
(B) furnish the Indemnitor with all relevant information and copies of all
pertinent documents relating to the Claim in the Indemnified Party's possession
or control or within a reasonable period of time after the Indemnified Party's
receipt thereof, as the case may be.
6.6. The failure of the Indemnified Party to give notice of the
Claim promptly will not affect the Indemnified Party's rights to indemnification
hereunder, except if, and only to the extent that, the Indemnitor's defense of
such Claim is actually prejudiced by reason of such failure to give timely
notice.
6.7. The Indemnitor will undertake and continuously defend such
Claim with counsel of reputable standing, and the Indemnified Party may
participate in such defense by counsel of its own choosing at its own expense.
6.8. If the Indemnified Party is required to pay any amount with
respect to said Claim, such amount shall be promptly paid by the Indemnitor to
the Indemnified Party upon the Indemnified Party giving the Indemnitor a written
request therefor.
6.9. If the Indemnitor does not timely undertake or continuously
defend any such Claim, then the Indemnified Party will have the right to employ
separate counsel in any such action and to participate in the defense thereof,
and the reasonable fees and expenses of such counsel will be the Indemnitor's
obligation and direct responsibility. Furthermore, the Indemnified Party will
then have the right to defend or dispose of the Claim in such manner as it deems
advisable for Indemnities account and risk and for the purpose hereof as if such
defense or disposition had been made or undertaken by the Indemnitor.
6.10. The Indemnitor agrees, unless it timely assumes the defense
of any Claim hereunder, to pay the Indemnified Party's costs of defending any
Claim, including, without limitation, reasonable attorneys and paralegal fees,
accountants' fees, witness fees and court costs, promptly after written demand
therefor is given by the Indemnified Party to the Indemnitor.
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<PAGE>
6.11. If the Indemnitor timely undertakes the defense of any
Claim, then so long as the Indemnitor, in good faith, is continuously contesting
or defending the Claim: (A) the Indemnified Party shall not admit any liability
with respect thereto, or settle, compromise, pay or discharge the same without
the prior written consent of the Indemnitor; (B) the Indemnified Party shall
cooperate with the Indemnitor in the contest or defense of the Claim; (C) the
Indemnified Party shall accept any settlement of the Claim, provided such
settlement is effected by monetary payment only and adequate arrangements for
such payment, to the Indemnified Party's reasonable satisfaction, are made by
the Indemnitor and the Indemnified Party is provided with a full release of all
Claims made; and (D) the Indemnitor will provide the Indemnified Party with all
information regarding the contest or defense of the Claim and allow counsel for
the Indemnified Party to monitor, at the Indemnified Party's sole expense, all
proceedings in connection with the Claim.
6.12. Neither the Indemnitor nor the Indemnified Party may admit
any liability with respect to any Claim or settle, compromise, pay or discharge
the same without the prior written consent of the other party if such
settlement, compromise, payment or discharge could in any way expose such other
party to the payment of funds which are not subject to a claim of reimbursement
or indemnification from the settling, compromising or paying party.
6.13. The Indemnified Party shall use reasonable efforts to
preserve the status quo, not incur any penalties and not prejudice the
Indemnitor's defense of any Claim prior to the Indemnitor undertaking the
defense of such Claim.
6.14. Anything in this Section 6 to the contrary notwithstanding,
if there is a reasonable probability that an indemnifiable Claim may materially
and adversely affect the Indemnified Party other than as a result of money
damages or other money payments, the Indemnified Party, upon giving the
Indemnitor reasonably prompt written notice thereof, shall have the right to
defend, compromise or settle such indemnifiable Claim; provided, however, that
no compromises or settlement which would result in the payment of money shall be
made, executed or delivered without the prior written consent of the Indemnitor,
which consent shall not be unreasonably withheld.
6.15. Any payment required by an Indemnitor pursuant to this
Section 6 shall be reduced by any insurance proceeds actually recovered
(excluding any deductible or self-insured retention) by the Indemnified Party as
a result thereof from a policy of insurance owned by any person. Any tax benefit
received by the Indemnified Party by reason of any action of the Indemnitor
shall reduce any payment required to be made by the Indemnitor to the
Indemnified Party arising therefrom.
