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Trans Global Services, Inc.
Form 10-K 12/31/99
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ________
Commission File No. 0-23382
Trans Global Services, Inc.
(Exact name of Company as Specified in its Charter)
Delaware 62-1544008
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1393 Veterans Memorial Hwy.,
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (631) 724-0006
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, par value .01 per share
Indicate by a check mark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of March 28, 2000: $2,691,625
State the number of shares outstanding of each of the Company's classes of
common stock as of March 30, 2000: 2,619,716 shares of Common Stock, par value
$.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Item III is incorporated by reference from the Registrant's definitive proxy
statement relating to its 2000 Annual Meeting of Stockholders.
2
PART I
Item 1. Business.
Trans Global Services, Inc. is engaged in providing technical Temporary staffing
services. In performing such services, we address the current trend of major
corporations in "downsizing" and "outsourcing" by providing engineers, designers
and technical personnel on a temporary contract assignment basis pursuant to
contracts with major corporations. The engagement may relate to a specific
project or may cover an extended period based on the client's requirements. We
believe that the market for outsourcing services such as those offered by the
Company results from the trend in employment practices by major corporations
principally in the aircraft and aerospace industries as well as the electronics,
energy, telecommunications, banking and computer science industries and public
utilities industries to reduce their permanent employee staff and to supplement
their staff with temporary personnel on an as-needed basis. We seek to offer our
clients a cost-effective means of work force flexibility and the elimination of
the inconvenience associated with the employment of temporary personnel, such as
advertising, initial interviewing, fringe benefits and record keeping. Although
the employees provided by the Company are on temporary contract assignment, they
work with the client's permanent employees; however, they may receive different
compensation and benefits than permanent employees.
In providing our services, we engage the employees, pay the payroll and related
costs, including FICA, worker's compensation and similar Federal and state
mandated insurance and related payments. We charge our clients for services
based upon the hourly payroll cost of the personnel. Each temporary employee
submits to us a weekly time sheet with work hours approved by the client. The
employee is paid on the basis of such hours, and the client is billed for those
hours at agreed upon billing rates.
We also offer our clients a range of integrated logistical support services
which are performed at our facilities. These services, which are ancillary to a
project, can include the management of technical documents involving technical
writing, preparation of engineering reports, parts provisioning documents and
test equipment support documents, establishing maintenance concepts and
procedures, and providing manpower and personnel support. To date, the
integrated logistics support business has not generated more than nominal
revenue, we cannot give any assurance that we will generate any significant
revenue or profit from such services.
Our strategy has been directed at increasing our customer base and providing
additional services, such as integrated logistics support, to our existing
customer base. We believe that the key to profitability is to provide a range of
services to an increased customer base. In this connection, we are increasing
our marketing effort both through our own personnel and in marketing efforts
with other companies that offer complementary services.
3
Item 1. Business [Continued]
Our Organization
We are a Delaware corporation which was incorporated in September 1993 under the
name Concept Technologies Group, Inc. ("Concept"). Our executive offices are
located at 1393 Veterans Memorial Hwy., Hauppauge, New York 11788, telephone
(631) 724-0006.
Our operations are conducted through our two subsidiaries, Avionics Research
Holdings, Inc. and Resource Management International, Inc.
References to us refer to us and our subsidiaries, unless the context indicates
otherwise.
As of February 25, 1999, The Sagemark Companies, Ltd., which was formerly known
as Consolidated Technology Group Ltd., through its subsidiary SIS Capital Corp.
owned approximately 40.1% of our outstanding common stock. On February 25, 1999,
we and Sagemark entered into an agreement pursuant to which Sagemark transferred
to us 1,150,000 shares of our common stock in satisfaction of (i) Sagemark's
obligations to pay the redemption price of $2,100,000 payable with respect to
the Sagemark Series G 2% Cumulative Redeemable Preferred Stock owned by us
together with accrued dividends of approximately $140,000 and (ii)Sagemark's
obligation to pay us $325,952 in respect of advances made by us to certain of
Sagemark's subsidiaries. At December 31, 1999, Arc Networks, Inc., a former
Sagemark subsidiary, owed us approximately $1.2 million. This note, which was
guaranteed by Sagemark and others, became due. Pursuant to an agreement dated
February 7, 2000 agreement with ARC Networks, Sagemark and other guarantors,
Sagemark transferred 50,000 shares of our common stock to us and we agreed to
extend the maturity date of the note from Arc Networks to April 24, 2000.
Forward Looking Statements
The statements in this Form 10-K Annual Report that are not descriptions of
historical facts may be forward looking statements that are subject to risks and
uncertainties. In particular, statements in this Form 10-K Annual Report,
including any material incorporated by reference in this Form 10-K, that state
our intentions, beliefs, expectations, strategies, predictions or any other
statements relating to our future activities or other future events or
conditions are "forward-looking statements." Forward-looking statements are
subject to risks, uncertainties and other factors, including, but not limited
to, those identified under "Risk Factors," those described in Management's
Discussion and Analysis of Financial Conditions and Results of Operations and
those described in any other filings with the Securities and Exchange
Commission, as well as general economic conditions, any one or more of which
could cause actual results to differ materially from those stated in such
statements.
Risk Factors
Our clients are concentrated in the aircraft and aerospace industries, which has
resulted in a downturn in our business because of the downturn in business from
these industries
Our three largest clients for 1999 and 1998 were in the aircraft and aerospace
industries, accounting for revenue of approximately $17 million, or 47% of
revenue, in 1999 and $40 million, or 60.1% of revenue, in 1998. Revenue from The
4
Boeing Company, which was our largest client in 1998, declined from $ 16.3
million, or 24.4% of revenue, in 1998 to $4.6 million, or 12.8% of revenue, in
1999. These decreases can be attributed to the slowdown in the aircraft and
aerospace industries. This trend has continued, and the reduced level of revenue
from our major clients has continued during the first quarter of 2000. We cannot
predict when or whether the trend will change.
We require financing for our operations, we are in default under our loan
agreement and our loan agreement will not be renewed.
At December 31, 1999, we had working capital deficiency of $156,000, and we were
in default under three of the financial covenant under our agreement with our
asset-based lender. Although the lender has agreed to waive these defaults as of
December 31, 1999, it has advised us that it will not renew the agreement when
it becomes due in April 2000. If we are not able to obtain a credit facility,
our ability to conduct our business will be severely impaired. In January 2000,
we raised $1.0 million from a group of accredited investors, to whom we issued
our notes in the principal amount of $1.0 million. In connection with theses
notes, we issued warrants to purchase an aggregate of 250,000 shares of common
stock at $.35 per share to the investors and others who assisted us in the
transaction.
We incurred losses during 1999 and our losses are continuing.
As a result of the decline in business from our clients in the aircraft and
aerospace industries, we sustained a loss of $1.9 million, or $.61 per share
(basic and diluted) for 1999. Our losses are continuing, and we expect to incur
losses at least through the first and second quarters of 2000. We cannot assure
you that we will be able to generate profits in the future.
We lent $500,000 to a newly-formed company, and we cannot give assurance that
these notes will be paid.
In connection with the $1.0 million loan from investors, we lent $500,000 to
i-engineering.com, Inc., a newly formed company, as part of a transaction
pursuant to which we received an equity position in i-engineering.com and we
issued 270,000 shares of our common stock to i-engineering.com. The notes from
i-engineering.com are due in June 2000. If i-engineering.com does not receive
financing, it may not be able to pay the notes, which could impair our financial
position.
Because of our financial position, we may have difficulty generating business in
a highly competitive industry.
The temporary technical staffing business is highly competitive with respect to
both employers and employees. In order to attract both clients and employees, we
must show that we have the financial capability to perform and we must offer
employees benefits that our competitors offer. Our financial position has in the
past limited our ability to grow. Our current financial position may increase
the difficulty in both retaining existing clients and obtaining new clients.
5
Item 1. Business [Continued]
We need to offer direct payroll deposit to our employees.
At present, because of our financial position, we do not offer our employees a
direct deposit payroll program by which we deposit the employees' compensation
directly into their bank accounts so that the employee's money will be
immediately available. Employees believe that direct payroll deposit is an
important element to consider in evaluating employment opportunities. In order
to offer this service, we require significant additional funds, and these funds
are not available to us. We believe that our ability to attract new clients will
be impaired if we cannot offer employees direct payroll deposit.
We need to attract qualified employees to service our clients.
We are dependent upon both our ability to obtain contracts with clients and to
provide those clients with qualified employees. The market for qualified
personnel is highly competitive, and we compete with other companies in
obtaining contracts with potential clients and in attracting employees.
We may be held liable for the actions of our employees when on assignment.
Although our client agreements disclaim responsibility for the conduct of our
employees, we may be exposed to liability with respect to actions taken by our
employees while on assignment, such as damages caused by their errors, misuse of
client proprietary information or theft of client property. We do not maintain
insurance coverage against this risk. Due to the nature of our assignments, we
cannot assure you that we will not be exposed to liability as a result of our
employees being on assignment.
Our common stock has been delisted from the Nasdaq SmallCap Market.
On March 16, 2000, our common stock was delisted from the Nasdaq SmallCap Market
because we failed to hold a stockholders meeting in 1999. Although we have
appealed the decision, we cannot assure you that our common stock will be
relisted on the Nasdaq SmallCap Market. Our common stock may become subject to
the SEC's penny-stock rules, which impose additional sales practice requirements
on broker-dealers which sell our stock to persons other than established
customers and institutional accredited investors. These rules may affect the
ability of broker-dealers to sell our common stock and may affect the ability of
our stockholders to sell any common stock they may own.
We are dependent upon our management.
Our business is dependent upon our senior executive officers, principally Mr.
Joseph G. Sicinski, president and chief executive officer, who is responsible
for the Company's operations, including marketing and business development.
Although we have an employment agreement with Mr. Sicinski and other officers,
the agreements do not guarantee that the officers will continue in their
employment with us. Our business may be adversely affected if any of our key
officers left our employ.
6
Item 1. Business [Continued]
We do not anticipate paying dividends on our common stock.
We presently intend to retain future earnings, if any, in order to provide funds
for use in the operation and expansion of our business and, accordingly, we do
not anticipate paying cash dividends on our Common Stock in the foreseeable
future.
