<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-26202
-------
------------------------
CZECH INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 52-1807562
- ------------------ --------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15245 SHADY GROVE ROAD (301) 527-1110
SUITE 340, ROCKVILLE, MD 20850 --------------
- ------------------------------ Issuer's telephone number
(Address of principal executive offices)
------------------------
Check whether the issuer (1) 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: as of August 1, 1996, there were
14,355,000 shares of Common Stock, par value $0.01, issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes _____No __X_
This document contains 11 pages including a signature page and 20 pages
including an Exhibit Index and Exhibits.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1996 1995
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets
Cash $5,318,449 $11,276,921
Accounts receivable 319,017 367,200
Loan receivable to unconsolidated affiliate 1,500,000
Inventories 29,883 92,888
Prepaid Expenses 296,030 24,011
Available for sale securities 502,879
----------- ------------
Total Current Assets 7,463,379 12,263,899
----------- ------------
Property and Equipment
Buildings 18,311,313 18,726,156
Furniture and Fixtures 572,754 441,190
Less Accumulated Depreciation (535,609) (310,323)
----------- ------------
Net Property and Equipment 18,348,458 18,857,023
----------- ------------
Other Assets
Deferred Income Tax 151,139
Other 10,389 98,618
Real estate held for resale 465,116
----------- ------------
Total Other Assets 10,389 714,873
----------- ------------
Total Assets $25,822,226 $31,835,795
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable Trade $137,592 $134,010
Notes Payable 4,543,647
Accrued Expenses 103,564 34,857
----------- ------------
Total Current Liabilities 241,156 4,712,514
Long Term Debt (net of current portion) 2,027,176 4,548,330
----------- ------------
Total Liabilities 2,268,332 9,260,844
----------- ------------
Minority interest in Consolidated Subsidiaries 9,364,682 8,035,015
----------- ------------
Shareholders' Equity
Common Stock; $.01 per value; 50,000,000 shares
authorized, 8,905,000 issued and outstanding in 1996
and 1995 89,050 89,050
Additional Paid-In Capital 13,693,733 13,719,269
Retained Earnings (accumulated deficit) 271,097 (79,034)
Foreign Currency Translation Adjustment 135,332 810,651
----------- ------------
Total Stockholders' Equity 14,189,212 14,539,936
----------- ------------
Total Liabilities and Stockholders' Equity $25,822,226 $ 31,835,795
----------- ------------
----------- ------------
</TABLE>
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
-2-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDING JUNE 30
1996 1995
(UNAUDITED) (UNAUDITED)
----------- ------------
<S> <C> <C>
Revenues
Hotel Room Rentals $360,216 $748,274
Hotel Food and Beverage Sales 117,828 23,653
Other income 275,720 46,023
----------- ------------
753,764 817,950
----------- ------------
Expenses
Cost of Sales 39,525 270,150
Payroll and Related 220,884 282,231
General and Administrative 329,330 75,541
Interest 92,070 123,543
Depreciation and Amortization 99,742 68,630
Loss on Currency Fluctuation 38,444
----------- ------------
Total Expenses 819,995 820,095
Income (loss) before income and taxes and minority
Interests in earnings of consolidated (66,231) (2,145)
subsidiaries
Provision for (benefit from) income taxes (44,410)
----------- ------------
Income (loss) before minority interest in earnings of
consolidated subsidiaries (66,231) 42,265
Minority interest expense in earnings of consolidated
Subsidiaries (5,727) (69,077)
----------- ------------
Net Income (loss) ($71,958) ($26,812)
Weighted average number of shares outstanding 8,905,000 8,905,000
----------- ------------
Net income (loss) per share -0.006 -0.003
</TABLE>
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
CZECH INDUSTRIES, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDING JUNE 30
-------------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) ($71,958) ($26,812)
Adjustments to reconcile net income (loss) to net cash (used) by
operating activities
Minority Interest in Earnings of Consolidated Subsidiary 5,727 60,067
Depreciation (68,765) 68,630
Deferred Income Taxes
Changes in Assets and Liabilities
Accounts Receivable 6,925 (32,988)
Loan Receivable to unconsolidated affiliate (1,500,000)
Inventories 52 48,619
Prepaid Expenses (31,024) 164,526
Other Assets 186,213 (85,059)
Accounts Payable 21,121 (248,379)
Accrued Expenses 37,988 (215,717)
----------- ------------
Net Cash (used) by operating activities (1,413,721) (267,113)
----------- ------------
Cash flows from investing activities
Available for sale securities 65,957
Sale of Investment in Moravacentrum, a.s. 1,677,623
Acquisition of property and equipment 285,977 (230,579)
----------- ------------
1,963,600 (164,622)
----------- ------------
Cash flows from financing activities
Net proceeds of secondary public offering 12,180,872
Repayment of notes payable (953,789)
Change in notes payable 744
----------- ------------
Net cash provided by financing activities 744 11,227,083
----------- ------------
Effects of foreign exchange changes (422,760) 131,307
----------- ------------
Net increase in cash 127,863 10,926,655
Cash beginning of period 5,190,586 350,266
----------- ------------
Cash end of period $5,318,449 $11,276,921
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $92,070 $123,543
</TABLE>
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
CZECH INDUSTRIES, INC.
