UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number: 0-24627
IDF International, Inc.
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(Exact name of registrant as specified in its charter.)
New York 11-3059198
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
330 West 42nd St. (20th Floor)
New York, New York 10036
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(Address of principal executive offices)
Registrant's telephone number, including area code: 212-563-6900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date: 15,185,835 shares of Common
Stock, $.01 par value, as of April 30, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
IDF International, Inc., and its consolidated subsidiaries
(collectively, the "Company" or the "Registrant"), files herewith unaudited
consolidated balance sheets of the Company as of April 30, 1999 (unaudited) and
July 31, 1998 (the Company's most recent fiscal year), an unaudited consolidated
income statement for the three and nine months ended April 30, 1999 and 1998,
and unaudited consolidated statements of cash flows for the nine months ended
April 30, 1999, together with unaudited consolidated notes thereto. In the
opinion of management of the Company, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, necessary to fairly
present the financial condition of the Company for the interim periods
presented. Operating results for any quarter are not necessarily indicative of
results for any future period. The financial statements included in this report
on Form 10-QSB should be read in conjunction with the audited financial
statements of the Company, and the notes thereto, included in the annual report
of the Company on Form 10-KSB for the fiscal year ended July 31, 1998.
<PAGE>
IDF International, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The interim financial statements are unaudited but reflect all
adjustments which, in the opinion of management, are necessary to
provide a fair statement of the results of IDF International, Inc. and
its consolidated subsidiaries (collectively, the "Company") for the
interim periods presented. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-KSB for the fiscal year ended July 31, 1998.
2. Revolving Credit Facility
Hayden-Wegman, Inc., an indirect wholly owned subsidiary of the Company
("Hayden-Wegman") has a $3.0 million revolving credit facility
agreement with a lender. As of April 30, 1999 the outstanding
borrowings under this facility amounted to approximately $2,228,547.
Under this agreement, Hayden-Wegman has pledged substantially all of
its contract receivables and other tangible and intangible assets. In
accordance with the agreement, Hayden-Wegman identifies and transfers
to this lender, a designated pool of contract receivables and is
advanced 80% of the aggregate face value of such receivables. The
remaining 20%, less interest, and certain reimbursable expenses, is
remitted to Hayden-Wegman once the lender receives payment for the
pooled receivables. The lender is paid interest at the rate of prime
plus 1-1/2% per annum and fees of approximately 1% per month based on a
sliding scale tied to the number of days that the receivables are
outstanding. The interest and fees are computed on the full value of
each receivable until all related client payments are received.
Hayden-Wegman has the option to repurchase portions of the receivable
pools from the lender.
3. Summary of Significant Accounting Policies
For a summary of significant accounting policies (which have not
changed from fiscal year end July 31, 1998) and additional financial
information, see the Company's Annual Report on Form 10-KSB, including
the consolidated financial statements and notes thereto for the fiscal
year ended July 31, 1998.
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Forward-Looking statements
The statements contained herein, other than historical information, are or may
be deemed to be "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21A of the Securities
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the actual results of IDF International, Inc. ("IDF" or the
"Company") in future periods to differ materially from such statements. These
factors, risks and uncertainties include the relatively short operating history
of IDF; rapid technological change affecting products and services offered by
IDF; the impact of competitive services, products and pricing from other
consulting, engineering and design firms; general economic conditions and the
volatility of customers' capital building plans and their ability to obtain
financing; delays and postponements in consulting and engineering projects,
including public sector projects; the ability to obtain and keep, at profitable
levels, quality personnel; and the availability of sufficient financial
resources to enable IDF to meet both current and new customer demand for
services.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion relates to the Company's results of operations,
financial condition and liquidity for the interim periods indicated. References
herein to the "Company" or "IDF" are references to IDF International, Inc. and
its consolidated subsidiaries, including Techstar Communications, Inc
("Techstar") and Hayden-Wegman Inc. ("Hayden-Wegman"), collectively.
Results of Operations
Comparison of Three and Nine Months ended April 30, 1999 to the Three and Nine
Months ended April 30, 1998
Revenues
Net revenues for IDF for the three months ended April 30, 1999 aggregated
$3,493,925. This result represents a decrease of approximately $322,000 or 8%,
from the same period in 1998. Increased revenues at Hayden-Wegman of
approximately $525,000 offset the overall reduction in revenues. These increased
revenues at Hayden-Wegman relate to new contracts and an expansion of existing
contracts previously awarded. Techstar experienced a reduction in revenues of
approximately $850,000 with net revenues of $548,000 for the three months ended
April 30, 1999. The decline was primarily attributable to the cancellation of a
contract by its most significant customer. This reduction was further
exacerbated by a reduction in the scope of work by two other customers, due to
the general slowdown in its industry, and Techstar was able to only slightly
offset these reductions with an increase in work from new contracts. For the
nine months ended April 30, 1999 the Company aggregated net revenues of
$9,526,945 which is a reduction of approximately $2,405,000 from the same period
in 1998. This reduction is due almost entirely to reduced activity at Techstar,
which has revenues of approximately $1,631,000 for the nine months ended April
30, 1999 compared to approximately $4,430,000 for the same period ended April
30, 1998.