The rights of the holders of common stock may be impaired by the potential
issuance of preferred stock.
Our certificate of incorporation gives our board of directors the right to
create new series of preferred stock. As a result, the board of directors may,
without stockholder approval, issue preferred stock with voting, dividend,
conversion, liquidation or other rights which could adversely affect the voting
power and equity interest of the holders of common stock. The preferred stock,
which could be issued with the right to more than one vote per share, could be
utilized as a method of discouraging, delaying or preventing a change of
control. The possible impact on takeover attempts could adversely affect the
price of our common stock. Although we have no present intention to issue any
additional shares of preferred stock or to create any series of preferred stock,
we may issue such shares in the future. If we issue preferred stock in a manner
which dilutes the voting rights of the holders of the common stock, we may not
be able to list our common stock on The Nasdaq SmallCap Market.
Shares may be issued pursuant to options and warrants.
We may issue stock upon the exercise of options to purchase up to an aggregate
299,192 shares of common stock pursuant to our long-term incentive plans and
warrants to purchase an aggregate of 1,066,662 shares, including warrants to
purchase 250,000 shares of common stock which were issued in connection with our
January 2000 placement of $1.0 million in 18-month notes.
Markets and Marketing
The market for our services is comprised of major corporations in such
industries as aircraft, aerospace, electronics, energy, engineering, computer
services and telecommunications, where "downsizing" and "outsourcing" have
become an increasingly important method of cost reduction. Typically, a client
enters into an agreement with one or a small number of companies to serve as
employer of record for its temporary staff, and its agreements are terminable by
the client without significant notice.
We maintain a computerized data base of technical personnel based upon their
qualifications and experience. The data base, which contains more than 100,000
names, is generated through employees previously employed by us, referrals and
responses to advertisements placed by us in the media, including newspapers,
yellow pages, magazines and trade publications. Part of our responsibilities for
any engagement is the recruitment and initial interviewing of potential
employees, with the client conducting any final interviews it deems necessary.
The majority of work performed by our employees is performed at the client's
premises and under the client's direction, although we is the employer of
record.
We market our services to potential clients through our officers, management and
recruitment personnel who seek to provide potential clients with a program
designed to meet the client's specific requirements. The marketing effort
utilizes referrals from other clients, sales calls, mailings and telemarketing.
7
Item 1. Business [Continued]
We also conduct an ongoing program to survey and evaluate the clients' needs and
satisfaction with our services, which we use as part of our marketing effort.
Although we have six offices, including our main office in Long Island, New
York, throughout the United States, there is no limited geographic markets for
our services. We have in the past established offices in new locations when we
receive a contract in the area and we cannot effectively service such contract
from our existing offices. We intend to continue to establish new offices as
necessary to meet the needs of our customers.
A client will utilize contract engineering services such as those provided by us
when it requires a person with specific technical knowledge or capabilities
which are not available from the client's permanent staff or to supplement its
permanent staff for a specific project or to meet peak load requirements. When
the client requires personnel, it provides us with a detailed job description.
We then conduct an electronic search in our computerized resume data base for
candidates matching the job description. In addition, each branch office
maintains a file of active local resumes for candidates available for assignment
in the vicinity of the branch office. The candidates are then contacted by
telephone by our recruiters, who interview interested candidates. If a candidate
is acceptable to us and interested in the position, we refer the candidate to
the client. An employment agreement is executed with us prior to the
commencement of employment.
We serve primarily the aircraft and aerospace industries as well as the
electronics, energy, telecommunications, banking and computer science industries
and public utilities along with numerous manufacturing companies. We are
expanding our effort to address the general trend of "downsizing" and
"outsourcing" by major corporations on a national basis. To meet this goal, we
have commenced a national sales campaign addressing a broad spectrum of Fortune
500 companies, offering a managed staffing service to those companies in the
process of downsizing and outsourcing specific functions. Since a company
engaged in downsizing seeks to focus on its core business needs with its
in-house staff, we seek to identify and address the needs of a specific task or
department not part of the core business for which outsourcing would be an
appropriate method of addressing those needs. In addressing these needs, we have
conducted marketing efforts with Manpower International, Inc., Adecco and Olsten
Corporation.
Our contracts are generally terminable by the client on short notice.
The following table shows the revenue and the percentage of our total revenue
from our largest clients in 1999:
Client Revenue Percent
Lockheed-Martin $7.3 million 20.2%
Bell Helicopter Textron 4.9 million 13.7%
Boeing 4.6 million 12.8%
Gulfstream Aerospace 3.0 million 8.2%
Northrop Grumman 2.8 million 7.9%
CDI Corp. 2.4 million 6.7%
8
Item 1. Business [Continued]
The following table shows the revenue and the percentage of our total revenue
from our largest clients in 1998:
Client Revenue Percent
Boeing $16.3 million 24.4%
Lockheed-Martin 12.2 million 18.3%
Northrop Grumman 11.6 million 17.4%
Gulfstream Aerospace 4.2 million 9.0%
Bell Helicopter Textron 6.0 million 6.3%
Competition
The business of providing employees on either a permanent or temporary basis is
highly competitive and is typically local in nature. We compete with numerous
technical service organizations, a number of which are better capitalized,
better known, have more extensive industry contacts and conduct extensive
advertising campaigns aimed at both employers and job applicants than we have.
We believe that the ability to demonstrate a pattern of providing reliable
qualified employees is an important aspect of developing new business and
retaining existing business. Furthermore, our ability of to generate revenue is
dependent not only upon its ability to obtain contracts with clients, but also
to provide its clients with qualified employees. The market for qualified
personnel is highly competitive, and we compete with other companies in
attracting employees. Our ability to increase our business with existing clients
or to attract other clients will be affected by our working capital.
Accordingly, our failure to increase our working capital may adversely effect
our ability to expand our business. In addition, our failure to offer employees
the direct deposit of their payroll may affect their willingness to be employed
by us.
Government Regulations
The technical temporary staffing industry, in which we are engaged, does not
require licensing as a personnel or similar agency. However, as a provider of
personnel for other corporations, we are subject to Federal and state
regulations concerning the employment relationship, including those relating to
wages and hours and unemployment compensation. We also maintain a 401(k) plan
for our employees and we are subject to regulations concerning such plan.
We do not have contracts with any government agencies. However, our clients
include major defense contractors, that have contracts with government agencies.
Our contracts with our clients are based on hourly billing rates for each
technical discipline. Many of the clients' contracts with government agencies
are subject to renegotiation or cancellation for the convenience of the
government. Since the manpower needs of each of our clients are based on the
clients own requirements and the clients' needs are affected by any modification
in requirements, any reduction in staffing by a client resulting from
cancellation or modification of government contracts could adversely impact our
business.
9
Item 1. Business [Continued]
Employees
At December 31, 1999, we had 365 employees, of which 333 were contract service
employees who performed services on the clients' premises and 32 were executive
and administrative employees. Each of our offices is staffed by recruiters and
sales managers. Each contract service employee enters into a contract with us
which sets forth the client for whom and the facility at which the employee's
services are to be performed and the rate of pay. If an employee ceases to be
required by our clients for any reason, we have no further obligation to the
employee. Although assignments can be for as short as 90 days, in some cases,
they have been for several years. The average assignment is in the range of six
to nine months. Our employees are not represented by a labor union, and we
consider our employee relationships to be good.
Executive Officers of the Company
The following are the executive officers of the Company as of March 31, 2000:
Name Age Position with the Company
----- ---- -------------------------
Joseph G. Sicinski 68 Chief Executive Officer, President and Director
Edward D. Bright 62 Chairman of the Board
Glen R. Charles 46 Chief Financial Officer, Secretary, Treasurer and
Director
Frank J. Vincenti 48 Vice President
Mr. Joseph G. Sicinski has been our president and a director since May 1995 and
our chief executive officer since April 1998. He served in the same capacities
for our predecessors since 1992. For more than eight years prior thereto, he was
executive vice president of corporate marketing for Interglobal Technical
Services, Inc., which was engaged in providing technical temporary staffing
services. Mr. Sicinski is also a director of Netsmart Technologies, Inc., which
markets medical information systems.
Mr. Edward Bright has been a director since April 1998. In April 1998, Mr.
Bright was also elected as chairman, secretary, treasurer and a director of
Sagemark, which was then known as Consolidated Technology Group Ltd., and a
director of Netsmart. From January 1996 until April 1998, Mr. Bright was an
executive officer of or advisor to a subsidiary of Netsmart which was acquired
by Netsmart in June 1994. From June 1994 until January 1996, he was chief
executive officer of Netsmart.
Mr. Glen R. Charles has been our chief financial officer and treasurer since May
1995 and of our predecessor since January 1995. He has been secretary of the
Company since April 1998 and a director since May 1999. Mr. Charles served as
chief financial officer of one of our subsidiaries since its acquisition
November 1994. From 1992 to November 1994, he was engaged in the private
practice of accounting.
10
Item 1. Business [Continued]
Mr. Frank J. Vincenti has been vice president since May 1998. Mr. Vincenti has
approximately 25 years of experience in the contract engineering industry with
direct experience in staffing, recruiting, sales and marketing. Mr. Vincenti was
previously employed by CDI, a leading competitor of the Company, where he served
as vice president of regional operations in the information technology division.
Item 2. Description of Property.
We lease approximately 7,500 square feet of office facilities in Hauppauge, New
York, where we maintain our executive offices. We also rent modest office space
in Phoenix Arizona, Arlington Texas, Los Angeles California, Seattle Washington
and Orlando Florida. Our aggregate annual rent is approximately $200,000, which
is subject to annual increases. We believe that our present office space is
adequate for our present needs and that additional office space is readily
available on commercially reasonable terms.
Item 3. Legal Proceedings.
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by us. Mr. Corace
was the president of Job Shop Technical Services, Inc., from which we, through
one of our present subsidiaries, purchased assets in November 1994. We believe
that the action is without merit, we are contesting this matter and we have
filed counterclaims against Mr. Corace.
In December 1999, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Vero International, Inc. against Trans Global
Services, Inc. seeking damages of approximately $45,000 for goods sold and
delivered for an agreed price and for reasonable value. We believe that we have
valid defenses to the claims.
Item 4. Submission of Matters to a vote of Security Holders.
No matters were voted upon during the fourth quarter of 1999.
