U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File No. 33-55254-39
ended December 31, 1997
PERIPHERAL CONNECTIONS, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 87-0485315
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
3303 Don Mills Road, Suite 2603
North York, Ontario, Canada M2J 4T6
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (416) 250-1212
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 .
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
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $ 0
----
Aggregate market value of voting stock held by non-affiliates of registrant
(based on the last sale price on April 13, 1998) : $3,132,600
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: 14,600,000 shares of $.001
par value Class A common stock outstanding as of April 10, 1998.
Transitional Small Business Disclosure Format: Yes No X
1
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PART I
Item 1. Business
Peripheral Connections, Inc. (the "Company") was incorporated under the
laws of Nevada on March 14, 1990. The Company is in the developmental stage, and
has no operational history and prior to the acquisition described below, had not
engaged in business of any kind.
Netking Acquisition
In 1997, management continued to explore potential business ventures.
On March 19, 1998, the Company entered into a Stock Purchase and Sale Agreement
whereby the Company agreed to issue 10,000,000 shares of the Company in
consideration for all of the stock of Netking Limited, an English private
company ("Netking") from Tomas George Wilmot ("Seller"), who beneficially owned
all of the stock of Netking. The consideration was determined by arm's length
negotiations between the Company and Seller. On April 9, 1998, the Company
beneficially acquired all of the stock of Netking from Seller. Title to the
10,000,000 newly issued shares of the common stock of the Company, which is
approximately 68.5% of all of the outstanding stock of the Company after such
issuance, is held by Tomas George Wilmot, individually.
Netking is the beneficial owner of Keymore Limited, an English private
limited company ("Keymore"). Keymore owns intellectual property comprised of all
and any patents, trade marks, copyright, know-how, computer know-how and
technical documentation pertaining to all aspects of a product known as the
Skynet 2000 in-vehicle system, as described below, including all enhancements
(the "IPR"). The intellectual property owned by Keymore was originally conceived
by Mr. Mogens Birkelund, the sole beneficial owner of Comware APS, a Danish
corporation. Mr. Birkelund and Comware APS jointly assigned certain intellectual
property to Skynet Services Limited ("Skynet") on May 13, 1996. The IPR was
purchased by Keymore, which was formed on January 21, 1998, in a liquidation
proceeding concluded February 2, 1998 from Skynet. The stock of Keymore was
subsequently purchased by Netking, which was formed on February 5, 1998. Netking
purchased the stock of Keymore for a (pound)4,000,000 unsecured promissory note,
which entire amount remains outstanding. The prior owner of Keymore was not
affiliated with Seller or the Company.
Keymore's goal is to provide and market Skynet 2000, a sophisticated
vehicle security system and integrated telecommunications product. The Skynet
2000 system operates using GSM or PCN digital cellular telephone networks. The
Skynet 2000 is available in the United Kingdom using the Vodafone GSM digital
cellular network. In addition to the price of the Skynet 2000 system, separate
annual monitoring fees are charged.
The Skynet 2000 system uses advanced communications and security
technology coupled with proprietary software that seamlessly integrates into a
single product that provides protection, security, and information services
using mobile cellular telecommunications via the Skynet 2000 system. The Skynet
2000 system incorporates a GSM (a global system for mobile communications,
international standard for digital cellular telephone transmissions) cellular
car telephone, which provides normal cellular telephone capability, together
with a Security Monitoring System service ("SMS"), and a remote product status
monitoring facility, with a global positions system.
2
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By interfacing its Vecta system, which is a vehicle security system
with crash and unauthorized entry sensors linked to the vehicle's anti-theft
control system, the Skynet 2000 system is able to provide an in-vehicle remote
monitoring/anti-theft tracking control system. The Skynet 2000 system is further
capable of providing an integrated voice and SMS link between a customer's
vehicle and 24 hour a day monitoring for vehicle security, personal distress
alarm, and impact sensor and information services.
The Skynet 2000 system's unit, concealed in the customer's vehicle, is
capable of communicating automatically with the central security-monitoring
bureau independent of the car handset. In the event of an attempted theft which
is sufficient to trigger the alarm sensor, information concerning the location
of the vehicle and its owner is automatically transmitted to its bureau while
within the GSM cellular coverage. A trained operator using a computer based
vehicle mapping system with a database of relevant information will, if
necessary, pass details on to the police, or the appropriate emergency service
for action. If the driver of the vehicle is in distress (illness, breakdown, or
fear of attack) he or she can communicate by the cellular telephone at the
central bureau where an operator can take the appropriate action while still
maintaining voice contact with the driver or passengers.
The IPR pertains to and includes a product containing 4 components: (i)
a GSM cellular car telephone and remote monitoring/anti-theft control system;
(ii) a global positioning system allowing vehicle location within 30 feet using
satellites; (iii) the gateway from the remote unit to the central bureau
station; and (iv) the interface to the central bureau station. The system
provides 24 hour monitoring of vehicle security, personal distress alarm, and
impact alarm sensor and information service, as well as normal cellular
telephone capability.
The IPR also includes the copyright to the software which is the
gateway from the GSM system employed to the mapping and tracking systems, and
remote control software enabling the central security-monitoring bureau to have
complete and full two-way communications with the telephone module. The IPR also
includes know-how relating to technical experience, skills, secret processes and
technical information regarding the module and software and their production, as
well as enhancements appertaining to the IPR.
The Skynet 2000 system is marketed and sold to vehicle-owners. The
management of Keymore believes that there is no competitor in the United Kingdom
that sells an integrated product incorporating voice link and SMS facilities
using GMS and PCN networks. There are, however, other vehicle security systems
on the market, and a number of major vehicle manufacturers are or are planning
to offer automobiles with some form of vehicle tracking and assistance service.
Management believes, however, that the Skynet 2000 system with its integrated
features currently differentiates the service to be provided from that of its
United Kingdom competitors.
Licenses for the Skynet 2000 system were sold by Skynet pursuant to
three license agreements for the territories of Ireland, Canada and Hong Kong.
Keymore has succeeded Skynet as licensor in those agreements. The license fees
received (the first year fees) or to be received (the subsequent year fees) from
these transactions are: a) Ireland - (pound)150,000 for the first year with a
minimum of (pound)150,000 annually thereafter; b) Canada - (pound)25,000 plus
possible royalties for the first year with a minimum of (pound)125,000 annually
thereafter; and c) Hong Kong -(pound)25,000 plus possible royalties for the
first year with a minimum of (pound)125,000 annually thereafter.
3
<PAGE>
There are two shares of Netking outstanding. Because English law
requires two shareholders, the Company holds title to one share of stock of
Netking and the Company and Tomas Wilmot, as nominee for the Company, jointly
hold title to the other share. There are also two shares of Keymore outstanding.
Netking holds title to one share of stock of Netking and Netking and SNH Cooper,
as nominee for Netking, jointly hold title to the other share.
Management anticipates that due to its limited funds, and the limited
amount of its resources, the Company will be restricted to participation in only
the Netking business venture. This lack of diversification should be considered
a substantial risk because it will not permit the Company to offset potential
losses from one venture against gains from another.
The number of shares held by all of the Company's shareholders prior to
the Netking transaction is less than 33% of the total shares outstanding upon
completion of the transaction. Consequently, substantial dilution of percentage
equity ownership of the present shareholders has resulted.
The 10,000,000 shares issued in the Netking transaction were issued
pursuant to Regulation S under the Securities Act of 1933 ("1933 Act"), and are
not available for resale in the United States for a period of one year. In
addition, these securities are "restricted" securities under the 1933 Act and
may only be resold after the one year period, if registered under the 1933 Act,
or in accordance with Rule 144 promulgated under the 1933 Act, or another
exemption from registration thereunder.
Netking desired to establish a public trading market for its securities
and therefore consolidated its operations with the Company in order to avoid
possible adverse consequences of undertaking its own public offering. (Such
consequences might include expense, time delays or loss of voting control.) The
Company was required to issue a significant number of additional shares, and
control of the Company was transferred to Mr. Wilmot.
As of April 10, 1998, the Company did not have any employees. Netking
and its subsidiaries had 18 full-time employees as of March 19, 1998. Netking
and Keymore consider its relationships with its employees to be satisfactory.
There have been no costs to the Company or its subsidiaries in
complying with environmental laws.
Other Developments
On July 2, 1996, the Company raised $200,000 through the issuance of a
12.5% debenture which was convertible into $0.001 par value Class A common
shares of the Company ("Common Stock") at the rate of 10 cents per share (the
"First Debenture"). On November 1, 1996, the Company raised $200,000 through the
issuance of a 10% debenture (the "Second Debenture") which was convertible into
Common Stock at the rate of 10 cents per share. The funds from the Second
Debenture were used to repay in full and retire the First Debenture. The Second
Debenture was sold to Chalmette Finance, Inc. pursuant to Regulation S.
Chalmette Finance Inc. is a Panamanian corporation with its principal offices in
Canada and is controlled by Melvyn Moscoe, an officer and director of the
Company. The price of the shares was determined arbitrarily by both parties. The
Second Debenture was subsequently converted in September of
4
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1997 by its holder into 2,300,000 shares of the Common Stock of the Company to
retire the $200,000 debt and $30,000 of accrued interest.
Item 2. Properties
The Company owns no properties and utilizes space on a rent-free basis
in the office of Melvyn Moscoe, a director of the Company and the Company's
secretary and treasurer. Neither Netking nor Keymore currently leases any real
property, although Keymore utilizes the space previously used by Skynet in
London on a rent-free basis. A lease is currently being negotiated and it is
anticipated that a formal lease will be entered into soon. It is also
anticipated that the office of the Company will be relocated.
Item 3. Legal Proceedings
On August 6, 1996, Skynet obtained an interlocutory injunction against
Mr. Anthony Mayes, who claimed that he and/or Worldstream Enterprises Limited
and/or third parties had ownership rights in the Skynet intellectual property.
An application was made seeking a permanent injunction and damages for injurious
falsehood and/or defamation to which Mr. Mayes has not responded.
On August 9, 1996 Skynet entered into an agreement with Mr. Troy Kelly
who claimed that he and/or Worldstream Limited were owners of the Skynet
intellectual property. The parties entered into a settlement agreement dated
August 9, 1996 under which Mr. Kelly and the Kelly companies assigned to Skynet
all their rights (if any) in the intellectual property at question, and
certifying that they had not granted any rights in the intellectual property to
anyone else, indemnifying Skynet in that regard.
On November 29, 1996, Skynet received a letter from a solicitor acting
for Laura Mayes wherein she claimed ownership rights in the Skynet intellectual
property for herself and/or Worldstream Enterprises Limited. Skynet sought
clarification as to the alleged claim which has never been answered and no
further proceedings have issued.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1997.
PART II
Item 5. Market of the Registrant's Common Equity and Related Stockholder
Matters.
