<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER 0-08718
CT HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2432011
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
3811 TURTLE CREEK BLVD., SUITE 770
DALLAS, TEXAS 75219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(214) 520-9292
(REGISTRANT'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, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B (section 229.405 of this chapter) is not contained herein, and
will not 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/A or any amendment to this Form 10-KSB/A. [x]
The aggregate market value of all classes of the registrant's voting stock held
by non-affiliates as of June 26, 2000 was approximately $50,318,235.
On June 26, 2000, there were 48,749,718 shares of the registrant's Common Stock
outstanding.
<PAGE> 2
CT HOLDINGS, INC. AND SUBSIDIARIES
ANNUAL REPORT
ON FORM 10-KSB/A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ........................................3
Item 10. Executive Compensation....................................................................6
Item 11. Security Ownership of Certain Beneficial Owners and Management ...........................9
Item 12. Certain Relationships and Related Transactions ..........................................11
</TABLE>
2
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names of our directors, their principal occupations and the year in
which each current Director of the Company initially joined the Board of
Directors are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
----- --- -------------------------- --------------
<S> <C> <C> <C>
Steven B. Solomon 35 President, Chief Executive
Officer, and Secretary 1992
Victor K. Kiam, II 72 Director 1996
Lawrence Lacerte 47 Director 1999
Chris A. Economou 45 Director 1993
Mark Rogers 40 Director 1996
Dr. Axel Sawallich 55 Director 1993
</TABLE>
STEVEN B. SOLOMON has served as the President and Chief Executive Officer of the
Company since May 1997 and as a director of the Company since February 1996. Mr.
Solomon has also served as Chairman of the Board of Directors and Chief
Executive Officer of Parago, Inc., a subsidiary of the Company that is an
application solution provider and Internet-based business process outsourcer
that provides an on-line suite of promotional offerings designed to automate
promotional management and optimize the customer care services offered by its
clients. From February 1996 through April 1997, Mr. Solomon served as Chief
Operating Officer of the Company. He was the President and a director of
LoneStar Hospitality Corp., a predecessor of the Company that owned and operated
a chain of franchised restaurants, from its inception in February 1992 until its
merger with the Company in February 1996 and was Chairman of the Board of
Directors of LoneStar from December 1994 until February 1996. During his tenure
at LoneStar, Mr. Solomon also served as developer and executive producer of
SportsWaves!, a division of LoneStar that produced syndicated television
programs covering the National Football League and other professional and
collegiate sports. Since May 5, 2000, Mr. Solomon has also served as a director
of River Logic, Inc., an incubation venture of the Company that creates and
operates integrated networks of decision support tools, elearning solutions and
ecommerce capabilities designed to enable decision makers to leverage knowledge
and information to gain competitive advantage.
VICTOR K. KIAM, II has served as a director of the Company since July 1996 and
has served as Chairman of the Company since January 1998. Mr. Kiam is Chairman
of Remington Products, L.L.C., a manufacturer, distributor and marketer of
electrical shavers and other consumer products, and has served in various
managerial capacities at Remington since 1979. From 1988 to 1992, Mr. Kiam was
Chairman of the New England Patriots Football Team. Mr. Kiam also serves on the
boards of directors of several other consumer product companies (including
Ronson, plc, a marketer of lighters and consumer products). Mr. Kiam also
serves on the Board of Directors of Parago.
LAWRENCE LACERTE has served as a director of the Company since January 1999.
Mr. Lacerte has served as President of Lacerte Technologies, Inc., a Dallas
based investment firm, since July 1998. From 1978 until July 1998, Mr. Lacerte
served as Chairman and Chief Executive Officer of Lacerte Software Corporation,
a tax and accounting software company. In June 1998, Lacerte Software was
acquired by Intuit Corporation. Mr. Lacerte also serves on the Boards of
Directors of Universal Display Corporation, a publicly traded company engaged
in the research and development of flat panel displays, and Teraglobal
Communications Corp., a publicly traded communications technology company that
designs and markets microprocessor and software-based products and services for
real-time communications. Mr. Lacerte also serves as Vice Chairman of the Board
of Directors of Parago.
3
<PAGE> 4
CHRIS A. ECONOMOU has served as a director of the Company since February 1996,
and was a director of LoneStar from June 1993 until its merger with the Company.
Mr. Economou has been engaged in the private practice of law in Fort Lauderdale,
Florida, primarily in the transactional and corporate areas since 1988. He
served as Executive Vice President, Secretary and General Counsel of Miami Subs
Corporation from August 1992 until June 1994 and as a director from 1989 to
1994.