11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Our common stock is traded on OTC Bulletin Board Market under the symbol TGSI.
Prior to March 16, 2000, our common stock was traded on the Nasdaq SmallCap
Market. On March 16, 2000, our common stock was delisted from the Nasdaq
SmallCap Market for failing to hold a stockholders meeting in 1999.
The high and low closing price for the Company's Common Stock since January 1998
are as follows:
Common Stock
---------------
High Low
1998
First Quarter 6-1/8 5
Second Quarter 5-3/4 4-1/16
Third Quarter 5 3
Fourth Quarter 4/3/4 1-1/16
1999
First Quarter 1-7/8 3/4
Second Quarter 1-3/4 3/4
Third Quarter 1-3/8 11/16
Fourth Quarter 25/32 13/32
2000
First Quarter (through March 28th) 2 5/8 9/16
The closing price for the common stock on March 28, 2000 was $1.20. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
As of February 29, 2000, we believe that there were approximately 2,000
beneficial holders of record of our common stock.
We have not paid dividends on our common stock since inception, and we do not
expect to pay any dividends for the foreseeable future.
12
Item 6. Selected Financial Data.
TRANS GLOBAL SERVICES, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Set forth below is selected financial data with respect to the Company for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995. The selected financial
data for the years ended December 31, 1999, 1998 and 1997 have been derived from
the financial statements which appear elsewhere in this Report. The data for the
years ended December 31, 1996 and 1995 have been derived from our audited
financial statements which are not included in this report. This data should be
read in conjunction with the financial statements of the Company and the related
notes which are included elsewhere in this Report.
Statement of Operations Data 1:
- ------------------------------
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
Revenue $ 36,015 $67,244 $75,725 $62,594 $63,152
Net (loss)/income from
continuing operations ( 1,853) 805 1,023 (681) (4,413)
Net (loss)/income ( 1,853) 805 1,023 (681) (4,696)
Net (loss)/income per share
of common stock ( .61) .21 .27 ( .27) (8.88)
Weighted average number of
shares of common stock
outstanding 3,048 3,820 3,820 2,530 529
Balance Sheet Data:
December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
Working capital
(deficiency) $ ( 156) $ 972 $ 257 $ (755) $(2,401)
Total assets 7,365 12,597 13,942 13,100 12,763
Total liabilities 2,818 3,630 5,943 6,274 8,511
Accumulated deficit (5,813) (3,959) (4,765) (5,788) (5,106)
Stockholders' equity 4,547 8,967 7,999 6,826 4,252
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Years ended December 31, 1999, 1998 and 1997
Revenue from technical temporary staffing services is based on the hourly cost
of payroll plus a percentage. The success of our business will be dependent upon
our ability to generate sufficient revenue to enable it to cover our fixed costs
and other operating expenses, and to reduce our variable costs. Under our
agreements with our clients, we are required to pay our employees and pay all
applicable Federal and state withholding and payroll taxes prior to the receipt
of payment from the clients. Furthermore, the Company's payments from our
clients are based upon the hourly rate paid to the employee, without regard to
when payroll taxes are payable with respect to the employee.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Accordingly, our cost of services are greater during the first part of the year,
when Federal Social Security taxes and state unemployment and related taxes,
which are based on a specific level of compensation, are due. Thus, until we
satisfy our payroll tax obligations, we will have a lower gross margin than
after such obligations are satisfied. Furthermore, to the extent that we
experience turnover in employees, our gross margin will be adversely affected.
For example, in 2000, Social Security taxes are payable on the first $76,200 of
compensation. Once that level of compensation is paid with respect to any
employee, there is no further requirement for us to pay Social Security tax for
such employee. Since most of our employees receive compensation in excess of
that amount, our costs with respect to any employee are significantly higher
during the period when we are required to pay Social Security taxes than it is
after such taxes have been paid.
Our revenue is derived principally from the aircraft and aerospace Industries.
In 1999 revenue from these clients totaled $36 million. This reflected a
decrease of 46.4% from the revenue in 1998. In 1998, we experienced an 11%
decrease from the revenue in 1997. The decrease over the past two years can be
attributed to the slowdown in the aircraft and aerospace industries. During
1999, approximately $17 million, or 47% of our revenue, was generated from our
three largest clients, Lockheed-Martin, Bell Helicopter Textron and Boeing, and
69.5% was generated from our six largest clients. In 1998, approximately $40
million, or 60.1%, of our revenue was derived from our three largest clients,
Boeing, Lockheed-Martin and Northrop-Grumman, and 75.4% of our revenue was
generated from our five largest clients. In 1997, approximately 65% of our
revenue was derived from our three largest clients, Boeing, Lockheed-Martin and
Northrop-Grumman, and approximately 79% of such revenue was derived form our
five largest clients. The reduction in business from these clients has had a
material impact on our business. This trend has continued through the first
quarter of 2000.
Our gross margins were 8.2% for 1999, 9.2% for 1998 and 8.8% for 1997. The
decrease in the gross margin from 1998 to 1999 can be attributed to the loss of
some of our higher gross margin business. The increase in gross margin from 1997
to 1998 reflected our efforts to expand the customer base with higher gross
margin business.
Selling, general and administrative expenses, exclusive of related party
expenses and amortization of intangibles, in 1999 decreased by 18.5% from 1998
which reflected a 5.2% increase over 1997. These selling, general and
administrative expenses were $4.1 million in 1999, $5.0 million in 1998, and
$4.8 million in 1997. The decline reflects principally the effects of our cost
reduction program which was implemented in 1999 as a result of the reduced
revenue level that we experienced. We began to implement our cost reduction
program during 1998, although the effects of this program were not fully
reflected until 1999.
As a result of the decrease in both revenue and gross margin, in 1999, our gross
profit was not sufficient to cover our selling, general and administrative
expenses, resulting in an operating loss of $1.4 million.
Interest expense, which was $257,000 for 1999, decreased by 50% from $517,000 in
1998, which had decreased by 33% from $775,000 in 1997. This decrease is
attributable to both the lower financing rates payable through the Company's
credit facility with Citizens for the full year as well as the reduced borrowing
reflecting a reduced level of revenue and accounts receivable.
14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
Our net loss before income tax expense was $1.6 million in 1999, compared with
net income before income tax benefit of $469,000 for 1998 and $748,000 for 1997.
We recognized a tax benefit from the use of our tax loss carryforwards of
$336,000 in 1998 and $275,000 in 1997. The Company's net loss was $1.8 million,
or $.61 per share, in 1999 as compared with net income of $805,000, or $.21 per
share, for 1998, and $1.0 million, or $.27 per share, in 1997. The per share
loss for 1999 was affected by a reduction in our outstanding common stock as a
result of the transfer by Sagemark to us of 1,150,000 shares of common stock in.
We are continuing to operate at a loss, and we anticipate that we will incur a
loss for at least the first and second quarters of 2000.
Liquidity and Capital Resources
At December 31, 1999, we had a working capital deficiency of approximately
$156,000. During 1999, our operations generated cash flow of $153,000. Our
principal source of cash during 1999 was our credit facility with our
asset-based lender. Our agreement with our asset-based lender expires in April
2000, and the lender has advised us that it will not renew the agreement.
Although we are seeking alternative lending sources, we cannot give assurance
that we will be successful in obtaining an agreement with a lender, which could
severely impair our ability to conduct business. We borrow from our asset-based
lender in order to pay our payroll, and we reduce our borrowings when we are
paid by our client. Without a lending agreement, we would have difficulty in
meeting our payroll obligations.
Under our present credit agreement, we can borrow up to 85% of our qualified
accounts receivables at an interest rate of prime plus 3/4% with a maximum
availability of $3,000,000. Additional costs associated with the financing
arrangement include an unused line fee equal to 1/4 of one percent of the unused
line and a monthly fee of $2,000. The borrowings under this agreement are
secured by a security interest in all of our assets. At December 31, 1999 such
borrowings were approximately $2.1 million, as compared with $2.6 million at
December 31, 1998.
We are presently in default of three of our financial covenants in our agreement
with our asset-based lender. These covenants relate to the requirements for a
minimum tangible capital base, a ratio of cash flow to debt service and
profitability. The asset-based lender has agreed to waive these defaults through
December 31, 1999, provided that the interest rate be increased to 1 1/2% over
the prime rate and we maintain with the lender a minimum balance of $200,000.
In January 2000, we raised $1.0 million through the issuance of our 10%
subordinated promissory notes due 18 months from the date of issuance. In
connection with this financing we issued warrants to purchase 250,000 shares of
our common stock at $.35 per share to the investors and others who performed
services relating to the financing.
In accordance with our agreement relating to the issuance of the notes, we lent
$500,000 of the proceeds to i-engineering.com, Inc. for a term of 120 days at an
interest rate of 10%. In addition, we acquired an equity interest in
i-engineering.com, and issued to i-engineering.com 270,000 shares of our common
stock.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations [Continued].
At December 31, 2000, Arc Networks was in default on its $1.2 million promissory
note to us. This note is guaranteed by Sagemark and other companies that are not
affiliated with us. In February 2000, we agreed to extend the maturity date of
Arc Networks promissory note until April 24, 2000 in exchange for $15,000 and a
transfer by Sagemark to us of 50,000 shares of our common stock. We are required
to pay the $1.0 million notes we issued in January 2000 when we receive payment
from Arc Networks.
Our working capital is presently sufficient to meet only our present needs. Due
to both our low working capital, after giving effect to the net proceeds from
the issuance of our $1.0 million notes and the termination in April 2000 of our
credit agreement, we must increase revenue, further reduce expenses, collect on
our outstanding promissory notes from Arc and i-engineering when due and secure
additional funding in order to continue our operations. The failure to have
adequate working capital or an ongoing credit facility would impair our ability
to operate.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
Item 8. Financial Statements.
The Financial Statements begin on Page F-1.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
PART III
The information required by Part III is incorporated by reference from our
definitive proxy statement for our 2000 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission not later than April 30, 2000.
16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements.
The following financial statements are filed as part of this Form 10-K:
Trans Global Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998, and 1997
Notes to Financial Statements
(b) Financial Statement Schedules.
None
(c) Exhibits
3.1-(1) Restated Certificate of Incorporation.
3.2-(2) By-Laws.
