SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
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
(Title of Class)
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Introductory Statements
Carnegie International Corporation (the "Corporation") has prepared and
filed this Form 10-SB/A on a voluntary basis to make available reportable
information about the Corporation to existing shareholders and others interested
in the activities of the Corporation. The Corporation will continue to
voluntarily file periodic reports in the event its obligation to file such
reports is suspended under the Securities Exchange Act of 1934, as amended.
This registration statement on Form 10-SB/A (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 suspended by the
State of Colorado for the failure to file its Corporate Report, to appoint and
maintain a registered agent in Colorado and to pay certain fees. The Corporation
allowed its charter to be suspended because it was not business at the time. In
August 1994, the Corporation's former president caused the Corporation's charter
to be reinstated by filing a Certificate of Renewal, obtaining a registered
agent, The CT Corporation, and paying the requisite fees to the State of
Colorado in the hope of arranging a transaction pursuant to which the
stockholders might receive some value. At that
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time, the name of the Corporation was changed to "A&W Corporation, Inc." because
the Solenergy Corporation name was not available and to reflect that the
Corporation was not active in the solar energy business. A&W Corporation, Inc.
did not conduct any business until February, 1996.
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.
Recent Transactions
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.
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In implementation of that business strategy, the Corporation effected in the
period from April 1997 to January 1999, the following transactions.
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 the ownership of
DAR's non-grip technology was not consistent with its telecommunications
strategy. TimeCast Corporation (TimeCast"), a Nevada corporation, was formed by
the Corporation to act as a holding company for DAR and to be utilized to
acquire other businesses. The 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 Tiller and its stockholders (the "Tiller Group") and 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.)
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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 ("MAVIS(TM)") for commercial use. (See Business -
PTT"). Talidan is a telecommunications company with its principal place of
business on the Isle of Man. Talidan 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").
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 Preemption Options were not
fully exercised by the third anniversary of the date of issue, the holders
could, 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 "Put Options"). The
Corporation had recorded in its financial statements a liability representing
these put options of $3,756,574 which was the discounted value of the stock
options utilizing a 10% discount rate over three years.
In December 1998, the Tiller Group (i) sold all of its Common Stock of
the Corporation, warrants and options (retaining only 2,500,000 shares of the
Corporation's Common Stock) to private primarily offshore investors, and (ii)
surrendered the Put Options in exchange for rights to sell MAVIS(TM) exclusively
in the former Soviet Union, Poland, Hungary, Czech Republic and other countries
of the Eastern Block. In addition, Tiller acquired for nominal consideration
non-exclusive rights to sell MAVIS(TM) in Italy, subject to minimum sales
requirements and to Eudora (an Internet service provider) subscribers.
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 convertible into not less than 2,000,000 shares of
Common Stock, and $1,000,000 payable in 20 equal quarterly installments over a
five year period. ACC is a telephony dealer engaged in the sale, installation
and servicing of telephone equipment and, in addition, will market MAVIS(TM) and
the software products developed by PTT. (See "Business - ACC" and Item 8.
"Description of Capital Stock").
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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"), who owned 100% of the common stock of ACC. 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. The Corporation does not believe that the Buy-Back
option will be exercised by the Hunts because the Corporation is in the process
of establishing a national dealer network for MAVIS(TM) and does not believe
that it will exercise the Sell-Back option because of ACC's profitability.
Acquisition of Voice Quest, Inc.
On November 20, 1998, the Corporation acquired all of the stock of
Voice Quest, Inc., a Florida corporation ("Voice Quest"), with its principal
place of business in Sarasota, Florida, for 21,600 shares of Series E Preferred
Stock (convertible into 216,000 shares of Common Stock), 230,000 shares of
Common Stock and $102,084 payable in 12 equal quarterly installments over a
three year period. Voice Quest engages in the development and marketing of
interactive voice response software products and a voice recognition software
product similar to MAVIS(TM). (See "Business - Voice Quest" and Item 8.
"Description of Capital Stock ").
Acquisition of RomNet, Inc.
On December 1, 1998, RomNet Support Services, Inc., a Massachusetts
corporation and wholly owned subsidiary of the Corporation ("RomNet"), acquired
all of the assets of RomNet, Inc., a Massachusetts corporation with its
principal place of business in Boston. The consideration paid for these assets
was 52,500 shares of Series F Preferred Stock (convertible into 525,000 shares
of Common Stock), 330,786 shares of Common Stock and the assumption of certain
debt in the amount of $423,186. RomNet provides technical support and services
for software and hardware products, beta testing and Internet support, as well
as product sales and fulfillment. (See "Business - RomNet" and Item 8.
"Description of Capital Stock").
Letter of Intent with Paramount International Telecommunications, Inc.
On December 15, 1998, the Corporation executed a letter of intent to
acquire Paramount International Telecommunications, Inc. ("PITI"), a Nevada
corporation, which provides telecommunications services to the hospitality,
health care and pay-telephone industries, primarily in O+/- call auditing and
international one-plus sectors, in the United States, Mexico and Canada. The
purchase price of the business, if consummated, will be $1,500,000 in cash and
1,000,000 shares of Series G Preferred Stock, convertible into 10,,000,000
shares of Common Stock, subject to certain adjustments. The Corporation will
also assume a debt of PITI to a trust in the amount of $1,244,683, which debt
will be convertible into Common Stock at the discretion of the trust
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based on the market value of the Corporation's Common Stock for the 20 days
prior to conversion, less a discount of 25%. At the closing of the transaction,
the PITI stockholders will be entitled to convert shares of Series G Preferred
Stock into up to 2,000,000 shares of Common Stock, and any shares received upon
such conversion will have demand registration rights. PITI markets private
branch exchange ("PBX") systems, which operate as the primary systems used by
hotels to provide telephone-related services to their guests, as well as to
produce the information necessary to bill guests for telephone calls and to
properly manage telecommunications services in the hotel. PITI is also an
Operator Service Provider, providing domestic and international clients with
operator services (both live and automated) and billing services for
long-distance collect calls for the pay-telephone industry.
Letter of Intent with The Phone Stop, Inc.
On January 27, 1999, the Corporation executed a letter of intent to
acquire all of the assets of The Phone Stop, Inc. ("The Phone Stop"), a Chicago
telephony company engaged in sales of Ameritech cellular phones and service, as
well as answering machines, cordless phones, pagers and related residential
phone products. The Phone Stop receives commissions for activations and residual
payments for ongoing cellular service. The purchase price for the business, if
consummated, will be 500,000 shares of the Corporation's Common Stock. The
letter of intent includes a sell back provision which permits the Corporation,
at its option, to reverse the transaction in the event that the current and
future business of TeleResources, Inc., an Illinois corporation and an affiliate
of The Phone Stop, is not acquired in the transaction. TeleResources, Inc., is
primarily engaged in (i) the sales and service of Comdial phone equipment, with
its major accounts including the City of Chicago, the United States Navy and
Mil-Tel Communications; and (ii) sales of Ameritech network products and usage
contracts.
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 $325,000 and 25,000 shares of the
Corporation's common stock.
Scoggin, Alexander & Associates, Inc.
On July 15, 1998, the Corporation entered into a Consulting Agreement
with Scoggin, Alexander & Associates, Inc. ("SAAI"), formerly known as The
Vadiari Group International. The Corporation engaged SAAI to consult with the
Corporation regarding investor relations matters and represent the Corporation
in investors' communications and public relations with existing shareholders and
investment professionals. In exchange for its services under the consulting
agreement, SAAI received 200,847.5 shares of Series B Preferred Stock,
convertible into 2,000,475 shares of common stock of the Corporation with
piggyback registration rights.
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Pursuant to the Consulting Agreement, the Series B Preferred Stock became
convertible upon the share price of the Common Stock maintaining an average
(bid) trading price of $2.00 per share for a period of at least 30 days. This
condition has been satisfied.
Business
General. The Corporation is a holding company that owns 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, the provision of technical support, beta
testing and Internet support for telephone related computer 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").
The Corporation has thirteen full-time employees.
Stockholders. As of December 31, 1998, the Corporation had 49,508,053
shares of Common Stock issued and outstanding and held by 1079 stockholders and
200,000 shares of Series A Preferred Stock held by the former owners of ACC;
200,847.5 shares of Series B Preferred Stock held by SAAI; 21,600 shares of
Series E Preferred Stock held by the former owners of Voice Quest; and 52,500
shares of Series F Preferred Stock held by the former owners of RomNet.
PTT
General. PTT is engaged in the development and marketing of IVR
software products and MAVIS(TM), into 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 MAVIS(TM) can operate in any language that
Lernout and Hauspie's speech recognition platform
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supports, which currently includes "American" English, "British" English,
French, Spanish, Portuguese, Italian, Russian 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 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 the United States. PTT is currently seeking
marketing partners throughout the United Kingdom and Europe and the Corporation
and ACC are doing the same throughout the United States. The Corporation has
entered into a Distributor Agreement with ALLTEL Supply, Inc., a business unit
of ALLTEL Corp, an information technology company that provides wireline and
wireless communications and information services, and is also a leading
distributor of communications and data networking equipment for data network
service providers and end users. ALLTEL Corp. is a major distributor of
Panasonic, Comdial and Lucent telecommunications equipment and had total
revenues of $5.2 billion for 1998. ALLTEL Supply, Inc. is one of the nations
leading providers of telecommunications and data communications products.
Pursuant to the Distributor Agreement, ALLTEL Supply, Inc. will market MAVIS(TM)
throughout the United States, including to its affiliates. The Corporation has
already received a $100,000 initial order from ALLTEL Supply, Inc. for MAVIS(TM)
software. The Corporation will also market MAVIS(TM) through ACC's existing
relationship with Comdial dealers, as well as through other telephony companies
if acquired in the future..
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. Currently, the Corporation is concentrating on marketing MAVIS(TM)
in the United States and does not have an expected date for the Corporation to
commence the marketing of the IVR software in the United States. These products
include 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 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
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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.
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.
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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. The current competition with MAVIS(TM) is a similar
voice recognition system developed by Voice Quest, which the Corporation has
acquired. However, the Corporation believes that other larger companies
including Voice Control Systems, Registry Magic and General Magic are attempting
to develop voice recognition software systems. The Corporation's new
relationship with ALLTEL Supply, Inc., one of the nation's leading providers of
telecommunications and data communications products, will greatly increase the
Corporation's ability to compete with other large telecommunication dealers that
enter the market in the future. 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 for the OrderMaster(TM) 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 is in the process
of filing new patent applications for MAVIS(TM) and for a number of the other
IVR software products in England and under the Patent Cooperation Treaty. The
patent applications will probably be filed in the first quarter of 1999 and the
Corporation believes that it is likely that it will obtain the patents for
MAVIS(TM), the other IVR software products and the CTI products. The Corporation
otherwise relies on a combination of copyright,
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trademark and trade secret laws, nondisclosure and other agreements and
technical measures to protect its proprietary technology. Two applications for
trademark registration are currently pending in the United States Patent and
Trademark Office covering the mark "MAVIS" in ordinary block letters and in a
stylized form. 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 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 of which five are
full-time and three are part-time, 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. Michael R. Faulks, a Vice President of the
Corporation, is the creator of MAVIS(TM) and serves as the Technical Director of
PTT.
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 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. The domestic carrier in Brazil has
agreements with advertising merchants to provide the television advertisements
on behalf of the local carrier and Talidan. 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 because the print media was available
to the general population, including children, unlike the television
advertisements which target adults only and are displayed only late at night,
the print media 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") and retained its business derived from the television media. The Buyer
intends to hire
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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 installment has been paid.
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 nine months ended September 30, 1998 and $400,000
for the year ended December 31, 1997.
Talidan is currently generating call traffic only in Brazil. Talidan is
currently terminating its call traffic in Sao Tome and Brazil.
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 individuals providing administration
services in Brazil and the United Kingdom are all paid pursuant to consulting
agreements. Talidan relies on outside sources for its sales, marketing and
advertising. Antony Redfern, a Vice President of the Corporation, serves as a
consultant to Talidan pursuant to an oral agreement and is paid a consulting fee
of $105,000 per year. 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, including Johns Hopkins Hospital, the American Red
Cross and the National Security Agency.
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ACC's major revenues are derived from the sale, installation and
servicing of Comdial telecommunications equipment, which accounted for
approximately 97% of revenues in 1998. Comdial is a major manufacturer of
business telecom systems in the United States and in 1998 ACC Telecom was its
second largest commercial dealer. ACC also purchases equipment from Sprint's
North Supply and ALLTEL Corp. In 1998 ACC had 32 customers with sales of more
than $15,000 including the American Red Cross, the Maryland Procurement Office,
Search Consultants, and the Twigg Corporation.
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 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.
In the past few years, ACC has significantly increased its business in
Northern Virginia. As a result, ACC has opened a branch in Fairfax, Virginia to
be able to more expeditiously serve its growing customer base in that area and
is planning to open a branch in Delaware in February.
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
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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 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 employs 35 full-time personnel, including nine in
administration, nine in sales and seventeen in service. ACC has never had a work
stoppage and none of its employees are represented by a labor organization.
Concurrent with the ACC acquisition by the Corporation, ACC entered into a five
year employment agreement with Barry Hunt to serve as President of ACC. That
agreement provides for an annual salary of $125,000, plus a commission of 17.5%
on the gross profits generated from MAVIS(TM) sales through ACC, up to a maximum
of $200,000 in commissions in any one year. In the event the rights to MAVIS(TM)
are sold to an entity for which Mr. Hunt provided the lead, he shall receive a
sales commission of nine percent (9%) of the sales price. If the rights to
MAVIS(TM) are sold in North America and Mr. Hunt did not directly provide the
lead, he shall receive a commission of three percent (3%) of the sales price.
The Corporation is not a party to the employment agreement and is not
responsible for compliance with the terms entered into by ACC.
Voice Quest, Inc.
General. Voice Quest is a developer and provider of speech recognition
and voice mail technologies and products. Voice Quest's main product is the
Personal Operator(TM) which is an automated attendant system similar to
MAVIS(TM), except that it is not a multi-lingual product and has fewer
capabilities. However, the Personal Operator(TM) has voice mail capabilities not
available with MAVIS(TM). Personal Operator(TM) enables the routing of inbound
calls and faxes using speech recognition technology. It enables voice
interaction between the caller and the system. It offers call routing by person
or department name, automatic directory routing by first then last name, and
automatic fax routing by stating the intended recipient's name and then pressing
the fax start button. The Personal Operator(TM) has a new QuickMessage
interface, which is a special call screening application that lets a person
communicate to callers with a short message without having to take the call. The
Personal Operator(TM) also features follow me calling, message delivery, message
center, internal and external paging, multiple phones per user or multiple users
per phone. Personal Operator(TM) is used on PBX equipment and functions similar
to MAVIS(TM).
In addition to the Personal Operator(TM), Voice Quest's other products
include a database query product and a prescription refill system. The database
query product is an IVR software which provides instantaneous automated speech
recognized databases similar to the OrderMaster(TM).
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Voice Quest's activities over the past few years have been primarily in
the development stage and the company has only recently begun in the marketing
of its products. As a result, the revenues through 1998 have been minimal.
Competition. Currently, the only real competition with Personal
Operator(TM) is MAVIS(TM). However, the Corporation believes that Voice Control
Systems, Registry Magic and General Magic, which are larger corporations, are
attempting to develop speech recognition software.
Intellectual Property. The Corporation 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 technologies having similar performance
characteristics.
Employees. Voice Quest has no employees other than its president, Mark
Ortner, who is the founder of Voice Quest and the developer of all of Voice
Quest's speech recognition and voice mail technology, including the Personal
Operator(TM). Mr. Ortner has a five (5) year employment agreement with Voice
Quest at a salary for the first year of $75,000, $87,500 for the second and
$100,000 for the balance of the term. Mr. Ortner will receive a bonus of three
percent of the gross profit generated by Voice Quest from the sale of the
Personal Operator(TM) or MAVIS(TM), to be paid 50% in cash and 50% in stock of
the Corporation. The agreement also includes a $50,000 signing bonus, $25,000 at
signing and $25,000 in three months. The Corporation will fund Mr. Ortner's
salary on a loan basis until the revenues of Voice Quest are sufficient to
support such obligation.
RomNet, Inc.
General. RomNet is engaged in the business of providing technical
support services for software and hardware, beta testing services, and Internet
support and services. RomNet's major clients include: Macmillan Publishers,
which is based in the United Kingdom; Arthur Andersen LLP; Yahoo! Inc. and the
Yahoo! Store; Pitney Bowes; Scientific American Magazine; the American College
of Cardiology; Aztech New Media; and Nature Science Magazine. Global technical
support for software and hardware comprises about 60-65% of RomNet's services.
This technical support is provided globally--RomNet provides technical support
in western Europe via e-mail and in the United States and Canada via the
telephone. In addition, 5-10% of its services are for beta testing, which tests
new products prior to distribution.
The Internet support and services comprise 20-25% of RomNet's business.
These include web design, web hosting, technical support for Internet related
services including e-commerce transactions via the Internet, TCP/IP or
connectivity and various browsers. RomNet intends to support more Internet
related activities and e-commerce related activities in the future.
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An additional 5% of RomNet's business is made up of product sales and
product fulfillment. Providing technical support affords the opportunity to sell
products available from its clients or to offer discounts and promotions. RomNet
also fulfills product orders for its clients, serving as a telephone
distribution channel to supplement primary retail channels of its clients. In
this capacity, RomNet employs the latest technology in order fulfillment, credit
card authorization and secure electronic commerce.
RomNet has a total of 28 customers and supports over 200 products from
various software, hardware and Internet companies. Products range from business
and financial applications from Pitney Bowes and Arthur Andersen to
"edutainment" titles for children from Houghton Mifflin Publishing and Hasbro
Interactive. RomNet assigns a project manager for every client, who becomes an
expert on that client's particular product. Along with a core group of
technicians, RomNet provides professional quality, support and courteous
customer care.
RomNet's revenues for 1997 were $1,776,580 and for 1998 were
$1,072,471. The decline in revenues was attributable primarily to excessive
services required to be delivered, which were not provided for in RomNet's
original contract with a client, which resulted in the premature termination of
a support agreement with that client.
Employees. Currently, there are 32 employees, 29 of which work
full-time, including several college students. Nick Gentile, the President of
RomNet, has a one year employment agreement providing an annual salary of
$85,000 and a performance-based bonus. The agreement also provides stock options
to purchase 85,000 shares of Common Stock of the Corporation at the exercise
price of $1.07 per share. The agreement is automatically renewable for
continuous one-year terms unless RomNet gives 90 days notice that the agreement
will not be renewed.
Competition. There are many companies in the marketplace that offer
technical support services similar to RomNet. Many of the larger outsourcing
companies like Sykes Enterprises, Keane Inc., Stream International, and 800
Support are large enough to have offices across the United States and overseas
and are able to provide their services to major companies of the size of
Microsoft, Lotus and Oracle. RomNet targets privately held software/hardware
developers as well as those Fortune 500 companies which are relatively new in
the technological area. RomNet believes it offers a more customized approach to
technical support and customer service than the competition. RomNet further
believes that it is this flexible approach to the business relationship that has
attracted its clients like Arthur Andersen, Macmillan Publishers, and others, to
RomNet.
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
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restaurant attracts a diverse mix of customers, including professionals and
families, near Miami International Airport.
Lowell Farkas, the President and Chief Executive Officer of the
Corporation, has extensive experience in the restaurant business. Prior to
joining the Corporation, Mr. Farkas served as President and Chief Executive
Officer of Mad Martha's Ice Cream, Inc. from 1995 to 1996. From 1993 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. He also served as the
Executive Vice President of Horn & Hardart Company and Chief Operating Officer
of its food service division from 1973 to 1982.
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.
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
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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; in February 1998, the
Corporation acquired ACC; in November 1998, the Corporation acquired Voice
Quest; and in December 1998, the Corporation acquired RomNet.
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 nine 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 two automated voice independent systems known as "MAVIS(TM)"
and "Personal Operator(TM)", (ii) the promotion of international telephone
traffic through the marketing of information and entertainment services, (iii)
the provision of Internet support services, beta testing services and technical
support for telephone related computer services, including software and hardware
products and (iv) 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
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provide funding to the Corporation until the telecommunications businesses
become self- sustaining.
The Corporation expects that its marketing of voice recognition
systems, IVR software and CTI products developed by PTT and Voice Quest have the
greatest immediate 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 ALLTEL Supply Inc. and
international distributors and through the clients of telephony companies that
it owns or acquires. The Corporation's acquisition of Voice Quest, together with
PTT, can provide the Corporation with the benefits to be derived from having two
of the outstanding pioneers in the field of voice recognition systems running
these two entities and collaborating on future product development and
enhancement. The acquisition of PTT and Voice Quest affords the Corporation the
opportunity to market voice recognition systems to large companies requiring
highly sophisticated systems as well as small and medium size businesses seeking
affordable systems. 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.
Voice Quest has developed a database query product and a prescription refill
system, both IVR telephone software products. 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. PTT's
contributions to revenues were $14,400 in 1997 and $155,400 for the nine months
ended September 30, 1998. The Corporation expects PTT's IVR programs and
MAVIS(TM) and Voice Quest's Personal Operator(TM) to be the major contributors
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 nine months ended on September 30, 1998, the Corporation does not
believe that any comparison of results of 1997 to 1996 or the nine months ended
on September 30, 1998 to the nine months ended on September 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.
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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.
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, arising as a result of the
spin-off of DAR, 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.
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Nine Months Ended September 30, 1997
The Corporation had revenues of $5,242,300, of which $5,002,675 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 nine
months ended September 30, 1997 were $784,517, operating expenses were
$1,728,139 interest expense was $44,531 and provision for income taxes was
$184,516 resulting in the Corporation generating net income for the nine months
ended September 30, 1997 of $2,400,267. ECAC's contribution to income before
income taxes for the period was $3,388,990.
The profits realized from the operations of ECAC were used by the
Corporation in pursuing the acquisition of businesses in the telecommunications
industry.
Nine Months Ended September 30, 1998
The Corporation realized operating revenues for the nine months ended
September 30, 1998 of $7,321,429 including $2,340,000 from the sale of a portion
of the business of Talidan. Cost of fees and sales for the nine months ended
September 30, 1998 were $3,776,758, operating expenses were $3,976,880, interest
expense (net of interest income) was $81,141 and the provision of income taxes
was $1,022,581, resulting in the Corporation realizing net income of $2,507,820.
Income taxes increased over the preceding period due to changes made in the
estimated effective income tax rate of the Corporation for the year ended
December 31, 1998.
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 MAVIS(TM) system to
customers who have existing telephone systems. The revenues of ACC for the nine
months ending September 30, 1998 of $3,019,666 did not include sales of the
MAVIS(TM) 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 MAVIS(TM) system to
market. The loss of PTT consists of the operating costs of that company that are
not subject to deferral to later periods.
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The contribution (loss) of the Corporation and of each operating
subsidiary to revenues and income before income taxes for the nine months ended
September 30, 1998 were as follows:
Income
Revenues Before Taxes
-------- ------------
Carnegie $ 10,878 $ 732,292 1
PTT 155,400 (300,183) 2
Talidan 2,620,374 2,407,494
Victoria 1,535,111 (28,202)
ACC 3,019,666 719,010
--------------- -------------
$ 7,341,429 $ 3,530,401
=============== =============
- ----------------------------------
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.
2 Includes gain on sale of Talidan phone lines and proceeds of covenant not
to compete.
Plan of Operations
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), its 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 particularly in Europe. 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) and the Corporation has begun to establish a
national dealer network for MAVIS(TM) through its agreement with ALLTEL Supply,
Inc. The Corporation's initial focus is to market MAVIS(TM) in the United States
and then market PTT's IVR software products throughout the United States. At
that time, these products may 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 $2,551,776
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.
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ACC
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 opened its first
branch office in Fairfax, Virginia on January 7, 1999 in order to better serve
its increasing business in Northern Virginia and plans to open a branch in
Delaware in February 1999. Through September 30, 1998, ACC's revenues were
substantially ahead of 1997 being $1,535,111 compared to $1,530,634 for all of
1997.