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Expenses
The Company's consolidated operating expenses for the three months ended April
30, 1999 were $4,414,602. This result represents an increase of approximately
$900,000 or 26% from the same period in 1998. Expenses increased at
Hayden-Wegman due to a notification of past due state tax liabilities in the
approximate amount of $475,000 from prior periods that were not previously
recognized. Expenses also increased at Hayden-Wegman due to increased marketing
efforts, the acquisition and implementation of hardware and software for a new
accounting/management information system and an increase in payroll costs
related to new contracts. Techstar accounted for a reduction in expenses of
approximately $45,000 with expenses of $1,400,000 for the three months ended
April 30, 1999. This was primarily due to a significant reduction of employees
and a cutback in associated overhead expense. These changes were management's
response to a reduction in business. As a result of the continued inability to
secure the necessary new contracts at Techstar, the Company has elected to shut
down its Techstar operations based in Silver Spring, Maryland as of June 1,
1999. Operational expense reductions were offset by a significant recognition of
potential liabilities of approximately $500,000 associated with management's
decision to cease operations at its Silver Spring location beginning June 1,
1999. For the nine months ended April 30, 1999 the Company aggregated expenses
in the amount of $10,759,240. This represents a reduction of $237,930 from the
same period in 1998. Increased expenses at Hayden-Wegman related to an increased
workload offset significant reductions at Techstar due to decreased business
volumes.
IDF incurred interest expense in the amount of $203,213 for the three months
ended April 30, 1999. This represents a significant decrease in interest of
approximately $70,000 or 25% from the same period in fiscal year 1998. For the
nine months ended April 30, 1999 the Company incurred interest expenses of
$668,411 that represents a decrease of approximately $150,000 or 18% from the
same period in 1998. Hayden-Wegman has a $3,000,000.00 revolving credit facility
with a lender (a factoring arrangement). In accordance with the agreement,
Hayden-Wegman identifies and transfers to this lender a designated pool of
contract receivables and is advanced 80% of the aggregate face value of such
receivables. The remaining 20%, less interest, fees and certain reimbursable
expenses, is remitted to Hayden-Wegman once the lender receives payment for the
pooled receivables. The reduction in interest expense, when compared to the same
period in 1998, is attributable to a concerted effort by management to improve
the collections of receivables that resulted in certain customers remitting
their payments in a more timely manner. This effort resulted in a lower average
balance outstanding under the revolving credit facility and therefore reduced
the interest charged the Company.
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Income
The Company experienced net loss of $1,075,514 for the three months ended April
30, 1999. This represents a reduction in net earnings of approximately
$1,150,000 from the same period in 1998. On an earnings per share basis, the
loss is $0.07 based upon 15,185,835 shares of common stock outstanding as of
April 30, 1999. For the nine months ended April 30, 1999 the Company experienced
net losses of $1,821,519 which on an earnings per share basis results in a loss
of $0.12 based upon 15,185,835 shares of common stock outstanding as of April
30, 1999.
Liquidity and Capital Resources
At April 30, 1999, IDF had cash on hand of $85,512. This amount was offset by a
current liability overdraft of $191,647. This is a reduction of approximately
$330,000 from the cash on hand as of April 30,1998 at which time the cash on
hand was $415,336 with an offset by a current liability of $183,323.
During the nine months ended April 30, 1999, the Company experienced significant
demands on its working capital needs. At Techstar, the significant reduction in
revenues could not be immediately offset by a reduction in expenses. Management
responded by significantly reducing the number of employees, but it was not able
to do so in a timely enough manner to avoid a reduction in cash. At
Hayden-Wegman, delays in billing and the subsequent delay in collections of
funds due it continue to create a cash drain under the terms of the revolving
credit facility. Management believes its new accounting and information system
will greatly enhance its billing and collections efforts at Hayden-Wegman. At
Hayden-Wegman, the Company also has been hiring new employees for new contracts
awarded that require the use of cash in advance of payment by clients.
IDF believes its cash flows from operations and its revolving credit facility
will continue to need to be supplemented in the current fiscal year to meet its
working capital needs. Certain members of the IDF Board of Directors and
significant shareholders have committed to loan up to $1,000,000 to IDF when
requested for its working capital needs. As part of this commitment, in October
1998, the Company received $250,000 from Robert Rubin, Chairman of the Board of
the Company, and in November, 1998, the Company received an additional $400,000
from American United Global, Inc. ("AUGI"), a company controlled by Mr. Rubin.
