SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 20, 1999
Date of Report (Date of earliest event reported)
SILVERTHORNE PRODUCTION COMPANY
(Exact name of registrant as specified in its charter)
Colorado 0-11730 84-0189377
- ---------------------------- ------------------------ ---------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
7001 Seaview Avenue NW, Suite 210, Seattle, Washington 98117
- -------------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 297-6151
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired
Inter-American Telecommunications Holding Corporation
Page
Independent Auditors' Report
Balance Sheet as of June 30, 1999
Statement of Operations for the period July 24, 1998 (inception)
through June 30, 1999
Statement of Cash Flows for the period July 24, 1998 (inception) through
June 30, 1999
Statement of Changes in Stockholders' Equity for the period July 24, 1998
(inception) through June 30, 1999
Notes to Financial Statements
Cognigen Corporation
Independent Auditors' Report
Balance Sheets as of June 30, 1999 and 1998
Statements of Income and Retained Earnings for the years ended
June 30, 1999 and 1998
Statements of Cash Flows for the years ended June 30, 1999 and 1998
Notes to Financial Statements
(b) Proforma Financial Information
Inter-American Telecommunications Holding Corporation, Silverthorne
Production Company and Cognigen Corporation Unaudited Pro Forma Financial
Data
(c) Exhibits
Exhibit 2.Stock Purchase and Asset Acquisition Agreement by and among
Inter-American Telecommunications Holding Corporation, Silverthorne
Production Company, et al.
- 2 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
SILVERTHORNE PRODUCTION COMPANY
Dated: March 6, 2000 By: /s/ Jimmy L. Boswell
----------------------
Jimmy L. Boswell, President
- 3 -
<PAGE>
INTER-AMERICAN TELECOMMUNICATIONS HOLDING CORPORATION
Financial Statements
June 30, 1999
F - 1
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-3
BALANCE SHEET F-4
STATEMENT OF OPERATIONS F-5
STATEMENT OF CASH FLOWS F-6
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY F-7
NOTES TO FINANCIAL STATEMENTS F-8-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Inter-American Telecommunications Holding Corporation
Seattle, Washington
We have audited the accompanying balance sheet of Inter-American
Telecommunications Holding Corporation (a development stage company) as of June
30, 1999, and the related statements of operations, cash flows, and changes in
stockholders' equity for the period from inception (July 24, 1998) through June
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inter-American
Telecommunications Holding Corporation as of June 30, 1999, and the results of
its operations, its cash flows and its changes in stockholders' equity for the
period from inception (July 24, 1998) through June 30, 1999 in conformity with
generally accepted accounting principles.
Denver, Colorado
January 20, 2000
(except for Note 8 which
is dated February 10, 2000)
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F - 3
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
BALANCE SHEET
June 30, 1999
ASSETS 1999
-----------
OTHER ASSETS
Goodwill ....................................... $ 5
Deferred
tax ............................................ 16,531
Customer lists
1,300,015
-----------
TOTAL ASSETS ................................. $ 1,316,551
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Interest payable ............................... $ 67,814
Notes payable - related parties
700,000
Total current liabilities
767,814
Notes payable - related parties, due in more
than one year .................................. 600,000
STOCKHOLDERS' EQUITY
Common stock; $0.01 par value, 10,000 shares
Authorized; 2,000 shares issued and
outstanding .................................. 20
Deficit accumulated during the development stage
(51,283)
-----------
(51,263)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ... $ 1,316,551
===========
The accompanying notes are an integral part of the
financial statements.
F - 4
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
STATEMENT OF OPERATIONS For the period July 24, 1998
(inception) through June 30, 1999
Revenue ............................ $ --
Interest expense ................... 67,814
--------
Loss before income taxes ..... (67,814)
Income tax benefit.................. 16,531
--------
NET LOSS ..................... $(51,283)
========
Basic and diluted earnings per share $ (25.64)
========
Weighted average shares outstanding 2,000
========
The accompanying notes are an integral part of the
financial statements.
F - 5
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
STATEMENT OF CASH FLOWS For the period July 24, 1998
(inception) through June 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net ........................................... $(51,283)
loss
Adjustments to reconcile net income to net
cash
Flows from operating activities:
Deferred tax benefit
(16,531)
Changes in assets and liabilities:
Interest payable
67,814
-------
Net cash flows from operating activities --
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash flows from investing activities --
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash flows from financing activities --
--------
NET CHANGE IN CASH --
--------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......... $ --
========
The accompanying notes are an integral part of the
financial statements.
F - 6
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the period July 24,
1998 (inception) through June 30, 1999
<TABLE>
<CAPTION>
Deficit
Stock accumulated
Number during the Total
of Development Stockholders'
Shares Amount Stage Equity
------ -------- -------- -------
<S> <C> <C> <C> <C>
Common stock issued for
intangible assets,
November 4, 1998 at
$0.01 per share 2,000 $ 20 $ -- $ 20
Net loss for the period
July 24, 1998 to June 30,
1999 -- -- (51,283) (51,283)
------ -------- -------- -------
Balance, June 30, 1999..... 2,000 $ 20 $(51,283) $(51,263)
===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F - 7
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
1. Organization and Presentation
-----------------------------
Description of Business and Operations
Inter-American Telecommunications Holding Corporation ("ITHC" or the
"Company") was incorporated in the state of Delaware on July 24, 1998. ITHC
was organized for the purpose of consolidating the operations of certain
enterprises engaged in the commerce and transmission of domestic and
international long distance telephone and related services.
During the period ended June 30, 1999, ITHC acquired customer lists from
Telkiosk, Inc. ("Telkiosk") and Combined Telecommunications Consultancy,
Ltd. ("CTC") that will be utilized to build a customer base for
telecommunication sales. The Company also issued shares to acquire
Inter-American Telecommunications Corporation ("ITC"), which will provide
backroom support services for the Company's operations. On July 1, 1999,
ITHC acquired all of the assets and liabilities of Cognigen Corporation, an
on-line marketer of a variety of telecommunications services; see Note 8.
As of June 30, 1999, the Company is in the development stage as defined in
Statement of Financial Accounting Standards No. 7 Accounting and Reporting
by Development Stage Enterprises. Since its inception, the Company has
geared its efforts toward the acquisition of assets that will allow it to
be engaged in direct and multilevel agency marketing and sale of long
distance service and products as well as the switching and transport of
voice, fax and data telephone and Internet traffic and related services. At
June 30, 1999, operations had not commenced.
2. Summary of Significant Accounting Policies
------------------------------------------
Customer lists
Customer databases acquired for debt have been recorded at the face amount
of the debt issued in the acquisition. Customer databases will be amortized
into income over a period not to exceed 3 years from the migration date.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes" which requires that deferred income tax
expenses be provided based upon estimated future tax effects of differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes calculated
based upon provisions of enacted tax laws.
F - 8
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
Financial Instruments
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held
for trading purposes) approximate the carrying values of such amounts.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from these estimates.
Loss Per Share
Loss per common share has been computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
period. Shares issued in the initial capitalization of the Company have
been treated as outstanding since inception.
3. Statements of Cash Flows
There were no cash payments made for interest or income taxes in 1999.