Voice Quest
Voice Quest will continue to develop it existing product line and
market it through the Corporation's domestic and international distribution
systems. Additionally, the technological advancements created by Voice Quest,
particularly in adding valuable features to voice mail, will be used to
complement and strengthen MAVIS(TM).
RomNet
RomNet will continue to provide a broad range of high-end technical
services to its current base of clients and will attempt to generate additional
business, particularly through its Internet support and services, including
e-commerce related activities.
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 has presently delayed seeking to enlarge this customer base because
it is focusing on its telecommunications strategy. 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.
- 24 -
<PAGE>
Acquisitions
In 1998, the Corporation acquired ACC, RomNet and Voice Quest. 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; the
provision of technical and Internet support services; the provision of operator
service and related products; 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 companies operating across the United
States. The Corporation has currently signed two letters of intent to acquire
such companies, however, the Corporation is uncertain as to the possibility of
acquiring either of the companies. The Corporation believes that the acquisition
of PITI would be material to the operation and financial condition of the
Corporation. 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, in addition to the national distribution by
ALLTEL Supply, Inc. The Corporation expects that it will take a combination of
stock and cash to acquire any of such 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 nine months ended September 30, 1998, the Corporation had a
cash flow from operations of $1,356,827, 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 amounted to $1,324,997 and $657,506 at December 31, 1997 and
September 30, 1998, respectively.
In addition, in 1997, the Corporation issued 2,290,145 shares of Common
Stock for services rendered valued at $448,177. For the nine months ended
September 30, 1998, the Corporation issued 2,252,844 shares of Common Stock for
services rendered valued at $712,869.
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;
Voice Quest was acquired for $102,084 payable over three years and stock; RomNet
was acquired for stock and the assumption of debt obligations of $423,186; 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
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<PAGE>
extent in the development of its various IVR software products. As of September
30, 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 1999 call for it to make additional
acquisitions of companies engaged in the sale, installation and servicing of
telephone systems and equipment, the provision of technical and Internet support
services or the provision of operator service and related products in other
areas of the United States in addition to the Mid-Atlantic region where the
Corporation currently owns an operating subsidiary. 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 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
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<PAGE>
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.
The Corporation believes that its leased premises are suitable for its
corporate headquarters and offices. The Corporation also believes that its
insurance coverage for its leased and subleased premises is adequate.
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. The new ACC branch currently leases 3,010 square
feet in Fairfax, Virginia. The lease term is for two and a half years and
expires on July 11, 2001 at an annual rent of $70,908.
Voice Quest currently leases 680 square feet in Sarasota, Florida. The
lease is a month to month, with a monthly rent of $783.
RomNet currently subleases 3,800 square feet in Boston, Massachusetts.
The sublease expires in October 2001 at an annual rent of $51,600.
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.
- 27 -
<PAGE>
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 December 31, 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.
5% Beneficial Owners Number of Shares Percent of Class
- -------------------- ---------------- ----------------
The Greater Metropolitan Corporation1 3,133,874 6.33%
333 7th Avenue
New York, New York 10001
- ----------------------------------
1 Leonard Mezi is the sole stockholder of The Greater Metropolitan
Corporation and controls the corporation.
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<PAGE>
Executive Officers and Directors Class
Number Percent
of Shares of Class
E. David Gable 1.......................... 1,748,000 2 3.53
Lowell Farkas 1........................... 725,000 1.46
Stuart L. Agranoff 1...................... 50,000 .10
Richard Cohen1 ........................... 80,000 .16
Lawrence E. Gable......................... 50,000 .10
Antony Redfern............................ 0 0
Richard J. Greene......................... 204,673 .41
Michael R. Faulks......................... 370,370 .75
Barry N. Hunt............................. 9,400 3 .02
All directors and executive officers
as a group (9 persons).................. 3,237,443 6.54
--------- ----
- ----------------------------------
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 Does not include 200,000 shares of Series A Preferred Stock convertible
into 2,000,000 shares of Common Stock on May 18, 2000.
- 29 -
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Directors and Executive Officers
The directors and executive officers of the Corporation are as follows:
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
Stuart L. Agranoff 49 Director
Richard M. Cohen 47 Director
Barry Hunt 51 Director
Michael R. Faulks 45 Vice President
Lawrence Gable3 52 Vice President and Acting Secretary
Antony Redfern 40 Vice President
Richard J. Greene 60 Chief Financial Officer and Treasurer
- ----------------------------------
1 As of December 31, 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.
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.
Barry N. Hunt has served as Director of the Corporation since October,
1998. Mr. Hunt also serves as the President of ACC. He is the co-founder of ACC
and has served as its President since 1979. Over the past 19 years with ACC, he
has compiled a database of 2,800 direct customers of ACC and 140 Interconnect
Telecommunications Companies in the United States and Canada.
Michael R. Faulks has served as a Vice President of the Corporation
since October 1998. Mr. Faulks is the creator of the MAVIS(TM) system and serves
as Technical Director of PTT, as well as a Director on the Board of PTT. As
Technical Director, Mr. Faulks is involved in the design and creation of the
Voice Response Services and manages a software development team. From 1990 to
1993, he served as the Managing Director of Software Marketing Corporation
Limited, a software development company in the United Kingdom. In 1992, Mr.
Faulks also became the Technical Director of CFS (Distribution) Limited, the
distributor for Software Marketing Corporation Limited. Prior to 1990, Mr.
Faulks served as the Technical Director for Applied Knowledge Limited (AKL). Mr.
Faulks is also a member of the MENSA Society.
Antony Redfern has served 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 has served as a Vice President of the Corporation
since May 1997 and as Acting Secretary since January 22, 1999. 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.
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<PAGE>
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 executive officers whose total annual
salary and bonus exceeded $100,000, for the years ended December 1998, 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> <C>
E. David Gable 1998 $200,000 $ -- $ -- $ -- 1,000,000 $ --
1997 225,000
1996 100,000
Lowell Farkas 1998 150,000 -- -- -- -- --
1997 125,000 400,000
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table contains information concerning the grant of stock
options to the Company's executive officers in 1998.
<TABLE>
<CAPTION>
Percent Of
Number of Total
Securities Options/SARs
Underlying Granted To Exercise Or
Options/SARs Employees In Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E. David Gable 1,000,000 80% $0.45 12/31/99
</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
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<PAGE>
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 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.
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<PAGE>
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 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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has a number of common officers, directors, and
relationships with TimeCast and DAR. E. David Gable, Director of DAR, serves as
the Corporation's Chairman
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<PAGE>
and Chief Operating Officer. Gary Dahne, Vice President of TimeCast and DAR,
manages investor relations issues for the Corporation. Donna Ruff, Secretary of
DAR, is an employee of the Corporation. With respect to Talidan, Antony Redfern,
a consultant to Talidan, serves as a Vice President of the Corporation.
The Corporation expects to continue its business relations with
TimeCast. The Corporation made loans to DAR to fund its operations since the
Corporation 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. The Corporation also has committed to assist TimeCast with
financial, administrative, and human resources support, until March 1999. The
Corporation anticipates that all future transactions with TimeCast will be
conducted on an arm's-length basis, on terms that the Corporation 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 Corporation determines whether it will make an
advance, attach any conditions or obligations to the advance, or what the
repayment obligations will be on a case by case basis. Typically, the advances
are made at the discretion of the executive officers. In the event a large
advance is to be made, then the board of directors must approve such advance.
The advances are made to help the Corporation's officers, directors and
employees in the time of personal need because the Corporation is unable to pay
at this time wages at industry standard. The highest advances made during the
last three years were $116,500 to E. David Gable, $175,000 to Scott Caruthers, a
former Director of the Corporation, and $46,664 to David Pearl, former Secretary
to the Corporation. To date, all advances have been paid back to the
Corporation. In the event of termination of employment, either voluntary or
involuntary, any advances made to such officers must be repaid at the time of
such termination. The table below sets forth for each of the officers and
directors receiving advances the amount of advances at the end of each of the
periods.
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 December 31, 1998,
the Corporation had 49,508,053 shares of Common Stock issued and outstanding and
had 1,079 shareholders of record; 200,000 shares of Series A Preferred Stock
issued to two shareholders of record; 200,847.5 shares of Series B Preferred
Stock, issued to one shareholder of record; 21,600 shares of Series E Preferred
Stock issued to two shareholders of record; and 52,500 shares of Series F
Preferred Stock issued to one shareholder of record. In addition, there are
outstanding warrants and options which were issued in connection with the
acquisition by the Corporation of PTT and Talidan.
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<PAGE>
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 the Corporation's shares
Tiller is to notify the Corporation and the members of the Board of Directors of
the Corporation will have a right of first refusal with respect to such shares
for an eight day period. The Directors of the Corporation 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, which was issued in
connection with the acquisition of ACC, 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 Stock and over subsequently issued Preferred
Stock, ranking in alphabetical order, in the event of a corporate liquidation.
The Series A Preferred Stock is not entitled to dividends.
Each outstanding share of Series B Preferred Stock, which was issued in
connection with the execution of the consulting agreement with SAAI, is entitled
to ten votes per share, not as a class, but along with the Common Stock. The
Series B Preferred Stock is currently convertible into 2,008,475 shares of
Common Stock. The Series B Preferred Stock is not entitled to dividends.
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<PAGE>
Each outstanding share of Series E Preferred Stock, which was issued in
connection with the acquisition of Voice Quest, is entitled to ten votes per
share, not as a class, but along with the Common Stock. The Series E Preferred
Stock is convertible on May 18, 2000 into 216,000 shares of Common Stock or
$270,000 worth of Common Stock based on the fair market value per share of
Common Stock on November 20, 2000, whichever is greater. The Series E Preferred
Stock is not entitled to dividends.
Each outstanding share of Series F Preferred Stock, which was issued in
connection with the acquisition of RomNet, is entitled to ten votes per share,
not as a class, but along with the Common Stock. The Series F Preferred Stock is
convertible on December 1, 2000 into 525,000 shares of Common Stock or
$7,000,000 worth of Common Stock based on the fair market value per share of
Common Stock on December 1, 2000, whichever is greater. The Series F Preferred
Stock has a preference over Common Shares at $1.33 per share and over
subsequently issued Preferred Stock, ranking in alphabetical order, in the event
of a corporate liquidation. The Series F 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 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 Exchange 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 ("Average Market Price"). 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. Some of the Exchange Options were exercised on November
11, 1998 and 1,250,000 shares of Common Stock were purchased for $1,250, based
on an Average Market Price of $1.00 per share. The remaining Exchange Options
were exercised on December 23, 1998 and 795,167 shares of
- 37 -
<PAGE>
Common Stock were purchased for $795.18, based on an Average Market Price of
$1.572 per share.
Preemption Options. The Corporation issued to the Tiller Group options
to purchase Common Stock at an exercise price of $.001 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 Preemption Options
is to be determined by dividing 2,500,000 by the Average Market Price. 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. The Preemption Options were exercised on
December 23, 1998 and 1,590,331 shares of Common Stock were purchased for
$1,590.33, based on an Average Market Price of $1.572 per share.
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 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.
The 300,000 shares of Common Stock issued to RomNet also have
"piggyback" registration rights. If the Corporation proposes to register any of
its shares, it has to so notify the holders of those securities not less than 20
days prior to the anticipated date of filing. The holders have 10 days to notify
the Corporation of the number of shares the holders want registered. The
Corporation will bear all expenses of registration other than the underwriting
commissions and the expenses of such holders' counsel.
- 38 -
<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 National Association of Securities Dealers ("NASD") Bulletin Board 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
---- ----
Price Range Price Range
----------- -----------
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 .73 2.45 .375 1.000
Holders. As of December 31, 1998, there were 1079 holders of record of
the Corporation's Common Stock. At such date, 49,508,053 shares of Common Stock
were issued and outstanding.
Dividends. As of January 1, 1999, the Corporation has declared no
dividends and is not likely to do so in the near future.
ITEM 2. LEGAL PROCEEDINGS
On July 22, 1998, the Corporation obtained an option to acquire
Advanced Networking, Inc. ("ANI"), a Delaware 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 was to issue 5,000 shares of the Corporation's common stock for the
option. The purchase price for the business, if consummated, would be $2,800,000
in cash or cash equivalents.
- 39 -
<PAGE>
The option's initial expiration date was October 31, 1998. However, the
Corporation believed that the option was mutually extended by the parties to
November 30, 1998. The parties were unable to reach agreement on the term of the
option or on the terms of acquisition. The Corporation believes that ANI is in
breach of the option. On December 22, 1998, the Corporation filed a complaint
(the "Complaint") in the Circuit Court of Baltimore County against ANI and the
stockholders of ANI (collectively, the "Defendants").
The Complaint asserts claims based on breach of contract, promissory
estoppel and misrepresentation. The Complaint seeks specific performance of the
option and/or compensatory damages in the amount of $3,000,000 for each claim
and $3,000,000 in punitive damages for the misrepresentation claim.
ITEM 3. CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS
Not Applicable.
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. Grandname, Ltd. is an off-shore entity and
all of its shareholders were off-shore residents. DAR had five shareholders, all
of whom were officers and directors of DAR. ECAC had two shareholders, one the
chief executive officer and a director and the other, an estate with
representation on the board of directors. All of the shareholders of DAR and
ECAC were accredited or sophisticated investors and each received a proxy
statement containing audited financial information. 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. The shareholder was an accredited
- 40 -
<PAGE>
investor. 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. Prior to the completion of the transactions, the recipients of
the shares received current financial information and performed a thorough due
diligence review of the Corporation.
(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 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 of Regulation D.
(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, one was an officer of the Corporation as
well as a sophisticated investor, two were executive officers or directors of
the Corporation, and therefore accredited investors, and the two other
purchasers were accredited investors. The sophisticated investor is the brother
of the CEO of the Corporation and had access to all corporate information. 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.
- 41 -
<PAGE>
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. The
recipients of the shares were accredited investors. 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 July 31, 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 of Regulation D.
(3)
(a) Through July 31, 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, who is now an employee of
the Corporation, four were relatives or friends of officers or the employees of
the Corporation who is now an employee 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. Of the 20
purchasers who were U.S. persons, thirteen were accredited investors and six
were sophisticated investors who received corporate information that was
provided by Standard and Poor's as well as financial statements and information
available on the Corporation's web site. 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) Between August 1, 1998 and December 31, 1998, the
Corporation sold 1,531,855 shares for an aggregate consideration of $706,378 in
cash or services to nine purchasers. Of these purchasers, two were executive
officers or directors of the Corporation, one was counsel to the Corporation,
and six 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. Of the nine purchasers, seven were
accredited investors
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<PAGE>
and two were sophisticated investors who received the Corporation's financial
statements and corporate information that was provided by Standard and Poor's.
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.
(4) On December 1, 1998, the Corporation issued to the owner of the
assets of RomNet, Inc. 300,000 shares of Common Stock and 52,500 shares of its
Series F Preferred Stock, in partial consideration for all of the assets of
RomNet, Inc. 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. The recipient of the shares was an
accredited investor. The recipient 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. Prior to the completion of the transactions, the recipient of
the shares performed a thorough due diligence review of the Corporation received
a copy of the Corporation's 10-SB filed on October 28, 1998.
(5) Through December 31, 1998, the Corporation sold 580,200 shares for
an aggregate consideration of $1,145,400 in cash to 44 purchasers. All of these
purchasers were accredited investors. These transactions were effected without
registration under the Securities Act in reliance upon the exemption provided by
SEC Rule 506 of Regulation D.
D. 1999
Through January 19, 1999, the Corporation sold 4,310,345 shares for an
aggregate consideration of $2,000,000 in cash to 2 purchasers. Both of these
purchasers were accredited investors. These transactions were effected without
registration under the Securities Act in reliance upon the exemption provided by
SEC Rule 506 of Regulation D.
Certain of the stock issuances pursuant to Rule 504 of Regulation D of
the Securities Act 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 all of such 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.
- 43 -
<PAGE>
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
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.
- 44 -
<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 nine months ended September 30, 1998
(unaudited) and 1997 and the years ended December 31, 1997 and 1996, including
the consolidated balance sheets at September 30, 1998 (unaudited) and December
31, 1997, and the related consolidated income statements and statement of
changes in shareholders' equity and cash flows for the nine months ended
September 30, 1998 and 1997 (unaudited) and the years ended December 31, 1997
and 1996.
Financial Statements
Corporation
Report of Independent Certified Public Accountants
Balance Sheet December 31, 1997
Statements of Operations for the years ended December 31, 1997 and
1996
Statements of Stockholders' 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 Valuation and Qualifying Accounts for the years
ended December 31, 1997 and 1996
Pro Forma Unaudited Condensed Statements of Earnings for the years
ended December 31, 1997 and 1996
- 45 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997 and 1996 and
September 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 OPERATIONS 6
STATEMENTS OF STOCKHOLDERS' EQUITY 7
STATEMENTS OF CASH FLOWS 8
NOTES TO FINANCIAL STATEMENTS 9
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
PRO FORMA UNAUDITED STATEMENTS OF EARNINGS
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF EARNINGS
<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 operations,
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>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
December 31, September 30,
ASSETS 1997 1998
------------------ ------------------
CURRENT ASSETS
Cash $ 226,422 $ 164,047
Certificate of deposit-restricted 400,000 --
Accounts receivable 761,464 1,291,662
Note receivable and accrued interest - affiliate -- 2,551,776
Loans receivable 10,200 9,557
Inventory 32,575 240,345
Prepaid expenses 24,620 207,031
----------------- ----------------
Total current assets 1,455,281 4,464,418
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 484,217 1,883,735
OTHER ASSETS
Security deposits and other assets 109,047 427,971
Accounts receivable - former subsidiary -- 1,475,012
Loans receivable - officers and employees 301,201 192,695
Intangibles, less accumulated amortization of $117,619
in 1997 and $521,058 in 1998 (unaudited) 6,487,587 6,777,441
----------------- ----------------
6,897,835 8,873,119
----------------- ----------------
$ 8,837,333 $ 15,221,272
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
------------------ ------------------
CURRENT LIABILITIES
Notes payable $ 803,752 $ 1,656,719
Current maturities of long-term debt 789,230 36,996
Current maturities of notes payable to stockholder
and affiliates 185,000 200,000
Accounts payable and accrued expenses 1,274,064 1,025,988
Income taxes payable 50,867 1,073,448
----------------- ----------------
Total current liabilities 3,102,913 3,993,151
LONG-TERM OBLIGATIONS
Long-term debt, less current maturities 169,612 261,671
Notes payable to stockholder and affiliates, less
current maturities -- 533,298
Put option obligation 3,756,574 4,143,419
----------------- ----------------
3,926,186 4,938,388
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $1 per share, 40,000,000
authorized shares; none issued at December 31, 1997,
200,000 issued at September 30, 1998 (unaudited) -- 200,000
Common stock, non par with a stated value of $0.01;
110,000,000 shares authorized; 38,835,486 issued and
36,057,467 outstanding at December 31, 1997 and 44,212,708
issued and 41,436,689 outstanding at September 30, 1998
(unaudited) 388,355 442,127
Additional paid-in capital 3,535,795 5,255,702
Accumulated (deficit) earnings (834,916) 1,672,904
----------------- ----------------
3,089,234 7,570,733
Less treasury stock at cost (2,778,019 shares) (1,281,000) (1,281,000)
----------------- ----------------
1,808,234 6,289,733
----------------- ----------------
$ 8,837,333 $ 15,221,272
================ ===============
</TABLE>
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited)
Years ended Nine months ended
December 31, September 30,
------------ -------------
1997 1996 1996 1997
---- ---- ---- ----
Revenue
Operating $ 3,245,810 $ 3,256,291 $ 7,341,429 $ 1,542,300
Sale of Service Contracts 3,700,000 -- -- 3,700,000
--------- --------- --------- ---------
6,945,810 3,256,291 7,341,429 5,242,300
Cost of fees and sales
Processing fees 183,117 1,051,421 -- 167,660
Commissions 1,103,889 1,298,851 1,652,219 502,957
Supplies 268,656 55,676 674,770 92,701
Equipment related expenses 28,919 99,421 1,449,769 19,020
Royalties 5,344 16,662 -- 2,179
--------------- ------------- ----------- -------------
Total cost of fees and sales 1,589,925 2,522,030 3,776,758 784,517
--------------- ------------- ----------- -------------
Gross profit 5,355,885 734,261 3,564,671 4,457,783
Operating expenses
Compensation 1,533,264 291,092 762,163 791,604
Professional fees 429,194 564,153 755,960 220,282
Provision for bad debts -- -- 114,022 --
Advertising 359,966 -- 359,139 8,930
Travel 183,050 73,482 195,784 43,822
Utilities 141,896 3,787 79,494 73,772
Facilities 145,951 -- 228,257 60,170
Depreciation and amortization 175,264 21,084 652,970 112,826
Insurance 70,754 -- 102,116 53,941
Other 552,931 271,091 726,975 362,732
-------------- -------------- ------------ --------------
3,592,270 (1,224,689) 3,976,880 1,728,139
-------------- --------------- ------------ --------------
Operating income (loss) 1,763,615 (490,428) (412,209) (2,729,644)
Other income (expense)
Interest expense (49,417) (226,063) (219,992) (44,531)
Interest income 16,834 7,144 138,851 --
Sale of assets and release of covenants -- -- 2,340,000 --
Gain on sale of subsidiaries -- -- 1,683,751 --
-------------- -------------- ------------ --------------
(32,583) (218,919) 3,942,610 (44,531)
-------------- -------------- ------------ --------------
Income (loss) from continuing operations before
provision for income taxes 1,731,032 (709,347) 3,530,401 2,685,113
Provision for income taxes 50,867 -- 1,022,581 184,516
-------------- -------------- ------------ --------------
Net income (loss) from continuing operations 1,680,165 (709,347) 2,507,820 2,500,597
Discontinued operations
Loss from operation of TimeCast (100,330) -- -- (100,330)
-------------- -------------- ------------ --------------
NET INCOME (LOSS) $ 1,579,835 $ (709,347) $ 2,507,820 $ 2,400,267
============== ========== === ============ ==============
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Earnings (loss) per share
Basic:
Continuing operations $ 0.08 $ (0.08) $ 0.06 $ 0.15
Discontinued operations (0.01) -- -- (0.01)
------------ ----------- ----------- -------------
Net income $ 0.07 $ (0.08) $ 0.06 $ 0.14
=========== ========== ========== ============
Diluted:
Continuing operations $ 0.07 $ (0.08) $ 0.06 $ 0.15
Discontinued operations 0.01 -- -- (0.01)
------------ ----------- ----------- -------------
Net income $ 0.06 $ (0.08) $ 0.06 $ 0.14
=========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock
---------------
Shares Amount
------ ------
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 - -
Note payable converted to common stock - -
Affiliates' forgiveness of note payable - -
Purchase of treasury shares - -
-------------- --------------
Balance at December 31, 1997 - -
Net income for the nine months ended September 30, 1998 - -
Issuance of common stock - -
Shares issued in lieu of compensation - -
Note payable converted to common stock - -
Shares issued in connection with acquisitions 200,000 200,000
-------------- --------------
Balance at September 30, 1998 (unaudited) 200,000 $ 200,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additional Accumulated
Common Stock paid-in (deficit) Treasury Stockholders'
---------------------------
Shares Amount capital earnings stock (deficit) equity
------ ------ ------- -------- ----- ----------------
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
2,290,145 22,901 425,276 -- -- 448,177
19,340,000 193,400 1,880,815 -- -- 2,074,215
210,155 2,102 159,124 -- -- 161,226
-- -- 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
-- -- -- 2,507,820 -- 2,507,820
1,918,128 19,181 700,379 -- -- 719,560
2,252,844 22,528 690,341 -- -- 712,869
1,206,250 12,063 229,187 -- -- 241,250
-- -- 100,000 -- -- 300,000
- -------------- ------------- ------------- ------------- -------------- --------------
44,212,708 $ 442,127 $ 5,255,702 $ 1,672,904 $ (1,281,000) $ 6,289,733
============== ============ ============ ============= ============== ==============
</TABLE>
<PAGE>
Carnegie International Corporation
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited)
Six months ended
Years ended December 31, June 30,
------------------------ --------
1997 1996 1998 1997
---- ---- ---- ----
Cash flows from operating activities
Net income (loss) $ 1,579,835 $ (709,347) $2,507,820 $2,581,255
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 175,264 21,084 652,970 92,819
Issuance of common stock as compensation 448,177 665,661 712,869 351,453
Net book value of subsidiary sold - - (1,624,028) -
Goodwill adjustment associated with
contracts sold - - 100,017 -
Accrued interest put option - - 386,845 193,735
Changes in assets and liabilities
Accounts receivable (40,544) 98,914 (310,685) 67,777
Due from affiliates (513,194) (589,963) (1,642,346) (940,013)
Inventory (20,582) (7,993) (47,022) -
Prepaid expenses (24,248) 3,726 (182,783) (36,219)
Other assets 61,112 (91,818) (197,052) -
Accounts payable and accrued expenses 640,047 118,037 (82,601) (97,820)
Income taxes payable 50,867 - 1,022,581 (9,421)
----------- ---------- ---------- ----------
Net cash provided by operating activities 2,356,734 688,227 1,296,585 2,009,831
Cash flows from investing activities
(Purchase) Proceeds of restricted certificate of
deposit (400,000) - 400,000 -
Purchase of furniture and equipment (170,008) (19,559) (1,573,421) (32,888)
Deposits - - (355,808) 75,687
Acquisition costs (530,628) (247,850) (125,920) (267,266)
----------- --------- --------- ----------
Net cash used in investing activities (1,100,636) (267,409) (1,655,149) (224,467)
Cash flows from financing activities
Payments on notes payable (1,454,033) (839,504) (956,326) (403,642)
Proceeds from issuance of notes payable 990,568 433,134 532,955 -
Purchase of treasury shares (800,000) - - (800,000)
Sale of common stock 229,541 - 719,560 -
Notes receivable (10,200) - - (71,100)
----------- -------- ---------- ----------
Net cash (used in) provided by financing
activities (1,044,124) (406,370) 296,189 (1,274,742)
----------- -------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 211,974 14,448 (62,375) 443,728
Cash at beginning of period 14,448 - 226,422 14,448
----------- ---------- ---------- ----------
Cash at end of period $ 226,422 $ 14,448 $ 164,047 $ 458,176
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
Supplemental schedule of non-cash 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, 2,290,145 and 7,224,786 shares of
the Company's common stock were issued at a value of $448,177 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 $99,330.