MARK ROGERS has served as a director of the Company since July 1996. Since 1989,
Mr. Rogers has served as a partner and Chief Operating Officer of NFT Ventures,
a venture capital fund established by Ray Noorda, the founder of Novell, Inc. In
connection with his position at NFT Ventures, Mr. Rogers advises several
computer software companies in Texas, Utah and Silicon Valley, with respect to
various strategic and developmental matters. Mr. Rogers also serves on the
boards of directors of CollegeLink.com Incorporated, an online college
application assistance company, and several other high-tech companies.
DR. AXEL SAWALLICH has served as a director of the Company since February 1996
and was a director of LoneStar from March 1993 until its merger with the
Company. Since January 1997, Dr. Sawallich has been chief investment consultant
for Lifeplan Investments, Vienna, Austria. Since 1993, he has been the managing
partner of Global Invest, an investment firm located in Vienna. From 1991 until
1994, he also was a consultant for Serco Investment Counseling Corporation. From
1989 to 1990, Dr. Sawallich was the general manager and director of the Vienna
regional branch of Allgemeine Sparkasse Bank AG. From 1985 to 1989, Dr.
Sawallich was with Bank fur Arbeit und Wirtschaft AG, Vienna, serving as the
deputy head of the credit department until 1986 and as the Executive Vice
President of the Bank's Bureau for Commercial Customers thereafter. Dr.
Sawallich has also been acting as an independent, publicly certified, investment
advisor since 1993.
There are no family relationships among any of the directors or
executive officers of the Company. See "Certain Relationships and Related
Transactions" for a description of transactions between the Company and its
directors, executive officers or their affiliates.
Section 16(a) of the Exchange Act, as amended, requires the Company's
Directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file certain reports regarding
ownership of the Company's Common Stock with the SEC. These insiders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on a review of
the copies of the Section 16(a) forms furnished to the Company during fiscal
2000, or written representations from certain reporting persons that no Forms 5
were required for those persons, all Section 16(a) filing requirements
applicable to the Company's officers, Directors and beneficial owners of more
than 10% of the outstanding shares of Common Stock were filed on a timely basis.
4
<PAGE> 5
The executive officers of the Company as of June 26, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Steven B. Solomon 35 President, Chief Executive Officer,
Secretary and Director
Carl E. Banzhof 33 Chief Technology Officer
Lester Sideropoulos 44 Vice President of Sales
</TABLE>
Information concerning the business experience of Mr. Solomon is
provided under the caption "Election of Directors" above. Set forth below is
information concerning the business experience of the other executive officers
of the Company.
CARL E. BANZHOF has served as Chief Technology Officer since July 1997, prior to
which he served as Vice President - Development of Network Products since
joining the Company in February 1996. Mr. Banzhof has more than 15 years of
experience in the software industry, including designing, developing and
marketing software products, building software development teams and
organizations and managing products in network management and PC desktop
markets. He was the founding partner and Vice President of Software Engineering
from 1992 to 1995 of Circuit Masters Software, Inc., a software company which
developed and marketed network management utilities for Novell NetWare
environments, and was acquired by the Company in February 1996. Prior to joining
Circuit Masters, Mr. Banzhof was lead software developer from 1988 to 1992 at
Fluor Daniel Engineering, a software development and worldwide engineering
company.
LESTER SIDEROPOULOS has served as Vice President of Sales since joining the
Company in January 1999. Mr. Sideropoulos has over 20 years experience in sales.
Prior to joining the Company, Mr. Sideropoulos was Director of Business
Technology at Constellation Technology, a developer of data acquisition systems
from January 1998 to January 1999, Director of Sales for Oxford Instruments, a
developer of nuclear detection systems from May 1993 to January 1998, and has
held various other product management and direct sales positions during his 20
year career.
The Company's former Chief Operating Officer and Chief Financial Officer,
Richard L. Travis, Jr., resigned from the Company effective as of January 14,
2000, and the Company's former Vice President of Business Development, Bennett
Klein, resigned from the Company effective as of March 1, 2000. In connection
with the resignations of Mr. Travis and Mr. Klein, the Company entered into
Settlement and Release Agreements with each of Mr. Travis and Mr. Klein. See
"Employment Agreements" and "Certain Relationships and Related Transactions."
5
<PAGE> 6
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The total compensation for the three fiscal years ended February 29,
2000 of Steven B. Solomon, the Company's Chief Executive Officer, Richard L.