7. Miscellaneous:
7.1. All of the covenants, promises, agreements, representations
and warranties set forth in this Agreement shall survive all closings under this
Agreement for the
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<PAGE>
periods herein provided, and shall be binding and enforceable notwithstanding
any knowledge (other than as specifically herein disclosed) on the part of a
party hereto with respect to the matter involved.
7.2. At any reasonable time upon prior reasonable notice by
Purchaser (whether at or after the Closing Date), Seller and the Company shall
execute, acknowledge, seal and deliver such further instruments and documents
and take such other actions as Purchaser may reasonably request more effectively
to vest in Purchaser full right, title and interest in and to the Shares and
related Assets as shall be issued, sold, transferred and delivered under this
Agreement, and to secure for Purchaser the full benefits intended to be secured
by this Agreement.
7.3. All writings, notices and other communications under this
Agreement shall be in writing and addressed as follows:
If to Purchaser, to: Lowell Farkas, President
Carnegie International Corporation
Executive Plaza 3
Suite 1001
11350 McCormick Road
Hunt Valley, Maryland 21031
With a copy to: Lewis A. Dardick, Esquire
Gershberg and Pearl, LLP
11419 Cronridge Drive, Suite 7
Owings, Maryland 21117
If to Seller, to: Mr. Barry Hunt
902 Bob-el Drive
Westminster, Maryland 21157
with a copy to: Gil Abramson, Esquire
Hogan & Hartson, L.L.P.
111 South Calvert Street
Baltimore, Maryland 21202
Any such writing, notice or communication by telegram shall be deemed given when
received at the address specified above. Any such writing, notice or
communication other than by telegram shall be deemed given when deposited in the
appropriate international or United States mails, postage prepaid, first class,
registered or certified mail, return receipt requested, and addressed as
hereinabove provided. Any such address may be changed by notice to the other
parties to this Agreement as provided in this Section 7.3.
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<PAGE>
7.4. This Agreement shall be governed by and construed and
enforced in all respects in accordance with the laws of the State of Maryland,
United States of America.
7.5. This Agreement contains the fall, complete and exhaustive
agreement between the parties hereto. This Agreement may be amended only by an
instrument in writing executed, sealed and delivered by Seller, the Company and
Purchaser.
7.6. Nothing expressed or implied in this Agreement is intended or
shall be construed to confer or give any person or entity other than the parties
hereto any rights or remedies under or by reason of this Agreement.
7.7. This Agreement may be executed simultaneously or in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same* instrument.
7.8. Unless the context otherwise requires, the words such as
"herein", "hereinafter", "hereby", "hereto", "hereof and "hereunder" refer to
this Agreement as a whole and not merely to a Section in which such words
appear. As used herein and unless the context otherwise requires, the singular
shall include the plural and vice-versa, and the masculine gender shall include
the feminine and neuter, and vice-versa.
7.9. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective heirs, legal representatives, successors and
permitted assigns.
7.10. The headings for this Agreement are intended for convenience
of reference only and shall be given no effect in the construction or
interpretation of this Agreement.
7.11. Carnegie shall have the tight to assign its rights, title
and interests under this Agreement and to the Property to any of its wholly
owned subsidiaries, except as provided to the contrary herein. This shall not
impair any of Carnegie's obligations under this Agreement.
8. Buy-Back/Sell-Back:
Seller and Purchaser shall enter into a mutually agreeable
Buy-Back/Sell-Back Agreement, that facilitates Seller regaining ownership of the
Company if the Multi-Language Automated Voice Intelligence System ("MAVIS') owed
by Purchaser's subsidiary is not reasonably marketable or if the profitability
of ACC does not meet Purchaser's expectations. At a minimum, the
Buy-Back/Sell-Back Agreement shall include the following:
(1) Canceling of the preferred stock paid to Seller for the
Shares and canceling of Rule 144 Legend common stock
converted from said preferred stock.
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<PAGE>
(2) Canceling the Employment Agreement between Seller and
Purchaser.
(3) Canceling of any unpaid portion of the Purchase price due
Seller for the purchase of the Shares.
(4) A License Agreement for MAVIS that allows the Company to
market the MAVIS product after Seller regains ownership of
the Shares.