(A Delaware Corporation)
Note To Consolidated Financial Statements (Unaudited)
For the Three Months Ending June 30, 1996 and June 30, 1995
CONSOLIDATIONS
For the three months ended June 30, 1996, the accompanying financial
statements include the financial position and results of operations of the
parent company as of and for the three months ended June 30, 1996 and the
financial position and results of operations of its subsidiary as of and for the
three months ended March 31, 1996.
For the three months ended June 30, 1995, the accompanying financial
statements include the financial position and results of operations of the
parent company and its subsidiary for the three months ended June 30, 1995.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
This Report makes reference to the Company's Transition Report on Form 10-
KSB for the transition period beginning January 1, 1996 and ending March 31,
1996 and the Company's Current Report on Form 8-K dated August 1, 1996 both of
which include information necessary or useful to an understanding of the
Company's businesses and financial statement presentations. The Form 8-K dated
August 1, 1996 more fully describes the terms and conditions of the Agreement
between the Company and Eastbrokers Beteiligungs AG ("Eastbrokers"), including
the nature and amount of consideration paid for Eastbrokers, the principles used
in determining such consideration, identity from whom the assets were acquired,
amendments to the Company's Bylaws, related party transactions and other
agreements between the Company and other persons. Such information relating to
the Agreement between the Company and Eastbrokers is not contained in this Form
10-QSB. The Company will furnish a copy of this Form 8-K upon request made to
the Company's headquarters at 15245 Shady Grove Road, Suite 340, Rockville,
Maryland 20850, telephone number (301) 527-1110 and facsimile number (301) 527-
1112.
During the fiscal quarter ended June 30, 1996, the Company continued its
operations in the Hotel Fortuna a.s. and concentrated its efforts on closing the
acquisition of Eastbrokers, a Vienna, Austria based investment banking and
brokerage firm. On June 14, 1996, the company executed a definitive Stock
Purchase Agreement for the purchase and sale of Eastbrokers. The transaction
was consummated on August 1, 1996, a date subsequent to the period for which
this Report covers. Also, during this quarter, the Company changed its fiscal
year from December 31 to March 31 of each year. The Company's subsidiary, the
Hotel Fortuna a.s,. remains on a December 31, fiscal year. SEE Note to
consolidated financial statements (unaudited). The Company intends to
consolidate and report in its financial statements the operations of
Eastbrokers beginning August 1, 1996, as required by generally accepted
accounting principles.
Eastbrokers is a holding company that, through its subsidiaries, provides
financial services in Eastern and Central Europe. Eastbrokers was founded in
1991 after the fall of communism and upon the commencement of privatization of
the economies in the region. The principal strategic objective of Eastbrokers
Beteiligungs AG has been to establish controlling ownership of independent
broker-dealers and to create a network that provides access to emerging market
investment opportunities in Eastern and Central Europe. Eastbrokers markets
these investment opportunities to Western European institutional and commercial
investors.
Eastbrokers' primary business is to provide its customers with stock
brokering and investment banking services. Eastbrokers conducts business
through its head office in Vienna, Austria and in regional offices located in
(a) Prague, Czech Republic, (b) Budapest, Hungary, (c) Bratislava, Slovakia, (d)
Almaty, Kazakhstan, (e) Istanbul, Turkey, (f) Moscow, Russia, (g) Bucharest,
Romania, (h) Sofia, Bulgaria, (i) Ljubljana, Slovenia, (j) Zagreb, Croatia and
Warsaw, Poland. Eastbrokers is a member of the Vienna Stock Exchange, the
Budapest Stock Exchange, the Bratislava Stock Exchange, the Zagreb Stock
Exchange, the Ljubljana Stock Exchange, the Bucharest Stock Exchange, the
Central Asian Stock Exchange, the Warsaw Stock Exchange and a shareholder and
member of the Prague Stock Exchange.