During, 1997, 210,155 shares of common stock were issued in exchange
for a note payable of $161,226.
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 nine months ended September 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 nine months ended September 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 $1,683,751 at the date of sale.
During the nine months ended September 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.
During the nine months ended September 30, 1998, the Company issued
1,206,250 shares of common stock for conversion of a note payable of
$241,500.
During the nine months ended September 30, 1998, the Company issued
1,918,128 shares of common stock for compensation valued at $719,560.
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 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 30, 1998.
- 9 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 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.
o TimeCast, prior to its spin-off in September, 1997, was 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.
- 10 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Business Operations - continued
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.
o ACC Telecom sells, installs and services telephone systems,
voicemail integration, computer technology, LAN operating systems
and cable media for businesses in the Washington, DC, Maryland and
Northern Virginia areas.
- 11 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 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
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 September 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.
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 computers,
software, furniture and equipment. Leasehold improvements are amortized
over the shorter of the useful life of the asset or the lease term.
- 12 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Property, Plant and Equipment - continued
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 for the interface this software with existing telephone systems.
The costs incurred to enhance the software are capitalized as incurred.
The cost of these enhancements will be amortized over the estimated useful
life of 3 years when distribution of the software commences.
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.
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.
- 13 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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.
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.
- 14 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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, which did not impact the
financial statements.
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.
- 15 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
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
$1,314,962 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 holding 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 holding 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.
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).
- 16 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS - Continued
Victoria - continued
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:
<TABLE>
<CAPTION>
PTT Talidan Victoria
--- ------- --------
<S> <C> <C> <C>
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
============= =============== ============
</TABLE>
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.
- 17 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE B - ACQUISITIONS - Continued
ECAC and DAR - continued
The following table reflects unaudited pro forma combined results of
operations of the Company and Talidan assuming the acquisition of Talidan
had taken place at the beginning of the year for each of the years
presented:
<TABLE>
<CAPTION>
<S> <C> <C>
Proforma Proforma
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
============== ==============
</TABLE>
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.
- 18 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - DISPOSITIONS
On January 30, 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.
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 $250,000
note bearing interest at 6% as consideration, that matures 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.
- 19 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - DISPOSITIONS - Continued
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, which is reported in discontinued operations is as follows:
Royalty income $ 5,400
Operating loss (100,330)
Net loss (100,330)
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 September 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.
- 20 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE C - DISPOSITIONS - Continued
Sale of Certain Talidan Assets - continued
The note receivable arising from the sale of these assets in the amount of
$2,340,000 bears interest at the rate of 7%. Payments are due quarterly
commencing December 22, 1998 in the amount of $585,000 plus accrued
interest. [The Company received a portion of the first payment on October
28, 1998 and the balance of the payment on January 27, 1999. This
extension on the balance of the payment received on January 27, 1999 was
agreed to based on the early receipt of initial partial payment. The
Company has obtained an agreement from the purchasers that in the event of
non payment, the non compete agreements will become in force again and the
Company will have the right to all revenue generated through the telephone
numbers that were sold. The Company has received financial information
regarding the purchaser that indicates that there are sufficient assets to
satisfy the payment of this note exclusive of the revenue related to the
telephone numbers. At September 30, 1998, the note and accrued interet
totaled $2,551,776. Unaudited]
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 $192,695 at
September 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
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 and
September 30, 1998:
(Unaudited)
December 31, September 30,
1997 1998
---- ----
Vehicles $ 4,170 $ 297,818
Computer equipment and software 189,129 1,776,243
Furniture and office equipment 231,160 270,122
Leasehold improvements 40,000 40,000
Equipment held for lease 121,800 -
-------------- --------------
Total property and equipment 586,259 2,384,183
Less accumulated depreciation and
amortization 102,042 500,448
-------------- --------------
Property and equipment, net $ 484,217 $ 1,883,735
============= =============
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 nine months ended
September 30, 1998 and 1997 (unaudited) was $134,628 and $34,786,
respectively.
- 22 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 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 September 30, 1998:
(Unaudited)
Year December 31, 1997 September 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 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 1997 and
September 30, 1998:
(Unaudited)
December 31, September 30,
1997 1998
---- ----
Former shareholders of PTT $ - $ 262,400
Various unaffiliated individuals 366,155 96,439
Strongput International, LLC 180,484 276,983
Various affiliated individuals 257,113 297,679
CNI - 592,016
Preferred Investments - 131,202
---------- ----------
$ 803,752 $1,656,719
========= ==========
The Company is obligation under several notes payable due to former
shareholders of the Company's PTT subsidiary. One of these formers
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 September 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 September 30, 1998 was
(pound)33,000 or $52,800 at the September 30, 1998 exchange rate. These
are non-interest bearing notes and are payable on demand.
The Company has notes payable to several individuals that have outstanding
balances aggregating $366,155 at December 31, 1997 and $96,439 at
September 30, 1998 (unaudited). The notes are due on demand and accrue
interest at rates that vary from 10% to 20%
- 23 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE H - NOTES PAYABLE - 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 $276,983 at
September 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 $297,679 at September 30, 1998 (unaudited). These notes are due on
demand and accrue interest at rates that vary from 10% to 12%.
The Company is obligated on notes due CNI, a management company partially
owned by a shareholder. The notes have an unpaid principal balance of
$590,016 at September 30, 1998 (unaudited). The note is due on demand and
accrues interest at 12% per annum.
The Company is obligated on a note due Preferred Investments, an affiliate.
The note has an unpaid principal balance of $131,202 at September 30, 1998
(unaudited). The note is due on demand and accrues interest at 12% per
annum.
NOTE I - LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1997 and
September 30, 1998:
(Unaudited)
December 31, September 30,
1997 1998
---- ----
Convertible note $ 250,000 $ -
Envoy Medical Corporation 109,786
Treasury stock purchase 151,000 126,000
First Mariner Bank 398,665 -
Security Financial and Investment Corporation 49,391 -
Union Planter's Bank - 172,667
---------- ---------
958,842 298,667
Less current maturities 789,230 36,996
---------- ---------
$ 169,612 $ 261,671
========= ========
- 24 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE I - 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 September 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 and $126,000 at December 31, 1997 and September 30, 1998,
respectively.
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 was 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 September 30, 1998.
- 25 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE I - LONG-TERM DEBT - Continued
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 September 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. A balance of
$172,667 was outstanding at September 30, 1998 (unaudited).
- 26 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE I - LONG-TERM DEBT - Continued
Scheduled annual maturities of long-term debt are as follows:
(Unaudited)
Year December 31, 1997 September 30, 1998
----------- ----------------------- ---------------------
1998 $ 789,230 $ 36,996
1999 35,457 39,996
2000 10,469 39,996
2001 11,796 39,996
2002 13,293 15,683
Thereafter 98,597 126,000
The aggregate carrying value of the long-term debt at December 31, 1997
and June 30, 1998 approximates market value.
NOTE J - NOTES PAYABLE TO STOCKHOLDER AND AFFILIATES
Note payable to stockholder and affiliate are as follows:
(Unaudited)
December 31, September 30,
1997 1998
---- ----
Note payable to stockholder $ 185,000 $ -
Note payable to Barry and Susan Hunt - 733,298
-------------- ----------
185,000 733,298
Less current maturities 185,000 200,000
-------------- -----------
$ - $ 533,298
============== ===========
- 27 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE J - NOTES PAYABLE TO STOCKHOLDER AND AFFILIATES - Continued
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.
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 September 30, 1998, the outstanding balance on
the note is $733,298 (unaudited).
- 28 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE J - NOTES PAYABLE TO STOCKHOLDER AND AFFILIATES - Continued
Scheduled annual maturities of these obligations are as follows:
(Unaudited)
Year December 31, 1997 September 30, 1998
-------------- ----------------- ------------------
1998 $185,000 $ 200,000
1999 - 200,000
2000 - 200,000
2001 - 133,298
NOTE K - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
(Unaudited)
December 31, 1998 September 30, 1998
----------------- ------------------
Accounts payable $1,090,660 $907,260
Other accrued liabilities 161,308 79,090
Accrued interest 22,096 39,267
------------- ------------
$1,274,064 $1,025,617
============= ============
- 29 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - CAPITAL STOCK
Convertible 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 $1.50 per share at the time of issuance. The preferred stock is
convertible after a two year holding period into the greater of $2,000,000
worth or 2,000,000 shares of the Company's common stock. The preferred
stock is not entitled to share in dividends; however, if a dividend is
declared on the common stock, 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 holding 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.
Of the 44,212,708 common shares issued as of September 30, 1998
(unaudited), 33,003,803 shares are restricted pursuant to the Securities
Act of 1933 as amended, and 5,831,683 shares were issued pursuant to Rule
504 of the Securities Act of 1933 and exempt from registration.
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.
- 30 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - CAPITAL STOCK - Continued
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.
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 September 30, 1998.
- 31 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - CAPITAL STOCK - Continued
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 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 September 30, 1998 (unaudited) 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 September 30, 1998 (unaudited) none of the
options had been exercised.
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 September 30, 1998 (unaudited) none of
the options had been exercised.
The vesting of outstanding options is accelerated upon the sale of the
Company or more than 50% of its outstanding shares to one person or
entity.
- 32 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - CAPITAL STOCK - Continued
The following table summarizes option activity during 1997:
Weighted
average
exercise
Shares price
------ -----
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
The following table summarizes options outstanding at December 31, 1997:
Weighted average
Number Weighted average remaining
outstanding Exercise prices exercise prices contractual life
----------- --------------- --------------- ----------------
11,108,334 $0.001 to $0.23 $0.03 3.31
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.
- 33 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE L - CAPITAL STOCK - Continued
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, 2,290,145 and 7,224,786 shares of the Company's
common stock were issued as compensation for various consultants,
attorneys, and others at $.20 and $.09 per share or $448,177 and $665,661,
respectively.
NOTE M - INCOME TAXES
Earnings before income taxes from continuing operations is comprised as
follows at December 31, 1997:
(Unaudited)
Year ended Nine months ended
December 31, September 30,
----------------------------- ---------------------------
1997 1996 1998 1997
------------ ----------- --------- ----------
Domestic $1,665,465 $(709,347) $3,297,712 $2,681,585
Foreign 65,567 - (232,689) -
------------ ----------- ---------- ----------
$1,731,032 $(709,347) $3,530,401 $2,681,585
============ =========== ========== ===========
- 34 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE M - INCOME TAXES - continued
The Company's provision for income taxes is comprised as follows:
(Unaudited)
Year ended Nine months ended
December 31, September 30,
------------------------- ---------------------------------
1997 1996 1998 1997
--------- ----------- ------------ ------------
Domestic $ 50,867 $ - $ 1,022,581 $ 394,075
Foreign - - - -
--------- ----------- ------------ ------------
$ 50,687 $ - $ 1,022,581 $ 394,075
========= ========== ============ ============
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) (13)
Foreign tax rate differential (3) 2
Other - 6
------ -----
3% 29%
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 September 30, 1998. The Company has not determined
the amount of unrecognized deferred tax liabilities. Income taxes at
September 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.
- 35 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE M - INCOME TAXES - Continued
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.
Deferred taxes are comprised as follows at December 31, 1997 and September
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 $ - $ -
========= ===========
- 36 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE N - 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>
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 $ (0.01) $ 0.07 $ (0.08)
============ =========== ============= ===========
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 2,254,680 2,254,680 2,254,680 -
------------ ---------- ------------- -----------
Adjusted weighted average
number of common shares
outstanding 23,076,623 22,164,134 23,076,623 9,207,264
============ ========== ============= ===========
Diluted EPS $ 0.07 $ (0.01) $ 0.07 $ (0.08)
============ ========== ============= ===========
</TABLE>
- 37 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE N - EARNINGS PER SHARE - Continued
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.
NOTE O - 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, which was 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.
- 38 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE O - COMMITMENTS AND CONTINGENCIES - Continued
Litigation
As of December 31, 1997 and September 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 September 30, 1998 for a
total of $17,952 of cash and the issuance of 353,000 shares of common
stock which are restricted under the Securities Act of 1933 (unaudited).
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
- 39 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE P - 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.
NOTE Q - 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 $192,695 at
September 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.
- 40 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE Q - RELATED PARTY TRANSACTIONS - Continued
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 the Union Planter's bank loan which has a
balance of $172,667 at September 30, 1998 (unaudited).
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 $276,679 at
September 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 $297,679 at September 30, 1998 (unaudited). These notes are due
on demand and accrue interest at rates that vary from 10% to 12%.
On January 30, 1998, the Company entered into an agreement to sell the
outstanding shares of ECAC. At September 30, 1998, the Company has a
receivable from ECAC of $1,475,012 (unaudited).
NOTE R - 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.
- 41 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE R - FINANCIAL INFORMATION FOR BUSINESS SEGMENTS - Continued
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>
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
============= ============= ============ ============= ==============
1996
----
Financial
Services Corporate Consolidated
-------- --------- ------------
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>
- 42 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE R - FINANCIAL INFORMATION FOR BUSINESS SEGMENTS - Continued
In 1997, the Company operated in three geographic regions. In 1996, all of
the Company's operations were domestic.
A summary of the Company's operations by geographic region follows:
<TABLE>
<CAPTION>
1997
----
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 S - 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.
- 43 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED 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 ($1.50 per share).
- 44 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBR 30, 1997 CONSOLI-
DATED 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.
The accounts receivable from ECAC of $1,475,012 at September 30, 1998
(unaudited), were originally due on or before December 31, 1998.
Management has agreed to extend the payment of this amount through
December 31, 1999. Certain members of management of ECAC have placed in an
escrow account under the control of the Company's management 585,000
shares of the Company's common stock. Management has the right under this
agreement to direct the sale of this stock and have the proceeds remitted
directly to the Company. As a result of the modifications made to the
obligation's due date the receivable has been classified as a non-current
asset.
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.
- 45 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED 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>
Nine months ended September 30
------------------------------
1998 1997
---- ----
Income from
continued Discontinued
Net Income operations operations Net income
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Basic EPS
Income (loss) available to common
stockholder $ 2,507,820 $ 2,500,597 $ (100,330) $ 2,400,267
=========== =========== ========== ===========
Weighted average number of common shares
outstanding 42,157,333 17,414,291 17,414,291 17,414,291
Basic EPS $ 0.06 $ 0.15 $ (0.01) $ 0.14
=========== =========== ========== ===========
Diluted EPS
Income available to common stockholder $ 2,507,820 $ 2,500,597 $ (100,330) $ 2,400,267
Income impact of assumed conversions - - - -
------------ ------------ ----------- ------------
Income available to common stockholders
on a diluted basis $ 2,507,820 $ 2,500,597 $ (100,330) $ 2,400,267
=========== =========== ========== ===========
Weighted average number of common shares
outstanding 42,157,333 17,414,291 17,414,291 17,414,291
Effect of dilutive securities - stock options 566,666 297,116 - 297,116
Preferred stock 3,732,549 - - -
------------ ------------ ----------- ------------
Adjusted weighted average number of
common shares outstanding 45,889,882 17,711,291 17,414,291 17,711,291
============ ============ =========== ============
Diluted EPS $ 0.06 $ 0.15 $ (0.01) $ 0.14
=========== =========== ========== ===========
</TABLE>
- 46 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments
In the first nine months of 1998, the Company operated in three industry
segments: telecommunications, financial services, and restaurant. In the
first nine 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>
Nine months ended September 30, 1998
------------------------------------
Tele-
communications Restaurant Corporate Consolidated
-------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 5,795,440 $ 1,535,111 $ 10,878 $ 7,341,429
================ ============== ============= ==============
Operating profit (loss) $ 477,419 $ (24,615) $ (865,013) $ (412,209)
Other income (expense) 2,348,902 (3,587) 1,597,295 3,942,610
----------------- --------------- -------------- ---------------
Income before income taxes $ 2,826,321 $ (28,202) $ 732,282 $ 3,530,401
================ ============== ============= ==============
Identifiable assets $ 9,013,375 $ 729,427 $ 5,546,937 $ 15,221,272
================ ============== ============= ==============
Depreciation of property,
plant and equipment $ 142,939 $ 30,000 $ 90,810 $ 263,749
================ ============== ============= ==============
Amortization of intangibles $ 316,019 $ 40,130 $ 33,072 $ 389,221
================ ============== ============= ==============
Capital expenditures $ 598,855 $ - $ 974,566 $ 1,573,421
================ ============== ============= ==============
</TABLE>
- 47 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED 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>
Nine months ended September 30, 1997
------------------------------------
Financial Tele-
Services communications Restaurant Corporate Consolidated
-------- -------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 5,002,675 $ - $ 239,625 $ - $5,242,300
========== ========== ========== ============ =========
Operating profit (loss) $ 3,375,450 $ - $ 10,123 $ (659,457) $2,729,644
Other income (expense) (44,531) - - - (44,531)
---------- ----------- ----------- ------------- -----------
Income (loss) before
income taxes $ 3,330,919 $ - $ 10,123 $ (659,457) $2,685,113
========== ========== ========== ============ =========
Identifiable assets $ 272,640 $ 626,720 $ 228,406 $ 2,760,989 $3,888,755
========== ========== ========== ============ =========
Depreciation of property,
plant and equipment $ 23,947 $ - $ 4,126 $ 63,369 $ 91,402
========== ========== ========== ============ =========
Amortization of intangibles $ - $ - $ 1,417 $ - $ 1,417
========== ========== ========== ============ =========
Capital expenditures $ - $ - $ - $ 32,888 $ 32,888
========== ========== ========== ============ =========
</TABLE>
- 48 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments - continued
A summary of the Company's operations by geographic region follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
------------------------------------
South United
America Kingdom Domestic Consolidated
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 2,620,374 $ 155,400 $ 4,565,655 $ 7,341,429
================ ============== ============= ==============
Operating profit (loss) $ 65,598 $ (288,983) $ (188,824) $ (412,209)
Other income (expense) 2,341,896 (11,200) 1,611,914 3,942,610
----------------- -------------- -------------- ---------------
Income (loss) before
income taxes $ 2,407,494 $ (300,183) $ 1,423,090 $ 3,530,401
================ ============== ============ ============
Identifiable assets $ 4,708,838 $ 1,946,610 $ 8,565,824 $ 15,221,272
================ ============== ============ ============
Depreciation of property,
plant and equipment $ - $ 110,939 $ 152,810 $ 263,749
================ ============== ============ ============
Amortization of intangibles $ 223,575 $ 56,644 $ 109,002 $ 389,221
================ ============== ============ ============
Capital expenditures $ - $ 394,400 $ 1,179,021 $ 1,573,421
================ ============== ============ ============
</TABLE>
- 49 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
and September 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED FINANCIAL STATEMENTS - Continued
Financial Information for Business Segments - continued
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
------------------------------------
South United
America Kingdom Domestic Consolidated
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ - $ - $ 5,242,300 $ 5,242,300
================ ============== ============= ==============
Operating profit (loss) $ - $ - $ 2,729,644 $ 2,729,644
Other expense - - (44,531) (44,531)
----------------- --------------- -------------- --------------
Income before income
taxes $ - $ - $ 2,685,113 $ 2,685,113
================ ============== ============= ==============
Identifiable assets $ 578,720 $ 48,000 $ 3,262,035 $ 3,888,755
================ ============== ============= ==============
Depreciation of property,
plant and equipment $ - $ - $ 91,402 $ 91,402
================ ============== ============= ==============
Amortization of intangibles $ - $ - $ 1,417 $ 1,417
================ ============== ============= ==============
Capital expenditures $ - $ - $ - $
================ ============== ============= ==============
</TABLE>
- 50 -
<PAGE>
NOTE T - NOTES TO UNAUDITED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 CONSOLI-
DATED FINANCIAL STATEMENTS - Continued
Subsequent Acquisitions
On November 20, 1998, the Company acquired all of the outstanding stock of
Voice Quest, Inc. a Florida corporation. Voice Quest, Inc. is involved in
the development of voice activated software applications that are
compatible with the Company's MAVIS product. The consideration paid
consisted of 21,600 shares of Series E Preferred Stock that is convertible
to the Company common stock, subject to Rule 144 restrictions. Conversion
of the Preferred Series E Stock to common will be based on the greater of
common stock with a value of $270,000 or 216,000 shares of common stock if
the value per share in the business day immediately preceding expiration
of the conversion period is greater than $1.25 per share. Conversion may
not take place until November 20, 2000. In addition, the sellers received
230,000 shares of common stock subject to Rule 144 restrictions, at the
time of closing. The Company also assumed the liabilities of Voice Quest,
Inc. that included amounts due the sellers of $102,084. This amount is
payable in quarterly installments of $8,507 over a three-year period
beginning on January 1, 1999. The value of this obligation discounted at
10% is $96,700. The Company has recorded this acquisition as a purchase.
On December 1, 1998, the Company acquired all of the assets, and assumed
all of the liabilities of The J-Net Group, Inc. a Delaware corporation
trading as Pomnet. the consideration paid was 52,500 shares of Series F
preferred stock which will automatically convert into common stock of the
Company on December 1, 2000. The Series F preferred stock will convert
into the greater $700,000 of common stock or 525,000 shares of stock if
the average closing price of the Company's common stock is $1.33 or
greater for the five business days preceding conversion. In addition, the
Company assumed liabilities, including equipment leases, totaling
$453,972. This acquisition will be accounted for as a purchase.
- 51 -
<PAGE>
SCHEDULES
- 51 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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>
- 52 -
<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 and September 30, 1997 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.
