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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
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[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended: APRIL 30, 1998
[_] Transition period under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For THE transition period from ____________ to _____________
Commission file number: 0-13652
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COMMUNICATIONS WORLD INTERNATIONAL, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-0917382
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6025 South Quebec, Suite 300, Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
(303) 721-8200
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Issuer's Telephone Number, Including Area Code
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
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(Title of class)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $ 13,238,000
The aggregate market value of the voting stock held as of August 4, 1998 by
non affiliates of the issuer was $3,832,142. As of August 4, 1998, the issuer
had 1,916,071 shares of its no par value Common Stock issued and outstanding.
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PART I
ITEM I. DESCRIPTION OF BUSINESS
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Business Development
Communications World International, Inc. ("Registrant", "Company" or
"CommWorld") was incorporated in 1983 under Colorado law and has its principal
executive offices at 6025 South Quebec Street, Suite 300, Englewood, Colorado
80111. CommWorld has established a distribution network for a variety of
telecommunications products and services, including business telephone systems,
through franchises under the CommWorld name and Company-owned outlets. The
Company had 53 franchises located in 25 states and 4 Company-owned outlets at
April 30, 1998. Through its distribution network the Company sells and services
private telephone systems and peripheral products, such as voice messaging and
related systems, for business users. The Company's franchisees and Company-owned
outlets market their products primarily to small and medium-size businesses
while the Company's national accounts subsidiary markets the same products and
services directly to multi-location businesses.
The Company purchases telephone and related communications equipment from
manufacturers and supply houses. The Company sells this equipment to the
franchisees who, in turn, sell the equipment to their customers and connect this
equipment to local telephone company lines servicing areas in which their
customers are located. The principal telephone systems sold to customers are
Key telephone systems which differ from larger PBX systems in that each incoming
telephone line can be accessed by each telephone in the particular business.
During the past five fiscal years, the Company has acquired certain franchises
and other companies as wholly owned subsidiaries. The acquisitions were
accomplished through the issuance of a combination of common stock, preferred
stock, notes payable and cash. The acquisitions have all been accounted for as
purchases and the excess of consideration paid over the fair value of net assets
acquired has been recorded as goodwill and is being amortized on a straight line
basis over ten years.
The subsidiary operations service the Southwest United States with offices in
Phoenix and Tucson, Arizona; the Baltimore and Washington D.C. area with offices
in Alexandria, Virginia and Baltimore, Maryland; the Colorado front range area
with offices in Englewood and Fort Collins, Colorado; and multi-location
customers through its national accounts subsidiary with an office in Englewood,
Colorado. The acquisition of the Tucson, Arizona operation was completed during
the most recent two fiscal years and is further described in the Notes to the
consolidated financial statements.
1
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In June 1998 the Company entered into a letter of intent to merge with
Interconnect Acquisition Corporation ("IAC"), a privately-held company headed by
former Connecting Point of America President Jim Ciccarelli. IAC is a
development stage company that was started with the intent to acquire select
interconnect companies located in key southwestern cities. IAC has signed
letters of intent to acquire five interconnect providers in Texas and Colorado
with aggregate historical revenues of approximately $17 million. The letters of
intent are subject to several contingencies, including the finalization of
definitive agreements and the completion of due diligence and financial reviews
or audits.
The Company's merger with IAC is subject to board approvals, due diligence
reviews and approval of the Company's principal supplier, Toshiba America
Information Systems, Inc. ("TAIS'). The Company has received preliminary
approval from TAIS of this transaction. The Company is currently conducting its
due diligence reviews of these acquisition candidates, and currently anticipates
that the merger with IAC, barring unforeseen developments, will close by the end
of August, 1998. If the merger is completed, the Company intends to issue to
the IAC shareholders a new series of convertible preferred stock which will be
convertible (subject to shareholder approval of an increase in the Company's
authorized Common Stock) into 2,000,000 shares of the Company's Common Stock.
In connection with the proposed merger with IAC, the Company effected management
changes, including the election of Jim Ciccarelli as Chief Executive Officer and
a director of the Company. In addition, Lionel Brown, Chief Operating Officer
and a director of IAC, will become President of the Company in connection with
the merger. Biographical information regarding Messrs. Ciccarelli and Brown is
provided in Item 9.
Franchise Program
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Pursuant to the terms of the Company's franchise program, a franchisee will pay
a one time, non-refundable, franchise fee of $12,500 or $7,500, depending upon
the number of businesses in the potential franchisee's market place. The
franchise fee is payable upon the execution of the franchise agreement.
The franchisee is entitled to purchase equipment from or through the Company on
a "cost mark-up royalty" basis, meaning based on the cost to the Company of
equipment and products purchased plus a mark-up to the franchisee. The amount
of the cost mark-up royalty varies by manufacturer and by the volume of
purchases of the individual franchisee. A franchisee only pays royalties on
equipment purchased through or from the Company.
The franchisee is not required to make any purchases of equipment through the
Company; however, the Company believes that it will be able to obtain favorable
pricing from suppliers based on negotiated purchases and quantity buying
arrangements. The Company anticipates that these prices will be lower than
prices which the franchisee could negotiate directly with suppliers. Currently,
most franchises purchase some equipment or services from the Company. The
franchisee is responsible for all warranty service on equipment sold by it and
manufacturers' warranties are passed through to the franchisee. The Company
also offers sales and marketing training and other assistance to the franchisees
for scheduled fees.
2
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The franchisee is granted a license to use the "COMMWORLD" name and trademarks
in the franchised territory. The franchisee is required to conform to certain
standards of business practices, to maintain minimum inventories of products and
services, and to make arrangements with local telephone companies as necessary
to provide installation services to customers. The installation and the service
work performed by the franchisees is either done by their staff or is
subcontracted through installation companies which are independently owned and
operated. Each franchise is run as an independent business and, as such, is
responsible for the operation of its business including the collection of
receivables, arrangement of any customer financing, and employment of adequate
staff.
Franchisees are permitted to assign their franchise provided that the Company
receives advance notice of the proposed assignment, the transferee assumes the
obligations under the franchise agreement, the transferee meets certain
conditions and qualifications, and the Company receives a transfer fee equal to
10 percent of the franchise fee then in effect. In addition, the Company has
the right of first refusal to purchase the franchise prior to its sale to
another party.
The term of the franchise is for 10 years unless earlier terminated provided
that, during the first 12 months of the franchise, the franchisee has the right
to terminate the franchise without a refund of the franchise fee. The Company
has the right to terminate any franchise in the event of the franchisee's
bankruptcy, a default under the franchise agreement, or other events. The
franchisee has the right to renew the initial term of the agreement for an
additional 10 years if, at the time of renewal, the franchisee is in good
standing and pays a successor franchisee fee in the amount of 10 percent of the
franchise fee then in effect.
Competition
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The Company's principal business is in the interconnect telephone industry which
sells and services private telephone systems for the business user. The
interconnect industry, so-called because it involves the connection of privately
manufactured and owned equipment to local telephone systems, developed from the
divestiture of the Bell operating companies and court and regulatory rulings
allowing telephone customers to connect separately purchased equipment to
existing local telephone systems.
The interconnect industry continues to expand beyond sales of traditional
telephone equipment, with the greatest growth in sales of voice processing, data
communications, and data processing equipment. The Company competes with other
interconnect telephone companies on the basis of the equipment offered by the
Company's franchisees, price and after-sale service. Although the Company
concentrates on the sale of Key systems as opposed to larger PBX systems, the
manufacturers of these systems have been successful in providing state-of-the
art electronic equipment for this market segment. The Company believes that
consumating its intended acquisitions will enable it to market larger PBX
Systems.
3
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The Company faces intense competition from AT&T, Willtel, the various Bell
operating companies and over 10,000 other companies believed to be engaged in
the interconnect telephone industry. Many of these companies have resources
substantially greater than those of the Company. It can be expected that
competition in the interconnect telephone industry will be intense for the
foreseeable future.
Product Supply
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The Company currently purchases telephone systems and various peripheral
equipment from seven major suppliers. One of the suppliers, Toshiba America
Information Systems, Inc. (TAIS), provides approximately 85% of the inventory
and products purchased by the Company while offering flexible credit terms. If
the Company's relationship with TAIS was to cease, it could have a significant
adverse impact on the operations of the Company. Product availability from
suppliers under open lines of credit has been sufficient for the Company's
current franchise and Company owned locations in the last two years. However,
all products may not necessarily be available to future franchise locations.
The Company continually monitors changes in products offered by these
manufacturers, as well as others, to review its current and future product mix.
The Company's products are warranted by their vendors for at least one year for
defects in material and workmanship.
Regulation
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The Federal Communications Commission ("FCC") regulates the telephone industry.
The FCC has a registration program providing minimum specifications for
customer-owned equipment.
The Federal Trade Commission ("FTC") requires franchisers to provide prospective
franchisees with a Uniform Franchise Offering Circular which sets forth detailed
information about the franchiser and the franchise program.
A number of states require a franchiser to register prior to selling franchises
in those particular states and the Company registers its offering of the
franchise program in those states in which registration is required. In
addition, states may impose certain minimum requirements on franchises located
within that state. For example, franchises in Iowa, by law, have a three-mile
exclusive territory.
Backlog and Employees
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As of April 30, 1998 and 1997, the Company had backlogs of unfilled franchisees'
orders of less than $50,000. As of August 4, 1998, the Company had
approximately 65 full-time employees involved in administration, sales,
accounting, warehousing, franchise relations, and Company owned branches.
4
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Special Cautionary Notice Regarding Forward-Looking Statements
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This Report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in and include without
limitation the Company's plans for its business following the proposed merger
with IAC, including the introduction of new products and services, expansion
into new markets, and mergers and acquisitions. In addition, in those and other
portions of the Report, the words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and similar expressions, as they relate to the
Company or its management, are intended to specifically identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including the risk factors described in this Report. In addition
to factors that may be described elsewhere in this Report, the Company
specifically cautions that the factors listed under the caption "Risk Factors"
could cause actual results to differ materially from those expressed in any
forward-looking statement. Should one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements.
RISK FACTORS
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In evaluating the Company and its business, this entire Report (including the
Exhibits) should be read carefully and special consideration given to, among
others, the following risk factors in addition to the other information
contained in this Report.
Recent Operating Losses ; Accumulated Deficit
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The Company is reporting a loss of $1,091,000 for the fiscal year ended April
30, 1998, and had an accumulated deficit at that date of approximately
$5,542,000. Management believes that much of the loss in recent periods has
been related to the Company's acquisition efforts, increase in interest expense
and increases in allowance for doubtful accounts. In addition, the Company's
losses have been a direct result of the increased level of general and
administrative expense associated with its direct sales efforts. Management is
currently evaluating the extent to which general and administrative expenses
will need to be increased to maintain support for the planned acquisitions of
interconnect companies and an increased base of franchisees. It is not known
whether sufficient revenues will be generated in order to restore profitability
on a consistent basis in the future.
Lack of Working Capital; Need for Additional Financing
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The Company's operations have been adversely affected by a lack of working
capital. The Company's line of credit is fully utilized to the extent of
available collateral. The lack of available funding impedes the Company's
ability to fund additional equipment purchases and to expand its business
operations.
5
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In order to improve the Company's liquidity and working capital position, the
Company recently completed a "bridge loan" offering in which it received
proceeds of $400,000. The Company is currently attempting to obtain additional
equity financing which is expected to be used for the payment of accounts
payable, improvements in information systems and operating capital to support
growth. Depending on the amount raised, the Company's operating results will
need to improve substantially, or the Company will need to obtain additional
funds from other sources (neither of which is assured), or the Company's working
capital position will again deteriorate. Moreover, the Company will need
substantial additional capital in order to have reasonable prospects for
achieving its strategic objective of growth through acquisitions, including the
acquisitions currently contemplated by IAC.
Changes In Technology
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The interconnect industry in which the Company operates has experienced rapid
technological advances and, in order to satisfy customer demands, the Company
has to offer the latest available equipment and services. Although the Company
has established relationships with several major suppliers of telephone
interconnect equipment, there is no assurance that, in the event other suppliers
offer more advanced equipment, the Company would be able to establish
satisfactory relationships with these other manufacturers.
Relationships With Suppliers
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Although the Company has established relationships with several suppliers of
telephone equipment including Toshiba America Information Systems, Inc.
("TAIS"), Tadiran Telecommunications, Inc., Panasonic Communications & Systems
Company, a Division of Matsushita Electric Corporation of America, Sprint/North
Supply, Inc., Applied Voice Technologies, Inc., and Voice Systems Research,
Inc., there is no assurance that the Company will continue to be able to
maintain these relationships, to purchase products under advantageous terms and
conditions from its suppliers, or that all products will be available to future
franchise locations. This may adversely affect the Company's ability to sell
future franchises to offer products to its franchisees and customers and to
obtain mark-up royalties from sales to existing franchisees.
TAIS provides approximately 85% of the inventory and products purchased by the
Company while offering flexible credit terms. TAIS must also approve the merger
with IAC. If the Company's relationship with TAIS were to cease or to
deteriorate, it could have a significant adverse impact on the Company's
operations.
6
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Lack of Information Regarding Acquisition Candidates
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Acquisitions of other companies in the telecommunications industry is a
principal strategic objective of the Company. The Company has entered into a
letter of intent with IAC. IAC was recently organized to acquire select
interconnect companies in key southwestern cities. IAC has signed letters of
intent to acquire five interconnect providers in Texas and Colorado, which
letters of intent are subject to several contingencies, including the
finalization of definitive agreements and the completion of due diligence and
financial statement reviews or audits, and are not expected to close prior to
the Company's merger with IAC.
In addition, the Company has identified other candidates for acquisition, but
has no firm arrangements for acquisition. The Company has determined not to
provide information regarding any of the acquisition candidates in this Report
inasmuch as any letter of intent it or IAC has entered into, or may enter into,
with an acquisition candidate would be non-binding, subject to execution of
definitive agreements and other conditions. Although management of the Company
will endeavor to evaluate the risks inherent in any particular acquisition
candidate, there can be no assurance that the Company will properly ascertain
all such risks. Management of the Company will have virtually unrestricted
flexibility in identifying and selecting prospective acquisition candidates and
may have broad discretion with respect to the specific application of proceeds
of future financing.
Although the Company intends to consider the ability of the management of a
prospective acquisition candidate in connection with evaluating the desirability
of effecting a business combination, there can be no assurance that the
Company's assessment of management will prove to be correct. The Company does
not intend to rely upon the assistance of outside consultants to assess the
management skills of acquisition candidates. In addition, there can be no
assurance that management of the acquired companies will have the necessary
skills to manage a company intending to implement an aggressive acquisition
program.
Appropriate Acquisitions May Not Be Available
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Results of the Company's business plan are dependant upon the Company's ability
to identify, attract and acquire attractive acquisition candidates, which may
take considerable time. No assurances can be given that the Company will be
successful in identifying, attracting or acquiring desirable acquisition
candidates, that such candidates will be successfully integrated into the
Company, or that the acquisition candidates, once acquired, will be profitable.
The failure to complete acquisitions or to operate the acquired companies
profitably could be expected to have a material adverse effect on the Company's
business, financial condition and results of operations.
7
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Integration of Acquisitions
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The Company's strategic objective, which is subject to additional financing,
anticipates an aggressive acquisition program. The success of the Company will
depend, in part, on the Company's ability to integrate the operations of the
acquired companies. There can be no assurance that the Company's management
team will effectively be able to oversee the combined entity and implement the
Company's operating and growth strategies. No assurance can be given that the
Company will be able to successfully integrate any future acquisitions without
substantial cost, delays or other problems. The cost of integration could have
an adverse effect on short-term operating results. Such costs could include
severance payments to employees of such acquired companies, restructuring
charges associated with the acquisitions and expenses associated with the change
of control.
There can be no assurance that the Company will be able to execute successfully
its consolidation strategy or anticipate all of the changing demands that
successive consolidation transactions will impose on its management personnel,
operational and management information systems and financial systems. The
integration of newly acquired companies may also lead to diversion of management
attention from other ongoing business concerns. In addition, there can be no
assurance that the rapid pace of acquisitions will not adversely affect the
Company's efforts to integrate acquisitions and manage those acquisitions
profitably. Any or all of these factors could have a material adverse effect on
the Company's business, financial condition or results of operations.
Risks Related to Acquisition Financing; Leverage
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The Company is currently planning to attempt to obtain additional financing. If
the Company is successful in obtaining this financing and other financing
related specifically to acquisitions (of which there is no assurance) the
Company plans to use a significant portion of its resources to pursue its
business strategy for growth. The timing, size and success of the Company's
acquisition efforts and any associated capital commitments cannot be readily
predicted. The Company currently intends to finance future acquisitions by using
shares of its Common Stock(subject to shareholder approval of an increase in
authorized shares), preferred stock, cash, borrowed funds (including the
issuance of promissory notes to the sellers of the companies to be acquired) or
a combination thereof. If the Common Stock does not maintain a sufficient market
value, or if potential acquisition candidates are otherwise unwilling to accept
Common Stock as part of the consideration for the sale of their businesses, the
Company may be required to use more of its cash resources or more borrowed
funds, in each case if available, in order to initiate and maintain its
acquisition program. If the Company does not have sufficient cash resources, its
growth could be limited unless it is able to obtain additional capital through
debt or equity financing. There can be no assurance that the Company will he
able to obtain any additional financing that it may need for its acquisition
program on terms that the Company deems acceptable.
8
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Risks Related to Acquisition Financing; Leverage(Continued)
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The Company may borrow money to consummate the acquisitions or assume or
refinance the indebtedness of acquired companies if the Company's management
deems it to be beneficial to the Company. The Company anticipates it will need
to borrow substantial funds to complete the acquisitions identified by IAC, the
availability of which is not assured. Among the possible adverse effects of
borrowings are: (i) if the Company's operating revenues after the acquisitions
were to be insufficient to pay debt service, there would be a risk of default
and foreclosure on the Company's assets; (ii) if a loan agreement contains
covenants that require the maintenance of certain financial ratios or reserves,
and any such covenant were breached without a waiver or re-negotiation of the
terms of that covenant, then the lender could have the right to accelerate the
payment of the indebtedness even if the Company has made all principal and
interest payments when due; (iii) if the terms of a loan did not provide for
amortization prior to maturity of the full amount borrowed and the "balloon"
payment could not be refinanced at maturity on acceptable terms, the Company
might be required to seek additional financing and, to the extent that
additional financing were not available on acceptable terms, to liquidate its
assets; and (iv) if the interest rate of a loan is variable, the Company would
be subject to interest rate fluctuations which could increase the Company's debt
service obligations.
Consideration for Operating Companies May Substantially Exceed Asset Value
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The purchase prices of the Company's acquisitions will not be established by
independent appraisals, but generally through arms'-length negotiations between
the Company's management and representatives of such companies. The
consideration paid for each such company will be based primarily on the value of
such company as a going concern and not on the value of the acquired assets.
Valuations of these companies determined solely by appraisals of the acquired
assets are likely to be substantially less than the consideration that is paid
for the companies. No assurance can be given that the future performance of
such companies will be commensurate with the consideration paid. Moreover, the
Company expects to incur significant amortization charges resulting from
consideration paid in excess of the fair value of the net assets of the
companies acquired in business combinations accounted for under the purchase
method of accounting.
9
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Material Amount of Intangible Assets
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It is likely that a substantial portion of the Company's total assets subsequent
to the acquisitions will be goodwill. Goodwill is an intangible asset that
represents the difference between the aggregate purchase price for the assets
acquired and the amount of such purchase price allocated to such assets for
purposes of the balance sheet. It is expected that any acquisitions completed by
the Company would involve amortization of goodwill over long-term periods with
the amount amortized in a particular period constituting an expense that reduces
the Company's net income for that period. Generally, the Company may amortize
goodwill over a 15-year period for income tax purposes. Under accounting rules,
the Company is required to periodically evaluate if goodwill has been impaired
by reviewing the cash flows of acquired companies and comparing such amounts
with the carrying value of the associated goodwill. If goodwill is impaired, the
Company would be required to write down goodwill and incur a related charge to
its income. A reduction in net income resulting from the amortization or write
down of goodwill could have an adverse impact upon the market price of the
Common Stock.
Hart-Scott-Rodino Requirements
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The Company's acquisition strategy may be subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which could
adversely affect the pace of the Company's acquisitions. In addition,
acquisitions of businesses in regulated industries would subject the Company to
regulatory requirements which could limit the Company's flexibility in growing
and operating its businesses.
Tax Considerations
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As a general rule, Federal and state tax laws and regulations have a significant
impact upon the structuring of business combinations. The Company will evaluate
the possible tax consequences of any prospective business combination and will
endeavor to structure the business combination so as to achieve the most
favorable tax treatment to the Company, the acquisition candidate and their
respective stockholders. There can be no assurance, however, that the Internal
Revenue Service (the "IRS") or appropriate state tax authorities will ultimately
assent to the Company's tax treatment of a consummated business combination. To
the extent the IRS or state tax authorities ultimately prevail in re-
characterizing the tax treatment of a business combination, there may be adverse
tax consequences to the Company, the acquisition candidate and their respective
stockholders.
The Company expects to encounter substantial competition in making acquisitions
from other companies with objectives similar to the Company as well as from
companies engaged in other acquisition type activities. Many companies have
acquisition strategies similar to that of the Company in the telecommunications
industry, including companies which are attempting to effect consolidations
concurrent with conducting an initial public offering of securities.
Consequently, the Company may expect stiff competition in attracting acquisition
candidates and the price to be paid for such candidates may be higher than the
price which would be paid in a less competitive environment.
10
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Tax Considerations (Continued)
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Even if the Company is successful in obtaining additional financing and
completing several acquisitions, it is likely that certain of its competitors
will be substantially larger than the Company and have greater financial
resources.
Volatility of Stock Price
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There has been significant volatility in the market price for the Company's
Common Stock. On August 4, 1998, the closing bid price of the Company's Common
Stock was $2.00 per share. There can be no assurance that the price of the
Common Stock will remain at or exceed current levels. Factors such as
announcements relating to the Company's operations, acquisitions, new products
and services, prices and costs of supplies, sales of products, new technology
offered by the Company's competitors, government regulation or other matters may
have a significant impact on the market price of the Company's securities.
Moreover, trading in the Company's Common Stock is not generally heavy, which
may contribute to volatility of the market price.
Preferred Shares Available For Issuance; Current Acquisitions and Financing
- ----------------------------------------------------------------------------
Plans
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The Company has 2,700,000 shares of Preferred Stock authorized. There are
currently outstanding 80,800 shares of Series B Preferred Stock, 436,679 shares
of Series C Preferred Stock, 143,000 shares of Series F Preferred Stock, and
83,500 shares of Series G Preferred Stock which were issued in connection with
the acquisition of the Company's subsidiaries. The Company has also issued
169,818 shares of Series F Preferred Stock in connection with the conversion of
notes issued in connection with certain acquisitions and issued 45,000 shares of
Series F Preferred Stock for cash. Shares of Preferred Stock may be issued by
the Company in the future without shareholder approval and upon such terms as
the Board of Directors may determine. The rights of the holders of Common Stock
will be subject to and may be affected adversely by the rights of holders of any
Preferred Stock that may be issued in the future. The availability of Preferred
Stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of discouraging
a third party from acquiring control of the Common Stock of the Company. The
Company plans to issue convertible preferred stock in connection with the IAC
merger and to obtain additional capital. In addition, IAC has identified
potential acquisition candidates, and may issue additional shares of Preferred
Stock in connection with new acquisitions. The Company presently has no
definitive arrangements for any acquisitions, and there can be no assurance that
the Company will be successful in obtaining additional financing or completing
any acquisitions. Moreover, the terms of any such financing and/or acquisition
may not be beneficial to the Company.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Company leases approximately 7,700 square feet of space at 6025 South Quebec
Street, Suite 300, Englewood, Colorado for approximately $14,100 per month
pursuant to a lease which expires in July 2003.
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In addition, the Company leases (i) 5,310 square feet of office and warehouse
space in Englewood, Colorado for approximately $4,100 per month under a lease
which expires in March 2000, (ii) 1,400 square feet of office and warehouse
space in Scottsdale, Arizona on a month-to-month basis for approximately $2,200
per month, (iii) 4,950 square feet of office and warehouse space in Seattle,
Washington for approximately $5,400 per month under a lease which expires in
July 2001, (iv) 4,340 square feet of office and warehouse space in Alexandria,
Virginia for approximately $5,400 per month, under a lease which expires in
September, 2003, (v) 2,200 square feet of office space in Fort Collins, Colorado
under a lease which expires in April, 1999 for approximately $2,300 per month,
and (vi) 900 square feet of office and warehouse space in Tucson, Arizona for
$600 per month under a lease which expires in December, 2001.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not currently a party to any material pending or threatened legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
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During the Company's quarter ended April 30, 1998, no matter was submitted to a
vote of the Company's security holders.
12
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock (the "Common Stock") trades on the NASDAQ Small-Cap
Market under the symbol "CWII." Set forth in the following table are high and
low bid quotations for each quarter in the fiscal years ended April 30, 1998 and
1997. The quotations represent inter-dealer quotations without retail markups,
markdowns or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
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Quarter Ended High Low
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<S> <C> <C>
July 31, 1996 $1.50 $ .78
October 31, 1996 1.25 .69
January 31, 1997 1.38 .69
April 30, 1997 1.18 .75
July 31, 1997 1.56 1.00
October 31, 1997 2.50 1.06
January 31, 1998 2.68 2.00
April 30, 1998 2.38 1.25
</TABLE>
There were approximately 224 holders of record of the Common Stock as of August
4, 1998.
No dividends have been declared or paid on the shares of Common Stock and the
Company does not anticipate paying cash dividends on the shares of Common Stock
in the foreseeable future. The Company may not pay dividends without the
consent of its accounts receivable finance company. No dividends may be paid on
the Common Stock unless accumulated dividends on the Preferred Stock have been
paid.
13
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
----------------------------------------------------------
Overview
- --------
The forward-looking statements herein are based on management's current
expectations. In light of the assumptions and uncertainties inherent in
forward-looking information, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the plans
of the Company will be realized.
The focus of the Company in fiscal years 1998 and 1997 concentrated on operating
the Company-owned outlets. The revenues of direct equipment and related
services produced by these operations increased by $2,286,000 or 34% in fiscal
1997 and were relatively unchanged in fiscal 1998, being down $112,000 or 1.4%.