Eastbrokers' brokerage, trading and market making business accounts for
approximately 80% of all revenues. Eastbrokers conducts its sales activities as
principal and agent on behalf of its clients. Eastbrokers primarily
distributes and trades Eastern and Central European equity securities and to a
lesser degree debt securities. Eastbrokers, through its Vienna based, publicly
traded investment banking subsidiary, WMP Borsenmakler AG ("WMP"),
-6-
<PAGE>
actively makes a market for the securities of more than 400 companies on the
Vienna Stock Exchange. WMP also facilitates the settlement of trades through
the Austrian Control Bank for the subsidiaries of Eastbrokers, providing
Eastbrokers' foreign customers reliable share delivery upon payment.
Eastbrokers' daily trading inventory positions in equities and debt are financed
through cash on hand.
Eastbrokers is also a leading Eastern and Central European investment
banking firm which provides advice to, and raises capital for Eastern and
Central European companies. The company provides advisory services on key
strategic matters such as mergers, acquisitions, privatizations, joint ventures
as well as long range financial planning. The company raises much of its
capital in Western Europe through institutional and commercial investors.
Pursuant to the Agreement, and effective August 1, 1996, the board of
directors of the Company was reduced from nine directors to eight with one
seat remaining temporarily vacant. Dr. Michael Sumichrast, Ph.D., Martin A.
Sumichrast, Petr Bednarik, Randall F. Greene and Peter Schmid are continuing
as directors of the Company and August A. de Roode and Wolfgang Kossner have
joined the board. Messrs. Kossner, de Roode and Schmid have the right to
designate the individual to fill the vacant seat on the board. Dr. Michael
Sumichrast will remain as Chairman of the Board, August A. de Roode has
become the Chief Executive Officer, Peter Schmid has become the President,
Martin A. Sumichrast will remain as the Chief Financial Officer and an
Executive Vice President and Wolfgang M. Kossner has become an Executive Vice
President. Peter Schmid, a continuing director of the Company, is a founder
and the current President of Eastbrokers.
August A. de Roode, a new member of the board of directors and the new
Chief Executive Officer of the Company, is 28 and, prior to the acquisition,
was one of three principal shareholders of Eastbrokers Beteiligungs AG.
Mr. de Roode joined Eastbrokers as a managing director in 1993, and presently
serves on the Supervisory Boards of Eastbrokers' subsidiaries in Vienna,
Budapest, Sofia and Moscow. From 1990 to 1993, Mr. de Roode was an
independent asset manager.
Wolfgang M. Kossner, also a new member of the board of directors, is 27
and a founder and, prior to the acquisition, was one of three principal
shareholders of Eastbrokers Beteiligungs AG. From 1991 to 1993, Mr. Kossner
served as the manager of securities trading at WMP Borsenmakler AG, a Vienna
based subsidiary of Eastbrokers Beteiligungs AG. In 1993, Mr. Kossner
became the managing director of WMP Borsenmakler AG, and presently serves on
the Supervisory Boards of Eastbrokers' subsidiaries in Vienna, Budapest,
Ljubljana and Zagreb. Prior to 1991, Mr. Kossner was a bond and derivatives
trader for Raiffeisen Zentralbank, an Austrian bank.
The Company intends to operate as the parent company for Eastbrokers'
European and American units. The parent will provide financing, accounting,
legal, regulatory, investor relations and general administrative support to
Eastbrokers and its subsidiaries. Eastbrokers and its subsidiaries will
continue to provide brokerage and investment banking services to their existing
client bases. On June 14, 1996, the Company loaned to Eastbrokers US $1.5
million dollars at an interest of 10% and for a term of six months. Eastbrokers
used these funds to purchase a controlling equity interest in a Polish brokerage
firm that has a seat on the Warsaw Stock Exchange and to purchase I.S. Bohemia
a.s., a Czech fund management firm that controls five Czech coupon privatization
funds with approximately $14.5 million USD of Czech and Slovak securities. The
loan described herein is reflected in the financial statements which are a
part of this Report.
As soon as practicable, the Company intends to invest, through a capital
stock purchase, $5.0 million into Eastbrokers for purposes of lending and
investing into Eastbrokers' subsidiaries. Of this amount, $3.5 million will be
funded through cash on hand and $1.5 million will be funded upon repayment of
the loan described in the preceding paragraph. Eastbrokers intends to use these
proceeds to increase the capital reserves of its Eastern and
-7-
<PAGE>
Central European subsidiaries on an "as needed" basis either in the form of
parent-subsidiary loans or direct investment. Listed below are the estimated
amounts the Company intends to infuse into the Central and Eastern European
subsidiaries, respectively. These amounts merely indicate the intended
estimated infusions into these subsidiaries. Accordingly, the actual amounts
infused into any one subsidiary may vary substantially from the estimated amount
subject to certain risks and uncertainties, including, but not limited to, the
effect of political, economic and market conditions both domestically and in
Eastern and Central Europe.