Non-cash investing and financing activities consisted of the following:
Issuance of promissory notes $ 1,300,000
Issuance of common stock 20
Purchase of customer lists (1,300,015)
Goodwill (5)
4. Long-term Debt
At June 30, 1999, the Company had the following notes payable to related
parties:
Current Long-term
------- ---------
8% unsecured promissory note payable to Telkiosk,
with principal and interest due upon maturity
at November 4, 1999, partially refinanced
to July 1, 2000 $200,000 $300,000
F - 9
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
8% unsecured promissory note payable to CTC,
with principal and interest due upon maturity
at November 4, 1999, partially refinanced to
July 1, 2000. 500,000 300,000
-------- --------
$700,000 $600,000
======== ========
5. Income Taxes
--------------
The Company computes and records taxes payable based upon determination of
taxable income which is different from pre-tax financial statement income.
Such differences arise from the reporting of financial statement amounts
in different periods for tax purposes. The timing differences are a result
of different accounting methods being used for financial and tax
reporting.
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax valuation allowance at June 30, 1999 are as follows:
Deferred tax assets
Non-benefited tax losses and credits $ 16,531
Valuation allowance -
--------
Net deferred tax asset $ 16,531
========
The provision for income taxes was different than the amount computed
using the statutory income tax rate for the reasons following:
Tax computed at statutory rate $ 10,172
State taxes 6,359
Valuation allowance -
--------
Income tax benefit $ 16,531
========
6. Commitments and Contingencies
Working capital commitments
A portion of the consideration paid to acquire the customer lists is a
commitment to provide a total of $700,000 over a 3 year period to cover
the costs of migrating the customer bases to a chosen carrier network and
the costs of business expansion related to the customer bases.
F - 10
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
ITHC owns 100% of the common shares of ITC, a company that will provide
backroom support services for companies engaged in providing long distance
telephone services. A separate agreement to provide $150,000 in working
capital to this related party was executed concurrently with the customer
list purchases.
Presentation as a going concern
The Company is in the development stage and at June 30, 1999, had no
liquid assets with which to satisfy its acquisition liabilities and
ongoing working capital commitments. After year end, as discussed in Note
8, the Company acquired a controlling interest in Silverthorne Production
Company, a publicly traded shell company. Between September and December
of 1999, Silverthorne Production Company raised a total of $5.85 million
through the sale of its common stock, the proceeds of which will be used
to fund ITHC's operating capital requirements, as well as to make
additional planned acquisitions.
7. Related Party Transactions
Acquisition of customer databases
On November 4, 1998, ITHC acquired a customer database of 54,034
individual subscribers from TelKiosk in exchange for 500 shares of ITHC
common stock, plus a cash payment of $500,000 in the form of a promissory
note payable November 4, 1998 (and subsequently extended until July 1,
2000 as to the remaining $300,000 balance due). TelKiosk is partially
owned by Peter Tilyou, a former officer and director of ITHC.
Also on November 4, 1998, ITHC acquired a customer database of 41,415
individual subscribers from CTC in exchange for 1,000 shares of ITHC
common stock plus a cash payment of $800,000 in the form of a promissory
note payable November 4, 1999 (and subsequently extended until July 1,
2000 as to $300,000 of the remaining balance due). CTC is partially owned
by Peter Tilyou, a former officer and director of ITHC.
8. Subsequent Event
Acquisition of Cognigen Corporation
On July 1, 1999, the Company entered into an agreement with Cognigen
Corporation ("Cognigen") to purchase all of Cognigen's assets. The
purchase price included 5,500 shares of ITHC common stock ($.01 par
value), a $300,000 note payable due October 1, 1999, a four-year
employment contract for the founder of Cognigen with an annual base salary
of $175,000, and a commitment to provide future working capital of
$600,000 over a three year period to cover business expansion. The
transaction will be accounted for as a purchase.
F - 11
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
The following Pro Forma combined, condensed financial information reflects
the acquisition of Cognigen as if it occurred as of July 24, 1998 (the
beginning of the period).
Total Assets $ 1,923,583
Total Liabilities $ 1,982,914
Stockholders' Equity $ (59,331)
Revenues $ 1,807,401
Net loss $ ( 37,049)
Loss per share $ (18.52)
Acquisition of controlling interest in Silverthorne Production Company On
August 20, 1999, pursuant to a Stock Purchase and Asset Acquisition
Agreement by and among Silverthorne Production Company ("Silverthorne"),
certain shareholders of Silverthorne, and the Company, ITHC acquired a
total of 24,345,384 shares, or approximately 58%, of the outstanding
common stock of Silverthorne in exchange for all of ITHC's assets and
liabilities. In a second closing which is to occur after the annual
meeting of the shareholders of Silverthorne, ITHC will receive an
additional 37,298,444 Silverthorne common shares. Silverthorne is a
publicly-traded shell company with no assets or liabilities prior to the
transaction with ITHC as described herein.
Of the shares acquired in August, 11,742,953 were acquired directly from
Silverthorne and 12,602,431 shares were acquired from certain shareholders
of Silverthorne in exchange for $190,000 in cash and 300 shares of ITHC
common stock.
Shares issued for employment agreements
On July 22, 1999 ITHC executed a one-year employment agreement for the
positions of Chief Operating Officer ("COO") and Chief Financial Officer
("CFO"). Included in this agreement was a jointly held option to purchase
1,000 shares of ITHC common stock at any time during the one-year period
commencing July 22, 1999. The shares were issued in consideration of
services rendered in August of 1999.
Aquila Agreement
On July 22, 1999, ITHC entered into a three-year carrier service agreement
with Aquila International Telecommunications, Inc. ("Aquila"), a company
partially owned by Jimmy Boswell and David G. Lucas who are officers and
directors of the Company. ITHC provided an advance payment of $400,000 in
connection with this agreement.
F - 12
<PAGE>
Inter-American Telecommunications Holding Corporation
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
In January 2000, Silverthorne entered into a letter of intent to acquire
Aquila, subject to the execution of a definitive agreement and other
conditions.
F - 13
<PAGE>
COGNIGEN CORPORATION
Financial Statements
June 30, 1999 and 1998
F - 14
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-16
BALANCE SHEETS F-17
STATEMENTS OF INCOME AND RETAINED EARNINGS F-18
STATEMENTS OF CASH FLOWS F-19
NOTES TO FINANCIAL STATEMENTS F-20--24
F - 15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Cognigen Corporation
Seattle, Washington
We have audited the accompanying balance sheets of Cognigen Corporation as of
June 30, 1999 and 1998, and the related statements of income and retained
earnings, and cash flows for each of the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cognigen Corporation as of June
30, 1999 and 1998, and the results of its operations and its cash flows for each
of the years then ended in conformity with generally accepted accounting
principles.
Denver, Colorado
January 20, 2000
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F - 16
<PAGE>
Cognigen Corporation
BALANCE SHEETS
June 30, 1999 and 1998
ASSETS 1999 1998
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ........ $ 21,248 $ 14,390
Commissions receivable ........... 279,507 19,956
Inventory ........................ 25,076 38,301
Prepaid excise taxes ............. 752 1,149
--------- ---------
Total current assets 326,583 73,796
EQUIPMENT - AT COST
Telephone system ................. 3,035 --
Computers ........................ 17,804 --
Furniture ........................ 790 --
Capitalized software ............. 125,000 125,000
--------- ---------
146,629 125,000
Less accumulated depreciation .... 67,273 37,500
--------- ---------
79,356 87,500
OTHER ASSETS
Deferred income tax asset ........ 74 2,718
Deposits ......................... 1,500 --
--------- ---------
1,574 2,718
--------- ---------
TOTAL ASSETS ................... $ 407,513 $ 164,014
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................. $ 1,024 $ --
Commissions payable .............. 184,268 40,346
Deferred revenue ................. 71,763 31,451
Income taxes payable ............. 13,770 2,032
Payroll taxes payable ............ 50,403 22,918
--------- ---------
Total current liabilities .... 321,228 96,747
STOCKHOLDERS' EQUITY
Common stock; $0.01 par value,
100,000 shares authorized; 91,000
shares issued and outstanding ... 910 910
Additional paid-in capital ....... 124,100 124,100
Retained deficit ................. (38,725) (57,743)
--------- ---------
86,285 67,267
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .............................. $ 407,513 $ 164,014
========= =========
The accompanying notes are an integral part of the
financial statements.