(a) As of the third quarter of 1997, the Company's common stock has
been traded in the over-the-counter market and is quoted in the NASDAQ
electronic bulletin board under the symbol PEPC. Prior to the third quarter of
1997, there were no market quotes for the Company's common stock. The following
table sets forth the range of bid prices for the common stock of the Company as
reported in the NASDAQ electronic bulletin board system during the periods
indicated, and represents prices between broker-dealers, which do not include
retail mark-ups and
5
<PAGE>
mark-downs, or any commissions to the broker-dealers. The bid prices do not
reflect prices in actual transactions.
Company Common Stock - Bids
High Low
1997
3rd Quarter $.10 $.10
4th Quarter $1.00 $.10
1998
1st Quarter $2.5625 $.5625
(b) As of April 9, 1998, there were approximately 380 record holders of
the Company's common stock. The Company has not previously declared or paid any
dividends on its common stock and does not anticipate declaring any dividends in
the foreseeable future.
Item 6. Management Discussion and Analysis or Plan of Operation.
The Company has no operational history and has just acquired Netking.
Following its examination of the market place, management feels that Netking is
the only telematix company with a well-developed product that is now being sold
and marketed. Management's principal objective is to have Netking sustain and
capitalize upon this advantage. The Skynet 2000 system is currently actively
selling, fitting, and monitoring the telematix product in the United Kingdom.
During the coming year management plans to expand Netking's telematix business
to other countries including the United States and Canada. Management is also
optimistic about the coupling of the use of satellite global positing system
("GPS") and mobile telephone GSM technology, and monitoring, the industry known
as "telematix." Management believes these combined technologies have many
potential applications. Currently Netking is exploiting the automobile and
personal security market, but management plans to also exploit ancillary markets
of potentially equal size, such as tracking and monitoring the whereabouts of
children, precious items, valuable cargo, emergency alarms on mobile telephones,
boats and ships and their cargo, tracking of heavy duty plant and machinery, and
even controlling the movement of prisoners.
Netking is currently developing a 1900 mhz car security and personal
protection device for use in areas of the United States which are covered by GSM
network. The largest area is currently California and management expects Netking
to be able to demonstrate a working prototype telematix product before July
1998, although there is no assurance that the product will be ready by such
date. Although telematix operates through a 24 hour a day monitoring station,
Netking also has a lap top monitoring device which allows fleet owners to
monitor and control their own vehicles, which is another segment of the market
that management also intends to develop in the United Kingdom, Canada, and the
United States.
During the next year management also intends to develop and expand
sales and marketing of telematix vehicle, personal security, and Medi-Care
DataPlus products in Ireland, Switzerland,
6
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Hong Kong, Italy, Spain and Germany. With the exception of Canada and the United
States, and the United Kingdom, management feels that future expansion of
corporate operations will be on a license basis, wherein the territory is sold
to a licensee in exchange for royalties. Management anticipates that each
country could produce significant long term royalties.
Management also plans to move manufacturing from Denmark to the United
Kingdom in 1998, with separate manufacturing in the United States scheduled for
early 1999. The implementation of its sales and marketing programs, and the
relocation and construction of new production manufacturing facilities, will
require substantial infusions of new capital into the business. While management
believes that capital can be generated by profitable operations to fund its
short term goals, the Company may also find it necessary to raise additional
capital to satisfy its long term cash requirements, including the building of
production manufacturing facilities. Management is optimistic that it will be
able to meet both its short and long term capital requirements, but interest
rates and terms of such loans have not yet been determined, nor is there any
assurance that such funds will be available, or that such funds would be
available on terms that are satisfactory to the Company.
Item 7. Financial Statements.
Independent Auditor's Report F-1
(Smith & Company)
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Stockholder's Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
7
<PAGE>
SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Peripheral Connections, Inc. (A Development Stage Company)
We have audited the accompanying balance sheets of Peripheral Connections, Inc.
(a development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
the years ended December 31, 1997, 1996, and 1995, and for the period of March
14, 1990 (date of inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peripheral Connections, Inc. (a
development stage company) as of December 31, 1997 and 1996, and the results of
its operations, changes in stockholders' deficit, and its cash flows for the
years ended December 31, 1997, 1996, and 1995, and for the period of March 14,
1990 (date of inception) to December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah March 9, 1998, except for Note 8 which is dated April 9,
1998
F-1
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
12/31/97 12/31/96
----------------- -----------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash in bank $ 10,965 $ 163,476
Loan receivable - related party (Note 5) 0 27,860
Accrued interest (Note 5) 0 225
----------------- -----------------
TOTAL CURRENT ASSETS 10,965 191,561
----------------- -----------------
$ 10,965 $ 191,561
================= =================
LIABILITIES & EQUITY (DEFICIT)
CURRENT LIABILITIES
Interest payable $ 0 $ 3,333
----------------- -----------------
TOTAL CURRENT LIABILITIES 0 3,333
Convertible debenture - related party (Note 6) 0 200,000
----------------- -----------------
TOTAL LIABILITIES 0 203,333
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock $.001 par value:
Authorized - 25,000,000 shares
Issued and outstanding
3,850,000 shares (1,000,000 in 1996) 3,850 1,000
Additional paid-in capital 282,150 0
Deficit accumulated during
the development stage (275,035) (12,772)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,965 (11,772)
----------------- -----------------
$ 10,965 $ 191,561
================= =================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
3/14/90
Year Year Year (Date of
ended ended ended inception) to
12/31/97 12/31/96 12/31/95 12/31/97
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 0 $ 0
Cost of sales 0 0 0 0
-------------- -------------- -------------- --------------
GROSS PROFIT 0 0 0 0
Bad debt - related party (Note 5) 171,417 0 0 171,417
General & administrative
expenses 74,821 11,790 0 87,611
-------------- -------------- -------------- --------------
246,238 11,790 0 259,028
OTHER INCOME (EXPENSE)
Interest income 10,642 3,770 0 14,412
Interest expense (26,667) (3,752) 0 (30,419)
-------------- -------------- -------------- --------------
(16,025) 18 0 (16,007)
-------------- -------------- -------------- --------------
NET LOSS $ (262,263) $ (11,772) $ 0 $ (275,035)
============== ============== ============== ==============
Net income (loss) per weighted
average share $ (.14) $ (.01) $ .00
============== ============== =============
Weighted average number of
common shares used to compute
net income (loss) per weighted
average share 1,864,795 1,000,000 1,000,000
============== ============== =============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
Par Value $0.001 Paid-in Development
Shares Amount Capital Stage
-------------- -------------- ----------------- --------------
Balances at 3/14/90
<S> <C> <C> <C> <C>
(Date of inception) 0 $ 0 $ 0 $ 0
Issuance of common stock
(restricted) at $.001 per
share at 3/14/90 1,000,000 1,000 0 0
Net loss for period (1,000)
-------------- -------------- ----------------- --------------
Balances at 12/31/90 1,000,000 1,000 0 (1,000)
Net income for year 0
-------------- -------------- ----------------- --------------
Balances at 12/31/91 1,000,000 1,000 0 (1,000)
Net income for year 0
-------------- -------------- ----------------- --------------
Balances at 12/31/92 1,000,000 1,000 0 (1,000)
Net income for year 0
-------------- -------------- ----------------- --------------
Balances at 12/31/93 1,000,000 1,000 0 (1,000)
Net income for year 0
-------------- -------------- ----------------- --------------
Balances at 12/31/94 1,000,000 1,000 0 (1,000)
Net income for year 0
-------------- -------------- ----------------- --------------
Balances at 12/31/95 1,000,000 1,000 0 (1,000)
Net loss for year (11,772)
-------------- -------------- ----------------- --------------
Balances at 12/31/96 1,000,000 1,000 0 (12,772)
Issuance of common stock
(restricted):
at $.10 per share for
services at 7/29/97 50,000 50 4,950
at $.10 per share to
cancel debt and
accrued interest at
9/9/97 2,300,000 2,300 227,700
at $.10 per share for
services at 9/26/97 500,000 500 49,500
Net loss for year (262,263)
-------------- -------------- ----------------- --------------
Balances at 12/31/97 3,850,000 $ 3,850 $ 282,150 $ (275,035)
============== ============== ================= ==============
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
3/14/90
Year Year Year (Date of
ended ended ended Inception) to
12/31/97 12/31/96 12/31/95 12/31/97
-------------- -------------- -------------- --------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ (262,263) $ (11,772) $ 0 $ (275,035)
Adjustments to reconcile net
income (loss) to cash used
by operating activities 0 0
Stock issued for expenses 81,667 0 0 81,667
Changes in assets and
liabilities:
Accrued interest
payable 0 3,333 0 3,333
-------------- -------------- -------------- --------------
NET CASH USED BY
OPERATING ACTIVITIES (180,596) (8,439) 0 (190,035)
INVESTING ACTIVITIES
Loans to related party and
accrued interest 28,085 (28,085) 0 0
-------------- -------------- -------------- --------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 28,085 (28,085) 0 0
FINANCING ACTIVITIES
Proceeds from sale of
common stock 0 0 0 1,000
Proceeds from convertible
debentures 0 400,000 0 400,000
Debenture repayments 0 (200,000) 0 (200,000)
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 0 200,000 0 201,000
-------------- -------------- -------------- --------------
INCREASE (DECREASED) IN
CASH AND CASH EQUIVALENTS (152,511) 163,476 0 10,965
Cash and cash equivalents
at beginning of year 163,476 0 0 0
-------------- -------------- -------------- --------------
CASH & CASH EQUIVALENTS
AT END OF YEAR $ 10,965 $ 163,476 $ 0 $ 10,965
============== ============== ============== ==============
</TABLE>
SUPPLEMENTAL ACTIVITIES
During 1997, 550,000 shares of restricted common stock were issued for
services of $55,000 and 2,300,000 shares of restricted stock were issued to
cancel debt of $200,000 and accrued interest of $30,000.
See Notes to Financial Statements.
F-5
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting Methods
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends.
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 disclosures 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.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all
highly-liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of risk, consist of cash and investments. The
Company places its investments in highly rated term deposit
obligations which limits the amount of credit exposure.
Historically, the Company has not experienced any losses related
to investments.
Income Taxes
The Company records the income tax effect of transactions in the
same year that the transactions enter into the determination of
income, regardless of when the transactions are recognized for tax
purposes. Tax credits are recorded in the year realized. Since the
Company has not yet realized income as of the date of this report,
no provision for income taxes has been made.
In February, 1992, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which supersedes substantially all
existing authoritative literature for accounting for income taxes
and requires deferred tax balances to be adjusted to reflect the
tax rates in effect when those amounts are expected to become
payable or refundable. The Statement was applied in the Company's
financial statements for the fiscal year commencing January 1,
1993.