The gross margins realized on this portion of the Company's revenues were 40.5%
in fiscal 1998 and 43.4% in fiscal 1997. The decline in gross margin resulted
primarily from increased costs of sub-contractor labor in the Company's national
account subsidiary that could not be passed on to the national account
customers. Management is reviewing national account agreements and anticipates
increasing pricing to partially offset increased costs.
The Company has entered into a letter of intent to merge with IAC. If the
merger is completed, the Company plans to complete several acquisitions of
companies in the interconnect industry. Management expects to consolidate
certain aspects of the operations and reduce general and administrative expenses
related to the operations of existing subsidiaries and those related to the
acquisitions. Although several letters of intent have been signed, there are no
definitive agreements in place at the current time.
Liquidity and Capital Resources
- -------------------------------
For the fiscal year ending April 30, 1998, the Company incurred a loss from
operations before income taxes of $924,000. An additional loss of $168,000 was
incurred in the operations of its Seattle subsidiary which was closed during the
year. A significant portion of this loss was comprised of non-cash expenses
including deprecation and amortization of $396,000; provision for bad debts of
$299,000; stock option and warrant compensation of $55,000; and a provision for
inventory obsolescence of $233,000. Increased borrowings under the Company's
line of credit along with increases in accounts payable and reduced accounts
receivable were used to fund principal reductions of notes payable and operating
needs.
The loss before provision for income taxes incurred for the year ended April 30,
1997 was offset by non-cash expenses of depreciation and amortization.
Increases in accounts receivable were funded primarily with comparable increases
in trade accounts payable. Increased borrowings under the Company's line of
credit were used to fund repayments on other notes payable.
Management has taken the following actions to improve its liquidity and
capitalization in the current and prior years:
14
<PAGE>
(A) In April of 1998, the Company undertook a private placement of Units of its
common stock and common stock purchase warrants. Each Unit in the offering
sold for $1.25 and consisted of one share of common stock and one common
stock purchase warrant exercisable at $2.50 per share for a period of five
years. A total of 283,000 Units were sold which provided gross proceeds to
the Company of $353,750. There were no offering expenses netted out of the
proceeds as the placement agent received 40,000 common stock purchase
warrants exercisable at $1.25 per share. The funding of this private
placement was completed in May, 1998.
(B) As part of the merger with IAC, the Company has committed to raise between
$1 million and $4 million in additional equity. As of July 29, 1998, the
Company completed funding of a $400,000 bridge loan (net proceeds to the
Company of $380,000) in anticipation of completion of the equity offering.
The bridge loan is comprised of units at $10,000 each with each unit having
a promissory note of $9,900 and 2,000 common stock purchase warrants
exercisable at $2.50 per share for a period of five years. The notes bear
interest at 10% per annum and mature six months after funding. If the notes
are not retired at maturity, the interest rate will be increased to 16% per
annum. The note holders will be offered the right to convert their notes
into equity in the Company's new offering.
(C) In October 1996, the Company renegotiated and renewed its accounts
receivable financing agreement with its lender. Pursuant to the new
agreement, the Company may be extended credit of up to $2,000,000
($1,500,000 in fiscal 1997) based upon its outstanding accounts receivable,
at an interest rate of 5.0% in excess of the prime rate (7.5% in excess
during fiscal 1997). The agreement is subject to termination upon 30 days
notice by either party. Advances under the line of credit are limited to
75% of eligible receivables, as defined. All receivables over 90 days past
due and all receivables from customers with 90-day past due balances in
excess of 10% of their total balances are not considered eligible. The
outstanding amount is reduced by accounts receivable collections and
increased periodically by advances supported by new receivables and
collection activity. The outstanding balance under this line of credit was
$1,120,022 and $1,001,891 at April 30, 1998 and 1997, respectively.
(D) Effective December 22, 1995, the Company negotiated with TAIS, its major
supplier and unsecured creditor, to transfer $1,530,950 of current trade
accounts payable and a short-term note payable to a long-term note payable
(the "Note") and to increase the current credit facility by $400,000. This
allowed the Company to meet its immediate obligations, provided a short-term
increase in cash flow, and increased working capital by the long-term
portion of the Note, approximately $1,260,000.
15
<PAGE>
Pursuant to the Note, the Company is required to make 60 equal installments
of $29,598, including interest at 6% per annum, which began in February 1996.
In addition to the monthly installments, the Company is required to make
prepayments of principal of at least $10,000 per month if the monthly net
operating cash flow of the Company, defined as pre-tax income plus
depreciation and amortization, exceeds $75,000 for three consecutive months.
Thereafter, 60% of each additional $5,000 of monthly net operating cash flow
in excess of $75,000 must be paid. The Company is also required to use a
portion of the net proceeds from any offering of its stock or debt securities
to make a principal prepayment. The prepayment will be equal to a percentage
of the net proceeds in excess of $350,000 as follows: 40% of net proceeds
between $350,000 and $1 million, 50% of net proceeds between $1 million and
$2 million, 60% of net proceeds between $2 million and $3 million and 100% of
net proceeds in excess of $3 million, but not to exceed the remaining
principal balance of the Note. The remaining principal balance of this Note
at April 30, 1998 is $731,816. The Note has been guaranteed personally by
the former president of the Company. The Company has indemnified the former
president relative to this guarantee.
Effective April 30, 1997 TAIS agreed to treat the Note as a non-interest
bearing obligation from inception through April 30, 1997, resulting in a
discount of the note balance of approximately $103,000. The discount was
treated as a reduction of cost of franchise equipment sales for the year
ended April 30, 1997. Imputed interest in the amount of $96,471 was
recognized on the Note during the year ended April 30, 1997.
Effective August 15, 1997, TAIS agreed to treat the Note as a non-interest
bearing obligation provided that future monthly payments continue to be made
on a timely basis. The Note was further discounted by $128,000 and the
discount was treated as a reduction of cost of franchise equipment sales for
the year ended April 30, 1998. Imputed interest in the amount of $68,796 was
recognized on the Note during the year ended April 30, 1998.
The Company believes that it has sufficient financial resources available to
meet its short-term working capital needs based on the private placement of
equity completed in May, 1998, the bridge loan funded in July, 1998, and the
availability of credit from the Company's accounts receivable financing company
and major supplier. However, there can be no assurance that the Company will be
able to successfully implement its acquisition plans and thereby increase
revenue, improve gross profit margins and contain general and administrative
expenses. The successful completion of the acquisition plan, including the
raising of additional new equity, is necessary for the Company to finance its
operations over the longer term.
16
<PAGE>
Results of Operations
- ---------------------
For the Year Ended April 30, 1998
- ---------------------------------
The Company reported a net loss of $1,091,000 for the year ended April 30, 1998
as compared to net income of $83,000 for the year ended April 30, 1997. The
change in net income (loss) of $1,174,000 is largely attributable to a decrease
in margins realized on equipment sales to franchises, a decrease in margins
realized on direct equipment sales and service, an increase in general and
administrative expenses of $175,000, an increase in interest expense of
$84,000, and an increase in provision for bad debts of $87,000. The Company
recognized $400,000 of income tax credit for the year ended April 30, 1998
related to its net operating loss carryforward compared to $385,000 of tax
credit recognized for the prior year. Additionally, the Company recorded a loss
of $400,000 related to the discontinued operations of its Seattle subsidiary.
This loss is net of tax credits of $260,000.
Effective October 31, 1997, the Company closed its Seattle subsidiary. The
subsidiary incurred substantial operating losses and management determined the
resources necessary to invest in the operation to return it to profitability
were not available. The operating losses of the Seattle subsidiary for the
current fiscal year through October 31, 1997 were $168,000 compared to an
operating loss of $171,000 for the fiscal year ended April 30,1997. The
estimated loss on the disposal of the discontinued operations of $400,000 (net
of income tax benefit of $260,000) represents the estimated loss on the disposal
of the assets of the subsidiary, write off of the remaining intangible assets of
$209,000, and a provision of $100,000 for expenses expected to be incurred
subsequent to October 31, 1997.
Franchise equipment sales decreased $329,000 or 6% for the year ended April 30,
1998. The decrease in revenue is reflective of a net decrease of 4 franchises in
the past fiscal year and an overall decrease in the purchasing volume of several
franchises. The gross margin percentage realized on this revenue was 10% during
the current fiscal year compared to 13.1% for the previous year. The Company for
the last three years has recorded a charge to the cost of franchise equipment
sales on a monthly basis to allow for obsolescence in its inventory. In the
fourth quarter of the current fiscal year, the overall obsolescence of the
inventory was reviewed and an additional charge of $195,000 was recorded. This
additional charge accounts for the decrease in the gross margins on this revenue
for the year ended April 30, 1998.
17
<PAGE>
Revenue from direct equipment and service sales for the year ended April 30,
1998 decreased $111,000 or 1.4% from the previous year. The gross margin
percentage realized on this revenue was 40.5% for the current fiscal year
compared to 43.4% for the previous year. The decrease in margins resulted in a
decrease of $224,000 in gross margins realized by the Company. The most
significant contributing factor to the decreased margin is the increased cost of
outside labor used to service the national account customers. The Company was
not able in the current fiscal year to pass those increases on to its customers.
Also contributing to the decrease in margin were several larger and more complex
installations in the southwest that required additional time to complete. The
margins realized on these installations were well below average margins for the
operation. Management has started the process of re-pricing the services
provided to national account customers in order to pass on some of the Company's
increased costs. Management has also restructured the operations in the
southwest and will concentrate on traditional sources of revenue where margins
are more predictable.
Other revenue sources for the current fiscal year were $147,000 compared to
$165,000 for the previous year. Initial franchise fees for the current year were
$22,000 lower than in the previous year. Although the Company is seeking
qualified companies to become new franchises, only one new franchise was added
during the current fiscal year.
Selling expenses in fiscal year 1998 of $742,000 were 5.6% of gross revenue
compared to selling expenses in fiscal year 1997 of $759,000 or 5.5% of gross
revenues. The decrease in expense is directly related to the decrease in gross
revenues.
General and administrative expenses for the year ended April 30, 1998 were
$3,264,000 compared to $3,089,000 for the previous year or an increase of
$175,000. Although management continues to assess these expenses and take action
to reduce them when necessary and appropriate, there were some obligations
incurred in the current year that were not comparable to prior years. The
Company actively pursued the acquisition of a significant company in the
interconnect industry. In connection with this attempted acquisition, the
services of a new investment banker were secured along with significant outside
legal advice. Costs for outside services and professional fees were $245,000
higher in the current fiscal year than in the previous year. A portion of the
fees accrued for the services of the investment banker will be paid in fiscal
year 1999 by the issuance of 25,000 shares of common stock. This obligation was
valued at approximately $58,000. Partially offsetting the increase in the costs
of outside services and professional fees was a decrease in the current year in
salaries and employee benefits of $91,000 compared to the previous year. This
reduction is primarily due to attrition and management choosing not to replace
certain positions.
Interest expense and loan fees for the current year of $421,000 increased
$84,000 from the previous year. Approximately $75,000 of the increase is related
to costs incurred in securing financing for the acquisition that was not
completed. These commitment fees were expensed at the time that it was
determined that the acquisition would not close.
18
<PAGE>
For the Year Ended April 30, 1997
- ---------------------------------
The Company reported net income of approximately $83,000 for the year ended
April 30, 1997 as compared to a net loss of approximately $1,180,000 for the
year ended April 30, 1996. Earnings before interest, taxes, depreciation and
amortization (EBITDA) for the year ended April 30, 1997 was a positive $463,000
compared to a negative EBITDA of $486,000 for the year ended April 30, 1996.
The change in the net income (loss) of $1,263,000 and the increase in EBITDA of
$949,000 were largely due to increased revenues from the Company-owned outlets.
The gross profit realized on this revenue was $3,396,000 in fiscal 1997 or
$1,296,000 higher than fiscal 1996. The increased gross margin was partially
offset by an increase of $137,000 in selling expenses, an increase of $120,000
in general and administrative expenses and an increase of $71,000 in interest
expense. Additionally, for the year ended April 30, 1997 the Company recognized
$385,000 of income tax credit related to its net operating loss carryforward.
Revenue from franchise equipment sales increased $124,000 or 2.3% during the
year ended April 30, 1997. The gross margin percentage realized on this revenue
was 13.1% during fiscal 1997 compared to 9.4% for the previous fiscal year. The
increased revenue and increased gross margin percentage provided an increase of
$214,000 in gross margin from this revenue for the year ended April 30, 1997
compared to the previous year. Contributing to the improved gross margin for
fiscal 1997 was the TAIS discount of $103,000 related to their agreement and
treatment of the Note as a non-interest bearing obligation from inception
(December 22, 1995) through April 30, 1997.
Revenue from direct sales of equipment and services increased $3,096,000 during
the year ended April 30, 1997. The gross margin percentage realized on this
revenue was 44% for both fiscal year 1997 and 1996. The increased revenue for
the year ended April 30, 1997 resulted in increased gross margin of $1,296,000.
Initial franchise fees of $35,000 for the year ended April 30, 1997 were lower
than the previous year by $47,500.
Selling expenses in fiscal year 1997 of $759,000 were 5.5% of gross revenue
compared to selling expenses in fiscal year 1996 of $623,000 or 5.8% of gross
revenues. The increase in dollars of expense relates directly to the increases
in gross revenues.
General and administrative expenses for fiscal year 1997 increased $120,000 or
4.0% from the prior fiscal year. This slight increase in expenses in this area
occurred while gross revenues increased 28.1%.
19
<PAGE>
Year 2000 Issue
The Company has determined that it may need to modify or replace portions of its
software, so that its computer system will function properly with respect to
dates in the year 2000 and beyond. Additionally, the Company is reviewing the
year 2000 readiness of the software included in all of the products sold by the
Company. The Company has initiated discussions with its significant suppliers,
large customers and financial institutions to ensure that those parties have
appropriate plans to remediate year 2000 issues where their systems interface
with the Company's system or otherwise impact its operations. The Company is
assessing the extent to which its operations are vulnerable, should those
organizations fail to properly remediate their computer systems.
ITEM 7. FINANCIAL STATEMENTS
----------------------
Consolidated financial statements required to be filed hereunder are included
following Part III.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
20
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
--------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The directors and executive officers of the Company are as follows:
Name Position
- ---- --------
Samuel D. Addoms Director
James M. Corboy Director
James M. Ciccarelli Chief Executive Officer
and Chairman of the Board of Directors
Scott E. Harris Executive Vice President, Secretary, Treasurer,
and Chief Financial Officer
Samuel D. Addoms Age 58. Mr. Addoms has been a director of the Company since
- ----------------
October 1992. From November 1993 to January 1995 he served as the Executive
Vice President of Frontier Airlines, Inc. and has served as President from
January 1995 to present. He has also served as a Director of Frontier Airlines,
Inc. from November 1993 to present. From February 1996 to present, he has been
an Independent General Partner and a Director of Boettcher Venture Capital
Partners. From February to October 1993, he served as the President and
Director of Brainwave Systems, Inc., a software company. From September 1992 to
September 1993, he served as a financial consultant to various companies. Mr.
Addoms received a B.A. degree from Wesleyan University.
Scott E. Harris Age 44. Mr. Harris has served as Chief Financial Officer of
- ---------------
the Company since August 15, 1995. From October 1992 to November 1994, he
served as Chief Financial Officer of Mortgage Alliance Corporation. From April
1989 to October 1992, he served as Vice President of Finance for the AMC Cancer
Research Center.
James M. Corboy Age 57. Mr. Corboy has served as President of Century Capital
- ---------------
Group, Inc., investment bankers, and its predecessor, SKB Corby, Inc. since
1995. From 1988 to 1995 he was the general partner of Corboy and Company, L.P.
Mr. Corboy received a B.A degree from Alleghany College and a M.B.A. Degree from
the University of Colorado.
James M. Ciccarelli Age 46. Mr. Ciccarelli has served as Chief Executive
- -------------------
Officer of the Company since July 1, 1998. He has served as President and CEO
of IAC from its founding in 1997 and continues to serve in that capacity. He
also serves as Chairman of the Board for Wireless Telcom, Inc. and has served in
that capacity since 1993. From 1990 to 1993, Mr. Ciccarelli was the Vice
President of Intelligent Electronics and the President and CEO of its Reseller
Network Division from 1987 to 1989. From 1988 to 1990, he was President of
Connecting Point of America.
21
<PAGE>
Lionel Brown Age 50. In connection with the planned IAC merger Mr. Brown will
- ------------
become President of the Company. He has served as Secretary and Chief
Operations Officer of IAC from its founding in 1997 and continues to serve in
that capacity. From 1996 to 1997, he served as the Chief Information Officer of
the Reseller Network Division and XL Source, two operating divisions of
Intelligent Electronics, Inc. From 1993 to 1995, he served as the Vice
President of Operations and Information Systems for Wireless Telcom, Inc. From
1989 to 1993, he held the position of Vice President of Operations and
Information Systems for the Reseller Network Division of Intelligent
Electronics, Inc.
Each of the directors was elected to serve until the next annual meeting of
shareholders and until their successors have been elected and have qualified.
There are no family relationships between any director or executive officer of
the Company.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company pursuant to Rule 16a-3(e) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), during its most recent fiscal year and Form 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and written representations from reporting persons, to the Company's
knowledge, no officer, director, or beneficial owner of more than ten percent of
the Company's equity securities failed to file on a timely basis, as disclosed
in the above forms, reports required by Section 16(a) of the 1934 Act during the
most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
-----------------------
The following table sets forth information concerning all compensation paid by
the Company and options granted by the Company to the Chief Executive Officer of
the Company and to each officer who earned more than $100,000, during the years
ended April 30, 1998 and 1997.
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------
Annual Compensation Awards Payouts
-------------------------- -------------------- -------
Other
Annual Restricted All other
Name and Salary Compensa- Stock Options/ LTIP Compensa-
Principal Position (1) Year ($) Bonus tion (2) Awards SARs Payouts tion
======================== ====== ======= ===== ========== ========== ======== ======= =========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard D. Olson, CEO 1998 102,000 -0- -0- -0- -0- -0- -0-
Richard D. Olson, CEO 1997 87,000 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) The Company pays health insurance premiums for its executive officers, and
provides its President with the use of a Company-owned automobile. The
aggregate amount of such compensation is less than either $50,000 or 10%
of the total of annual salary and bonus for the above executive officer,
which includes automobile expense of approximately $4,000. Mr. Olson
resigned as CEO effective June 30, 1998. See Item 12.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------------------
Number of Percent of Total
Securities Underlying Options/SAR's
Options/SAR's granted to employees Exercise or Expiration
Name Granted (#) in fiscal year or base price ($/sh) Date
============================================= ====================== ===================== ==================== ==========
<S> <C> <C> <C> <C>
Richard D. Olson, CEO 100,000 39.2% $1.30 8/12/2001
</TABLE>
22
<PAGE>
401(k) Plan
- -----------
On August 1, 1985, the Company established an Employees' Savings Plan (ESP) for
all full-time employees who have at least twelve months of continuous service by
August 1 of each plan year and who have attained the age of twenty-one. As
amended, the Company may make matching contributions up to 50% of the
participant's contribution (made via salary reduction arrangements) as described
in the ESP. In addition, the Company may also make an annual contribution from
its profits. The Company made no contribution to the ESP in 1998 or 1997.
STOCK OPTION AND STOCK APPRECIATION PLANS
- -----------------------------------------
In 1994, the Company adopted the 1994 Stock Option Plan (the "Plan"), subject to
shareholder approval, pursuant to which options to purchase up to 207,000 shares
of Common Stock could be granted to employees of the Company. There are
currently outstanding options to purchase 12,500 shares of Common Stock at $1.00
per share and options to purchase 10,000 shares of Common Stock at $1.125 per
share, all of which were granted at the market value on the date of grant. The
options have been granted subject to shareholder approval of the Plan and become
exercisable over a three-year period and must be exercised within five years of
the date of grant. The Company has no plans to grant any additional options
under this plan.
In fiscal year 1998, the Company adopted the 1997 Stock Option Plan (the "97
Plan"), subject to shareholder approval, pursuant to which options to purchase
up to 150,000 shares of common stock could be granted to employees of the
Company. None of these options have been granted. Additionally, the Plan
provided for the specific grant of 115,000 options to certain key employees,
directors, and outside consultants. These options were granted at $1.30 per
share, which was the market value on the date of grant. The options have been
granted subject to shareholder approval of the 97 Plan, become exercisable upon
such approval and will expire in August 2001.
COMPENSATION OF DIRECTORS
- -------------------------
In 1993, the Company adopted a Non-discretionary Stock Option Plan for non-
employee directors pursuant to which options to purchase up to 20,000 shares of
the Company's Common Stock would be granted to directors of the Company who are
not employees of the Company. Options to purchase 10,000 shares of the
Company's Common Stock are currently outstanding and exercisable at prices
ranging from $.88 to $5.13 per share. The Plan expired in November, 1997.
The exercise price for all outstanding options is the fair market value of the
Common Stock on the respective dates of grant. Each director is entitled to
receive options to purchase 1,000 shares of Common Stock on November 1 of each
year. During the fiscal year ended April 30, 1998, both Samuel D. Addoms and
Edwin B. Spievack (former Director) received options to purchase 1,000 shares of
Common Stock. The options are exercisable for five years from the date of
grant.
23
<PAGE>
The Company does not pay directors for meetings attended. During the year ended
April 30, 1998, the Company held four meetings of the Board of Directors and
took action at other times by written consent. Each director attended 75
percent or more of the meetings held during the period he served as a director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
---------------------------------------------------------------
The following table sets forth the persons known to the Company to own
beneficially more than five percent of the outstanding Common Stock on August 4,
1998 and information as of August 4, 1998 with respect to the ownership of
equity by each director of the Company and by all officers and directors as a
group.
Certain Beneficial Owners
- -------------------------
<TABLE>
<CAPTION>
Name & Address of Shares Beneficially
Beneficial Owner Title of Class Owned (1) Percent
- -------------------------------- ----------------------- --------------------- --------------
<S> <C> <C> <C>
Samuel D. Addoms (2) Common Stock 36,000 1.2%
1900 Fairfax Street
Denver, Colorado 80220
Richard D. Olson (3) Common Stock 393,424 13.4%
10414 Strasburg Way
Parker, Colorado 80134
James M. Ciccarelli (4)
6025 S. Quebec St.
Englewood, Colorado 80111
Steven M. Bathgate Common Stock 248,100 8.4%
5350 S. Roslyn, Suite 380
Englewood, Colorado 80111
James M. Corboy (3) Common Stock 60,000 2.0%
6530 S. Yosemite St.
Englewood, Colorado 80111
Eugene C. McColley Common Stock 148,500 5.1%
5350 S. Roslyn, Suite 380
Englewood, Colorado 80111
M.H. Meyerson and Co., Inc. Common Stock 175,000 5.9%
525 Washington Blvd.
Jersey City, New Jersey 07303
Officers and Directors as Common Stock 536,924 18.3%
a Group (4 persons)(2)
</TABLE>
24
<PAGE>
(1) Beneficial ownership results in each case from the possession of sole or
shared voting and investment power with respect to the shares.
(2) The number of shares set forth opposite the name of Samuel D. Addoms
include options to purchase 34,000 shares. The number of shares set forth
opposite the name of James M. Corboy include options to purchase 10,000
shares. The number of shares set forth opposite the officers and directors
as a group include the aforementioned options to Messrs. Addoms and Corboy.
(3) The shares set forth opposite the name of Richard D. Olson, include 135,084
shares pledged to TAIS as security for a note payable by Mr. Olson to TAIS.
Mr. Olson has provided a proxy to Mr. Corboy to vote his shares in
shareholders meetings in the next two years.
(4) Mr. Ciccarelli does not currently own any shares. In connection with the
planned merger with IAC, he will become the owner of preferred stock which
will convert into 1,000,000 shares of common stock of the Company upon
shareholder approval of an increase in authorized shares of common stock.
(5) The shares set forth opposite the names of Steven M. Bathgate, Eugene C.
McColley and M.H. Meyerson and Co., Inc. include warrants to purchase
65,000; 55,000; and 175,000 shares, respectively.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
As discussed in Item 6, the Company negotiated with TAIS, effective December 22,
1995, to transfer $1,530,950 of current trade accounts payable and a short-term
note payable to a long-term note payable. The note has been guaranteed
personally by the former president of the Company, Richard D. Olson. The Company
has indemnified the former president relative to this guarantee. The remaining
principal balance of the note on April 30, 1998 was $731,816.
Effective June 30, 1998, Richard D. Olson resigned as President and Chief
Executive Officer and Director of the Company. The Company has retained the
services of Olson as a consultant for a period of six months during which time
Olson will be compensated at his previous salary level. At the end of the
consulting period, Olson will receive $127,100 and Olson will repay a $25,000
loan from the Company. Also, as part of the agreement with Olson, the Company
has agreed to indemnify him for personal guarantees he made of the Company's
obligation to TAIS.
Effective July 1, 1998, Jim Ciccarelli, CEO of IAC, became the CEO of the
Company. Lionel Brown, Chief Operations Officer of IAC, will become President
of the Company upon completion of the merger with IAC. The Company expects to
enter into three year employment agreements with Messers. Ciccarelli and Brown
providing for annual salaries of $160,000 and $120,000, respectively.
In May 1997, the Company entered into an agreement with M. H. Meyerson & Co.,
Inc. ("Meyerson") for Meyerson to provide the Company with investment banking
services for a five year period. The Company has granted Meyerson warrants to
purchase up to 175,000 shares of Common Stock at $1.20 per share, which vested
over a one year period. No warrants may be exercised until the Company's
shareholders approve an increase in the Company's authorized Common Stock to a
minimum of 3,000,000 shares. The Company has agreed to include the Common Stock
underlying the warrants in any registration statement that may be filed by the
Company during the term of the warrants.
In September 1997, the Company entered into an agreement with Century Capital
Group, Inc. ("Century Capital") for Century Capital to provide the Company with
financial advisory and investment banking services. James M. Corboy, a
director of the Company, is President of Century Capital. The Company agreed to
pay Century Capital $1,000 per month and additional compensation if certain
acquisitions were completed. In June 1998, the Company entered into a new
agreement with Century Capital which superseded the September 1997 agreement.
Century Capital has agreed to provide financial advisory services to the
Company, including due diligence and a fairness opinion in connection with
the Company's proposed merger with IAC. The Company has agreed to pay Century
Capital a minimum of $5,000 per month, as well as a fee of $25,000 for the
fairness opinion. The term of the June 1998 agreement is 12 months, but may
be earlier terminated by the Company or Century Capital on 30 days notice.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
2. Plan of Acquisition
25
<PAGE>
(a) Plan and Agreement of Merger with Communications World of Seattle-
North filed as Exhibit 10.13 to the Report on Form 10-KSB for the
year ended April 30, 1994 is incorporated herein by this reference.