10.1. Employment agreement dated October 15, 1997, between the Company and
Joseph G. Sicinski, as amended.
10.2 (4) 1995 Long-Term Incentive Plan.
10.4 -(5) 1998 Long-Term Incentive Plan
10.4 (2) Form of Series A Common Stock Purchase Warrants.
10.6 (2) Form of Series D common Stock Purchase Warrants.
10.7 (6) Credit Agreement dated April 23, 1998 between the Company and Citizens
Business Credit Company.
10.8 Restated Agreement between Trans Global Services, Inc. and
i-engineering.com
17
Part IV [Continued]
11.1 Computation of (loss)income per share.
21.1(7 ) Subsidiaries of the Registrant
24.1 Consent of Moore Stephens, P.C.
25.1 Powers of attorney (See Signature Page).
27.1 Financial data schedule.
1. Filed as an exhibit to the Company's registration statement on Form S-1,
File No. 333-14289, and incorporated herein by reference.
2. Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995 and incorporated herein by reference.
3. Filed as an exhibit to the Company's definitive proxy material for its
special meeting of stockholders for November 1996 and incorporated herein
by reference.
4. Filed as an exhibit to the Company's definitive proxy material for its annual
meeting of stockholders for August 1998 and incorporated herein by reference.
5. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 and incorporated herein by reference.
6. Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(d) Reports on Form 8-K
None
18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRANS GLOBAL SERVICES, INC.
Date: March 30, 2000 By:
Joseph G. Sicinski
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the Company
and in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Joseph G. Sicinski as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments to this report, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission.
Signature Title Date
Joseph G. Sicinski President, Chief Executive March 30, 2000
Officer and Director
(Principal Executive Officer)
Glen R. Charles Chief Financial Officer (Principal March 30, 2000
Financial and Accounting Officer)
and Director
Edward D. Bright Director March 30, 2000
James Conway Director March 30, 2000
19
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES PAGE
Report of Independent Certified Public Accounts
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998,and 1997 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-10
Notes to Consolidated Financial Statements F-13
20
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of Trans Global Services, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Trans Global
Services, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Trans
Global Services, Inc. and its subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
February 11, 2000
21
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 9 1 9 9 8
Assets:
Current Assets:
Cash $ 43,141 $ 234,917
Accounts Receivable - Net 2,518,343 3,922,843
Loans Receivable - Officer -0- 5,000
Deferred Tax Asset-Current Portion -0- 144,000
Deferred Loan Costs -0- 82,266
Prepaid Expenses and Other Current Assets 100,865 214,323
---------- ----------
Total Current Assets 2,662,349 4,603,349
---------- ---------
Property and Equipment - Net 162,820 171,123
---------- ---------
Other Assets:
Due from Affiliates* 1,171,673 1,615,035
Customer Lists 2,163,655 2,388,607
Goodwill - Net 678,392 726,968
Deferred Acquisition Costs -0- 235,560
Deferred Tax Asset-Non Current 490,000 578,000
Other Assets 36,373 41,407
Investment in Preferred Stock of Affiliate -0- 2,237,230
---------- --------
Total Other Assets 4,540,093 7,822,807
Total Assets $ 7,365,262 12,597,279
================ ==========
See Notes to Consolidated Financial Statements.
* Arc Networks was not an affiliate at 12/31/99.
F-3
22
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1 9 9 9 1 9 9 8
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 402,735 $ 314,625
Accrued Income Taxes Payable -0- 13,496
Accrued Payroll and Related Taxes and Expenses 359,295 528,574
Loans Payable - Asset-Based Lender 2,056,372 2,647,244
Note Payable - Other -0- 126,767
--------- --------
Total Current Liabilities 2,818,402 3,630,706
--------- --------
Commitments and Contingencies [10] -- --
--------- --------
Stockholders' Equity:
Common Stock $.01 Par Value, 25,000,000
Shares authorized. 1999: 3,819,716 issued
2,669,716 outstanding. 1998: 3,819,716
issued and outstanding 38,197 38,197
Capital in Excess of Par Value 12,887,851 12,887,851
Accumulated Deficit (5,812,506) (3,959,475)
---------- ---------
7,113,542 8,966,573
---------- --------
Less Treasury Stock, at cost
1,150,000 shares - 1999 (2,566,682) -0-
---------- --------
Total Stockholders' Equity 4,546,860 8,966,573
Total Liabilities and Stockholders' Equity $ 7,365,262 $12,597,279
=========== ===========
See Notes to Consolidated Financial Statements.
F-4
23
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 9 1 9 9 8 1 9 9 7
Revenue $ 36,015,273 $ 67,243,713 $ 75,724,759
Cost of Services Provided 33,048,393 61,023,970 69,077,544
---------- ---------- ----------
Gross Profit 2,966,880 6,219,743 6,647,215
---------- ---------- ----------
Operating Expenses:
Selling, General and
Administrative Expenses 4,109,663 5,040,121 4,791,674
Related Party Administrative Expenses -0- 55,000 120,000
Amortization - Intangibles 273,528 273,537 333,995
--------- --------- -------
Total Operating Expenses 4,383,191 5,368,658 5,245,669
--------- --------- ---------
Operating (Loss) Profit (1,416,311) 851,085 1,401,546
--------- --------- ---------
Other Income (Expenses):
Interest Expense (257,039) (516,698) (775,437)
Related Party-Interest Income 119,708 130,000 130,000
Other (Expense) Income ( 67,389) 4,611 ( 8,591)
--------- -------- -------
Total Other Expenses - Net (204,720) (382,087) (654,028)
--------- -------- --------
(Loss)Income before Income
Tax (Expense) Benefit (1,621,031) 468,998 747,518
Income Tax (Expense) Benefit ( 232,000) 336,263 275,363
--------- -------- ---------
Net (Loss) Income $(1,853,031) $ 805,261 $1,022,881
========= =========== ===========
Basic (Loss) Earnings Per Share $ (.61) $ .21 $ .27
Weighted Average Number of Shares 3,047,798 3,819,716 3,819,574
Diluted (Loss) Earnings Per Share:
Incremental Shares from Assumed
Conversion of Options and Warrants -0- 11,500 69,415
--------- ---------- ----------
Weighted Average Number of
Shares Assuming Dilution 3,047,798 3,831,216 3,888,989
Diluted (Loss) Earnings Per Share $ (.61) $ .21 $ .26
See Notes to Consolidated Financial Statements
F-5
24
Trans Global Services, Inc.
Consolidated Statement of Stockholders' Equity
Shares Amounts
Common Stock $.01 Par Value Authorized
50,000,000 shares at December 31, 1997 and
25,000,000 at December 31, 1998 and 1999
Balance - December 31, 1996 3,816,883 38,168
Exercise of Common Stock Options 2,833 29
----------- --------
Balance - December 31, 1997 3,819,716 $38,197
--------- -------
Balance - December 31, 1998 3,819,716 $38,197
----------- -------
Balance December 31, 1999 3,819,716 $38,197
=========== =======
Capital in Excess of Par Value
Balance - December 31,1996 12,879,380
Exercise of Common Stock Options 8,471
----------
Balance - December 31, 1997 12,887,851
----------
Balance - December 31, 1998 12,887,851
----------
Balance - December 31, 1999 12,887,851
==========
Accumulated Deficit
Balance - December 31, 1996 (5,787,617)
Net Income 1,022,881
---------
Balance - December 31, 1997 $(4,764,736)
Net Income 805,261
-----------
Balance - December 31, 1998 $(3,959,475)
Net (Loss) (1,853,031)
-----------
Balance - December 31, 1999 $(5,812,506)
===========
Treasury Stock
Purchase of treasury stock - 1999 1,150,000 $(2,566,682)
--------- -----------
Balance December 31, 1999 1,150,000 $(2,566,682)
========= ===========
See Notes to Consolidated Financial Statements
F-6
25
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
AMOUNT
Deferred Charges
Balance - December 31, 1996 ( 303,473)
Amortization of Deferred Consulting Costs 140,872
--------
Balance - December 31, 1997 ( 162,601)
Amortization of Deferred Consulting Costs 162,601
--------
Balance - December 31, 1998 -0-
--------
Balance - December 31, 1999 -0-
=========
Total Stockholders' Equity
Balance - December 31, 1996 6,826,458
Exercise of Common Stock Options 8,500
Amortization of Deferred Consulting Costs 140,872
Net Income for the Year Ended December 31, 1997 1,022,881
--------
Balance - December 31, 1997 $ 7,998,711
Amortization of deferred Consulting Costs 162,601
Net Income for the Year Ended December 31, 1998 805,261
----------
Balance - December 31, 1998 $ 8,966,573
Purchase of treasury stock (2,566,682)
Net Loss (1,853,031)
----------
Balance - December 31, 1999 $ 4,546,860
==========
See Notes to Consolidated Financial Statements
F-7
26
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 9 1 9 9 8 1 9 9 7
Operating Activities:
Net (Loss) Income $(1,853,031) $ 805,261 $1,022,881
Adjustments to Reconcile Net (Loss) Income
to Net Cash Provided By (Used in)
Operations:
Depreciation and Amortization 345,921 393,364 385,351
Charges from Option Exercise -0- 162,601 140,872
Deferred Acquisition Costs 235,560 -0- -0-
Deferred Offering Costs -0- -0- 320,245
Deferred Loan Costs 82,266 -0- -0-
Deferred Income Taxes 232,000 (367,000) (355,000)
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Assets:
Accounts Receivable-Net 1,404,500 1,547,510 (280,297)
Loan Receivable - Officer 5,000 42,500 ( 5,000)
Prepaid Expenses and Other
Current Assets 113,458 ( 37,970) 53,721
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued
Expenses 88,110 ( 276,989) 308,258
Accrued Payroll and Related
Taxes and Expenses (169,279) ( 887,560) (367,927)
Accrued Payroll Tax Penalties -0- -0- ( 77,000)
Accrued Income Taxes Payable ( 13,496) ( 62,861) 76,357
Accrued Voluntary Settlement Agreement -0- ( 150,000) (150,000)
--------- ---------- --------
Total Adjustments 2,324,040 363,595 49,580
---------- --------- ----------
Net Cash - Operating Activities 471,009 1,168,856 1,072,461
---------- --------- ----------
Forward
See Notes to Consolidated Financial Statements.