F - 17
<PAGE>
Cognigen Corporation
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended June 30, 1999 and 1998
1999 1998
Revenues
Commission income ................. $ 765,416 $ 615,090
Calling card sales ................ 1,041,985 237,113
----------- -----------
1,807,401 852,203
----------- -----------
Cost of revenues
Commissions ....................... 553,086 409,657
Calling card cost of revenue ...... 679,864 110,268
----------- -----------
1,232,950 519,925
----------- -----------
Gross profit .................... 574,451 332,278
Selling, general and administrative
expenses ............................. 541,051 381,885
----------- -----------
Income (loss) before income taxes 33,400 (49,607)
Provision for income taxes ............ 14,382 (1,918)
----------- -----------
NET INCOME (LOSS) ............... 19,018 (47,689)
Retained deficit
Balance, beginning of the year .... (57,743) (10,054)
----------- -----------
Balance, end of year .............. $ (38,725) $ (57,743)
=========== ===========
Basic earnings per share .............. $ 0.21 $ (0.52)
=========== ===========
Diluted earnings per share ............ $ 0.21 $ (0.52)
=========== ===========
The accompanying notes are an integral part of the
financial statements.
F - 18
<PAGE>
Cognigen Corporation
STATEMENTS OF CASH FLOWS
For the years ended June 30, 1999 and 1998
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ......................... $ 19,018 $ (47,689)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation .......................... 29,773 25,000
Deferred income taxes ................. 2,644 (2,718)
Changes in assets and liabilities:
Commissions receivable .............. (259,551) 58,824
Inventory ........................... 13,225 (38,301)
Prepaid excise taxes ................ 397 (1,149)
Deposits ............................ (1,500) --
Accounts payable .................... 1,024 (579)
Commissions payable ................. 143,922 (20,783)
Deferred revenue .................... 40,312 31,451
Income taxes payable ................ 11,738 800
Payroll taxes payable ............... 27,485 22,918
--------- ---------
Net cash provided by operating
activities ............................. 28,487 27,774
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment .................. (21,629) --
--------- ---------
Net cash used by investing activities ... (21,629) --
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing
activities ............................. -- --
--------- ---------
NET INCREASE IN CASH .......................... 6,858 27,774
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR ...................................... 14,390 (13,384)
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ........ $ 21,248 $ 14,390
========= =========
The accompanying notes are an integral part of the
financial statements.
F - 19
<PAGE>
Cognigen Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
1. Organization and Presentation
Description of Business and Operations
Cognigen Corporation, previously Cognigen Communications, was incorporated
in the state of Nevada in February 1998. Cognigen's predecessor, Cognigen
Communications, was incorporated in the state of California in February
1997. All references to the "Company" or "Cognigen" refer to Cognigen
Corporation and include its predecessor. Cognigen is an on-line marketer
of a variety of telecommunication services.
Telecommunication services that are offered for sale include both domestic
and international long distance, international callback service, high
bandwidth web hosting service, IP telephony service and prepaid calling
cards. Services other than prepaid calling cards are provided by
telecommunication companies with which Cognigen has on-going
relationships. Commissions are paid to Cognigen based on the sale and
usage of these telecommunication services. The commission rates vary among
the providers. Calling cards are purchased from various vendors at a
discount from the face value. Revenue is generated upon the sale of the
calling cards.
Cognigen services are marketed via a network of over thirty thousand
agents worldwide. Each agent has a personalized Web page that is accessed
by customers and potential customers looking for lower cost
telecommunication services. Commissions are paid on a sliding scale to
agents on both direct and downline sales.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company records commission income when the underlying
telecommunication service is rendered.
Calling card revenue is recorded when the calling cards are shipped. The
Company's policy is to delay shipment of calling cards for a two week
period after receipt of cash to allow for processing. This delay results
in deferred revenue which is recorded as liability until the calling cards
are shipped.
General and administrative expenses are charged as incurred to periodic
income.
Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
F - 20
<PAGE>
Cognigen Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
Commissions Receivable
Commissions receivable represent amounts due from providers for
telecommunication services used by subscribers. Typically providers pay
commissions due to Cognigen forty-five days after the usage month end to
allow for billing and collection.
No allowance for doubtful accounts has been established by the Company and
no bad debt expense has been recorded in either 1998 or 1999.
Inventory
Inventory consists of prepaid calling cards held for resale and is valued
at the lower of cost or market. Calling cards are purchased from a variety
of vendors at a discount from the face value. Excise tax of 3% of the face
value is paid at the time of purchase. When the calling card is sold, the
excise tax is collected and offset against the prepaid excise tax.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over the following estimated useful lives:
Telephone system 5 years
Computers 3 years
Furniture 5 years
Capitalized software 5 years
Software developed to support the self-replicating Web pages used to
market telecommunication services and administer agents' sales and related
commissions has been capitalized according to the provisions of AICPA
Statement of Position 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use". Such software was contributed in
exchange for stock in the Company in February 1997.
Commissions Payable
Commissions payable represent amounts due to agents as commission related
to the usage for which the Company is due commission income from its
providers. It is the Company's policy to pay commission to its agents only
after receiving commission due from its providers. This policy results in
approximately two months commission payable as of each year end.
F - 21
<PAGE>
Cognigen Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes" which requires that deferred income tax
expenses be provided based upon estimated future tax effects of
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes
calculated based upon provisions of enacted tax laws.
Concentration of Credit Risk
The Company sells the telecommunication services of various providers.
Based on the sales efforts of the Company's agents, a concentration of
revenue and/or receivables can arise at various times. As of June 30, 1999
and 1998, commissions receivable from two providers comprised 64% and 95%,
respectively, of the total commissions receivable. For the year ended June
30, 1998, 97% of commission income was generated from one provider. For
the year ended June 30, 1999, this provider's proportionate share of
revenue had decreased to 21%, while a new provider contributed 42% of the
total revenue.
Financial Instruments
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held
for trading purposes) approximate the carrying values of such amounts.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from these estimates.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No.
128 Earnings per Share" (SFAS No. 128) that requires the calculation of
basic earnings per common share, which is computed by dividing net income
by the weighted average number of shares of common stock outstanding
during the period, and diluted earnings per common share, which is
computed using the weighted average number of shares of common stock and
common stock equivalents.
3. Statements of Cash Flows
------------------------
There were no cash payments made for interest or income taxes in either
1999 or 1998.
F - 22
<PAGE>
Cognigen Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
4. Income Taxes
------------
The Company computes and records taxes payable based upon determination of
taxable income which is different from pre-tax financial statement income.
Such differences arise from the reporting of financial statement amounts
in different periods for tax purposes. The timing differences are a result
of different accounting methods being used for financial and tax
reporting.