<TABLE>
<CAPTION>
LOCATION INTENDED INFUSION LOCATION INTENDED INFUSION
-------- ----------------- -------- ----------------
<S> <C> <C> <C>
Prague, Czech Republic $ 750,000 Sofia, Bulgaria $ 300,000
Budapest, Hungary 750,000 Vienna, Austria 500,000
Moscow, Russia 500,000 Bucharest, Romania 100,000
Bratislava, Slovakia 250,000 Instanbul, Turkey 100,000
Ljubljana, Slovenia 100,000 Almaty, Kazakhstan - 0-
Zagreb, Croatia 150,000 reserve for future unit or 1,500,000
units
TOTAL INVESTED $5,000,000
</TABLE>
Also, as soon as practicable, the Company intends to organize a Delaware
corporation, and this subsidiary will act as a merchant banking operation for
the parent and Eastbrokers. The U.S. subsidiary intends to facilitate
investment by U.S. entities into companies targeted by Eastbrokers for
investment, facilitate merger and acquisition and related activities of the
Company and Eastbrokers, organize, raise investment capital for and manage
offshore funds as market conditions prevail, and provide business consulting
services to US based companies.
The Company believes that its continued involvement in the Hotel Fortuna
a.s. does not fit its core business, and, therefore, is considering selling its
interest in the Hotel Fortuna a.s. as soon as practicable. The proceeds from
this sale will be held by the Company at the corporate level and will be used on
an "as needed" basis to finance expansion of the operating units and to conduct
further merger and acquisition activities. At the time of this filing, the
Company has no agreements with any third party to purchase its shares of the
Hotel Fortuna a.s.
The information contained in this Item contains forward looking statements.
The matters referred to in such statements could be effected by the risks and
uncertainties involved in the Company's business and in Eastbrokers' business,
including (without limitation) the effect of political, economic and market
conditions both domestically and in Eastern and Central Europe. Accordingly,
the Company makes no assurances that the Company or Eastbrokers will invest its
cash on hand as stated herein.
RESULTS OF OPERATIONS. For the three month period ended June 30, 1996, the
Company generated consolidated revenues in the amount of $753,764 (of which
$275,720 was due to a gain on the sale of its investment in Moravacentrum a.s.)
compared to $817,950 for the three month period ended June 30, 1995 (SEE Note to
consolidated financial statements). Hotel room rental revenues during the three
month period ended March 31, 1996 increased 27% from the three month period
ended March 31, 1995 and net earnings from the hotel increased to $11,501 from a
loss of $39,819 for the three month periods ended March 31, 1996 and March 31,
1995 respectively. Hotel Fortuna's earnings were negatively impacted due to one
time costs incurred as a result of its franchise affil-
-8-
<PAGE>
iation with Choice Hotels International, which was formally consummated in
January 1996.
The Company incurred consolidated expenses in the amount of $819,995 for
the three month period ended June 30, 1996 compared to $820,095 for the three
month period ended June 30, 1995 (SEE Note to consolidated financial
statements). During this period the cost of sales decreased relative to
revenue and also due to stricter cost controls at the Hotel Fortuna. Payroll
and related expenses decreased $62,000 compared to the three month period
ended June 30, 1995. General and administrative expenses were $329,330, an
increase of 435% compared to the three month period ended June 30, 1995. The
Company attributes the increase in general and administrative expenses to
costs associated with the acquisition of Eastbrokers AG. As a result of the
increase in expenses and a loss on currency fluctuation of $38,444, the
Company incurred a net loss of $71,958 for the three month period ended June
30, 1996 compared to a net loss of $26,812 for the three month period ended
June 30, 1995.
On June 30, 1996, the Company had total current assets of $7,463,379 and
total current liabilities of $241,156, compared to $12,263,899 and 4,712,514,
respectively, as of June 30, 1995. As of the date of this filing, the Company
believes that it has adequate liquidity to meet its current obligations and the
current obligations of Eastbrokers. However, no assurances can be made as to
the Company's ability to meet its cash requirements subsequent to any further
business combinations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) This Report contains the following Exhibits as required by Item 601 of
Regulation S-B.