- 53 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------
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
============= ============ ============ ===========
</TABLE>
- 54 -
<PAGE>
Carnegie International Corporation
and Subsidiaries
PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
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
======= ========
<PAGE>
Carnegie International Corporation
and Subsidiaries
PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
------------------------------------
Historical Pro forma
----------
Company Talidan adjustments Pro forma
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Operating $ 1,542,300 $ 4,234,867 $ - $ 5,777,167
Sale of service contracts 3,700,000 - - 3,700,000
-------------- ------------ --------- -----------
Total revenue 5,242,300 4,234,867 - 9,477,167
Cost of fees and sales
Processing fees 257,367 - - 257,367
Commissions 1,058,140 2,892,857 - 3,950,997
Supplies and merchant expenses 92,701 - - 92,701
Equipment related costs 19,020 - - 19,020
Royalties and commissions 2,179 - - 2,179
-------------- ------------ --------- -----------
Total costs of fees and sales 1,429,407 2,892,857 - 4,322,264
-------------- ------------ --------- -----------
Gross profit 3,812,893 1,342,010 - 5,154,903
Operating expenses (1,086,777) (57,377) (223,576) (a) (1,649,473)
-------------- ------------ -----------
(281,743) (b)
Operating income (loss) 3,726,116 1,284,633 (505,319) 3,505,430
Other income (expenses)
Interest expense (44,531) - - (44,531)
Interest income - 9,378 - 9,378
-------------- ------------ --------- -----------
Total other (expense) income (44,531) 9,378 - (35,153)
-------------- ------------ --------- -----------
Income (loss) from continuing operations
before provision for income taxes 2,681,585 1,294,011 (505,319) 3,470,277
Provision for income taxes 184,516 - - 184,516
-------------- ------------ --------- -----------
Net income (loss) from continuing
operations 2,497,069 1,294,011 (505,319) 3,285,761
Discontinued operations (100,330) - - (100,330)
-------------- ------------ --------- -----------
Net income (loss) $ 2,396,739 $ 1,294,011 $(505,319) $ 3,185,431
============= =========== ======== ==========
Earnings (loss) per share:
Basic:
Continuing operations $ 0.09 $ 0.12
Discontinued operations - -
-------------- -----------
Net income $ 0.09 $ 0.12
============= ==========
Diluted:
Continuing operations $ 0.08 $ 0.12
Discontinued operations - -
-------------- -----------
Net income $ 0.08 $ 0.12
============= ==========
</TABLE>
<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 $ 3,256,291 $ 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>
<PAGE>
Carnegie International Corporation
and Subsidiaries
NOTES TO PRO FORMA STATEMENTS OF EARNINGS (UNAUDITED)
December 31, 1997 and 1996 and September 30, 1997
- --------------------------------------------------------------------------------
(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.
- 54 -
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit
Number
3.1 Articles of Amendment to restated Articles of Incorporation, filed on
February 10, 1999.
10.16 Employment Agreement between Barry N. Hunt and Harbor City Corporation,
t/a ACC Telecom.
10.17 Distributor Agreement between the Corporation and ALLTEL Supply, Inc.
10.18 Stock Purchase Agreement between the Corporation and Voice Quest. Inc.
10.19 Employment Agreement between Voice Quest, Inc. and Mark S. Ortner.
10.20 Asset Purchase Agreement between the Corporation and the J-Net Group,
Inc.
10.21 Employment Agreement between RomNet Support Services, Inc. and Nicholas
R. Gentile
10.22 Consulting Agreement between the Corporation and the Vadiari Group
International.
10.23 Distributor Agreement between the Corporation and Tiller International
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: February 12, 1999 By: /s/ Lowell Farkas
--------------------------------------
Name: Lowell Farkas
------------------------------------
Title: President
-----------------------------------
C73743kk.636 R
4:2/11/99
<PAGE>
EXHIBIT 3.1
<PAGE>
ARTICLES OF AMENDMENT TO RESTATED
ARTICLES OF INCORPORATION OF
CARNEGIE INTERNATIONAL CORPORATION
Carnegie International Corporation, a Colorado corporation (hereinafter
called the "Corporation"), having its principal office in Hunt Valley, Maryland,
hereby certifies to Secretary of State of Colorado that:
FIRST: The name of the corporation is: CARNEGIE INTERNATIONAL
CORPORATION.
SECOND: The Articles of Incorporation of the Corporation are
hereby amended by deleting in its entirety in the existing Article FOUR and by
substituting in lieu thereof the Article FOUR set forth in Exhibit A attached
hereto.
THIRD: The amendment of the Restated Articles of Incorporation
with respect to Section 2 of Article FOUR was adopted on October 30, 1998, by
the Board of Directors and shareholder action was not required, as prescribed by
the Colorado Business Corporation Act. The amendment of the Restated Articles of
Incorporation with respect to Section 3 of Article FOUR was adopted on November
20, 1998, by the Board of Directors and shareholder action was not required, as
prescribed by the Colorado Business Corporation Act.
Carnegie International Corporation has caused these presents to be
signed and acknowledged in its name and on its behalf by its President and
witnessed and attested by its Secretary on this 9th day of February, 1999, and
its President acknowledges that these Articles of Amendment are the act and deed
of said Corporation, and under the penalties of perjury, that the matters and
facts set forth herein with respect to authorization and approval are true in
all material respects to the best of his knowledge, information and belief.
ATTEST: CARNEGIE INTERNATIONAL CORPORATION
/s/ Lawrence Gable By: /s/ Lowell Farkas (SEAL)
- -------------------------------- ----------------------------------
Lawrence Gable, Acting Secretary Lowell Farkas, President
<PAGE>
Exhibit A
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, par
value $1.00 per share.
The Board of Directors is hereby expressly authorized 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.
1. Series A Preferred Stock. A series of authorized Preferred Stock,
$1.00 par value is hereby created and shall have the designation, authorized
number of shares thereof and the rights, terms and provisions as set forth
below:
(a) Designation and Amount. The shares of this series shall be
designated as "Series A Preferred Stock" (the "Series A") and the authorized
number of shares constituting the Series A Preferred Stock shall be Two Hundred
Thousand (200,000).
(b) Trading. Series A will not be allowed to trade on the open
market.
(c) Administration. Administration of the Series A will be
conducted within the corporate office and not through the Corporation's transfer
agent.
(d) Voting Rights. Series A will have the right to vote along
with Common Stock shareholders as follows: Each share of Series A will be
counted as ten (10) votes of Common Stock. For purposes of voting, the totality
of voting shares on any issue shall be all Common Stock shares issued and
outstanding plus Series A shares issued and outstanding, Series A to be weighted
ten (10) votes for each one (1) Series A share. For example, if there are
200,000 Series A shares issued and outstanding and there are 40,000,000 shares
of Common Stock issued and outstanding, the total shares eligible to vote is
42,000,000 shares (40,000,000 Common Stock + (10 x 200,000 Series A) =
42,000,000). If a two thirds (2/3) majority is required, then 28,000,000 shares
need to be cast from either Series A (weighted 10 votes for 1 Series A share) or
Common Stock issued and outstanding shares to have the motion pass.
(e) Conversion Rights. Series A will have a "right of
conversion" as follows: On May 18, 2000, the 200,000 shares of Series A shall be
convertible to the greater of $2,000,000 worth of Common Stock or 2,000,000
shares of Common Stock, to be issued and legended in accordance with Rule 144
(hereinafter Rule 144 stock). Series A shareholder shall have the right to
convert the shares prior to May 18, 2000 in the event the Common Stock price of
Carnegie closes above $2.00 per share (hereinafter "early conversion"). In the
event of an early conversion, Series A shareholder shall receive $2,000,000
worth of Rule 144 stock. The value of the Rule 144 stock, for conversion
purposes shall be based on the average Market
<PAGE>
closing price of the Common Stock for the five business days immediately
preceding the conversion date. Market is defined as the price quoted for the
Company's Common Stock by the NASD Over the Counter Bulletin Board Service
(OTCBB), or any other US public market that trades the Common Stock on a daily
basis. The shares issued in the event of an early conversion will be Rule 144
stock.
(f) Liquidation. Series A will have a preference over shares
of Common Stock in the event of a corporate liquidation.
(g) Dividends. Series A will not be entitled to dividends. If
however the Corporation deems that a dividend be declared, the Series A
shareholder shall be given at least five (5) days written notice and at that
time can opt to convert Series A shares into shares of Common Stock, in
accordance with the conversion formula described in Section 1(e) of this Article
4.
(h) Stock Split. In the event of a stock split, either reverse
or otherwise, the Series A and/or the shares of Common Stock that will be
obtained upon conversion are to be proportionately split.
2. Series B Preferred Stock. A series of authorized Preferred Stock,
$1.00 par value is hereby created and shall have the designation, authorized
number of shares thereof and the rights, terms and provisions as set forth
below:
(a) Designation and Amount. The shares of this series shall be
designated as "Series B Preferred Stock" (the "Series B") and the authorized
number of shares constituting the Series B Preferred Stock shall be Two Hundred
Thousand Eight Hundred Forty-Seven and One-Half (200,847.5).
(b) Voting Rights. Series B will have the right to vote along
with Common Stock shareholders as follows: Each share of Series B will be
counted as ten (10) votes of Common Stock. For purposes of voting, the totality
of voting shares on any issue shall be all Common Stock shares issued and
outstanding plus Series B shares issued and outstanding, Series B to be weighted
ten (10) votes for each one (1) Series B share. For example, if there are
200,000 Series B shares issued and outstanding and there are 40,000,000 shares
of Common Stock issued and outstanding, the total shares eligible to vote is
42,000,000 shares (40,000,000 Common Stock + (10 x 200,000 Series B) =
42,000,000). If a two thirds (2/3) majority is required, then 28,000,000 shares
need to be cast from either Series B (weighted 10 votes for 1 Series B share) or
Common Stock issued and outstanding shares to have the motion pass.
(c) Conversion Rights. Series B will have a "right of
conversion" as follows:
(i) The 21,600 shares of Series B shall be convertible
to Common Stock of the Corporation upon the common share price of the
Corporation maintaining an average bid trading price of Two Dollars ($2.00) per
share for a period of at least thirty (30) days, provided that said trading
price reaches Two Dollars ($2.00) per share by December 31, 1998 and the thirty
(30) day common share price holds at Two Dollars ($2.00) per share for more than
30 days on or before February 15, 1999. Said Common Stock shall constitute
2
<PAGE>
restricted securities as defined in 17 C.F.R. ss. 230.144(a)(3) (hereinafter
"Rule 144 Stock") and shares of Rule 144 Stock received in the conversion shall
be Two Million Eight Thousand Four Hundred Seventy-Five (2,008,475) shares of
Rule 144 Stock.
(d) Dividends. Series B will not be entitled to dividends.
(e) Stock Split. In the event of a stock split, either reverse
or otherwise, the Series B and/or the shares of Common Stock that will be
obtained upon conversion are to be proportionately split.
3. Series E Preferred Stock. A series of authorized Preferred Stock,
$1.00 par value is hereby created and shall have the designation, authorized
number of shares thereof and the rights, terms and provisions as set forth
below:
(a) Designation and Amount. The shares of this series shall be
designated as "Series E Preferred Stock" (the "Series E") and the authorized
number of shares constituting the Series E Preferred Stock shall be Twenty-One
Thousand Six Hundred (21,600).
(b) Voting Rights. Series E will have the right to vote along
with Common Stock shareholders as follows: Each share of Series E will be
counted as ten (10) votes of Common Stock. For purposes of voting, the totality
of voting shares on any issue shall be all Common Stock shares issued and
outstanding plus Series E shares issued and outstanding, Series E to be weighted
ten (10) votes for each one (1) Series E share. For example, if there are
200,000 Series E shares issued and outstanding and there are 40,000,000 shares
of Common Stock issued and outstanding, the total shares eligible to vote is
42,000,000 shares (40,000,000 Common Stock + (10 x 200,000 Series E) =
42,000,000). If a two thirds (2/3) majority is required, then 28,000,000 shares
need to be cast from either Series E (weighted 10 votes for 1 Series E share) or
Common Stock issued and outstanding shares to have the motion pass.
(c) Conversion Rights. Series E will have a "right of
conversion" as follows:
(i) On November 20, 2000, the 21,600 shares of Series E
shall be convertible to Rule 144 Restricted Legend Common Stock of the
Corporation (hereinafter "Rule 144 Stock") and shares of Rule 144 Stock received
in the conversion shall be the greater of:
a) Rule 144 Stock with a value of $270,000 based
upon the conversion Value set forth in forth in paragraph (ii) below; or
b) 216,000 shares of Rule 144 Stock, which shall
be considered higher in Value than the Value under a) above if the Value of the
Common Stock of the Corporation is above an average closing price of $1.25 per
share as computed on the business day immediately preceding November 20, 2000.
(ii) The Value of each share of Rule 144 Stock, for
conversion calculation purposes shall be based on the average Market closing
price of the Common Stock for the five (5) business days immediately preceding
the conversion date. "Market" is defined as the price quoted for the
Corporation's Common Stock by the NASD Over the Counter Bulletin Board
3
<PAGE>
Service (OTCBB), or the closing trading price on the exchange on which the
Corporation's Common Stock is traded if said stock is no longer quoted on the
OTCBB.
(d) Dividends. Series E will not be entitled to dividends.
(e) Stock Split. In the event of a stock split, either reverse
or otherwise, the Series E and/or the shares of Common Stock that will be
obtained upon conversion are to be proportionately split.
4. Series F Preferred Stock. A series of authorized Preferred Stock,
$1.00 par value is hereby created and shall have the designation, authorized
number of shares thereof and the rights, terms and provisions as set forth
below:
(a) Designation and Amount. The shares of this series shall be
designated as "Series F Preferred Stock" (the "Series F") and the authorized
number of shares constituting the Series F Preferred Stock shall be Fifty Two
Thousand Five Hundred (52,500).
(b) Trading. Series F will not be allowed to trade on the open
market.
(c) Administration. Administration of the Series F will be
conducted within the corporate office and not through the Corporation's transfer
agent.
(d) Voting Rights. Series F will have the right to vote along
with Common Stock shareholders as follows: Each share of Series F will be
counted as ten (10) votes of Common Stock. For purposes of voting, the totality
of voting shares on any issue shall be all Common Stock shares issued and
outstanding plus Series F shares issued and outstanding, Series F to be weighted
ten (10) votes for each one (1) Series F share. For example, if there are
200,000 Series F shares issued and outstanding and there are 40,000,000 shares
of Common Stock issued and outstanding, the total shares eligible to vote is
42,000,000 shares (40,000,000 Common Stock + (10 x 200,000 Series F) =
42,000,000). If a two thirds (2/3) majority is required, then 28,000,000 shares
need to be cast from either Series F (weighted 10 votes for 1 Series F share) or
Common Stock issued and outstanding shares to have the motion pass.
(e) Liquidation. Series F will have a preference over shares
of Common Stock in the event of a corporate liquidation, at up to $1.33 per
share. Preferred shares shall have preference over other Preferred shares in the
event of a corporate liquidation in order of alphabetical issuance, such that
Series A shall have preference over Series B, Series B shall have preference
over Series C. etc. The cumulative preferences of Series A through E Preferred
over Series F shall not exceed Twenty Million Dollars ($20,000,000).
(f) Dividends. Series F will not be entitled to dividends.
(g) Conversion Rights. Series F will have a "right of
conversion" as follows:
(i) On December 1, 2000, the 52,500 shares of Series F
shall be converted automatically to Common Stock of the Company, which Common
Stock shall constitute
4
<PAGE>
restricted securities as defined in 17 C.F.R. ss. 230.144(a)(3) (hereinafter
"Rule 144 Stock"). The Common Stock shall be converted to the greater of:
a) Rule 144 Stock with a Value of $7,000,000,
based upon the conversion Value set forth in paragraph (ii) below; or
b) 525,000 shares of Rule 144 Stock, which shall
be considered higher in Value than the Value under a) above if the Value of the
Common Stock of the Company is above an average closing price of $1.33 per share
as computed for five (5) business days immediately preceding December 1, 2000.
(ii) The Value of each share of Rule 144 Stock, for
conversion calculation purposes shall be based on the average Market closing
price of the Common Stock for the five business days immediately preceding the
conversion date. Market is defined as the price quoted for the Company's Common
Stock by the NASD Over the Counter Bulletin Board Service (OTCBB), or the
closing trading price on the exchange on which the Company Common Stock is
traded if said stock is no longer quoted on the OTCBB.
(h) Stock Split. In the event of a stock split, either reverse
or otherwise, the Series F and/or the shares of Common Stock that will be
obtained upon conversion are to be proportionately split.
5
<PAGE>
EXHIBIT 10.16
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is dated this 18th day of May,
1998, by and between Harbor City Corporation, t/a ACC Telecom, the "Employer"
and Barry N. Hunt, the "Employee".
1. EMPLOYMENT: The Employer employs the Employee and the
Employee accepts employment upon the terms and conditions of this Agreement.
2. TERMS: The term of this Agreement shall begin on the
Closing Date of the purchase of Employer's Stock by Carnegie International
Corporation and shall continue for a period of five (5) years, unless terminated
prior thereto.
3. COMPENSATION: For all services rendered by the employee,
the employer shall pay the employee an annual salary of One Hundred Twenty-Five
Thousand Dollars ($125,000) to be paid through Five Thousand Two Hundred and
Eight Dollar and Thirty-three Cent ($5,208.33) semi-monthly payments, payable at
the end of each of twenty-four (24) semi-monthly periods. The annual salary
shall be increased to Two Hundred Thousand Dollars ($200,000) and payable
semi-monthly in the event that Susan Hunt and Barry Hunt become divorced or on
the death or termination of employment of Susan Hunt or if Susan Hunt does not
become employed pursuant to the Agreement set forth in Attachment A. Salary
payments shall be subject to withholding and other applicable taxes.
4. DUTIES: The employee is engaged to serve as the President
of Employer. Employee's duties include but are not
<PAGE>
limited to managing the operations of the Company. The precise services of the
Employee may be extended or curtailed by the employer from time to time.
5. EXTENT OF SERVICES: The Employee shall devote substantially
his entire working time, attention and energies to the Employees business and
shall not during the term of this Agreement be engaged in any employment
activities, undertake to work for compensation or accept employment with another
entity for gain, profit, or other pecuniary advantage. However, the Employee may
invest his assets in such form or manner as will not require his services in the
operation of the affairs of the companies in which such investments are made.
6. DISCLOSURE OF CONFIDENTIAL INFORMATION: The employee
acknowledges that he will have access to significant amounts of confidential
information of employer and its Parent Company, Carnegie International
Corporation, including such information as lists of customers, sources of
supply, production information, product information, service information,
formulas, computer programs and development ideas related thereto, work in
progress, trade secrets, technical information acquired by Employee from
Employer or Carnegie or from the inspection of Employer's or Carnegie's
property, confidential information disclosed to Employee by third parties, and
all documents, things and record bearing media disclosing or containing the
aforegoing information,
- 2 -
<PAGE>
including any confidential materials prepared by the parties hereto which
contain or otherwise relate to such information concerning the Employer's and or
Carnegie's financial, intellectual, technical and commercial information
(collectively hereinafter referred to as "Confidential Information") shall be
and remain confidential. The Employee will not during or after the term of this
employment, disclose the Confidential Information or any part thereof to any
person, firm, corporation, association, or other entity for any reason or
purpose whatsoever. In the event of a breach or threatened breach by the
Employee of the provisions of this paragraph, the Employer shall be entitled to
an injunction restraining the Employee from disclosing, in whole or in part, the
Confidential Information, or from rendering any services in connection with the
telecommunications industry to any person, corporation, association, or other
entity to whom such Confidential Information, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein shall be construed as
prohibiting the Employer or Carnegie from pursuing any of the remedies available
to the Employer for such breach or threatened breach, including the recovery of
damages from the Employee. If Employee buys back the Shares of Employer, the
provisions hereof relating only to Employer shall no longer apply.
7. EXPENSES: The Employee may incur reasonable expenses for
promoting the Employees business. The employer shall
- 3 -
<PAGE>
reimburse the Employee for all such expenses upon the Employee's periodic
presentation of an itemized account of such expenditures.
8. VACATIONS: The Employee shall be entitled to twenty (20)
vacation days each year, during which time his salary and benefits shall be paid
in full. Each vacation shall be taken so as not to unreasonably interfere with
the operation of Employer's business. No such vacations shall be taken before
May 31, 1998.
9. SURVIVAL AFTER TERMINATION OR EXPIRATION OF EMPLOYMENT
RELATIONSHIP: The Provisions contained within paragraphs 6, 11 and 14 of this
Agreement shall survive the expiration or other termination of this Agreement.
10. TERMINATION: The following termination provisions shall
apply hereto:
a. Termination by Employer for cause. The
Employer may terminate this Agreement immediately by written notice if Employee
is convicted of any crime involving fraud, dishonesty, or willful misconduct
directly or indirectly connected to Employee's duties and responsibilities to
Employer or the management and or operation of Employer's business. If Employer
chooses not to pursue criminal action against Employee in connection with fraud,
dishonesty, or willful misconduct that has a material impact on the Employer,
the Employee may terminate this Agreement for such cause, after written notice
to the Employee of the reason for termination and failure by the Employee within
- 4 -
<PAGE>
thirty (30) days thereafter to cure or eliminate such reason for termination and
compensate Employer for any losses sustained as a result of Employee actions in
connection with such fraud, dishonesty or willful misconduct. All terminations
made pursuant to this paragraph shall be considered for cause and the Employer
shall not be liable for any amounts pursuant to this Agreement, following such
termination.
b. Termination by Employer for other than cause.
If the Employer terminates this Agreement for any reason other than cause during
the first two years of this Agreement, then the Employee may exercise his option
to Buy-Back the Shares of the Employer. If the Employer terminates this
Agreement for any reason other than cause during the final three years of the
term of this Agreement, the Employer shall pay to the Employee all salary owed
pursuant to paragraph 3 of this Agreement, for the remainder of the term of this
Agreement.
c. Termination by Employee for Good Reason. The
Employee may terminate his employment with Employer pursuant to this Agreement
for "good reason", provided that the Employee has given written notice to the
Employer of the reason of the resignation and Employer fails to cure or
eliminate such reason within thirty (30) days from the receipt of such written
notice by Employer. For the purposes of this Agreement, good reason shall mean:
(i) removal form the position of President, other than as a
- 5 -
<PAGE>
result of promotion; (ii) material diminution of the
Employee's title, position, or responsibilities; (iii) material reduction in the
Employee's salary or benefits; (iv) relocation of the Employee to a location
more than thirty (30) miles from the Employee's principal work place at the time
this Agreement takes effect; or (v) the Employees willful failure to comply with
and satisfy material requirements of this Agreement. If the Employee terminates
his employment for good reason during the first two years of the term of this
Agreement, the Employee may exercise his option to Buy-Back the Shares of the
Employer. If the Employee terminates his employment for good reason during the
final three years of he term of this Agreement, the Employer shall pay to the
Employee one year of salary as delineated in paragraph 3 of this Agreement,
consistent with similar benefits being provided to other executives of Carnegie
International Corporation.
d. Termination by Employee for other than good reason.
Employee may terminate this Agreement for any reason or no reason at any time,
upon thirty (30) days written notice to the Employer. In such event, the
Employee if requested by the Employer, shall continue to render his services and
receive full salary and benefits up to the date of termination. The Employer may
elect to terminate Employee by written notice thereof before the expiration of
the thirty (30) day period and discontinue all salary and benefits as of said
termination date. If Employee
- 6 -
<PAGE>
terminates this Agreement for any reason other than good reason, the Employer
shall not be liable for any amounts due to Employee pursuant to the terms of
this Agreement.
e. Termination by Employee or Employer by Exercise of
Buy-Back/Sell-Back Agreement Options. In the event that the Shares of the
Employer are transferred to Employee pursuant to options exercised under the
terms the Buy-Back/Sell-Back Agreement between Employer, Carnegie, Barry Hunt
and Susan Hunt, this Agreement shall terminate effective on the closing date for
said Buy-Back or Sell-Back, except for the provisions hereof contained in
paragraph 6 related to non-disclosure of confidential information related to
Carnegie or any of its subsidiaries and any other provisions related to the
enforcement thereof which all shall remain in full force and effect. f. Other
Termination. This Agreement shall terminate upon the occurrence of any of the
following events: 1. Expiration of the term of employment, as provided in
Section 2 hereof; or 2. Death of Employee, except for those benefits as provided
to the contrary herein; or 3. In the event Employee shall become permanently
disabled as defined in the following paragraph and such permanent disability
prevents the Employee from substantially performing the duties of his
employment, Employer shall pay to
- 7 -
<PAGE>
Employee the amounts provided in the following paragraph.