Additionally, in January, 1999, the Company received $200,000 toward working
capital needs in the forms of loans from (i) AUGI, in the amount of $100,000,
(ii) an affiliate of Lawrence Kaplan, a director of the Company, in the amount
of $75,000 and (iii) $25,000 from an unaffiliated individual. Subsequent to
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January 1999 it became apparent that the commitment of $1,000,000 would need to
be increased. In March 1999, Lawrence Kaplan, a director of the Company, and an
unaffiliated individual together provided a loan to the Company in the amount of
$68,000. Subsequent to that date, AUGI provided additional funding in the amount
of $492,000 of which $250,000 was provided in April 1999 and $242,000 was
provided in May 1999. Each of these notes is due and payable upon demand and
accrues interest at an annual rate of 8%. The advances have been accounted for
as interest bearing demand loans under promissory notes while the Company and
the investors are negotiating the final structure and terms of the financing
transaction. Management anticipates that such final structure will consist of a
combination of common share equity and subordinated convertible debt. IDF may
also require additional financing in order to take advantage of new
opportunities in its core businesses. However, there can be no assurance that
such financing, if available, will be on terms acceptable to IDF or that such
financing would not result in dilution to existing shareholders.
Part II. Other Information
Item 1: Legal Proceedings. The Company is not a party to any material
legal proceeding or litigation.
Item 2: Changes in Securities and Use of Proceeds. See "Conversion of
Preferred Stock," below.
Item 3: Defaults Upon Senior Securities. None.
Item 4: Submission of Matters to a Vote of Security Holders. See
"Postponement of Annual Meeting," below.
Item 5: Other Information
Conversion of Preferred Stock
As of December 11, 1998 the Company offered to all holders of the Company's
Series A, Series A-1 and Series B Preferred Stock (collectively, "Preferred
Stock") to issue to each of them one share of Common Stock in exchange for their
agreement to convert one share of Preferred Stock into Common Stock. If a holder
of Preferred Stock agreed to convert at the then current rate of $1.25 per share
(or $2.00 per share for the Series,B Preferred Stock), the Company agreed to
issue to that holder one additional share of Common Stock for each share of
Preferred Stock converted. This offer originally expired December 31, 1998.
Subsequent to that date, the Company extended the deadline to accept the offer
until February 12, 1999. As of the filing date, all but one holder of Preferred
Stock has agreed to this arrangement. As a result an aggregate of 3,104,292
shares of Preferred Stock are being cancelled in exchange for an aggregate of
6,208,584 Common Shares. This will increase the total number shares of Common
Stock outstanding to 16,136,425 once all of the shares are converted.
<PAGE>
New Board Members
Effective June 14, 1999, the members of the Board of Directors elected Mr.
Robert N. Harvey and Mr. Michael J. Losch as members of the Board of Directors
to fill two vacancies on the Board. Mr. Harvey was further elected to the
position of President and Chief Executive Officer of the Corporation. Mr. Losch
continues in his position of Chief Financial Officer and Chief Operating
Officer.
Termination of Employment Agreements
As of February 1, 1999, the Company, Hayden-Wegman, Techstar and certain
affiliates of the Company entered into a Separation Agreement with Solon Kandel,
a director and officer of the Company. Pursuant to this Agreement, (a) Mr.
Kandel resigned all director and officer positions with the Company and its
affiliates to pursue other opportunities, (b) Mr. Kandel's employment with the
Company, as evidenced by an Employment Agreement with the Company dated August
25, 1997, was terminated, (c) Mr. Kandel was paid his benefits and salary
through April 30, 1999, and (d) the parties waived and discharged all rights
each had against the other. Mr. Kandel will retain the 71,379 vested stock
options granted to Mr. Kandel pursuant to his employment agreement, which
options are immediately exercisable through November 30, 2002.
As of March 23, 1999, the Company, Hayden-Wegman, Techstar and certain
affiliates of the Company entered into a Separation Agreement with Sergio
Luciani, a director and officer of the Company. Pursuant to this Agreement, (a)
Mr. Luciani resigned all director and officer positions with the Company and its
affiliates to pursue other opportunities, (b) Mr. Luciani's employment with the
Company, as evidenced by an Employment Agreement with the Company dated August
25, 1997, was terminated, (c) Mr. Luciani was paid his benefits and salary
through April 30, 1999, and (d) the parties waived and discharged all rights
each had against the other. Mr. Luciani will retain the 71,379 vested stock
options granted to Mr. Luciani pursuant to his employment agreement, which
options are immediately exercisable through November 30, 2002.
The Company is currently negotiating with Simantov Moskona to enter into a
Separation Agreement similar in scope to those of Messrs. Kandel and Luciani.
This Agreement has not yet been finalized or entered into.
Postponement of Annual Meeting
On February 11, 1999, the Company was scheduled to hold its Annual Meeting of
Shareholders. However, on February 10, 1999, the Company filed a Form 8-K
providing notice that the Annual Meeting was postponed indefinitely. The Company
intends to announce the Annual Meeting date sometime in the next few months.