Exhibit No. Description
- ---------- ------------
(2) Stock Purchase Agreement and Exhibits A through J dated June
14, 1996 between the Company and Eastbrokers Beteiligungs AG
incorporated by reference from Form 8-K dated August 1, 1996.
(3)(ii) Bylaws, as amended, as existing prior to the amendments
effective as of August 1, 1996, are incorporated by reference
from Form 10-QSB for the quarter ended March 31, 1995.
(3)(ii) Amendments to the Bylaws, effective as of August 1, 1996.
(10.1) Employment Agreement between the Company and Wolfgang M.
Kossner dated August 1, 1996, the form of such employment
agreement is incorporated by reference from Form 8-K dated
August 1, 1996.
(10.1) Employment Agreement between the Company and August A. de
Roode dated August 1, 1996, the form of such employment
agreement is incorporated by reference from Form 8-K dated
August 1, 1996.
(10.1) Employment Agreement between the Company and Peter Schmid
dated August 1, 1996, the form of such employment agreement is
incorporated by reference from Form 8-K dated August 1, 1996.
(10.2) Form of Restrictive Covenant of Wolfgang M. Kossner, such
covenant executed on August 1, 1996.
(10.2) Form of Restrictive Covenant of August A. de Roode, such
covenant executed on August 1, 1996
(10.2) Form of Restrictive Covenant of Peter Schmid, such covenant
executed on August 1, 1996.
-9-
<PAGE>
(10.3) Stock Option Agreement between the Company and Wolfgang M.
Kossner dated August 1, 1996, the form of such stock option
agreement is incorporated by reference from Form 8-K dated
August 1, 1996.
(10.3) Stock Option Agreement between the Company and August A. de
Roode dated August 1, 1996, the form of such stock option
agreement is incorporated by reference from Form 8-K dated
August 1, 1996.
(10.3) Stock Option Agreement between the Company and Peter
Schmid dated August 1, 1996, the form of such stock option
agreement is incorporated by reference from Form 8-K dated
August 1, 1996.
(10.3) Stock Option Agreement between the Company and Sumichrast
Enterprises, Inc. dated August 1, 1996, the form of such stock
option agreement is incorporated by reference from Form 8-K
dated August 1, 1996.
(10.4) Letter Agreement between the Company and Randall F. Greene,
Director of the Company, for advisory services dated July 26,
1996.
(b) On May 7, 1995, the Company filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K dated April 22, 1996
containing information relating to Item 5, Changes in Control of Registrant.
The Company filed an amendment to this Report on May 16, 1996.
Also on May 16, 1996, the Company filed with the Commission a Current
Report on Form 8-K dated May 13, 1996 containing information relating to Item 6,
Changes in Fiscal Year.
On August 8, 1996, the Company filed with the Commission a Current
Report on Form 8-K dated August 1, 1996 containing information relating to Item
2, Acquisition or Disposition of Assets, and Item Item 7, Financial Statements
and Exhibits. This Report contained financial statements.
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CZECH INDUSTRIES, INC.
----------------------
(Registrant)
August 14, 1996 Martin A. Sumichrast
--------------- ---------------------
Date (Signature)
Martin A. Sumichrast,
Chief Financial Officer, Executive Vice President, Director
-11-
<PAGE>
EXHIBITS INDEX
EXHIBIT NUMBER DOCUMENT PAGE NUMBER
3(ii) Amendments to the Bylaws, 13
effective as of August 1, 1996
10.2 Form of Restrictive Covenant 15
10.4 Letter Agreement between the Company 18
and Randall F. Greene
-12-
<PAGE>
EXHIBIT 3(II)
The following are sections 3.6, 3.8 and 3.9 of the Bylaws of
Czech Industries, Inc., as amended, as of August 1, 1996:
3.6 POWERS. The Board of Directors shall exercise all powers of the
corporation except those which by law or the Certificate of Incorporation or
these By-Laws ar conferred upon or reserved to stockholders. Notwithstanding,
the vote of sixty six and two thirds percent (66 2/3%) of the directors present
at a meeting at which a quorum is present shall be required to approve and
authorize the following acts of the Corporation:
(i) any merger, consolidation or other business combination to which
the Corporation or any Subsidiary is a party;
(ii) any increase or reduction in the authorized capital of the
Corporation or any recapitalization of the Corporation, or the creation of any
additional class of stock of the Corporation, or the sale, issuance, exchange,
purchase or redemption of shares of capital stock of any class of the
Corporation now or hereafter authorized, or any securities exchangeable for, or
convertible into such shares, or warrants or other instruments evidencing rights
or options to subscribe for, or otherwise acquire such shares;
(iii) any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of any asset or assets of the Corporation or any Subsidiary
equivalent to or greater than 20% of the net worth of the Corporation as
reflected on the balance sheet most recent to the date of such transaction;
(iv) any purchase, lease, exchange or other acquisition, directly or
indirectly, in a single transaction or a series of related transactions, of
assets by the Corporation or any Subsidiary equivalent to or greater than 20% of
the net worth of the Corporation as reflected on the balance sheet most recent
to the date of such transaction
(v) the nomination of a person or persons to serve as a member of the
board of directors of the Corporation or to act as chairman of the board;
(vi) the removal of any member of the board of directors of the
Corporation;
(vii) the amendment of any employment agreement between the
Corporation and any of its officers;
(viii) the designation of an Executive Committee and the authorization
or revision of the powers of such committee; or
(ix) the amendment of the Corporation's Certificate of Incorporation
or Bylaws of comparable governing instruments.