Disability Compensation. In the event of
illness, injury or other condition which causes disability of the Employee,
which in the reasonable objective opinion of two Physicians (one of said
physicians to be chosen by the Company and one to be chosen by Hunt) is of such
a nature that it prevents the Employee from substantially fulfilling his
obligations under this Agreement (hereinafter referred to as the "Permanent
Disability"), and it is agreed between the parties that it is likely that such
condition will continue to exist for more than six (6) months, it shall be
considered by the parties to be a Permanent Disability. In addition to all other
amounts due pursuant to this Section, Employee's basic salary shall be continued
for a period of six (6) weeks following the onset of such Permanent Disability.
The weekly amount paid to Employee shall be the average weekly compensation
earned by the Employee based on the collection of the six (6) months immediately
prior to the onset of Permanent Disability. For purposes of this Agreement, the
"onset of Permanent Disability" shall be defined as that point in time when,
pursuant to the provisions of this Agreement, it is deemed that Employee is no
longer able to substantially fulfill his obligations under this Agreement. It is
understood that Employee's occasional sickness or other incapacity of short
duration shall not result in a determination of Permanent Disability. Upon the
death or
- 8 -
<PAGE>
disability of Employee, any salary of Employee hereunder that has been allocated
to Susan Hunt shall immediately cease unless and until Employer consents thereto
in writing.
11. EMPLOYEE'S REPRESENTATIONS: Employee represents and.
warrants to Employer that no legal, administrative or other proceedings against
the Employee have been threatened or filed in any federal, state or local court
of law or before any administrative body.
12. OTHER BENEFITS AND COMPENSATION:
a. Health insurance coverage shall be provided to
Employee comparable to the coverage being provided to Employee by Employer
immediately prior to the acquisition of Employer's stock by Carnegie
International Corporation ("Carnegie").
b. Employee shall have the benefit of having the cost
of his current vehicle, a BMW, paid for by Employer with a comparable vehicle
replacement two (2) years from the date hereof, with a new vehicle provided
every two (2) years thereafter during the term of Employee's employment.
c. Employee shall be reimbursed for all reasonable and
necessary company expenses attributable to the business of ACC or Carnegie.
d. Employee shall receive disability and life insurance
coverage consistent with the current coverage being provided to Employee by
Employer immediately prior to the
- 9 -
<PAGE>
acquisition of Employer's stock by Carnegie International Corporation
("Carnegie").
e. Employee or his estate shall receive a Seventeen and
one-half percent (17.5 %) commission on the gross profits generated from MAVIS
sales through ACC during the duration of this employment agreement. However, no
such commissions shall be paid until after January 1, 1999 and no amount shall
be paid based on the gross profits generated from MAVIS sales unless adequate
funds are available to satisfy the cash flow needs of ACC or its successor for
the upcoming six (6) month period after each evaluation date. After January 1,
1999, the first evaluation date, Employee shall receive compensation over and
above his base salary, based on seventeen and a half percent (17.5%) of the
gross profit generated from MAVIS sales (hereinafter referred to as the
"Commissions") up to a maximum of Two Hundred Thousand Dollars ($200,000.00) in
Commissions in any one year. Said Commissions shall be paid if financial
projections prepared by ACC or its successor and agreed to by Carnegie as of the
first day of each calendar quarter beginning on January 1, 1999 indicate that
funds will be available to meet the cash flow needs of ACC or its successor for
the next six months and funds are still available over and above said cash flow
needs. Disbursements to Employee for accrued commissions earned shall be made
within thirty (30) days of the first day of each calendar quarter, beginning
with the calendar
- 10 -
<PAGE>
quarter starting on January 1, 1999. The amount of any such commissions earned
in excess of the Two Hundred Thousand Dollar ($200,000.00) limit for any one
calendar year shall be paid at the beginning of the next calendar quarter if
funds are available to satisfy the projected cash flow needs of ACC or its
successor for the next six (6) months following the beginning of said calendar
quarter. All reasonably available funds after payment of said commissions shall
be made available for upstream distribution to the parent company of Employer.
Any commission that would have been due to Employee on gross profit from MAVIS
sales during the five (5) years covered by his employment agreement shall upon
Employee's death or permanent disability be paid to Employee's heirs or his
designees consistent with the manner in which Employee would have been paid for
said commissions, as provided above.
f. MAVIS sales through ACC for the purposes of
calculating the Commissions owed to Employee shall consist of any and all
software and/or hardware product sales by ACC that encompass the Multi-language
Automated Voice Intelligence System (MAVIS). Gross profit on said sales shall be
determined by subtracting from the selling price of said products any and all
costs of software, hardware, sales commissions, labor, materials, parts,
equipment or other identifiable items which are attributable to the MAVIS
product and any related hardware and or software sold as a part thereof.
- 11 -
<PAGE>
g. Employee shall be a voting member or have the
right to appoint a voting member to the Carnegie Board of Directors upon
execution of the Stock Purchase Agreement between Carnegie, Barry Hunt and Susan
Hunt.
13. SALE OF MAVIS: If through the direct efforts of Employee,
the rights to MAVIS are sold for a lump sum amount to an entity for which the
lead for such sale was developed by Employee, Employee shall receive as a sales
commission nine percent (9%) of selling price of MAVIS paid by entities with
whom Employee developed the lead for said sale. If said sale of MAVIS is paid on
an installment basis, Employee shall receive the sales commission on the
purchase price as payments thereof are received by Employer.
In the event that the rights to MAVIS are sold for
a lump sum or on an installment basis in North America during the term of this
Agreement, Employee shall receive a three Percent (3%) sales commission on the
selling price if the lead for said sale was not developed directly by Employee.
Notwithstanding anything to the contrary contained herein, no sales commission
whatsoever shall be paid on a sale of the rights to MAVIS to either Nortel or
Nokia during the six (6) month period beginning on the date of this Agreement.
14. RESTRICTIVE COVENANTS: For a period of two (2) years,
after the termination or expiration of this Agreement, the Employee will not,
within the current geographical customer market
- 12 -
<PAGE>
of ACC, directly or indirectly, own, manage, operate, control, be employed by or
participate in any business that competes with and or sell similar products and
or services as the business conducted by the Employer at the time of the
termination of this Agreement. In the event of the Employee's actual or
threatened breach of the provisions of this paragraph, the Employer shall be
entitled to an injunction restraining the Employee therefrom. Nothing shall be
construed as prohibiting the Employer from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages from the
Employee. If Employee buys back the Shares of Employer the provisions hereof
shall no longer apply.
15. OWNERSHIP OF OTHER PUBLIC COMPANIES: Employee may own up
to five percent (5%) of public companies other than Carnegie, provided such
ownership is not inconsistent with the terms and conditions of this Agreement
and or otherwise prohibited by Law.
16. NOTICES: Any Notice required or desired to be given under
this Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of the Employee, or to its principal office in the case of
the Employer.
17. WAVIER OF BREACH: The waiver of the Employer of a breach
of any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of a subsequent breach by the Employee.
- 13 -
<PAGE>
18. ASSIGNMENT: The Employee acknowledges that the services to
be rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights, or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Employer under this Agreement
shall inure to the benefit and shall be binding upon the successors and assigns
of the Employer.
19. ENTIRE AGREEMENT: This Agreement contains the entire
understanding of the parties. No representations were made or relied upon by
either party, other then those expressly set forth. No agent, employee, or other
representatives of either party are empowered to alter any of the terms hereof,
unless they are in writing and signed by the Employee and an executive officer
of the Employer.
20. CONTROLLING LAW: The validity, interpretation and
performance of this Agreement shall be controlled by and construed under the
Laws of the State of Maryland.
21. FIRST RIGHT OF REFUSAL FOR FINANCING OR LEASING
ARRANGEMENTS: Employer or its designee shall have the first right of refusal for
any leasing and/or financing of software and/or equipment sales through ACC.
- 14 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
agreement as of the day and year first above written.
ATTEST: EMPLOYER: HARBOR CITY CORPORATION
/s/ Susan B. Hunt, Sec. BY: /s/ Barry N. Hunt, Pres.
- ----------------------- ---------------------------------
BARRY N. HUNT, President
WITNESS: Employee:
/s/ Barry N. Hunt
- ----------------------- -----------------------------------
BARRY N. HUNT
- 15 -
<PAGE>
Attachment A
This 18th day of May, 1998, Harbor City Corporation, t/a ACC
Telecom, (the "Employer") hereby agrees that, for valuable consideration
received in the form of Barry Hunt's Employment Agreement, on or before June 1,
1998, it will hire Susan Hunt as an employee of the Employer and will enter into
an employment agreement with Ms. Hunt containing, without limitation, the
following terms:
1) an employment term of five (5) years;
2) an annual salary of $75,000;
3) part-time duties, to be defined later;
4) twenty (20) paid vacation days per year;
5) termination provisions identical to those in Barry Hunt's
Employment Agreement, where applicable.
6) reimbursement of reasonable business expenses; and
7) provision of health, disability, and life insurance
coverage equivalent to such coverage provided to Barry Hunt.
Notwithstanding any representations contained in the
Employment Agreement between Harbor City Corporation, t/a ACC Telecom, and Barry
Hunt, the Employer hereby understands and agrees that Barry Hunt reserves the
right to exercise his option to Buy-Back the Shares of Harbor City Corporation,
t/a ACC Telecom, immediately if an employment agreement is not reached
encompassing the above provisions between the Employer and Susan Hunt by June
18, 1998. The Employer hereby acknowledges that, to the extent applicable, the
provisions of this attachment are in addition to the employee benefit disclosure
contained in exhibits S and T to the Stock Purchase Agreement.
/s/ Barry N. Hunt, Pres.
- ----------------------------
Harbor City Corporation, t/a ACC Telecom
/s/Barry N. Hunt /s/ Susuan Hunt
- ------------------ ----------------
Barry Hunt Susan Hunt
- 16 -
<PAGE>
Attachment B
This 18th day of May, 1998, the Employer hereby agrees that it
will in good faith inform the Employee six months prior to the end of the term
of this agreement, in December 2002, of its intentions regarding renewal or
extension of this Agreement. If at that time the Employer intends to extend
Employee's employment, both parties hereby agree to engage in good faith
negotiations regarding the terms of such employment, commencing no later than
ninety (90) days prior to the termination of this Agreement.
/s/Barry N. Hunt. Pres.
- --------------------------
Harbor City Corporation, t/a ACC Telecom
/s/ Barry Hunt
- --------------------------
Barry Hunt
- 17 -
<PAGE>
EXHIBIT 10.17
<PAGE>
ALLTEL SUPPLY
ALLTEL
6625 The Corners Parkway
Norcross, GA 30092
770-448-5210
ALLTEL Supply
DISTRIBUTOR AGREEMENT
This Agreement is made as of this 20 day of January 1 1999, by and between
ALLTEL Supply, Inc., located at 6625 The Corners Parkway, Suite 400, Norcross,
Georgia 30092 hereinafter referred to as "Distributor", and Carnegie
International Corp./Assignees, having its principal office at 11350 McCormick
Road, Suite 100 1, E.P. III, Hunt Valley, MD 21031 hereinafter referred to as
"Manufacturer/Supplier". This agreement shall be automatically renewed for
successive one year terms unless either party terminates as provided for herein.
In consideration of the mutual agreements and promises contained in this
Agreement, Distributor and Manufacturer/Supplier agree as follows:
1. APPOINTMENT OF DISTRIBUTOR:
Manufacturer/Supplier hereby appoints and designates the Distributor as
an authorized distributor of the Equipment described in the attached
Exhibit I "Equipment" and authorizes Distributor to market and sell the
Equipment, according to the terms and conditions of this Agreement.
Manufacturer/Supplier agrees to sell to Distributor, Equipment for
resale in the Territory. The Territory, in which Distributor may act as
authorized distributor of the Equipment, shall be the United States of
America.
2. THE DISTRIBUTOR AGREES:
A. To use its best efforts to promote, market and distribute the
Equipment of Manufacturer/Supplier in a manner reflecting
credit on the parties to this Agreement.
B. To provide customers with currently available catalogs and
promotional literature in reasonable quantities as deemed
appropriate by Distributor.
C. To provide and/or coordinate technical support for and
training in the proper use of the Equipment, for those
customers requesting same, through seminars and other programs
as deemed appropriate by Distributor.
D. To adhere to the payment and price terms prescribed in this
Agreement. (See Attachment "A")
3. MANUFACTURER/SUPPLIER AGREES:
A. To support the Distributor in its effort to promote the sale
of the Equipment.
B. To provide reasonable technical and/or sales training
assistance for the
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 2 of 8
Distributor's customers at the Distributor's request.
C. To support the Distributor by providing it, upon request,
with all reasonable quantities of literature, catalogs,
advertisements, circulars, etc. at no charge.
D. To insure that the prices, terms and conditions of sale to
Distributor are no less favorable than those allowed other
Distributors of Manufacturer/Supplier's Equipment.
E. To support sales through Distributor and any requests for
Direct Sales shall be quoted at Manufacturer's suggested
list price. (See Attachment "B")
F. To extend to Distributor, at Distributor's discretion the
following options. Relevant only to the product purchased on
the agreed upon initial stocking orders, for any product
remaining in inventory six (6) months after delivery to
Distributor, the Distributor may elect to either return any
product in exchange for an equal value purchase of alternate
product, OR return the remaining product for a full cash
refund based upon the original purchase price.
G. To recognize that Distributor is the Purchasing entity for
all ALLTEL Corporation Affiliated companies and will make no
attempt to sell directly to them. Further any pricing
inquiries shall be referred back to the Distributor.
H. That their products will be produced, manufactured and
delivered in accordance with all applicable Federal, State,
and Local statutes. To hold ALLTEL Supply harmless from all
claims or judgments for bodily injury, personal injury,
advertising injury or property damage against ALLTEL Supply
by third parties, which injury or damage results from the
distribution of that product by ALLTEL Supply. To maintain
Commercial General Liability Insurance, including Products-
Completed Operations, in the minimum amount of $ 1,000,000
per occurrence / aggregate, endorsed to name ALLTEL Supply,
Inc. as additional insured. Upon request, Manufacturer/
Supplier agrees to provide a certificate evidencing such
coverage.
4. ADDITIONAL TERMS AND CONDITIONS:
A. Order Entry. All orders shall be placed using the standard
Purchase Order forms of ALLTEL Supply, Inc.
B. Pricing/Discounts. Distributor's cost for each item of the
Equipment shall be Manufacturer/Supplier's current list
price as published from time to time, less a discount, as
shown in Exhibit 2. Manufacturer/Supplier shall have the
right to change its prices upon sixty (60) days written
notice to Distributor, Prices are exclusive of federal,
state, and local taxes. In the event of a decrease in price,
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 3 of 8
ALLTEL Supply, Inc. Distribution Agreement Page 3 of 8
Manufacturer/Supplier will issue a credit to Distributor for
the difference between the original and new lower price on
products currently in Distributor's stock. In the event of a
price increase, orders placed prior to effective date will
be invoiced at the old prices. Ten (10) sets of pricing are
to be included with notification. Volume discount and/or
rebate programs may be included herein or accepted under
separate agreement or schedule.
C. Advertising/Marketing Allowances. In the event Vendor
Advertising/Co-op programs are available, it/they are
included herein as Exhibit 3.
D. Payment Terms. Payment shall be due, in full, thirty (30)
days from date of invoice. If paid within fifteen (15) days,
a two percent (2%) early payment discount will apply.
Invoice date shall be the date the Equipment is shipped or
later. In no event shall the invoice date precede the
shipping date.
E Stock Balancing. Distributor may request one (1) return
authorization in each calendar quarter without a restocking
charge, for slow moving inventory. Distributor may return
one (1) consolidated shipment from each distribution
location, freight prepaid, for stock adjustment.
F. Obsolescence. If the Manufacturer/Supplier introduces new
equipment, which substantially obsoletes equipment
previously purchased by the Distributor, the
Manufacturer/Supplier, shall after written request from the
Distributor, repurchase such equipment which was so rendered
obsolete at the purchase price, provided the Distributor
will issue an order to offset at equal value.
Manufacturer/Supplier will give sixty day (60) notification.
G. Freight. FOB Laurel, Maryland. Equipment will be shipped to
Distributor's specified delivery point FOB origin for
dropship orders, freight prepaid and added to the invoice
provided a copy of the actual freight invoice is included
for all shipments other than U.P.S. FOB destination freight
prepaid and allowed for stock shipments. Title and risk of
loss for Equipment shall pass to Distributor, upon delivery.
Manufacturer/Supplier will pack equipment purchased
hereunder for transport in accordance with commercial
standards and deliver Equipment to a carrier of the mode of
transportation selected by Distributor unless otherwise
agreed upon by the parties. If any unauthorized freight
carrier routing occurs which results in an increase to the
net cost of freight to the Distributor, the difference is
subject to bill back and will be deducted from the next
available invoice. All Bills of Lading shall indicate total
piece count. All shipments marked "SAID TO CONTAIN" are
subject to refusal and all charges applicable are
Manufacturer/Supplier's responsibility.
Manufacturer/Supplier will assist in asserting any claim
against the invoiced carrier for loss, damage, or
destruction of Equipment. Freight classifications must be
provided for all products upon acceptance of this Agreement.
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 4 of 8
H. Packaging/Weights. Standard unit, master carton, pallet and
reel quantities are to be identified and provided with
corresponding weights prior to the acceptance of this
agreement. Unless instructed otherwise by Distributor,
Manufacturer/Supplier shall, for orders placed hereunder:
(1) ship to the destination designated in the order in
accordance with specific shipping instructions; (2) see that
all subordinate documents bear Distributor's order number;
(3) enclose a packing memorandum with each shipment and when
more than one package is shipped, identify the one
containing the memorandum and sequentially number all
cartons i.e. I of 4, 2 of 4, etc.; (4) mark Distributor's
order number on all packages and shipping papers; and (5)
render separate invoices for each shipment or order.
I. Manufacturing Origin. City, state, and country of origin are
to be identified for each product/product group.
Certificates of origin (where applicable) are to be included
with this agreement and provided as further development
occurs. All products are to be identified where CSA/DOC
approval has been granted.
J. Non-Assignability. The rights and obligations created
hereunder cannot be assigned by either party either
voluntarily or by operation of the law without the prior
written consent of the other party. Any unauthorized
transfer or attempt to transfer or assign automatically
terminate this Agreement.
K. Relationship of Parties. This Agreement does not in any way
create the relationship of joint venture, partnership, or
principal and agent between Manufacturer/Supplier and ALLTEL
Supply, Inc. and neither shall have the power or ability to
pledge the credit of the other, nor to bind the other, nor
to contract in the name of or create a liability against the
other in any way for any purpose.
L. Infringement. The Manufacturer will indemnify, defend, and
otherwise hold harmless the Distributor, its affiliates, and
its customers from all cost, loss, damage, or liability
arising from any proceeding or claim brought or asserted
against Distributor, its affiliates, or its customers for
any claim that the use of any Products in accordance with
this agreement infringes a third party's U.S. patent,
copyright, trade secret and/or other proprietary right in
the United States. The Manufacturer will pay any costs,
damages and attorney's fees finally awarded against
Distributor, for any such infringement, provided that:
o Distributor notifies the Manufacturer immediately
upon Distributor's receipt of such claim;
o Manufacturer has sole control of the defense of,
and all related settlement negotiations for, any
such claim, and;
o Distributor cooperates fully in the defense-of,
and furnishes all related evidence in its control
relating to, any such claim.
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 5 of 8
If claim for infringement occurs and Distributor's use of a
product or any part thereof in accordance with this
agreement is enjoined as a result thereof, or in the
manufacturer's opinion is likely to occur, the Manufacturer
shall have the right, at its option and expense, to (1)
procure the right for Distributor to continue using such
product(s) in accordance with this agreement, (2) replace or
modify such product(s) so that it becomes non-infringing, or
(3) require the return to the Manufacturer all products to
which such claim(s) for infringement relate. In the event of
any such return of products, the Manufacturer agrees to
grant Distributor credit for such returned products, based
on the price paid.
Manufacturer shall have no obligation or liability to
Distributor for any claim and/or injunction for infringement
based upon (1) the combination, operation or use of any
product(s) with equipment, data, or software not supplied by
Manufacturer, (2) alteration or modification of any
product(s) not authorized or performed by Manufacturer, or
which are made or authorized by Manufacturer in compliance
with Distributor's or end user's designs, specifications or
instructions.
M. Warranty. Standard policy to be included with current price
schedule provided initially and periodically hereafter.
Optional policies or programs as available.
Multi-Century Clause: Multi-Century Compliance Not
withstanding any provision of this agreement to the
contrary, the manufacturer/supplier represents and warrants
that its own internal systems and each item of hardware,
software, and firmware created, modified, upgraded, revised,
developed, or delivered hereunder shall accurately process
date data (including without limitation calculating,
comparing, and sequencing), within, from, into, and between
centuries, (including without limitation the twentieth and
twenty-first centuries), including leap year calculations.
The design of said hardware, software, and firmware to
insure compliance with the foregoing warranty shall include,
without limitation, date data century recognition,
calculations that accommodate same century and multi-century
formulae and dated values, date data interface values
reflect the century. In the event of breach of this
warranty, ALLTEL shall be entitled to repair or replacement
of any non-compliant item, at no cost to ALLTEL, within
sixty (60) days after notice of breach from ALLTEL to
manufacturer/supplier, in addition to the warranties
expressed, implied , or arising by operation of law. It is
understood that the warranties created by this agreement,
whether express, implied, or arising by operation of law
that affect ALLTEL's rights under this agreement are
cumulative and should be considered in a manner consistent
with one another.
N. Hazardous Material Compliance. In accordance with "Right to
Know" legislation, MSDS documentation is to be provided for
all products initially and hereafter with each shipment.
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 6 of 8
0. Trademarks. Products and licensed materials purchased under
this Agreement may bear trade names, trademarks, logos or to
symbols of Manufacturer/Supplier. Manufacturer/Supplier
hereby grants to Distributor permission to use such symbols
in Distributor's marketing and advertising of
Manufacturer/Supplier products, provided such use conforms
to standards and guidelines relating thereto which
Manufacturer/Supplier may furnish from time to time. Use of
trademarks and symbols by Distributor may be subject to pre-
publication or pre-use review and approval by
Manufacturer/Supplier. If, in Manufacturer/Supplier
judgment, any use by Distributor is deemed detrimental to
Manufacturer/Supplier or is deemed undesirable,
Manufacturer/Supplier may withdraw permission without
liability as result thereof.
P. Force Majeure. Neither party shall be responsible for delays
or failures in performance resulting from acts of God, labor
strikes, acts of war or civil disruption, government
regulations imposed after the fact, public utility failures,
or natural disasters.
Q Termination. The Distributorship hereby created may be
terminated only; (a) by an agreement in writing duly signed
by the parties hereto; (b) by either party at will, with or
without cause, upon not less than ninety (90) days notice in
writing given by certified mail, return receipt requested,
to the other party; (c) by either party if the other party
either ceases to function as a going concern or to conduct
its operations in the normal course of business, a receiver
is appointed or applied for by the party, a petition under
the Federal Bankruptcy Reform Act if filed by or against
either party, or either party make an assignment for the
benefits of creditors.
Upon termination, Manufacturer/Supplier shall purchase from
Distributor and Distributor shall sell to
Manufacturer/Supplier any and all products remaining in
Distributor's inventory at the price paid originally by
Distributor. Material to be returned to
Manufacturer/Supplier for full cash refund, freight paid by
the Distributor.
R. Governing Law. This Agreement shall be governed by the laws
of the State of Georgia.