The components of income tax expense (benefit) are:
1999 1998
-------- --------
Taxes currently payable .... $ 11,738 $ 800
Change in deferred tax asset 2,644 (2,718)
-------- --------
$ 14,382 $ (1,918)
======== ========
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax valuation allowance at June 30, 1999 and 1998 are as follows:
1999 1998
------ ------
Deferred tax assets
Deductible temporary differences ... $ 74 $ --
Non-benefited tax losses and credits -- 2,718
------ ------
Total deferred tax assets ..... 74 2,718
------ ------
Net deferred tax asset ........ $ 74 $2,718
====== ======
The provision for income taxes was different than the amount computed
using the statutory income tax rate for the reasons following:
1999 1998
------- -------
Tax computed at statutory rate.. $ 5,010 $(7,441)
State taxes .................... 5,744 --
Other, non-deductible expenses . 3,628 5,523
------- -------
Provision for income taxes $14,382 $(1,918)
======= =======
F - 23
<PAGE>
Cognigen Corporation
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
5. Commitments and Contingencies
-----------------------------
The Company leases certain office space under an operating lease expiring
September 30, 1999 with monthly payments of $900 and an option to renew on
a month-to-month basis at $945 per month. Total expense for the years
ended June 30, 1999 and 1998 was $7,815 and $0, respectively.
The Company is not involved in any lawsuits or litigation.
6. Related Parties
---------------
Prior to October 1, 1998, the corporate offices of the Company were in the
personal residence of the two of the Company's directors. No rent was
charged for the use of the space.
7. Subsequent Event
----------------
On July 1, 1999, the Company entered into an agreement with Inter-American
Telecommunications Corporation ("ITHC") to sell all of its assets to ITHC.
The purchase price included 5,500 shares of ITHC common stock ($.01 par
value), a $300,000 note payable due October 1, 1999, a four-year
employment contract for Cognigen's founder, and provisions for future
working capital of $600,000 over a three year period to cover business
expansion.
ITHC was incorporated on July 24, 1998 and had no operations during the
year ended June 30, 1999. Proforma financial results would include only
the results of operations of Cognigen.
F - 24
<PAGE>
Inter-American Telecommunications Holding Corporation
Silverthorne Production Company
Cognigen Corporation
UNAUDITED PRO FORMA FINANCIAL DATA
The accompanying unaudited Pro Forma financial information gives effect to
the July 1, 1999 acquisition of the operating assets of Cognigen
Corporation ("Cognigen") and the August 20, 1999 acquisition of a majority
interest in Silverthorne Production Company ("Silverthorne") by
Inter-American Telecommunications
Holding Corporation ("ITHC").
On July 1, 1999, ITHC entered into an agreement with Cognigen Corporation
("Cognigen") to purchase all of Cognigen's assets. The purchase price
included 5,500 shares of ITHC common stock ($.01 par value), a $300,000
note payable due October 1, 1999, a four-year employment contract for the
founder of Cognigen, and a commitment to provide future working capital of
$600,000 over a three year period to cover business expansion. The
transaction will be accounted for as a purchase.
On August 20, 1999, pursuant to a Stock Purchase and Asset Acquisition
Agreement by and among ITHC, Silverthorne, and certain shareholders of
Silverthorne, ITHC acquired a total of 24,345,384 shares, or approximately
58%, of the outstanding common stock of Silverthorne in exchange for all
of ITHC's assets and liabilities. In a second closing which is to occur
after the annual meeting of the shareholders of Silverthorne, ITHC will
receive an additional 37,298,444 Silverthorne common shares.
The following unaudited pro forma financial statements are based on the
historical presentation of the financial statements of ITHC, Cognigen, and
Silverthorne as of June 30, 1999 and for the year then ended.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements, including notes thereto, of
ITHC, Cognigen, and Silverthorne previously filed or included herein.
F - 25
<PAGE>
Silverthorne Production Company
Pro-Forma Financial Statements
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Silverthorne ITHC Cognigen
June 30, 1999 June 30, 1999 June 30, 1999 Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Current Assets ........................ $ -- $ -- $ 326,583 $ 326,583
Equipment ............................. -- -- 79,356 79,356
213,770a
Other Assets .......................... -- 1,316,551 1,574 (14,251)b 1,517,644
----------- ----------- ----------- -----------
Total Assets .......................... $ -- $ 1,316,551 $ 407,513 $ 1,923,583
=========== =========== =========== ===========
$190,000e
Current 300,000a
liabilities .......................... $ 2,234 $ 1,367,814 $ 321,228 (6,128)c $ 2,175,148
Stockholders' (8,123)b,c
equity ............................... (2,234) (51,263) 86,285 (86,230)a (251,565)
----------- ----------- ----------- (190,000)e -----------
Total
liabilities and
equity ............................... $ -- $ 1,316,551 $ 407,513 $ 1,923,583
=========== =========== =========== ===========
Revenues .............................. $ -- $ -- $ 1,807,401 $ 1,807,401
Cost of revenues ...................... -- -- 1,232,950 1,232,950
----------- ----------- ----------- -----------
Gross profit .......................... -- -- 574,451 574,451
SG&A .................................. -- -- 541,051 14,251b 555,302
Interest .............................. -- 67,814 -- 67,814
Other income/
expense .............................. 4,784 -- -- 4,784
----------- ----------- ----------- -----------
Net before tax ........................ 4,784 (67,814) 33,400 (53,449)
Tax ................................... -- 16,531 (14,382) 6,128c 8,277
----------- ----------- ----------- -----------
Net income ............................ $ 4,784 $ (51,283) $ 19,018 $ (32,265)
=========== =========== =========== ===========
Income (loss)
per share:
Basic ................................. $ 0.00 $ (25.64) $ 0.21 $ (0.00)
=========== =========== =========== ===========
Diluted ............................... $ 0.00 $ (25.64) $ 0.21 $ (0.00)
=========== =========== =========== ===========
Weighted average
shares outstanding.................... 15,757,047 2,000 91,000 11,742,953d 27,500,000
=========== =========== =========== ===========
F - 26
</TABLE>
Pro Forma Adjustments
a - to record acquisition of Cognigen for $300,000 debt plus $55 stock
b - to amortize goodwill ratably over a 15 year recovery period
c - tax effect of goodwill amortization
d - newly issued Silverthorne shares acquired by ITHC
e - to record charge to equity for 12,602,431 Silverthorne shares acquired by
ITHC from Silverthorne shareholders for $190,000.
F - 27
<PAGE>
EXHIBIT 2
STOCK PURCHASE AND
ASSET ACQUISITION AGREEMENT
This Stock Purchase and Asset Acquisition Agreement (the "Agreement") is entered
into as of this 19th day of August 1999, by and among Silverthorne Production
Company, a Colorado corporation ("Silverthorne"), Inter-American
Telecommunications Holding Corporation, a Delaware corporation ("ITHC"), and
David L. Jackson, Patricia A. Jackson, Eric J. Sundsvold, and Karrie R. Jackson,
C/F W.R. Jackson (the "Selling Shareholders").
RECITALS
WHEREAS, Silverthorne is a publicly-traded company which has evaluated and
wishes to acquire all of the assets owned by ITHC in order to maximize
Silverthorne's business development for the benefit of Silverthorne and its
shareholders;
WHEREAS, ITHC is a privately held marketing service provider of long
distance communications services which desires to enter into a transaction in
which all of its assets would be transferred to Silverthorne and would result in
ITHC ultimately holding approximately 84.59% of the shares of Silverthorne
outstanding; and
WHEREAS, Selling Shareholders desire to sell an aggregate of 12,602,431
shares of Silverthorne common stock held by them to ITHC;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
representations set forth below and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereby agree
as follows:
ARTICLE 1
TRANSFER OF SECURITIES AND ASSETS
1.1 Transfer of Shares by Selling Shareholders. Subject to the terms and
conditions of this Agreement, Selling Shareholders agree to sell and ITHC agrees
to purchase an aggregate of 12,602,431 shares of Silverthorne common stock in
exchange for $190,000 in cash and 300 shares of ITHC's common stock. The number
of shares being sold by each Selling Shareholder is set forth in the signature
block to this Agreement. This sale shall occur at the First Closing, as
described herein.