(5) Carnegie shall have a right to sell the Shares back to Seller
if the Company is not profitable (i.e., ACC or its successors
is unable to meet its obligations as they become due or does
not have sufficient cash flow to pay expenses for more than
two (2) consecutive months).
(6) Seller and/or Purchaser shall have the option to
Buy-Back/Sell-Back the Shares if MAVIS is not reasonably
marketable. Seller and Buyer shall exercise said option to
Buy-Back/Sell-Back the Shares within twenty-four (24) months
from closing hereon.
9. Employment of Seller:
Seller and Purchaser shall enter into mutually agreeable
Employment Agreements simultaneously herewith that provide for salaries to Barry
Hunt and Susan Hunt, if any, totaling Two Hundred Thousand Dollars
($200,000.00).
IN WITNESS WHEREOF, the parties have executed, sealed and delivered
this Agreement the day and year first herein above set forth.
PURCHASER:
ATTEST: CARNEGIE INTERNATIONAL CORPORATION
/s/ By: /s/ Lowell Farkas (SEAL)
Lowell Farkas, President
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<PAGE>
THE COMPANY:
ATTEST: HARBOR CITY CORPORATION
/s/ By: /s/ Barry N. Hunt (SEAL)
BARRY N. HUNT, President
WITNESS: SELLERS:
/s/ /s/ Barry N. Hunt
BARRY N. HUNT, Individually
WITNESS: SELLERS:
/s/ /s/ Susan B. Hunt
SUSAN B. HUNT, Individually
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<PAGE>
HARBOR CITY CORPORATION
STOCK PURCHASE AGREEMENT
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Section
Nos.
<S> <C>
A1. Stock Certificate of Harbor City Corporation in the name of Carnegie 1.2.
International Corporation
A2. List of Tangible Assets of Harbor City Corporation excluding the 1.2.
Fixtures and Leasehold Improvements
A3. Schedule of Closing Adjustments 1.2.2.
B. Certificate of No Debts 2.1.
B1. Opinion Letter of Counsel Relating to Seller and the Company's 5.1.4.
Authority to Sell the Shares, Enter Into this Agreement and Other Issues
Related to this Transaction
C. Certificate of Incorporation and By-Laws of the Company 2.3.
D. Listing of Exemptions to Filing of Tax Returns 2.6.
D1. Listing of Material Adverse Changes, Suits and Claims 2.7.2.
2.8
E. List of Officers, Directors and Shareholders of the Company 2.11.
F. Release of the Company by Seller 2.13.
G. List of Permits and Licenses and Related Approvals 2.17.
H. List of Real Property 2.18.
I. List of Personal Property 2.19.
J. List of Service Contracts performed by the Companies 2.20.
K. List of Leases for Real Property 2.21.1.
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<PAGE>
L. List of Leases for Personal Property 2.21.2.
M. List and copy of Licenses, Franchises, Assignments or Agreements 2.21.3.
relating to Trademarks, Trade names, Copyrights, Patents, Service
Marks, etc.
0. List and copy of Employment and Consulting Agreements 2.21.4.
P. List of Agreements for Purchase of Goods, Materials and Services 2.21.5.
Q. List and copy of Notes, Guarantees 2.21.6.
R. Material Contracts in excess of $5,000.00 2.21.7.
S. List of Insurance 2.22.
T. List of Employee Benefits 2.23.
U. List of Accrued Vacation, Sick Leave, and Bonus 2.24.5.
V. List of Employees 2.24.6.
W. List of Patents and Trademarks 2.24.7.
X. List of Deposits 2.26.
Y. Tax Treatment
Z. Colorado Counsel Opinion
</TABLE>
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<PAGE>
AMENDED STOCK PURCHASE AGREEMENT
FOR HARBOR CITY CORPORATION
THIS AGREEMENT made this 18th day of May, 1998, by and between Carnegie
International Corporation, a Colorado Corporation (hereinafter referred to as
"Carnegie") and Harbor City Corporation, t/a ACC Telecom, a Maryland Corporation
(hereinafter referred to as "ACC") and Barry N. Hunt, an individual, and Susan
B. Hunt, an individual (hereinafter Barry N. Hunt and Susan B. Hunt shall
collectively referred to as the "Hunts").