-13-
<PAGE>
3.8 MEETINGS. The newly elected directors may hold their first meeting
for the purpose of organization and the transaction of business immediately
after the annual meeting of the stockholders, if a quorum be present, or the
time and place of such meeting may be fixed by the consent in writing of all
directors.
Regular meetings of the directors may be held on at least five days notice
to each director and at such place and time as shall be determined by resolution
of the directors.
Special meetings of the Board may be called by the President or by the
Secretary on the written request of any two directors on at least five days
notice to each director and shall be held at such place as may be determined by
the directors or as shall be stated in the call of the meeting.
*****
3.9 QUORUM. A majority of the directors composed of at least two Buyer
Directors and two Seller Directors shall constitute a quorum for the transaction
of business. If at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained on the day of such meeting. Otherwise, if a quorum
cannot be obtained on the day of a properly held meeting, adjournment and any
further meeting of the board of directors shall held in accordance with these
Bylaws. In the event an equal number of directors each favor and oppose an
item of business upon which a vote is called, and a deadlock of the board of
directors results, THE STATUS QUO shall be maintained until a vote of the
majority of the board of directors at a meeting at which a quorum is present
alters the status quo. For purposes of this Section only, the term Buyer
Director means Ing. Petr Petr Bednarik, Randall F. Greene, Michael Sumichrast,
Ph.D., Martin A. Sumichrast or any successor to such person. For purposes of
this Section only, the term Seller Director means August A. de Roode, Wolfgang
Kossner, Peter Schmid, any designee of Eastbrokers Beteiligungs AG and successor
to such person.
-14-
<PAGE>
EXHIBIT 10.2
August 1, 1996
Czech Industries, Inc.
Board of Directors
15245 Shady Grove Road, Suite 340
Rockville, Maryland 20850
Re: Restrictive Covenant ("Covenant")
Gentlemen:
This letter confirms the terms and conditions of my agreement with Czech
Industries, Inc. (the "Company", which, for purposes of this letter, includes
the Company's successors and subsidiaries), pursuant to the Stock Purchase
Agreement dated June 14, 1996 (the "Agreement"), for the purchase and sale of
eighty percent (80%) of the issued and outstanding stock of Eastbrokers, an
Austrian corporation, in consideration of the payment of the sum contemplated in
Article II of the Agreement. I hereby acknowledge that the shares of the
Company which I have received as consideration of the Agreement shall be the
consideration of the terms and conditions of the Covenant entered into herein.
WHEREAS, pursuant to the Agreement, I have sold _____ percent (__%) of my
stock in Eastbrokers Beteiligungs AG ("Eastbrokers")to the Company, including
the property, confidential information, business relationships, trade secrets,
goodwill and economic advantage thereof, all of which are valuable and integral
to such business;
WHEREAS, the transactions contemplated by the Agreement constitute part of
the Company's strategy to become an international provider of investment banking
and brokerage services and products, such services and products being currently
provided by Eastbrokers;
WHEREAS, Eastbrokers currently conducts its business in the nations of
Austria, Bulgaria, Croatia, Czech Repubic, Hungary, Kazakhstan, Poland, Romania,
Russia, Slovakia and Slovenia and expects to expand such businesses into and
throughout the United States, and it is therefore reasonable to prohibit me from
competing in such business in the nations stated above and in every State in the
United States;
WHEREAS, the Company would suffer substantial damage to both the value of
the business sold to it pursuant to the Stock Purchase Agreement and its
investment in developing the strategy described above if I engaged in the
activities proscribed by this Covenant;
-15-
<PAGE>
WHEREAS, the Company and the undersigned acknowledge the terms of "Cause"
and "Good Reason" as such terms are defined in section 7 of the undersigned's
Employment Agreement dated August 1, 1996, and agree that sections 1 and 2 of
this Covenant shall not apply in the case the undersigned's employment is
terminated for reasons other than "Cause" and for reasons of "Good Reason".