<PAGE>
Termination of Techstar Business
On May 24, 1999 Techstar entered into an agreement with a significant customer
to terminate an agreement to perform certain work Techstar had previously agreed
to perform. The customer agreed to accept the termination without claim for
damages and agreed to pay Techstar for work previously performed. Techstar
agreed to release all relevant files to the customer to effect an orderly
transition of the work to another company. On May 31, 1999 Techstar notified its
remaining three customers in its site acquisition area that it was in the
process of closing out its operations in the area of site acquisition and
related services. As of June 1, 1999, none of the independent contractors or
employees who were involved in providing services for Techstar would be further
employed by Techstar to do so.
On June 10, 1999 Techstar Communications, Inc. entered into an agreement to
transfer by way of assignment or through a new contract directly between JVP
engineers, P.C. ("JVP") and the lone remaining customer for Techstar engineering
work. This agreement transferred anticipated future engineering work that
Techstar expected to perform that Techstar no longer believed was profitable for
the Company. As part of this agreement, Techstar will be paid for related work
previously completed and it will share in future potential profits related to
the assigned work. The Company believes that all or most of the employees of the
Techstar engineering department will become employees of JVP with the specific
duties to continue work on the assigned contract.
As a result of the actions related to Techstar operations, the Company has
reduced its number of employees to one person and it is managing the Techstar
business from the New York headquarters location as of the filing date. The
Company expects to reorganize its telecommunications related engineering work
under new management at a later date.
Certain Tax Matters
On March 10, 1999 the Company received notice from the New York State Department
of Taxation and Finance that Warrants were issued in the aggregate amount of
$92,875.71. These Warrants relate to penalties and interest for previously paid
state taxes for tax years 1993, 1994, 1996 and 1997 that were not paid in a
timely manner. The Company is currently in the process of negotiation with the
State Department of Taxation regarding the appropriateness of the penalties and
payment arrangements. These Warrants are in addition to a New York State Tax
Audit for the tax years 1994 through 1998 for which the State has preliminarily
issued a finding of taxes, penalties and interest due in the amount of $217,000.
The Company has disputed the Audit and requested a conciliation conference with
the State, which has not yet been scheduled. On March 31, 1999 an executive and
member of the Board of Directors of Hayden-Wegman provided a loan to the company
in the amount of $100,000 to pay the estimated taxes due portion of the Audit
finding. The Company therefore paid the State the estimated taxes due portion
and intends to continue to attempt to resolve this dispute in its conciliation
conference.
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On May 25, 1999 the Commonwealth of Massachusetts Department of Revenue
contacted the Company regarding past due taxes related to tax periods in 1995
through the first half of 1999. The Company has disputed the amounts due, which
total $168,000 including penalties and interest.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.18 Separation Agreement of Solon Kandel
10.19 Separation Agreement of Sergio Luciani
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K was filed on February 10, 1999.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: June 15, 1999 IDF INTERNATIONAL, INC.
By: /s/ Michael J. Losch
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Michael J. Losch
Chief Operating Officer and
Chief Financial Officer
EXHIBIT 10.18
SEPARATION AGREEMENT
This Separation Agreement (this "Agreement") is dated as of February 1,
1999, and is entered into between SOLON KANDEL, with an address at 592 Ashwood
Road, Springfield, New Jersey 07081, ("Kandel") and IDF International, Inc., a
New York Corporation, Hayden-Wegman, Inc., a New York Corporation, and TechStar
Communications, Inc., a Delaware Corporation, all with offices located at 330
West 42nd Street, New York, New York 10036 (IDF International, Inc. being
referred to as the "Company" and together with Hayden-Wegman, Inc. and TechStar
Communications Inc., jointly and severally, the "Companies").
1. Termination of Employment and Employment Agreement. On August 25,
1997, Kandel and IDF International, Inc. entered into an employment agreement
(the "Employment Agreement"). Kandel and the Company hereby agree and
acknowledge that Kandel's employment with the Company pursuant to the Employment
Agreement shall terminate effective as of February 1, 1999 (the "Effective
Date"). Except as otherwise expressly set forth herein, the parties hereto agree
that the rights and obligations of Kandel and the Company arising under the
Employment Agreement shall terminate and be of no further force and effect as of
the Effective Date, it being agreed upon that the benefits hereunder are a
material inducement to Kandel entering into this Separation Agreement.