1.2 Issuance of Shares. Subject to the terms and conditions of this Agreement,
Silverthorne hereby agrees to issue to ITHC at the First Closing, 29,242,953
restricted shares of Common Stock of Silverthorne; provided, however, if
Silverthorne has not been able to cancel the 75,000 shares held in the name of
David M. Anderson by the First Closing, the number issued to ITHC will be
reduced by 75,000, and Silverthorne agrees to use its best efforts to have the
75,000 shares canceled as soon as possible at which time the remaining 75,00
shares will be issued to ITHC. After the First Closing, Silverthorne shall call
a meeting of its shareholders for the purposes described in this Agreement
including the consideration of a 1 for 4 reverse split of the outstanding shares
of Silverthorne Common Stock. After the effective date of such reverse stock
split, a Second Closing shall be held at which an additional 4,949,611
post-split shares of Common Stock of Silverthorne shall be issued to ITHC as
final payment for the assets purchased hereby. All of the shares of Silverthorne
Common Stock to be issued to ITHC shall be fully restricted under Rule 144 but
shall be free and clear of any and all encumbrances.
1.3 Transfer of Assets. In exchange for the shares of Silverthorne Common Stock
to be issued to ITHC, ITHC hereby agrees to transfer and assign to Silverthorne,
at the First Closing, fully and absolutely, all right, title and interest of all
of the assets of ITHC set forth on Schedule A which is attached hereto and
incorporated herein by reference, and ITHC agrees that Silverthorne shall be the
sole owner of such assets.
1.4 Exemption from Registration. The parties hereto intend that the Common Stock
to be issued by Silverthorne to ITHC shall be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), pursuant to
Section 4(2) of the Act and the rules and regulations promulgated thereunder,
and the Common Stock to be transferred by Selling Shareholders to ITHC shall be
exempt from the registration requirements in reliance upon Section 4(1) of the
Act.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SILVERTHORNE
Except as disclosed in Schedule 2 which is attached hereto and
incorporated herein by reference, Silverthorne represents and warrants to ITHC
that:
2.1 Organization. Silverthorne is a corporation duly organized, validly
existing, and in good standing under the laws of Colorado, has all necessary
corporate powers to own properties and to carry on business, and it is not now
conducting any business, except to the extent to which the effecting of the
transaction contemplated by this Agreement constitutes doing business.
2.2 Capitalization. The authorized capital stock of Silverthorne consists of
50,000,000 shares of $.001 par value Common Stock of which 15,832,047 shares of
Common Stock are currently issued and outstanding, and 75,000 of these shares
are in the process of being cancelled. All of the issued and outstanding shares
of Common Stock are duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments obligating
Silverthorne to issue or to transfer from treasury any additional shares of its
capital stock of any class.
2.3 Subsidiaries. Silverthorne does not presently have any subsidiaries or own
any interest in any other enterprise (whether or not such enterprise is a
corporation).
2.4 Directors and Officers. Schedule 2 contains the names and titles of all
directors and officers of Silverthorne as of the date of this Agreement.
2.5 Financial Statements. Silverthorne has delivered to ITHC its audited balance
sheet and statements of operations and cash flows as of and for the period ended
June 30, 1999 (the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated. The Financial Statements accurately set
out and describe the financial condition and operating results of Silverthorne
as of the dates, and for the periods, indicated therein. As of the First
Closing, there shall be no more than $10,000 in liabilities.
2.6 Absence of Changes. Since June 30, 1999, except for changes in the ordinary
course of business which have not in the aggregate been materially adverse, to
the best of Silverthorne's knowledge, Silverthorne has not experienced or
suffered any material adverse change in its condition (financial or otherwise),
results of operations, properties, business or prospects or waived or
surrendered any claim or right of material value.
2.7 Absence of Undisclosed Liabilities. To the best of Silverthorne's knowledge,
neither Silverthorne nor any of its assets are subject to any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise
and whether due or to become due, that are not reflected in the Financial
Statements.
2.8 Tax Returns. Within the times and in the manner prescribed by law,
Silverthorne has filed all federal, state and local tax returns required by law
and has paid all taxes, assessments and penalties due and payable.
2.9 Investigation of Financial Condition. Without in any manner reducing or
otherwise mitigating the representations contained herein, ITHC shall have the
opportunity to meet with Silverthorne's accountants and attorneys to discuss the
financial condition of Silverthorne. Silverthorne shall make available to ITHC
all books and records of Silverthorne.
2.10 Trade Names and Rights. Silverthorne does not use any trademark, service
mark, trade name, or copyright in its business, or own any trademarks, trademark
registrations or applications, trade names, service marks, copyrights, copyright
registrations or applications.
2.11 Compliance with Laws. To the best of Silverthorne's knowledge, Silverthorne
has complied with, and is not in violation of, applicable federal, state or
local statutes, laws and regulations (including, without limitation, any
applicable building, zoning, or other law, ordinance, or regulation) affecting
its properties or the operation of its business.
2.12 Litigation. Silverthorne is not a party to any suit, action, arbitration,
or legal, administrative, or other proceeding, or governmental investigation
pending or, to the best knowledge of Silverthorne, threatened against or
affecting Silverthorne or its business, assets, or financial condition.
Silverthorne is not in default with respect to any order, writ, injunction, or
decree of any federal, state, local, or foreign court, department agency, or
instrumentality. Silverthorne is not engaged in any legal action to recover
moneys due to it.
2.13 No Pending Investigation. Silverthorne is not aware of any pending
investigations or legal proceedings by the SEC, any state securities regulatory
agency, or any other governmental agency regarding Silverthorne or any officers
or directors of Silverthorne or any shareholders or controlling persons of such
shareholders.
2.14 Authority. Silverthorne has full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The Board of Directors of Silverthorne has taken all action required
to authorize the execution and delivery of this Agreement by or on behalf of
Silverthorne, the performance of the obligations of Silverthorne under this
Agreement and the consummation by Silverthorne of the transactions contemplated
under this Agreement. No other corporate proceedings on the part of Silverthorne
are necessary to authorize the execution and delivery of this Agreement by
Silverthorne in the performance of its obligations under this Agreement. This
Agreement is, and when executed and delivered by Silverthorne, will be a valid
and binding agreement of Silverthorne, enforceable against Silverthorne in
accordance with its terms, except as such enforceability may be limited by
general principles of equity, bankruptcy, insolvency, moratorium and similar
laws relating to creditors rights generally.
2.15 Ability to Carry Out Obligations. Neither the execution and delivery of
this Agreement, the performance by Silverthorne of its obligations under this
Agreement, nor the consummation of the transactions contemplated under this
Agreement will, to the best of Silverthorne's knowledge: (a) violate any
provision of Silverthorne's articles of incorporation or bylaws; (b) with or
without the giving of notice or the passage of time, or both, violate, or be in
conflict with, or constitute a default under, or cause or permit the termination
or the acceleration of the maturity of, any debt, contract, agreement or
obligation of Silverthorne, or require the payment of any prepayment or other
penalties; (c) require notice to, or the consent of, any party to any agreement
or commitment, lease or license, to which Silverthorne is bound; (d) result in
the creation or imposition of any security interest, lien or other encumbrance
upon any property or assets of Silverthorne; or (e) violate any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority to which Silverthorne is bound or subject.