(b) Plan and Agreement of Merger with Digital Telecom, Inc. filed as
Exhibit to the Report on Form 8-K filed on October 5, 1994 is
incorporated herein by reference.
(c) Merger Agreement dated as of August 1, 1995 among Communications
World International, Inc., CommWorld National Capitol Area, Inc.,
Communications World of Columbia, Inc., John E. Hanner and John C.
Hanner filed as Exhibit 2(c) to the report on Form 10-KSB for the
year ended April 30, 1996 is incorporated herein by this reference.
(d) Merger Agreement dated as of August 1, 1995 among Communications
World International, Inc., CommWorld National Capitol Area, Inc.,
Alpha Communications & Technology, Inc. and Bennie R. Hester filed as
Exhibit 2(c) to the report on Form 10-KSB for the year ended April
30, 1996 is incorporated herein by this reference.
(e) Asset Acquisition Agreement between William R. Heath d.b.a. CommWorld
of Tucson and Communications World International, Inc., filed as
Exhibit 2 to the Report on Form 10-QSB for the quarter ended October
31, 1996 is incorporated herein by reference.
3. Articles of Incorporation and Bylaws.
(a) Articles of Incorporation, as amended, filed as Exhibit 3(a) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(b) Bylaws, as amended, filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (File No. 33-53550) is incorporated herein by
this reference.
(c) Articles of Amendment to the Articles of Incorporation of
Communications World International, Inc. filed as Exhibits 2 and 3 to
the Form 8-K dated October 16, 1997 is incorporated herein by this
reference.
(d) Articles of Amendment to the Articles of Incorporation dated
August 4, 1998.
4. Instruments defining the rights of holders, incl. indentures
Certificates of Designation establishing Series B, C and E Preferred
Stock filed with Amendments to Articles of Incorporation in 3(a) above.
Certificates of Designation establishing Series F and G Preferred Stock
filed with Amendments to the Articles of Incorporation in 3(c) above.
26
<PAGE>
10. Material Contracts
(a) Asset Purchase, Sale and Security Agreement dated as of July 31,
1992, between Registrant and Donaldson & Associates, Inc., filed as
Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 33-
53550) is incorporated herein by this reference.
(b) Current Form of Franchise Agreement filed as Exhibit 10(f) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(c) 1994 Stock Option Plan filed as Exhibit 10(g) to the Registration
Statement on Form SB-2 (File No. 33-87808) is incorporated herein by
this reference.
(d) Non-Discretionary Stock Option Plan filed as Exhibit 10(h) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(e) Non-Compete Agreement and Employment Agreement dated as of April 29,
1994 with Roland Heath, filed as Exhibit 10.12 to the Report on Form
10-KSB for the year ended April 30, 1994 is incorporated herein by
this reference. Non-Compete Agreements and Employment Agreements
dated as of July 15, 1994 with David Lepsig and Diane Lepsig, filed
as Exhibit 10.13 to the Report on Form 10-KSB for the year ended
April 30, 1994 is incorporated herein by this reference.
(g) Accounts Receivable Financing Agreement dated January 19, 1995 with
Republic Acceptance Corporation filed as Exhibit 10(m) to the
Registration Statement on Form SB-2 (File No. 33-87808) is
incorporated herein by this reference.
(h) Security Agreement dated January 19, 1995 with Republic Acceptance
Corporation filed as Exhibit 10(n) to the Registration Statement on
Form SB-2 (File No. 33-87808) is incorporated herein by this
reference.
(i) Non-Compete Agreement and Employment Agreement dated as of August 1,
1995 with Bennie R. Hester, filed as Exhibit 2(c) to the Report on
Form 10-KSB for the year ended April 30, 1996 is incorporated herein
by this reference.
27
<PAGE>
(j) Agreement to Restructure Debt, effective December 22, 1995 between
Registrant and Toshiba America Information Systems, Inc.,
Promissory Note dated December 22, 1995 in the amount of $1,530,950
made by Registrant to Toshiba America Information Systems, Inc.,
and Personal Guaranty by Richard D. Olson, President of Registrant,
in favor of Toshiba America Information Systems, Inc. effective
December 22, 1995, filed as Exhibit (a) to the Report on Form 10-
QSB for the quarter ended January 31, 1996 is incorporated herein
by this reference.
(k) Telecommunications Master Dealer Agreement between Registrant and
Toshiba America Information Systems, Inc., dated April 1, 1998.
(l) Amended and Restated 1997 Stock Option Plan.
(m) Consulting and Severance Agreement dated July 24, 1998 with Richard
D. Olson, including Warrant and Proxy.
(n) Agreement between Registrant and M.H. Meyerson and Co., Inc., dated
May 20, 1997.
(o) Agreement between Registrant and Century Capital Group, Inc., dated
June 23, 1998.
(b) Reports on Form 8-K
-------------------
None.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 7, 1998
COMMUNICATIONS WORLD
INTERNATIONAL, INC.
(a Colorado Corporation)
By: /s/ James M. Ciccarelli
-------------------------
James M. Ciccarelli, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: August 7, 1998 By: /s/ James M. Ciccarelli
------------------------------------------
James M. Ciccarelli, Chief Executive
Officer and Director
Dated: August 7, 1998 By: /s/ Scott E. Harris
------------------------------------------
Scott E. Harris, Executive Vice President
Secretary, Treasurer and Chief Financial
Officer
Dated: August 7, 1998 By: /s/ Samuel D. Addoms
------------------------------------------
Samuel D. Addoms, Director
Dated: August 7, 1998 By: /s/ James M. Corboy
------------------------------------------
James M. Corboy, Director
29
<PAGE>
[LETTERHEAD OF LEVINE, HUGHES & MITHUEN, INC.]
Independent Auditors' Report
----------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDERS
COMMUNICATIONS WORLD INTERNATIONAL, INC.:
We have audited the accompanying consolidated balance sheet of Communications
World International, Inc. and subsidiaries as of April 30, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Communications World
International, Inc. and subsidiaries as of April 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
LEVINE, HUGHES & MITHUEN, INC.
Denver, Colorado
July 24, 1998
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
---------- ----------
Assets
- ------
<S> <C> <C>
Current assets:
Cash $ 13,594 $ 80,560
Trade accounts and current portion of notes receivable, less
allowance for doubtful accounts of $363,735 in 1998 and
$218,093 in 1997 1,711,959 2,620,735
Inventory 624,610 947,551
Prepaid expenses 16,678 72,637
Deferred tax asset 100,240 100,240
---------- ----------
TOTAL CURRENT ASSETS 2,467,081 3,821,723
Property and equipment, net 246,805 391,747
Deposits and other assets 49,818 39,474
Notes receivable 81,017 71,442
Intangible assets, net 864,425 1,299,557
Deferred tax asset 944,760 284,760
---------- ----------
$4,653,906 $5,908,703
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
APRIL 30, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Trade accounts payable $ 1,809,766 $ 2,139,165
Revolving line of credit 1,120,022 1,001,891
Current portion of notes payable, including amounts due to
related parties of $69,537 in 1998 and $63,574 in 1997 387,541 372,839
Accrued expenses, deposits and other liabilities 699,921 270,252
Current portion of capital lease obligations 13,200 25,419
----------- -----------
Total current liabilities 4,030,450 3,809,566
LONG-TERM LIABILITIES:
Capital lease obligations 10,218 29,598
Notes payable, including amounts due to related parties
of $37,177 in 1998 and $106,705 in 1997 415,013 900,402
----------- -----------
4,455,681 4,739,566
----------- -----------
Commitments and contingencies (NOTE 9)
STOCKHOLDERS' EQUITY (Notes 10, 11 and 12):
Convertible preferred stock, $1.00 par value, 3,000,000
shares authorized:
Series B (cumulative) 80,088 shares issued and
outstanding in 1998 and 1997 (Liquidation preference $105,716) 80,088 80,088
Series C (cumulative) 436,679 shares issued and
outstanding in 1998 and 426,679 in 1997 (Liquidation preference
$552,219) 436,679 426,679
Series F (cumulative) - 357,818 shares issued and
outstanding in 1998 and 1997 (Liquidation preference $402,162) 357,818 357,818
Series G (cumulative) - 83,500 shares issued and
outstanding in 1998 and 1997 (Liquidation preference $94,060) 83,500 83,500
Common stock, no par value, 2,000,000 shares authorized;
issued and outstanding 1,668,071 shares in 1998 and 4,290,012 4,224,512
1,620,571 shares in 1997
Additional paid-in capital 492,009 447,009
Accumulated deficit (5,541,881) (4,450,469)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 198,225 1,169,137
----------- -----------
$ 4,653,906 $ 5,908,703
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
----------- -----------
REVENUE:
<S> <C> <C>
Franchise equipment sales $ 5,159,968 $ 5,489,240
Direct equipment and service sales 7,707,784 7,819,398
Royalty fees 222,987 213,960
Initial franchise fees 12,500 35,000
Leasing fees 60,277 62,205
Interest and other income 74,245 67,593
----------- -----------
13,237,761 13,687,396
----------- -----------
Costs and expenses:
Cost of franchise equipment sales 4,645,942 4,767,837
Cost of direct equipment and service sales 4,588,660 4,422,899
Selling 742,050 758,981
General and administrative 3,264,385 3,089,275
Interest expense and loan fees, including related party
interest of $11,875 in 1998 and $20,813 in 1997 421,345 337,556
Amortization of intangible assets 200,273 229,424
Provision for bad debts 299,000 212,000
----------- -----------
14,161,655 13,817,972
----------- -----------
LOSS FROM OPERATIONS BEFORE INCOME TAXES (923,894) (130,576)
Income tax benefit 400,000 385,000
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (523,894) 254,424
DISCONTINUED OPERATIONS, NET OF INCOME TAXES:
Loss from operations of Comm World of Seattle (167,518) (171,604)
Loss on disposal of Comm World of Seattle, net of
income tax benefit of $260,000 (400,000)
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS (567,518) (171,604)
----------- -----------
Net income (loss) $(1,091,412) $ 82,820
=========== ===========
EARNING (LOSS) PER SHARE:
Basic:
Income (loss) from continuing operations $ (.37) $ .11
=========== ===========
Net income (loss) $ (.72) $ .01
=========== ===========
Diluted:
Income (loss) from continuing operations $ (.37) $ .10
=========== ===========
Net Income (loss) $ (.72) $ .01
=========== ===========
WEIGHED AVERAGE NUMBER OF OUTSTANDING COMMON SHARES
Basic: 1,622,824 1,589,459
----------- -----------
Diluted: 1,960,464 1,776,592
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
(Note 10)
Preferred Stock
Series B, C, F & G Common Stock
------------------------------------------ Additional Accumulated Shareholders'
Shares Amount Shares Amount Paid-in Capital Deficit Equity
------- --------- --------- ----------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, APRIL 30, 1996 506,767 $506,767 1,546,349 $4,141,012 $452,884 $(4,533,289) $ 567,374
ISSUANCES OF PREFERRED STOCK 271,500 271,500 - - (5,875) - 265,625
ISSUANCES OF COMMON STOCK - - 74,222 83,500 - - 83,500
CONVERSION OF DEBT TO
PREFERRED STOCK 169,818 169,818 - - - - 169,818
NET INCOME - - - - - 82,820 82,820
------- -------- --------- ---------- -------- ----------- -----------
BALANCES, APRIL 30, 1997 948,085 $948,085 1,620,571 $4,224,512 $447,009 $(4,450,469) $ 1,169,137
ISSUANCES OF PREFERRED STOCK 10,000 10,000 - - - - 10,000
ISSUANCES OF COMMON STOCK - - 47,500 65,500 - - 65,500
ISSUANCE OF OPTIONS AND
WARRANTS TO CONSULTANTS - - - - 45,000 - 45,000
NET LOSS - - - - - (1,091,412) (1,091,412)
------- -------- --------- ---------- -------- ----------- -----------
BALANCES, APRIL 30, 1998 958,085 $958,085 1,668,071 $4,290,012 $492,009 $(5,541,881) $ 198,225
======= ======== ========= ========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(1,091,412) $ 82,820
Adjustments to reconcile to net cash provided by
(used in) operating activities, net of effect of
acquisitions:
Depreciation and amortization 396,372 420,496
Provision for bad debts on accounts and notes
Receivable 299,000 224,593
Provision for inventory obsolescence 233,000 39,600
Stock options and warrant compensation 55,000
Intangible write off-discontinued operations 209,055 -
Changes in operating assets and liabilities:
Trade accounts and notes receivable 615,505 (945,801)
Inventories 89,941 (162,450)
Prepaid expenses 55,959 (39,568)
Deferred taxes (660,000) (385,000)
Deposits and other assets (10,344) (11,785)
Trade accounts payable (368,819) 898,846
Accrued expenses, deposits and other liabilities 429,669 (8,242)
----------- ---------
Net cash provided by operating activities 252,926 113,509
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40,657) (21,254)
----------- ---------
Net cash used in investing activities (40,657) (21,254)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit agreement 157,551 312,831
Payments of notes payable (470,687) (430,080)
Principal payments on capital lease obligations (31,599) (37,319)
Issuance of preferred stock, net of offering costs - 39,125
Issuance of common stock 65,000 -
----------- ---------
Net cash used in financing activities (279,235) (115,443)
----------- ---------
Net decrease in cash (66,966) (23,188)
CASH AT BEGINNING OF THE YEAR 80,560 103,748
----------- ---------
CASH AT END OF THE YEAR $ 13,594 $ 80,560
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1998 AND 1997
===============================================================================
1998 1997
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $351,843 $248,755
NON-CASH INVESTING ACTIVITIES:
Business acquisitions financed by:
Issuance of common stock - 83,500
Issuance of preferred stock - 226,500
NON-CASH FINANCING ACTIVITIES:
Issuance of preferred stock as
bonus compensation 10,000 -
Issuance of stock options to outside
consultants 45,000 -
CONVERSION OF:
Notes payable to preferred stock - 169,818
Inventory to rental property - 23,783
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The consolidated financial statements presented are those of Communications
World International, Inc. and its subsidiaries, CommWorld of Phoenix, Inc.,
CommWorld of Seattle, Inc., Digital Telecom, Inc. (d.b.a. CommWorld
NationWide) and CommWorld National Capitol Area, Inc. (collectively, the
"Company" or "CommWorld"). All significant intercompany balances and
transactions have been eliminated in consolidation.
ORGANIZATION AND NATURE OF OPERATIONS
CommWorld was incorporated under Colorado law in 1983 and has its principal
executive offices at 6025 South Quebec Street, Suite 300, Englewood,
Colorado 80111. CommWorld is engaged in the distribution of franchise
licenses within the telephone interconnect industry. The Company derives
income primarily from the sale of equipment and services to franchisees,
multi-location customers (national accounts), and through its Company-owned
outlets, leasing fees and initial franchise fees.
Revenue Recognition
Initial Franchise Fees
----------------------
Franchise fees are recognized upon execution of the franchise agreement as
all material services and conditions relating to the sale have been
substantially performed or satisfied. Direct costs associated with the sale,
including franchiser obligations, are expensed upon the recognition of the
related revenue.
Royalty Fees
------------
Royalty fees are cost mark-up fees charged to certain franchisees who
purchase equipment directly from suppliers with whom the Company has
purchasing contracts. The Company is notified by the supplier of the
purchases by the franchisees and the fees are charged to the franchisee and
recognized as income on a monthly basis.
Franchise Equipment Sales
-------------------------
Revenue from franchise equipment sales is generally recognized when products
are shipped. The franchisee is entitled to purchase equipment from or
through the Company on a "cost mark-up royalty" basis, i.e. based on the
cost to the Company of the equipment and products purchased plus a mark-up
to the franchisee. The amount of the cost mark-up royalty varies by
manufacturer and by the volume of purchases of the individual franchise.
Direct Equipment and Service Sales
----------------------------------
Revenue from direct equipment and service sales is generally recognized upon
completion of the installation of the equipment or upon completion of the
service provided by the Company for telephone systems, voice processing
products and related peripherals.
F-8
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(1) Summary of Significant Accounting Policies (continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out method) or
estimated market value and includes used and replacement stock items.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes.
INTANGIBLE ASSETS
Goodwill and Non-compete Agreements
-----------------------------------
Acquisitions of interconnect dealers, including franchise outlets, are
accounted for using the purchase method of accounting. Under this method,
the purchase price is allocated to assets acquired and liabilities assumed
based on their estimated fair values as of the date of acquisition. The
excess of the consideration paid over the fair value of net assets acquired
has been recorded as goodwill and is amortized on the straight-line basis
over ten years. Non-compete agreements associated with business acquisitions
are amortized over the term of the agreement. The Company reviews
unamortized intangible assets whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. If
there is an indication the carrying amount may not be recoverable, the
Company estimates the future cash flows expected to result from the
operation of the applicable Company-owned outlet and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the intangible
asset, the Company recognizes an impairment loss by reducing the unamortized
cost of the intangible asset to its estimated fair value.
REACQUIRED FRANCHISES
---------------------
Reacquired franchises include individual franchises taken over by the
Company upon termination of the franchise agreements and/or abandonment by
the franchisee. Reacquired franchises are recorded based upon the estimated
fair value of the assets received less any liabilities assumed by the
Company, but not in excess of the Company's cost. Cost in excess of amounts
allocated to inventory, equipment and other assets is classified as
franchises reacquired to the extent supportable by the fair value of the
customer base(s) and territories acquired based upon estimates by Company
management.
F-9
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(1) Summary of Significant Accounting Policies (continued)
The Company amortizes its investment in franchises reacquired to the extent
of the annual pre-tax operating income (if any) of the reacquired franchise
and may recognize additional amortization to reduce the investment to its
net realizable value as estimated by Company management.
Reacquired franchises also include the cost of master franchise territories
reacquired. Reacquired master franchise territories are amortized when
individual franchises in the related territories are sold. The maximum
amortization period for reacquired franchises is five years from the date of
reacquisition. There were no franchises reacquired in fiscal years 1998 or
1997.
Income (Loss) Per Common Share
Income (loss) per common share is computed using the weighted average number
of common shares outstanding during each period. Common stock equivalents
are not material and do not affect the income per share. Common stock
equivalents are not included in the calculation of loss per share as they
are anti-dilutive.
Income Taxes
The Company provides for income taxes using the asset and liability method
as prescribed by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
FINANCIAL INSTRUMENTS
The Company periodically maintains cash balances at a commercial bank in
excess of the Federal Deposit Insurance Corporation Insurance limit of
$100,000.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 (SFAS 130), Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income and
its components (net revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company will adopt SFAS 130 in its
fiscal year 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to
report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers and the material
countries in which the entity holds assets and report revenues. The Company
has not yet evaluated the effects of this change on its reporting of segment
information. If necessary, Company will adopt SFAS No. 131 in its fiscal
year 1999.
RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the presentation used in the 1998 consolidated
financial statements.
F-10
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(2) BUSINESS ACQUISITIONS
During September 1996, the Company acquired the assets of its franchise in
Tucson, Arizona, CommWorld of Tucson (CWT). The operations of CWT will be
continued as part of the operations of the Company's wholly owned
subsidiary, CommWorld of Phoenix, Inc. The Company acquired inventory of
approximately $41,000 and fixed assets with a net book value of
approximately $21,000. The Company issued 74,222 shares of common stock,
valued at the market price of the common stock of $1.125 per share, 83,500
shares of Series G Preferred Stock valued at $1.00 per share, and 143,000
shares of Series F Preferred Stock valued at $1.00 per share.
The acquisition of CWT was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired based on their estimated
fair values as of the date of the merger. The excess of the consideration
paid over the fair value of net assets acquired of approximately $248,000
was recorded as goodwill and is being amortized on a straight line basis
over ten years.
The operations of CWT for the periods prior to acquisition would not have
had a material effect on net sales or net income (loss) of the consolidated
operations on a pro forma basis.
(3) REVOLVING LINE OF CREDIT
The Company entered into a revolving line of credit agreement in January
1995 with a finance company. The revolving line of credit permits the
Company to borrow up to $2,000,000 subject to certain collateral
limitations. Interest at the rate of prime plus 5% per annum is due monthly.
The revolving line of credit is collateralized by substantially all of the
assets of the Company. At April 30, 1998 and 1997 the Company had
outstanding borrowings on the line of credit of $1,120,022 and $1,001,891,
respectively.
(4) NOTES RECEIVABLE
Occasionally, amounts due on open account from various franchisees were
converted to promissory notes bearing interest at rates ranging from 8.5% to
12% per annum, payable in installment periods ranging from 12 to 36 months,
and secured by the franchisee's business assets. In prior years, the Company
sold various Company-owned outlets (see Note 7) with a portion of the sales
financed with promissory notes.
The Company also may finance payments of initial franchise fees with
promissory notes for up to four months. Notes receivable consist of the
following at April 30:
1998 1997
-------- --------
Equipment sales $ 81,975 $ 52,190
Company-owned outlet sales 97,987 108,987
Franchise fees 9,375 12,667
Former President of the Company 25,000 25,000
-------- --------
214,337 198,844
Less current portion 133,320 127,402
-------- --------
Non-current portion $ 81,107 $ 71,442
======== ========
F-11
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(5) Property and Equipment
Property and equipment consists of the following at April 30:
Estimated
useful life 1998 1997
----------- ---------- ----------
Furniture, fixtures and equipment 3-5 $ 957,371 $ 928,648
Rental property 5 33,830 33,830
Vehicles 5 115,087 103,393
Leasehold improvements and other 5 967 5,039
---------- ----------
1,107,255 1,070,910
Less accumulated depreciation and
amortization 860,450 679,163
---------- ----------
Property and equipment, net $ 246,805 $ 391,747
========== ==========
(6) NOTES PAYABLE
Notes payable consist of the following at April 30:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Installment note payable to Toshiba America Information
Systems, Inc. (TAIS), net of discount $675,275 $1,086,986
Notes payable to sellers of acquired companies
(see Note 11 ) 106,705 170,279
Other notes payable 20,574 15,976
-------- ----------
802,554 1,273,241
Less current portion 387,541 372,839
-------- ----------
Non-current portion $415,013 $ 900,402
======== ==========
</TABLE>
Effective December 22, 1995, the Company entered into an agreement with
TAIS, its major supplier and unsecured creditor, to transfer $1,530,950 of
accounts and note payable to a long-term obligation (the "Note") and to
increase the current credit facility by $400,000. Under the terms of the
Note, the Company is required to make 60 equal installments of $29,598,
including interest at 6% per annum, commencing in February 1996.
Additionally, the Company is required to make principal prepayments of at
least $10,000 per month if the monthly net operating cash flow of the
Company, defined as pre-tax income plus depreciation and amortization,
exceeds $75,000 for three consecutive months. Thereafter, 60% of each
additional $5,000 of monthly net operating cash flow in excess of $75,000
must be paid. The Company is also required to use a portion of the net
proceeds from the offering of its stock or debt securities to make a
principal prepayment. The prepayment will be equal to a percentage of the
net proceeds in excess of $350,000 as follows: 40% of net proceeds between
$350,000 and $1 million, 50% of net proceeds between $1 million and $2
million, 60% of net proceeds between $2 million and $3 million and 100% of
net proceeds in excess of $3 million, but not to exceed the remaining
principal balance of the Note ($731,816 as of April 30, 1998). The Note
contains the personal guarantee of the Company's former president. The
Company has indemnified the former president relative to this guarantee.
F-12
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Effective April 30, 1997 TAIS agreed to treat the Note as a non-interest-
bearing obligation from inception through April 30, 1997, resulting in a
discount of the note balance of approximately $103,000. The discount has
been treated as a reduction of cost of franchise equipment sales for the
year ended April 30, 1997. During the year ended April 30, 1998, TAIS agreed
to treat the note as a non-interest bearing obligation provided monthly
payments are continued in a timely manner. A discount of $127,958 was
recorded on the Note and treated as a reduction of cost of franchise
equipment sales for the year ended April 30, 1998. Imputed interest in the
amount of $68,796 and $96,471 was recognized on the Note during the years
ended April 30, 1998 and 1997.
The fair value of the note payable to TAIS is estimated based on the amount
of future cash flows discounted using the Company's current borrowing rate
for loans of comparable maturity. At April 30, 1998 and 1997, the estimated
fair value of the TAIS note was approximately $599,000 and $790,000,
respectively.
The scheduled maturities of notes payable, by fiscal year, are, $387,541 in
1999, $382,423 in 2000 and $32,590 in 2001.
(7) FRANCHISED AND COMPANY-OWNED OUTLETS
The following table provides data on franchised outlets and Company-owned
outlets:
Franchised Company-owned
outlets outlets
---------- -------------
Total at April 30, 1996 65 4
-----------------------
Sold 3 -
Terminated (10) -
Acquired franchises (1) 1
--- --
Total at April 30, 1997 57 5
-----------------------
Sold 1 -
Terminated (5) (1)
Acquired franchises - -
--- --
Total at April 30, 1998 53 4
----------------------- === ==
(8) Intangible Assets
Intangible assets consist of the following at April 30:
Amortization
period 1998 1997
------------ ---------- ----------
Goodwill 10 years $1,259,608 $1,496,395
Franchises reacquired 5 years 315,567 315,567
Non-compete agreements 2-5 years 172,500 184,500
---------- ----------
1,747,675 1,996,462
Less accumulated amortization 883,250 696,905
---------- ----------
Intangible assets, net $ 864,425 $1,299,557
========== ==========
F-13
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(9) Commitments
OPERATING LEASES
The Company leases office space and related facilities, equipment and
vehicles under noncancelable operating leases. Future minimum lease payments
for such operating leases are as follows:
Year ended April 30:
1999 $ 434,281
2000 362,672
2001 305,784
2002 254,784
2003 and thereafter 248,846
----------
$1,606,367
==========
Aggregate rental expense under operating leases was $343,655 and $359,243
for the years ended April 30, 1998 and 1997, respectively.
CAPITAL LEASES
The Company leases computer equipment and vehicles under capital leases. At
April 30, 1998, scheduled future minimum payments under capital leases with
initial or remaining terms of one year or more are as follows:
Year ended April 30:
1999 $13,926
2000 13,925
-------
Total minimum lease payments 27,851
Less executory costs 600
-------
Net minimum lease payments 27,251
Less interest 3,833
-------
Present value of net minimum
lease payments 23,418
Less current portion 13,200
-------
Non-current portion $10,218
=======
F-14
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(9) Commitments (continued)
The following is a summary of property and equipment under capital leases
at April 30:
1998 1997
--------- --------
Computer equipment $ 80,692 $ 80,692
Vehicles 78,935 78,935
--------- --------
159,627 159,627
Accumulated amortization (119,796) (87,871)
--------- --------
$ 39,831 $ 71,756
========= ========
Amortization of assets held under capital leases is included in
depreciation expense.
EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements (the "Agreements") with
several individuals in connection with various business acquisitions
originating during fiscal years 1994 to 1997. Generally, the terms of these
Agreements provide for a three year term of employment and a fixed minimum
amount of annual compensation and bonus-performance incentives. Total
compensation paid under these Agreements during fiscal years ended April 30
1998 and 1997 was $193,345 and $459,390, respectively.
The future minimum payments required under these Agreements at April 30,
1998 are as follows:
Year Ended April 30:
1999 $ 96,000
2000 33,000
--------
$129,000
========
(10) SHAREHOLDERS' EQUITY AND RELATED PARTY TRANSACTIONS
Series A Preferred Stock
In October 1992, the Company authorized the establishment and designation
of 1,000,000 shares of Series A Preferred Stock. There were no Series A
Preferred Stock shares issued and outstanding at April 30, 1998 and 1997.
F-15
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(10) Shareholders' Equity and Related Party Transactions (continued)
SERIES B PREFERRED STOCK
In connection with the Company's acquisition of Master Franchise, Inc. and
Communications World of Phoenix South, Inc. in April 1994, the Company
authorized 100,000 shares of Series B Preferred Stock and issued 80,088
shares to the sole shareholder of the acquirees. Shares of the Series B
Preferred Stock were convertible into common stock at the election of the
holders. The conversion rights were not exercised and expired April 30,
1997. Dividends on the Series B Preferred Stock are paid, when declared by
the Board of Directors, at the rate of $.08 per share per annum before any
dividends on shares of the Company's common stock are paid. Upon
liquidation, dissolution or winding up of the Company, the Series B
Preferred Stock shall have a preference of $1.00 per share plus accumulated
and unpaid dividends, payable from the proceeds of sale or distribution of
the Company's assets prior to any distribution to the holders of common
stock. The Company may redeem the Series B Preferred Stock at $1.00 per
share plus accrued and unpaid dividends by giving thirty days notice to the
holders of the Series B Preferred Stock. At April 30, 1998 there were
$25,628 in accumulated dividends.
Series C Preferred Stock
The Company authorized 440,000 shares of Series C Preferred Stock and
issued 140,060 shares to the shareholders of CommWorld of Seattle North,
Inc., and issued 181,484 shares to the shareholders of Digital Telecom
Incorporated, and issued 40,000 shares to the shareholders of
Communications World of Columbia, Inc., and issued 65,135 shares to the
sole shareholder of Alpha Communications & Technology, Inc. and issued
10,000 shares to employees as incentive compensation. Shares of the Series
C Preferred Stock were convertible into common stock at the election of the
holders. Effective July 16, 1997 the conversion rights expired. Dividends
on the Series C Preferred Stock are paid when declared by the Board of
Directors, at the rate of $.08 per share per annum before any dividends on
shares of the Company's common stock are paid. Upon liquidation,
dissolution or winding up of the Company, the Series C Preferred Stock
shall have a preference of $1.00 per share plus accumulated and unpaid
dividends, payable from the proceeds of sale or distribution of the
Company's assets prior to any distribution to the holders of common stock.
The Company may redeem the Series C Preferred Stock at $1.00 per share plus
accrued and unpaid dividends by giving thirty days notice to the holders of
the Series C Preferred Stock. At April 30, 1998, there were $115,541 in
accumulated dividends.
F-16
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(10) Shareholders' Equity and Related Party Transactions (continued)
SERIES F PREFERRED STOCK
The Company authorized 1,100,000 shares of Series F Preferred Stock. Shares
of the Series F Preferred Stock are convertible into Common Stock at the
election of the holders at a conversion price equal to 50% of the current
market price determined by the 30 day average price prior to conversion.
The shares of Series F Preferred Stock will automatically be converted into
fully-paid and non-assessable shares of Common Stock upon the effective
date of a registration statement covering the Common Stock. Dividends on
the Series F Preferred Stock are paid when declared by the Board of
Directors, at the rate of $.08 per share per annum before any dividends on
shares of the Company's common stock are paid. Upon liquidation,
dissolution or winding up of the Company, the Series F Preferred Stock has
a preference of $1.00 per share plus accumulated and unpaid dividends,
payable from the proceeds of sale or distribution of the Company's assets
prior to any distribution to the holders of common stock. At April 30,
1998, there were $44,344 in accumulated dividends.
The Company issued 143,000 shares of Series F Preferred Stock in connection
with the acquisition of the assets of its franchise, CommWorld of Tucson
(see Note 2). The Company also issued 45,000 shares of Series F Preferred
Stock, realizing net proceeds of $39,150, in connection with a private
offering of the shares. The Company issued 169,818 shares in connection
with the conversion of certain notes payable into equity (see Note 11).
SERIES G PREFERRED STOCK
The Company authorized and issued 83,500 shares of Series G Preferred Stock
to an individual in connection with the acquisition of the assets of
CommWorld of Tucson (see Note 2). Shares of the Series G Preferred Stock
are convertible into common stock at the election of the holders at a
conversion price of $1.625. Dividends on the Series G Preferred Stock are
paid when declared by the Board of Directors, at the rate of $.08 per share
per annum before any dividends on shares of the Company's common stock are
paid. Upon liquidation, dissolution or winding up of the Company, the
Series G Preferred Stock shall have a preference of $1.00 per share plus
accumulated and unpaid dividends, payable from the proceeds of sale or
distribution of the Company's assets prior to any distribution to the
holders of common stock. The Company may redeem the Series G Preferred
Stock at $1.00 per share plus accrued and unpaid dividends by giving thirty
days notice to the holders of the Series G Preferred Stock. At April 30,
1998 there were $10,560 in accumulated dividends.
F-17
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
The following schedule summarizes the preferred stock activity for Series
B, C, F and G for fiscal years ended April 30, 1998 and 1997:
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES F SERIES G TOTAL PREFERRED STOCK
--------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------- ------- -------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, April 30, 1996 80,088 $80,088 426,679 $426,679 - $ - - $ - 506,767 $506,767
Issuances of preferred
Stock - - - - 188,000 188,000 83,500 83,500 271,500 271,500
Conversions of debt to
Preferred stock - - - - 169,818 169,818 - - 169,818 169,818
------
Balances, April 30, 1997 80,088 $80,088 426,679 $426,679 357,818 $357,818 83,500 $83,500 948,085 $948,085
Issuance of preferred
Stock - - 10,000 10,000 - - - - 10,000 10,000
Balance, April 30, 1998 80,088 $80,088 436,679 436,679 357,818 $357,818 83,500 $83,500 958,085 $958,085
====== ======= ======= ======== ======= ======== ====== ======= ======= ========
</TABLE>
COMMON STOCK PURCHASE WARRANTS
------------------------------
During the year ending April 30, 1993, the Company received $2,185,000 in
gross proceeds from the sale of 874,000 units, with each unit consisting of
two shares of common stock of the Company and one redeemable Common Stock
Purchase Warrant ("Warrant"). Ten Warrants entitled the holder thereof to
purchase, at any time for a period of three years from the date of the
Prospectus, one share of common stock, at a price of $9.38. The Company
sold to the underwriter, for $100, a warrant to purchase up to 80,000 units
at a price of $3.00 per unit. These warrants were not exercised and expired
June 30, 1997. During the year ended April 30, 1997, the Company issued
warrants to purchase 5,850 shares of Common Stock at a price of $1.00 per
share. These warrants were not exercised and expired December 31, 1997.
On May 20, 1997, the Company entered into an investment banking agreement
(the Agreement) with M.H. Meyerson & Co., Inc. (Meyerson). Under the terms
of the Agreement, Meyerson provides investment banking services for the
Company, on a best efforts basis, including assistance with mergers and
acquisitions, internal capital structuring and the placement of new debt
and equity issues for a period of up to five years commencing from the date
of the Agreement. In consideration of the services to be performed, the
Company granted Meyerson warrants to purchase 175,000 shares of common
stock at a price of $1.20 per share. Subject to vesting and approval of the
Company's shareholders of an increase in the number of authorized shares,
the warrants may be exercised at any time from May 20, 1997 to and
including May 20, 2002. These warrants vest and become irrevocable as
follows: 75,000 warrants on May 29, 1997, 50,000 warrants on November 17,
1997, and 50,000 warrants on May 19, 1998. The warrants carry piggyback
registration rights. The warrants have been valued at $.30 each and a
charge of $37,000 was recorded in the current year with an offsetting
increase to additional paid-in capital.
F-18
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(11) CONVERSION OF DEBT TO EQUITY
In September 1996, certain notes payable in the amount of $169,818 were
converted into 169,818 shares of Series F Preferred Stock. These notes,
which were issued in connection with acquisitions of certain operating
subsidiaries, were converted on a dollar for dollar basis into shares of
Series F Preferred Stock valued at $1 per share. The note holders are also
holders of Series B AND SERIES C PREFERRED STOCK.
(12) BENEFIT PLANS
STOCK OPTIONS
During 1998, the Company, with the approval of its board of directors,
adopted the 1997 Stock Option Plan (the "1997 Plan") which is subject to
shareholder approval. The 1997 Plan provides for the reservation of
150,000 shares of the Company's common stock. Pursuant to the terms of the
1997 Plan, options may be granted to employees of the Company and
consultants to the Company. In addition to the shares reserved under the
Plan for future issuance, there was a specific grant of 255,000 options to
certain employees, directors and consultants. These options were issued
with a purchase price of $1.30 per share and expire 4 years from the date
of grant.
During 1994, the Company, with the approval of its board of directors,
adopted the 1994 Stock Option Plan (the "Plan") which is subject to
shareholder approval. The Plan provides for the reservation of 207,000
shares of the Company's common stock. Pursuant to the terms of the Plan,
options may be granted to persons who are employees of the Company and any
subsidiary thereof. Generally, the options are non-transferable and cannot
be exercised for a period of six (6) months from the date granted.
Furthermore, options are granted at fair market value on the date of grant
and expire up to ten years from that date. At April 30, 1998 the Company
had 72,500 options granted pursuant to the Plan to purchase common stock
at prices ranging from $1.00 to $2.75 per share with expirations occurring
between August 3, 1998 and October 1, 1999. The company has no plans to
grant any additional options under the plan. During fiscal years 1998 and
1997, no stock options were exercised.
Additionally, in accordance with a stock option plan adopted in February
1993, the Company's board of directors authorized the issuance of options
to purchase up to 20,000 common shares to non-employee directors of the
Company. Options are granted at the market value on the date of grant. The
options granted become exercisable over a three-year period and must be
exercised within five years from the date of grant. At April 30, 1998, the
Company had 10,000 options granted to purchase common stock at prices
ranging from $.88 to $5.13 per share, with expirations occurring between
November 1, 1998 and November 1, 2002. The company has no plans to grant
any options under the plan. During fiscal years 1998 and 1997, no stock
options were exercised. This plan expired in the current fiscal year.
Furthermore, the board of directors has granted options to certain
individuals that were not issued pursuant to any plan. At April 30, 1998,
the company had 132,500 options outstanding to purchase common stock at
prices ranging from $1.00 to $3.25 per share, with expirations occurring
between August 3, 1998 and September 20, 1999. During fiscal year 1998 and
1997, no stock options were exercised.
F-19
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
The following is a summary of the status of options granted:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number Aggregate Weighted Average
of Shares Exercise Price Exercise Price
----------------- ----------------- --------------------
Balances, April 30, 1996 211,083 $ 543,904 $2.58
Options granted 62,000 63,000 1.02
Options canceled (56,500) (135,938) 2.41
--------- ---------- ---------
Balances, April 30, 1997 216,583 470,966 2.17
Options granted 257,000 335,500 1.30
Options canceled (3,583) (20,590) 5.75
--------- ---------- ----------
Balances, April 30, 1998 470,000 $ 785,876 $1.67
========= ========== ==========
The weighted average fair value of options granted during fiscal years 1998 and 1997 was $1.30 and $1.02
per share, respectively.
(12) BENEFIT PLANS (CONTINUED)
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation. Accordingly, no compensation cost has been
recognized. Had compensation cost for these option plans been determined
based on the fair value at the grant date for options granted in 1998 and
1997, consistent with the provisions of SFAS 123, the Company's net income
(loss) and net income (loss) per share applicable to common stock for 1998
and 1997 would have been the pro forma amounts indicated below:
1998 1997
---- ----
Net income (loss) applicable to
common stock - as reported $(1,168,059) $22,680
Net income (loss) applicable to
common stock - pro forma (1,264,879) 17,040
Income (loss) per common share
as reported (.72) .01
Income (loss) per common share
pro forma $ (.78) $ .01
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
Risk-fee interest 5.0% - 6.0%
Expected life 3 years
Expected volatility 30%
Expected dividend $0
The following table summarizes the stock options outstanding at April 30, 1998:
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
============================================================================================================
Options Outstanding Options Exercisable
------------------- -------------------
Range of Number Weighted Average Number Weighted Average
Exercise Prices Outstanding Exercise Price Exercisable Exercise Price
- --------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
$ 0.88 - 2.00 348,000 $1.25 6,000 $1.38
2.25 - 2.75 70,000 2.57 - -
3.13 - 3.25 50,000 3.19 - -
5.13 - 5.13 2,000 5.13 2,000 5.13
------- -----
$ 0.88 - 5.13 470,000 $1.67 8,000 $2.31
======= =====
</TABLE>
401(K) PLAN
On August 1, 1985, the Company established an Employees' Savings Plan
(ESP) for all full-time employees who have at least twelve months of
continuous service and who have attained the age of twenty-one. The
Company may make matching contributions of up to 50% of the participant's
contribution (made via salary reduction arrangements) as described in the
ESP. In addition, the Company may also make an annual contribution from
its profits. The Company made no contributions to the ESP in fiscal 1998
or 1997.
(13) INCOME TAXES
There was no income tax expense attributable to income from operations for
the years ended April 30, 1998 and 1997 due to losses incurred from
operations. The Company's net deferred tax asset for future deductions and
its net operating loss carryforward in excess of future taxable amounts is
offset by a valuation allowance.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at April 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 2,492,000 $ 1,731,000
Allowance for doubtful accounts accounts 145,000 78,000
Allowance for obsolete inventory 139,000 24,000
Amortization of goodwill 153,000 60,000
Other, net 16,000 (21,000)
----------- -----------
Total gross deferred taxes 2,945,000 1,872,000
Valuation allowance (1,900,000) (1,487,000)
----------- -----------
Net deferred taxes $ 1,045,000 $ 385,000
=========== ===========
</TABLE>
F-21
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
As of April 30, 1998 the Company had accumulated net operating loss
carryforwards of approximately $6,230,000. Generally, these operating
losses are available to offset future federal and state taxable income.
Based upon the anticipated change in control, resulting from the issuance
of the Company's equity securities, the Company expects that the annual
use of portions of the operating loss carryforwards will be limited under
Section 382 of the Internal Revenue Code of 1986, as amended. As a result
the Company expects that the utilization of its net operating loss will be
limited to approximately $3,013,000 in future years.
(14) CERTAIN RISKS AND CONCENTRATIONS
The Company currently purchases telephone systems and various peripheral
equipment from seven major suppliers. One of the suppliers provides
approximately 85% of the inventory and products purchased by the Company
while offering flexible credit terms. If the Company's relationship with
the supplier was to cease, it could have a significant adverse impact on
the operations of the Company. The Company had 53 franchises located in 25
states and four Company-owned outlets at April 30, 1998.
The Company sells its products and services primarily to franchisees,
multi-location customers, and to customers of Company-owned outlets,
generally without requiring any collateral. The Company maintains adequate
allowances for potential credit losses and performs ongoing credit
evaluations.
The Company's products are concentrated in the telephone interconnect
industry, which is highly competitive and rapidly changing. Significant
technological changes in the industry could affect operating results
adversely. The Company's inventories include spare parts and components
that may be specialized in nature and subject to technological
obsolescence. While the Company has programs to minimize the required
inventories on hand and considers technological obsolescence in estimating
required allowances to reduce recorded amounts to market values, such
estimates could change in the future.
(15) SUBSEQUENT EVENTS
The Company completed a private placement of equity securities on May 25,
1998. The private placement consisted of 283,000 Units with each Unit
consisting of one share of common stock and one common stock purchase
warrant exercisable at $2.50 for a period of five years. The Units were
sold for $1.25 each for total proceeds of $353,750. Proceeds of $43,750
were received on April 30, 1998 and have been included in the accompanying
financial statements. In addition to the Units, the Company sold to the
Placement Agent 40,000 common stock purchase warrants for $100,
exercisable at $1.25 per share. All of the warrants are subject to
shareholder approval of additional authorized shares of common stock.
The Company entered into a letter of intent on June 25, 1998 to merge with
Interconnect Acquisition Corporation (IAC), a privately held company. The
merger provides that, among other things, the Company will issue to the
shareholders of IAC convertible preferred stock that will be convertible
into 2 million shares of common stock. It is anticipated that the merger
will be completed by August 31, 1998. The Company is currently pursuing
financing that will facilitate the acquisitions delivered by IAC. The
chief executive officer of IAC has become the chief executive officer of
the Company effective July 1, 1998.
F-22
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
(15) SUBSEQUENT EVENTS (CONTINUED)
As part of the merger with IAC, the Company has committed to raise between
$1 million and $4 million in additional equity. The Company has undertaken
efforts to obtain this equity. As of July 29, 1998, the Company completed
funding of a $400,000 bridge loan (net proceeds to the Company of $380,000)
in anticipation of completion of the equity offering. The bridge loan is
comprised of units at $10,000 each with each unit having a promissory note
of $9,900 and 2,000 common stock purchase warrants exercisable at $2.50 per
share for a period of five years. The units bear interest at 10% per annum
and mature six months after funding. If the notes are not retired at
maturity, the interest rate will be increased to 16% per annum. The note
holders will be offered the right to convert their notes into equity in the
Company's new offering.
Effective June 30, 1998, Richard D. Olson resigned as President and Chief
Executive Officer and Director of the Company. The Company has retained the
services of Olson as a consultant for a period of six months during which
time Olson will be compensated at his previous salary level. At the end of
the consulting period, Olson will receive $127,100 and Olson will repay a
$25,000 loan from the Company. Moreover, as part of the agreement with
Olson, the Company has agreed to indemnify him for personal guarantees he
made in behalf of the Company's obligation to TAIS.
(16) YEAR 2000 ISSUE (UNAUDITED)
The Company has determined that it may need to modify or replace portions
of its software, so that its computer system will function properly with
respect to dates in the year 2000 and beyond. Additionally, the Company is
reviewing the year 2000 readiness of the software included in all of the
products sold by the Company. The Company has initiated discussions with
its significant suppliers, large customers and financial institutions to
ensure that those parties have appropriate plans to remediate year 2000
issues where their systems interface with the Company's system or otherwise
impact its operations. The Company is assessing the extent to which its
operations are vulnerable, should those organizations fail to properly
remediate their computer systems.
F-23
<PAGE>
LIST OF EXHIBITS
COMMUNICATIONS WORLD INTERNATIONAL, INC.
FORM 10-KSB
3(d) Articles of Amendment to Articles of Incorporation
10(k) Telecommunications Master Dealer Agreement
10(l) Amended and Restated 1997 Stock Option Plan
10(m) Olson Agreement, Warrant and Proxy
10(n) Meyerson Letter Agreement
10(o) Century Capital Group Agreement
<PAGE>
EXHIBIT 3(D)
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Communications World International,
Inc.
SECOND: The reduction in the number of authorized shares, itemized by
class and series is as follows: The number of authorized shares of Series A
Preferred Stock has been reduced by 300,000, from 1,000,000 to 700,000.
THIRD: The total number of authorized shares, itemized by class and
series, remaining after reduction of the shares is as follows:
The total number of authorized shares is 4,700,000 of which 2,000,000 are
no par value common shares and 2,700,000 shares are preferred shares, each
having a par value of $1.00 per share of which 700,000 preferred shares are
designated Series A Preferred Stock, 100,000 shares are designated as Series B
Preferred Stock, 440,000 shares are designated as Series C Preferred Stock,
250,000 shares are designated as Series E Preferred Stock, 1,100,000 shares are
designated as Series F Preferred Stock and 83,500 shares are designated as
Series G Preferred Stock.
FOURTH: The Amendment was adopted by the Board of Directors of the
corporation. Shareholder action was not required pursuant to Section 7-106-302
of the Colorado Business Corporation Act.
IN WITNESS WHEREOF, the corporation has caused these Articles of Amendment
to the Articles of Incorporation to be executed as of the ___ day of August,
1998.
COMMUNICATIONS WORLD INTERNATIONAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
EXHIBIT 10(K)
TOSHIBA AMERICA INFORMATION SYSTEMS, INC
TELECOMMUNICATIONS MASTER DEALER AGREEMENT
An AGREEMENT made as of April 1, 1998 by and between the Telecommunication
Systems Division of Toshiba America Information Systems, Inc., (hereinafter
("TAIS"), a California Corporation, and
COMMUNICATIONS WORLD INTERNATIONAL, INC.
(Hereinafter "MASTER DEALER").
WITNESSETH:
WHEREAS, TAIS is desirous of obtaining competent, ethical, aggressive marketing
coverage in certain geographic areas that may or may not otherwise be serviced
by TAIS' own marketing network; and,
WHEREAS, MASTER DEALER has represented that it is able and willing to provide
such marketing coverage in the geographic areas specified herein through a
network of third-party marketers that MASTER DEALER has established and/or will
be establishing and without reliance on TAIS' existing dealers.
TAIS and MASTER DEALER, in consideration of the mutual promises made below,
hereby agree as follows:
1. GENERAL. This Agreement governs all transactions hereafter entered into
-------
between TAIS and MASTER DEALER concerning TOSHIBA-brand telecommunications
equipment and accessories marketed by TAIS's Telecommunication Systems
Division.
2. APPOINTMENT. Subject to the terms set forth herein, TAIS hereby appoints
-----------
the MASTER DEALER, and the MASTER DEALER accepts the appointment by TAIS,
to be a non-exclusive, independent dealer of such Products (hereinafter
referred to as AUTHORIZED PRODUCTS) as are set forth on the attached
Schedule "A" (hereinafter referred to as "AUTHORIZED PRODUCTS" list).
MASTER DEALER shall be authorized to purchase for resale additional
products, provided that TAIS shall first sign an appropriately revised
Schedule "A" to this Agreement.
3. PRODUCT DEVELOPMENT. TAIS reserves the right, in its sole and absolute
-------------------
discretion, to make modifications, improvements or changes to AUTHORIZED
PRODUCTS or to discontinue the sale or distribution of any AUTHORIZED
PRODUCTS unilaterally, at any time, and without incurring any liability
whatsoever to MASTER DEALER or others.
4. DEALER NETWORK.
--------------
(a) MASTER DEALER shall establish and maintain a network of dealers (or
similar third party marketers, collectively, "DEALERS") in the
Territory as detailed on Schedule B hereto, through which MASTER
DEALER shall market AUTHORIZED PRODUCTS to End-Users. MASTER DEALER
shall Utilize this Dealer network as its primary
<PAGE>
distribution channel for AUTHORIZED PRODUCTS. MASTER DEALER shall not
market any AUTHORIZED PRODUCTS to any person (other than End-User)
which has not been qualified by MASTER DEALER as a Dealer in
accordance with the terms of this Agreement, except as specifically
authorized by this Agreement. MASTER DEALER shall not solicit,
communicate with, or appoint as a Dealer any person who is then an
authorized dealer of TOSHIBA telecommunication AUTHOIRZED PRODUCTS
without the prior written consent of TAIS's Vice President-Sales,
Telecommunication Systems Division.
(b) MASTER DEALER shall ensure that, with respect to each of its DEALERS,
TAIS is kept currently advised in writing of: its identity; its legal
status (corporation, partnership, etc.); the locations of its
administrative office(s), and service location(s); the Authorized
Products in which the Dealer is authorized to deal; and the
territorial limits (if any), without the Territory of the DEALER.
(c) MASTER DEALER shall ensure that, in each instance unless and until
thirty (30) days prior notice thereof has been given in writing by
MASTER DEALER to TAIS' Vice President-Sales, Telecommunication Systems
Division, and TAIS has not objected thereto, (i) no DEALER will be
appointed by MASTER DEALER, (ii) neither MASTER DEALER nor any DEALER
shall open any additional sales or service location, (iii) no DEALER
shall be authorized to sell any AUTHORIZED PRODUCTS in any geographic
area as to which TAIS has not given such prior written notice by
MASTER DEALER or as to which TAIS objected, (iv) no DEALER shall
market any particular AUTHORIZED PRODUCTS (nor shall any office of
MASTER DEALER market any particular AUTHORIZED PRODUCTS to any End-
User). MASTER DEALER shall also qualify its DEALERS by such standards
of operation and pre-and post-sale support as TAIS in its sole
discretion determines from time to time are appropriate.
(d) MASTER DEALER shall take all necessary actions and make all necessary
arrangements with DEALERS such that DEALER's dealership may be
terminated on any grounds by which this Agreement may be terminated by
TAIS. Upon written instruction from TAIS, MASTER DEALER shall at its
risk and expense terminate any DEALER who has committed one or more
acts (or omitted to do one or more acts) which if done (or omitted) by
MASTER DEALER throughout the Territory would be a grounds for
termination of this Agreement by TAIS.
(e) MASTER DEALER shall ensure that all of its contractual arrangements
with DEALERS expressly provide that each Dealer is not in privity with
TAIS and that all contractual commitments made to DEALER are made by
MASTER DEALER and not TAIS. MASTER DEALER shall ensure that all
DEALERS comply with the requirements of this Agreement.
(f) TAIS shall have the right to communicate directly with any of the
DEALERS in respect of the marketing, service and maintenance of
AUTHORIZED PRODUCTS.
(g) MASTER DEALER shall advise TAIS, in writing, of the names of its
DEALERS (hereinafter referred to as "DESIGNATED DEALERS") who are
authorized to purchase AUTHORIZED PRODUCTS and enter into credit
transactions directly with TAIS.