2. Release. In consideration of the benefits set forth in Section 3
below, the release described in Section 4 and other accommodations made to
Kandel, Kandel hereby releases, waives, discharges and gives up any and all
rights which Kandel may have against the Companies and those officers, directors
and/or shareholders who are signatories hereto, arising out of (a) Kandel's
employment with the Companies, or any position held by him, including his
position as an officer and director of the Companies, or termination therefrom
or the circumstances related thereto or (b) by reason of any other manner, cause
or thing whatsoever to the date of Kandel's execution and delivery of this
Agreement, except to the extent the rights or obligations continue pursuant to
this Agreement. Nothing in this Agreement shall preclude Kandel from exercising
his rights with respect to Kandel's vested stock options in the Company issued
to Kandel during the course of his employment, as more fully described in
Section 6 below. Notwithstanding this release, any and all indemnifications to
which Kandel is entitled pursuant to the Employment Agreement, or an Indemnity
Agreement between the parties hereto dated January 23, 1998, or pursuant to the
Certificates of Incorporation, By-Laws, resolutions, or currently existing
corporate practices, or any other corporate policy or agreement or undertaking
of any of the Companies, shall remain in full force and effect and shall survive
the termination of the Employment Agreement and/or this Separation Agreement,
and in all events Kandel shall be entitled to all benefits and rights
thereunder.
3. Benefits. As consideration for entering into this Agreement, Kandel
shall receive, or have the use of, as the case may be:
A. Commencing on the Effective Date and continuing until the earlier of
(a) March 31, 1999 or (b) Kandel's securing and commencing full time employment
of his choosing, Kandel shall be paid by the Companies in the normal course of
business at the rate of $150,000 per annum;
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B. The Companies' leased Infiniti Q45 automobile, which is currently
used by Kandel, for Kandel's exclusive use. Until lease expiration, the
Companies shall continue to make all monthly lease payments and shall continue
to be responsible to pay for insurance and any and all costs and expenses of
returning the vehicle at the end of the lease, provided however, that Kandel
shall endeavor, in good faith, to have the lease obligations assumed by a
successor full time employer, if any, and shall utilize his reasonable efforts
to keep the automobile in good condition and repair, reasonable wear and tear
excepted; and
C. In connection with this Agreement, the Companies shall make their
and Kandel's COBRA premium payments for a period equal to the earlier of one
year or Kandel's securing and commencing full time employment of his choosing.
4. Release by Companies. As additional consideration for entering into
this Agreement, the Companies and each of their officers, directors and/or
shareholders who are signatories hereto, hereby release, waive, discharge and
give up any and all rights which any or all them may have against Kandel arising
out of (a) Kandel's employment with the Companies or any position held by him,
including his position as an officer and director of the Companies or
termination therefrom or the circumstances related thereto or (b) by reason of
any other manner, cause or thing whatsoever to the date of Kandel's execution
and delivery of this Agreement.
5. Consultation. The parties agree that in his sole and absolute
discretion, upon request of the Companies, Kandel (directly or through a
consulting company) may serve the Companies as a business development consultant
on matters relating to the business of the Companies (the "Services"). The
Services may include introductions to prospective clients and other business
opportunities, and assisting in the development of such business relationships
and facilitating business transactions. Kandel shall not be required to travel
or expend any monies in connection with such services, if he chooses to provide
them. Further, Kandel may render consulting or other services to other parties
requiring most or all of his time, attention, skill and energy. Accordingly,
Kandel, in his sole and absolute discretion, shall devote only as much time and
attention, and by such methods, as he desires. The failure or inability of
Kandel to render services by reason of other business commitments, absences, ill
health, death, temporary or permanent disability, or for any other cause, shall
not constitute a failure by him to perform hereunder and shall not be deemed a
breach or default hereunder. Except as otherwise provided in this Agreement, it
is expressly understood that at no time shall Kandel, when undertaking
consulting functions, be considered an employee, officer, agent or director of
the Companies or any of their respective subsidiaries or affiliates. The
Companies shall pay to Kandel reasonable and equitable compensation, as mutually
agreed upon by the parties, for all consulting services rendered by him
hereunder upon request of the Companies. Kandel shall be an independent
contractor and shall be solely responsible for any tax obligations he incurs as
a result of the payments provided for herein.
6. Payment of Compensation and Benefits under Employment Agreement. It
is understood and agreed that Companies shall be obligated to pay Kandel all
accrued base salary, as described in Paragraph 3(a) of the Employment Agreement
through the Effective Date. Companies
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shall also reimburse Kandel for all expenses, as set forth in Paragraph 3(c) of
the Employment Agreement, incurred through the Effective Date. The Companies and
Kandel acknowledge that in accordance with Paragraph 3 (d) of the Employment
Agreement, Kandel has 71,379 immediately exercisable vested Options (as defined
in the Employment Agreement). Nothing herein shall be deemed to prohibit Kandel,
from immediately or at any time up to November 30, 2002, from exercising the
Options. It is understood and agreed that the Options not previously vested and
immediately exercisable under the Employment Agreement shall immediately
terminate as of the Effective Date. All rights of Kandel in any options pursuant
to the Employment Agreement, including, but not limited to, those set forth in
section 3 (d) (vi) (Assignment of Option), (vii) (Reservation of Option Shares:
Registration of Options), (viii) (Cashless Exercise), and (ix) (Public
Distribution of Option Shares), shall continue to apply to all 71,379 vested
options.