At December 31, 1997 a deferred tax asset has not been recorded
due to the Company's lack of operations to provide income to use
the net operating loss carryover of $274,035 which expires as
follows:
Year Ended Expiration Date Amount
----------------- ---------------------- ---------------
December 31, 1996 December 31, 2011 $ 11,772
December 31, 1997 December 31, 2012 262,263
---------------
$ 274,035
===============
NOTE 2: DEVELOPMENT STAGE COMPANY
The Company was incorporated under the laws of the State of Nevada
on March 14, 1990 and has been in the development stage since
incorporation. The Company intends to pursue the business
discussed in Note 8.
NOTE 3: CAPITALIZATION
On the date of incorporation, the Company sold 1,000,000 shares of
its common stock to Capital General Corporation for $1,000 cash
for an average consideration of $.001 per share. The Company's
authorized stock includes 25,000,000 shares of common stock at
$.001 par value.
F-6
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE 4: RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real property. Office
services are provided without charge by current management. Such
costs are immaterial to the financial statements, and,
accordingly, have not been reflected therein. The officers and
directors of the Company are involved in other business activities
and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes
available, such persons may face a conflict in selecting between
the Company and their other business interests. The Company has
not formulated a policy for the resolution of such conflicts.
NOTE 5: LOAN RECEIVABLE - RELATED PARTY
At December 31, 1996, the Company was owed principal of $27,860
and interest of $225 by an entity whose president is
Secretary/Treasurer and a Director of the Company. The loan was
due on demand and had an interest rate of 8%. During 1997,
additional loans were made to bring total principal due to
$165,296 and interest due was $6,121. The total of $171,417 has
been charged to bad debt expense at December 31, 1997 due to the
entity's inability to repay the debt.
NOTE 6: CONVERTIBLE DEBENTURE - RELATED PARTY
On November 1, 1996, the Company issued a convertible debenture to
an entity significantly influenced by the Company's
Secretary/Treasurer for $200,000 cash. The debenture had an
interest rate of 10% per annum, calculated semi-annually. The
first interest payment of $10,000 was due May 31, 1997. The
debenture was payable on November 1, 2001. The lender had the
option to convert prior to November 1, 2001, in whole or in part,
the outstanding principal and accrued interest into $.001 par
value Class A common stock of the Company at a conversion price of
$.10 per share. Had the lender exercised the option at December
31, 1996, the lender would have received 2,000,000 shares of
common stock and would have become the Company's majority
shareholder. The debt was secured by all assets of the Company.
Scheduled principal reductions of debentures were as follows:
1997 $ 0
1998 0
1999 0
2000 0
2001 200,000
-------------
$ 200,000
In September of 1997, the entity accepted 2,300,000 shares of
restricted common stock as payment in full of the debenture and
interest.
NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximate fair
value.
<PAGE>
NOTE 8: SUBSEQUENT EVENTS
On April 9, 1998, the Company beneficially acquired all of the
stock of Netking Limited, an English private limited company
("Netking") from Tomas George Wilmot ("Seller"), who beneficially
owned all of the stock of Netking. The title holders of Netking
were Local Protectors Limited and SNH Cooper, who held the shares
as nominees for Seller. The purchase price paid for the purchased
stock was 10,000,000 newly issued shares of the common stock of
the Company, which is approximately 68.5% of all of the
outstanding stock of the Company after such issuance. Tomas George
Wilmot, individually, is the title holder of all of the 10,000,000
newly issued shares of the Company. There are no arrangements or
understandings among members of both the former and new control
person or their associates with respect to election of directors
or other matters.
On April 9, 1998, the Company beneficially acquired all of the
stock of Netking from Seller, who beneficially owned all of the
stock of Netking. There are two shares of Netking outstanding.
Because English law requires two shareholders, the Company holds
title to one share of stock of Netking and the Company and Tomas
Wilmot, as nominee for the Company, jointly hold title to the
other share. Netking is the beneficial owner of Keymore Limited,
an English private limited company ("Keymore"). Keymore owns
intellectual property pertaining to all aspects of the Skynet 2000
in-vehicle system. The Skynet 2000 system uses communications and
security technology coupled with proprietary software that
provides in-vehicle protection, security and information services
using mobile cellular
F-7
<PAGE>
PERIPHERAL CONNECTIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997 and 1996
NOTE 8: SUBSEQUENT EVENTS (continued)
telecommunications. The Skynet 2000 system provides 24 hour
monitoring of vehicle security, personal distress alarm, and
impact sensor and information services, as well as normal cellular
telephone capability. The purchase price paid for the purchased
stock was 10,000,000 shares of newly issued common stock of the
Company, which is approximately 68.5% of all of the outstanding
stock of the Company after such issuance. The consideration was
determined by arm's length negotiations between the Company and
Seller. Prior to the acquisition, there was no material
relationship between the Seller and the Company or any of its
affiliates, any director or officer of the Company, or any
associate of any such director or officer.
A portion of the business of Keymore and Netking acquired by the
Company constitutes equipment and other physical property
previously used in the business of the Seller. The Company intends
to continue to use such equipment and physical property for the
same purposes.
F-8
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The following table shows the positions held by the Company's
officers and directors. The directors were appointed as of July 2, 1996 and will
serve until the next annual meeting of the Company's stockholders, and until
their successors have been elected and have qualified. The officers were
appointed to their positions as of July 2, 1996, and continue in such positions,
at the discretion of the directors.
Name Age Position
Milton Klyman 72 President, Director
Melvyn Moscoe 54 Secretary/Treasurer, Director
CURRENT DIRECTORS AND OFFICERS
MILTON KLYMAN has been a Director and the President of the Company since
July 2, 1996. He has been a self-employed financial consultant since 1982.
Milton Klyman is presently a director and/or officer of the following other
companies and has been from the date indicated to the present (unless otherwise
indicated): Windy Mountain Explorations Ltd. (07/91), Academy Explorations
Limited (08/82), Agnico Eagle Mines Ltd. (director) (06/72), Blue Power Energy
Corp. (10/95), Canlorm Resources Inc. (09/94), CD Rom Network Corp. (07/94),
Covesco Capital Corporation (01/96), Curran Bay Resource Ltd. (08/93), Concho
Resources & Energy Inc. (12/92 to 09/94), Destrobelle Mines Ltd. (06/82), Falcon
Point Resources Limited (05/84), Golden Penguin Resources Ltd. (12/87),
Gracefield Capital Corporation (01/95), Grand Empire Explorations Ltd. (11/87),
Grand Oakes Resources Corp. (12/88), HMD Capital Corp. (02/96), Harte Resources
Corporation (01/82), Humlin Red Lake Mines Limited (04/95), Inland National
Capital Ltd. (01/95), July Resources Corp. (06/90), MW Capital Resources Corp.
(06/90), Merbank Capital Corporation (01/95 to 08/95), Midswana Diamond
Exploration Corp. (11/79 to 11/94), Mountain Beaver Resources, Inc. (02/96), Oil
Springs Energy Corp. (08/93), Olympic Rom World Inc. (10/94), Planetsafe Enviro
Corporation (03/95), Raw Creek Resources Inc. (01/95), Red Fox Resources Inc.
(12/87), Reed Lake Exploration Ltd. (11/95), Resources Minieres Platinor Inc.
(01/96), Rusty Lake Resources Ltd. (03/95 to 05/95), Scotia Prime Minerals,
Incorporated (02/95), Silver Circle Compact Disc Books Inc. (03/94), Sudbury
Contact Mines Ltd. (09/71), Tejas Petroleum Resources Ltd. (11/90), Triangle
Capital Energy Corp. (01/93), Twin Star Energy Corp. (09/91), Unique Capital
Corporation (01/96), United Dixie Resources Inc. (05/93), Willow Resources Ltd.
(01/93 to 11/93) and Xxpert Rental Tool Inc. (02/97). Agnico Eagle Mines Ltd. is
listed on the New York Stock Exchange.
MELVYN MOSCOE has been a Director and the Secretary and Treasurer
of the Company since July 2, 1996. Since 1987, Mr. Moscoe's principal occupation
has been as President, director, and principal of M. Moscoe Consultants, Inc.,
through which company Mr. Moscoe has engaged in financial and general business
consulting to private ventures, leading corporations and governmental entities.
Since July, 1997, Mr. Moscoe has been a director and President of Cybernet
Ventures, Inc., which is involved in venture capital deals. Mr. Moscoe has also
been involved in private investment activities in the past five years. From 1972
to 1987, Mr. Moscoe was a partner in Wm. Eisenberg & Co, one of the top 15
accounting firms in Canada.
8
<PAGE>
Item 10. Executive Compensation
Except as set forth below, the Company has made no arrangements
for the remuneration of its officers and directors, except that they will be
entitled to receive reimbursement for actual, demonstrable out-of-pocket
expenses, including travel expenses if any, made on the Company's behalf in the
investigation of business opportunities. There are no agreements or
understandings with respect to the amount or remuneration that officers and
directors are expected to receive in the future. Management takes no salaries
from the Company. It is anticipated that contracts will be negotiated with new
management of Netking and/or Keymore requiring the payment of annual salaries or
other forms of compensation. Use of the term "new management" is not intended to
preclude the possibility that any of the present officers or directors of the
Company might be elected to serve in the same or similar capacities.
The following table summarizes the total compensation of Milton
Klyman, the President of the Company for 1997. No remuneration has been paid to
the company's officers or directors, except as set forth below.
Name/ Annual Compensation
Principal Position Year Bonus
Milton Klyman 1997 $25,000(1)
President
(1) Represents 250,000 shares of the Company Mr. Klyman received pursuant
to a Consulting Agreement entered into between the Company and Mr.
Klyman.
9
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth, as of April 10, 1998 information
regarding the beneficial ownership of shares by each person known by the Company
to own five percent or more of the outstanding common shares of the Company.
No. of Shares % of Total
Name and Address of of Common Stock Common Shares
Beneficial Owner Beneficially Owned Outstanding(1)
Tomas Wilmot 10,000,000 68.49%
Link House
259 City Road
London, England
EC1V 1JE
Milton Klyman 1,210,400 8.29%
Hollywood Suites
176 John Street
Toronto, Ontario
Canada M5T 1X5
Chalmette Finance, Inc.(2) 2,300,000 15.75%
3303 Don Mills Road
Suite 2603
North York, Ontario
Canada M2J 4T6
Melvyn Moscoe(2) 2,300,000 15.75%
3303 Don Mills Road
Suite 2603
North York, Ontario
Canada M2J 4T6
Jayhead Investments, Limited 1,000,000 6.85%
18 York Valley Crescent
Willowdale, Ontario
Canada M2P 1A7
- --------
(1) Based upon 14,600,000 shares of common stock outstanding as of April 10,
1998.
(2) Chalmette Finance, Inc. is owned 9.9% by Melvyn Moscoe and voting and
dispositive power is held by Mr. Moscoe. Ownership of Chalmette Finance,
Inc.'s shares is also attributed to Mr. Moscoe.
10
<PAGE>
(b) Security Ownership of Management.