2
<PAGE>
5. TERRITORY. MASTER DEALER and its DEALERS shall promote, sell, market and
---------
service AUTHORIZED PRODUCTS only in the geographic area (the "TERRITORY")
described on Schedule(s) "B" hereto, unless otherwise specifically
authorized by TAIS in accordance with section 20 of this Agreement below or
as approved in advance in writing by TAIS' Vice President-Sales,
Telecommunication systems Division, in a particular instance and shall do
so on a non-exclusive basis. TAIS reserves the right to make direct sales
and to designate others to sell any AUTHORIZED PRODUCTS in the Territory.
A violation of this Section will be deemed a material breach of this
Agreement.
6. TAIS DUTIES. In addition to and subject to other provisions of the
Agreement, TAIS shall:
(a) Provide AUTHORIZED PRODUCTS to MASTER DEALER or its DESIGNATED DEALERS
in response to orders by MASTER DEALER or its DESIGNATED DEALERS
accepted by TAIS, subject to the terms and conditions of this
AGREEMENT;
(b) Provide MASTER DEALER with such marketing literature, technical
literature, technical advice and assistance and warrant literature as
TAIS deems appropriate for AUTHORIZED PRODUCTS;
(c) Conduct service training and sales and marketing training schools and
programs as TAIS may establish from time to time;
(d) Provide MASTER DEALER with customer leads, in such number and manner
as TAIS in its sole discretion deems appropriate for the marketing of
AUTHORIZED PRODUCTS.
(e) Establish or provide for such repair facilities or methods as TAIS
deems appropriate for warranty and out-of-warranty maintenance of
AUTHORIZED PRODUCTS;
(f) Engage in advertising programs, which may include national, local or
cooperative advertising, of such type and nature as TAIS deems
appropriate for the successful marketing of AUTHORIZED PRODUCTS.
(g) Subject to the terms of this Agreement, charges, if any, for the
foregoing, shall be as TAIS establishes from time to time.
7. MASTER DEALER'S DUTIES. Pre-sale and post-sale support of the AUTHORIZED
----------------------
PRODUCTS by MASTER DEALER are critical to the reputation and success of the
AUTHORIZED PRODUCTS in the marketplace. MASTER DEALER acknowledges that its
ability and commitment to provide such support and to aggressively market
AUTHORIZED PRODUCTS are extremely important elements in TAIS's decision to enter
into this Agreement. Accordingly, in addition to the other provisions of this
Agreement, MASTER DEALER hereby further specifically agrees as follows.
(a) Best Efforts. MASTER DEALER shall exercise its best effort to achieve
------------
(in a manner consistent with other terms of this Agreement) maximum
market penetration for the AUTHORIZED PRODUCTS in the Territory.
MASTER DEALER and its DEALERS shall maintain inventories of AUTHORIZED
PRODUCTS sufficient to meet market demand in a timely manner.
3
<PAGE>
(b) Demonstration Models. MASTER DEALER shall maintain at each of its
--------------------
sales offices in the territory where equipment is displayed, properly
functioning demonstration units of such of the most current models of
AUTHORIZED PRODUCTS and/or have a TAIS Demo Kit available, as TAIS
deems appropriate, which demonstration units shall be prominently
displayed in a manner at least as favorable as that applicable to
competitive products also on display. MASTER DEALER shall ensure that
each of its DEALERS appropriately display a sufficient selection of
AUTHORIZED PRODUCTS.
(c) Sales Organization. MASTER DEALER shall train and maintain at each of
------------------
its offices in the Territory a sales force of individuals
knowledgeable with respect to the functional capabilities and
operation of the AUTHORIZED PRODUCTS. In addition, MASTER DEALER shall
provide such training and support to its DEALER network as may be
necessary to ensure that a skilled sales force is established and
maintained at each DEALER.
(d) Installation and End-User Training. MASTER DEALER shall ensure that
----------------------------------
each End-User which acquires any of the AUTHORIZED PRODUCTS from
MASTER DEALER or a DEALER is provided proper installation support and
operational training.
(e) Reports. MASTER DEALER shall monitor its activities and the
-------
activities of its DEALERS with respect to the AUTHOIRZED PRODUCTS and
shall provide TAIS with such reports as TAIS may request from time to
time with respect to past sales, inventory, future sales, service,
DEALER finances and such other matters relating to MASTER DEALER
and/or its DEALERS as TAIS may request.
(f) Limitation on Extra Territorial and Unsupported Sales. MASTER DEALER
-----------------------------------------------------
shall not ship, sell, market or support (and shall ensure that its
DEALERS do not sell, market or support) any of the AUTHORIZED PRODUCTS
outside the Territory (nor shall any DEALER ship any AUTHORIZED
PRODUCTS outside of such DEALER's territory, designed for it in the
manner provided by this Agreement) unless otherwise specifically
authorized by TAIS in accordance with section 5 of this Agreement
(except that, with the prior written consent of TAIS' Sales Director,
MASTER DEALER or a DEALER may ship AUTHORIZED PRODUCTS to another
authorized TAIS dealer).
(g) Other. MASTER DEALER shall resolve all complaints of customers of
-----
MASTER DEALER and its DEALERS; comply with all TAIS sales,
advertising, operations, credit, marketing, service and other
policies; properly store and handle AUTHORIZED PRODUCTS and take all
other steps necessary to aggressively market AUTHORIZED PRODUCTS.
(h) Compliance with Laws: MASTER DEALER shall comply with all applicable
--------------------
Federal, State, and local laws, regulations and licensing
requirements, including, but not limited to, the United States Export
Administration Act of 1979, as amended from time to time.
(i) Business Ethics: TAIS conducts its business in accordance with the
---------------
highest professional and ethical standards. TAIS policy prohibits the
solicitation or acceptance of any bribe, kickback, or gratuity by any
TAIS employee in the transaction of its business. The payment of any
bribe, kickback, or gratuity is not a condition for doing business
with TAIS. Dealer (or Distributor, whichever is appropriate) shall
report any violation of this
4
<PAGE>
policy to the Division vice President, General Manager and to the
President, Toshiba America Information Systems, Inc., 9740 Irvine
Boulevard, Irvine, California 92618-1697.
8. PURCHASE OBJECTIVES. Consistent with MASTER DEALER's obligations hereunder
-------------------
to aggressively promote AUTHORIZED PRODUCTS and penetrate the market for
AUTHORIZED PRODUCTS in the TERRITORY, MASTER DEALER acknowledges that TAIS
may establish for MASTER DEALER, from time to time, minimum purchase
objectives for AUTHORIZED PRODUCTS. Such objectives may be established by
TAIS in its discretion taking into consideration such factors as the size
of, population in, and the potential of the TERRITORY; competition in the
marketplace; the prior performance of MASTER DEALER or other dealers in the
TERRITORY or other geographic areas; projections of sales made by MASTER
DEALER or TAIS' staff; and such other financial and market factors TAIS may
deem pertinent. TAIS may consult with MASTER DEALER concerning such
objectives but TAIS will have the final authority to establish them.
MASTER DEALER's purchase objectives are set forth on Schedule "C" hereto,
for the period(s) reflected thereon. Revised purchase objectives for
future periods or for territorial revisions will be set forth in new
Schedules "B" or "C", sent to MASTER DEALER and signed by TAIS's Vice
President-Sales, Telecommunication Systems Division. In addition to
purchase objectives, TAIS and MASTER DEALER may also agree in writing on
minimum purchase commitments on a yearly, quarterly or other basis.
9. PURCHASES. MASTER DEALER and its DESIGNATED DEALERS may order and purchase
---------
AUTHORIZED PRODUCTS from TAIS. The orders and purchases shall be in
accordance with the terms and conditions of this Agreement and in
accordance with such other terms, conditions and procedures that may be set
forth by TAIS from time to time. Such other terms, conditions and
procedures may be set forth by TAIS in written communication, such as
dealer manuals, bulletins, letters, or the like. Without limiting the
generality of the foregoing, the following terms will be deemed
incorporated in all orders by MASTER DEALER and its DEALERS and TAIS'
acceptance of such orders is expressly made conditioned on the following:
(a) All list prices are subject to change by TAIS without notice, except
that TAIS shall use its best efforts to give thirty (30) days prior
notice to MASTER DEALER of price increases.
(b) All prices, unless otherwise specified, shall not include any
applicable Federal, state or local sales, excise, use or similar
taxes, all of which shall be the responsibility of MASTER DEALER.
(c) All prices are F.O.B. point of shipment. TAIS shall be deemed to have
delivered all AUTHORIZED PRODUCTS and related goods at point of
shipment. All risk of loss or damage shall pass to MASTER DEALER or
it's DESIGNATED DEALERS at the point of shipment. MASTER DEALER or
its DESIGNATED DEALERS shall bear all costs of freight, freight
insurance and associated costs. Within thirty (30) days after receipt
of any AUTHOIRZED PRODUCTS, MASTER DEALER or it's DESIGNATED DEALERS
shall notify TAIS, in writing, of any shortage, damage or defects in
such AUTHORIZED PRODUCTS and failure to do so shall constitute a
waiver of all claims against TAIS arising out of such shortage, damage
or defects.
(d) The "Fiscal Year Quota For Period" listed on Schedule "C" will be used
to determine MASTER DEALER's sales discount from the TAIS DEALER price
list for
5
<PAGE>
AUTHORIZED PRODUCTS in accordance with TAIS' standard sales discount
policy as set forth in Schedule "D" hereto, but TAIS may, at its sole
and absolute discretion, adjust a MASTER DEALER's initial sales
discount based on the MASTER DEALER's past sales performance.
(e) TAIS will invoice the MASTER DEALER and its DESIGNATED DEALERS and the
MASTER DEALER and its DESIGNATED DEALERS shall pay TAIS, in accordance
with such payment and credit terms as are established by TAIS from
time to time in TAIS' sole discretion. TAIS reserves the right to
revoke at any time any credit extended to the MASTER DEALER or its
DESIGNATED DEALERS because of the failure to pay for any goods when
due or for any other reason deemed good and sufficient by TAIS.
(f) If MASTER DEALER or its DESIGNATED DEALERS fail to pay TAIS in
accordance with the payment and credit terms established by TAIS, then
such failure shall constitute a material default of this Agreement and
TAIS may refuse to make any further deliveries of AUTHORIZED PRODUCTS,
may at its option accelerate and deem immediately due all sums MASTER
DEALER or its DESIGNATED DEALERS owe to TAIS and may assert any other
legal right against MASTER DEALER or its DESIGNATED DEALERS permitted
by law or set forth in the payment or credit terms established by
TAIS, including but not limited to the payment of interest to TAIS on
past invoices. MASTER DEALER and its DESIGNATED DEALERS shall
indemnify and hold harmless TAIS against all interest and costs of
collection, including, but not limited to, expenses and attorney fees.
(g) Delivery dates given by TAIS for orders for AUTHORIZED PRODUCTS placed
by MASTER DEALER or its DESIGNATED DEALERS shall be considered TAIS
estimates only and TAIS shall not be deemed to have accepted any order
until the AUTHORIZED PRODUCTS are shipped by TAIS to the specified
ship-to location. TAIS reserves the right to apportion AUTHORIZED
PRODUCTS among its customers in its sole discretion. In the event
TAIS fails to deliver AUTHORIZED PRODUCTS in accordance with the
agreed upon delivery dates, MASTER DEALER or its DESIGNATED DEALERS
may cancel the Purchase Order upon written notice to TAIS, provided
that TAIS shall have five (5) business days from receipt of such
notice to commence the delivery.
(h) "MASTER DEALER and its DESIGNATED DEALERS are encouraged to order
AUTHORIZED PRODUCTS using TAIS' FYI Order Entry System. MASTER DEALER
acknowledges that the FYI system contains proprietary information,
such as pricing, sales, technical and other data to TAIS and MASTER
DEALER. MASTER DEALER will not divulge and will ensure that its
DESIGNATED DEALERS will not divulge such data to third parties without
written consent of TAIS' Vice President, Operations. It is the MASTER
Dealer's responsibility to notify TAIS of any personnel changes which
may involve FYI Access Rights. MASTER DEALER will hold harmless TAIS
for any breach thereof."
(i) All requests for credit due to pricing or discount disputes must be
received by TAIS' Customer Service Departments within sixty (60) days
of the invoice date, otherwise MASTER DEALER and its DESIGNATED
DEALERS waive the right to receive any such credit.
6
<PAGE>
10. SERVICE RESPONSIBILITY. MASTER DEALER acknowledges that the AUTHORIZED
----------------------
PRODUCTS require installation, warranty, and after-sale servicing and
maintenance by a skilled, TAIS-trained certified technician. MASTER DEALER
shall, and shall ensure that its DEALERS, provide professional, prompt, and
expert installation and service support for all AUTHORIZED PRODUCTS sold in
the TERRITORY. Without limiting the generality of the foregoing, MASTER
DEALER and its DEALERS shall:
(a) Strictly adhere to all installation, service and parts inventory
policies and guidelines established by TAIS from time to time for its
dealers.
(b) Maintain proper installation and servicing tools and facilities.
(c) Employ a sufficient number of TAIS-trained and certified technicians
per each office of record and for each TAIS AUTHORIZED PRODUCT line
sold so as to ensure that each installation and service call for an
AUTHORIZED PRODUCT is personally handled only by a technician who has
been properly trained for such AUTHORIZED PRODUCT and send its
appropriate service technicians and other personnel as TAIS may
require, to service schools or seminars conducted by MASTER DEALER
and/or TAIS.
(d) Maintain appropriate service history records for the AUTHORIZED
PRODUCTS as are necessary and appropriate for the business of MASTER
DEALER and its DEALERS and as may be required in accordance with
standards established by TAIS from time to time.
(e) Use its best efforts to make available and provide competent
maintenance and service support, in a commercially reasonable manner,
to all end users of AUTHORIZED PRODUCTS (and other AUTHORIZED PRODUCTS
as TAIS may request in writing) in the TERRITORY, irrespective of
whether the AUTHORIZED PRODUCTS were sold to the end user by MASTER
DEALER, one of its DEALERS or other TAIS Dealers.
(f) MASTER DEALER shall also (i) provide such training and support to its
DEALER network as may be necessary to train DEALER personnel to
perform warranty and maintenance service on the AUTHORIZED PRODUCTS;
(ii) promptly pass on to its DEALERS all technical information
provided by TAIS with respect to any of the AUTHORIZED PRODUCTS (iii)
actively encourage DEALERS to participate in service programs which
may be established by TAIS from time to time and send MASTER DEALER
service personnel to such programs as requested by TAIS.
11. INDEMNIFICATION. MASTER DEALER shall indemnify and hold harmless TAIS,
---------------
including the payment of TAIS' attorney fees and costs, in the event that
MASTER DEALER or its Dealers make(s) any warranty or representation which
is inconsistent with, different, or in addition to the TAIS warranty
contained in this Agreement, or other warranty which is specifically
authorized by TAIS in writing.
(a) All new AUTHORIZED PRODUCTS purchased by MASTER DEALER are presently
subject to a twelve (12) month warranty (24 months for Model 6500 and
Digital telephone sets and STRATAGY systems commencing with a Lot Code
of F1) given by TAIS (all used or refurbished products are sold "as
is"). The new AUTHORIZED PRODUCT warranty, WHICH RUNS TO THE END
USER, is as follows:
7
<PAGE>
TOSHIBA AMERICA INFORMATION SYSTEMS, INC.
END-USER LIMITED WARRANTY
Toshiba America Information Systems, Inc. ("TAIS") warrants that this
telephone equipment (except for fuses, lamps and other consumables) will,
upon delivery by TAIS or an authorized TAIS dealer to a retail customer in
new condition, be free from defects in material and workmanship for twelve
(12) months after delivery, (24 months for Model 6500 and digital telephone
sets and STRATAGY systems commencing with a Lot Code of "F1". This
warranty is void" (a) if the equipment is used under other than normal use
and maintenance conditions, (b) if the equipment is modified or altered,
unless the modification or alteration is expressly authorized by TAIS, (c)
if the equipment is subject to abuse, neglect, lightning, electrical fault,
or accident, (d) if the equipment is defaced or missing, or (f) if the
equipment is installed or used in combination or in assembly with products
not supplied by TAIS and which are not compatible or of inferior quality,
design or performance.
The sole obligation of TAIS or Toshiba Corporation under this warranty, or
under any other legal obligation with respect to the equipment, is the
repair or replacement of such defective or missing parts as are causing the
malfunction by TAIS or its authorized dealer, with new or refurbished parts
(at their option). If TAIS or one of its authorized dealers does not
replace or repair such parts, the retail customer's sole remedy will be
refund of the price charged by TAIS to its dealers for such parts as are
proven to be defective, and which are returned to TAIS through one of its
authorized dealers within the warranty period and no later than thirty (30)
days after such malfunction, whichever first occurs.
Under no circumstances will the retail customer or any user or dealer or
other person be entitled to any direct, special, indirect, consequential or
exemplary damages, for breach of contract, tort, or otherwise. Under no
circumstances will any such person be entitled to any sum greater that the
purchase price paid for the item of equipment that is malfunctioning.
To obtain service under this warranty, the retail customer must bring the
malfunction of the machine to the attention of one of TAIS' authorized
dealers within the twelve (12) month period (24 months for model 6500 and
Digital telephone sets and STRATAGY systems commencing with a Lot Code of
"F1") and no later that thirty (30) days after such malfunction, whichever
first occurs. Failure to bring the malfunction to the attention of an
authorized TAIS dealer, within the prescribed time, results in the customer
being not entitled to warranty service.
THERE ARE NO OTHER WARRANTIES FROM EITHER TOSHIBA AMERICA INFORMATION
SYSTEMS, INC. OR TOSHIBA CORPORATION WHICH EXTEND BEYOND THE FACE OF THIS
WARRANTY. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
FITNESS FOR USE, ARE EXCLUDED.
No TAIS dealer and no person other than an officer of TAIS may extend or
modify this warranty. No such modification or extension is effective,
unless it is in writing and signed by the Vice President, General Manager,
Telecommunication Systems Division.
(b) TAIS warrants to MASTER DEALER and its DEALER that each new AUTHORIZED
PRODUCT will be free from defects in material and workmanship for a period
of twelve (12) months (24 months for of Model 6500 and Digital telephone
sets and STRATAGY systems
8
<PAGE>
commencing with a Lot Code of "F1") after the delivery of the AUTHORIZED
PRODUCT to MASTER DEALER or one of its DEALERS by TAIS or until sale by
MASTER DEALER or one or its DEALERS to an end user, whichever occurs first.
MASTER DEALER and its DEALER'S WARRANTY IS SUBJECT TO THE SAME LIMITATIONS
AND EXCLUSIONS (INCLUDING THOSE EXCLUDING MERCHANTABILITY) AS THE END
USER'S LIMITED WARRANTY (SEE SECTION 11(a) ABOVE).
(c) Neither MASTER DEALER nor any of its DEALERS, nor any other person may
extend any TAIS warranty or modify it in any respect. No modification or
extension of any TAIS warranty is effective unless it is in a writing
signed by TAIS Vice President, General Manager, Telecommunication Systems
Division. MASTER DEALER shall notify TAIS of any claimed defect in any
AUTHORIZED PRODUCT within thirty (30) days of its occurrence, by the giving
of a written report setting forth all pertinent details including a
description of the defect and the time and place of occurrence and shall
ensure that its DEALERS give similar notice to MASTER DEALER so that TAIS
can be notified in such time period.
(d) In the event MASTER DEALER or any of its DEALERS elect to give a warranty
to an end user which is in addition to or greater that the TAIS warranty in
section 11(a) above, then the MASTER DEALER and its DEALERS shall be solely
responsible for such warranty and shall indemnify and hold harmless TAIS
against any claims based upon or arising out of such warranty, including
TAIS's attorney fees and costs. MASTER DEALER and its DEALERS shall
communicate in writing to the end user that the MASTER DEALER's or DEALER's
warranty is in addition to or different from the TAIS warranty and that
TAIS shall bear no responsibility whatsoever for such warranty. MASTER
DEALER OR DEALER's failure to communicate to the end user as required
herein shall constitute a material default of this Agreement.
(e) MASTER DEALER shall make certain that its sales and service personnel and
those of its DEALERS do not make representations about AUTHORIZED PRODUCTS
unless those representations are made by TAIS own literature. MASTER
DEALER shall make certain that all end users are aware of the terms of the
TAIS warranty prior to the sale of an AUTHORIZED PRODUCT to an end user.
MASTER DEDALER shall prepare or cause an end user to prepare and forward to
TAIS any warranty registration materials or the like which TAIS may
require.
(f) MASTER DEALER is responsible for insuring that every end user obtains
whatever warranty service an end user (which purchased from MASTER DEALER
or one or its DEALERS) deserves under the TAIS warranty. TAIS's sole
responsibility shall be to repair AUTHORIZED PRODUCTS under warranty, in
accordance with the procedures set forth in TAIS's warranty policy, which
TAIS may establish from time to time. If requested by TAIS in writing,
MASTER DEALER shall also use best efforts to assist in providing warranty
service for AUTHORIZED PRODUCTS or other products in the TERRITORY, sold or
marketed by persons other than MASTER DEALER or its DEALERS.
(g) Replacement parts and repaired equipment out-of-warranty will carry a
ninety (90) day warranty on the part, assembly or component that was
replaced or repaired and shall be subject to the same limitations and
exclusions as TAIS' new product warranty.
(h) TAIS reserves the right at any time to amend or modify its warranty policy
for end users or for MASTER DEALER or its DEALERS, including any
limitations or exclusions applicable thereto,
9
<PAGE>
provided that such is done in a writing signed by TAIS' Vice President,
General Manager, Telecommunication Systems Division.
(i) If MASTER DEALER and/or its DEALERS do not follow TAIS' warranty policy,
MASTER DEALER and/or its DEALERS shall be legally responsible for any
damages or expenses that arise beyond those expressly owed by TAIS under
its warranty policy.
DURATION AND TERMINATION
12. This Agreement shall originally be for a term ending on the March 31st
which follows the date of this Agreement, shall automatically renew for
successive one (1) year periods, unless TAIS gives notice of termination at
least thirty (30) days prior to the next March 31st of the then current
Agreement period, and shall not be terminable by TAIS during such period
except as provided in section 12(a) below. Such notice of termination may
be given by TAIS for any reason, with or without cause, and, if given,
termination shall be effective March 31st of the then current Agreement
period. MASTER DEALER may terminate this Agreement at any time for any
reason upon the giving of sixty (60) days prior written notice to TAIS. In
consideration for entering into this Agreement, MASTER DEALER waives any
right to claim any damages, whether direct, indirect, incidental,
consequential, special, exemplary, or punitive arising out of the
termination of the Agreement in accordance with this section 12 or section
12(a). In the event MASTER DEALER shall make any such allegation, then
upon motion by TAIS, such allegation shall be dismissed.
(a) Notwithstanding anything to the contrary contained in this Agreement,
TAIS may terminate this Agreement by giving MASTER DEALER thirty (30)
days prior written notice in the event of any default or failure by
MASTER DEALER in the performance of any of its duties, obligations or
responsibilities under this Agreement. This AGREEMENT shall
automatically terminate if the MASTER DEALER shall make an assignment
or otherwise changes ownership in violation of Section 13 hereof.
(b) Upon termination of this agreement, MASTER DEALER and its DESIGNATED
DEALERS shall pay to TAIS any debit balance they have with TAIS and,
should MASTER DEALER'S or its DESIGNATED DEALERS' accounts be debited
by TAIS thereafter in accordance with this Agreement, MASTER DEALER
and its DESIGNATED DEALERS shall promptly pay such debts in full.
(c) Upon termination of this Agreement for whatever reason, MASTER DEALER
shall remain obligated and responsible to provide warranty and other
necessary service and maintenance to all end users to whom MASTER
DEALER or its DEALERS sold or otherwise marketed AUTHORIZED PRODUCTS.
In case of a government, national, rental or major account covered by
a program implemented by TAIS pursuant to section 20 of this
agreement, MASTER DEALER shall, if required by TAIS in writing,
transfer or cause its DEALERS to transfer the service arrangements for
such (and any prorated prepayments received by MASTER DEALER or its
DEALERS for unexpired service and maintenance) to such other persons
as TAIS may designate.
(d) Upon termination of this Agreement, MASTER DEALER and its DEALERS
become "Maintenance Only" Dealers with TAIS under the terms of which
MASTER DEALER and its DEALERS are allowed to purchase, at list price,
replacement parts, spares and additions
10
<PAGE>
(but not enhancements) for AUTHORIZED PRODUCTS in accordance with
terms to be mutually agreed upon between the parties but, this
"MAINTENANCE ONLY" arrangement may be revoked by TAIS, at its sole
discretion at any time. The acceptance by TAIS of any purchase order
from the MASTER DEALER or its DEALERS for the sale of any Toshiba
AUTHORIZED PRODUCTS by TAIS to MASTER DEALER or its DEALERS after the
termination of this Agreement shall not be construed as a renewal or
an extension, or as a waiver of termination of this AGREEMENT, but in
the absence of a new written Agreement, all such transactions shall be
governed by the provisions of this Agreement.
13. ASSIGNMENT AND OWNERSHIP. MASTER DEALER may not assign this Agreement or
------------------------
its rights hereunder, or enter into any joint venture arrangements
concerning AUTHORIZED PRODUCTS, or cause or suffer any change in MASTER
DEALER's senior management, control or principal ownership, without the
prior written consent of TAIS's Vice President, General Manager,
Telecommunication Systems Division. TAIS, on thirty (30) days notice to
MASTER DEALER may assign this Agreement or TAIS' rights hereunder to a TAIS
affiliate company.
14. SECURITY INTEREST. MASTER DEALER hereby grants to TAIS a security interest
-----------------
in all AUTHORIZED PRODUCTS, now owned by MASTER DEALER or hereafter
acquired by MASTER DEALER or hereafter acquired by MASTER DEALER (the
"collateral") and in the proceeds of and products of such collateral
(including but not limited to all accounts receivable and the proceeds of
any insurance covering the collateral, credits, and commissions). This
security interest shall secure the payment by MASTER DEALER of all monies
now due or which hereafter become due to TAIS and shall secure to TAIS the
full performance by MASTER DEALER of its obligations under this Agreement.
(Any failure by MASTER DEALER to make any payment and/or failure to fully
perform any of its obligations under this Agreement shall constitute a
default for purposed of any law pertaining to TAIS's right as a secured
party. MASTER DEALER hereby authorizes TAIS to sign on behalf of MASTER
DEALER and file in any jurisdiction, with or without the signature of
MASTER DEALER, financing statements with respect to this security
interest).