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 7 of 8
S. Notices. All notices required or contemplated under this
Agreement shall be by first class mail, except as stated in
Paragraph 4 (1) hereof, addressed to the parties as follows:
TO MANUFACTURER/SUPPLIER Carnegie International Corp. / Assignees
11350 McCormick Rd.,Suite 1001 EP III
Hunt Valley, MD, 21031
TO DISTRIBUTOR ALLTEL Supply, Inc.
6625 The Comers Parkway
Suite 400
Norcross, Georgia 30092
<PAGE>
ALLTEL Supply, Inc.
Distribution Agreement
Page 8 of 8
5. This Agreement shall be binding upon and ensure to the benefit of the
parties hereof, and their successors and assigns.
MANUFACTURER/SUPPLIER
/s/ Carnegie International Corp.
--------------------------------
(Manufacturer/Supplier)
By: /s/ Lowell Farkas
--------------------------
(Authorized Signature)
Name: Lowell Farkas
Title: President
Date: 12/23/98
Attest:
/s/ David Pearl
- --------------------
(Signature)
Name: David Pearl
Title: Secretary
ALLTEL Supply, Inc.
By: /s/ H.S. Fisher, Jr.
--------------------------
(Authorized Signature)
Name: H.S. Fisher Jr.
Title: Senior Vice President,
Operations
Date: January 20, 1999
Attest:
/s/ C.F. Addlesberger
- ----------------------
(Signature)
Name: C.F. Addlesberger
Title:Executive Secretary
c76365.634
<PAGE>
EXHIBIT 10.18
<PAGE>
VOICE QUEST, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into this 20th day of November, 1998 by and
between Carnegie International Corporation, a Corporation of the State of
Colorado (hereinafter referred to as "Carnegie"or "Purchaser") Mark S. Ortner,
Individually (hereinafter referred to as "Ortner"), Jennifer Meckes,
Individually (hereinafter referred to as "Meckes"), Trevor Kitson, Individually
(hereinafter referred to as "Kitson"), Simon Oliver (hereinafter referred to as
"Oliver") and Voice Quest, Inc. (hereinafter referred to as the "Company"), a
Corporation of the State of Florida. Ortner, Meckes, Kitson and Oliver shall
hereinafter collectively be referred to as "Seller".
EXPLANATORY STATEMENT
Seller owns One Hundred (100) 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, leasehold, improvements, software rights, software development rights,
lease rights for the Premises of the Company located at 6360 Tamiami Trail,
Sarasota, Florida 34231-3935 (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 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 and binding 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 purchase 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
<PAGE>
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 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 Closing Date, November 20, 1998, including all Assets on the List of
Assets (a copy of which is attached hereto as Exhibit A2).
1.2.1. Purchase Price Adjustment: The Parties hereby
agree that for purposes of calculating purchase price adjustments, if any, said
adjustments (See Exhibit A3) shall be made if the Company is not debt free as of
the Closing Date except for the obligations assumed by Purchaser under Section
1.3.2. of this Agreement.
1.3. Purchase Price: The Purchase Price of the Shares shall be
as follows:
1.3.1. Purchaser shall issue to Ortner and Meckes
collectively Twenty-one Thousand Six Hundred (21,600) shares of Preferred Series
E 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. Ortner and Meckes shall receive
collectively in the conversion the greater of:
(i) Rule 144 Stock with a value of Two Hundred Seventy
Thousand Dollars ($270,000.00) based upon the conversion value set forth in
Section 1.3.1.2. below; or
(ii) Two Hundred Sixteen Thousand (216,000) shares of Rule 144
Stock, (which shall be considered higher in Values than the respective values to
each individual under 1.3.1.1.(i) above if the Value of the Common Stock of
Carnegie is above $1.25 per share as computed on the business day immediately
preceding the expiration of the Period.
1.3.1.2. 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) or the closing trading price on
the exchange on which Carnegie Common Stock is traded if said Stock is no longer
quoted on OTCBB.
1.3.2. One Hundred Two Thousand Eighty-four Dollars
and Twenty-five Cents ($102,084.25) to be paid in quarterly installments over a
period of three (3) years in the amount of Eight Thousand Five Hundred Seven
Dollars and Two Cents ($8,507.02) per quarter, with the first payment to be paid
on January 1, 1999. The amount of this portion of monetary consideration is
based on any funds infused into the Company in the form of loans and/or equity
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contributions in excess of equity contributions of Fifty Thousand Dollars
($50,000.00) for a total of One Hundred Two Thousand Eighty-four Dollars and
Twenty-five Cents ($102,084.25) and is subject to audit by Carnegie or its
representatives within six (6) months from the Closing Date. Carnegie shall
assume the liabilities of the Company as set forth in Exhibit B as of the
closing date less any amounts due and payable as reflected in this paragraph.
The liabilities assumed shall be substantially the same as those reflected on
the tax return of the Company provided to Carnegie less amounts due and payable
as reflected in this paragraph. This monetary consideration shall be allocated
between Kitson and Oliver.
1.3.3. On or before the Closing Date Kitson and
Oliver shall each be issued One Hundred Fifteen Thousand (115,000) Rule 144
Legend Common Stock of Carnegie.
1.3.4. The purchase of the Shares shall vest in
Carnegie on the Closing Date, November 20, 1998, 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, trade
secrets, software rights, software development rights, leasehold improvements
and assets relating thereto; provided, however, that Ortner 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.
1.3.5. There shall be no debt of the Company as of
and including the Closing Date, except for any amount assumed by Purchaser under
Section 1.3.2. above. 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 Closing Date, and Seller shall indemnify
Purchaser and hold Purchaser harmless from any of said tax or other liabilities.
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 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
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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, records and tax returns of the Company, which have been presented
to Carnegie for the periods ended December 31, 1997, December 31, 1996 and
December 31, 1995, 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.
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 Florida. 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 the 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 Hundred (100) 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 of the Company.
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
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or may become liable in any manner whatsoever for periods prior to the Closing
Date.
2.7. Since June 9, 1995
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.
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
December 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 the Company and/or the Sellers, 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,
agent's 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, 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
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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 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.
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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 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 the Closing Date. 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
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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.
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 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 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,
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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 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 the Closing Date. 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 except as
provided in Exhibit T1. 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
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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.
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 the Shares and the Assets 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 Florida 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 the 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.
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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 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.
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 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 writing 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
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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 same conditions precedent specified in Sections
5.1.1. and 5.1.2. of this Agreement for Seller and the Company.
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) 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.
(c) 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.
(d) 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
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<PAGE>
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.
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
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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.
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.
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<PAGE>
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 Indemnitor's account and risk and for the
purpose hereof as if such defense or disposition had been made or undertaken by
the Indemnitor.
6.10. 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 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.
6.11. 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.
15
<PAGE>
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 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. Mark Ortner
c/o Voice Quest, Inc.
6360 Tamiami Trail
Sarasota, Florida 34231-3935
with a copy to: Kurt F. Lewis, Esquire
6624 Gateway Avenue
Sarasota, Florida 34231
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<PAGE>
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
herein-above 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, 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 right 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. Employment of Seller:
Seller and Purchaser shall enter into mutually agreeable
Employment Agreements simultaneously herewith that provide for a salary to
Ortner of Seventy-five Thousand Dollars ($75,000.00) for one (1) year following
the Closing Date, Eighty-seven Five Hundred Dollars ($87,500.00) in the second
year following the Closing Date and One Hundred Thousand Dollars ($100,000.00)
in the third year following closing. A cost of living adjustment of twenty-five
17
<PAGE>
percent (25%) will be included, if Ortner is required to move to Maryland.
Ortner shall receive three percent (3%) of the gross profit from the sale of the
Personal operator or Hybid MAVIS(TM) software by the Company, to be paid fifty
percent (50%) in cash and fifty percent (50%) in Rule 144 Legend Shares of
Carnegie at the end of each calendar year.
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
THE COMPANY:
ATTEST: Voice Quest, Inc.
/s/ /s/ Mark Ortner
- --------------------------------- ------------------------------
Mark Ortner, President
WITNESS: SELLERS:
/s/ /s/ Mark Ortner
- --------------------------------- ------------------------------
Mark Ortner, Individually
WITNESS:
/s/ /s/ Trevor Kitson
- --------------------------------- ------------------------------
Trevor Kitson, Individually
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<PAGE>
WITNESS:
/s/ /s/ Simon Oliver
- --------------------------------- ------------------------------
Simon Oliver, Individually
WITNESS:
/s/ /s/ Jennifer Meckes
- --------------------------------- ------------------------------
Jennifer Meckes, Individually
19
<PAGE>
EXHIBIT 10.19
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is dated this 20th day of November, 1998, by
and between Voice Quest, Inc., the "Employer" and Mark Ortner, the "Employee".
1. EMPLOYMENT: The Employer employs the Employee and the Employee
accepts employment upon the terms and conditions of this Agreement.
2. TERMS: The term of this Agreement shall begin on the Closing Date of
the purchase of Employer's Stock by Carnegie International Corporation and shall
continue for a period of five (5) years, unless terminated prior thereto.
3. COMPENSATION: For all services rendered by the Employee, the
Employer shall pay the Employee an annual salary for the first year of this
Agreement of Seventy-five Thousand Dollars ($75,000.00) to be paid through Three
Thousand One Hundred Twenty-five Dollar ($3,125.00) semi-monthly payments. The
annual salary shall cease in the event of the death or termination of employment
of Employee. Salary payments shall be subject to withholding and other
applicable taxes. The annual salary for the second and third years of this
Agreement shall be Eighty-seven Thousand Five Hundred Dollars ($87,500.00) and
One Hundred Thousand Dollars ($100,000.00), respectively. A cost of living
increase of twenty-five percent (25%) shall apply to the above salaries if
Employee is required to move permanently to Maryland.
4. DUTIES: The Employee is engaged to serve as the President of
Employer. Employee's duties include but are not limited to managing the
operations of the Company. The precise services of the Employee may be extended
or curtailed by the Employer from time to time.
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<PAGE>
5. EXTENT OF SERVICES: The Employee shall devote substantially his
entire working time, attention and energies to the Employer's business and shall
not during the term of this Agreement be engaged in any employment activities,
undertake to work for compensation or accept employment with another entity for
gain, profit, or other pecuniary advantage. However, the Employee may invest his
assets in such form or manner as will not require his services in the operation
of the affairs of the companies in which such investments are made.
6. DISCLOSURE OF CONFIDENTIAL INFORMATION: The Employee acknowledges
that he will have access to significant amounts of confidential information of
Employer and its Parent Company, Carnegie International Corporation, including
such information as lists of customers, sources of supply, production
information, product information, service information, formulas, computer
programs and development ideas related thereto, work in progress, trade secrets,
technical information acquired by Employee from Employer or Carnegie or from the
inspection of Employer's or Carnegie's property, confidential information
disclosed to Employee by third parties, and all documents, things and record
bearing media disclosing or containing the aforegoing information, including any
confidential materials prepared by the parties hereto which contain or otherwise
relate to such information concerning the Employer's and/or Carnegie's
financial, intellectual, technical and commercial information (collectively
hereinafter referred to as "Confidential Information") shall be and remain
confidential. The Employee will not during or after the term of this employment,
disclose the Confidential Information or any part thereof to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever.
In the event of a breach or threatened breach
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<PAGE>
by the Employee of the provisions of this paragraph, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, the Confidential Information, or from rendering any services in
connection with the telecommunications industry to any person, corporation,
association, or other entity to whom such Confidential Information, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
shall be construed as prohibiting the Employer or Carnegie from pursuing any of
the remedies available to the Employer for such breach or threatened breach,
including the recovery of damages from the Employee. The Employee shall be
responsible to Employer and Carnegie for reasonable attorneys fees and costs
incurred in connection with the enforcement of this provision should a Court of
competent jurisdiction rule in favor of Employer or Carnegie in connection with
a cause of action brought for enforcement of said provision. If Employee buys
back the Shares of Employer, the provisions hereof relating only to Employer
shall no longer apply.
7. EXPENSES: The Employee may incur reasonable expenses for promoting
the Employer's business. The Employer shall reimburse the Employee for all such
expenses upon the Employee's periodic presentation of an itemized account of
such expenditures.
8. VACATIONS: The Employee shall be entitled to ten (10) vacation days
during each of the first two (2) years of employment and fifteen (15) vacation
days each year thereafter, during which time his salary and benefits shall be
paid in full. Each vacation shall be taken so as not to unreasonably interfere
with the operation of Employer's business.
9. SURVIVAL AFTER TERMINATION OR EXPIRATION OF EMPLOYMENT RELATIONSHIP:
The Provisions contained within paragraphs 6, 11 and 14 of this
Agreement shall
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<PAGE>
survive the expiration or other termination of this Agreement
10. TERMINATION: The following termination provisions shall apply
hereto:
a. Termination by Employer for cause. The Employer may terminate
this Agreement immediately by written notice if Employee is convicted of any
crime involving fraud, dishonesty, or willful misconduct directly or indirectly
connected to Employee's duties and responsibilities to Employer or the
management and or operation of Employer's business. If Employer chooses not to
pursue criminal action against Employee in connection with fraud, dishonesty, or
willful misconduct that has a material impact on the Employer, the Employer may
terminate this Agreement for such cause, after written notice to the Employee of
the reason for termination and failure by the Employee within thirty (30) days
thereafter to cure or eliminate such reason for termination and compensate
Employer for any losses sustained as a result of Employee actions in connection
with such fraud, dishonesty or willful misconduct. All terminations made
pursuant to this paragraph shall be considered for cause and the Employer shall
not be liable for any amounts pursuant to this Agreement following such
termination.
b. Termination by Employer for other than cause. If the Employer
terminates this Agreement for any reason other than cause during the final three
(3) years of the term of this Agreement, the Employer shall pay to the Employee
one (1) year of salary as delineated in paragraph 3 of this Agreement.
c. Termination by Employee for Good Reason. The Employee may
terminate his employment with Employer pursuant to this Agreement for "good
reason", provided that the Employee has given written notice to the Employer of
the reason of the resignation and Employer fails to cure or eliminate such
reason within thirty (30) days from the
-4-
<PAGE>
receipt of such written notice by Employer. For the purposes of this Agreement,
good reason shall mean: (i) removal from the position of President, other than
as a result of promotion; (ii) material diminution of the Employee's title,
position or responsibilities; (iii) material reduction in the Employee's salary;
(iv) relocation of the Employee to a location more than one hundred (100) miles
from the Employee's principal work place at the time this Agreement takes effect
except for a move to Maryland for which the Employee receives a twenty-five
percent (25%) cost of living increase in his salary; or (v) the Employer's
willful failure to comply with and satisfy material requirements of this
Agreement. If the Employee terminates his employment for good reason during the
final three (3) years of the term of this Agreement, the Employer shall pay to
the Employee one (1) year of salary as delineated in paragraph 3 of this
Agreement.
d. Termination by Employee for other than good reason. Employee
may terminate this Agreement for any reason or no reason at any time, upon
thirty (30) days written notice to the Employer. In such event, the Employee if
requested by the Employer, shall continue to render his services and receive
full salary and benefits up to the date of termination. The Employer may elect
to terminate Employee by written notice thereof before the expiration of the
thirty (30) day period and discontinue all salary and benefits as of said
termination date. If Employee terminates this Agreement for any reason other
than good reason, the Employer shall not be liable for any amounts due to
Employee pursuant to the terms of this Agreement.
e. Other Termination. This Agreement shall terminate upon the
occurrence of any of the following events:
1. Expiration of the term of employment, as provided in
Section 2 hereof; or
-5-
<PAGE>
2. Death of Employee, except for those benefits as provided
to the contrary herein; or
3. In the event Employee shall become permanently disabled as
defined in the following paragraph and such permanent disability prevents the
Employee from substantially performing the duties of his employment.
11. EMPLOYEE'S REPRESENTATIONS: Employee represents and warrants to
Employer that no legal, administrative or other proceedings against the Employee
have been threatened or filed in any federal, state or local court of law or
before any administrative body.
12. OTHER BENEFITS AND COMPENSATION:
a. Health insurance coverage shall be provided to Employee
comparable to the coverage being provided to Executives in comparable positions
with Carnegie International Corporation ("Carnegie").
b. Employee shall be reimbursed for all reasonable and necessary
company expenses attributable to the business of Voice Quest or Carnegie.
c. Employee shall receive disability and life insurance coverage
consistent with the current coverage provided to Employees with comparable
positions at Carnegie International Corporation ("Carnegie"). As of the date of
this Agreement no such benefits are being provided.
d. Employee shall receive a bonus equal to three percent (3%) of
the gross profit generated by Voice Quest from the sale of Personal Operator or
Hybid MAVIS(TM) software. Gross profit shall be defined as sales from said
products less costs of goods sold.
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<PAGE>
Costs of goods sold shall include, but not be limited to, sales and marketing
expenses, software development costs, costs of reproducing the products, product
materials, direct labor and reasonable overhead costs. This bonus shall be paid
within ten (10) business days from the end of each calendar year, fifty percent
(50%) of which shall be paid in cash, and fifty percent (50%) of which shall be
paid through an issuance to Employee of Rule 144 shares of Carnegie, valued
based on the average closing price of Carnegie Common Stock for five (5) days
prior to the issuance. For a period of five (5) years after the termination of
this Agreement, Employee shall receive three percent (3%) of the gross profits,
as defined above, generated by Voice Quest from sales of Personal Operator or
MAVIS(TM) software products that incorporate features that were developed by
Employee.
e. Employee shall receive a Company vehicle during the term of his
employment.
13. RESTRICTIVE COVENANTS: During the period of this Agreement and for
a period of two (2) years after the termination or expiration of this Agreement,
the Employee will not, within the geographical customer market of Voice Quest,
directly or indirectly, own, manage, operate, control, be employed by or
participate in any business that competes with and or sells similar products and
or services as the business conducted by the Employer at the time of the
termination of this Agreement, including but not limited to voice recognition
software and related products and services that are related to said products or
services. In the event of the Employee's actual or threatened breach of the
provisions of this paragraph, the Employer shall be entitled to an injunction
restraining the Employee therefrom. Nothing shall be construed as prohibiting
the Employer from pursuing any other available remedy for such breach or
threatened
-7-
<PAGE>
breach, including the recovery of damages from the Employee. If Employee buys
back the Shares of Employer the provisions hereof shall no longer apply.
14. OWNERSHIP OF OTHER PUBLIC COMPANIES: Employee may own up to five
percent (5%) of public companies other than Carnegie, provided such ownership is
not inconsistent with the terms and conditions of this Agreement and or
otherwise prohibited by Law.
15. NOTICES: Any Notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of the Employee, or to its principal office in the case of
the Employer.
16. WAIVER OF BREACH: The waiver of the Employer of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a waiver of a subsequent breach by the Employee.
17. ASSIGNMENT: The Employee acknowledges that the services to be
rendered by her are unique and personal. Accordingly, the Employee may not
assign any of her rights, or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Employer under this Agreement
shall inure to the benefit and shall be binding upon the successors and assigns
of the Employer.
18. ENTIRE AGREEMENT: This Agreement contains the entire understanding
of the parties. No representations were made or relied upon by either party,
other then those expressly set forth. No agent, employee, or other
representatives of either party are empowered to alter any of the terms hereof,
unless they are in writing and signed by the Employee and an executive officer
of the Employer.
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<PAGE>
19. CONTROLLING LAW: The validity, interpretation and performance of
this Agreement shall be controlled by and construed under the Laws of the State
of Maryland.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ATTEST: EMPLOYER: VOICE QUEST, INC.
/s/ BY:/s/Lowell Farkas
- -------------------------- -----------------------------
LOWELL FARKAS, Chairman
WITNESS: Employee:
/s/ /s/Mark Ortner
- -------------------------- --------------------------------
MARK ORTNER
Carnegie.24EmployAgmtOrtner.07
-9-
<PAGE>
EXHIBIT 10.20
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION/
THE J-NET GROUP, INC.
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into the 1st day of December, 1998 by and
between Carnegie International Corporation, a Corporation of the State of
Colorado (hereinafter referred to as "Carnegie"or "Purchaser") or its Assignee,
and The J-Net Group, Inc. (hereinafter referred to as the "Company" or
"Seller"), a Corporation of the State of Delaware.
EXPLANATORY STATEMENT
A. Seller owns One Hundred Percent (100%) of the assets that were
previously owned by a Corporation of the State of Massachusetts known as RomNet,
Inc. (hereinafter referred to as "RomNet") including all trademarks, service
marks, the assets used in the operation of RomNet including but not limited to
equipment, software, trade names, furniture, fixtures, inventory, customer
lists, customer sales files, accounting records, contract rights, leasehold
improvements, lease rights for the Premises of the Company located at 1660
Soldiers Field Road, Boston, Massachusetts (hereinafter referred to as the
"Premises"), and any and all other assets related to the business of RomNet
including any and all assets acquired by Seller subsequent to the consolidation
of RomNet into Seller to the extent attributable to RomNet's efforts or the
assets previously owned by RomNet and/or the business conducted by Seller with
said assets including but not limited to business generated from customers of
RomNet and telephone equipment and numbers (hereinafter collectively referred to
as the "Assets").
B. Purchaser desires to purchase the Assets from Seller, together with
such related rights, preferences and limitations as pertain to said Assets, as
are hereinafter provided by this Agreement. Seller desires to sell, assign,
transfer and deliver the Assets, described in Section A hereof, to Purchaser
upon the terms and conditions provided by this Agreement.
NOW, THEREFORE, in consideration of the Explanatory Statement, which
shall constitute a substantive and binding 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 and the Company intending to be
legally bound, do hereby covenant, promise, agree, represent and warrant as
follows:
1. Closing: Purchase of Assets:
1.1. The closing (hereinafter referred to as the "Closing") of the
purchase of the Assets provided by this Agreement shall take place as of
December 1, 1998, or on such other day as Purchaser and Seller shall agree in
writing, at the law offices of Gershberg and Pearl, LLC, 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.")
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<PAGE>
1.2. On the Closing Date, which shall occur as of December 1,
1998, and at the Closing Place, Seller shall sell, transfer and deliver to
Purchaser the Assets, which shall convey ownership rights, title and interest to
the Assets effective as of the Closing Date, December 1, 1998, including all
Assets on the List of Assets (a copy of which is attached hereto as Exhibit A)
and pursuant to a Bill of Sale related thereto, a copy of which is attached as
Exhibit A1.
1.3. Purchase Price: The Purchase Price of the Assets shall be as
follows:
1.3.1. Purchaser shall issue to Seller on the Closing Date
Fifty-two Thousand Five Hundred (52,500) shares of Preferred Series F restricted
stock of Carnegie International Corporation which shall be converted
automatically to Common Stock of Carnegie on the second anniversary of the
Closing Date, which Common Stock shall constitute restricted securities as
defined in 17 C.F.R. ss.230.144(a)(3) (hereinafter "Rule 144 Stock").
1.3.1.1. Seller shall receive in the conversion the
greater of:
(i) Rule 144 Stock with a value of Seven Hundred
Thousand Dollars ($700,000.00) based upon the conversion value set forth in
Section 1.3.1.2. below; or
(ii) Five Hundred Twenty-five Thousand (525,000)
shares of Rule 144 Stock, which shall be considered higher in Value than the
value under 1.3.1.1.(i) above if the Value of the Common Stock of Carnegie is
above an average closing price of $1.33 per share as computed for the five (5)
business days immediately preceding the second anniversary of the Closing Date.
1.3.1.2. The Value of each share of Rule 144 Stock for
conversion calculation purposes shall be based on the average of the 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) or the closing trading price on
the exchange on which Carnegie Common Stock is traded if said Stock is no longer
quoted on OTCBB. Purchaser shall reserve at all times a sufficient number of
shares of authorized but unissued Common Stock to permit the exercise of the
conversion rights enumerated in this Agreement.
1.3.1.3. The Preferred Series F pursuant to Section
1.3.1. shall be subject to rights, terms and provisions set forth in the
Articles of Amendment attached hereto as Exhibit A1A:
1.3.2. Three Hundred Thousand (300,000) shares of Rule 144
Stock with piggy-back registration rights, the issuance of which shall be
initiated within three (3) business days of the Closing Date pursuant to
irrevocable instructions to Carnegie's transfer agent, in form and substance
reasonably satisfactory to the Seller and Purchaser.