7. Restrictive Covenant. It is understood and agreed that the
restrictive covenants described in Paragraph 5 (b) (ii) of the Employment
Agreement shall terminate and be of no further force and effect. The above
notwithstanding, and provided that Companies are not in material default under
this Agreement, Kandel shall not, for a period of one year commencing on the
Effective Date, invest, carry on, engage or become involved, either as an
employee, agent, advisor, officer, director, stockholder (excluding ownership of
not more than 5% of the outstanding shares of a publicly held corporation),
manager, partner, joint venture, participant, or consultant, in any business
enterprise which directly competes against TechStar Communications, Inc. in
providing site acquisition, zoning, architectural and engineering consulting and
design services to the wireless telecommunications industry. The remainder of
Paragraph 5 shall remain in full force and effect in the manner described
therein.
8. Resignation from Office. As of the Effective Date, Kandel hereby
resigns from all positions in the Companies including as a director, officer and
employee.
9. Who is Bound. The Companies and Kandel are bound by this Agreement.
Anyone who succeeds to Kandel's rights and responsibilities, such as the
executors of Kandel's estate, shall hereby be bound, and anyone who succeeds to
the Companies' rights and responsibilities, such as successors and assigns, are
also bound.
10. Remedies. In the event that the Companies breach this Agreement or
otherwise default with regard to any of their respective obligations hereunder
for more than fifteen (15) days following written notice of an initial breach,
or without notice following a subsequent breach, then all rights, including
without limitation, all rights to salary and benefits, of Kandel pursuant to
this Separation Agreement shall be accelerated and paid to him immediately,
subject only to a credit to the Companies for funds previously paid, and subject
to Kandel's being obligated to return accelerated funds to the extent such funds
ultimately exceed amounts to which Kandel would otherwise have been entitled,
and Kandel's obligations pursuant to the restrictive covenant shall terminate.
11. Construction of Agreement. In the event that one or more of the
provisions contained in this Agreement shall for any reason be held
unenforceable in any respect under the law of any State of the United States,
such unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall then be construed as if such unenforceable provision or
<PAGE>
provisions had never been contained herein. This Agreement shall be governed
under the laws of the State of New York, without reference to choice of laws or
rules.
12. a. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled exclusively by final
and binding arbitration administered by the American Arbitration Association in
New York City, in accordance with its applicable rules; and judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof.
b. Non-Disparagement. Both the Companies and Kandel further
agree not to make any defamatory or derogatory statements concerning one
another.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have agreed and accepted this
Agreement on the day first above written.
/s/ Solon Kandel
--------------------------
SOLON KANDEL
IDF INTERNATIONAL, INC.
By: /s/ Robert Rubin
--------------------------
ROBERT M. RUBIN, CHAIRMAN
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
By: /s/ Robert Rubin
--------------------------
HAYDEN-WEGMAN, INC.
By: /s/ Robert Rubin
--------------------------
The undersigned, as officer and/or director and/or shareholder, grants
a release as fully set forth in Paragraph 4 and in consideration of the release
each received in Paragraph 2.
/s/ Robert Rubin
--------------------------
ROBERT M. RUBIN
/s/ Stanley Kaplan
--------------------------
STANLEY KAPLAN
/s/ Lawrence Kaplan
--------------------------
LAWRENCE KAPLAN
/s/ Simentov Moskona
--------------------------
SIMENTOV MOSKONA
/s/ Lembit Kald
--------------------------
LEMBIT KALD
<PAGE>
EXHIBIT 10.19
SEPARATION AGREEMENT
This Separation Agreement (this "Agreement") is dated as of March 23,
1999, and is entered into between SERGIO LUCIANI, with an address at 7508 Lynn
Drive, Chevy Chase, Maryland 20815, ("Luciani") and IDF International, Inc., a
New York Corporation, Hayden-Wegman, Inc., a New York Corporation, and TechStar
Communications, Inc., a Delaware Corporation, all with offices located at 330
West 42nd Street, New York, New York 10036 (IDF International, Inc. being
referred to as the "Company" and together with Hayden-Wegman, Inc. and TechStar
Communications Inc., jointly and severally, the "Companies").
1. Termination of Employment and Employment Agreement. On August 25,
1997, Luciani and IDF International, Inc. entered into an employment agreement
(the "Employment Agreement"). Luciani and the Company hereby agree and
acknowledge that Luciani's employment with the Company pursuant to the
Employment Agreement shall terminate effective as of March 23, 1999 (the
"Effective Date"). Except as otherwise expressly set forth herein, the parties
hereto agree that the rights and obligations of Luciani and the Company arising
under the Employment Agreement shall terminate and be of no further force and
effect as of the Effective Date, it being agreed upon that the benefits
hereunder are a material inducement to Luciani entering into this Separation
Agreement.