15. FINANCIAL STATEMENTS. On request of TAIS, MASTER DEALER shall furnish
--------------------
yearly to TAIS, on request, a full and accurate detailed written statement
of MASTER DEALER's financial condition, including MASTER DEALER's then
current balance sheet, profit and loss statement, and such interim
statements as TAIS may request. MASTER DEALER certifies that the
statements are an accurate representation of its financial condition and
are certified by MASTER DEALER's certified public accountant or its chief
financial officer. TAIS agrees not to disclose any financial data received
from MASTER DEALER to persons outside of Toshiba America Information
Systems, Inc. without MASTER DEALER's prior authorization, except to such
financial institutions providing leasing or financing to MASTER DEALER or
its DESIGNATED DEALERS.
TRADEMARKS, TRADE NAMES AND GOODWILL
16. MASTER DEALER hereby acknowledges the validity of the trademarks TOSHIBA(R)
STRATA(R) , PERCEPTION(R), STRATAGYTM, INTOUCH, and other marks and trade
names now or hereafter affixed to AUTHORIZED PRODUCTS used in connection
with TAIS' business, and MASTER DEALER agrees that such are exclusively
owned by TAIS or its parent corporation and that MASTER DEALER shall not
contest same. MASTER DEALER agrees not to remove such
11
<PAGE>
marks or names from AUTHORIZED PRODUCTS, or alter or deface same and shall
ensure that its DEALERS do not do so.
(a) MASTER DEALER and its DEALERS are hereby granted a non-exclusive right
to use in the TERRITORY in connection with such AUTHORIZED PRODUCTS,
such trademarks or names as TAIS uses in connection with such PRODUCTS
and each to refer to itself as an Authorized Toshiba
Telecommunications DEALER, in connection with the promotion, sale,
marketing or service of AUTHORIZED PRODUCTS in the TERRITORY, but all
such rights shall cease immediately upon the termination of this
Agreement. MASTER DEALER shall ensure that its arrangements with its
DEALERS provide that, on termination of the DEALER's dealership,
DEALER's license to use such trademarks and to refer to itself as an
Authorized Toshiba Telecommunications Dealer terminates.
(b) Notwithstanding the foregoing, MASTER DEALER and its DEALERS shall not
use, and are strictly prohibited from using, any such trademarks or
trade names as part of MASTER DEALER's or any of its DEALER's
trademarks or names in any manner which TAIS concludes, in its sole
judgment, is unfair, confusing or misleading to the public or which
otherwise adversely reflects upon the good name and reputation of TAIS
or its parent corporation.
(c) The parties acknowledge that the goodwill associated with the
marketing of AUTHORIZED PRODUCTS belongs to TAIS and that MASTER
DEALER and its DEALERS shall have no vested or proprietary right
thereto.
17. SOFTWARE, COPYRIGHTS AND OTHER INTELLECTUAL PROPERTY. MASTER DEALER hereby
----------------------------------------------------
acknowledges the validity of all copyrights registered by or in favor of
TAIS or Toshiba Corporation in respect of software and any other works
which may be copyrighted. MASTER DEALER agrees that it will comply with
any licensing, sublicensing or other program which TAIS may from time to
time implement with respect to software used in connection with AUTHORIZED
PRODUCTS. MASTER DEALER shall not enhance or in any way alter any such
software and shall ensure that its Dealers do not do so. Any alteration to
any software also voids any warranty given by TAIS with respect thereto.
MASTER DEALER and its DEALERS shall treat as confidential all non-public
technical, Marketing, price and other information supplied by TAIS, and
shall not publish, display, or distribute (including via The Internet of
other electronic transmissions) any such TAIS information, without the
express written consent of the Vice President, General Manager of TAIS.
Any publication in violation of this provision shall cause irrepairable
harm to TAIS for which injunctive relief shall be deemed an appropriate,
but not an exclusive, remedy.
18. INDEPENDENT CONTRACTOR RELATIONSHIP. MASTER DEALER specifically
-----------------------------------
acknowledges and agrees that: (a) it is an independent contractor; (b)
neither the MASTER DEALER nor any of its DEALERS, nor any of the MASTER
DEALER's or its DEALERS' employees are employees of TAIS under the meaning
or application of any law; (c) this Agreement shall not be construed as a
franchise and MASTER DEALER shall not be deemed a franchisee, under any
circumstance whatsoever; (d) MASTER DEALER shall not hold itself out as an
agent of TAIS; (e) MASTER DEALER shall not commit TAIS to any contractual
obligation nor make any warranties or statements ostensibly on behalf of or
approved by TAIS with respect to AUTORIZED PRODUCTS other than those set
forth in TAIS' advertising and warranty
12
<PAGE>
literature; (f) MASTER DEALER shall not engage in any conduct violative of
Federal, state or local laws or regulations with respect to the performance
of this Agreement; and (g) any breach of the terms of this section 18 shall
be deemed a material default of this Agreement.
19. EXCUSE OF PERFORMANCE. TAIS shall not be liable for failure to deliver,
---------------------
delays in delivery or failures to perform under this Agreement occasioned,
in whole or in part, by strikes, lockouts, embargoes, war or other outbreak
of hostilities, inability to obtain materials or shipping space, machinery
breakdown, delays of carriers or suppliers, governmental acts and
regulations, acts of God, receipt of orders in excess of TAIS' inventory or
then scheduled delivery capacity or any unforeseen circumstances or causes
beyond TAIS' reasonable control.
20. GOVERNMENT, NAITONAL AND MAJOR ACCOUNTS. TAIS and MASTER DEALER
---------------------------------------
acknowledges that, in order to maximize market penetration for AUTHORIZED
PRODUCTS, it is appropriate for MASTER DEALER and/or its DEALRS, other
authorized TAIS dealers, or TAIS directly to sell or otherwise market
AUTHORIZED PRODUCTS to major end user accounts, including national accounts
(which are defined as multi-location end-user companies that centrally
select, standardize, and procure their telecommunications equipment for
their own use) and federal, state, and local government accounts, some of
whom may have multiple end user locations in different geographic areas,
including areas within or outside the TERRITORY. In such instances, it may
be necessary for TAIS, MASTER DEALER, and/or its DEALERS, or other
authorized TAIS dealers to make arrangements with each other, to ensure
proper installation, warranty and regular service and maintenance. MASTER
DEALER and its DEALERS shall
(a) Abide by terms and conditions of the TAIS National Account Program as
established by TAIS from time to time and more fully defined in the
National Accounts Policy and Procedures Manual.
(b) Act as an independent contractor without any authority to bind or
obligate TAIS as in accordance with Section 18 of the
Telecommunication MASTER DEALER Agreement. TAIS shall be bound or
obligated in a National Account transaction only after the necessary
approval documents are executed by the appropriate TAIS employee.
(c) Sell AUTHORIZED PRODUCTS within the scope, and under the Terms and
Conditions of the National Accounts Program to customers who purchase
or are headquartered within their territory as defined in Schedule(s)
B. An Originating Dealer is defined as a Dealer approved by TAIS that
is the "selling" Dealer. The Originating Dealer establishes a
"selling" relationship with a National Account by filing a Request For
Originating Dealer status form (ROD) with the TAIS National Account
Program Coordinator's office and with the approval of the National
Account Program Sales Manager for the MASTER DEALER or its DEALERS.
(d) Only quote TAIS standard equipment purchase and installation, service
and/or maintenance prices, as TAIS may establish from time to time, to
a National Account, unless otherwise authorized in writing by the TAIS
national Account Sales Manager. A National Account sale is completed
after a TAIS Master Pricing agreement is executed by the National
Account, the Originating DEALER, and TAIS. The Originating DEALER
will procure orders from the National Account Customer and submit the
orders on the TAIS National Account Purchase Agreement form. Upon
receipt by TAIS of a properly executed Delivery and Acceptance letter,
TAIS will (a) invoice the National Account and
13
<PAGE>
(b) issue all appropriate credits for commissions and installation
fees to both the MASTER DEALER, Installing and Maintenance DEALERS.
(e) Assume the entire responsibility and liability for losses, expenses,
demands and claims in connection with or arising out of any injury,
including death, to any person, or damage, or alleged damage, to any
property of the National Account Customer, or others, sustained in
connection with, or alleged to have arisen out of, or resulting from
the performance of the work by the MASTER DEALER or its DEALERS, its
agents, and employees, including losses, expenses or damages sustained
by the National Account Customer. MASTER DEALER agrees to indemnify
and hold harmless the National Account Customer, the Originating
and/or Installing DEALER, and TAIS, their agents, and employees from
any and all such losses, expenses, damages, demands and claims,
including attorney fees and costs, and agrees to defend any suit or
action brought against them or any of them, based on any such alleged
injury or damage, and further agrees to pay all damages, costs, and
expenses in connection therewith or resulting therefrom. MASTER
DEALER is liable for its sole negligence and/or willful misconduct,
and shall not be liable for the negligence or willful misconduct of
others.
(f) Obtain General Liability Insurance in the amount of $1.0 Million and a
Certificate of Insurance naming TAIS as an additional insured party.
The insurance shall be maintained with an approved insurance carrier
of at least an AAA rating, and shall cover the obligations of the
MASTER DEALER set forth in Section 20(e). MASTER DEALER warrants that
it shall provide proof of said insurance to TAIS prior to
participating in the National Accounts Program.
(g) Use its best efforts to cooperate with and assist and other TAIS and
other authorized TAIS dealers.
(h) Comply, and ask its DEALERS to comply if asked, to perform a TAIS
National Account or TAIS Government System Site Survey within its
prescribed geographical area as stated on Schedule (B)(s) hereto.
(i) Honor the established relationship that exists between the TAIS
prospective or existing National Account and the Originating Dealer of
TAIS and the prospective or existing Government Agency.
(j) Provide TAIS with substantiation of sales to government or to non-
profit organizations in a form satisfactory to TAIS. MASTER DEALER
and its DEALERS warrant that all AUTHORIZED PRODUCTS ordered from TAIS
for government system or non-profit organizations installations; shall
be installed at the governmental agency or non-profit organization
sites. Neither MASTER DEALER nor its DEALERS shall transfer such
AUTHORIZED PRODUCTS to a non-government agency installation or other
installation site. Violation of this provision shall constitute a
material breach of this Agreement.
(k) Honor the National Account Program Requirements and relationships as
defined in section 20(i) of this Telecommunication Dealer Agreement.
TAIS is the sole arbitrator in any conflicts or disputes arising from
the National Account Program.
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<PAGE>
21. ENTIRE AGREEMENT. This Agreement, including any attached schedules or
----------------
addenda, constitutes the entire Agreement of the parties with respect to
its subject matter. There are no other Agreements pertaining to the
subject matter hereof, either oral or written. No contrary, different or
additional terms will apply to transactions contemplated by this Agreement,
even if such terms are contained on MASTER DEALER's purchase order forms or
on other documents sent to TAIS by MASTER DEALER or any of its DEALERS.
MASTER DEALER agrees that all prior written or oral communications with
TAIS regarding this Agreement are superseded by the terms of this
Agreement. MASTER DEALER acknowledges that it has had an opportunity to
review this Agreement independently with counsel prior to signing, and that
it has not relied upon any prior written or oral representations by TAIS in
signing this Agreement. MASTER DEALER states that it was not induced into
signing this Agreement, and hereby waives any right to claims fraudulent
inducement in the execution hereof. In other words, the only contract or
Agreement regarding the subject matter hereof is contained in the Agreement
without exception.
22. POST-EXECUTION MODIFICATIONS AND WAIVER. With the exception of Schedules
---------------------------------------
A, C, D and Section 23(b) which may be modified or amended unilaterally by
TAIS at any time with a thirty (30) day written notice to MASTER DEALER,
once this agreement is executed by TAIS and MASTER DEALER, this Agreement
may not be modified or amended except in a writing signed by MASTER DEALER
and by TAIS' Vice President, General Manager, Telecommunication Systems
Division. Either party may waive, in writing, a provision in this
Agreement which is for its benefit, but such provision shall not otherwise
be deemed waived. A waiver of any provision in any one instance shall not
be deemed a waiver of any provision in any other instance.
23. EXPORT AND STATEMENT OF ASSURANCE.
---------------------------------
(a) This Agreement involves products and/or technical data that may be
controlled under the U.S. Export Administration Regulations, and may
be subject to the approval of the U.S. Department of Commerce prior to
export. Any export, directly or indirectly, in contravention of the
U.S. Export Administration Regulations is strictly prohibited.
(b) MASTER DEALER and its DEALERS certify that they are the recipient of
the commodities or technical data to be delivered under shipments
received from TAIS. The commodities will not be sold or otherwise
made available, directly or indirectly, to or for the use by any
entities in Libya, N. Korea, Cuba, Haiti, Iraq, Serbia, Iran, and
Montenegro, or any entity, in any Country involved directly or
indirectly in either Nuclear, Chemical, Biological and Missile end
uses or entities identified by the U.S. Department of Commerce and
listed in the Table of Denial Orders. These commodities or technical
data are not to be used to service Strategic Products owned,
controlled, or used by or for the entities indicated above, or used to
manufacturer Strategic Products intended for such entities. MASTER
DEALER will ensure that MASTER DEALER and its DEALERS will cooperate
with post-shipment inquiries by U.S. officials to verify disposition
or use of the commodities. If requested by TAIS, MASTER DEALER will
ensure that MASTER DEALER and its DEALERS will periodically provide
information concerning the disposition or use of commodities received,
including the identity of customers to whom the items were resold.
Any export or re-export by the purchaser, directly or indirectly, in
contravention of the U.S. Export Administration Regulations is
prohibited.
15
<PAGE>
MISCELLANEOUS PROVISIONS
24. This Agreement shall be construed and governed in accordance with the laws
of the State of California.
25. Should any provisions of this Agreement be held invalid or unenforceable,
the remaining provisions shall nevertheless be given full force and effect.
In any judicial proceeding related to or arising out of or in connection
with this Agreement, or the conduct of the parties with respect to the
goods covered by this Agreement, or the breach of this Agreement or of any
law applicable to the conduct of the parties, the matter shall be tried and
determined by a judge alone, without a jury. In any such action, the
prevailing party shall be entitled to an award of attorney fees and costs.
26. Wherever in the Agreement the consent or authorization of TAIS by a TAIS
employee of specific corporate position is required, only such person or a
TAIS employee of higher corporate position may bind TAIS.
27. This Agreement shall not be binding upon TAIS until it has been executed by
TAIS' Vice President, General Manager, Telecommunication Systems Division.
28. If this Agreement is executed in duplicate, each copy will be considered an
original, but both taken together shall constitute but none Agreement.
29. The person executing this Agreement on behalf of MASTER DEALER represents
and warrants that he is duly authorized to bind MASTER DEALER has
authorized him to execute this Agreement on behalf of MASTER DEALER.
30. All notices required to be given hereunder shall be writing and may be sent
by mail to the other party at its office indicated below, or as such party
may later change by notice in writing. Notices sent by mail shall be
deemed given when deposited in the mail and notices given by other means
shall be deemed given when received by the party to whom such notice is
addressed; provided, however, that a method of mailing requiring a return
receipt or overnight carrier shall be used for notice given pursuant to
sections 4(c), 9(c), 9(g), 11(c), 12, 12(a), of this Agreement.
31. Section headings used in this Agreement are for convenience only and shall
not be deemed to affect in any way the interpretation or meaning of the
provisions of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
in the heading on the first page of this Agreement.
COMMUNCATIONS WORLD INTERNATIONAL,
INC.
By: /s/ Richard D. Olson Accepted by:
---------------------------
Toshiba America Information Systems, Inc.
Telecommunication Systems Division
Richard D. Olson 9740 Irvine Blvd.
- ----------------------------------
Printed Name of Person Signing for Irvine, CA 92618
MASTER DEALER
CEO By: ________________________________
- ----------------------------------
Title of Person Signing for MASTER Vice President, General Manager
DEALER Telecommunication Systems
Division
__________________________________
Legal Status of MASTER DEALER
(Sole-Proprietorships, Partnership, Corporation)
COLORADO
- -----------------------------------
State in Which Formed
6025 S. Quebec; Suite 300, Englewood, CO 80111
- ---------------------------------------- -----
Address of Principal Place of Business zip
17
<PAGE>
EXHIBIT 10(L)
COMMUNICATIONS WORLD INTERNATIONAL, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
This Amended and Restated 1997 Stock Option Plan (the "Plan") is adopted in
consideration for services rendered and to be rendered to Communications World
International, Inc. and related companies.
1. Definitions.
-----------
The terms used in this Plan shall, unless otherwise indicated or
required by the particular context, have the following meanings:
Board: The Board of Directors of Communications World International,
-----
Inc.
Code: The Internal Revenue Code of 1986, as amended.
----
Common Stock: The $.01 par value Common Stock of Communications World
------------
International, Inc.
Company: Communications World International, Inc., a corporation
-------
incorporated under the laws of Colorado, and any successors in interest by
merger, operation of law, assignment or purchase of all or substantially all of
the property, assets or business of the Company.
Consultant: A Consultant is any person, including any advisor,
----------
engaged by the Company or any Related Company to render consulting services and
may include members of the Board.
Continuous Status as an Employee or Consultant: The employment by, or
----------------------------------------------
relationship as a Consultant with, the Company is not interrupted or terminated.
The Board, at its sole discretion, may determine whether Continuous Status as an
Employee or Consultant shall be considered interrupted due to personal or other
mitigating circumstances.
Date of Grant: The date on which an Option is granted under the Plan.
-------------
Employee: An Employee is an employee of the Company or any Related
--------
Company.
Fair Market Value: The Fair Market Value of the Option Shares. Such
-----------------
Fair Market Value as of any date shall be reasonably determined by the Option
Committee (see below); provided, however, that if there is a public market for
the Common Stock, the Fair Market Value of the Option Shares as of any date
shall be the officially quoted closing price, if available, through the National
Association of Securities Dealers, Inc. or a stock exchange, or if no officially
quoted closing price is available, the representative closing bid price, on the
date in question. In the event there is no officially quoted closing price or
bid price or the Common Stock is not traded publicly, the Fair Market Value of a
share of Common Stock on any date shall be determined, in good faith, by the
Board or the Option Committee after such consultation with outside legal,
accounting and other experts as the Board or the Option Committee may deem
advisable, and the Board or the Option Committee shall maintain a written record
of its method of determining such value.
Incentive Stock Options ("ISOs"): "Incentive Stock Options" as that
--------------------------------
term is defined in Section 422 of the Code.
1
<PAGE>
Key Employee: A person designated by the Option Committee who either
------------
is employed by the Company or a Related Company (see below) and upon whose
judgment, initiative and efforts the Company or a Related Company is largely
dependent for the successful conduct of its business; provided, however, that
Key Employees shall not include those members of the Board who are not employees
of the Company or a Related Company.
Non-Incentive Stock Options ("Non-ISOs"): Options which are not
----------------------------------------
intended to qualify as "Incentive Stock Options" under Section 422 of the Code.
Option: The rights granted to an Employee or Consultant to purchase
------
Common Stock pursuant to the terms and conditions of an Option Agreement (see
below).
Option Agreement: The written agreement (and any amendment or
----------------
supplement thereto) between the Company and an Employee or Consultant
designating the terms and conditions of an Option.
Option Committee: The Plan shall be administered by the Option
----------------
Committee which shall consist of the Board or a committee of the Board as the
Board may from time to time designate composed of not less than two members of
the Board, each of whom shall be a "non-employee director" within the meaning of
Rule 16b-3.
Option Shares: The shares of Common Stock underlying an Option
-------------
granted to an Employee or Consultant.
Optionee: An Employee or Consultant who has been granted an Option.
--------
Related Company: Any corporation that is a "parent corporation" or a
---------------
"subsidiary corporation" with respect to the Company, as those terms are defined
in Section 425 of the Code. The determination of whether a corporation is a
Related Company shall be made without regard to whether the corporation or the
relationship between the corporation and the Company now exists or comes into
existence hereinafter.
Rule 16b-3: Rule 16b-3 as promulgated by the Securities and Exchange
----------
Commission under Section 16(b) of the Securities Exchange Act of 1934, as
amended from time to time.
Specific Option Grants: The specific grants of Options as provided in
----------------------
Section 9.
2. Purpose and Scope.
-----------------
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by affording Employees and Consultants an
opportunity for investment in the Company and the incentive advantages inherent
in stock ownership in this Company.
(b) This Plan authorizes the Option Committee to grant Options to
purchase shares of Common Stock to Employees and Consultants selected by the
Option Committee while considering criteria such as employment position or other
relationship with the Company, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in the Company,
recommendations by supervisors, and other matters.
2
<PAGE>
3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Option Committee. The Option Committee shall have the authority granted to it
under this section and under each other section of the Plan.
In accordance with and subject to the provisions of the Plan, the
Option Committee shall select the Optionees, shall determine (i) the number of
shares of Common Stock to be subject to each Option, (ii) the time at which each
Option is to be granted, (iii) whether an Option shall be granted in exchange
for the cancellation and termination of a previously granted option or options
under the Plan or otherwise, (iv) the purchase price for the Option Shares, (v)
the option period, and (vi) the manner in which the Option becomes exercisable.
In addition, the Option Committee shall fix such other terms of each Option as
the Option Committee may deem necessary or desirable. The Option Committee shall
determine the form of Option Agreement to evidence each Option.
The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Option Committee shall keep minutes of
its meetings and those minutes shall be distributed to every member of the
Board.
All actions taken and all interpretations and determinations made by
the Option Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Employees, Consultants, the Company
and all other interested persons. No member of the Option Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, and all members of the Option Committee shall,
in addition to rights they may have if Directors of the Company, be fully
protected by the Company with respect to any such action, determination or
interpretation.
4. The Common Stock. In addition to the Specific Option Grants, the
----------------
Board is authorized to appropriate, issue and sell for the purposes of the Plan,
and the Option Committee is authorized to grant Options with respect to, a total
number, not in excess of 150,000 shares of Common Stock, either treasury or
authorized but unissued, or the number and kind of shares of stock or other
securities which in accordance with Section 10 shall be substituted for the
150,000 shares or into which such 150,000 shares shall be adjusted. All or any
unsold shares subject to an Option that for any reason expires or otherwise
terminates may again be made subject to Options under the Plan. No person may be
granted Options covering in excess of 100,000 Option Shares in any calendar
year.
5. Eligibility. Options which are intended to qualify as ISOs will be
-----------
granted only to Key Employees. Key Employees and other Employees and Consultants
may hold more than one Option under the Plan and may hold Options under the Plan
and options granted pursuant to other plans or otherwise.
6. Option Price. The Option Committee shall determine the purchase price
------------
for the Option Shares, provided that the purchase price to be paid by Optionees
for the Option Shares that are intended to qualify as ISOs, shall not be less
than 100 percent of the Fair Market Value of the Option Shares on the Date of
Grant. The purchase price for the Option Shares shall be a fixed, and cannot be
a fluctuating, price.
7. Duration and Exercise of Options.
--------------------------------
(a) The option period shall commence on the Date of Grant and shall
be as set by the Option Committee, but not to exceed 10 years in length. Except
as otherwise provided herein, no Option shall be exercised for the period of six
months following the Date of Grant; provided, however, that this
3
<PAGE>
limitation shall not apply to the exercise of an Option pursuant to the terms of
the relevant Option Agreement upon the Optionee's death.
(b) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided, that in the event of the legal
disability of an Optionee, the guardian or personal representative of the
Optionee may exercise the Option. However, if the Option is an ISO it may be
exercised by the guardian or personal representative of the Optionee only if
such guardian or personal representative obtains a ruling from the Internal
Revenue Service or an opinion of counsel to the effect that neither the grant
nor the exercise of such power is violative of the Code. Any opinion of counsel
must be both from counsel and in a form acceptable to the Option Committee.
(c) The Option Committee may determine whether any Option shall be
exercisable as provided in Paragraph (a) of this Section 7 or whether the
Options shall be exercisable in installments only; if the Option Committee
determines the latter, it shall determine the number of installments and the
percentage of the Option exercisable at each installment date. All such
installments shall be cumulative.
(d) Except as provided in Section 9, in the event an Optionee's
Continuous Status as an Employee or Consultant terminates because of the death
or permanent and total disability of the Optionee, any Option held by the
Optionee on the date of termination may be exercised within 90 days after the
date of termination, but only to the extent that the Option was exercisable
according to its terms on the date of termination. After such 90-day period, any
unexercised portion of an Option shall expire.
(e) Notwithstanding the provisions of Paragraph (d) of this Section
7, in the event an Optionee's Continuous Status as an Employee or Consultant
terminates for any reason other than the Optionee's death or permanent and total
disability, any unexercised portion of any Option held by the Optionee on the
date of termination may be exercised within 30 days after the date of
termination, but only to the extent that the Option was exercisable according to
its terms on the date of termination. After such 30-day period, any unexercised
portion of an Option shall expire. The provisions of this Paragraph (e) of
Section 7 are not applicable to the Specific Option Grants provided in Section
9.
(f) Each Option shall be exercised in whole or in part by delivering
to the office of the Treasurer of the Company written notice of the number of
shares with respect to which the Option is to be exercised and by paying in full
the purchase price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not be exercised in part unless the purchase price
for the Option Shares purchased is at least $2,000.
(g) No Option may be exercised until the Plan is approved by the
shareholders of the Company as provided in Section 16 below.
(h) No Option Shares may be sold, transferred or otherwise disposed
of within six months of the Date of Grant by any person who is subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") on the Date of Grant.
(i) No Option Shares may be sold, transferred or otherwise disposed
of within six months of the date of shareholder approval of the Plan by any
person who is subject to the reporting requirements of Section 16(a) of the
Exchange Act on the date of shareholder approval of the Plan.
8. Payment for Option Shares. If the purchase price of the Option Shares
-------------------------
purchased by any Optionee at one time exceeds $2,000, the Option Committee may
permit all or part of the purchase price for
4
<PAGE>
the Option Shares to be paid by delivery to the Company for cancellation shares
of the Company's Common Stock previously owned by the Optionee with a Fair
Market Value as of the date of payment equal to the portion of the purchase
price for the Option Shares that the Optionee does not pay in cash. In the case
of all other Option exercises, the purchase price shall be paid in cash or
certified funds upon exercise of the Option.