RECITALS
WHEREAS, Carnegie, ACC and Hunts entered into a Stock Purchase
Agreement dated May 18, 1998 for the purchase of Harbor City Corporation (the
"Agreement") from the Hunts effective as of February 28, 1998; and
WHEREAS, the parties wish to amend the Agreement to reflect the actual
date on which management and control was vested with Carnegie; and
WHEREAS, the Parties hereto agree that except as provided herein to the
contrary, the terms and conditions contained in the Agreement, which is
incorporated herein by reference and made a part hereof, shall remain unchanged;
and
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the receipt and sufficiency of which are hereby acknowledged
by the Parties hereto the Parties hereby agree as follows:
1. Recitals. The above recitals constitute a substantive and binding
component of this Agreement.
2. Effective Date for Transfer of Management and Control. The Parties
hereto agree that the effective date for transfer of management and control of
ACC shall be as of February 1, 1998, the date that Carnegie began managing and
operating ACC.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date first above written.
ATTEST: CARNEGIE INTERNATIONAL CORPORATION
/s/ /s/ Lowell Farkas (SEAL)
Lowell Farkas, President
<PAGE>
ATTEST: HARBOR CITY CORPORATION, t/a ACC
TELECOM
/s/ /s/ Barry N. Hunt (SEAL)
Barry N. Hunt, President
WITNESS:
/s/ /s/ Barry N. Hunt (SEAL)
Barry N. Hunt, Individually
/s/ /s/ Susan B. Hunt (SEAL)
Susan B. Hunt, Individually
- 2 -
EXHIBIT 10.15
<PAGE>
BUY-BACK/SELL-BACK AGREEMENT FOR PURCHASE
OF HARBOR CITY CORPORATION
THIS AGREEMENT made this 18th day of May, 1998, by and between Carnegie
International Corporation, a Colorado Corporation (hereinafter referred to as
"Carnegie"), Harbor City Corporation, t/a ACC Telecom, a Maryland Corporation
(hereinafter referred to as "ACC") and Barry N. Hunt, an individual, and Susan
B. Hunt, an individual, (hereinafter Barry N. Hunt and Susan B. Hunt shall
collectively be referred to as the "Hunts").
WHEREAS, the Hunts own One Hundred percent (100%) of the stock and
assets of ACC; and
WHEREAS, Carnegie desires to purchase and the Hunts desire to sell One
Hundred percent (100%) of the stock of ACC (the "Shares"); and
WHEREAS, Carnegie owns certain proprietary software through its wholly
owned subsidiary Profit Thru Telecommunications Limited ("PTT") including
Multi-Language Automated Voice Intelligent System ("MAVIS") Software; and
WHEREAS, Carnegie and the Hunts intend to execute a Stock Purchase
Agreement simultaneously with the execution of this Agreement which facilitates
ACC serving as the exclusive marketing agent of MAVIS in North America.
WHEREAS, Carnegie and the Hunts desire that under certain circumstances
that Hunts may Buy-Back the Shares or Carnegie may sell the Shares back to the
Hunts.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the Parties do hereby agree as follows:
<PAGE>
1. PURCHASE PRICE: The Purchase Price of the Shares of ACC shall be as
set forth in the Stock Purchase Agreement.
2. BUY-BACK/SELL-BACK: For a period of twenty-four (24) months from the
date of this Agreement, Barry Hunt shall have the option to exercise a Buy-Back
of the Shares from Carnegie and Carnegie shall have the option to exercise
Sell-Back of the Shares to the Hunts as follows:
A. Carnegie shall have the right to exercise a Buy-Back if ACC is
unable to meet its obligations as they become due or does not have sufficient
cash flow to pay expenses for more than two (2) consecutive months.
B. Hunt shall have the option to Buy-Back and Carnegie shall have
the right to Sell-Back the Shares if MAVIS cannot be sold on a wholesale and/or
retail basis after the exercise of reasonably diligent marketing efforts. At a
minimum, reasonably diligent marketing efforts shall consist of Barry Hunt
contacting phone system manufacturers and suppliers of ACC, including but not
limited to Comdial, Sprint, Sony and their distributors and the like, phone
dealers with whom Hunt is associated through common manufacturers or
distributors, existing customers of ACC, new customers of ACC and other phone
business associates of ACC and making a reasonably diligent good faith effort to
explain the MAVIS product and set up an appointment to demonstrate the product
to all such persons and or entities.