2. Release. In consideration of the benefits set forth in Section 3
below, the release described in Section 4 and other accommodations made to
Luciani, Luciani hereby releases, waives, discharges and gives up any and all
rights which Luciani may have against the Companies and those officers,
directors and/or shareholders who are signatories hereto, arising (a) out of
Luciani's employment with the Companies, or any position held by him, including
his position as an officer and director of the Companies, or termination
therefrom or the circumstances related thereto or (b) by reason of any other
manner, cause or thing whatsoever to the date of Luciani's execution and
delivery of this Agreement, except to the extent the rights or obligations
continue pursuant to this Agreement. Nothing in this Agreement shall preclude
Luciani from exercising his rights with respect to Luciani's vested stock
options in the Company issued to Luciani during the course of his employment, as
more fully described in Section 6 below. Notwithstanding this release, any and
all indemnifications to which Luciani is entitled pursuant to the Employment
Agreement, or an Indemnity Agreement between the parties hereto dated January
23, 1998, or pursuant to the Certificates of Incorporation, By-Laws,
resolutions, or currently existing corporate practices, or any other corporate
policy or agreement or undertaking of any of the Companies, shall remain in full
force and effect and shall survive the termination of the Employment Agreement
and/or this Separation Agreement, and in all events Luciani shall be entitled to
all benefits and rights thereunder.
3. Benefits. As consideration for entering into this Agreement, Luciani
shall receive, or have the use of, as the case may be:
A. Commencing on the Effective Date and continuing until the earlier of
(a) April 30, 1999 or (b) Luciani's securing and commencing full time employment
of his choosing, Luciani shall be paid by the Companies in the normal course of
business at the rate of $100,000 per annum;
<PAGE>
B. The lease on the Mercedes ML320 automobile is currently in the
Company's name for Luciani's use. The Companies shall, within thirty (30) days
after the execution and delivery hereof, pay Luciani an amount equal to one
year's lease payments, but only when Luciani shall have removed the Company's
name from the lease and Luciani shall have assumed all obligations and
liabilities thereunder, including all monthly lease payments, payment of
insurance and any and all costs and expenses of returning the vehicle at the end
of the lease; and
C. In connection with this Agreement, the Companies shall make their
and Luciani's COBRA premium payments for a period equal to the earlier of one
year or Luciani's securing and commencing full time employment of his choosing.
D. In addition to the foregoing benefits, Luciani shall retain his
personal laptop computer, an IBM 385CD.
4. Release by Companies. As additional consideration for entering into
this Agreement, the Companies and each of their officers, directors and/or
shareholders who are signatories hereto, hereby release, waive, discharge and
give up any and all rights which any or all them may have against Luciani
arising (a) out of Luciani's employment with the Companies or any position held
by him, including his position as an officer and director of the Companies or
termination therefrom or the circumstances related thereto or (b) by reason of
any other manner, cause or thing whatsoever to the date of Luciani's execution
and delivery of this Agreement.
5. Consultation. The parties agree that in his sole and absolute
discretion, upon request of the Companies, Luciani (directly or through a
consulting company) may serve the Companies as a business development consultant
on matters relating to the business of the Companies (the "Services"). The
Services may include introductions to prospective clients and other business
opportunities, and assisting in the development of such business relationships
and facilitating business transactions. Luciani shall not be required to travel
or expend any monies in connection with such services, if he chooses to provide
them. Further, Luciani may render consulting or other services to other parties
requiring most or all of his time, attention, skill and energy. Accordingly,
Luciani, in his sole and absolute discretion, shall devote only as much time and
attention, and by such methods, as he desires. The failure or inability of
Luciani to render services by reason of other business commitments, absences,
ill health, death, temporary or permanent disability, or for any other cause,
shall not constitute a failure by him to perform hereunder and shall not be
deemed a breach or default hereunder. Except as otherwise provided in this
Agreement, it is expressly understood that at no time shall Luciani, when
undertaking consulting functions, be considered an employee, officer, agent or
director of the Companies or any of their respective subsidiaries or affiliates.
The Companies shall pay to Luciani reasonable and equitable compensation, as
mutually agreed upon by the parties, for all consulting services rendered by him
hereunder upon request of the Companies. Luciani shall be an independent
contractor and shall be solely responsible for any tax obligations he incurs as
a result of the payments provided for herein. It is further understood by both
parties that Luciani shall perform the above mentioned functions from March 23,
1999 through April 30, 1999 in consideration of the payments specified in
paragraph 3(A).
<PAGE>
6. Payment of Compensation and Benefits under Employment Agreement.
Companies shall reimburse Luciani for all documented expenses, as set forth in
Paragraph 3(c) of the Employment Agreement, incurred through the Effective Date.