NOW, THEREFORE:
1. I agree that for the longer of three years following the date hereof
or one year following the termination of my employment by the Company (except
for termination for reasons other than Cause and for reasons of Good Reason) I
will not, directly or indirectly, in any of the nations stated above and in
every State of the United States:
(A) Persuade or attempt to persuade any customer of the Company to
cease doing business with the Company, or to reduce the amount of business it
does with the Company.
(B) Persuade or attempt to persuade any potential customer to which
the Company has made a presentation, or with which the Company has been having
discussions, not to hire the Company or to hire another company.
(C) Solicit for myself or any person other than the Company the
business of any company which is a customer of the Company or which was its
customer during the six months prior to the termination of my employment.
(D) Persuade or attempt to persuade any employee of the Company or
any individual who was its employee during the six months prior to the
termination of my employment to leave the Company's employ or to become employed
by any person other than the Company.
2. Except for the performance of services and the participation in
business opportunities within the scope of business of Z.E. Beteiligungs AG and
its subsidiary Residenz AG, I agree that for a period of six months following
the termination of my employment by the Company (except for termination for
reasons other than Cause and for reasons of Good Reason) I will not, directly or
indirectly:
(A) Perform any services for any person other than the Company in
connection with the conduct of the investment banking and brokerage businesses
in any nation stated above and in any State of the United States.
(B) Perform any services for any person other than the Company in
connection with the conduct of any business which was conducted by the Company
within one year prior to the termination of my employment.
(C) Paricipate in any business opportunity that falls within the
scope of business conducted by the Company, without first offering such business
opportunity to the Company and without prior written aproval of the board of
directors of the Company.
-16-
<PAGE>
3. Except for the information described below in this section, I agree
that for the longer of three years following the date hereof or one year
following the termination of my employment by the Company I will not disclose to
anyone (other than the Company or any persons employed or designated by the
Company) any knowledge or information of any type whatsoever of a confidential
nature relating to the business of the Company, including, without limitation,
all types of trade secrets. I further agree not to disclose, publish or make
use of any such knowledge or information of a confidential nature without the
prior written consent of the Company. The terms of this section shall not apply
to
(a) any information which is or becomes generally available to the
public other than as a result of the breach of this Agreement;
(b) any information which is disclosed to me after the termination of
employment which disclosure is not in breach of a confidentiality obligation
owed to the Company; and
(c) any information disclosed by the Company to a third party on a
non-confidential basis.
4. If I violate any of the terms of this covenant, I agree that the
Company, in addition to any other rights which it may have, shall be entitled to
injunctive relief.
5. This Covenant shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to such State's conflict
of laws provisions. If any provision of this Covenant is, by applicable law or
by the determination of a court of competent jurisdiction of the nations stated
above or of any State of the United States, unenforceable as to the scope of
activities, territory or time period to which this Covenant applies, then this
Covenant shall, without further action by the Company or by me, be deemed
amended to apply to the greatest scope of activities, largest territory and
longest time period as would be enforceable. If any provision or obligation of
this Covenant shall be invalid, illegal or unenforceable in any jurisdiction of
the nations stated above or of any State of the United States, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not be affected or
impaired thereby. Any disputes arising out of or in connection with this
Covenant shall be settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three arbitrators in accordance with said
rules. The arbitration shall be held in Paris, France and in the English
language. The ruling by such arbitrators shall be binding upon the parties in
the absence of fraud.
IN WITNESS WHEREOF, the undersigned has executed this Restrictive Covenant
as of this 1st day of August, 1996.
---------------------------------------------
EMPLOYEE
-17-
<PAGE>
EXHIBIT 10.4
July 26, 1996
Mr. Randall F. Greene
c/o Premier Chemical Company
1916 North 14th Street, Suite 203
Tampa, Florida 33605
Dear Randy:
This letter will confirm the terms and conditions pursuant to which Czech
Industries, Inc. (the "Company") has retained your services to assist the board
of directors of the Company in its proposed acquisition (the "Transaction") of
Eastbrokers Beteiligungs AG, an Austrian corporation ("Eastbrokers"). This
letter is intended to serve as the agreement between you and the Company in
providing these services (the "Agreement").