C. In the event the Hunts or Carnegie exercise their respective
options to exercise Buy-Back or Sell-Back of the Shares, as the case may be, the
following events shall occur:
- 2 -
<PAGE>
(1) The Party exercising the Buy-Back or Sell-Back option
shall give thirty (30) days prior written notice to the other Parties hereto of
said Party's intent to exercise said option, the closing for which shall occur
within thirty (30) days after the date of receipt of said notice by the
non-exercising Party (hereinafter referred to as the "Buy-Back Date"), unless
another date is agreed to in writing by each of the Parties hereto.
(2) The restricted preferred stock paid to the Hunts for the
Shares pursuant to Section 1.3 of the Stock Purchase Agreement shall be canceled
effective as of the Buy-Back Date and the stock certificate representing the
restricted preferred stock shall be returned to Carnegie. If the restricted
preferred stock has converted to Rule 144 Legend Common Stock, these Shares of
Rule 144 Legend common stock shall be transferred to Carnegie or its designee on
the Buy-Back Date.
(3) The Employment Agreement between ACC and Barry Hunt and
Susan Hunt, if any, provisions related thereto contained in other Agreements
between any of the Parties hereto shall be canceled, null and void and of no
further force and effect as of the Buy-Back Date, except for those provisions
that relate to disclosure of information.
(4) The unpaid portion of the One Million Dollar
($1,000,000.00) consideration specified in Section 1.3 of the Stock Purchase
Agreement for the purchase of the Shares shall no longer be due and payable and
shall be canceled and of no further force and effect as of the date of receipt
of notice of exercise of Buy-Back by the non-exercising Party.
- 3 -
<PAGE>
(5) A License Agreement shall be negotiated in good faith
between ACC and Carnegie within sixty (60) days of the notice of exercise of
Buy-Back date that allows ACC to market the MAVIS product.
3. RESTRICTION ON TRANSFER: For the twenty-four (24) month period
commencing on the Closing Date under the Stock Purchase Agreement, Carnegie will
maintain ACC as a wholly owned subsidiary of Carnegie, and will not sell,
transfer or encumber the Shares of ACC, the Premises or the Property, merge ACC
into another entity or otherwise transfer the Shares of ACC, without the prior
written consent of Barry Hunt.
4. SEVERABILITY: In the event any portion or provision of this
Agreement shall be deemed or adjudged to be illegal or unenforceable, the
remaining portions or provisions of this Agreement shall continue with full
force and biding effect as if the portio so adjudged or deemed illegal or
unenforceable were not originally a part hereof.
5. CAPTIONS: The sectional or marginal titles or captions contained
herein shall be used for convenience and easy reference only, and shall in no
way define or limit the substance of any provisions or sections hereof.
6. AGREEMENT BINDING: This Agreement shall inure to the benefit of the
Parties hereto and shall be binding upon them, their successors, officers,
directors, and assigns. This Agreement constitutes the entire Agreement between
the Parties, and no other promises or inducements have been made other than as
specifically set forth herein. This Agreement shall only be amended or modified
by a written instrument signed by the Parties hereto. This Agreement shall be
construed and interpreted in accordance with the Laws of the State of Maryland.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
ATTEST: BUYER: Carnegie International Corporation
/s/ BY: /s/ Lowell Farkas (SEAL)
Lowell Farkas, President
ATTEST: Harbor City Corporation, t/a ACC Telecom
/s/ BY: /s/ Barry N. Hunt (SEAL)
WITNESS: SELLERS:
/s/ BY: /s/ Barry N. Hunt (SEAL)
Barry N. Hunt
/s/ BY: /s/ Susan B. Hunt (SEAL)
Susan B. Hunt
- 5 -
EXHIBIT 21.1
<PAGE>
Subsidiaries of the Registrant
1. Profit Thru Telecommunications (Europe) Limited
2. Talidan Limited
3. Harbor City Corporation, t/a ACC Telecom
4. Talidan USA, Inc.
5. Victoria Station Miami, Inc.
6. Electronic Card Processing, Inc.
<PAGE>
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(Replace this text with the legend)
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<NAME> CARNEGIE INTERNATIONAL CORPORATION
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