Travis, Jr., the Company's former Chief Operating and Financial Officer; Carl E.
Banzhof, the Company's Chief Technology Officer; and Bennett Klein, the
Company's former Vice President of Business Development (the "Named Executive
Officers"), is set forth below in the following Summary Compensation Table. No
other person received cash compensation in excess of $100,000 during the fiscal
year ended February 29, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
AWARDS
------------
OTHER
ANNUAL SHARES
FISCAL COMPENSATION UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS($) ($) OPTIONS COMPENSATION
----------------- ------ --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Solomon 2000 62,000(1) 0 4,750(2) 0 3,119(2)
President, 1999 150,538 120,500 11,400(2) 0(3) 9,975(2)
CEO and Secretary .... 1998 135,000 104,000(1) 11,400(2) 2,000,000 8,342(2)
Richard L. Travis, Jr. 2000 122,084 50,000 9,500(4) 0 627,833(4)
Former COO/CFO ....... 1999 136,667 25,000 11,400(4) 0(3) 5,400
1998 130,000 10,000 11,400(4) 1,150,000 23,552(4)
Carl E. Banzhof 2000 115,000 10,000 0 0 0
Chief Technology 1999 115,000 0 0 0 4,093
Officer............... 1998 100,625 500 0 100,000 3,552
Bennett Klein 2000 135,000 0 0 0 10,933(5)
Former V.P. - Business 1999 135,000 37,000(5) 0 0 61,467(5)
Development........... 1998 21,548(5) 0 0 300,000 0
</TABLE>
(1) Mr. Solomon has entered into an employment agreement with Parago,
pursuant to which Parago now pays Mr. Solomon's salary. During fiscal
1998, in connection with the discharge of a debt owed to the Company,
Mr. Solomon forgave $79,000 in accrued compensation due him.
(2) Mr. Solomon received a car allowance of $950 per month and health, life
and disability insurance during each fiscal year.
(3) Excludes 6,600,000 and 60,000 shares underlying options granted during
the year by Parago to Messrs. Solomon and Travis, respectively. Mr.
Travis was originally granted 120,000 shares underlying options that
vested over a three year period but pursuant to the terms of his
Settlement and Release Agreement with the Company, 60,000 of such
shares underlying options were forfeited. See "Employment Agreements"
and "Certain Relationships and Related Transactions."
(4) Mr. Travis received a car allowance of $950 per month for fiscal years
1998, 1999 and 2000 and health, life and disability insurance during
each fiscal year. Pursuant to Mr. Travis' employment agreement, Mr.
Travis could elect to receive Company Common Stock in lieu of certain
raises in salary. Mr. Travis exercised this option during fiscal year
1998, and in connection therewith, received 70,000 shares of the
Company's common stock (valued at $20,000). Mr. Travis commenced
working for the Company in December 1996, and Mr. Travis and the
Company agreed to terminate his employment with the Company effective
January 14, 2000. As a result of the termination of Mr. Travis'
employment agreement and the severance provisions therein, "All Other
Compensation" for 2000 includes $295,000 relating to the forgiveness of
indebtedness owed to the Company by Mr. Travis and $285,000 in
compensation expense recognized by the Company in connection with the
acceleration of certain Parago options granted to Mr. Travis, which
forgiveness of indebtedness and acceleration of options were negotiated
in connection with Mr. Travis' termination and the cancelation of Mr.
Travis' remaining options to purchase 60,000 Parago shares.
6
<PAGE> 7
(5) Mr. Klein commenced working for the Company in January 1998. In
connection with his employment agreement, Mr. Klein received a
relocation package of $56,542 and 100,000 shares of the Company's
Common Stock as a sign-on bonus, valued at $37,000 as of the date of
grant. Mr. Klein also received, as part of his employment agreement,
health, life and disability insurance. Mr. Klein commenced working for
the Company in January 1998 and resigned from the Company effective
March 1, 2000.
OPTION GRANTS DURING FISCAL YEAR 2000
The Company did not grant any stock options or stock appreciation
rights to the Named Executive Officers during the fiscal year ended February 29,
2000. Parago granted stock options to certain of the Named Executive Officers
during the 2000 fiscal year, as described in "Certain Relationships and Related
Transactions."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table describes, for each of the Named Executive
Officers, options exercised and the potential values for their unexercised
in-the-money options at February 29, 2000 (the Company issued no SARs during the
2000 fiscal year):
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END($) FISCAL YEAR END
---------------------- ($) (2)
SHARES VALUE ---------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) (1) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Steven B. Solomon....... 0 0 0/0(4) 0/0(4)
Richard L. Travis, Jr. . 0 0 0/0(4) 0/0(4)
Carl E. Banzhof......... 0 0 100,000/0 618,750/0(4)
Bennett Klein........... 208,337 1,194,270 0/91,667 0/560,773(4)
</TABLE>
(1) Based on the market price on the date exercised less the exercise
price payable for each share.