SERVICE TO BE PROVIDED
You shall function as an advisor to the board and will assist in the
Transaction. As such advisor, you agree to provide the specific services listed
below:
(a) review and evaluate the nature of Eastbrokers' and its subsidiaries'
business;
(b) provide an analysis to the Board as to the advisability of the
Transaction and the acquisition of Eastbrokers by the Company; and
(c) provide advice, support and assistance to the board and such
financial, accounting and legal advisors as the board may retain in
evaluating, negotiating and closing the Transaction.
You should conduct any necessary discussions and investigations or visit with
the boards and managements of the Company and Eastbrokers as deemed necessary
for purposes of this Agreement.
COMPENSATION FOR SERVICES; DELIVERY; RESTRICTED SECURITIES.
In consideration of the services to be provided above, the Company agrees to
issue and transfer, as compensation for such services, 50,000 shares of Czech
Industries, Inc. common stock, par value $0.01 ("Common Stock") to you. The
Company shall pay you a non-accountable expense allowance of $20,000.
The issue and transfer of such Common Stock shall be conditioned upon the
consummation of the Transaction. Such consummation shall be evidenced by the
sale and purchase of the Eastbrokers' common stock on the closing date of the
Transaction as such date is determined by
-18-
<PAGE>
the Company and Eastbrokers. The Company shall deliver the shares of Common
Stock to you on the closing date of the Transaction, or as soon thereafter as
possible, at the address and in the certificate denomination so designated by
each advisor. Notwithstanding the consummation of the Transaction, the Company
shall pay you the non-accountable expense allowance.
You acknowledge that the Common Stock of the Company being issued to and
acquired pursuant to this Agreement by them has not been registered under the
Securities Act of 1933, as amended, (the "Act") and therefore will constitute
"restricted securities" within the meaning of Rule 144 under the Act. All
certificates representing shares of Common Stock subject to this Agreement shall
bear a legend restricting their transfer in violation of the Act. Such legend
shall be substantially in the following form:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, (the "Act") and are
"restricted securities" as that term is defined in Rule 144 under the Act.
The shares may not be offered for sale, sold or otherwise transferred
except pursuant to the effective registration statement under the Act, or
pursuant to an exemption of registration under the Act, the availability of
which is to be established to the satisfaction of the Company.
INDEMNIFICATION.
In further consideration of the services provided by you under this Agreement,
the Company agrees to indemnify you and hold you harmless against any losses,
claims, damages or liabilities (collectively referred to as the "Indemnified
Claims"), to which you may become subject, insofar as such Indemnified Claims or
actions relating thereto, arise out of or are based on, any transactions
referred to in this Agreement or any transaction arising out of the transactions
contemplated by this Agreement; provided, however, that the Company shall not be
liable to you to the extent that any such Indemnified Claim resulted from your
willful misconduct or your gross negligence in the performance of your duties
under this Agreement.
OTHER TERMS AND CONDITIONS.
This Agreement shall expire six (6) months from the date of execution below.
After the expiration of the initial six month term, the engagement shall renew
automatically on a month-to-month basis thereafter unless either party has
given 30 days written notice to the other that it desires to terminate this
Agreement. The terms of this Agreement shall be governed under the laws of the
State of the Delaware. Each of the parties hereto consents to the jurisdiction
and venue of the federal and state courts located in the State of Maryland.
-19-
<PAGE>
Thank you for your consideration.
CZECH INDUSTRIES, INC.
By:
---------------------------------
Name: Michael Sumichrast, Ph.D.
Title: Chairman of the Board
If this Agreement conforms to your understanding, please so indicate by signing
below:
- ------------------------------- ----------------------------
Randall F. Greene Date
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,318,449
<SECURITIES> 0
<RECEIVABLES> 1,819,017
<ALLOWANCES> 0
<INVENTORY> 29,883
<CURRENT-ASSETS> 7,463,379
<PP&E> 18,884,067
<DEPRECIATION> 535,609
<TOTAL-ASSETS> 25,822,226
<CURRENT-LIABILITIES> 241,156
<BONDS> 2,027,176
0
0
<COMMON> 89,050
<OTHER-SE> 14,100,162
<TOTAL-LIABILITY-AND-EQUITY> 25,822,226
<SALES> 478,044
<TOTAL-REVENUES> 753,764
<CGS> 39,525
<TOTAL-COSTS> 819,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,070
<INCOME-PRETAX> (66,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,958)
<EPS-PRIMARY> (.008)
<EPS-DILUTED> (.008)
</TABLE>