2.16 Validity of Silverthorne Shares. The shares of Silverthorne Common Stock to
be delivered pursuant to this Agreement, when issued in accordance with the
provisions of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
2.17 Full Disclosure. None of the representations and warranties made by
Silverthorne herein, or in any exhibit, certificate or memorandum furnished or
to be furnished by Silverthorne, or on its behalf, contains or will contain any
untrue statement of material fact, or omit any material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading.
2.18 Assets. Silverthorne does not have any assets.
2.19 Material Contracts and Obligations. Silverthorne has no
material contracts to which it is a party or by which it is bound.
2.20 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Silverthorne in connection with:
(a) the execution and delivery by Silverthorne of its obligations under this
Agreement; (b) the performance by Silverthorne of its obligations under this
Agreement; or (c) the consummation by Silverthorne of the transactions
contemplated by this Agreement.
2.21 Real Property. Silverthorne does not own, use or claim any interest in any
real property, including without limitation any license, leasehold or any
similar interest in real property.
2.22 Articles of Incorporation and Bylaws. The Articles of Incorporation of
Silverthorne and all amendments thereto to date, certified by the Secretary of
State of the State of Colorado, and the by-laws of Silverthorne, as amended to
date, certified by Silverthorne's Secretary or Assistant Secretary, (1) shall be
delivered to ITHC at the First Closing, (2) are true, complete and correct and
(3) have not been further amended subsequent to the date of delivery of such
documents. The minute book of Silverthorne (or a true and correct copy thereof,
certified by the Secretary or Assistant Secretary of Silverthorne) (1) shall be
delivered to legal counsel to ITHC at the First Closing and (2) correctly
reflects all actions taken and resolutions adopted by Silverthorne, the board of
directors and all committees of the board of directors of Silverthorne.
2.23 Termination of Pricenet.com Transaction. The transaction between
Silverthorne and Pricenet.com which was executed on March 11, 1999, was
terminated on March 30, 1999, and Silverthorne has no liabilities or obligations
with respect thereto.
2.24 SEC Filings. Silverthorne is current in its filings with the SEC required
under the Securities Exchange Act of 1934, as amended (the "SEC Filings"). The
SEC filings, as of their respective filing dates, complied in all material
respects with all applicable requirements of the Exchange Act and the SEC
Filings, as of their filing dates, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements and information therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ITHC
Except as disclosed in Schedule 3 which is incorporated herein by
reference, ITHC represents, warrants and covenants to the Silverthorne that:
3.1 Authority of ITHC. ITHC is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. ITHC has full
corporate power and authority to enter into this Agreement, to consummate these
transactions and to comply with its terms, conditions and provisions. This
Agreement constitutes, and each other agreement and instrument to be executed
and delivered pursuant to the terms of this Agreement (collectively, the "ITHC
Transaction Documents") by ITHC will constitute, the legal, valid and binding
obligation of the ITHC enforceable in accordance with such ITHC Transaction
Document's terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general equitable principles. Neither the
execution and delivery of this Agreement or other ITHC Transaction Documents,
nor the consummation of the transactions contemplated by it or them will
conflict with or result in any violation of or constitute a default under any
term of the Articles of Incorporation or Bylaws of the ITHC or any agreement,
mortgage, debt instrument, indenture or other instrument, judgment, decree,
order, award, law or regulation by which ITHC is bound.
3.2 Consents. No consent, approval, authorization or other action by, or filing
or registration with, any federal, state or local governmental authority or any
other person or entity, is required in connection with the execution and
delivery by ITHC of this Agreement, the consummation by ITHC of the transactions
contemplated hereby or the performance of ITHC's obligations hereunder.
3.3 Investment Intent. ITHC is acquiring the shares of Silverthorne Common Stock
pursuant to this Agreement from Silverthorne and the Selling Shareholders for
investment purposes and not with a view to public distribution, provided that
such shares may be distributed by ITHC to its shareholders. ITHC understands
that the shares of Silverthorne Common Stock to be acquired constitute
"restricted securities" as that term is defined under Rule 144 under the
Securities Act of 1933, as amended.
3.4 Title to Assets. ITHC is the owner of its assets with the full right to sell
or dispose of such assets. Excepting only the lien of property taxes not
delinquent and the security interests disclosed in Schedule 3, ITHC has title to
the assets, free and clear of any interest to secure payment or performance of
an obligation, or which retains or reserves such an interest for such purpose.
3.5 Material Contracts. There are no contracts (including written employment
contracts), permits or agreements of any kind which materially affect the assets
other than those which have been disclosed in Schedule 3 attached hereto; and
ITHC will not enter into any new contracts or agreements which would materially
affect such asset without the prior written consent of Silverthorne.
3.6 Tax Returns. Within the times and in the manner prescribed by law, ITHC has
filed all federal, state and local tax returns required by law and has paid all
taxes, assessments and penalties due and payable.
3.7 Compliance with Laws. To the best of ITHC's knowledge, ITHC has complied
with, and is not in violation of, applicable federal, state or local statutes,
laws and regulations (including, without limitation, any applicable building,
zoning, or other law, ordinance, or regulation) affecting its properties or the
operation of its business.
3.8 Litigation. ITHC is not a party to any suit, action, arbitration, or legal,
administrative, or other proceeding, or governmental investigation pending or,
to the best knowledge of ITHC, threatened against or affecting ITHC or its
business, assets, or financial condition. ITHC is not in default with respect to
any order, writ, injunction, or decree of any federal, state, local, or foreign
court, department, agency, or instrumentality. ITHC is not engaged in any legal
action to recover monies due to it.
3.9 No Pending Investigation. ITHC is not aware of any pending investigations or
legal proceedings by the SEC, any state securities regulatory agency, or any
other governmental agency regarding ITHC or any officers or directors of ITHC or
any shareholders or controlling persons of such shareholders.
3.10 Disclosures. No representation or warranty by ITHC in this Agreement or any
Schedule or Exhibit, or any statement, list or certificate furnished or to be
furnished by the ITHC pursuant to this Agreement, or in connection with these
transactions, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
SELLING SHAREHOLDERS
The Selling Shareholders hold at least the number of shares set forth next
to their names on the signature page hereof, and the shares to be sold by the
Selling Shareholders hereunder are owned of record and beneficially by the
respective Selling Shareholders and are not subject to any claim, lien,
encumbrance or pledge. Each Selling Shareholder has authority to sell such
shares pursuant to this Agreement.
ARTICLE 5
COVENANTS
5.1 Investigative Rights. From the date of this Agreement until the First
Closing, each party shall provide to the other party, and such other party's
counsels, accountants, auditors, and other authorized representatives, full
access during normal business hours and upon reasonable advance written notice
to all of each party's properties, books, contracts, commitments, and records
for the purpose of examining the same. Each party shall furnish the other party
with all information concerning each party's affairs as the other party may
reasonably request. If the transaction contemplated hereby is not completed, all
documents received by each party and/or its attorneys and accountants, auditors
or other authorized representatives shall be returned to the other party who
provided same upon request. The parties hereto, their directors, employees,
agents and representatives shall not disclose any of the information described
above unless such information is already disclosed to the public, without the
prior written consent of the party to which the confidential information
pertains. Each party shall take such steps as are necessary to prevent
disclosure of such information to unauthorized third parties.