9. Specific Option Grants. The Company hereby grants to the following
-----------------------
Consultants and Key Employee, Options to purchase at a purchase price of $1.30
per share the Option Shares set forth opposite their respective names below in
this Section 9, such Options to be exercisable upon the date of shareholder
approval of this Plan in accordance with Section 16, and to expire four years
from the Date of Grant of August 12, 1997, such Options to be deemed fully
vested upon shareholder approval of this Plan and not subject to termination
prior to four years from the date of Grant of August 12, 1997:
Name of Optionee Number of Option Shares
---------------- -----------------------
Samuel D. Addoms 30,000
Robert M. Bearman 10,000
James Corboy 10,000
Scott E. Harris 35,000
Edwin B. Spievack 30,000
-------
115,000
=======
10. Change in Stock, Adjustments, Etc. In the event that each of the
----------------------------------
outstanding shares of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) should be changed into, or
exchanged for, a different number or kind of shares of stock or other securities
of the Company, or, if further changes or exchanges of any stock or other
securities into which the Common Stock shall have been changed, or for which it
shall have been exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividends,
reclassification, split-up, combination of shares or otherwise), then there
shall be substituted for each share of Common Stock that is subject to the Plan
but not subject to an outstanding Option thereunder, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock (other than shares held by dissenting shareholders which are not changed
or exchanged) shall be so changed or for which each outstanding share of Common
Stock (other than shares held by dissenting shareholders) shall be exchanged.
Any securities so substituted shall be subject to similar successive
adjustments.
In the event of any such changes or exchanges, the Option Committee
shall determine whether, in order to prevent dilution or enlargement of rights,
an adjustment should be made in the number, or kind, or option price of the
shares or other securities then subject to an Option or Options granted pursuant
to the Plan and the Option Committee shall make any such adjustment, and such
adjustments shall be made and shall be effective and binding for all purposes of
the Plan.
11. Relationship to Employment or Position. Nothing contained in the
--------------------------------------
Plan, or in any Option granted pursuant to the Plan, shall confer upon any
Optionee any right with respect to continuance of employment by the Company, as
an Employee or as a Consultant or interfere in any way with the right of the
Company to terminate the Optionee's employment as an Employee or position as a
Consultant, at any time.
12. Nontransferability of Option. No Option granted under the Plan shall
----------------------------
be transferable by the Optionee, either voluntarily or involuntarily, except by
will or the laws of descent and distribution, or
5
<PAGE>
except pursuant to a qualified domestic relations order as defined in the Code,
the Employee Retirement Income Security Act, or rules promulgated thereunder.
Except as provided in the preceding sentence, any attempt to transfer the Option
shall void the Option.
13. Rights as a Stockholder. No person shall have any rights as a
-----------------------
shareholder with respect to any share covered by an Option until that person
shall become the holder of record of such share and, except as provided in
Section 10, no adjustments shall be made for dividends or other distributions or
other rights as to which there is an earlier record date.
14. Securities Laws Requirements. No Option Shares shall be issued unless
----------------------------
and until, in the opinion of the Company, any applicable registration
requirements of the Securities Act of 1933, as amended, any applicable listing
requirements of any securities exchange on which stock of the same class is then
listed, and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery, have been fully complied with.
Each Option and each Option Share certificate may be imprinted with legends
reflecting federal and state securities laws, restrictions and conditions, and
the Company may comply therewith and issue "stop transfer" instructions to its
transfer agent and registrar in good faith without liability.
15. Disposition of Shares. Each Optionee, as a condition of exercise,
---------------------
shall represent, warrant and agree, in a form of written certificate approved by
the Company, as follows: (a) that all Option Shares are being acquired solely
for his own account and not on behalf of any other person or entity; (b) that no
Option Shares will be sold or otherwise distributed in violation of the
Securities Act of 1933, as amended, or any other applicable federal or state
securities laws; (c) that if he is subject to reporting requirements under
Section 16(a) of the Exchange Act, he will (i) not violate Section 16(b) of the
Exchange Act, (ii) furnish the Company with a copy of each Form 4 and Form 5
filed by him, and (iii) timely file all reports required under the federal
securities laws; and (d) that he will report all sales of Option Shares to the
Company in writing on a form prescribed by the Company.
16. Effective Date of Plan; Termination Date of Plan. Subject to the
------------------------------------------------
approval of the Plan by the affirmative vote of the holders of a majority of the
Company's securities entitled to vote and represented at a meeting duly held in
accordance with applicable law, the Plan shall be deemed effective August 12,
1997. The Plan shall terminate at midnight on August 11, 2007, except as to
Options previously granted and outstanding under the Plan at that time. No
Options shall be granted after the date on which the Plan terminates. The Plan
may be abandoned or terminated at any earlier time by the Board, except with
respect to any Options then outstanding under the Plan.
17. Ten Percent Shareholder Rule. With respect to ISO's, no Option may be
----------------------------
granted to a Key Employee who, at the time the Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any "parent corporation" or "subsidiary
corporation", as those terms are defined in Section 425 of the Code, unless at
the time the Option is granted the purchase price for the Option Shares is at
least 110 percent of the Fair Market Value of the Option Shares on the Date of
Grant and such Option by its terms is not exercisable after the expiration of
five years from the Date of Grant. For purposes of the preceding sentence,
stock ownership shall be determined as provided in Section 425 of the Code.
18. Withholding Taxes. The Company, or any Related Company, may take such
-----------------
steps as it may deem necessary or appropriate for the withholding of any taxes
which the Company, or any Related Company, is required by any law or regulation
or any governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with any Option including, but not limited
to, the
6
<PAGE>
withholding of all or any portion of any payment or the withholding of issuance
of Option Shares to be issued upon the exercise of any Option.
19. Effect of Changes in Control and Certain Reorganizations.
--------------------------------------------------------
(a) In the event of a Change in Control of the Company (as defined
below), the Option Committee may, in its discretion, make any or all of the
following adjustments: (i) provide that all Options granted pursuant to the Plan
shall become exercisable immediately upon such Change in Control (or such other
time as the Committee shall determine), (ii) provide for the payment to an
Optionee upon surrender of an Option (or portion thereof) of an amount in cash
equal to the excess of (a) the higher of (I) the aggregate Fair Market Value of
the Option Shares covered by such Option (or portion thereof) on the date of
surrender or (II) the average price per share paid for the most highly priced
one percent of the Common Stock acquired in connection with the Change in
Control times the number of Option Shares covered by such Option (or portion
thereof) over (b) the aggregate exercise price; (iii) make any other
adjustments, or take such other action, as the Option Committee, in its
discretion, shall deem appropriate. In the event that the Option Committee
provides for the surrender of Options pursuant to clause (ii) above, to the
extent any Option is surrendered, it shall be deemed to have been exercised for
purposes of Section 4. For purposes of this Section 19, a "Change in Control" of
the Company shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, whether or not the Company is then subject
to such reporting requirement; provided that, without limitation, a Change in
Control shall be deemed to have occurred if (i) any individual, partnership,
firm, corporation, association, trust, unincorporated organization or other
entity, or any syndicate or group deemed to be a person under Section 14(d)(2)
of the Exchange Act, is or becomes the "beneficial owner" (within the meaning of
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder), directly or indirectly, of securities of the Company representing
35% or more of the combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the Company; or (ii)
during any period of two consecutive years (not including any period prior to
the adoption of this Plan), individuals who at the beginning of such period
constituted the Board and any new directors, whose appointment by the Board or
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at the beginning of the period or whose appointment or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof.
(b) In the event that (i) the Company is merged or consolidated with
another corporation, (ii) one person becomes the beneficial owner of all of the
issued and outstanding equity securities of the Company (for purposes of this
Section 19(b), the terms "person" and "beneficial owner" shall have the meanings
assigned to them in Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder), (iii) a division or subsidiary of the
Company is acquired by another corporation, person or entity, (iv) all or
substantially all of the assets of the Company are acquired by another
corporation, (v) the Company is reorganized, dissolved or liquidated (each such
event in (i), (ii), (iii), (iv) or (v) being hereinafter referred to as a
"Reorganization Event"), or (vi) the Board shall propose that the Company enter
into a Reorganization Event, then the Option Committee may, in its sole
discretion, make any or all of the following adjustments: (A) by written notice
to each Optionee provide that such Optionee's Options shall be terminated or
cancelled, unless exercised within thirty (30) days (or such other period as the
Option Committee shall determine) after the date of such notice; (B) subject to
Section 17 with respect to ISOs, advance the dates upon which any or all
outstanding Options shall be exercised; (C) provide for the payment upon
termination or cancellation of an Option of an amount in cash or securities
equal to the excess, if any, of the Fair Market Value of the Option Shares
subject to the Option at the time of such termination or cancellation over the
exercise price of such Option; and (D) make any other
7
<PAGE>
adjustments, or take such other action, as the Option Committee, in its
discretion, shall deem appropriate. Any action taken by the Option Committee may
be made conditional upon the consummation of the applicable Reorganization
Event.
20. Amendment.
---------
(a) The Board may amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made which would (i) impair
the right of an Optionee under an Option theretofore granted without the
Optionee's consent, except such an amendment made to cause the Plan to qualify
for the exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the
exemption provided by Rule 16b-3. In addition, no such amendment shall be made
without the approval of the Company's shareholders to the extent such approval
is required by law or agreement.
(b) The Committee may amend the terms of any Option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Optionee without the Optionee's consent except such an amendment
made to cause the Plan to qualify for the exemption provided by Rule 16b-3 .
(c) Subject to the above provisions, the Board shall have authority
to amend the Plan to take into account changes in law and tax and accounting
rules as well as other developments, and to grant Options which qualify for
beneficial treatment under such rules without shareholder approval.
21. Other Provisions.
----------------
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
(c) This Plan shall be construed to be in addition to any and all
other compensation plans or programs. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of
authority of the Board to adopt such other additional incentive or other
compensation arrangements as the Board may deem necessary or desirable.
(d) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and the rights of any and
all personnel having or claiming to have an interest therein or thereunder shall
be governed by and determined exclusively and solely in accordance with the laws
of the State of Colorado.
* * * * * * * *
8
<PAGE>
EXHIBIT 10(M)
CONSULTING AND SETTLEMENT AGREEMENT
The parties to this Agreement are Communications World International, Inc.,
a Colorado corporation ("CWII") and Richard D. Olson ("Olson"). This document
describes the agreements of CWII and Olson concerning Olson's resignations from
his positions with CWII and its subsidiaries (the "CWII Companies") and CWII's
retention of Olson as a consultant. This Agreement and the payments and other
arrangements described below, give valuable consideration to both CWII and
Olson .
1. Termination of Relationships: Effective June 30, 1998, Olson has
----------------------------
resigned his positions as an officer and director of the CWII Companies.
2. Consulting. Olson will serve as a consultant to CWII for a period of
----------
six months, beginning on July 1, 1998 (the "Consulting Period"). During the
Consulting Period, Olson will be available to assist CWII management and consult
with CWII management as reasonably requested by CWII management. During this
Consulting Period, Olson will receive the same salary that he received
immediately prior to his resignations of the positions set forth in Section 1
above, namely $102,000 per year. Accordingly, Olson will receive payments during
the Consulting Period aggregating $51,000, which shall be payable in twelve
equal installments of $4,250. During the Consulting Period, CWII will provide
Olson with an automobile allowance of $600 per month. All installment payments
during the Consulting Period shall be made in accordance with CWII's regular
payroll procedures until paid in full. In addition, Olson will be paid $87,132
on January 4, 1999 as severance, which includes all accrued wages, vacations,
sick time and personal time off. All payments shall include deductions for
standard withholding and authorized deductions. Olson agrees that he shall be
exclusively responsible for payment of all individual taxes owed by him to any
governmental agency as a result of any of the provisions of this Agreement.
Olson agrees that, subsequent to June 30, 1998 (the effective date of his
resignation), CWII will make no further contribution in respect of him to any
benefit plans maintained by or for CWII or any of its subsidiaries, including
contributions to CWII's 401(k) Plan.
3. Release by Olson: Olson releases and waives all claims for loss,
----------------
damage or injury arising from or in any way relating to the following
("Claims"):
(a) the employment of Olson with CWII, including his positions as an
officer and member of the Board of Directors of the CWII Companies, and his
resignation from employment and his positions with the CWII Companies;
(b) discrimination on the basis of age, sex, race, religion, national
origin or another basis, including claims under the Age Discrimination in
Employment Act;
(c) other violations of federal, state or local statutes, ordinances,
regulations, rules, decisions or laws;
1
<PAGE>
(d) failure of the CWII Companies to act in good faith and deal
fairly;
(e) injuries, illness or disabilities of Olson;
(f) exposure of Olson to toxic or hazardous materials;
(g) stress, anxiety or mental anguish;
(h) sexual harassment;
(i) defamation based on statements to Olson or others;
(j) breach of an express or implied employment contract, change in
control contract or other agreement, except for breach of this Agreement;
(k) compensation or reimbursement of Olson;
(l) unfair employment practices; and
(m) any act or omission by or on behalf of any of the CWII Companies.
4. Claims Included: The Claims released and waived by Olson include
---------------
claims:
(a) arising before the date of this Agreement;
(b) arising on or after the date of this Agreement that relate to
Olson's employment by CWII;
(c) that are presently known, suspected, unknown or unsuspected by
Olson;
(d) for reinstatement or future employment;
(e) for actual, consequential, punitive or special damages;
(f) for attorney's fees, costs, experts' fees and other expenses of
investigating, litigating or settling Claims, except as provided in this
Agreement; and
(g) against any of the CWII Companies and their respective affiliates,
employees, officers, directors, attorneys, contractors and agents, including
without limitation all financial advisors, including Bathgate McColley Capital
Group LLC and Century Capital Group, Inc. and their respective affiliates.
2
<PAGE>
5. Claims Excluded: Olson does not release or waive Olson's right to
---------------
recover under health, life or disability policies insuring Olson, and does not
release or waive Claims for breach of this Agreement or for worker's
compensation benefits. CWII will continue to include Olson as a participant in
its medical insurance program and to pay the standard premiums during the
Consulting Period. Thereafter, Olson will continue as a participant in CWII's
medical insurance program under the provisions generally known as COBRA until
other notice is provided by Olson to CWII.
6. Agreement Not To Sue of CWII: Olson waives any right to file suit for
----------------------------
any Claim. Olson will not sue any of the CWII Companies for any Claim. Olson
will not initiate or proceed with any other action or proceeding against any of
the CWII Companies that relates to something that could give rise to a Claim.
7. Agreement Not To Sue of CWII: CWII waives any right to file suit for
----------------------------
any Claim. CWII will not sue Olson for any Claim. CWII will not initiate or
proceed with any other action or proceeding against Olson that relates to
something that could give rise to a Claim. CWII does not waive Claims for
breach of this Agreement.
8. Termination of Relationships: Olson and CWII acknowledge that any
----------------------------
employment or contractual relationship between them will be terminated and that
they will have no further employment or contractual relationship except as may
arise out of this Agreement.
9. No CWII Admission: CWII does not admit any wrongdoing or liability.
-----------------
CWII has executed this Agreement solely to avoid the expense of potential
litigation. The payments and other arrangements described above compromise and
settle any Claims of Olson.
10. Revocability: Either Olson or CWII may revoke this Agreement in its
------------
entirety during the seven days following execution of the Agreement by Olson.
Any revocation of the Agreement must be in writing and hand-delivered during the
revocation period. This Agreement will become enforceable seven days following
execution by Olson, unless it is revoked during the seven-day period.
11. Confidences: Olson will maintain the confidentiality of all of the
-----------
CWII Companies' trade secrets, proprietary information, insider information,
security procedures and other confidences that came into Olson's possession or
knowledge during employment by CWII. Olson will not use such information
concerning the CWII Companies' business prospects or practices to profit Olson
or others.
12. Property: Upon the effective date of his resignation, Olson will
--------
promptly return any other property pertaining to his work with CWII, including
keys and credit cards, without request or demand by CWII.
13. Stock Options and Warrants. Effective as of August 12, 1997, CWII
--------------------------
adopted its
3
<PAGE>
1997 Stock Option Plan (the "Plan") for the benefit of CWII's employees,
directors and consultants. In the Plan, CWII granted Olson options to purchase,
under certain conditions, up to 100,000 shares of CWII's common stock at an
exercise price of $1.30 per share. Among other conditions, the option grants to
Olson and other persons are subject to approval of the Plan by CWII's
shareholders. A date has not been set for a meeting of CWII's shareholders to
consider the Plan.
Olson and CWII agree that the grant to Olson of options to purchase up to
100,000 shares of CWII's common stock pursuant to the Plan is cancelled and
that, except as described below, Olson has no ownership of, or rights to, any
options, warrants or similar instruments relating to the acquisition by him of
shares of the capital stock of the CWII.
Concurrent with the execution of this Agreement, CWII will issue a Warrant
to Olson entitling Olson to purchase up to 100,000 shares of CWII's common stock
at an exercise price of $1.30 per share. The exercise rights will vest
immediately and will not be subject to any future authorization by the Board of
Directors or shareholders of CWII. However, the Warrant may not be exercised by
Olson unless and until the shareholders of CWII approve an increase in the
authorized common stock of CWII such that 100,000 shares of authorized, but
unissued shares of CWII's common stock will be available upon exercise of the
Warrant by Olson. CWII can give no assurance that this will be accomplished or
that, if accomplished, it will be accomplished in a timely manner. The Warrant
will expire on August 11, 2001. Provided, that, if there are not sufficient
authorized, but unissued shares of CWII's common stock available for issuance
upon exercise of the Warrant granted to Olson prior to August 11, 2001, the
expiration date of the Warrant will be extended to that date which is 30 days
after shareholder approval of such authorized, but unissued shares.
14. Proxy. Concurrent with the execution of this Agreement, Olson will
-----
execute and deliver to James Corboy the Proxy (in the form attached as Exhibit A
to this Agreement). Olson may make transfers of the CWII common stock owned by
him without regard to the Proxy if such transfers are made in public
transactions to persons not affiliated with Olson. For example, if Olson were
to transfer any of his CWII common stock to his wife, a condition of transfer
would be execution of a Proxy by his wife.
15. Loan from the Company to Olson. CWII has loaned to Olson $25,000. On
------------------------------
or before January 4, 1999, CWII will pay to Olson a bonus of $39,968, and the
net amount of $25,000 shall be paid by Olson to the Company in retirement of the
loan. At CWII's option the check to Olson may be endorsed for repayment to
CWII, or any such other procedure as CWII may reasonably request. Upon such
repayment of the loan, CWII shall deliver the Note evidencing the $25,000 loan
to Olson, marked "PAID."
16. Olson Personal Guarantee. Olson has personally guaranteed a debt
------------------------
obligation of CWII to Toshiba America Information Systems, Inc. ("TAIS") made on
or about December 22, 1995. CWII agrees to indemnify Olson for any claim, cause
of action, debt or liability resulting
4
<PAGE>
in any way from that personal guarantee. CWII and Olson acknowledge that CWII
and Olson have requested TAIS to release Olson from the personal guarantee. At
the request of TAIS, CWII has obtained, and owns, a policy of insurance on the
life of Olson. CWII is obligated pursuant to its agreement with TAIS to hold
such policy, and to use the proceeds thereof, to repay the obligations of CWII
to TAIS. With the consent of TAIS, or the repayment of the obligation to TAIS,
CWII will assign to Olson such policy.
17. Covenant Not to Compete. Olson covenants and agrees that within a 75
-----------------------
mile radius of each of the cities of Phoenix, Arizona, Tucson, Arizona, Denver,
Colorado and Dallas, Texas, and for the duration of the Consulting Period,
except and to the extent and unless consented to and approved in writing by
CWII, he shall not directly or indirectly:
(a) work or act as a consultant or representative for, carry on or be
engaged in or connected with or interested in, advise, lend money to, guarantee
the debts and obligations of or permit his name or any part thereof to be used
or employed by any person or persons, partnership, firm, association, syndicate,
business entity or agency, company or corporation, engaged in or connected with
or interested in a business or operations substantially similar to those being
carried on by the Company;
(b) solicit business from customers and clients of the Company;
(c) do anything that may, directly or indirectly, adversely affect the
gross sales or profitability of the Company; and
(d) procure, solicit or entice employees of the Company. Nothing in
this Section shall be construed to prohibit Olson from owning less than 5% of
the common stock or other investment securities of a public corporation which
competes with CWII, provided he doesn't work for that company.
18. References: The CWII Companies may respond to inquiries from third
----------
parties about Olson's employment with CWII by identifying Olson's date of hire,
date of resignation and position held at the time of termination of employment.
CWII will have no obligation to provide further information to prospective
employers of Olson.
19. Entire Agreement; Amendments: This is the entire agreement concerning
----------------------------
the termination of Olson's employment with CWII. Olson is not entitled to rely
upon any other written or oral offer or agreement with CWII. This Agreement can
be modified only by a document signed by both parties. Olson acknowledges that
the only promises made to cause Olson to sign this Agreement are those stated in
this Agreement.
20. Successors: This Agreement benefits and binds the parties'
----------
representatives and successors.
5
<PAGE>
21. Governing Law and Severability of Power: This Agreement will be
---------------------------------------
interpreted in accordance with the laws of the State of Colorado. If any
portion of this Agreement is unenforceable, the remaining portions of the
Agreement will remain enforceable.
22. Attorney Fees: CWII agrees to pay Olson's legal fees incurred in
-------------
negotiating and drafting this Agreement, in an amount not to exceed $5,000.
23. Counterparts: This Agreement may be executed in counterparts, and
------------
each counterpart, when executed, shall have the efficacy of a signed original.
Photographic copies of such signed counterparts may be used in lieu of the
originals for any purpose.
24. Olson Acknowledgements. Olson understands that this Agreement is a
----------------------
final and binding waiver of any claims against CWII. Olson acknowledges that he
was given 21 days to consider this Agreement and chose to sign the Agreement
prior to the expiration of the 21-day period. Olson acknowledges that Olson has
been told by CWII to consult with an attorney prior to signing this Agreement.
Olson represents that he has consulted with an attorney regarding this
Agreement.
COMMUNICATIONS WORLD
INTERNATIONAL, INC.
___________________________ By: _____________________________
RICHARD D. OLSON Authorized Officer
Date: July ___, 1998 Date: July ___, 1998
6
<PAGE>
VOID AFTER 3:00 P.M. CENTRAL DAYLIGHT TIME ON
AUGUST 11, 2001
WARRANT TO PURCHASE 100,000 SHARES OF COMMON STOCK
COMMUNICATIONS WORLD INTERNATIONAL, INC.
No. W-RDO-1
FOR VALUE RECEIVED, Communications World International, Inc. (the
"Company"), a Colorado corporation with its principal offices located at 6025
South Quebec Street, #300, Englewood, Colorado, 80111, hereby certifies that
Richard D. Olson, 10414 Strasburg Way, Parker, Colorado, 80134 (the "Holder") is
entitled, subject to the provisions of this Warrant, to purchase from the
Company, at any time, or from time to time during the period commencing on the
date hereof and expiring at 3:00 p.m. Central Daylight Time, on August 11, 2001
(the "Expiration Date"), up to ONE HUNDRED THOUSAND (100,000) fully paid and
non-assessable Shares of Common Stock (the "Warrant Stock") at a price of $1.30
per share (the "Exercise Price"). The number of shares of Warrant Stock and the
Exercise Price may be adjusted from time to time as hereinafter set forth.
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held subject to, all of the conditions, limitations
and provisions set forth herein.
1. Exercise of Warrant.
-------------------
1.1 Exercise Procedures. Subject to the limitations set forth below
-------------------
in this Section 1 and in Section 6 hereof, this Warrant may be exercised in
whole or in part, during the period expiring at 3:00 p.m. Central Daylight Time
on the Expiration Date or, if such day is a day on which banking institutions in
Denver, Colorado are authorized by law to close, then on the next succeeding day
that shall not be such a day, by presentation and surrender of this Warrant to
the Company at its principal office, or at the office of its stock transfer
agent, if any, with the Warrant Exercise Form attached hereto duly executed and
accompanied by payment (either in cash or by certified or official bank check,
payable to the order of the Company) of the Exercise Price for the number of
shares specified in such form and instruments of transfer, if appropriate, duly
executed by the Holder or his or her duly authorized attorney. As soon as
practicable after each such exercise of the Warrants the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Stock,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder. Upon
receipt by the Company of this Warrant, together with the Exercise Price, at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Warrant Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Warrant Stock shall not then be actually delivered
to the Holder. The Holder shall pay any and all
-1-
<PAGE>
documentary, stamp or similar issue or transfer taxes and fees payable in
respect of the issue or delivery of shares of Warrant Stock on exercise of this
Warrant.
1.2 No Exercise Without Sufficient Authorized, Unissued Shares.
----------------------------------------------------------
Notwithstanding anything in this Warrant to the contrary, this Warrant may not
be exercised unless and until the Company has amended its Articles of
Incorporation to increase the number of shares of authorized and unissued shares
of Common Stock to permit the exercise of this Warrant. Holder recognizes that
there can be no assurance that this will be accomplished or that, if
accomplished, it will be accomplished in a timely manner. The Company agrees
that if there are not sufficient authorized, but unissued shares of Common Stock
available for issuance upon exercise of this Warrant prior to July 12, 2001, the
Expiration Date will be extended to that date which is thirty days after
shareholder approval of the amendment to Articles of Incorporation to increase
the authorized shares of Common Stock.
2. Fractional Shares. The Company shall not be required to issue a
-----------------
fractional share upon the exercise of this Warrant, but rather the aggregate
number of shares issuable will be rounded up or down to the nearest full share.
3. Transferability of Warrant. This Warrant shall not be transferable
--------------------------
except by will or the laws of descent and distribution, and shall be exercisable
during the Holder's lifetime only by the Holder.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
5. Anti-Dilution Provisions.
------------------------
5.1 Adjustment for Recapitalization. If the Company shall at any time
-------------------------------
subdivide all its outstanding shares of Common Stock (or other securities at the
time receivable upon the exercise of the Warrant) by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common Stock to all of its stockholders without
receipt of cash payment or other valid consideration, the number of shares of
Common Stock subject to this Warrant immediately prior to such subdivision shall
be proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common Stock subject to this
Warrant immediately prior to such combination shall be proportionately
decreased. Any such adjustment and adjustment to the Exercise Price pursuant to
this Section 6.1 shall be effective at the close of business on the effective
date of such subdivision or combination or if any adjustment is the result of a
stock dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
Whenever the number of shares of Warrant Stock purchasable upon
the exercise of this Warrant is adjusted, as provided in this Section 6.1, the
Exercise Price shall be
-2-
<PAGE>
adjusted to the nearest cent by multiplying such Exercise Price immediately
prior to such adjustment by a fraction (x) the numerator of which shall be the
number of shares of Warrant Stock purchasable upon the exercise immediately
prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Warrant Stock so purchasable immediately thereafter.