As of April 10, 1998, the present directors and executive officers of
the Company are the beneficial owners of the numbers of shares of common stock
of the Company set forth below.
Name and address of No. of Shares % of Total
Beneficial Owner of Common Stock Common Shares
and Position Held Beneficially Owned Outstanding (1)
Milton Klyman 1,210,400 8.29%
Hollywood Suites
176 John Street
Toronto, Ontario
Canada M5T 1X5
Chalmette Finance, Inc.(2) 2,300,000 15.75%
3303 Don Mills Road
Suite 2603
North York, Ontario
Canada M2J 4T6
Melvyn Moscoe(2) 2,300,000 15.75%
3303 Don Mills Road
Suite 2603
North York, Ontario
Canada M2J 4T6
All Officers and
Directors as a Group 3,510,400 24.04%
(two persons)
(c) Changes in Control. While no arrangements currently exist,
management anticipates that Mr. Wilmot, the controlling shareholder, will
replace some or all of the directors of the Company and that some or all of the
officers in turn will be replaced.
(1) See Note 1 to the foregoing table.
(2) See Note 2 to the foregoing table.
11
<PAGE>
Item 12. Certain Relationships and Related Transactions
Since January 1, 1996, the following transactions have occurred in
which persons who, at the time of such transactions, were directors, officers or
owners of more than 5% of the Company's common stock, had a direct or indirect
material interest.
On November 1, 1996, Chalmette Finance Inc. ("Chalmette") loaned $200,000
to the Company through the issuance to Chalmette of the Company's Second
Debenture. The issuance of the Second Debenture was exempt from Securities Act
registration pursuant to the provisions of Regulation S. Chalmette is a
Panamanian corporation with its principal offices in Canada. The $200,000 of
proceeds was used to retire a substantially similar convertible debenture that
the Company had previously issued on July 2, 1996 to M.I. Manek Inc., a Swiss
corporation with offices in Canada. M.I. Manek Inc. is unaffiliated with the
Company.
In September of 1997, the Second Debenture was converted into 2,300,000
shares of the common stock of the Company by the holder of the Second Debenture,
in accordance with the terms of the debenture, to retire the $200,000 debt and
$30,000 of accrued interest. After such conversion and prior to the purchase of
the stock of Netking, Chalmette was the controlling shareholder. Mr. Moscoe, the
Secretary and Treasurer of the Company and a director, owns 9.9% of the stock of
Chalmette and controls the voting power of Chalmette.
On December 31, 1996, the Company lent $27,860 to National Media
Funding Corporation, an entity controlled by Mr. Moscoe and in which he has a
100% ownership interest. During 1997, additional loans were made to bring total
principal due to $165,296 and the interest due to $6,121. The total of $171,417
has been charged to bad debt expense at December 31, 1997 due to the entity's
inability to repay the debt.
The Company entered into a Consulting Agreement dated September 1, 1997
with Milton Klyman, the President and a Director of the Company. Mr. Klyman was
paid 250,000 shares of the Company for services valued at $25,000.
Tomas Wilmot, the controlling shareholder of the Company loaned Keymore
(pound)40,000, which unsecured non-interest bearing amount is payable upon
demand.
In connection with the purchase of Netking, the Company agreed to pay
to Morton Glickman a finder's fee of 750,000 shares of the Company. Mr. Glickman
directed the Company to issue the 750,000 shares to Jayhead Investments,
Limited, a Canadian corporation owned solely by Mr. Glickman. Such shares were
issued pursuant to Regulation S; however, the Company has agreed and intends to
register such shares on Form S-8.
On March 3, 1998 Netking loaned (pound)325,000 to Keymore. The loan is
unsecured and is payable upon demand. Interest accrues at the rate of 12% and is
payable quarterly.
12
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase and Sale Agreement among Peripheral Connections,
Inc., Local Protectors Limited and Tomas George Wilmot and
Netking Limited dated March 19, 1998
Schedules and Exhibits to Stock Purchase and Sale Agreement*
Exhibit Description
A epresentations and Warranties of Seller as to
egulation S requirements
Schedule Description
6 Description of automobile leases and a copy of one of the
automobile leases
7 List of Tangible Property, together with a summary valuation of
tangible assets Inventory List
8 List and description of Intangible Property 9 List of
any liens and encumbrances against company property (none)
10 List of contracts and other agreements
11 List of Suppliers and Customers
12 List of Litigation and Claims
13 Description of any dividends or distributions
14 List of Loans
15 List and description of Insurance Policies
18 List of Bank Accounts
20 Statement of compliance with laws
21 List of employees; statement of employee claims
* Omitted pursuant to Item 601(b)(2) of Regulation S-B.
3(i) Articles of Incorporation (incorporated by reference from
Form 10-KSB dated December 31, 1996 of the Company)
3(ii)By Laws (incorporated by reference from Form 10-KSB dated
December 31, 1996 of the Company)
10.1 Form of Debenture of M.I. Manek Inc. (incorporated by
reference from Company's Form 8-K/A dated July 8, 1996)
10.2 Form of Debenture of Chalmette Finance Inc.(incorporated by
reference from Form 10-KSB dated December 31, 1996 of the
Company)
10.3 Related Party Note (incorporated by reference from Form
10-KSB dated December 31, 1996 of the Company)
13
<PAGE>
10.4 Consulting Agreement between the Company and Meyers Pollock
Robbins Inc. dated as of July 7, 1997 (incorporated by
reference from the Company's Form S-8 filed September 24,
1997)
10.5 Consulting Agreement between the Company and Jayhead
Investments, Limited dated September 1, 1997 (incorporated
by reference from the Company's Form S-8 filed September 24,
1997)
10.6 Consulting Agreement between Milton Klyman and Company dated
September 1, 1997 (incorporated by reference from the
Company's Form S-8 filed September 24, 1997)
10.7 Nominee Agreement of Tomas George Wilmot.
10.8 Nominee Agreement of SNH Cooper.
10.9 Loan Facility Letter Between Netking and Keymore.
10.10Promissory Note of Netking to Leandra De Oliveria Sousa in
the amount of (pound)4,000,000
21. Subsidiaries of the Company
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the fiscal quarter
ended December 31, 1997.
14
<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.
PERIPHERAL CONNECTIONS, INC.
Date: April 14, 1998 By: s\ Milton Klyman
----------------
Milton Klyman, President and Director
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:
Date: April 14, 1998 By: s\ Milton Klyman
----------------
Milton Klyman, President and Director
Date: April 14, 1998 By: s\ Melvyn Moscoe
----------------
Melvyn Moscoe, Secretary, Treasurer
and Director
15
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(d) OF
THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The Company has not furnished to its security holders an annual report
or proxy materials since the filing of its immediately prior report on Form
10-KSB.
16
<PAGE>
EXHIBITS
17
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is entered into as of
this 19th day of March, 1998 by and between Peripheral Connections, Inc., a
Nevada corporation (hereinafter "Buyer"), Local Protectors Limited, an Isle of
Man private limited company and Tomas George Wilmot (hereinafter collectively,
"Seller") and Netking Limited, an English private limited company (hereinafter
"Corporation").
WITNESSETH:
WHEREAS, Seller is the owner of all of the issued and outstanding capital
stock of Corporation; and
WHEREAS, Keymore Limited, an English private limited company
(hereinafter the "Subsidiary") is a wholly owned subsidiary of the Corporation;
and
WHEREAS, Subsidiary owns certain assets relating to the manufacturing,
distributing and retailing of security tracking boxes for motor vehicles; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, all of the issued and outstanding capital stock of the Corporation
upon the terms and conditions contained herein;
NOW THEREFORE, for and in consideration of the mutual covenants and
conditions contained herein, the parties hereto agree as follows:
I PURCHASE AND SALE OF STOCK
Subject to the terms and conditions of this Agreement, Seller agrees to
sell, transfer and assign to Buyer, and Buyer agrees to purchase, at closing,
two (2) shares of capital stock of the Corporation, which constitutes all the
issued and outstanding stock of the Corporation (hereinafter "Shares"). At
closing, Seller shall deliver to Buyer a certificate or certificates evidencing
the stock in the Corporation in form ready to transfer and duly endorsed to
Buyer.
18
<PAGE>
II PURCHASE PRICE
At the Closing Buyer shall deliver to Seller 10,000,000 newly issued
shares (the "Purchase Shares") of Buyer, representing, after such issuance,
approximately seventy-one percent (71%) of the outstanding shares of Buyer.
III CLOSING
A. Closing Date. The closing date under this Agreement shall occur at
10:00 A.M. on March 27, 1998, (hereinafter "Closing"), and shall be held at the
law offices of Leslie J. Weiss, Sugar, Friedberg & Felsenthal located at 30 N.
LaSalle Street, Suite 2600, Chicago, Illinois 60602 unless another location and
time is mutually agreed upon. If, at the time of Closing, all conditions
precedent to Seller's obligation to close shall have occurred and Seller shall
be ready, willing and able to close in accordance with the terms of this
Agreement, Buyer shall deliver the Purchase Shares and execute all necessary
instruments. If, however, at the Closing, one party shall be ready, willing and
able to close this Agreement, and the other shall, without legal excuse, fail or
refuse to perform the terms of this Agreement, then the non-defaulting party
shall be entitled to specific performance of this Agreement or may pursue any
other available remedies at law or in equity.
B. Delivery of Documents by Seller to Buyer. At the Closing, Seller shall
deliver to Buyer the following documents:
1. Stock Certificates. Stock certificates representing the Shares in
proper form for transfer, duly endorsed in blank for transfer, or
accompanied by assignments separate from certificate duly endorsed in
blank, with all taxes, direct or indirect, attributable to the
transfer of such Shares paid or provided for. Seller shall be
responsible for all taxes relating to the transfer of the Shares,
including VAT.
2. Seller and Corporation's Certificate. A duly executed certificate of
Seller and Corporation certifying to Buyer a.) the accuracy as of the
Closing Date of the representations and warranties set forth in
Paragraph IV hereof b.) the fact that Seller has title, beneficial and
of record, to the Shares, and that said Shares are being transferred
to Buyer free and clear of all mortgages, liens, encumbrances,
pledges, claims and obligations to other persons of whatever kind and
character; and c.) there has been no material adverse change in the
net income, operations, or prospects of the Corporation from the date
of the Balance Sheet (as defined in Section IV.B.4) to the time of
Closing.
3. Corporate Records. All of the Corporation's records shall be
maintained on the Corporation's premises for inspection by Buyer.
Seller shall retain title to all its documents and records, except
those agreed to be transferred under this
19
<PAGE>
Agreement. Any such documents or records that Buyer may reasonably
require after the Closing Date for use in connection with the business
sold hereunder shall be delivered or made available to Buyer. Copies
of all documents and records which were generated by the Seller or
Corporation shall be provided by the Seller or Corporation to the
Buyer upon request.