F-8
27
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 9 1 9 9 8 1 9 9 7
Net Cash -
Operating Activities Forwarded $ 471,009 $1,168,856 $ 1,072,461
Investing Activities:
Capital Expenditures (64,090) (55,307) (171,288)
Deferred Acquisition Costs -0- (74,915) (160,645)
Repayments from Affiliates 117,410 60,920 -0-
Advances to Affiliates -0- -0- (167,453)
Other, net 5,034 1,825 ( 20,337)
Investments in Preferred Stock
of Affiliate ( 3,500) (136,500) -0-
-------- -------- --------
Net Cash - Investing Activities 54,854 (203,977) (519,723)
---------- ----------- ---------
Financing Activities:
Net Payments to
Asset-Based Lender ( 590,872) (923,584) (120,047)
Deferred Offering Costs -0- -0- (168,938)
Deferred Loan Costs -0- 123,399 -0-
Exercise of Stock Options -0- -0- 8,500
Repayment of Note Payable ( 126,767) (11,463) -0-
--------- --------- ----------
Net Cash -
Financing Activities ( 717,639) (1,058,446) (280,485)
Net(Decrease) Increase in Cash and
Cash Equivalents ( 191,776) ( 93,567) 272,253
Cash and Cash Equivalents
- Beginning of Year 234,917 328,484 56,231
Cash and Cash Equivalents
- End of Year $ 43,141 $ 234,917 $ 328,484
=========== =========== ===========
Supplemental Disclosures of Cash
Flow Information:
Interest $ 257,039 $ 516,698 $ 775,437
Income Taxes $ -0- $ 68,936 $ -0-
Supplementary Disclosure of Non Cash Investing and Financing Activities during
the twelve months ended December 31, 1999.
On May 3, 1999, the Company acquired 1,150,000 shares of Common Stock in
exchange for the Investment in Preferred Stock of an Affiliate, which was held
by the Company in the amount of $2,240,730, and a reduction in Due from
Affiliates in the amount of $325,952.
See Notes to Consolidated Financial Statements.
F-9
28
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Presentation
Trans Global Services, Inc. (the Company or Trans Global"), a Delaware
corporation, operates through two subsidiaries, Avionics Research Holdings,
Inc., formerly known as ARC Acquisition Group, Inc.["Holdings"] and Resource
Management International, Inc. ["RMI"]. The Company is engaged in providing
technical temporary staffing services throughout the United States, principally
in the aerospace industry.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of Trans Global Services, Inc. and its subsidiaries. All intercompany
transactions have been eliminated in consolidation.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents. There
were no cash equivalents at December 31, 1999 and 1998.
Prepaid Expenses and Other Current Assets - Prepaid expenses primarily consist
of approximately $93,000 and $172,000 of prepaid insurance at December 31, 1999
and 1998, respectively.
Property and Equipment - Property and Equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Amortization of leasehold improvements is
provided using the straight-line method over the term of the respective lease or
the useful life of the asset, whichever period is less. Estimated useful lives
range from 3 to 5 years as follows:
Furniture and Fixtures 3 - 5 years
Leasehold Improvements 5 years
Equipment 3 - 5 years
Expenditures for maintenance and repairs, which do not improve or extend the
life of the respective assets are expensed currently while major repairs are
capitalized.
Offering Costs- Deferred offering costs of $ 169,000 were incurred in 1997 with
respect to a proposed public offering which was not completed in 1997. These
costs were expensed to selling, general and administrative expenses in 1997.
F-10
29
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Deferred Acquisition Costs - Deferred acquisition costs represent legal,
accounting and other costs associated with the planned business acquisitions by
the Company. Since these acquisitions were not completed those costs were
expensed at December 31, 1999.
Revenue Recognition - The Company records revenue as services are provided.
Stock Options and Similar Equity Instruments - On January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options and similar equity instruments [collectively, "Options"] issued to
employees, however, the Company will continue to apply the intrinsic value based
method of accounting for options issued to employees prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees" rather than the fair value based method of accounting prescribed by
SFAS No.123. SFAS No. 123 also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non- employees. Those
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the asset and liability
method is used to determine deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Earnings Per Share- Earnings per share of Common Stock reflects the weighted
average number of shares outstanding for each year. On June 20, 1997, the
Company effected a one-for-six reverse split in its common stock. All share and
per share information in these financial statements gives effect, retroactively,
to such reverse split.
The Financial Accounting Standards Board has issued SFAS No.128, "Earnings Per
Share," which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
have been calculated in accordance with SFAS No. 128.
F-11
30
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
SFAS No. 128 supercedes APB Opinion No.15, "Earnings Per Share," and replaces
its primary earnings per share with a new basic earnings per share representing
the amount of earnings for the period available to each share of common stock
outstanding during the reporting period. SFAS No.128 also requires a dual
presentation of basic and diluted earnings per share on the face of the
statement of operations for all companies with complex capital structures.
Diluted earnings per share reflects the amount of earnings for the period
available to each share of common stock outstanding during the reporting period,
while giving effect to all dilutive potential shares of common stock that were
outstanding during the period, such as common stock that could result from the
potential exercise or conversion of securities into common stock.
The computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidulutive
effect on earnings per share (i.e. increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon the exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants.
Securities that could potentially dilute earnings per share in the future are
disclosed in Notes 13 and 14.
Impairment - The Company reviews certain long-lived assets, including goodwill
and other intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable pursuant
to guidance established in SFAS No. 121, "Accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of." [See Note 5]
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-12
31
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[2] Summary of Significant Accounting Policies [Continued]
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. The
Company does not require collateral or other security to support financial
instruments subject to credit risk. It routinely assesses the financial strength
of its customers and believes that its accounts receivable credit risk exposure
is limited. Such estimate of the financial strength of such customers may be
subject to change in the near term. For each of the years ended December 31,
1999, and 1998, a significant portion of the Company's receivables were derived
from three customers [See Note 12].
Due to the nature of its operations, the Company deposits, on a monthly basis,
amounts in excess of the federally insured limit in financial institutions for
the payment of payroll costs. Such amounts are reduced below the federally
insured limit as payroll checks are presented for payment. Such reduction
generally occurs over three to four business days. At December 31, 1999, the
Company had amounts on deposit with two financial institutions which exceeded
the federally insured limit by approximately $65,000. The Company has not
experienced any losses and believes it is not exposed to any significant credit
risk from cash and cash equivalents.
[3] Accounts Receivable and Loan Payable - Asset Based Lender
Receivables are shown net of an allowance for doubtful accounts of $62,500 at
December 31, 1999 and 1998. The Company is presently in its final stage of its
two-year revolving credit agreement with an asset-based lender. Pursuant to the
credit agreement, the Company can borrow up to 85% of its qualified accounts
receivables at an interest rate of prime plus 3/4% with a maximum availability
of $3,000,000. Additional costs associated with the financing arrangement
include an unused line fee equal to 1/4 of one percent of the unused line and a
monthly fee of $2,000. The borrowings are secured by a security interest in all
of the Company's assets. At December 31, 1999 and 1998, such borrowings were
approximately $2.1 million and $2.6 million, respectively. At December 31, 1999,
the Company was in default of three of its financial covenants in its credit
agreement. These covenants relate to a minimum tangible capital base, a ratio of
cash flow to debt service and profitability. The asset-based lender has agreed
to waive these defaults as of December 31, 1999, provided that the interest rate
is increased to 1 1/2% over the prime rate and a minimum balance of $200,000 is
maintained. The bank's prime rate was 8 1/4% at December 31, 1999. The
asset-based lender has advised the Company that it will not renew the agreement
when it expires on April 23, 2000. The Company is presently negotiating with
several asset-based lenders, although it has not yet reached an agreement with
any successor lender.
F-13
32
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[4] Property and Equipment
Property and equipment at December 31, 1999 and 1998 is as follows:
1 9 9 9 1 9 9 8
Equipment $ 454,214 $ 393,873
Furniture and Fixtures 197,107 196,071
Leasehold Improvements 100,510 97,797
--------- ---------
Totals - At Cost 751,831 687,741
Less: Accumulated Depreciation 589,011 516,618
--------- ---------
Totals $ 162,820 $ 171,123
Depreciation expense charged to operations was $72,393 in 1999, and $78,694 in
1998 and $51,359 in 1997.
[5] Intangibles
The Company acquired its subsidiaries during 1994. As part of the purchase
agreements, the Company acquired customer lists, a restrictive covenant and
goodwill. The intangible assets acquired and the related amortization on the
straight-line method are summarized as follows:
Accumulated Amortization Net of Amortization
Life December 31, December 31,
Years Cost 1999 1998 1999 1998
Customer Lists 15 $3,374,477 $1,210,822 $ 985,870 $2,163,655 $2,388,607
Goodwill 20 $ 971,623 $ 293,231 $ 244,655 $ 678,392 $ 726,968
Goodwill represents the excess of the acquisition costs over the fair value of
net assets of business acquired. Amortization expense is calculated on a
straight-line basis over twenty years. Other intangibles are Customer Lists and
Covenants Not-to-Compete. Customer Lists represent listings of customers
obtained through acquisitions to which the Company can market its services.
Customer Lists are recorded at cost and are amortized on a straight- line basis
over the estimated useful life of fifteen years. The Company reviews Goodwill
and other intangibles to assess recoverability from future operations using
undiscounted cash flows. If the review indicates impairment, the Company will
incur a charge against operations to the extent that carrying value exceeds fair
value. Management has determined that fair value exceeds carrying value as of
December 31, 1999.
F-14
33
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[6] Related Party Transactions
The Company had a management services agreement with a wholly-owned subsidiary
of The Sagemark Companies Ltd., then known as Consolidated Technology Group Ltd.
(Sagemark)pursuant to which the Company paid a monthly fee of $10,000 through
January 1998. Commencing February 1998 such fee was increased to $15,000. The
Company terminated the management services agreement effective April 30, 1998.
In July 1997, a subsidiary of Sagemark sold 258,333 shares of common stock to
the president of the Company for $1.625 per share, which was the market price on
the date of sale. The President issued his five-year non-recourse promissory
note in payment of the shares. In August 1997, a Sagemark subsidiary transferred
to the President a warrant to purchase 83,334 shares of common stock at $7.50
per share. The Sagemark subsidiary and the president also canceled, ab initio,
an option granted by the subsidiary to the president to purchase 133,333 shares
of common stock from at $1.50 per share.