(2) Based on the fair market value of the Company's Common Stock (at
February 29, 2000) per share less the exercise price payable for each
share.
(3) Excludes options to purchase 4,000,000 shares of Parago exercised by
Mr. Solomon during the 1999 fiscal year and options to purchase
1,000,000 shares of Parago granted to and exercised by Mr. Solomon
during the 2000 fiscal year (after giving effect to the four-for-one
stock split of Parago's common stock effective in July 1999).
(4) Excludes Parago options to purchase 1,600,000 shares (400,000 of which
are currently exercisable), 60,000 shares (all of which are currently
exercisable), 100,000 shares (all of which are unexcercisable), and
60,000 shares (of which all were canceled subsequent to fiscal year
2000) for Messrs. Solomon, Travis, Banzhof and Klein respectively
(after giving effect to the four-for-one stock split of Parago's common
stock effective in July 1999).
7
<PAGE> 8
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Solomon.
The annual base salary payable to Mr. Solomon was $168,000 as of February 29,
2000, and the employment agreement provides for periodic salary increases and
bonuses. The employment agreement continues until February 2002 and annually
thereafter until terminated by either party. In addition, the employment
agreement provides for a severance benefit of the greater of (i) the remaining
term of the contract, discounted at a rate of six percent, or (ii) 24 months of
base salary, in the event of termination without cause or constructive
termination. Mr. Solomon has entered into an Employment Agreement with Parago
effective as of January 1, 1999, and the Company ceased paying Mr. Solomon's
salary effective as of July 1, 1999.
Richard L. Travis, Jr., the Company's former Chief Operating Officer
and Chief Financial Officer, and the Company agreed to terminate his employment
with the Company and his employment agreement was terminated effective as of
January 14, 2000. In connection with his resignation from the Company and the
termination of his employment agreement, Mr. Travis and the Company entered into
a Settlement and Release Agreement which provided, among other things, for the
payment of an aggregate of $50,001 to Mr. Travis in three equal monthly
installments of $16,667 commencing on the last day of each of the first three
months following Mr. Travis' resignation from the Company, forgiveness of
endebtedness of $295,000, acceleration of options to purchase 60,000 Parago
shares, and termination of Mr. Travis' remaining 60,000 options to purchase
Parago shares. The Settlement and Release Agreement also provided for Mr. Travis
to perform certain financial consulting services for the Company (as an
independent contractor) until April 14, 2000. See "Certain Relationships and
Related Transactions."
Bennett Klein, CT Holdings' former Vice President of Business
Development, resigned from CT Holdings and his employment agreement was
terminated effective March 1, 2000. In connection with his resignation from CT
Holdings and the termination of his employment agreement, Mr. Klein and CT
Holdings entered into a Settlement and Release Agreement which provides, among
other things, for the accelerated vesting of his 83,342 remaining options, the
waiver of payment of the exercise price of those options, and Mr. Klein's
forfeiture of any right to severance payments. The Settlement and Release
Agreement also provides for Mr. Klein to perform certain financial consulting
services for the Company (as an independent contractor). See "Certain
Relationships and Related Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Solomon is the Chief Executive Officer and President and a director
of the Company and serves as the Chief Executive Officer and Chairman of the
Board of Directors of Parago. Other than Mr. Solomon, none of the Company's
executive officers serve as members of the board of directors or compensation
committee of any entity that has one or more executive officers who serve on our
board or compensation committee. See "Certain Relationships and Related
Transactions" for information regarding transactions with members of the
compensation committee.