5.2 Conduct of Business. Prior to the First Closing, Silverthorne and ITHC shall
each conduct its business in the normal course, and shall not sell, pledge, or
assign any assets, without the prior written approval of the other party, except
in the regular course of business. Neither Silverthorne nor ITHC shall amend its
Articles of Incorporation or Bylaws, declare dividends, redeem or sell stock or
other securities, incur additional or newly-funded liabilities, acquire or
dispose of fixed assets, change employment terms, enter into any material or
long-term contract, guarantee obligations of any third party, settle or
discharge any balance sheet receivable for less than its stated amount, pay more
on any liability than its stated amount, or enter into any other transaction
other than in the regular course of business except as otherwise contemplated
herein. The parties do contemplate that ITHC may incur additional debt prior to
the date of the First Closing.
5.3 Meeting of Silverthorne Shareholders. Following the First Closing,
Silverthorne shall, as soon as reasonably possible, call a meeting of the
Shareholders of Silverthorne for the purposes of (a) approving a 1 for 4 reverse
split of the outstanding Common Stock of Silverthorne; (b) a change of
Silverthorne's name to a name designated by ITHC; (c) approving an amendment to
the Articles of Incorporation of Silverthorne to authorize the issuance of
preferred stock in series in a number designated by ITHC; (d) electing a slate
of Directors designated by ITHC; (e) approving a stock option plan designated by
ITHC; and (f) approving any other amendments to the Articles of Incorporation
reasonably requested by ITHC.
ARTICLE 6
CONDITIONS PRECEDENT TO SILVERTHORNE'S PERFORMANCE
6.1 Conditions. The obligations of Silverthorne hereunder shall be subject to
the satisfaction, at or before the First Closing, of all the conditions set
forth in this Article 6. Silverthorne may waive any or all of these conditions
in whole or in part without prior notice; provided, however, that no such waiver
of a condition shall constitute a waiver by Silverthorne of any other condition
of or any of Silverthorne's other rights or remedies, at law or in equity, if
ITHC shall be in default of any of their representations, warranties, or
covenants under this Agreement.
6.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by ITHC in this Agreement or in
any written statement that shall be delivered to Silverthorne by ITHC under this
Agreement shall be true and accurate on and as of the First Closing as though
made at that time.
6.3 Approval of Shareholders of ITHC. The shareholders of ITHC shall have
approved the transfer of all of the assets of ITHC in the manner prescribed by
the Delaware Business Corporation Act.
6.4 Performance. ITHC shall have performed, satisfied, and complied with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied with by it, on or before the First Closing.
6.5 Delivery of Assignment. ITHC shall have delivered an assignment of all of
its assets to Silverthorne.
6.6 Auditor's Letter. Prior to the First Closing, ITHC shall have obtained a
letter from its auditors that states that they will be able to complete an audit
of ITHC for its last two fiscal years within 75 days of the date of the First
Closing.
6.7 Absence of Litigation. No action, suit, or proceeding before any court or
any governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted or
threatened against ITHC on or before the First Closing.
ARTICLE 7
CONDITIONS PRECEDENT TO ITHC'S PERFORMANCE
7.1 Conditions. ITHC's obligations hereunder shall be subject to the
satisfaction, at or before the Closing, of all the conditions set forth in this
Article 7. ITHC may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by ITHC of any other condition of or any of ITHC's
rights or remedies, at law or in equity, if Silverthorne shall be in default of
any of its representations, warranties, or covenants under this Agreement.
7.2 Accuracy of Representations. Except as otherwise permitted by this
Agreement, all representations and warranties by Silverthorne in this Agreement
or in any written statement that shall be delivered to ITHC by Silverthorne
under this Agreement shall be true and accurate on and as of the Closing Date as
though made at that time.
7.3 Performance. Silverthorne shall have performed, satisfied, and complied with
all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by them, on or before the Closing Date.
7.4 Absence of Litigation. No action, suit or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated by
this Agreement or to its consummation, shall have been instituted or threatened
against Silverthorne on or before the Closing Date.
7.5 Directors of Silverthorne. Effective on the First Closing, Patricia A.
Jackson shall have submitted her resignation as a Director of Silverthorne, and
one person designated by ITHC shall have been elected as a Director effective on
the Closing of this transaction.
ARTICLE 8
CLOSING
8.1 First Closing. The First Closing of this transaction shall be held at the
offices of Krys Boyle Freedman & Sawyer, P.C., or such other place as shall be
mutually agreed upon, on August 23, 1999, or as soon thereafter as practicable.
At the First Closing:
(a) Selling Shareholders shall deliver to ITHC stock certificates aggregating
12,602,431 shares of Common Stock of Silverthorne together with duly executed
stock powers with Medallion Guarantees.
(b) ITHC shall deliver to Selling Shareholders cashiers checks totaling
$190,000 payable to Selling Shareholders and stock certificates representing an
aggregate of 300 shares of ITHC common stock.
(c) Silverthorne shall deliver to ITHC a stock certificate representing
29,242,953 shares of Silverthorne restricted Common Stock registered in the name
of ITHC; or this number may be reduced by 75,000 pursuant to the provisions of
Section 1.2 above.
(d) ITHC shall deliver to Silverthorne an assignment of all of its assets in a
form or forms approved by counsel for Silverthorne.
(e) Silverthorne shall deliver a signed Consent and/or Minutes of the Directors
approving this transaction.
(f) ITHC shall deliver a signed Consent and/or Minutes of the Directors and
Shareholders of ITHC approving this Agreement and each matter to be approved by
the Directors and Shareholders of ITHC.
(g) Silverthorne shall deliver a certificate of its President, dated the
closing date, certifying that all of the representations and warranties by
Silverthorne are true and accurate as of the closing date, and that all of the
conditions to be performed or complied with by it, including the conditions set
forth in Sections 7.2 through 7.6 hereof, have been met.
(h) ITHC shall deliver a certificate of its President, dated the closing date,
certifying that all of the representations and warranties by ITHC are true and
accurate as of the closing date, and that all of the conditions to be performed
or complied with by it, including the conditions set forth in Sections 6.2
through 6.7 hereof, have been met.
(i) Silverthorne shall deliver to Mike Underwood and Andy Ungar certificates
aggregating 5,000,000 shares of Silverthorne restricted Common Stock as partial
payment of finders' fees.
8.2 Second Closing. The Second Closing of this transaction shall be held at the
offices of Krys Boyle Freedman & Sawyer, P.C., or such other place as shall be
mutually agreed upon at such date and time as the parties shall agree upon,
which date shall be after the effective date of a 1 for 4 reverse split of the
outstanding Common Stock of Silverthorne. At the Second Closing:
(a) Silverthorne shall deliver to ITHC a stock certificate representing
4,949,611 post-split shares of Silverthrone's Common Stock registered in the
name of ITHC.
(b) Silverthorne shall deliver to ITHC signed Minutes of a meeting of the
Shareholders of Silverthorne at which the matters set forth in paragraph 5.3
shall have been approved.
(c) Silverthorne shall deliver to Mike Underwood and Andy Ungar certificates
representing a total of 550,000 post-split shares of Silverthorne Common Stock
as final payment of finders' fees.
ARTICLE 9
MISCELLANEOUS
9.1 Captions and Headings. The Article and paragraph headings throughout this
Agreement are for convenience and reference only, and shall in no way be deemed
to define, limit, or add to the meaning of any provision of this Agreement.
9.2 No Oral Change. This Agreement and any provision hereof, may not be waived,
changed, modified, or discharged orally, but it can be changed by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought.