The Company has from time to time made advances to three subsidiaries of
Sagemark [the "Sagemark Subsidiaries"] which are not owned or controlled by the
Company. The aggregate amount of such advances outstanding on December 31,1999
and 1998 was $1,172,000 and $1,615,000, respectively. The Company has recorded
interest income from these subsidiaries of $120,000, $130,000 and $130,000 for
the three years ended December 31, 1999, 1998,and 1997 respectively.
The advances to the Sagemark Subsidiaries include an obligation from Arc
Networks, Inc., (ARC Networks) which is represented by Arc Networks' 10%
installment promissory note due August 31, 2003 in the principal amount of
$1,216,673 (the "Arc Note"), and an obligation from Sagemark with respect to
$325,952. On December 31, 1999, Arc Networks was in default on the Arc Note. The
Arc Note is guaranteed by Sagemark and others. In February 2000, the Company
agreed to extend the maturity date of the Arc Note until April 24, 2000 in
exchange for $15,000 and a transfer to the Company of 50,000 shares of common
stock from Sagemark. At December 31, 1999, Arc Networks was no longer an
affiliate of the Company.
On May 3, 1999, Sagemark, through a subsidiary, transferred 1,150,000 shares of
the Company's common stock to the Company in consideration of the cancellation
of shares of Sagemarks Series G 2% Cumulative Redeemable Preferred Stock owned
by the Company, including accrued dividends, and certain other obligations due
to the Company. The transfer of the 1,150,000 shares to the Company reduced
Sagemark's holdings in the Company to 379,994 shares, or approximately 14.2% of
its outstanding common stock. Prior to the transfer, Sagemark owned 40.1% of the
Company's outstanding common stock. The effect of this transaction is the
elimination of the investment in preferred stock of affiliate and the reduction
of the amount due from affiliates by $325,952, and an increase in Treasury Stock
of approximately $2.6 million, which resulted in a reduction in stockholders
equity for the same amount.
F- 15
34
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENT
[7] Note Payable - Other
At December 31, 1998, a note payable to former stockholders of an acquired
subsidiary due September 1996 with interest at 7% remained outstanding. The
payment of principal and interest on this note was suspended until the outcome
of the Government Printing Office contingency was resolved. The note was paid in
full by December 31, 1999.
[8] Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's net
deferred tax asset as of December 31, 1999 and 1998 are as follows:
December 31,
1999 1998
Deferred Tax Liabilities $ -- $ --
-------- ---------
Deferred Tax Assets:
Allowance for Doubtful Accounts not
Currently Deductible 25,000 25,000
Net Operating Loss Carryforwards 1,748,000 1,296,000
---------- ---------
Totals 1,773,000 1,321,000
Valuation Allowance 1,283,000 599,000
--------- ---------
Net Deferred Tax Asset 490,000 722,000
Net Deferred Tax Asset - Current Portion -0- 144,000
--------- ---------
Net Deferred Tax Asset - Non Current $ 490,000 $ 578,000
The Company has recorded a net deferred tax asset of $490,000 at December 31,
1999. The realization of the net deferred tax asset is dependent on the Company
generating sufficient taxable income in future years. Although realization is
not assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
The Company's deferred tax asset valuation allowance was $1,283,000 and $599,000
as of December 31, 1999 and 1998, respectively. The valuation allowance
represents the tax effects of net operating loss carryforwards and other
temporary differences which the Company does not expect to realize. The increase
(decrease) in the valuation allowance amounted to $684,000 and $(553,000) for
the years ended December 31, 1999 and 1998, respectively.
F-16
35
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The current and deferred income tax components of the provision [benefit] for
income taxes consist of the following:
Years ended December 31,
1999 1998 1997
----- ---- -----
Current:
Federal $ -0- $ 149,009 $ 227,080
State -0- 49,965 79,637
Tax Benefit of Net Operating
Loss Carryforwards -0- (168,237) (227,080)
-------- ------- -------
Totals $ -0- $ 30,737 $ 79,637
Deferred:
Federal $ 181,424 $(286,994) $ (277,610)
State 50,576 ( 80,006) ( 77,390)
--------- --------- --------
Totals $ 232,000 $(367,000) $ (355,000)
-------- ---------- --------
Totals $ 232,000 $(336,263) $ (275,363)
========== ========== ========
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
Years Ended December 31,
1999 1998 1997
---- ---- ----
Federal Statutory Rate (34%) 34% 34%
State Income Taxes, net of
federal tax ( 7%) 7% 7%
Federal tax benefit of net operating
loss carryforwards -0- (32%) (30%)
(Decrease )Increase in valuation allowance 55% (81%) (48%)
----- ----- -----
Effective tax rate 14% (72%) (37%)
===== ===== =====
The following summarizes the operating loss carryforwards by year of expiration:
Amount Expiration Date
$ 80,000 December 31, 2009
2,163,000 December 31, 2010
189,000 December 31, 2011
438,000 December 31, 2012
1,500,000 December 31, 2014
---------
$4,370,000
==========
F-17
36
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[9] Commitments
The Company leases office space and several office machines under operating
leases which expire in 2002. The following is an analysis of future minimum
lease commitments as of December 31, 1999:
1999 202,802
2000 174,066
2001 155,660
2002 14,955
2003 -0-
--------
Total $ 547,483
Rent expense amounted to $202,802, $225,198 and $211,503 for the years ended
December 31, 1999, 1998 and 1997, respectively.
[10] Contingencies
In November 1997, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Ralph Corace against RMI seeking damages of
approximately $1.1 million for an alleged breach of contract by us. Mr. Corace
was the president of Job Shop Technical Services, Inc., from which we, through
one of our present subsidiaries, purchased assets in November 1994. We believe
that the action is without merit, we are contesting this matter and we have
filed counterclaims against Mr. Corace.
In December 1999, an action was commenced in the Supreme Court of the State of
New York, County of Suffolk, by Vero International, Inc. against Trans Global
Services, Inc. seeking damages of approximately $45,000 for goods sold and
delivered for an agreed price and for reasonable value. We believe that we have
valid defenses to the claims.
Due to the uncertainties in the legal process it is reasonably possible that
management's view of the outcome of the above matters may change in the near
term.
[11] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted SFAS No. 107, which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed therein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences or realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
December 31, 1999 and 1998:
Carrying Amount Fair Value
December 31, December 31,
1 9 9 9 1 9 9 8 1 9 9 9 1 9 9 8
Investment in Preferred Stock
of Affiliate $ -0- $2,237,230 $ -0- $2,237,230
Debt Maturing Within One Year $2,056,372 $2,774,011 $2,056,372 $2,774,011
- ---------------------------
F-18
37
TRANS GLOBAL SERVICES,INC.
NOTES TO FINANCIAL STATEMENTS
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short-term debt, it was assumed that the carrying
amount approximated fair value because of the near term maturities of such
obligations. The investment in preferred stock of affiliate is based upon the
fair value of the guarantee of fair value issued by such affiliate.
[12] Economic Dependency
In 1999, three customers accounted for revenue of approximately $17 million, or
47% of the Company's total revenue. Accounts receivable of $670,000 were due
from these customers collectively at December 31, 1999. In 1998, three customers
accounted for approximately $40 million, or 60% of the Company's total revenue.
Accounts receivable of $1,720,000 were due from these customers collectively at
December 31, 1998. In 1997, three customers of the Company, accounted for
approximately $48 million, or 63% of revenue. Accounts receivable of $2,700,000
were due from these customers collectively at December 31, 1997.
Revenues for the twelve
months ended December 31
1999 1998 1997
Lockheed-Martin 7,300,000 12,200,000 13,200,000
Bell Helicopter Textron 4,900,000
Boeing 4,600,000 16,300,000 19,600,000
Northrop Grumman 11,600,000 15,100,000
--------- ---------- ----------
16,800,000 40,100,000 47,900,000
[13] Stockholders Equity
At December 31, 1999, the authorized capital stock of the Company consisted of
5,000,000 shares of preferred stock, par value $.01 per share, and 25,000,000
shares of common stock, par value $.01 per share. The Board of Directors has the
right to create and to define the rights, preferences and privileges of the
holders of one or more series of Preferred Stock.
At December 31, 1999, 1998 and 1997 there were no shares of any series of
preferred stock outstanding.
F-19
38
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
At December 31, 1999, there were outstanding warrants to purchase 892,312 shares
of Common Stock at prices ranging from $7.50 - $21.00 per share.
A summary of warrant activity is as follows:
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding-Beginning
of Years 901,485 $ 9.07 913,359 $9.36 1,137,434 $13.92
Granted or Sold
during the years -- -- -- -- -- --
Cancelled during
the years -- -- -- -- -- --
Expired during
the years 9,173 50.70 11,874 30.95 224,075 32.51
Exercised during
the years -- -- -- -- -- --
Outstanding-
End of Years 892,312 8.64 901,485 9.07 913,359 9.36
======= ==== ========= ===== ======= =====
Exercisable -
End of Years 816,662 7.50 825,835 7.98 837,109 8.31
======= ==== ========= ===== ======= =====
The following table summarizes warrant information as of December 31, 1999
Weighted Avg. Weighted Avg.
Range of Exercise Price Remaining Exercise
Shares Contractual Life Price
7.50 816,662 1.3 Years 7.50
21.00 75,650 (A) 21.00
-------
892,312
(A) These warrants are exercisable immediately upon issuance and expire 45 days
after a registration statement covering the shares of Common Stock is declared
effective by the Securities and Exchange Commission.
[14] Stock Option Plans
The Company has four stock option plans. In 1993, the Company adopted the 1993
Stock Incentive Plan [the "1993 Plan"], covering an aggregate of 25,000 shares
of Common Stock. In January 1995, the board of directors adopted the 1995 Stock
F-20
39
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
Incentive plan [the "1995 Plan"], pursuant to which stock options and stock
appreciation rights can be granted with respect to 50,833 shares of Common
Stock. In May 1995, the board of directors adopted, and, in March 1996, the
stockholders approved the 1995 Long Term Incentive Plan [the "1995 Incentive
Plan"], initially covering 83,333 shares of Common Stock.