4. Contracts and Agreements. Originals and counterparts of all contracts
to which the Corporation is a party.
5. Other. Such other certificates, documents or instruments as Buyer or
its counsel may reasonably request.
C. Delivery by Buyer to Seller. At the Closing, Buyer shall deliver to
Seller the following documents:
1. Payment. Stock certificates representing the Purchase Shares, duly
endorsed in blank for transfer, or accompanied by assignments separate
from certificate duly endorsed in blank, with all taxes, direct or
indirect, attributable to the transfer of such Purchase Shares paid or
provided for.
2. Buyer's Certificate. A duly executed certificate of Buyer, certifying
to Seller the accuracy as of the Closing Date of the representations
and warranties set forth in Paragraph V hereof.
3. Other. Such other certificates, documents or instruments as Seller or
his counsel may reasonably request.
Each party shall forward to the other party all correspondence,
documents or payments relating to the assets of the business
transferred hereunder to which the other party is entitled under the
terms of this Agreement. Before destroying any records or papers
connected with the assets or business held hereunder, each party shall
first offer them to the other party.
IV REPRESENTATIONS AND WARRANTIES OF SELLER
A. Representations and Warranties of Seller. Seller hereby represents and
warrants to Purchaser as follows:
1. Authority Relative to the Contracts. Seller has the power and
authority to enter into this Agreement and to sell, transfer and
deliver the Shares pursuant to this Agreement. This Agreement has been
duly executed and delivered by Seller and is a valid and binding
agreement of Seller enforceable in accordance with its terms.
20
<PAGE>
Local Protectors Limited is a duly authorized and validly existing
Isle of Man private limited company in good standing.
2. No Violation or Conflict. Neither the execution, delivery nor
performance of this Agreement by Seller will violate or result, with
the giving of notice or lapse of time, or both, in a violation of any
obligation of Seller under any contract, agreement, note, license,
other instrument, law, ordinance, regulation, arbitration, order,
judgment or decree to which Seller is a party or by which its property
is bound.
3. Court Orders, Decrees and Laws. There is no outstanding or, to the
best knowledge of Seller, threatened, order, writ, injunction or
decree of any court, government agency or arbitrational tribunal
against or affecting Seller or any of its assets that would interfere
with Seller's ability to consummate the transactions contemplated by
this Agreement.
4. Absence of Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the best knowledge of
Seller, threatened or contemplated by any person against Seller or
with respect to the assets of Seller or which seeks to prohibit,
restrict or delay consummation of the transactions contemplated by
this Agreement.
5. Encumbrances. Seller is the legal and beneficial owner of the Shares
free and clear of all liens, charges, encumbrances, security
interests, restrictions, options and claims whatsoever other than any
liens or encumbrances created pursuant to the terms of this Agreement
or Schedules hereto.
B. Each of Seller and the Corporation represents and warrants to Buyer with
respect to the Corporation and the Subsidiary as follows:
1. Title to Stock. Tomas George Wilmot beneficially owns 100% of the
shares of the Corporation. Nominal ownership of all shares of the
Corporation by SNH Cooper and Local Protectors Limited is on behalf of
Tomas George Wilmot. Seller has title, beneficially and of record, to
the Shares being transferred by Seller hereunder free and clear of all
mortgages, liens, encumbrances, pledges, claims and obligations to
other persons of whatever kind and character. Upon the transfer and
delivery of the Shares to Buyer hereunder, there will be vested in
Buyer good, absolute and marketable title to all of the stock of the
Corporation. The Corporation beneficially owns 100% of the issued and
outstanding stock of Subsidiary. Except for nominal ownership by SNH
Cooper on behalf of the Corporation, the Corporation owns 100% of the
issued and outstanding stock of Subsidiary. The Shares and all of the
shares of stock of Subsidiary are free and clear of all liens,
encumbrances, equities, claims and obligations to other persons,
21
<PAGE>
of whatever kind and character other than those arising by, through or
under Buyer.
2. Organization and Corporate Power. Each of the Corporation and the
Subsidiary is a duly authorized and validly existing English private
limited company in good standing with all requisite corporate power
and authority to carry on their respective businesses as presently
conducted.
3. Capitalization. The Corporation is authorized by its Memorandum of
Association to issue One Thousand (1,000) shares of common stock, two
(2) of which are duly and validly issued and outstanding, fully paid,
and non-assessable. The Subsidiary is authorized by its Memorandum of
Association to issue One Thousand (1,000) shares of common stock, two
(2) of which are duly and validly issued and outstanding, fully paid,
and non-assessable. Neither the Corporation nor the Subsidiary has any
authority to issue any other capital stock or security. There are no
outstanding options, contracts, commitments, warrants, agreement or
other rights of any character affecting or relating in any manner to
the issuance of the capital stock of the Corporation or the Subsidiary
or entitling anyone to acquire the capital stock of the Corporation or
the Subsidiary.
4. Financial Statements. Seller shall deliver to Buyer at or prior to
Closing (i) an unaudited consolidated opening balance sheet of the
Corporation and the Subsidiary, (ii) an unaudited projected Profit and
Loss Statement, and (iii) an unaudited consolidated balance sheet
("Balance Sheet") of the Corporation and the Subsidiary as of a recent
date (collectively, the "Financial Statements"). Seller agrees it
shall indemnify Buyer for any tax liability resulting from adjustments
in the Financial Statements. Said tax liability(ies) shall be the
Seller's responsibility. All of the Financial Statements shall be
true, correct and complete, prepared in accordance with or reconciled
with generally accepted accounting principles consistently followed
throughout the periods and without giving effect to the transactions
contemplated hereby and shall fairly present the financial condition
and results of operations of the Corporation, as of the dates thereof
or throughout the periods covered thereby. The Financial Statements
shall reflect or provide for all claims against debts and liabilities
of the Corporation and the Subsidiary, fixed or contingent, as of the
dates thereof, in accordance with generally accepted accounting
principles.
5. No Material Adverse Changes. There shall not be any change between the
date of the Balance Sheet and the date of Closing which affects
materially and adversely the business, properties or condition,
financial or otherwise, or results of operation of the Corporation or
the Subsidiary, as determined in accordance with generally accepted
accounting principles consistently applied with prior periods, and
neither Seller nor Corporation knows of any fact or condition which
exists, or is
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contemplated or threatened, which might cause any such change at any
time in the future.
6. Real Estate. Except as set forth on Schedule 6, neither the
Corporation nor the Subsidiary owns or leases real property. Schedule
6 summarizes all leases, subleases or other agreements under which the
Corporation or Subsidiary is lessor or lessee of any real property.
Such leases, subleases and other agreements are in full force and
effect with respect to the performance of the Corporation and the
Subsidiary, there is no default or event of default or event which
with notice or lapse of time or both would constitute a default
thereunder; and neither the Corporation nor the Subsidiary has
received any notice of any default thereunder. The leasehold interests
of each of the Corporation and the Subsidiary are subject to no lien
or other encumbrance and enjoy a right of quiet possession as against
any lien or other encumbrance on the property.
7. Tangible Property. Schedule 7 sets forth all interests owned or
claimed by the Corporation and the Subsidiary (including, without
limitation, options) in or to the equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized
items and other tangible property material to the business of the
Corporation and/or the Subsidiary and that is treated by the
Corporation and/or the Subsidiary as depreciable or amortizable
property ("Tangible Property"), the value of which shall not be
reflected on the Balance Sheet and which has not been sold or disposed
of in the ordinary course of business since the date of the Balance
Sheet. The Corporation or the Subsidiary owns all items of property
listed on Schedule 7 free and clear of any lien or other encumbrance.
8. Intellectual Property. Set forth in Schedule 8 is a true and correct
list of all of the Corporation's and the Subsidiary's domestic and
foreign patents and patent applications, unpatented inventions,
copyrights and copyright applications, tradenames, trademarks, logos
(whether or not registered), trade secrets and proprietary know-how
owned, registered in the name of, licensed to, or used in the business
of the Corporation and/or the Subsidiary (collectively, the
"Intellectual Property"). Except as set forth in Schedule 8, there is
no restriction affecting the Corporation's and/or the Subsidiary's use
of any of the Intellectual Property and no license has been granted by
the Corporation or the Subsidiary with respect thereto. Each license
set forth in Schedule 8 is in full force and effect and there in no
default by any party to any license. Each item of Intellectual
Property, including without limitation the IP as defined in Schedule
8, is owned solely by Corporation or the Subsidiary and is valid and
in good standing, is not subject to any liens or encumbrances, is not
currently being challenged or infringed, is not involved in any
pending or threatened administrative or judicial proceeding and does
not conflict with any rights of any other person or entity. The
Intellectual Property is sufficient in all respects to permit the
lawful conduct by the Corporation
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and the Subsidiary of the business of distributing and retailing of
the Skynet 2000 system and its enhancements as described in Schedule
8. To the best of Seller's and Corporation's knowledge, neither the
Corporation nor the Subsidiary is conducting its respective businesses
in a manner which violates nor will the execution, delivery or
performance of this Agreement violate any of the terms or conditions
under which any Intellectual Property was acquired, obtained or
granted. Neither the Corporation or the Subsidiary is in default or in
violation with respect to any of the Intellectual Property or the
terms or conditions by which such Intellectual Property was acquired
or obtained, and no event has occurred which constitutes, or with due
notice or lapse of time or both may constitute, a default by the
Corporation or the Subsidiary under or a violation of any item of
Intellectual Property. None of the products or operations of the
Corporation or the Subsidiary involves any infringement of any
proprietary right of any other person or entity. None of the
Corporation, Subsidiary or Seller has any knowledge or any reason to
know of any fact which could give rise to a claim of infringement by
any person or entity relating to the ownership, licensing or use of
the Intellectual Property by the Corporation or Subsidiary. Except as
set forth on Schedule 12, neither the Seller, Corporation nor the
Subsidiary has knowledge or reason to know of any fact which could
give rise to a claim of infringement by any person or entity relating
to the ownership, licensing or use of the Intellectual Property. All
rights in the Intellectual Property shall be perfected prior to
Closing. Seller and the Corporation shall undertake to deliver to
Buyer copies of all documents relating to the Intellectual Property
prior to Closing.
9. Liens. Except as set forth on Schedule 9, each of the Corporation and
the Subsidiary owns outright and has good and marketable title to all
of its respective assets and properties, including, without
limitation, all of the assets and properties reflected on the Balance
Sheet, in each case free and clear of any lien or other encumbrances.