The Companies and Luciani acknowledge that in accordance with Paragraph 3 (d) of
the Employment Agreement, Luciani has 71,379 immediately exercisable vested
Options (as defined in the Employment Agreement). Nothing herein shall be deemed
to prohibit Luciani, immediately or at any time up to November 30, 2002, from
exercising the Options. It is understood and agreed that any Options not
previously vested and immediately exercisable under the Employment Agreement
shall immediately terminate as of the Effective Date. All rights of Luciani in
any options pursuant to the Employment Agreement, including, but not limited to,
those set forth in section 3 (d) (vi) (Assignment of Option), (vii) (Reservation
of Option Shares: Registration of Options), (viii) (Cashless Exercise), and (ix)
(Public Distribution of Option Shares), shall continue to apply to all 71,379
vested options.
7. Restrictive Covenant. It is understood and agreed that the
restrictive covenants described in Paragraph 5 (b) (ii) of the Employment
Agreement shall terminate and be of no further force and effect. The above
notwithstanding, and provided that Companies are not in material default under
this Agreement, Luciani shall not, for a period of one year commencing on the
Effective Date, invest, carry on, engage or become involved, either as an
employee, agent, advisor, officer, director, stockholder (excluding ownership of
not more than 5% of the outstanding shares of a publicly held corporation),
manager, partner, joint venture, participant, or consultant, in any business
enterprise which directly competes against Communications, Inc. in providing
site acquisition, zoning, architectural and engineering consulting and design
services to the wireless telecommunications industry. The remainder of Paragraph
5 above shall remain in full force and effect in the manner described therein.
8. Resignation from Office. As of the Effective Date, Luciani hereby
resigns from all positions in the Companies including as a director, officer and
employee.
9. Who is Bound. The Companies and Luciani are bound by this Agreement.
Anyone who succeeds to Luciani's rights and responsibilities, such as the
executors of Luciani's estate, shall hereby be bound, and anyone who succeeds to
the Companies' rights and responsibilities, such as successors and assigns, are
also bound.
10. Remedies. In the event that the Companies breach this Agreement or
otherwise default with regard to any of their respective obligations hereunder
for more than fifteen (15) days following written notice of an initial breach,
or without notice following a subsequent breach, then all rights, including
without limitation, all rights to salary and benefits, of Luciani pursuant to
this Separation Agreement shall be accelerated and paid to him immediately,
subject only to a credit to the Companies for funds previously paid, and subject
to Luciani's being obligated to return accelerated funds to the extent such
funds ultimately exceed amounts to which Luciani would otherwise have been
entitled, and Luciani's obligations pursuant to the restrictive covenant
described in Paragraph 7 above shall terminate.
11. Construction of Agreement. In the event that one or more of the
provisions contained in this Agreement shall for any reason be held
unenforceable in any respect under the law of any
<PAGE>
State of the United States, such unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall then be construed as if
such unenforceable provision or provisions had never been contained herein. This
Agreement shall be governed under the laws of the State of New York, without
reference to choice of laws or rules.
12. a. Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled exclusively by final
and binding arbitration administered by the American Arbitration Association in
New York City, in accordance with its applicable rules; and judgment upon the
award rendered by the arbitrator may be entered by any court having jurisdiction
thereof.
b. Non-Disparagement. Both the Companies and Luciani further
agree not to make any defamatory or derogatory statements concerning one
another.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original hereof, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have agreed and accepted this
Agreement on the day first above written.
SERGIO LUCIANI
IDF INTERNATIONAL, INC.
By:
ROBERT M. RUBIN, CHAIRMAN
<PAGE>
TECHSTAR COMMUNICATIONS, INC.
By:
HAYDEN-WEGMAN, INC.
By:
The undersigned, as officer and/or director and/or shareholder, grants
a release as fully set forth in Paragraph 4 and in consideration of the release
each received in Paragraph 2.
ROBERT M. RUBIN
STANLEY KAPLAN
LAWRENCE KAPLAN
SIMENTOV MOSKONA
LEMBIT KALD
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
financial statements for the nine months ended April 30, 1999 and is qualified
in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 85,512
<SECURITIES> 0
<RECEIVABLES> 4,507,042
<ALLOWANCES> 414,335
<INVENTORY> 0
<CURRENT-ASSETS> 7,133,114
<PP&E> 879,603
<DEPRECIATION> 583,769
<TOTAL-ASSETS> 8,366,645
<CURRENT-LIABILITIES> 8,052,069
<BONDS> 596,364
0
14,167
<COMMON> 15,186
<OTHER-SE> (311,142)
<TOTAL-LIABILITY-AND-EQUITY> 8,366,644
<SALES> 9,526,945
<TOTAL-REVENUES> 9,526,945
<CGS> 5,309,153
<TOTAL-COSTS> 10,759,240
<OTHER-EXPENSES> 5,450,087
<LOSS-PROVISION> 110,000
<INTEREST-EXPENSE> 668,411
<INCOME-PRETAX> (1,680,434)
<INCOME-TAX> 141,085
<INCOME-CONTINUING> (1,821,519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,821,519)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