In April and November 1996, the board of directors and stockholders approved an
amendment to the 1995 Incentive Plan which increased the number of shares of
Common Stock currently subject to the 1995 Incentive Plan to 415,388 shares. The
number of shares of common stock subject to the 1995 Incentive Plan
automatically increases by 5% of any shares of Common Stock issued by the
Company other than shares issued pursuant to the 1995 Incentive Plan.
In October 1997, the committee granted incentive stock options to purchase an
aggregate of 216,000 shares of common stock at $3.875 per share, being the fair
market value on the date of grant. Such options were granted to Mr. Joseph G.
Sicinski, president of the Company, who received an option to purchase 90,000
shares of common stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, at that time, who received an option to purchase 25,000 shares of
common stock, one other officer, who received an option to purchase 20,000
shares of common stock and twenty other employees who received options to
purchase an aggregate of 81,000 shares of common stock. All options have a 5
year term.
During 1998, the Company adopted the 1998 Long-Term Incentive Plan (the "1998
Plan"), covering 350,000 shares of common stock. In June 1998, the committee
granted stock options to purchase an aggregate of 215,000 shares of common stock
at $4.00 per share, being the fair market value on the date of grant. In
December 1998, these options were repriced to $1.25 per share of common stock,
the fair market value on that date. All options are fully vested as of December
31, 1998. Such options were granted to Mr. Joseph G. Sicinski, president and CEO
of the Company, who received an option to purchase 60,000 shares of common
stock, two other officers who received options to purchase an aggregate of
40,000 shares of common stock, the chairman of the board received options to
purchase 20,000 shares of common stock, the three other directors of the Company
each received options to purchase 10,000 shares of common stock and seven other
employees who received options to purchase an aggregate of 65,000 shares of
common stock. All options have a five year term.
F-21
40
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
In June 1999, the committee granted stock options to purchase an aggregate of
254,332 shares of common stock at $.80 per share, being the fair market value on
the date of grant.
In December 1999, the board of directors repriced all of the outstanding stock
options held by present employees and directors to $.53, the fair market value
on that date.
No compensation cost was recognized for stock-based employee awards.
A summary of the activity under the Company's stock option plans is as
follows:
1993 1995 1995 1998
Plan Plan Incentive Plan Incentive Plan
Options Outstanding
and Exercisable
- December 31, 1996 18,992 5,833 218,333 --
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 6.75 --
Granted -- -- 216,000 --
Exercised -- -- -- --
Canceled -- -- -- --
Options Outstanding
and Exercisable
- December 31, 1997 18,992 5,833 434,333 --
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 5.39 --
Granted -- -- -- 215,000
Exercised -- -- -- --
Canceled -- -- (141,169) --
Options Outstanding and
Exercisable
- December 31, 1998 18,992 5,833 293,164 215,000
Weighted Average Exercise
Price $ 13.50 $ 5.28 $ 5.39 $ 1.25
Granted -- -- 122,224 132,108
Exercised -- -- -- -0-
Canceled -- -- -- (10,000)
Options Outstanding and
Exercisable
- December 31, 1999 18,992 5,833 415,388 337,108
Weighted Average Remaining
Contractual Life .16 years .08 years 4.42 years 4.0 years
F-22
41
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
The following table summarizes option information as of December 31, 1999
Weighted Avg. Weighted Avg.
Range of Exercise Price Remaining Exercise
Shares Contractual Life Price
.53 337,108 4.0 Years .53
.53 415,388 4.42 Years .53
5.28 5,833 .08 Years 5.28
13.50 18,992 .16 Years 13.50
If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the fair value based method of SFAS No. 123, the
Company would have recorded compensation expense totaling $ 135,441, $168,439,
and $538,460 for the years ended December 31, 1999, 1998 and 1997, respectively,
and the Company's net income (loss) and net income (loss) per share would have
been as follows:
Years ended
December 31,
1 9 9 9 1 9 9 8 1 9 9 7
Net(Loss) Income as Reported $(1,853,031) $ 805,261 $1,022,881
========== ========= ===========
Pro Forma Net(Loss) Income $(1,988,472) 636,822 484,421
========== ========= ===========
Basic (Loss) Earnings
Per Share as Reported $ (.61) .21 .27
========== ========= ===========
Pro Forma Basic (Loss) Earnings
Per Share $ (.65) $ .17 $ .13
========= =========== ============
The fair value of options and warrants [See Note 13] at date of grant was
estimated using the fair value based method with the following weighted average
assumptions:
1999 1998 1997
Expected Life [Years] 4 5 5
Interest Rate 6.4% 4.67% 6.0%
Annual Rate of Dividends 0% 0% 0%
Volatility 120.53% 71.99% 87.61%
The weighted average fair value of options at date of grant using the fair value
based method during 1999, 1998, and 1997 is estimated at $0.44, $0.78 and $2.79
respectively.
[15] Employment Benefit Plans
The Company sponsors a Qualified Retirement Plan under section 401(k) of the
Internal Revenue Code. Employees become eligible for participation after
completing three months of service and attaining the age of twenty-one. The
Company has the option to make a matching contribution to the Plan for the years
ended December 31, 1999, 1998 and 1997, however, it has not made any matching
contributions to the Plan.
F-23
42
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[16] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has had on its agenda a project
to address certain practice issues regarding Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. The FASB plans on
issuing various interpretations of APB Opinion No.25 to address these practice
issues. The proposed effective date of these interpretations would be in the
issuance date of the final Interpretation, which is expected to be in 2000. If
adopted, the Interpretation would be applied prospectively but would be applied
to plan modification and grants that occur after December 15, 1998. The FASB's
tentative interpretations are as follows:
The FASBs tentative conclusions relating to its project addressing certain
practice issues regarding APB Opinion No. 25, Accounting for Stock Issued to
Employees, was to limit the definition of an employee to individuals who met the
common law definition of an employee. Thus, anyone who did not meet this
definition, including outside members of the Board of Directors, would be
excluded from the scope of APB Opinion No.25. Accordingly, the cost of issuing
stock options to outside members of the Board of Directors would have had to be
determined in accordance with FASB Statement No. 123, Accounting for Stock-Based
Compensation, usually resulting in an expense in the period of the grant (the
service period could be prospective, however see EITF 96-18). At its August 11,
1999 Board meeting however, the FASB decided to reverse its prior tentative
conclusion in this regard and to continue to extend APB Opinion No. 25
accounting treatment to options granted to outside directors for their services
as directors. Accordingly, as long as the stock option exercise price is equal
to or greater than the fair value of the underlying stock at the measurement
date (usually date of grant), no expense needs to be recorded for the issuance
of stock options to outside members of the Board of Directors.
The FASB, however, is apparently not reversing itself on requiring companies
that reprice their employee fixed stock options to expense any subsequent
increases in the value of those options (i.e., variable grant accounting).
(17) Subsequent Events
To provide additional working capital, the Company raised $1,000,000 in January,
2000. This money was raised through the issuance of a 10% subordinated
promissory note due 18 months from the date of issuance, or earlier upon the
Companys receipt of payment of the Arc Note. In connection with these notes, the
Company issued warrants to purchase 250,000 shares of the Company's common stock
at $.35 per share to the investors and others who assisted the Company in the
financing.
The Company has utilized $500,000 of the proceeds as a loan to
i-engineering.com, Inc. with an interest rate of 10% for a period of 120 days.
In connection with the loan to i-engineering.com, the Company acquired an equity
interest in i-engineering and agreed to issue 270,000 shares of common stock to
i-engineering.
(18) Subsequent Events - Unaudited
On March 16, 2000, our common stock was delisted from the Nasdaq SmallCap Market
because we failed to hold a stockholders meeting in 1999. Although we have
appealed the decision, we cannot assure you that our common stock will be
relisted on the Nasdaq SmallCap Market. Our common stock may become subject to
the SEC's penny-stock rules, which impose additional sales practice requirements
on broker-dealers which sell our stock to persons other than established
customers and institutional accredited investors. These rules may affect the
ability of broker-dealers to sell our common stock and may affect the ability of
our stockholders to sell any common stock they may own.
F-24
43
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made this 15th day of October 1997, by and among TRANS GLOBAL
SERVICES, INC., (TGS) and its subsidiary companies, Avionics Research
Corporation, Avionics Research Corporation of Fl., and Resource Management
International, Inc., collectively referred to as TGS (hereinafter referred to as
TGS) and Joseph G. Sicinski (hereinafter referred to as the ("Executive').
Whereas, TGS desires to retain the employ of the Executive as the President and
Chief Operating Officer of TGS and Executive is willing to perform the service
hereafter described upon the terms and conditions hereinafter set forth;
Now, therefore, it is mutually agreed as follows:
1.0 TERM:
The Company (TGS) hereby retains the employ of the Executive for a period of
five (5) years commencing as of the date of this Agreement and expires September
15, 2002.
2.0 DUTIES:
2.1 The Executive shall have the title of President and Chief Operating Officer
of TGS.
2.2 The Executive shall have and exercise such duties, responsibilities,
privileges, powers, and authority as are established by statute, as are set
forth in TGS by-laws and corporate minutes and as may be assigned to him by
TGS's Board of Directors; provided that such duties are reasonably consistent
with the Executive's education, experience and background.
2.3 The Executive agrees to devote substantially all of his business time,
attention, skill and efforts to the business conducted by TGS. The Executive
shall report to the Board of Directors of TGS. 2.4 As a condition of the
employment of the Executive pursuant to this Agreement, TGS agrees that all
decisions relating to distributions or dividends or other major expenditures
must be approved by the Executive as well as by a majority of the Board of
Directors of TGS.
2.5 At all times during the term of this Agreement, the Executive shall perform
his designated duties at TGS offices located in the county of Suffolk in the
State of New York.
3.0 COMPENSATION:
In consideration for the Executive entering into and executing this Agreement
and for providing services hereunder, the Executive shall be entitled to receive
the following compensation plus such additional increases in salary,
compensation or benefits as the Board of Directors may direct:
44
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 2
3.1 A Minimum base annual salary of $ 260,000 per year payable in equal weekly
installments and shall increase annually by the greater of 5% or the increase in
cost of living index.