10. Contracts and Agreements. Schedule 10 sets forth all of the contracts
and other agreements to which the Corporation and/or the Subsidiary is
a party or by or to which their respective assets or properties are
bound. All of such contracts and other agreements are valid,
subsisting, in full force and effect and binding upon the Corporation
and/or the Subsidiary, and the Corporation or Subsidiary has paid in
full or accrued all amounts now due thereunder and except for
executory obligations, has satisfied in full or provided for all of
its liabilities and obligations thereunder, and is not in default
under any of them, nor, to Seller's and Corporation's knowledge, is
any other party to any such contract or other agreement in default
thereunder, nor, to Seller's and Corporation's knowledge, does any
condition exist that with notice or lapse of time or both would
constitute a default thereunder. Except as separately identified on
Schedule 10, no approval or consent of any person is needed in order
that the contract or other agreement set
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forth on Schedule 10 or any other Schedule will continue in full force
and effect following the consummation of the transactions contemplated
by this Agreement.
11. Suppliers and Customers. Schedule 11 sets forth a list of all of the
Corporation and Subsidiary's suppliers and customers. The
relationships of the Corporation and the Subsidiary with its
respective suppliers and customers are good commercial working
relationships and no material supplier or customer has threatened in
writing to cancel or otherwise terminate, or to the knowledge of the
Seller, the Subsidiary or Corporation, has decreased materially or
threatened in writing to decrease or limit materially, or to the
knowledge of Seller, Subsidiary, or Corporation, intends to modify
materially its relationship with the Corporation or Subsidiary or
intends to decrease or limit materially, its services or supplies to
the Corporation or Subsidiary.
12. Litigation. Except as listed on Schedule 12, there are no suits,
grievances, complaints, charges, proceedings, claims, or
investigations now pending, or, to the best of Seller's and
Corporation's knowledge, threatened against the Corporation or
Subsidiary or any of their respective officers or directors in such
capacity, at law or in equity, whether or not fully covered by
insurance, in connection with the business, affairs, properties or
assets of the Corporation and/or the Subsidiary.
13. Dividends and Distributions. Except as set forth on Schedule 13,
neither the Corporation nor the Subsidiary has declared or paid any
dividend or declared or made any distribution and neither the
Corporation nor the Subsidiary will declare or pay any dividend or
declare or make any distribution whatsoever to its stockholders,
either in cash, stock or other property, through purchases or
redemption of stock or otherwise prior to the Closing Date.
14. Loans. Schedule 14 sets forth all loans, guarantees of obligations of
others and any extension, or obtaining of credit, of each of the
Corporation and the Subsidiary as of the date hereof.
15. Insurance. Schedule 15 sets forth a list and brief description of all
insurance policies in force and effect with respect to the
Corporation's and the Subsidiary's businesses, properties and assets,
including, without limitation, insurance on the Corporation's and
Subsidiary's respective personnel, and specifying each pending claim
and specifies the notice or other information regarding possible
claims thereunder, cancellation thereof or premium increases thereon.
Such information has been obtained from the Subsidiary's and
Corporation's insurance agents and is, to the best of Seller's and
Corporation's knowledge, true, correct and complete. To the best of
Seller's and Corporation's knowledge, such policies are valid and
enforceable in accordance with their terms, are in full force and
effect, and insure against risks and liabilities to the extent and in
the manner customary in the
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industry in which the Corporation and Subsidiary are engaged. Neither
the Corporation nor the Subsidiary is in default with respect to any
provision contained in any such policy. Neither the Corporation nor
the Subsidiary has failed to give any notice or present any claim
under any such policy in due and timely fashion. Except for claims set
forth on Schedule 15, there are no outstanding unpaid claims under any
such policy. Neither the Corporation nor the Subsidiary has received
any notice of cancellation or non-renewal of any such policy or
binder. Neither Seller nor the Corporation has knowledge of any
inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts that
might form the basis for termination of any such insurance. Except as
set forth on Schedule 15, neither Seller nor Corporation has any
knowledge of any state of facts or of the occurrence of any event that
is reasonably likely to form the basis for any material claim against
the Corporation or the Subsidiary not fully covered by the policies
referred to on Schedule 15. Neither the Corporation nor the Subsidiary
has received any notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or that
any insurance coverage listed on Schedule 15 will not be available in
the future on substantially the same terms as now in effect.
16. Tax Returns. The Corporation and Subsidiary have duly filed, or an
extension of the filing deadline has been received for, all tax
reports and returns required to be filed by it including, without
limitation, all tax reports and returns with respect to federal,
state, local any foreign income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, fuel taxes, gross receipt taxes, franchise
taxes, employment and payroll related taxes, including employees'
income withholding taxes and property taxes, whether or not measured
in whole or in party by net income (hereinafter, "Taxes" or,
individually, a "Tax"). Personal Property and Income Tax due and
payable in the year 1998 shall be paid by Seller only to the extent of
the prorated portions of such tax for that portion of the calendar
year up to the date of Closing.
17. Accounts Receivable and Payable. All customer and trade notes and
accounts receivable owned by the Corporation and the Subsidiary on the
Balance Sheet date and on the Closing Date are in accordance with
generally accepted credit extension principles consistent with those
followed in the preparation of the Financial Statements referred to in
Paragraph IV.B.4. All receivables reflected on the Balance Sheet
represent bona fide, arm's-length transactions with unaffiliated third
parties. All notes and accounts payable to or for the benefit of the
Corporation and/or the Subsidiary or acquired by the Corporation or
the Subsidiary after the date of the Balance Sheet and prior to the
date of Closing have been collected or are or will be current and, as
of the date hereof and as of the date of Closing, collectible in
amounts not less than the aggregate amount thereof and, as of the date
hereof and as of the Closing Date, are not subject to counterclaims or
set-offs. All accounts payable represent bona fide, arm's-length
transactions with unaffiliated
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third parties. All accounts payable will be paid on or before the due
date and will not incur any late penalties or fees.
18. Bank Accounts, etc. Schedule 18 contains a true, correct and complete
list of all banks, trust companies and savings and loan associations
in which the Corporation and/or the Subsidiary has an account or safe
deposit box and the names of all persons authorized to draw thereon,
to have access thereto, or to authorize transactions therein, the
names of all persons, if any, holding powers of attorney from Seller
or Corporation.
19. Inventory. The inventory of the Corporation and the Subsidiary
(including that reflected on the Balance Sheet) is or was, prior to
the sale thereof, in good and merchantable condition, and suitable and
usable or salable at prevailing market prices, in the ordinary course
of business for the purpose for which intended. To the knowledge of
Seller and Corporation, there is no adverse condition affecting the
supply of materials available to the Corporation or the Subsidiary.
20. Compliance with Law. Except as set forth in Schedule 20, neither the
Corporation nor the Subsidiary is in violation of any applicable
order, judgment, injunction, award, decree or writ (collectively,
"Orders"), or, to the knowledge of Seller and Corporation, any
applicable law, statute, code, ordinance, regulation or other
requirement (collectively, "Laws"), of any government or political
subdivision thereof, in a material manner, whether federal, local or
foreign, or any agency or instrumentality of any such government or
political subdivision, or any court or arbitrator (collectively,
"Governmental Bodies").
21. Employee Relations. Except as set forth on Schedule 21, neither the
Corporation nor the Subsidiary has made a commitment or agreement to
increase the wages or to modify the conditions or terms of employment
of any employee. Neither the Corporation nor the Subsidiary is a party
to any collective bargaining agreement.
22. Transactions with Directors, Officers, Seller and Affiliates. There
have been no transactions between Corporation and/or the Subsidiary
and (i) Seller or (ii) any director, officer or stockholder of
Corporation or the Subsidiary, or affiliate of Seller, other than (a)
as set forth on Schedule 14, (b) the purchase of the Subsidiary by
Corporation, and (c) Tomas Wilmot, a director of the Corporation and
Seller, personally providing all operational funding for the
Corporation.
23. Consents. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby and
thereby does not require the consent, waiver, authorization or
approval of, notice to or filing with any governmental or regulatory
authority or any other person or entity, other than with the United
States Securities Exchange Commission.
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24. Brokerage Fee. Seller is not responsible to anyone for any brokerage
or finder's fee or expense.
25. Continuing Representations. The representations and warranties of
Seller and Corporation shall be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of
that date.
26. Subsidiary. The Subsidiary is a wholly owned subsidiary of the
Corporation. There are no other subsidiaries of the Corporation.
V REPRESENTATIONS AND WARRANTIES OF BUYER
A. Buyer represents to Seller as follows:
1. No Breach. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not
violate, conflict with or result in the breach of any of the terms of,
or result in a material modification of the effect of, or otherwise
give any contracting party the right to terminate, or constitute a
default under any contract or other agreement to which Buyer is a
party.
2. Finder's Fee. Buyer is not responsible to anyone for any brokerage or
finder's fee or expense, other than 750,000 newly issued shares of
Buyer to be delivered to Jayhead Investments, Limited as a finder's
fee. Such shares shall be delivered to Jayhead Investments, Limited at
Closing in proper form for transfer, duly endorsed in blank or
accompanied by stock powers duly executed in blank with all taxes,
direct or indirect, attributable to the transfer of such shares paid
or provided for by Buyer.
4. Continuing Representations. The representations and warranties of
Buyer herein contained shall be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of
that date.
VI INSPECTION AND INFORMATION
All information, facts and records including without limitation,
contracts, leases, financial information and other records of the Corporation
and the Subsidiary, that would be material to Buyer in determining whether to
purchase the stock of the Corporation requested by Buyer will be furnished to
Buyer by Seller or Corporation. Buyer further agrees to maintain all information
in absolute confidence until the Closing Date and in the event of a termination,
all such information shall be treated as confidential and returned to the
Corporation.
VII CONDUCT OF BUSINESS
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From the date hereof until the Closing, Seller shall continue to
operate the business affairs of the Corporation and the Subsidiary in the
normal, usual and customary manner in the ordinary and regular course of
business. Seller shall further exercise its best efforts to conduct and preserve
the business activity of the Corporation and the Subsidiary for the benefit of
Buyer. Seller or Corporation shall give Buyer prompt notice of any event,
condition or circumstance occurring from the date hereof through the Closing
Date that would constitute a violation of any breach of this Agreement.
VII CONDITIONS PRECEDENT TO CLOSING
A. Buyer's Conditions Precedent to Seller's Obligations. The obligations of
Seller to sell, assign, transfer and deliver the Shares to be sold, assigned,
transferred and delivered to Buyer hereunder are subject to the satisfaction at
or prior to the Closing Date of the following conditions:
1. Representations, Warranties and Performance. The representations and
warranties of Buyer contained in this Agreement shall be true and
correct with the same force and effect as if made at and as of the
date of Closing, Buyer shall have performed or have complied with all
agreements and conditions required by this Agreement to be performed
or complied with by it on or prior to the date of Closing.
2. Impediments to Closing. On the date of Closing, no suit, action,
claim, cause of action, proceeding or governmental investigation shall
be pending or threatened relating to this Agreement or the
consummation of the transactions contemplated hereby or any related
matter.
3. Approval of Documents. All documents and instruments called for by
this Agreement to be provided by Buyer at the Closing shall have been
approved by Seller's counsel and delivered at the Closing.