8
<PAGE> 9
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 26, 2000, there were issued and outstanding 48,749,718
shares of Common Stock. There is no other class of voting security of the
Company issued or outstanding. The following table sets forth the number of
shares of the Company's Common Stock beneficially owned, as of June 26, 2000 by
(i) each person known to the Company to own more than 5% of the Common Stock of
the Company (the only class of voting securities now outstanding), (ii) each
director, (iii) each executive officer named in the Summary Compensation Table
and (iv) all directors, named executive officers and other executive officers as
a group. Unless otherwise indicated, the number of shares and percentage of
ownership of Common Stock for each of the stockholders set forth below assumes
that shares of Common Stock that the stockholder may acquire within sixty days
of June 26, 2000 are outstanding. Except as otherwise indicated, all shares are
owned directly and the owner has the sole voting and investment power with
respect thereto.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE PERCENT OF
NAME AND ADDRESS SHARES OWNED CLASS
---------------- ------------ ----------------------
<S> <C> <C>
Carl E. Banzhof(1)
3811 Turtle Creek Blvd., Suite 770
Dallas, Texas 75219 ............................. 159,401 *
Chris A. Economou
150 North Federal Highway, Suite 210
Fort Lauderdale, Florida 33301 .................. 474,400 *
Icarus Investments I, Ltd.(2)
200 Crescent Court, Suite 600
Dallas, Texas 75201 ............................. 3,000,000 6.2%
Victor K. Kiam
RPI Corporation
350 Fifth Avenue, Suite 5408
New York, New York 10018 ........................ 744,452 1.5%
Bennett Klein
3811 Turtle Creek Blvd., Suite 770
Dallas, Texas 75219 ............................. 300,000 *
Lawrence Lacerte(4)
5950 Sherry Lane #900
Dallas, Texas 75225 ............................. 1,200,000 2.5%
PSINet Consulting Solutions, Inc.(5)
4400 Post Oak Parkway, Suite 1100
Houston, Texas 77027 ............................ 5,031,937 9.9%
Mark Rogers
NFT Ventures, Inc. ..............................
751 Laurel Street, No.19
San Carlos, California 94070 .................... 401,500 *
Dr. Axel Sawallich(6)
Beatrixgasse 3
A-1030 Vienna, Austria .......................... 137,144 *
Steven B. Solomon
3811 Turtle Creek Blvd., Suite 600
Dallas, Texas 75219 ............................. 5,485,993 11.3%
Lester Sideropoulos(7)
3811 Turtle Creek Blvd., Suite 770
Dallas, Texas 75219 ............................. 100,000 *
</TABLE>
9
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<TABLE>
<S> <C> <C>
Richard L. Travis, Jr
7067 Inwood Lane
Dallas, Texas 75209 ............................. 933,000 1.9%
All officers and directors
As a group (10 persons)(8) ...................... 13,085,483 26.6%
</TABLE>
----------
*Less than 1%.
(1) Includes 100,000 shares presently issuable pursuant to options to
purchase Common Stock and 2,000 shares owned by his spouse.
(2) Based solely on the 13G/A (Amendment No. 1) filed with the Securities
and Exchange Commission ("SEC") on July 15, 1998 with respect to the
Company's Common Stock owned by Icarus. According to the 13G/A
(Amendment No. 1), Icarus may be deemed to own beneficially 3,000,000
shares of Common Stock, acquired for investment purposes.
(3) Includes 250,000 shares held by RPI, Inc., a company owned and
controlled by Mr. Kiam.
(4) Includes 200,000 shares of Common Stock subject to options vesting
within 60 days of June 26, 2000.
(5) Includes 2,000,000 shares presently issuable pursuant to warrants to
purchase Common Stock. Based solely on the 13D/A (Amendment No. 2)
filed with the SEC on November 24, 1999 with respect to the Company's
Common Stock owned by PSINet.
(6) Includes 12,144 shares held by Dr. Sawallich as trustee, over which he
has voting and dispositive power.
(7) Includes 100,000 shares presently issuable or issuable within 60 days
of June 26,2000 pursuant to options to purchase Common Stock held by
Mr. Sideropoulos.
(8) Includes shares issuable pursuant to presently exercisable options or
warrants or options or warrants exercisable within 60 days of June 26,
2000, held by Messrs. Banzhof, Lacerte, Sideropoulos and/or their
affiliates.
10
<PAGE> 11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has contracted with a major shareholder in the Company, PSINet
Consulting Solutions, Inc., formerly known as Metamor Software Solutions, a
division of Metamor Worldwide, Inc. (PSINet) to provide various development
services for the Company. The Company incurred approximately $2,000 and $600,000
in expenses related to these services during fiscal years ended February 29,
2000 and February 28, 1999, respectively. Kenneth R. Johnsen, one of the
Company's former directors, was the Executive Vice President of PSINet during
this time. In June 1999, Mr. Johnsen joined the Company's subsidiary, Parago, as
its President and Chief Operating Officer. In connection therewith, Mr. Johnsen
was granted options to purchase 2,000,000 shares of Parago common stock at
$0.025 per share and options to purchase 1,800,000 shares at $0.25 per share.