1.3.2.1. Piggyback Registration Rights. If, at any time,
the Company proposes to file a registration statement under the Securities and
Exchange Act of 1933
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with respect to an offering (a "Primary Offering") of common stock (other than a
registration statement in connection with an employee benefit plan or corporate
reorganization), the Company will:
a. give written notice to all shareholders with
piggyback registration rights under this Agreement (collectively the
"Subscribers"), not less than twenty (20) days prior to the anticipated date of
filing (the "Notice"). The Notice will offer each Subscriber an opportunity to
request that a number of shares held by such Subscriber be registered; and
b. include in such proposed Primary Offering that
number of shares specified in a written request from such Subscriber received
within ten (10) days of the Notice.
If the Primary Offering is underwritten and the
underwriter determines in good faith that marketing factors require a limitation
on the number of shares offered, the shares included will be allocated, first,
to the Company and second, pro rata among the holders of piggyback rights based
on the shares requested to be sold. Each participating Subscriber will enter
into an Underwriting Agreement with the underwriter containing usual and
customary agreements and understandings.
Each participating Subscriber will bear and pay a
proportionate share of all discounts and commissions and the expenses of his
counsel. All other expenses will be borne by the company.
1.3.3. Purchaser shall assume only the following debts as
reflected on Exhibits A2 through A5, respectively:
a. Purchaser shall assume an IRS obligation of
Eighty-five Thousand Dollars ($85,000.00) pursuant to an October 23, 1998
agreement with the IRS pursuant to an instrument of assumption in form and
substance reasonably satisfactory to the Seller and Purchaser. Said obligations
shall be paid as per an Agreement with the IRS which requires monthly payments
of Eight Thousand Five Hundred Dollars ($8,500.00). Purchaser shall also assume
a state unemployment tax obligation of Eight Thousand Seven Hundred Twenty-three
Dollars ($8,723.00). Purchaser shall indemnify and hold Seller harmless with
respect to these obligations.
b. Purchaser shall assume five (5) bank notes with
Cambridge Trust Company totaling no more than One Hundred Fifty-five Thousand
One Hundred Twenty-four Dollars and Thirteen Cents ($155,124.13) as of November
30, 1998 pursuant to documentation in form and substance reasonably satisfactory
to the Seller and Purchaser, which documentation shall release the Seller and
all guarantors from any and all liabilities in respect of such loans. Upon the
same payment terms as existed as of November 1, 1998. The loans are as follows:
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Balance at
Account # November 30, 1998 Original Loan Agmt.
--------- ----------------- ------------------
Loan # 1 00057432571 $24,999.94 $88,888.88
Loan #2 00057432570 $9,733.36 $29,200.00
Loan #3 77146599 $35,390.83 $35,000.00
Loan #4 00057432572 $65,000.00 $65,000.00
Loan#5 00077146570 $20,000.00 $25,00.00
----------
$155,124.13
Within thirty (30) days of the Closing Date Purchaser
shall secure a line of credit or other arrangements that facilitate the release
of the current obligors under the above Notes.
c. Purchaser shall assume trade accounts payable of
approximately One Hundred Ten Thousand Dollars ($110,000.00) at November 30,
1998 but in no event greater than One Hundred and Ten Percent (110%) of this
amount.
d. Purchaser shall assume the following equipment
leases:
November 30, 1998 Balance
1. C.I.T. 19 payments @ $435.04 per month totaling $8,265.76
2. C.I.T. 31 payments @ $273.17 per month totaling 8,468.27
3. Wiltel 19 payments @ $1,195.54 per month totaling 22,715.26
4. AT&T 28 payments @ $177.27 per month totaling 4,963.56
5. AT&T 26 payments @ $105.80 per month totaling 2,750.80
6. AT&T 26 payments @ $531.39 per month totaling 13,816.14
7. AT&T 29 payments @ $226.50 per month totaling 6,568.50
8. Greentree 26 payments @ $212.08 per month totaling 5,514.08
--------
TOTAL: $73,062.37
e. In satisfaction of any and all obligations owed to
Annetta Douglass and Cambodochine Deo, respectively, for accrued payroll related
to services performed by said individuals for RomNet and or any of its
Successors related in any way to the Assets, each individual shall receive
shares of Common Stock of Carnegie, which shares shall constitute "restricted
securities" as defined in 17 C.F.R. ss.230.144(a)(3), as follows:
Annetta Douglass 20,756
Cambodochine Deo 10,030
1.3.4. The purchase of the Assets shall vest in Purchaser on
the Closing Date, December 1, 1998, subject to the provisions of this Agreement,
complete possession, ownership and control of the Assets and any rights
attributable thereto, including but not limited
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to the leases, equipment, fixtures, inventory, cash, accounts receivable,
contract rights with equipment suppliers and others, goodwill, trade names,
trademarks, service marks, trade secrets, software rights, software development
rights, leasehold improvements and assets relating thereto. Seller and the
Company shall cooperate in and facilitate the immediate transfer of possession,
ownership and control of the Assets including all assets and operations relating
to the Premises of the Company relating to the Assets.
1.3.5. Except as enumerated in 1.3.3., Purchaser shall assume
no debts, there shall be no liens or encumbrances on the Assets, and Purchaser
shall not be liable for any tax liability or other liabilities or claims of any
kind whatsoever relating to the Assets or incurred by the Company, RomNet,
and/or its owners related to the Assets.
1.3.6. Purchase Price for Assets; Allocations: The Purchase
Price for the Assets shall be ________________________________ (the "Purchase
Price"). The parties agree that the Purchase Price for the Assets shall be
allocated among the Assets as follows:
Accounts Receivable $
Equipment, Furniture
and Fixtures $
Goodwill $
1.4. Lease rights: Seller shall deliver a lease or sublease for
the portion of the space that is being utilized by the entity which purchases
the Assets pursuant to this transaction at the premises located at 1660 Soldiers
Field Road, Boston, Massachusetts on terms no less favorable than the terms
contained in the lease between the Landlord and Jack Hoagland and Annetta
Douglas.
1.5. Accounts Receivable: The Assets shall include Accounts
Receivable of approximately Ninety Thousand Dollars ($90,000.00) as of November
30, 1998 but in no event less than Ninety Percent (90%) of said amount unless
there are collections between the date of execution of this Agreement and
November 30, 1998. In the later event the amount collected shall only be used to
pay current payroll and to make payments on accounts payable.
1.6. Consulting Services: The Company shall receive consulting
fees for services to be rendered to Purchaser during the Period. The fees shall
be in the amount of One Hundred Twelve Thousand Dollars ($112,000.00) and shall
be billed and paid in four (4) equal semi-annual installments in the amount of
Twenty-eight Thousand Dollars ($28,000.00) beginning six (6) months from the
Closing Date and continuing with three (3) additional consecutive payments
thereafter due six (6) months from each of the prior payments.
2. Representations and Warranties of the Seller:
Seller represents and warrants to Purchaser as follows:
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2.1. Seller is, and as of the Closing Date and time will be the
valid and legal owner of the Assets being transferred hereby and owns the Assets
free and clear of any and all liens and encumbrances except as enumerated in
Exhibit B - Certificate of No Debts. The Seller through the ownership of the
shares of the Company owns all of the Assets including the Assets located at the
Premises, including but not limited to the leases, equipment, inventory,
furniture, fixtures and the like and assets relating thereto.
Seller represents and warrants that Seller owns one hundred
percent (100%) of the Assets and that the books, records and tax returns of the
Company and RomNet, which have been presented to Carnegie as of and for the
periods ended October 31, 1998, December 31, 1997, December 31, 1996 and
December 31, 1995, fairly and accurately in all material respects reflect and
allocate all assets, liabilities, income and expenses related to both the
management and results of operations of RomNet or its Successors related to the
Assets.
2.2. Seller has the requisite and proper authority to enter into
the within agreement and to transfer, assign and sell the Assets in accordance
with the terms hereof.
2.3. The Company is, and at the Closing Date will be, a
corporation duly organized, validly existing and in good standing under the laws
of Delaware. 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 the Company. A complete and correct
copy of the articles of incorporation, as amended, and the by-laws, as amended,
of the Company, and the Certificate of Consolidation of Ecology Communications,
Inc., J-Net Broadcasters, Inc., RomNet, Inc. to form the J-Net Group, Inc. and
the related Plan and Agreement of Consolidation, as amended, 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 Date.
2.4. Upon sale, transfer and delivery of the Assets to Purchaser,
the Assets will constitute One Hundred Percent (100%) of the Assets of and or
related to the entity previously known as RomNet, Inc., as the term the "Assets"
is defined in the Explanatory Statement hereof, excepting consumable items used
in the ordinary course of business. Except as provided in this Agreement, the
Company does not have outstanding, and on the Closing Date will not have
outstanding any options to purchase or any contracts or commitments to sell the
Assets. The Company has not issued, and hereby warrants and represents that it
shall not issue up to and including the Closing Date any Options (hereinafter
referred to as the "Options"), which grant to the holders thereof the right to
purchase any of the Assets.
2.5. The Assets are and as of the Closing Date shall be free and
clear of all mortgages, pledges, liens, security interests, claims, conditional
sale agreements, charges, encumbrances and restrictions of every nature, except
as provided on Exhibit C1 incorporated herein by reference and made a part
hereof.
2.6. Except as set forth on Exhibit D, RomNet, Inc., the Company
or its successors in interest in the Assets have properly and accurately filed
all tax returns, as
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appropriate, country wide, state and local, and all related information required
to be filed prior to the date hereof, and at the Closing Date shall have filed
all tax returns, as appropriate, and all related information required to be
filed prior to the Closing Date including those relating to RomNet, Inc. or the
Assets. To the knowledge of Seller, and except as set forth on Exhibit D, the
amounts reflected in the Company's and RomNet, Inc.'s 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 December 31, 1997
2.7.1. The business of the Company as well as RomNet has been
operated, and up to the Closing Date, or the date of Consolidation with respect
to RomNet, will be operated, only in the ordinary course consistent with past
practice.
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 the 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 the Assets, liabilities
or business of the Company and RomNet, Inc. from the status that was represented
to Purchaser as existing at August 30, 1998 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, the Assets or any of the
Company's 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 the Assets
or the 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 the Seller, threatened, against or affecting the Company or any of
the 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, Seller and RomNet 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.
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2.9. The Company has not, and on the Closing Date will not have,
incurred any liability, obligation or duty for any finder's, agent's 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, pursuant to the power
and authority legally vested in it, has duly authorized the execution, sealing
and delivery of this Agreement by the Company, the Assets, 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 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 them pursuant to the provisions hereof. The Seller has 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 Assets pursuant to the provisions hereof. This Agreement is
valid and binding upon the Seller 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 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 Assets, 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. Shareholder Claims: The Seller hereby warrants and
represents that no Shareholder of the Seller or of RomNet has any claim against
the Company related to the Assets or against the Assets, either individually or
as an officer or Director of the Company or RomNet, except for those
considerations due as set forth in this Agreement.
2.14. [Intentionally left blank]
2.15. Seller has and will continue until the Closing Date to
accurately maintain in all material respects the books of account of the Company
and relating to the Assets, or any other entity operating at the Premises or as
successor to the Company.
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2.16. No Subsidiaries: The Seller hereby acknowledges 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, except as enumerated on Exhibit F1, which shall be attached
hereto and incorporated by reference.
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 required for the Company to
conduct the business formerly conducted by RomNet in all jurisdictions where
such 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 related to the Assets 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 that relates to the Assets.
2.19. Condition of Personal Property: Attached hereto as Exhibit I
and incorporated by reference herein is a true, correct and complete list of the
Assets owned by the Company or used by the Company in the conduct of the
business formerly conducted by RomNet, 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 or on the Closing
Date will have sole and exclusive, good and merchantable title to all of the
Personal Property owned by it including the Assets, 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 that are part of the Assets under which the Company is provided
or is providing services (collectively, the "Service Contracts" or "Asset
Contracts"). To Seller's knowledge, each of the Asset 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. The Seller has no 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 Asset Contracts. To Seller's knowledge, no party to any of the
Asset Contracts is in material 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 Asset
Contracts. All payments required to be made by the Company pursuant to the Asset
Contracts have been paid in full. See Exhibit J.
2.21. Contracts, Licenses, and Other Agreements. Attached hereto
and incorporated by reference herein are the following:
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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 that are part of the Assets.
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 that are part of the Assets.
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 that are part of the Assets.
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) that are part of
the Assets.
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 that are part of
the Assets.
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 that are attributable to the Assets.
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 each of which is material in nature, involve the payment or receipt,
in any twelve (12) month period, of more than Five Thousand Dollars ($5,000.00)
or has a term of more than the twelve (12) months that are part of the Assets.
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
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by the Company against the other party thereto in accordance with its terms. The
Seller does not have 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 material breach of or in default thereunder, nor has any event
occurred which, with the lapse of time, notice or election, may become a
material 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 to it for the full term of the lease thereof. As of the
Closing Date all payments required to be made by the Company pursuant to any of
the Commitments have been paid as required. 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 relating to
the Assets, 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
material breach of or in default under any such policy. The Company does not
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: The Company hereby acknowledges that it does
not maintain in relation to the Assets 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. The Company is 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. With respect to the Assets, 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. With respect to the Assets, the Company has not
entered into written employment agreements and all employees can be terminated
at will except as provided in Exhibit T1. The Company has no contractual
obligation or special termination or severance arrangements with respect to any
employee employed in the business formerly conducted by RomNet. The Company
further represents and warrants that there have been and will be no changes in
employment or corporation salary agreements between the Company and its
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employees, employed in the business formerly conducted by RomNet from January 1,
1998 up till and including the date of Closing, except as provided in Exhibit
T2.
2.24.4. With respect to the Assets, 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.
2.24.5. With respect to the Assets, 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. With respect to the Assets, Seller 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. With respect to the Assets, 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. The Company has not 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 the Company's knowledge, no Person or entity is infringing upon
the Proprietary Rights. The Company has not, in conjunction with the business
formerly conducted by RomNet, 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. The Company
has 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 on or after Closing Seller shall execute,
acknowledge, send and deliver any and all documents or instruments which may be
reasonably necessary to carry out the terms, conditions and intention of this
agreement and to facilitate the transfer of the Assets and Premises, to ratify
the transfer unto Purchaser of the Assets and to facilitate the operations
related to the Assets by Purchaser.
2.26. 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 the Company related to the Assets and including the
Premises.
2.27. There are no bulk transfer laws in Massachusetts applicable
to this transaction (See Opinion Letter of Counsel, Exhibit B1) and the Company
is not selling all or substantially all of the assets of the Company in this
transaction.
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<PAGE>
2.28. To the knowledge of the Company, the issuance, sale,
transfer and delivery of the 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 Company.
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 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 is and on the Closing Date will be in good standing
and qualified to do business under the laws of the State of Maryland or another
State in which it conducts its principal business. Assignee on its date of
Assignment will be in good standing and qualified to do business under the laws
of the Commonwealth of Massachusetts or another State in which it conducts its
principal business.
3.4. When issued the Carnegie common stock and the Preferred
Series F stock constituting a portion of the Purchase Price shall be duly and
validly authorized and issued, fully paid and non-assessable.
3.5. As of September 1, 1998, One Hundred Ten Million
(110,000,000) shares of common stock were authorized of which Forty-three
Million Eight Hundred Ten Thousand Two Hundred Eight (43,810,208) were issued
and outstanding. Forty Million (40,000,000) shares of preferred stock were
authorized, of which Two Hundred Thousand (200,000) shares of Series A preferred
stock of Carnegie were issued and outstanding.
3.6. To Purchaser's knowledge neither this Agreement nor any
written information, statement, list or certificate furnished or to be furnished
to Seller 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 statements of a material fact
13
<PAGE>
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.
3.7. Carnegie shall at all times while the Seller holds any
capital stock of Carnegie, take all such reasonable actions as are necessary so
that the adequate current public information condition specified in 17 C.F.R.
ss.230.144(c) is satisfied.
4. Further Agreements:
4.1. Seller's Agreement Not to Compete: The Parties hereby
acknowledge that Seller and/or its owners shall not establish a same or similar
business as that contemplated with respect to the Assets, namely a software and
or hardware technical support and help desk service, and fulfillment services,
within a one hundred (100) mile radius of the Greater Boston, Massachusetts
area, directly or indirectly, for a period of three (3) years from the Closing
Date.
For a period of three (3) years from the Closing Date Seller
and/or its owners will not directly or indirectly solicit any present or future
customers of Purchaser and within a one (100) hundred mile radius of Purchaser's
business locations, will not directly or indirectly own (excluding, however,
ownership of not more than five percent (5%) of the outstanding common shares of
any public company), manage, operate, control, be employed by or participate in
any business that competes with and/or sells similar products and/or services as
the products or services offered or business conducted by the Purchaser and/or
its Assignee, including but not limited to voice recognition software, hardware
and/or related products and services. In the event of the actual or threatened
breach of the provisions of this paragraph, the Purchaser shall be entitled to
an injunction restraining the Seller and or its owners therefrom. Nothing shall
be construed as prohibiting the Purchaser from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages
from the Seller or its owners.
5. Conditions Precedent:
5.1 The obligation and duty of Purchaser to purchase the Assets
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 writing in whole or in part at or prior to
the Closing Date by Purchaser:
5.1.1. All representations and warranties of 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 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. 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.
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5.1.3. Purchaser shall have received a certificate of the
President of the company which 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 for the Company.
5.1.4. Purchaser shall receive the written opinions of the
legal counsel (See Exhibit B1) for the Company, dated the Closing Date,
substantially to the effect 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 sell the Assets to
Purchaser.
(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, including specifically the Assets contemplated for sale
under the terms of this Agreement.
(d) The execution, sealing and delivery of this
Agreement by the Company, and the transactions hereby contemplated have been
duly authorized by all necessary corporate action. The Company 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 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 sale, transfer and delivery of the Assets pursuant to the
provisions hereof. This Agreement is valid and binding upon the Company.
(e) There are no Bulk Sales laws in Massachusetts
applicable to this transaction.
5.2. The obligation and duty of Seller to sell the 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.
15
<PAGE>
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 substantially
the same opinions with respect to Purchaser which Seller's counsel is required
to provide with respect to the Company under Section 5.1.4(a), (c) and (d), as
well as an opinion as to the matters set forth in Sections 3.4. and 3.5.
6. Indemnification:
6.1 The Company shall 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 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 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, claims, and/or liabilities incurred, accruing or
arising up to the Closing Date attributable to Seller and/or RomNet and/or the
Assets 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 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 generally for a period one (1) year from the Closing Date
except for any claims brought against Purchaser by any third party for which
this provision shall be fully enforceable for a period of three (3) years from
the Closing Date.
6.2. Carnegie shall indemnify and hold 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:
16
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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. All debts and liabilities assumed by Carnegie pursuant
to Section 1.3.3., and all debts, claims and liabilities incurred, accruing or
arising on or after the December 1, 1998 attributable to business conducted with
the Assets after the Closing Date, except Seller shall be responsible for such
debts and liabilities incurred, accruing or arising on or after the Closing Date
due to the negligence of Seller or its employees, officers or directors up to
Closing Date.
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
17
<PAGE>
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.
6.10. 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 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.
6.11. 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.
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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 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. 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, LLC
11419 Cronridge Drive, Suite 7
Owings, Maryland 21117
If to Seller, to: John H. Hoagland, Chairman
The J-Net Group, Inc.
1660 Soldiers Field Road
Boston, Massachusetts 02135
with a copy to: Allen C. B. Horsley, Esquire
LeBoeuf, Lamb, Green & MacRae, LLP
260 Franklin Street
Boston, Massachusetts 02110
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
herein-above 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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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 and supercedes all prior agreements and
understanding between the Parties. This Agreement may be amended only by an
instrument in writing executed, sealed and delivered by 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 right to assign its rights, title
and interests under this Agreement and to the Assets 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. Employment of Key Personnel:
Seller and Nicholas R. Gentile, Robert Randall, Timothy McDonough
and James Menix shall enter into one (1) year Employment Agreements
simultaneously herewith in the form attached hereto as Exhibit Y that provide
for salaries comparable to those currently being paid to said individuals.
9. Escrow Agreement: Notwithstanding anything to the contrary contained
within this Agreement, the Purchaser and Seller do hereby agree to close on this
transaction as of December 1, 1998 and transfer ownership and control of the
Assets effective as of said date with the understanding that certain terms and
conditions shall be completed after the Closing Date pursuant to an Escrow
Agreement between said Parties (a copy of which is attached hereto as Exhibit
Z).
20
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IN WITNESS WHEREOF, the parties have executed, sealed and delivered
this Agreement the day and year first herein above set forth.
ATTEST: PURCHASER:
CARNEGIE INTERNATIONAL CORPORATION
/s/ /s/ Lowell Farkas
- -------------------------- -----------------------------
BY: Lowell Farkas, President
ATTEST: SELLERS:
THE J-NET GROUP, INC.
/s/ /s/ John H. Hoagland, Jr.
- -------------------------- -----------------------------
By: John H. Hoagland, Jr., Chairman
21
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EXHIBIT 10.21
<PAGE>
EMPLOYMENT AGREEMENT
Agreement is by and between RomNet Support Services, Inc. with
an office and place of business at 1660 Soldiers Field Road, Boston,
Massachusetts 02135 (hereinafter called "Corporation"), acting herein by its
Secretary, duly authorized by its Board of Directors, and Nicholas R. Gentile,
(hereinafter called "Employee").
Corporation desires to employ Employee as President, or any
other position required, 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, or any other
position required.
2. Term. Employment shall be for a term of one (1) year
commencing on 12/1/98 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
compensation for his services $85,000 Annually plus:
(a) Stock Option Plan: 85,000 shares at an exercise
price as of the closing bid price on the date this contract is signed - 25,000
shares will vest on signature, the balance on first anniversary.
(b) Bonus Program to be established based on approved
budget. Plan to be established by 1/1/99.
4. Insurance Benefits. The Corporation shall maintain medical
and dental insurance programs if needed because of loss of wife's coverage. The
Corporation shall pay 50% of the expense incurred for these for the Employee and
his family.
5. 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 an
itemized account of such expenses in any form required by the Corporation on a
weekly basis.
(b) Auto - will provide auto and maintenance and
insurance, with the value of the car not to exceed $30,000.
<PAGE>
(c) Company will provide for reasonable living
expenses (apartment) in the greater Boston area.
6. 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, or any other position required.
(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 Corporations
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 to the Corporation and not due to any cause as provided above, the
Corporation agrees to provide to Employee written notice 30 days prior to the
effective date of termination plus the balance of salary due under the terms of
this Agreement.
7. Restrictive Covenants. During the term of this Agreement
and for a period of two (2) years after the termination or expiration of this
Agreement, the Employee will not solicit any customers of Employer or within a
one-hundred mile radius of Employer's business locations, directly or
indirectly, own, manage, operate, control, be employed by or participate in any
business that competes with and/or sells similar products and/or services as the
products or services offered or business conducted by the Employer. In the event
of the Employee's actual or threatened breach of the provisions of this
paragraph, the Employer shall be entitled to an injunction restraining the
Employee therefrom. Nothing shall be construed as prohibiting the Employer from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages from the Employee, including reasonable
attorneys fees.
8. Disclosure of Confidential Information. The Employee
acknowledges that he will have access to significant amounts of confidential
information of Employer and its Parent Company, Carnegie International
Corporation, including such information as lists of customers, sources of
supply, production information, product information, service information,
formulas, computer programs and development ideas related thereto, work in
progress, trade secrets, technical information acquired by Employee from
Employer or Carnegie or from the inspection of Employer's or Carnegie's
property, confidential information
- 2 -
<PAGE>
disclosed to Employee by third parties, and all documents, things and record
bearing media disclosing or containing the aforegoing information, including any
confidential materials prepared by the parties hereto which contain or otherwise
relate to such information concerning the Employer's and/or Carnegie's
financial, intellectual, technical and commercial information (collectively
hereinafter referred to as "Confidential Information") which shall be and remain
confidential. The Employee will not during or after the term of this employment,
disclose the Confidential Information or any part thereof to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever.