4. Continuing Warranty. It shall be a continuing warranty and
representation of Buyer that this Agreement, including all schedules,
Closing documents, and any other financial statement, document, or
other instruments furnished or to be furnished by Buyer to Seller in
connection with the transaction contemplated by this Agreement
contains or will contain, to the best of Buyer's knowledge, no untrue
statement of any material fact, nor omits or will omit to make any
material fact required to be stated to make such statement, document
or other instrument not misleading.
B. Seller's Conditions Precedent to Buyer's Obligations. The obligations of
Buyer to purchase and accept transfer and delivery of the Shares to be sold,
assigned,
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transferred and delivered by Seller hereunder are subject to the
satisfaction at or prior to the date of Closing of the following
conditions:
1. Representations, Warranties and Covenants. The representations,
warranties, covenants and agreements of Seller and Corporation
contained in this Agreement or otherwise made in writing by either of
them or on their behalf in connection with the transactions
contemplated hereby shall be true and correct with the same force and
effect as though made on and as of the date of Closing; each and all
of the agreements and conditions to be performed or satisfied by
Seller and Corporation hereunder at or prior to the date of Closing
shall have been duly performed or satisfied.
2. Satisfaction of Counsel. The validity of all transactions herein
mentioned, as well as the form and substance of all opinions,
certificates and other documents hereunder, shall be satisfactory in
all reasonable respects to Buyer's counsel.
3. Consents. Seller shall have obtained the requisite consents, waivers,
authorizations and approvals required in connection with the
execution, delivery, and performance of this Agreement.
4. Impediments to Closing. On the Closing Date, no suit, action, claim,
cause of action, proceeding or governmental investigation shall be
pending or threatened against Seller or Corporation relating to this
Agreement.
5. Satisfactory Review. Upon completion of Buyer's due diligence, Buyer
shall not have found the existence of any matter or condition
concerning or relating to the Corporation or the Subsidiary which in
the opinion of Buyer is likely to have a material adverse impact on
the Subsidiary or the Corporation's business, financial condition or
future prospects.
6. Continuing Warranty. It shall be a continuing warranty and
representation of Seller and Corporation that this Agreement,
including all schedules, Closing documents, and any other financial
statement, document, or other instruments furnished or to be furnished
by Seller or Corporation to Buyer in connection with the transaction
contemplated by this Agreement contains or will contain, to the best
of Seller's and Corporation's knowledge, no untrue statement of any
material fact, nor omits or will omit to make any material fact
required to be stated to make such statement, document or other
instrument not misleading.
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7. No Material Adverse Change. There shall have been no material adverse
change in any of the Subsidiary or Corporation's assets, or in the
operation, prospects or financial condition of the Corporation or the
Subsidiary.
8. Approval of Documents. All documents and instruments called for by
this Agreement to be provided by Seller and/or Corporation at the
Closing shall have been approved by Buyer's counsel and delivered at
the Closing.
9. Approval of Balance Sheet and Profit and Loss Statement. Buyer shall
be satisfied with the Financial Statements delivered in accordance
with Section IV.B.4.
IX PUBLICITY
The parties agree that no publicity release concerning this Agreement
shall be made without advance approval thereof by each of the parties to this
Agreement.
X EXPENSES
Each party to this Agreement shall pay its own costs and expenses
(including, without limitation, the fees and expenses of its agents,
representatives, counsel and accountants) precedent to the negotiations,
preparation and carrying out of this Agreement and necessary to its performance
of and compliance with all agreements and conditions contained herein or with
respect to any other aspect of the transactions contemplated by this Agreement,
regardless of whether the transactions contemplated hereby are consummated.
XI SURVIVAL OF REPRESENTATIONS AND WARRANTIES
A. Survival of Seller's and Corporation's Representations and
Warranties. Notwithstanding any right of the Buyer fully to investigate the
affairs of the Subsidiary and the Corporation and notwithstanding any knowledge
of facts determined or determinable by the Buyer pursuant to such investigation
or right of investigation, the Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller and
Corporation contained in this Agreement or in any Schedule or the documents
delivered pursuant to this Agreement. All such representations, warranties,
covenants and agreements shall survive the execution and delivery of this
Agreement and the Closing hereunder.
B. Survival of Buyer's Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall
survive the execution and delivery of this Agreement and the Closing hereunder.
XII INDEMNIFICATION
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A. Indemnification by Seller. Seller indemnifies and holds Buyer harmless
from and against any and all losses, claims, damages or expenses, including,
without limitation, losses resulting from liabilities for any tax of the
Corporation and/or the Subsidiary and reasonable attorneys' fees (collectively,
"Damages") that may be suffered directly or indirectly by Buyer as a direct and
proximate result of or arising from 1.) the breach, inaccuracy or untruth of any
representation or warranty of Seller or Corporation contained in this Agreement;
2.) the breach of any covenant of Seller or Corporation contained in this
Agreement; and 3.) any and all actions, suits, proceedings, assessments or
judgments directly related to the foregoing.
B. Indemnification by Buyer. Buyer indemnifies and holds Seller harmless
from and against any and all Damages that may be suffered by Seller as a direct
and proximate result of or arising from 1.) the breach, inaccuracy or untruth of
any representation or warranty of Buyer contained in this Agreement; 2.) the
breach of any covenant of Buyer contained in this Agreement; and 3.) any and all
actions, suits, proceedings, assessments or judgments directly related to the
foregoing.
XIII TERMINATION OF AGREEMENT
A. Termination. This Agreement may be terminated prior to the Closing as
follows:
1. At the election of Seller if Buyer has breached any material
representations, warranty, covenant or agreement contained in this
Agreement, which breach cannot be or is not cured by the date of
Closing;
2. At the election of Buyer if Seller or Corporation has breached any
material representation, warranty, covenant or agreement contained in
this Agreement, which breach cannot be or is not cured by the date of
Closing;
3. At the election of either Buyer or Seller, if causes beyond the
reasonable control of the party claiming the excuse, including without
limitation, the existence of a war, civil commotion, earthquake or
epidemic, prevents such party from fulfilling his or its obligations
under this Agreement; or
4. At any time on or prior to the date of Closing, by mutual consent of
Seller and Buyer.
B. Effect of Termination. If this Agreement is terminated in accordance
with Paragraph XIII.A above and the transactions contemplated hereby
are not consummated, this Agreement shall become void and of no
further force and effect, except for 1.) the provisions of Paragraph
VI above relating to the obligation of Buyer to keep confidential and
not to use the information obtained by Buyer and
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to return documents to the Corporation, and 2.) the provisions of
Paragraph IX, Paragraph X, and Paragraph XII.
XIV HEADINGS
The subject headings of the Paragraphs of this Agreement are included
for purposes of convenience only, and shall not affect the construction or
interpretation of any of its provisions.
XV ENTIRE AGREEMENT; MODIFICATION
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations and understandings of the parties.
No supplement, modification, or amendment of this Agreement shall be binding
unless executed in writing by the parties. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions whether or not similar, or shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
making the waiver.
XVI REMEDIES; SPECIFIC PERFORMANCE
Each party's obligations under this Agreement are unique. If a party
should default in its obligations under this Agreement, the parties each
acknowledge that it would be extremely impractical to measure the result in
damages, accordingly each non-defaulting party, in addition to any other
available rights and remedies, at law or in equity, may sue in equity for
specific performance, and the parties each expressly waive a defense that a
remedy in damages will be adequate.
In the event this Agreement is referred to an attorney to enforce any
of the terms of the Agreement by Seller, Corporation or Buyer, the prevailing
party shall be entitled to recover from the other party reasonable attorneys'
fees and costs and if action is filed, such sum as the court may adjudge
reasonable as attorneys' fees and costs prior to trial or on appeal of such suit
or action, in addition to all other sums provided by law.
XVII COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
XVIII ASSIGNMENT
Neither this Agreement or any interest herein shall be assignable by
either party.
XIX GOVERNING LAW; SUBMISSION TO JURISDICTION.
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This Agreement shall be deemed to be a contract made under the laws of
the State of Nevada and the United States of America and for all purposes shall
be governed by and construed in accordance with such laws without giving effect
to the applicable rules governing the conflicts of laws. The Buyer and Seller
and Corporation agree that any dispute, claim or suit between or among the
parties hereto or between the Buyer and Subsidiary or the Corporation and any of
their respective successors and assigns involving or arising out of this
Agreement, or any transaction contemplated hereby shall be submitted in the
first instance to and shall only be decided by a state or federal court located
in the continental United States which courts shall have exclusive jurisdiction
with respect to any such dispute, claim or suit to the exclusion of all other
jurisdictions. In any such dispute, claim or suit, the Buyer and the Seller, on
his own behalf and on behalf of the Corporation and the Subsidiary, each (i)
irrevocably submits to the jurisdiction of any state or federal court sitting in
the continental United States, (ii) waives any objections on the grounds of
improper venue or forums non conveniens or any similar grounds, and (iii)
consents to service of any summons, complaint or other process in connection
with any such dispute, claim or suit by certified or registered mail directed to
it at its address as provided in Article XX hereof and waives personal service
thereof and agrees to service by any other manner permitted by relevant law.
Within thirty (30) days after such a mailing, the party so served shall appear
and answer to such summons, complaint or other process. Should any party so
served fail to appear or answer within said 30 day period, then such party shall
be deemed in default and judgment may be entered against such party for the
amount or other relief as demanded in any summons, complaint or other process so
served.
XX NOTICES
All notices, requests, demands, a claim of breach by either party and
other communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom notice is given or on the third day after mailing if mailed to
the party to whom notice is given, by first class mail, postage prepaid, or
certified, return receipt requested and properly addressed as follows:
To Seller: Local Protectors Limited
Unicorn Chambers
Victoria Street
Douglas IM1 2LD
Isle of Man
Copy to: Simon Cooper
Cooper Chan
Unicorn Chambers, Victoria Street
Douglas, Isle of Man 1M1 2LD
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To Buyer: Peripheral Connections, Inc.
Milton Klyman
3303 Don Mills Road Suite 2603,
North York, Ontario
Canada M2J 4T6
Copy to: Leslie J. Weiss
Sugar, Friedberg & Felsenthal
30 N. LaSalle Street, Suite 2600
Chicago, IL 60602
XXI VALIDITY AND EFFECT
The validity and effect of any paragraph or article herein shall not
affect or be affected by other provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
and Sale Agreement as of the date first set forth above.
Attest: SELLER:
LOCAL PROTECTORS LIMITED
By:/s/
Its:
Attest: TOMAS GEORGE WILMOT:
FOR HIMSELF
/s/ Tomas George Wilmot
Attest: NETKING LIMITED
By:/s/ Tomas George Wilmot
Its:
Attest: BUYER:
PERIPHERAL CONNECTIONS, INC.