5.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In
---------------------------------------------------------
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
or if the Company (or any such other corporation) shall consolidate with or
merge into another corporation or convey all or substantially all of its assets
to another corporation, then, and in each such case, the Holder of this Warrant
upon the exercise thereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the securities and property receivable upon
the exercise of this Warrant prior to such consummation, the securities or
property to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Warrant immediately prior thereto; in each such
case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.
6. Restrictions on Exercise Imposed by Federal and State Securities Laws.
---------------------------------------------------------------------
Holder hereby acknowledges that neither this Warrant nor any of the securities
that may be acquired upon exercise of this Warrant have been registered under
the 1933 Act or under the securities laws of any state. The Holder acknowledges
that, upon exercise of this Warrant, the securities to be issued upon such
exercise may come under applicable federal and state securities (or other) laws
requiring registration, qualification or approval of governmental authorities
before such securities may be validly issued or delivered upon notice of such
exercise. With respect to any such securities, this Warrant may not be
exercised by, and securities shall not be issued to, any Holder in which such
exercise would be unlawful. As a condition to exercise, the Company may require
the Holder to sign a representation letter confirming compliance with this
Agreement and applicable federal and state securities laws and other applicable
laws, and may require the Holder to provide an opinion of counsel that the
exercise and issuance of the Warrant Stock will not violate law, such counsel
and such opinion to be satisfactory to the Company and its counsel.
7. Legend. Unless the shares of Warrant Stock have been registered under
------
the 1933 Act, upon exercise of any of the Warrants and the issuance of any of
the shares of Warrant Stock, all certificates representing shares shall bear on
the face thereof substantially the following legend, as well as any other
legends necessary to comply with applicable state and federal laws for the
issuance of such shares:
"The shares represented by this Certificate have not been registered
under the United States Securities Act of 1933 ("the 1933 Act") and are
"restricted securities" as that term is defined in Rule 144 under the 1933 Act.
The shares may not be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the 1933 Act or pursuant
to an exemption from registration under the 1933 Act the availability of which
is to be established to the satisfaction of the Company."
-3-
<PAGE>
8. Notices. All notices required hereunder shall be in writing and shall
-------
be deemed given when telegraphed, delivered personally or within five days after
mailing when mailed by certified or registered mail, return receipt requested,
at the address of such party as set forth on the first page, or at such other
address of which the Company or Holder has been advised by notice hereunder.
9. Applicable Law. This Warrant is issued under and shall for all purposes
--------------
be governed by and construed in accordance with the laws of the State of
Colorado.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of the day
and year first above written.
COMMUNICATIONS WORLD
INTERATIONAL, INC., a Colorado corporation
Dated: ______________ By:___________________________________
Authorized Officer
-4-
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock of Communications
World International, Inc., a Colorado corporation, and hereby makes payment of
$__________ in payment therefor. The undersigned understands that exercise of
the within Warrant is subject to, among other things, the limitations provided
in Section 1 and compliance with Section 6 of the within Warrant.
______________________________
Signature
______________________________
Signature, if jointly held
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the written Warrant)
_______________________________
Name:
_______________________________
Address
(Please typewrite or print in block
letters)
_______________________________
Social Security or Taxpayer
Identification Number
<PAGE>
FORM OF IRREVOCABLE PROXY
COMMUNICATIONS WORLD INTERNATIONAL, INC.
6025 S. QUEBEC STREET, #300
ENGLEWOOD, COLORADO 80111
PROXY FOR MEETINGS OF SHAREHOLDERS
The undersigned hereby appoints James Corboy as his proxy and attorney-in-
fact, with full power of substitution (the "Proxy") to vote all the common and
preferred shares of the undersigned, with all of the powers which the
undersigned would possess if personally present at any and all meetings of
shareholders of Communications World International, Inc. (the "Company") or any
adjournment thereof, on any and all matters. Without limiting the foregoing, the
Proxy is authorized to vote upon any proposals for (a) an increase in the
authorized capital stock of the Company, (b) a merger or other transaction
pursuant to which the Company would acquire directly or indirectly any other
entities, (c) adoptions of stock option plans, or other proposals relating to
stock options, warrants or other rights to acquire common or preferred stock of
the Company, and (d) all such other business as may come before any meetings of
the Company's shareholders.
The undersigned agrees that at any time, and from time to time, upon the
request of the Proxy, he promptly will execute and deliver such further
documents and do such further acts and things as Proxy may request in order to
effect fully the purposes of this appointment of proxy.
THIS IRREVOCABLE PROXY IS EXECUTED AND DELIVERED IN CONNECTION WITH THAT
CERTAIN CONSULTING AND SETTLEMENT AGREEMENT BETWEEN THE UNDERSIGNED AND THE
COMPANY OF EVEN DATE HEREWITH AND THE UNDERSIGNED ACKNOWLEDGES AND AGREES (A)
THAT THIS IRREVOCABLE PROXY IS COUPLED WITH AN INTEREST AND IRREVOCABLE AND THAT
THE FOREGOING APPOINTMENT IS VALID FOR A PERIOD OF TWO YEARS FROM THE DATE
HEREOF, (B) THAT THE COMPANY SHALL NOT BE REQUIRED TO RECOGNIZE ANY WRITING FROM
THE UNDERSIGNED PURPORTING TO REVOKE THE FOREGOING APPOINTMENT AND (C) TO SAVE,
DEFEND AND INDEMNIFY THE PROXY FROM AND AGAINST ANY AND ALL CLAIMS ARISING OUT
OF OR IN CONNECTION WITH THE FOREGOING APPOINTMENT OF THE PROXY. THE UNDERSIGNED
ALSO ACKNOWLEDGES AND AGREES THAT ANY ATTEMPTED REVOCATION OF THE FOREGOING
APPOINTMENT OF THE PROXY SHALL CAUSE IRREPARABLE HARM AND THAT THIS APPOINTMENT
AND THE AGREEMENTS OF THE UNDERSIGNED CONTAINED HEREIN MAY, IN ADDITION TO ALL
OTHER RIGHTS AND REMEDIES AVAILABLE AT LAW OR IN EQUITY, BE ENFORCED BY
INJUNCTION OR SPECIFIC PERFORMANCE WITHOUT THE NECESSITY OF ANY BOND.
Please sign exactly as shown on your stock certificate(s).
____________________________________________________
Richard D. Olson
____________________________________________________
____________________________________________________
Date
<PAGE>
EXHIBIT 10(n)
May 20, 1997
Mr. Richard Olson, President
Chief Executive Officer
Communications World International, Inc.
6025 South Quebec Street, Suite 300
Englewood, CO 80111
Dear Mr. Olson:
THIS AGREEMENT (the "AGREEMENT") effective May 20, 1997 between
Communications World International, Inc. ("CWI") and M.H. Meyerson & Co., Inc.
("MEYERSON").
In consideration of the mutual covenants contained herein and intending to
be legally bound thereby, CWI and MEYERSON hereby agree as follows:
1. MEYERSON will perform investment banking services for CWI on the terms
set forth below for a period of five years from the date hereof. Such
services will be performed on a best efforts basis and will include,
without limitation, assistance to CWI in mergers, acquisitions and
internal capital structuring and the placement of new debt and equity
issues of CWI, all with the objective of accomplishing CWI's business
and financial goals. In each instance, MEYERSON shall endeavor,
subject to market conditions, to assist CWI identifying corporate
candidates for mergers and acquisitions and sources of private and
institutional funds; to provide planning, structuring, strategic and
other advisory services to CWI; and to assist in negotiations on
behalf of CWI. In the event that MEYERSON serves as an underwriter of
a public offering of CWI's securities completed within one year from
the date hereof, CWI will grant Meyerson a right of first refusal for
a period of two years thereafter to act as underwriter for public
offerings of CWI's securities. In each instance, MEYERSON will render
such services as to which CWI and MEYERSON mutually agree and
MEYERSON will exert its best efforts to accomplish the goals agreed to
by MEYERSON and CWI.
2. In connection with the performance of this AGREEMENT, MEYERSON and CWI
shall comply with all applicable laws and regulations, including,
without limitation, those of the National Association of Securities
Dealers, Inc. and the Securities and Exchange Commission.
3. In consideration of the services previously rendered and to be
rendered by MEYERSON hereunder, MEYERSON is hereby granted Warrants to
purchase, at a price of $1.20 per share, a total of 175,000 shares of
Common Stock of CWI, and piggy back registration rights as set forth
in paragraph 5 below. Subject to vesting, the Warrants ("MEYERSON
Warrants") may be exercised at any time from May 20, 1997 to and
including May 20, 2002. The MEYERSON Warrants shall vest and become
irrevocable as follows: 75,000 Warrants upon the signing of this
AGREEMENT, 50,000 Warrants 180 days after the signing of this
AGREEMENT, and an additional 50,000 Warrants 365 days after the
1
<PAGE>
signing of this AGREEMENT. Provided that no Warrants may be exercised
until CWI shareholders approve an increase to the number of authorized
shares to a minimum of 3,000,000 shares.
4. If CWI should, at any time, or from time to time hereafter, effect a
stock split, a reverse stock split, or a recapitalization, the terms
of the MEYERSON Warrants shall be proportionately adjusted to prevent
the dilution or enlargement of the rights of the holders.
5. If CWI during the period from May 20, 1997 to May 20, 2002, files a
Registration Statement covering the sale of any of CWI's common stock,
then CWI, on each such occasion, at the request of the holders of at
least 51% of the shares and warrants constituting the MEYERSON EQUITY,
shall include in any such Registration Statement, at CWI's expense,
the MEYERSON SHARES, provided that, if the sale of securities by CWI
is being made through an underwriter and the underwriter objects to
inclusion of the MEYERSON SHARES in the Registration Statement, the
MEYERSON SHARES shall not be so included in the Registration Statement
or in any registration statement filed within 90 days after the
effective date of the underwritten Registration Statement.
6. The obligation of CWI to register the MEYERSON SHARES, including the
shares issuable upon exercise of the MEYERSON Warrants, pursuant to
the demand or the piggy back registration rights set forth in
paragraph 5, above, shall be without regard to whether the MEYERSON
Warrants have been or will be exercised.
7. CWI agrees that, for a period of two (2) years from the date of this
AGREEMENT, CWI will not utilize the registration exemption set forth
in Regulation S under the ACT with a holding period of less than 1
year, nor issue any security under an S-8 to any Financial Consultant
without the consent of MEYERSON, which consent will not be
unreasonably withheld.
8. This AGREEMENT constitutes the entire Warrant Agreement between the
parties and when a copy hereof is presented to CWI's transfer agent,
together with a certified check in the proper amount and a request
that all or part of the MEYERSON Warrant be exercised, the
certificates for the appropriate number of shares of Common Stock
shall be promptly issued.
9. Upon the execution of this AGREEMENT, CWI shall include in their next
annual report and filings the highlights and terms of this investment
banking AGREEMENT.
10. Upon the signing of this AGREEMENT, CWI shall pay MEYERSON $5,000.00
as a non-accountable and non-refundable expense allowance for due
diligence and general compliance review. MEYERSON shall be entitled
to additional compensation, to be negotiated between MEYERSON and CWI,
arising out of any transactions that are proposed or executed by
MEYERSON and consummated by CWI, or are executed by MEYERSON at CWI's
request, during the term of this AGREEMENT to the extent that such
compensation is normal and ordinary for such transactions. In
addition, MEYERSON shall be reimbursed by CWI for any reasonable out-
of-pocket expenses that MEYERSON may incur in connection with
rendering any service to or on behalf of MEYERSON that is approved, in
writing, in advance by CWI's Chief Executive Officer.
2
<PAGE>
11. CWI agrees to indemnify and hold MEYERSON and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses arising out of any action or
cause of action brought against MEYERSON in connection with its
rendering services under this AGREEMENT except for any losses, claims,
damages, liabilities, costs or expenses resulting from any violation
by MEYERSON of applicable laws and regulations including, without
limitation, those of the National Association of Securities Dealers,
Inc. and the Securities and Exchange Commission or any state
securities commission or from any act of MEYERSON involving willful
misconduct and except that CWI shall not be liable for any amount paid
in settlement of any claim that is settled without its prior written
consent.
12. MEYERSON agrees to indemnify and hold CWI and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses resulting from any violation
by MEYERSON of applicable laws and regulations including, without
limitation, those of the National Association of Securities Dealers,
Inc., the Securities and Exchange Commission and any state securities
commission or from any act of MEYERSON involving willful misconduct.
13. Within 90 days of the date of this AGREEMENT, a representative of
MEYERSON will visit the corporate headquarters of CWI. CWI will
submit to MEYERSON a current business plan setting forth how CWI plans
to proceed over the next two (2) years.
14. Nothing contained in this AGREEMENT shall be construed to constitute
MEYERSON as a partner, employee, or agent of CWI; nor shall either
party have any authority to bind the other in any respect, it being
intended that MEYERSON is, and shall remain an independent contractor.
15. This AGREEMENT may not be assigned by either party hereto, shall be
interpreted in accordance with the laws of the State of New Jersey,
and shall be binding upon the successors of the parties. Either party
may terminate this investment banking contract at any time, however,
legally vested Warrants will remain with MEYERSON.
16. If any paragraph, sentence, clause or phrase of this AGREEMENT is for
any reason declared to be illegal, invalid, unconstitutional, void or
unenforceable, all other paragraphs, sentences, clauses or phrases
hereof not so held shall be and remain in full force and effect.
17. None of the terms of this AGREEMENT shall be deemed to be waived or
modified except by an express agreement in writing signed by the party
against whom enforcement of such waiver or modification is sought.
The failure of either party at any time to require performance by the
other party of any provision hereof shall, in no way, affect the full
right to require such performance at any time thereafter. Nor shall
the waiver by either party of a breach of any provision hereof be
taken or held to be a waiver of any succeeding breach of such
provision or as a waiver of the provision itself.
18. Any dispute, claim or controversy arising out of or relating to this
AGREEMENT, or the breach thereof, shall be settled by arbitration in
Jersey City, New Jersey, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The parties hereto
agree that they will abide by and perform any award rendered by the
arbitrator(s) and that judgement upon any such award may be entered in
any Court, state or federal, having jurisdiction over the party
against whom the judgement is being
3
<PAGE>
entered. Any arbitration demand, summons, complaint, other process,
notice of motion, or other application to an arbitration panel, Court
or Judge, and any arbitration award or judgement may be served upon
any party hereto by registered or certified mail, or by personal
service, provided a reasonable time for appearance or answer is
allowed.
19. For purposes of compliance with laws pertaining to potential inside
information being distributed unauthorized to anyone, all
communications regarding CWI's confidential information should only be
directed to Martin H. Meyerson, Chairman, Michael Silvestri, President
or Linda Antosiewicz, Senior Vice President, Compliance. If
information is being faxed, our confidential compliance fax number is
(201) 459-9534 for communications use.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of
the day and year set forth above.
M.H. MEYERSON & CO., INC. COMMUNICATIONS WORLD INTERNATIONAL, INC.
By:____________________________ By:_________________________________
Michael Silvestri Richard Olson, President
President Chief Executive Officer
4
<PAGE>
EXHIBIT 10(O)
June 23, 1998
Board of Directors
Communications World International, Inc.
6025 South Quebec Street, Suite 300
Englewood, CO 80111
PRIVATE & CONFIDENTIAL
Dear Members of the Board of Directors:
We appreciate the opportunity to work with the Board of Directors (the "Board")
of Communications World International, Inc. (the "Company") and are pleased to
confirm the contractual arrangements under which Century Capital Group, Inc.
("Century Capital") is engaged by the Board in connection with the following
services. When executed by the Board, this Agreement shall supercede Century
Capital's previous Engagement Agreement dated September 19, 1997.
During the term of Century Capital's engagement hereunder, Century Capital
will provide the Board with financial advisory and investment banking services
which will include (i) performing due diligence, valuation analysis and/or
preparation of financial projections (the "work product"), (ii) rendering a
Fairness Opinion, and (iii) additional services which may reasonably be
requested by the Board from time to time. In addition, Century Capital may
assist in structuring and consummating acquisitions, including reviewing letters
of intent, analyzing and advising on tax issues appurtenant to the transaction,
and reviewing transaction documents in collaboration with the Board's attorneys
and other advisors.
For certain of its services and activities under this Agreement, Century
Capital will utilize the professional staff of SKB Business Services, Inc.
("SKB"), under the terms and conditions of Century's Capital Master Engagement
Agreement with SKB. The Board understands that SKB is performing services for,
and operating pursuant to this Agreement as an advisor to Century Capital and
not as an advisor to the Board. Century Capital will not engage any
professionals other than SKB without first obtaining permission from the Board.
1. Fees, Expenses, Credit and Collection Policies.
----------------------------------------------
In consideration of the services provided by Century Capital hereunder, the
Board agrees as follows:
a. Retainer. The Company shall pay to Century Capital as an initial
retainer, in cash
<PAGE>
Board of Directors
Communications World International, Inc.
August 10, 1998
Page 2
upon execution of this Agreement, $5,000. On each successive month for the
duration of this Agreement, the Company shall pay additional amounts of $5,000
in monthly retainers. Century shall maintain a record of its time (rates are
listed in the attached Schedule B) and expenses and, to the extent monthly
charges exceed $5,000, then the Company shall promptly pay these amounts upon
invoice.
b. Fairness Opinion. For rendering an opinion to the Board on the
fairness of the acquisition of Interconnect Acquisition Corporation ("IAC") and
on its proposed acquisitions, Century shall be paid $25,000 in cash upon
---
delivery of the Fairness Opinion to the Board.
c. Acquisition Fee. If the Company consummates acquisitions of any
company with whom it held discussions during the term of the September 19, 1997
Agreement, then Century shall be paid an acquisition fee of one percent (1%) of
aggregate consideration. For purposes hereof, the term "aggregate
consideration" shall mean the total amount of cash and the fair market value (on
the date of payment) of all other property paid or payable directly or
indirectly by the Company or its investors or lenders to any seller in
connection with a transaction, including without limitation all amounts paid
into escrow and all contingent payments paid or to be paid in connection with
such transaction. Such Acquisition Fee shall exclude any acquisitions first
identified by IAC.
d. Expenses. In addition to any amounts payable to Century Capital under
this Agreement, the Company will reimburse Century Capital for all reasonable
expenses (including fees and disbursements of other professionals engaged by
Century Capital and all of Century Capital's travel and other out-of-pocket
expenses) incurred in connection with this Agreement or otherwise arising out of
Century Capital's engagement by the Board. If requested by Century Capital, the
Company agrees to directly pay Century Capital's out-of-pocket expenses, which
arise from performance under this Agreement.
e. Payment. All fees and other compensation hereunder shall be due and
payable upon periodic invoice by Century Capital. Century Capital reserves the
right to halt work if the Company's balance remains unpaid after invoice and not
to resume work until all overdue amounts are paid in full. Until all fees are
paid in full, (i) Century Capital will not release its final work product, and
(ii) the Board agrees that it will not use any earlier version of Century
Capital's work product for any purpose. If the Company is in default hereunder,
the Company shall pay a finance charge on unpaid balances at the rate of one and
one-half percent (1.5%) per month, compounded monthly (nominal rate of eighteen
percent (18%) and effective rate of 19.56% per annum), commencing on the date
that is thirty (30) days after the initial invoice for such amounts received by
the Company. Any balance remaining unpaid after sixty (60) or more days may, at
Century Capital's option, be formalized by the execution of a promissory note.
The Company agrees that it shall be liable for all reasonable costs that Century
Capital may incur in
<PAGE>
Board of Directors
Communications World International, Inc.
August 10, 1998
Page 3
collection, including, but not limited to, reasonable attorney fees and related
costs.
f. Miscellaneous. Fees and expenses described in this Section 1 are not
contingent upon the successful conclusion of the contemplated transactions or
any other event.
2. Communications to the Public.
----------------------------
Century Capital may, at its expense, distribute or place announcements
regarding its services in such newspapers or periodicals that it may choose.
Such announcements shall be subject to review and approval by the Board as to
form, which approval shall not be unreasonably withheld or delayed; provided,
however, that Century Capital shall not disclose to any party the details or
value of any transaction without the prior written approval of the Board. The
Board agrees that it will not refer publicly to Century Capital or to any
services rendered by Century Capital (orally or in writing) in any press
release, communication to shareholders, governmental filing or otherwise without
Century Capital's prior written consent, which consent shall not be unreasonably
withheld.
3. Term of Engagement.
------------------
Century Capital will act for the Board as provided in this Agreement for
a period of twelve (12) months after execution of this Agreement, unless
extended by mutual consent of Century Capital and the Board in writing. The
Board or Century Capital may terminate this Agreement at any time by delivering
to the other party a written notice of such termination not less than thirty
(30) days prior to the effective date of such termination. The foregoing
notwithstanding, the provisions of Sections 1, 4, 5, 6, 8 and 9 shall remain
operative and in full force and effect regardless of any such termination;
4. Confidentiality.
---------------
a. Century Capital agrees to keep confidential any information disclosed
to Century Capital in connection with its engagement hereunder that the Board
has identified to Century Capital in writing as being confidential, unless
disclosure is required by law or is requested by a governmental or regulatory
agency or body, and Century Capital will not make use thereof, except in
connection with its services to the Board. Notwithstanding the foregoing, no
information shall be considered confidential that is (i) lawfully received by
Century Capital from a third party; (ii) publicly available, or becomes publicly
available other than as a result of the unauthorized disclosure by Century
Capital; (iii) independently developed by Century Capital as evidenced by its
written records; or (iv) approved or released upon the written request of the
Board. Century Capital will not disclose such confidential information to a
potential party to a transaction without the prior written consent of the Board.
b. All written and oral advice provided by Century Capital in connection
with this
<PAGE>
Board of Directors
Communications World International, Inc.
August 10, 1998
Page 4
Agreement may not be disclosed to any third party or referred to publicly
without the prior written consent of Century Capital.
5. Indemnification.
---------------
The Board shall indemnify Century Capital and the other Indemnified Persons
described in the attached Schedule A in accordance with the terms of such
Schedule A, which Schedule is incorporated herein by this reference and made a
part of this Agreement.
6. Notice.
------
All notices, requests, demands, waivers, and other communications
("Notices") required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or mailed,
certified or registered mail with postage prepaid, or sent by facsimile or
telegram, to the address specified on the first page hereof or to such other
person or address as the party shall specify by notice in writing to the other
party. All notices shall be deemed to have been received on the earlier of the
date of delivery or on the third business day after the mailing thereof, except
that any notice of change of address shall be effective only upon actual
receipt.
7. Binding Arbitration.
-------------------
Any controversy or claim arising out of or relating to this Agreement, or
breach thereof, shall be settled by binding arbitration in Denver, Colorado, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction hereof. It is agreed that, in the
event of arbitration, the parties will keep the proceedings and results
confidential except as required by law or reasonable business necessity.
8. Miscellaneous.
-------------
This Agreement and Schedules hereto incorporate the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and undertakings, if any, with respect to the subject matter hereof
and shall be governed by and construed in accordance with the laws of the State
of Colorado without regard to principles of conflicts of law. This Agreement is
made solely for the benefit of the Board and Century Capital and of the
Indemnified Persons referred to in Schedule A and their respective heirs,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement.
<PAGE>
Board of Directors
Communications World International, Inc.
August 10, 1998
Page 5
9. Understanding and Agreement
---------------------------
If the foregoing accurately sets forth our understanding and agreement,
please confirm so by signing the enclosed copy of this Agreement and returning
it to the undersigned at Century Capital at your earliest convenience in the
enclosed envelope along with a check made payable to Century Capital Group,
Inc., in the amount of $5,000.
Sincerely,
CENTURY CAPITAL GROUP, INC.
By:____________________________________
James M. Corboy, President
Enclosures
Confirmed and approved:
Board of Directors
COMMUNICATIONS WORLD INTERNATIONAL, INC.
By:____________________________________
Date:_____________________
<PAGE>
SCHEDULE A
As part of the consideration for this agreement (the "Agreement") of
Century Capital Group, Inc. ("Century Capital"), to furnish its services
pursuant to this engagement agreement executed __________, 1998 between Century
Capital and the Board of Directors of Communications World International, Inc.
(the "Board"), the Board agrees to indemnify and hold harmless Century Capital
and its affiliates and their respective officers, directors, shareholders,
employees, and agents, and any other persons controlling Century Capital or any
of its affiliates within the meaning of either Section 15 of the Securities Act
of 1933 or Section 20 of the Securities Exchange Act of 1934 (Century Capital
and each such other person or entity being referred to as an "Indemnified
Person"), from and against all claims, liabilities, losses, damages (or actions
in respect thereof) related to or arising out of actions taken or omitted to be
taken by an Indemnified Person pursuant to the terms of, or in connection with
services rendered pursuant to, the Agreement or any transaction or proposed
transaction contemplated thereby or any Indemnified Person's role in connection
therewith, EXCEPT THAT the Board shall not be responsible to any Indemnified
Person for any claims, liabilities, losses, or damages to the extent that they
result solely from actions taken or omitted to be taken by such Indemnified
Person in bad faith or that are due solely to such Indemnified Persons' gross
negligence. In addition, the Board agrees to reimburse each Indemnified Person
for all expenses (including fees and expenses of counsel) as they are incurred
by such Indemnified Person in connection with investigating, preparing, or
defending any such action or claim, whether or not (i) in connection with
litigation in which any Indemnified Person is a named party or (ii) allegations
of bad faith or gross negligence are made against any Indemnified Person.
No Indemnified Person shall be eligible for indemnification or indemnity
hereunder for any settlement agreement entered into without the consent of the
Board, which consent shall not be unreasonably withheld. The indemnity,
contribution, and expense reimbursement obligations set forth herein shall be in
addition to any liability the Board may have to any Indemnified Person at common
law or otherwise, and shall survive the termination of the Agreement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 13,594
<SECURITIES> 0
<RECEIVABLES> 1,711,959
<ALLOWANCES> 0
<INVENTORY> 624,610
<CURRENT-ASSETS> 2,467,081
<PP&E> 246,805
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,653,906
<CURRENT-LIABILITIES> 4,030,450
<BONDS> 0
0
958,085
<COMMON> 4,290,012
<OTHER-SE> (5,049,872)
<TOTAL-LIABILITY-AND-EQUITY> 4,653,906
<SALES> 12,867,752
<TOTAL-REVENUES> 13,237,761
<CGS> 9,234,602
<TOTAL-COSTS> 9,234,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 299,000
<INTEREST-EXPENSE> 421,345
<INCOME-PRETAX> (923,894)
<INCOME-TAX> (400,000)
<INCOME-CONTINUING> (523,894)
<DISCONTINUED> (567,518)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,091,412)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