9.3 Non-Waiver. Except as otherwise expressly provided herein, no waiver of any
covenant, condition, or provision of this Agreement shall be deemed to have been
made unless expressly in writing and signed by the party against whom such
waiver is charged; and (i) the failure of any party to insist in any one or more
cases upon the performance of any of the provisions, covenants, or conditions of
this Agreement or to exercise any option herein contained shall not be construed
as a waiver or relinquishment for the future of any such provisions, covenants,
or conditions, (ii) the acceptance of performance of anything required by this
Agreement to be performed with knowledge of the breach or failure of a covenant,
condition, or provision hereof shall not be deemed a waiver of such breach or
failure, and (iii) no waiver by any party of one breach by another party shall
be construed as a waiver with respect to any other or subsequent breach.
9.4 Time of Essence. Time is of the essence of this Agreement and of each and
every provision hereof.
9.5 Entire Agreement. This Agreement contains the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings. There are and have in fact been no restrictions, promises,
warranties or undertakings other than those set forth herein. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
except by a subsequent amendment in writing signed by all parties hereto.
9.6 Choice of Law. This Agreement and its application shall be governed by the
laws of the State of Colorado, except to the extent its conflict of laws
provisions would apply the laws of another jurisdiction, and Colorado will be
the proper venue for jurisdictional purposes for any actions brought to enforce
this Agreement.
9.7 Notices. All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
Silverthorne and Selling Shareholders:
David L. Jackson, President
Silverthorne Production Company
16053 Via Viajera
Rancho Santa Fe, California 92091
Telecopy: (619) 759-9123
with a copy to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman Scott & Sawyer, P.C.
600 Seventeenth Street, Suite 2700 South Tower
Denver, Colorado 80202
Telecopy: (303) 893-2882
ITHC:
Peter Tilyou
Inter-American Telecommunications Holding Corporation
2608 Second Avenue, Suite 108
Seattle, Washington 98121
Telecopy: (___) ___-____
with a copy to:
Thomas S. Smith
Smith McCullough, P.C.
4643 South Ulster Street, Suite 900
Denver, CO 80237
Telecopy: (303) 221-6001
9.8 Binding Effect. This Agreement shall inure to and be binding upon the heirs,
executors, personal representatives, successors and assigns of each of the
parties to this Agreement.
9.9 Mutual Cooperation. The parties hereto shall cooperate with each other to
achieve the purpose of this Agreement, and shall execute such other and further
documents and take such other and further actions as may be necessary or
convenient to effect the transaction described herein.
9.10 Brokers. Other than as set forth herein, the parties hereto represent and
agree that no broker has brought about the aforementioned transaction. Each of
the parties hereto shall indemnify and hold the other harmless against any and
all claims, losses, liabilities or expenses which may be asserted against it as
a result of its dealings, arrangements or agreements with any broker or person,
except as described in this paragraph.
9.11 Announcements. Silverthorne and ITHC will consult and cooperate with each
other as to the timing and content of any announcements of the transactions
contemplated hereby to the general public or to employees, customers or
suppliers.
9.12 Expenses. Silverthorne and ITHC will pay their own legal, accounting and
any other out-of-pocket expenses reasonably incurred in connection with this
transaction, whether or not the transaction contemplated hereby is consummated.
9.13 Exhibits. As of the execution hereof, the parties hereto have provided each
other with the Exhibits provided for herein above, including any items
referenced therein or required to be attached thereto. Any material changes to
the Exhibits shall be immediately disclosed to the other party.
9.14 Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be considered an original instrument and all of which
together will be considered one and the same agreement, and will become
effective when counterparts, which together contain the signatures of each
party, will have been delivered to Silverthorne and to ITHC. Delivery of
executed signature pages by facsimile transmission will constitute effective and
binding execution and delivery of this Agreement.
AGREED TO AND ACCEPTED as of the date first above written.
SILVERTHORNE PRODUCTION COMPANY INTER-AMERICAN
TELECOMMUNICATIONS HOLDING CORPORATION
By: /s/ David L. Jackson By: /s/ Jim L. Boswell
- --------------------------- --------------------------
David L. Jackson, President Jim L. Boswell, President
SELLING SHAREHOLDERS:
/s/ David L. Jackson
- -------------------------------------
David L. Jackson (10,536,720 shares)
/s/ Eric J. Sundsvold
- -------------------------------------
Eric J. Sundsvold (1,715,280 shares)
/s/ Patricia A. Jackson
- -------------------------------------
Patricia A. Jackson (175,231 shares)
/s/ Karrie R. Jackson
- -------------------------------------
Karrie R. Jackson, C/F W.R. Jackson
(175,200 shares)
<PAGE>
SCHEDULE 1
1. TELKIOSK-PERIMEX ASSETS ITHC WILL DELIVER AT TIME OF CLOSING:
1.1 An electronically archived customer database consisting of no less
than 54,034 individual residential and business long distance
telephone service subscriber accounts.
2. CTC ASSETS ITHC WILL DELIVER AT TIME OF CLOSING:
2.1. An electronically archived customer database consisting of no less
than 41,415 individual residential and business long distance
telephone service subscriber accounts.
3. COGNIGEN ASSETS ITHC WILL DELIVER AT TIME OF CLOSING:
3.1 All of its agency, reseller and other agreements and contracts Seller
has with carriers, switched resellers, unswitched resellers,
consolidators or other providers of long distance and local telephone
service.
3.2 All accounts receivable, commissions receivable, future commissions
that are and may be payable from any of the carriers, switched
resellers, unswitched resellers, consolidators or other providers of
long distance and local telephone service.
3.3 All computer software, proprietary programs and applications,
computers, monitors, peripherals, printers, copiers, telephone PABX
systems, office furniture and fixtures, office leases, belonging to
and used by the Seller in the conduct of its business.
3.4 All of the ITHC/Cognigen's customer databases, customer ists, print
and electronic records relating to customers.
3.5 Inventories and orders for prepaid telephone cards.
3.6 All new accounts generated via Cognigen's web sites or through
direct sales.
3.7 All web sites, pages, links and agreements related to the conduct of
its core telecommunications business as well as all Internet domains,
and email addresses.
3.8 All of the ITHC/Cognigen's agreements with agents and their subagents
within or without its multilevel marketing system.
3.9 Exclusive use and control of the name "Cognigen" and its attendant
copyright, trade name, trademark and service mark registrations both
federal and state that may exist.
3.10 All other intellectual property of the Seller owned and used in
connection with the conduct of its core telecommunications business.
3.11 All its lines of credit with carriers, prepaid card providers,
switched resellers, switchless resellers and other providers of local
and long distance phone service.
<PAGE>
SCHEDULE 2
SILVERTHORNE PRODUCTION COMPANY
("Silverthorne")
2.4 The officers and directors of Silverthorne are as follows:
Name Position
David L. Jackson President, CEO and Director
Patricia A. Jackson Secretary and Director
<PAGE>
SCHEDULE 3
ITHC's obligations with regard to the assets it is selling to SLTH:
1. Cognigen Assets -
A cash payment of $300,000 is due and payable to Cognigen Corporation by
ITHC.
An employment/consulting contract in favor of Kevin Anderson for a term
of 4 years at an annual salary/fee of $175,000.
2. CTC Assets -
A cash payment of $800,000 is due and payable to CTC by ITHC.
A consulting agreement in favor of Peter Tilyou/CTC for a term of 3
years at an annual fee of $120,000.
3. TelKiosk Assets -
A cash payment of $500,000 is due and payable to Telkiosk, Inc. by ITHC.