/s/ Melvyn Moscoe By:/s/ Milton Klyman
Melvyn Moscoe, Treasurer Milton Klyman, President
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<PAGE>
LEGEND:
The Shares of Peripheral Connections, Inc. are being transferred
pursuant to Regulation S and may not be transferred except in
accordance with Regulation S promulgated under the Act. See Exhibit A.
36
<PAGE>
Exhibit 10.7
NOMINEE AGREEMENT
I, the undersigned Tomas George Wilmot of Link House, 259 City Road, London,
England EC1V 1JE, DO HEREBY STATE that I together with Peripheral Connections,
Inc. am the joint registered holder of 1 share of (pound)1 each fully paid in
the capital of Skynet 2001 Limited (incorporated as Netking Limited) and I AGREE
to hold such share AS NOMINEE for Peripheral Connections, Inc. and that such
share will be transferred to the said Peripheral Connections, Inc. or
their/his/her nominee or nominees in accordance with such directions as the said
Peripheral Connections, Inc. may give me AND for the aforesaid purposes I HEREBY
AGREE to sign all such transfer or other forms as may be necessary for
registration of the said share on their/his/her name or that of their/his/her
nominee or nominees.
AS WITNESS my hand this day of April 1998
signed by:
/s/ Tomas George Wilmot
Tomas George Wilmot
37
<PAGE>
Exhibit 10.8
NOMINEE AGREEMENT
I, the undersigned S N H Cooper of Unicorn Chambers, Victoria Street, Douglas,
Isle of Man DO HEREBY STATE that I am the registered holder jointly with Netking
Limited of 1 share of (pound)1 each fully paid in the capital of Keymore Limited
and I AGREE to hold such share AS NOMINEE for Netking Limited and that such
share will be transferred to the said Netking Limited or their/his/her nominee
or nominees in accordance with such directions as the said Netking Limited may
give me AND for the aforesaid purposes I HEREBY AGREE to sign all such transfer
or other forms as may be necessary for registration of the said share on
their/his/her name or that of their/his/her nominee or nominees.
AS WITNESS our hand this 27th day of February 1998
S N H Cooper signed on his behalf by:
/s/ Simon Cooper
38
<PAGE>
Exhibit 10.9
NETKING LIMITED
31 Southampton Row
London WC1V 5HT
2 March 1998
Keymore Limited
Link House
259 City Road
London ECIV 1JE
Dear Sirs:
We are pleased to make available to you, as of 3 March 1998, a loan in the
principal sum of (pound)325,000.00 on the terms and conditions of this letter.
You will repay the loan at anytime forthwith on demand. You may repay the loan
or any part of it early but may not re-borrow any amount so repaid.
The principal amount of the loan outstanding from time to time will carry
interest at the rate of twelve per cent (12%) per annum and payable quarterly in
arrears at the end of March, June, September and December in each year, with the
first payment to be made at the end of that quarter within which the date of
this letter falls. However, if you default in the payment or repayment on the
due date of any sum from time to time due under this letter, interest will
accrue on a daily basis (payable on demand) on the amount in respect of which
default has been made from the date of default until actual payment (both before
and after judgment) at the rate of seventeen per cent (17%) per annum.
The loan will be unsecured.
You will make all payments under or in respect of this facility for value on the
due date in pounds sterling to us at such account as we may from time to time
instruct you in writing. If any payment becomes due on a day which is not a day
on which banks are generally open for business in London, the due date of such
payment will be extended to the next business day. You will make all payments
under or in respect of this facility without set-off or counterclaim and free
and clear of any withholding or deduction for or on account of tax, save as may
be required by law.
Notwithstanding the above provisions of this letter, the loan and all interest
on it will become due and payable or repayable forthwith on demand by us if (i)
you fail to pay any sum under this letter when due or your are in breach of any
other provision of this letter; or (ii) you are in default under any other
financial obligation to any person; or (iii) an administration order is made in
relation to you or a receiver or manager or administrative receiver is appointed
of you or any of your assets
39
<PAGE>
or you enter into liquidation; or (iv) any petition is presented, any resolution
is proposed or any other steps or proceedings are taken which may lead to any
such occurrence referred to in (iii) above; or (v) any distress or execution is
levied on or affects any of your property or assets; or (vi) you are deemed to
be insolvent or unable to pay your debts; or (vii) you cease to carry on
business.
You will pay on demand and on a full indemnity basis, all costs and expenses
(and VAT) which we may from time to time incur in connection with this letter
and/or loan.
Any demand or notice in respect of this letter and/or the loan will be in
writing and (without prejudice to any other effective means of serving it) may
be served on you personally or by post and either by delivering it to any of
your officers at any place or by dispatching it addressed to you at your
registered or principal office for the time being or any of your places of
business last known to us. Any such demand or notice delivered personally shall
be deemed to have been received immediately upon delivery. Any such demand or
notice sent by post shall be deemed to have been received at the opening of
business on the first working day following the day on which it was posted even
if refunded undelivered.
Time shall be of the essence in respect of your obligations under or in respect
of his facility but no failure by us to exercise or delay by us in exercising
any right or remedy under or in respect of this facility shall operate as a
waiver of it, nor shall any single partial or defective exercise by us of any
such right or remedy preclude any other or further exercise of that or any other
right or remedy.
This letter is governed by English law.
To accept the terms and conditions of this letter, please sign and return the
enclosed copy within 14 days from today's date, failing which this letter will
lapse and the loan will not be available to you.
Yours faithfully
For and on behalf of Netking Limited
Director
Agreed and accepted
Date:
For and on behalf of Keymore Limited
Director
40
<PAGE>
Exhibit 10.10
Dated 1998
LEANDRA DE OLIVERIA SOUSA
and
NETKING LIMITED
LIMITED RECOURSE PROMISSORY NOTE
Cooper Chan
Unicorn Chambers
Victoria Street
Douglas
Isle of Man
Telephone: 01624 639000
Telefax: 01624 612138
41
<PAGE>
LIMITED RECOURSE PROMISSORY NOTE
Promissory Note due on the day of 199
- -----------------------------------------------------------
Netking Limited ("the Maker") a limited company incorporated in England with No.
3505172 whose registered office is at 31 Southampton Row, London, England WC1
5HT promises to pay to the order of Leandra De Oliveria SOUSA ("SOUSA") the
principal sum of (pound) 4,000,000.00 (Four million pounds sterling) together
with interest on the unpaid principal balance at the rate of .5% percent
(one-half percent) per annum over the UK clearing bank base lending rate as
published by the Bank of England on those dates when interest due is compounded
(as below) in exchange for one share of class "A" Ordinary Shares of (pound)1
(one pound sterling) and one share of class "B" Ordinary Shares of (pound)1 (one
pound sterling) (total of two shares) in Keymore Limited, the principal sum
representing full payment for subject shares in accordance with the terms of a
Share Purchase Agreement executed between Unicorn Nominees Limited and Local
Nominees Limited (holding title on behalf of Sousa) and Netking Limited on the
27th day of February 1998.
Payment
Interest shall be paid in arrears. The first interest payment shall be made on
the day preceding the one year anniversary date of this note. No principal
payments shall be due during the term of the note. The entire principal balance
and all accrued interest shall be fully due and payable eighteen (18) months
from the date of this Agreement. The interest shall accrue from day to day and
shall be calculated on the basis of a 365 day year until the relevant amount is
paid or repaid. The interest shall be compounded on the last business day in
each of March, June, September and December and on the redemption date and shall
be payable on the date of repayment of the principal sum. In addition to the
interest charge on the unpaid principal balance of this note, any other payment
which may become due under the terms of this note, including, penalties, costs,
and solicitors fees, shall bear interest from the date upon which they become
due at the rate of 12% per annum. Such costs and fees shall become due and
payable upon demand by Sousa. All payments due under the note shall be credited
first to unpaid costs and fees, and then to accrued interest, and then to the
unpaid principal balance and are to be wired or delivered to SOUSA at such
address as she provides the Maker from time to time.
Pre-payment
This note may be prepaid in whole or in part.
Default
In the event of late tender or default on the payment of principal, interest or
costs and fees hereunder (an "Event of Default"), interest shall accrue from the
date that payment was due at the rate of 12% per annum. Once any payment of
principal, interest or costs and fees due hereunder is 10 days late, SOUSA shall
notify the Maker that such payment is 10 days late and if such payment is not
received by SOUSA prior to becoming 15 days late, SOUSA shall be entitled to
declare a default hereunder and SOUSA, at SOUSA's option may declare the entire
unpaid principal balance together with all accrued interest hereunder to be
immediately due and payable and may pursue all of her remedies in law and
equity. Additionally, in the event that this Note is not paid in full within 15
days of Promissory Note due date indicated first above the Maker shall pay to
SOUSA, on a pro rata basis, an additional (pound)100,000 (one hundred thousand
pounds sterling) for each 6 month period beyond such payment date that repayment
in full is not made.
42
<PAGE>
Security
The Maker's obligations under this note shall be unsecured. All of the
obligations in this Promissory Note shall be forgiven and no further demand
shall be made by SOUSA nor shall further recourse be had or enforced as against
the Maker only at such time as Maker has performed all of its obligations under
this note.
Notices
All notices hereunder shall be deemed given if sent by facsimile or by
registered post, to the Maker at such address as the Maker may specify to SOUSA
from time to time in writing. A notice shall be deemed to be served 72 hours
after the time of posting.
Miscellaneous
If this note is not paid according to its terms the Maker agrees to pay all
costs of collection, including reasonable solicitor's fees, that may be incurred
by SOUSA in seeking the collection of this note. The Maker waives protest,
demand, presentment, notice of dishonour, and notice of protest in case this
note is not paid at maturity or any instalment is not paid when due and agreed,
that after maturity of this note the time of making payment of the same may be
extended without prejudice to SOUSA and without releasing the Maker.
Successors and Assigns
This note shall be binding upon and inure to the benefit of the heirs,
successors, legal representatives, administrators of the parties and all
endorsers or sureties hereof.
Governing Law
This note and any questions of interpretation of enforcement shall be governed
by the laws of England.
IN WITNESS WHEREOF this Agreement has been duly executed under the hands of
SOUSA and the Maker on the date and year first before written.
Executed by Leandra De Oliveria SOUSA:-
)/s/ Leandra De Oliveria Sousa
)
)
Executed by Netking Limited acting by:-
Director )
T. G. Wilmot ) /s/ T. G. Wilmot
)
Director/Secretary )
)
)
43
<PAGE>
Exhibit 21
Netking Limited
Keymore Limited (subsidiary of Netking Limited)
44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Peripheral Connections, Inc. December 31, 1997 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000894557
<NAME> Peripheral Connections, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,965
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,965
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,965
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,850
<OTHER-SE> 7,115
<TOTAL-LIABILITY-AND-EQUITY> 10,965
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 246,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,667
<INCOME-PRETAX> (262,263)
<INCOME-TAX> 0
<INCOME-CONTINUING> (262,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262,263)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