On January 7, 1999, the Company acquired 20,000,000 shares of Parago common
stock in an organizational subscription for an aggregate purchase price of
$50,000 and sharing of the Company's resources, including personnel,
administrative and financial resources. The Company continued to provide these
resources to Parago through June 30, 1999. In consideration for these resources,
the Company allocated a portion of its overhead costs related to these services
to Parago. These allocated expenses, totaling approximately $141,000, were
recognized by Parago as a contribution to equity, as the services were provided
in connection with the Company's initial equity investment.
During the fiscal year ended February 29, 2000, the Company borrowed cash
from Parago to cover short-term cash requirements. As a result, Parago issued
promissory notes to the Company for approximately $571,299 for its initial
investment of $50,000 in Parago and sharing of other cash disbursements made to
assist the Company in meeting short-term cash requirements. The promissory notes
are secured by 300,000 shares of Parago common stock, are due on demand, and
bear interest at five percent. In December 1999, the Company paid $500,000 of
its outstanding note balance.
The Company has announced that, subject to compliance with SEC and state
regulations and the expiration of a lock-up agreement with Parago's underwriters
of its proposed initial public offering, the Company intends to initiate a
distribution of fifteen percent of the shares of Parago's common stock that the
Company owns. If there are problems associated with compliance with SEC
requirements or state law, then the distribution of Parago shares may be delayed
or may not occur. There can be no assurance that the Company will complete the
distribution on the proposed terms or at all.
Richard L. Travis, Jr., the Company's former Chief Operating Officer and
Chief Financial Officer, and the Company agreed to terminate Mr. Travis'
employment with the Company and his employment agreement was terminated
effective as of January 14, 2000. In connection with the termination of his
employment with the Company and the termination of his employment agreement, Mr.
Travis and the Company entered into a Settlement and Release Agreement which
provides, among other things, for the payment of an aggregate of $50,001 to Mr.
Travis in three equal monthly installments of $16,667 commencing on the last day
of each of the first three months following Mr. Travis' termination of
employment with the Company. The Settlement and Release Agreement also provides
for Mr. Travis to perform certain financial consulting services for the Company
(as an independent contractor) until April 14, 2000. Also, in connection with
the Settlement and Release Agreement, the Company agreed to forgive an aggregate
of $295,000, plus accrued interest, of indebtedness owed by Mr. Travis to the
Company. In addition, Parago accelerated certain of the Parago options granted
to Mr. Travis, which resulted in compensation expense of $285,000 to the Company
and agreed to cancel his remaining options to purchase 60,000 Parago shares.
11
<PAGE> 12
Bennett S. Klein, the Company's former Vice President of Business
Development, resigned from the Company and his employment agreement was
terminated effective as of March 1, 2000. In connection with his resignation
from the Company and the termination of his employment agreement, Mr. Klein and
the Company entered into a Settlement and Release Agreement which provides,
among other things, for Mr. Klein to forgive the remaining amounts due to him
from the Company under his Employment Agreement in exchange for the Company's
agreement to accelerate the vesting of Mr. Klein's remaining options and to pay
the exercise price related to such shares.
In August 1998, the Company granted stock options to a stockholder and
reduced the exercise price of certain other stock options in consideration for
the stockholder's assumption of indebtedness of the Company in the principal
amount of $500,000. The transactions resulted in no gain or loss. At February
28, 1999, the Company had a $125,000 receivable from the stockholder. This
outstanding balance was repaid in full during fiscal 2000.
During the year ended February 28, 1999, the Company loaned approximately
$1,525,000, exclusive of financing provided for the exercise of stock options,
to its Chief Executive Officer, Mr. Solomon. At February 29, 2000 and February
28, 1999, $209,000 and $354,000, respectively, remained unpaid.
During fiscal years ended February 29, 2000 and February 28, 1999, the
Company and Parago incurred legal fees in the amount of approximately $86,000
and $140,000, respectively to Wood, Exall & Bonnet, L.L.P. David Wood, a partner
of such firm, is a relative of Mr. Solomon. Subsequent to February 28, 1999, Mr.
Wood joined Parago as its General Counsel.
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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.
CT HOLDINGS, INC.
By: /s/ Steven B. Solomon
Steven B. Solomon
Chief Executive Officer
(Principal Executive Officer)
Dated: June 28, 2000
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