In the event of a breach or threatened breach by the Employee of the provisions
of this paragraph, the Employer shall be entitled to any injunction restraining
the Employee from disclosing, in whole or in part, the Confidential Information,
or from rendering any services in connection with the telecommunications
industry to any person, corporation, association, or other entity to whom such
Confidential Information, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein shall be construed as prohibiting the
Employer or Carnegie from pursuing any of the remedies available to the Employer
for such breach or threatened breach, including the recovery of damages from the
Employee. The Employee shall be responsible to Employer and Carnegie for
reasonable attorneys fees and costs incurred in connection with the enforcement
of this provision should a Court of competent jurisdiction rule in favor of
Employer or Carnegie in connection with a cause of action brought for
enforcement of said provision.
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 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.
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 Corporation:
RomNet Services, Inc.
c/o Carnegie International Corporation
11350 McCormick Road, Suite 1001
Hunt Valley, MD 21031
If to Employee:
- 3 -
<PAGE>
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 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.
ATTEST ROMNET SUPPORT SERVICES, INC.
/s/ By: /s/ Lowell Farkas
- ----------------------------- ---------------------------
Lowell Farkas, Chairman
WITNESS EMPLOYEE
/s/ By: /s/ Nicholas R. Gentile
- ----------------------------- ---------------------------
Nicholas R. Gentile
- 4 -
<PAGE>
EXHIBIT 10.22
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into
this 15th day of July 1998 by and between Carnegie International Corporation, a
Colorado corporation (herein referred to as the "Company") and The Vadiari Group
International (herein referred to as the "Consultant").
RECITALS
WHEREAS, the Company is a public corporation with its common
stock reported on the OTC/BB; and
WHEREAS, the Consultant has experience in the area of investor
communications and financial and investor public relations, and
WHEREAS, the Company desires to engage the services of
Consultant to assist and consult to the Company in matters concerning investor
relations and to represent the Company in investors' communications and public
relations with existing shareholders and brokers, dealers, and other investment
professionals as to the Company's current and proposed activities;
NOW, THEREFORE, in consideration of the promises and the
mutual covenants and agreements hereinafter set forth, the parties hereto
covenant and agree as follows:
1) Term of Consultancy. Company hereby agrees to retain the
Consultant to act in a consulting capacity to the Company, and the Consultant
hereby agrees to provide services to the Company, for a term of eighteen (18)
months commencing July 15, 1998 and ending eighteen (18) months from said date.
2) Duties of Consultant. The Consultant agrees to provide the
following specified consulting services during the term specified in Section 1:
(a) Advise and assist the Company in developing
and implementing appropriate plans and
materials for presenting the Company and its
business plans, strategy and personnel to
the financial community, establishing an
image for the Company in the financial
community, and creating the foundations for
subsequent financial public relations
effort.
(b) Introduce the Company to financial
community;
<PAGE>
(c) Maintain an awareness during the term of
this Agreement of the Company's plans,
strategy and personnel, as they may evolve
during such period, and advise and assist
the Company in communicating appropriate
information regarding such plans, strategy
and personnel to the financial community;
(d) Assist and advise the Company with respect
to its (i) stockholder and investor
relations, (ii) relations with brokers,
dealers, analysts and other investment
professionals, and (lit) financial public
relations, generally;
(e) Perform the functions generally assigned to
investor/stockholder relations and public
relations departments in major corporations,
including responding to telephone and
written inquiries; reviewing press releases,
reports and other communications with or to
shareholders, the investment community and
the general public; advising with respect to
the timing, form, distribution and other
matters related to such releases, reports
and communications; and consulting with
respect to corporate symbols, logos, names,
the presentation of such symbols, logos and
names, and other matters relating to
corporate image;
(f) Disseminate information regarding the
Company to brokers, dealers, other
investment community professionals and the
general investment public;
(g) Conduct meetings, in person or by telephone,
with brokers, dealers, analysts and other
investment professionals to advise them of
the Company's plans, goals and activities,
and assist the Company in preparing for
press conferences and other forums involving
the media, investment community
professionals and the general investment
public;
(h) At the Company's request, review business
plans, strategies, mission statements,
budgets, proposed transactions and other
plans for the purpose of advising the
company of the investments community
implications thereof;
(i) Otherwise perform as the company's financial
relations and public relations consultant;
and;
- 2 -
<PAGE>
(j) Make public communications and disclosures
regarding the Company only within the scope
of the authorizations conferred by the
company and not make any such communications
or disclosures of information not provided
or authorized by the company.
3) Allocations of Time and Energies. The consultant hereby
promises to perform and discharge well and faithfully the responsibilities which
may be assigned to the Consultant from time to time by the officers and duly
authorized representative of the Company in connection with the conduct of its
financial and investor public relations and communications activities, so long
as such activities are in compliance with applicable securities laws and
regulations. Consultant shall diligently and thoroughly provide the consulting
services required hereunder. Although no specific hours-per-day requirement will
be required, Consultant and the Company agree that Consultant will perform the
duties set forth hereinabove in a diligent and professional manner. The parties
acknowledge and agree that although a disproportionately large amount of the
effort to be expended and the costs to be incurred by the consultant are
expected to occur upon and shortly after, and in any event, within the first
several months of this Agreement, remuneration will be viewed to be earned
pro-rata over the life of the contract.
4) Remuneration. As full and complete compensation for
services described in this Agreement, the Company shall transfer to Consultant
shares in such amounts and at such times as shall be described on Exhibit A
which is attached hereto and incorporated herein by reference.
5) Additional Obligations of IR. Consultant agrees that, in
connection with its investor relations services to the Company, Consultant will
not make any payment in cash or in kind to any third party as an inducement to
such party to engage in activities which could be deemed to constitute market
manipulation or other improper practice, such as recommending the stock without
disclosure of Consultant's engagement as a Consultant for the company or
Consultant's financial interest in the Company. Consultant will indemnify the
Company from all claims, liability, cost or other expenses. (Including
reasonable attorney's fees) incurred by the Company as a result of any
inaccurate information concerning the Company released by Consultant, unless
such information was provided to Consultant by the Company.
6) Additional Obligations of the Company. The Company agrees
that, in connection with this Agreement, it will indemnify Consultant from all
claims, liability, costs or other expenses incurred (including reasonable
attorney's fees) by Consultant as a result of any inaccurate or misleading
information concerning the Company provided by the Company or any of its
officers or directors to Consultant, or as a result of any breach by the Company
of any of the terms and conditions of this Agreement or commission of acts
illegal under securities laws
- 3 -
<PAGE>
by the Company or its officers or directors. The Company will not give
Consultant material non-public or other confidential information that Consultant
should not be disseminating.
7) Expenses. Consultant agrees to pay for all its own expenses
(phone, labor, etc.), other than extraordinary items (travel required by/or
specifically requested by the Company, luncheons or dinners to large groups of
investment professionals, mass faxing to a sizeable percentage of the Company's
constituents, investor conference calls, etc.) approved by the Company in
writing prior to its incurring an obligation for reimbursement. The Company
agrees to mail due diligence and investor materials at the request of Consultant
at the sole expense of the Company.
8) Indemnification. The company warrants and represents that
all oral communications, within documents or materials, furnished to Consultant
by the Company with respect to financial affairs, operations, profitability and
strategic planning of the Company are accurate and Consultant may rely upon the
accuracy thereof without independent investigation. The Company will protect,
indemnify and hold harmless Consultant against any claims or litigation
including any damages, liability, cost and reasonable attorney's fees with
respect thereto resulting from Consultant's communication or dissemination of
any said information, documents or materials not designated by the Company to
the Consultant as "confidential" or "company private," excluding any such claims
or litigation resulting from Consultant's dissemination of information not
provided or authorized by the Company.
9) Representations. Consultant represents that he is not
required to maintain any licenses and registrations under federal or any state
regulations necessary to performing the services set forth herein. Consultant
acknowledges that, to the best of his knowledge, the performance of the services
set forth under this Agreement will not violate any rule or provision of any
regulatory agency having jurisdiction over Consultant. Consultant acknowledges
that, it has not in the past or to the best of his knowledge, been the subject
of any investigation, claim, decree or judgement involving any violation of the
SEC, securities laws or NASD rules and regulations. Consultant further
acknowledges that he is not a securities Broker Dealer or a registered
investment advisor, and therefore is not required to communicate directly with
shareholders or private investors.
10) Dissemination of Information. Consultant agrees to not
disseminate information pertaining to the Company in the form of financial
information, news releases, corporate reports or profiles, or other Such related
information without the prior written authorization of the Company. Consultant
agrees to indemnity the Company from such activities in the event Consultant
fails to get prior written authorization for the release of said information.
The Consultant will protect, indemnify and hold harmless the Company against
any claims or litigation including any damages, liability, cost and reasonable
attorney's fees with respect thereto
- 4 -
<PAGE>
resulting from Consultant's communication or dissemination of any said
information, documents or materials not designated by the Company to the
Consultant as "confidential" or "company private," excluding any such claims or
litigation resulting from Consultant's dissemination of information not provided
or authorized by the Company.
11) Legal Representation. The Company acknowledges that it has
been represented by independent legal counsel in preparation of this Agreement.
Consultant represents that he has consulted with independent legal counsel
and/or tax, financial and business advisors, to the extent the Consultant deemed
necessary.
12) Status as Independent Contractor. Consultant's engagement
pursuant to this Agreement shall be as independent contractor, and not as an
employee, officer or other agent of the Company. Neither party to this Agreement
shall represent or hold itself out to be the employer or employee of the other.
Consultant further acknowledges the consideration and that the Company will not
withhold from such consideration any amounts as to income taxes, social security
payments or any other payroll taxes. All such income taxes and other such
payment shall be made or provided for by Consultant and the Company shall have
no responsibility or duties regarding such matters. Neither the Company nor the
Consultant possesses the authority to bind each other in any agreements without
the express written consent of the entity to be bound.
13) Attorney's Fees. If any legal action or any arbitration or
other proceeding is brought for the enforcement or interpretation of this
Agreement, or because of an alleged dispute, breach, default ' or
misrepresentation in connection with or related to this Agreement, the
successful or prevailing party shall be entitled to recover reasonable
attorney's fees and other costs in connection with that action or proceeding, in
addition to any other relief to which it or they may be entitled.
14) Waiver. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by such other party.
15) Notices. All notices, requests, and other communications
hereunder shall be deemed to be duly given if sent by U.S. mail, postage
prepaid, addresses to the other party at the address as set forth herein below:
To the Company: Mr. David Gable
Carnegie International Corporation, Inc.
11350 McCormick Road
Executive Plaza #3, Suite 1001
Hunt Valley, Maryland 21031
- 5 -
<PAGE>
To the Consultant: Mr. Chris Scoggin
The Vadiari Group International
P.O. Box 460427
Houston, Texas 77056-8427
It is understood that either party may change the address to which notices shall
be addressed by providing notice of such change to the other party in the manner
set forth in this paragraph.
16) Choice of Law, Jurisdiction and Venue. This Agreement
shall be governed by, construed and enforced in accordance with the laws of the
state of Maryland. The parties agree that Baltimore County, Maryland will be the
venue of any dispute and will have jurisdiction over all parties.
17) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the alleged breach thereof, or relating to
Consultant's activities of remuneration under this Agreement, shall be settled
by binding arbitration in Maryland, in accordance with the applicable rules of
the American Arbitration Association, and judgment on the award rendered by the
arbitrator(s) shall be binding on the parties and may be entered in any court
having jurisdiction thereof The provisions of the Maryland Rules of Procedure
and successor statutes, permitting expanded discovery proceedings shall be
applicable to all disputes that are arbitrated under this paragraph.
18) Arbitration and Waiver of Jury Trial. ANY DISPUTE BASED
UPON OR ARISING OUT OF THIS AGREEMENT SHALL BE SUBJECT TO BINDING ARBITRATION TO
BE HELD IN BALTIMORE COUNTY, MARYLAND BEFORE A RETIRED MARYLAND CIRCUIT COURT
JUDGE. JUDGMENT ON THE ARBITRATOR'S AWARD SHALL BE FINAL AND BINDING, AND MAY BE
ENTERED IN ANY COMPETENT COURT. AS A PRACTICAL MATTER, BY AGREEING TO ARBITRATE,
ALL PARTIES ARE WAIVING JURY TRIAL.
19) Assignment. This Agreement, with the consent of the
Company, may be assigned to a corporation, limited liability company,
partnership, or unincorporated organization, owned or controlled by Consultant,
at the sole discretion of Consultant, any time during the term of the Agreement,
without the consent of the Company. Given the unique and personal nature of the
services to be provided by Consultant, no other assignment shall be permitted
without the prior written consent of the Company.
20) Complete Agreement. This Agreement instrument contains the
entire Agreement of the parties relating to the subject matter hereof. This
Agreement and its terms
- 6 -
<PAGE>
may not be changed orally, but only by an agreement in writing, signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
Agreed to and signed this 15th day of July, 1998:
Carnegie International Corporation The Vadiari Group International
By:/s/ E. David Gable By: /s/ Tina S. Alexander
------------------ ---------------------
E. David Gable Tina S. Alexander
- 7 -
<PAGE>
EXHIBIT A
200,847.5 Preferred Series B shares of Carnegie International Corporation which
shall be convertible to 2,008,475 Common shares of the Corporation (which is
based on 4.99% of the issued shares of the Company as of July 15, 1998) with
piggyback registration rights. Said Shares shall be convertible only upon the
common share price of the Company maintaining an average (bid) trading price of
two dollars ($2.00) per share for a period of at least thirty (30) days. In the
event said trading price of the Company does not reach $2.00 per share by
December 31, 1998, or in the event the 30 day average common Share price does
not hold at $2.00 per share for more than thirty (30) days on or before February
15, 1999, this Agreement may be terminated at the sole and exclusive option of
the Company, in which case all of the Consultant's Preferred Shares shall
automatically revert back to the Company. The Company's option to terminate
shall continue and not expire. In the event of said termination, the Company
shall issue to the Consultant, as Consultant's total compensation, 100,423.8
shares of CAGI common, which represents five percent (5%) of the common shares
to which it would have been entitled had it performed fully in accordance with
the terms hereof.
INITIALS: /s/ TSA /s/ EDG
------- -------
<PAGE>
EXHIBIT 10.23
<PAGE>
CARNEGIE INTERNATIONAL CORPORATION
TILLER INTERNATIONAL
DISTRIBUTOR AGREEMENT
This Agreement is made as of this 8th day of December, 1998 by and between
Carnegie International Corporation, hereinafter referred to as Supplier, and
Tiller International Corporation, a Company registered in Monte Carlo, Monaco
hereinafter referred to as Distributor.
In consideration of the surrender of the put options previously owned by Tiller
First Wall Investments, Ltd., Eastby, Ltd., Bothwell, Ltd., Timana, Ltd., and
Tigan Capital Holdings, Ltd., which Distributor caused to be surrendered, the
puts having a face value at maturity of $5,000,000, and the mutual agreements
and promises contained in this Agreement, the receipt and sufficiency of which
are hereby acknowledged, Distributor and Supplier agree as follows:
1. APPOINTMENT OF DISTRIBUTOR:
Supplier hereby appoints and designates the Distributor as the
authorized Distributor of the MAVIS(TM) Software in the Russian and
English language, hereinafter referred to as "Software" and authorizes
Distributor to market and sell Software, according to the terms and
conditions of this Agreement. Supplier agrees to sell to Distributor,
Software for resale in the former Soviet Union, Poland, Hungary, Czech
Republic and other countries of the Eastern Block.
2. THE DISTRIBUTOR AGREES:
A. To use its best efforts to promote, market and distribute the
Software of Supplier in a manner reflecting credit on the
parties to this Agreement.
B. To provide customers with currently available catalogs and
promotional literature in reasonable quantities as deemed
appropriate by Distributor.
C. To provide and/or coordinate technical support for and
training in the proper use of the Software, for those
customers requesting same, through seminars and other programs
as deemed appropriate by Distributor.
3. SUPPLIER AGREES:
A. To support the Distributor in its effort to promote the sale
of the Software.
B. To provide reasonable technical and/or sales training
assistance for the Distributor's Customers at the
Distributor's request and expense.
<PAGE>
C. To support the Distributor by providing it, upon request, with
all reasonable quantities of literature, catalogs,
advertisements, circulars, etc. at cost plus 10%.
D. To provide 1,000 copies of the MAVIS(TM) software in the
Russian and English language.
4. ADDITIONAL TERMS AND CONDITIONS:
A. Order Entry. All orders shall be placed using the standard
Purchase Order forms of Supplier
B. Pricing/Discounts: Distributor's cost for each item of the
Software shall be Supplier's current list price as published
from time to time. Supplier shall have the right to change its
prices upon sixty (60) days written notice to Distributor.
Prices are exclusive of taxes. In the event of a decrease in
price, Supplier will issue a credit to Distributor for the
difference between the original and new lower price on
products currently in Distributor's stock. In the event of a
price increase, orders placed prior to effective date will be
invoiced at the old prices. Volume discount and/or rebate
programs may be included herein or accepted under separate
agreement or schedule.
C. Stock Balancing. Distributor may request one (1) return
authorization in each calendar quarter without a restocking
charge, for slow moving inventory. Distributor may return one
(1) consolidated shipment from each distribution location,
freight prepaid, for stock adjustment.
D. Freight. FOB. Equipment will be shipped to Distributor's
specified delivery point FOB Origin for drop ship orders,
freight prepaid and added to the invoice provided a copy of
the actual freight invoice is included for all shipments other
than U.P.S. FOB destination freight prepaid and allowed for
stock shipments. Title and risk of loss for Equipment shall
pass to Distributor, upon delivery. Supplier will pack
Software purchased hereunder for transport in accordance with
commercial standards and deliver Software to a carrier of the
mode of transportation selected by Distributor unless
otherwise agreed upon by the parties. If any unauthorized
freight carrier routing occurs which results in an increase to
the net cost of freight to the Distributor, the difference is
subject to bill back and will be deducted from the next
available invoice. All Bills of Lading shall indicate total
piece count. All shipments marked "SAID TO CONTAIN" are
subject to refusal and all charges applicable are Supplier's
responsibility. Supplier will assist in asserting any claim
against the invoiced carrier for loss, damage or
- 2 -
<PAGE>
destruction of Software. Freight classifications must be
provided for all products upon acceptance of this Agreement.
E. Packaging/Weights. Unless instructed otherwise by Distributor,
Supplier shall, for orders placed hereunder: (1) ship to the
destination designated in the order in accordance with
specific shipping instructions; (2) see that all subordinate
documents bear Distributor's order number; (3) enclose a
packing memorandum with each shipment and when more than one
package is shipped, identify the one containing the memorandum
and sequentially number all cartons, i.e., 1 of 4, 2 of 4,
etc.; (4) mark Distributor's order number on all packages and
shipping papers; and (5) render separate invoices for each
shipment or order.
F. Relationship of Parties. This Agreement does not in any way
create the relationship of joint venture, partner, or
principal land agent between Carnegie International
Corporation and Tiller International and neither shall have
the power or ability to pledge the credit of the other, nor to
bind the other, nor to contract in the name of or create a
liability against the other in any ways for any purpose.
G. Infringement. The Supplier will indemnify, defend, and
otherwise hold harmless the Distributor, its affiliates, and
its customers from all cost, loss, damage, or liability
arising from any proceeding or claim brought or asserted
against Distributor, its affiliates, or its customers for any
claim that the use of any Products in accordance with this
agreement infringes a third party's patent, copyright, trade
secret and/or other proprietary right. If claim for
infringement occurs and Distributor's use of a product or any
part thereof in accordance with this agreement is enjoined as
a result thereof, or in the supplier's opinion is likely to
occur, the Supplier shall have the right, at its option and
expense; to (1) produce the right for Distributor to continue
using such product(s) so that it becomes non-infringing, or
(2) require the return to the Supplier all products to which
such claim(s) for infringement relate. In the event of any
such return of products, the Supplier agrees to grant
Distributor credit for such returned products, based on the
price paid.
Supplier shall have no obligation or liability to Distributor
for any claim and/or injunction for infringement based upon
(1) the combination, operating or use of any product(s) with
equipment, data, or software not supplier by Supplier, (2)
alteration or modification of any product(s) not authorized or
performed by Supplier, or which are made or authorized by
Supplier in compliance with Distributor's or end user's
designs, specifications or instructions.
- 3 -
<PAGE>
H. Warranty. Standard policy to be included with current price
schedule provided initially and periodically hereafter.
Optional policies or programs as available.
I. Trademarks. Products and licensed materials purchased under
this Agreement may bear trade names, trademarks, logos or to
symbols of Supplier. Supplier hereby grants to Distributor
permission to use such symbols in Distributor's marketing and
advertising of Supplier's products, provided such use conforms
to standards and guidelines relating thereto which Supplier
may furnish from time to time. Use of trademarks and symbols
by Distributor may be subject too pre-publication or pre-use
review and approval by Supplier. If, in Supplier's judgment,
any use by Distributor is deemed detrimental to Supplier or is
deemed undesirable, Supplier may withdraw permission without
liability as result thereof.
J. Force Majeure. Neither party shall be responsible for delays
or failures in performance resulting from acts of God, labor
strikes, acts of war or civil disruption, government
regulations imposed after the fact, public utility failures,
or natural disasters.
K. Termination. The Distributorship hereby created may be
terminated only by an agreement in writing duly signed by the
parties hereto.
L. Governing Law. This Agreement shall be governed by the laws of
the State of Maryland.
SUPPLIER
Carnegie International Corporation
BY: /s/ Lowell Farkas
----------------------------------
(Authorized Signature)
Name: Lowell Farkas
--------------------------------
Title: President
-------------------------------
Date: 12/8/98
--------------------------------
Attest:
/s/ David Pearl
- 4 -
<PAGE>
TILLER INTERNATIONAL
By: /s/ Anthony N. Georgiou
----------------------------------
(Authorized Signature)
Name: Anthony N. Georgiou
--------------------------------
Title: Chairman
-------------------------------
Date: 12/8/98
--------------------------------
Attest:
_______________________________
- 5 -
<PAGE>
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.
7. Voice Quest, Inc.
8. RomNet Support Services, Inc.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000311172
<NAME> CARNEGIE INTERNATIONAL CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-30-1998 DEC-30-1997
<PERIOD-START> JAN-1-1996 JAN-1-1997 JAN-1-1998 JAN-1-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997 JUN-30-1998 JUN-30-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 0 226,422 164,047 0
<SECURITIES> 0 400,000 0 0
<RECEIVABLES> 0 771,664 3,552,995 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 32,575 240,345 0
<CURRENT-ASSETS> 0 1,455,281 4,464,418 0
<PP&E> 0 586,259 2,384,183 0
<DEPRECIATION> 0 102,042 500,488 0
<TOTAL-ASSETS> 0 8,837,333 15,221,222 0
<CURRENT-LIABILITIES> 0 3,102,913 3,993,151 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 200,000 0
<COMMON> 0 388,355 442,127 0
<OTHER-SE> 0 1,419,879 5,647,606 0
<TOTAL-LIABILITY-AND-EQUITY> 0 8,837,333 15,221,272 0
<SALES> 3,256,291 6,945,810 7,341,429 5,242,300
<TOTAL-REVENUES> 3,256,291 6,945,810 7,341,429 5,242,300
<CGS> 2,522,030 1,589,925 3,776,758 784,517
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 1,224,689 3,592,270 3,976,880 1,728,139
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 226,063 49,417 219,992 44,531
<INCOME-PRETAX> (709,347) 1,731,032 3,530,401 2,685,113
<INCOME-TAX> 0 50,867 1,022,581 184,516
<INCOME-CONTINUING> (709,347) 1,680,165 2,507,820 2,500,597
<DISCONTINUED> 0 (100,330) 0 (100,330)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (709,347) 1,579,835 2,507,820 2,400,467
<EPS-PRIMARY> (.08) .07 .06 .14
<EPS-DILUTED> (.08) .07 .06 .14
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