3.2 In addition to the base salary and annual increases set forth herein, the
Executive shall be entitled to an annual bonus of not less than 5% of the net
income before tax and all non-cash adjustments and expenses including charges
and fees paid to Consolidated Technology Group, Ltd., its subsidiary and
associated companies, for TGS and its wholly or partially owned subsidiaries,
currently owned and acquired during the terms of this Agreement provided that
such annual bonus shall not exceed 200% of Executive's gross income.
3.3 REIMBURSEMENT OF ENPENSES:
The Executive is authorized to incur reasonable expenses for performing his
duties pursuant to this Agreement and TGS shall reimburse him for all actual
expenses, including entertainment, travel and other miscellaneous expenses
reasonably incurred in promoting the business of TGS and in performing his
duties as described herein.
3.4 VACATION:
The Executive shall be entitled to annual vacation time with full pay in
accordance with the TGS's policies but not less than four (4) weeks per year,
which shall be accrued if not utilized in full.
3.5 The Executive shall be provided with a company automobile. Said compensation
shall be made by payment of monthly lease or car loan payment, insurance, gas,
service and maintenance costs. At the end of the lease or loan period and at the
discretion of TGS, the car will be transferred to the Executive at a fair and
reasonable market value or lease buy back value or at the option of TGS will
lease or finance another new car comparable to the initial car provided under
this provision.
4.0 BENEFITS:
4.1 Nothing contained in this Agreement shall be construed to impair or limit
the Executive's rights to participate in all employee benefit plans of TGS of
every nature, and he shall , in fact, be entitled to participate in and be a
member of all such benefits plans in proportion to his total compensation
hereunder. "Benefit plans " shall include:
Holidays
Life Insurance
Hospitalization
Medical and Major Medical (family)
Dental insurance (family)
Stock option (s)
Stock purchase or bonus plans
Retirement programs
45
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 3
4.2 SPECIAL LIFE INSURANCE:
TGS shall maintain at its expense a life insurance policy upon the life of the
Executive in the face amount of $2,000,000; half of which is payable to TGS
($1,000,000) and the remaining ($1,000,000) payable to such beneficiary as the
Executive shall designate from time to time, in writing, and in the absence of
such designation to his estate. Such insurance may be part of such group
insurance as TGS maintains for the benefit of salaried employees generally of
the rank and status of the Executive.
5.0 TERMINATION AND SEVERANCE:
5.1 Nothing herein is intended to prohibit TGS from terminating this Agreement
for serious and willful misconduct on the part of the Executive, provided, that
in the event that the Executive's employment is terminated for cause by TGS,
nevertheless the Executive shall be entitled to receive such benefits under
TGS's employee benefit plans, in which he is a participant, or as are provided
by this Agreement.
5.2 If the employee shall become totally and permanently disabled and is unable
to work by reason of temporary or permanent disability, TGS will continue his
base salary for the full term of this Agreement at the rate as provided above
inclusive of all bonuses and incentives, including full payment of medical and
life insurance for the full term of this Agreement.
5.3 If during the term of this Agreement, TGS's Board of Directors appoints a
person other than the Executive to the position of President currently held by
the Executive at TGS, or to a position with similar duties, powers and
responsibilities, the Executive shall have the night to retire from full-service
from TGS and to render only such part-time consulting and advisory services as
TGS may reasonably request. Any such services and the conditions under which
they shall be performed shall be fully in keeping with the position or positions
the Executive held under this Agreement. The Executive shall continue to be
entitled to receive the full compensation provided for in this Agreement
including salary, bonuses and benefits for the full term of this Agreement.
5.4 Termination at will. The Board of Directors may not terminate the
Executive's employment by TGS or diminish his duties, powers and
responsibilities pursuant to this Agreement without cause as set forth herein.
5.5 Any dispute or difference of opinion between the Executive and TGS as to the
latter's right to terminate this Agreement shall be submitted to and determined
by arbitration in accordance with the provisions of Section 7.4 hereof set forth
below. TGS shall notify the Executive of said actions in writing and provide at
least 30 days to remedy such failures.
46
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 4
5.6 Non-Curable Termination For Cause: Executive's employment with TGS may be
terminated "immediately" for cause if the Executive is determined to (1)
repeatedly have acted dishonestly or engaged in deliberate misconduct; (2)
repeatedly breached a fiduciary trust for the purpose of gaining personal
profit; (3) repeatedly neglected to perform customary duties of his position
after 30 days due written notice of said omission from the President or Board of
Directors; or (4) have been convicted of the commission of a felony.
In the event of termination, the President or Board of Directors is required to
give 10 days notice in writing to the Executive, by certified or registered
mail, mailed to the Executive's last known address and the same notice by
ordinary mail or courier to the Executive's principal office at TGS.
6.0 NOTICE OF CHANGE (S) AND/OR REVISIONS(S):
Any notice, request or other communication required or permitted pursuant to
this Agreement shall be in writing and shall be deemed dully given when received
by the party to whom it shall be deemed dully given when received by the party
to whom it shall be given or three days after being mailed by certified,
registered or express mail, postage prepaid, address as follows:
If to the Company:
TRANS GLOBAL SERVICES, INC.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
If to the Executive:
Joseph G. Sicinski
3 8 Woodhollow Rd.
Great River, N.Y. 11739
Any party may change the address to which communications are to be mailed given
notice of such change on the manner provided above.
7.0 SPECIAL TERMS AND CONDITIONS:
7.1 The Board of Directors of TGS reserves the right to increase the
compensations and benefits specified in this contract at any time hereafter and
no such increase (s) or adjustments(s) shall operate as cancellation of this
Agreement but merely as an amendment hereto.
7.2 REORGANIZATION:
If the Company shall at any time be merged or consolidated substantially all
assets of TGS are transferred to another corporation or entity, the provisions
of this Agreement shall survive any such transaction and shall be binding upon
and inure to the benefit of the corporation resulting from such merger or
consolidation.
47
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 5
7.3 Nothing herein contained shall in any manner modify, imperil or affect
existing or future rights or interests of the Executive to receive any employee
benefits to which he would otherwise be entitled or as a participant in the
present or any future incentive, profit-sharing or bonus plan of TGS providing
for his participation, or in any present or future stock option plan of TGS, to
the extent such plans are applicable generally to salaried employees, it being
understood and agreed that the rights and interests of the Executive to any
employee benefits or as a participant or beneficiary in or under any or all said
plans, respectively, shall not be adversely affected hereby.
7.4 ARBITRATION:
Any controversy or claim arising under this Agreement shall be settled by
binding arbitration in accordance with Rules of the American Arbitration
Association then in effect, and such arbitration shall be held either 'in Nassau
or Suffolk County. This shall be the exclusive remedy for the violation of
either party of the terms of this Agreement. The controversy or claim shall be
submitted to three arbitrators, one of whom shall be chosen by TGS, one of whom
shall be chosen by the Executive, and the third of whom shall be chosen by the
two so selected. The party desiring arbitration shall give written notice to the
other party of its desire to arbitrate the particular matter 'in question,
naming the arbitrator selected by it. If the other party shall fail within a
period of 15 days after such notice shall have been given to reply in writing
naming the arbitrator selected by it, then the party not in default may appoint
an arbitrator to fill the place so remaining vacant. The decision of any two of
the arbitrators shall be final and binding upon the parties hereto and shall be
delivered in writing, signed in triplicate by the concurring arbitrators to each
of the parties hereto. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof.
8.0 MISCELLANEOUS:
8.1 This Agreement shall become effective as of the day and date first above
written.
8.2 The heading or captions of sections or paragraphs are used for convenience
of reference merely and shall be ignored in the interpretation hereof
8.3 As used herein, terms such as "herein:, "hereof', "hereto" and similar
language shall be interpreted to refer to this entire 'instrument as not merely
the paragraph or sentence in which they appear, unless so limited by express
language.
8.4 Neither this Agreement nor any of his rights hereunder may be assigned by
the Executive without the written consent of TGS unless specifically identified
in this Agreement.
8.5 In the event of a suit or claim against the Executive arising out of his
corporate duties, TGS will provide and pay for legal counsel approved by the
Executive, and hold the Executive harmless and indemnify the Executive for any
and all costs, fees, suits, judgments and settlements arising therein.
48
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 6
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
on the day and date first above written:
Trans Global Services, Inc.
Avionics Research Corporation
Avionics Research Corporation of Fl.
Resource Management International, Inc.
by: ______________________________________
LEWIS S. SCHILLER, Chief Executive Officer
by: ______________________________________
Joseph G. Sicinski, Executive
49
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 7
Amendment dated this 23 day of March, 1999, to the employment agreement
(the"Agreement") dated October 15, 1997, between Trans Global Services, Inc., a
Delaware corporation (the "Company") , and its subsidiaries, Avionics Research
Corporation, Avionics Research Corporation of florida and Resource Management
International, Inc., the Company and its subsidiaries being collectively
referred to as "TGS:, and Joseph G. Sicinski ("Executive")
W I T N E S S E T H
WHEREAS, TGS has employed Executive as president and chief operating officer
pursuant to the Agreement; and
WHEREAS, Executive has been elected as TGS' chief executive officer, and
WHEREAS, the parties desire to extend the term of Executive's employment
pursuant to the Agreement and to provide for certain benefits to him in the
event of a change of control;
WHEREFORE, the parties do hereby agree as follows:
1. Paragraph I.0 of the Agreement is hereby amended to extend the terms of
Executive's employment until September 30, 2005.
2. Executive shall hold the positions of president and chief executive officer.
3. The following provisions shall be applicable in the event of a change of
control of the Company.
(a) (i) In the event of a Change of Control Termination, as hereinafter defined,
the Company shall: within thirty (30) days after the date of termination of
employment, pay to Executive, as a severancee payment, an amount equal to the
greater of (A) the Severance Payment, as hereinafter defined, or (B) five (5)
times Executive's Aggregate Annual Compensation, as hereinafter defined, in
effect on the Change of Control Date, as hereinafter defined.
(ii) The payment pursuant to this Paragraph 3(a) shall be (A) in lieu of any
other serverance or other payments due to Executive as a result of the
termination of his employment whether under this Agreement or otherwise and (B)
in addition to any compensation, benefits or other payments due to Executive
which were accrued on, or which relate to period prior to, the effective date of
such termination.
(b) As used in this Paragraph 3, the following terms shall have the meanings set
forth below.
(i) A "Change of Control Termination: shall mean any termination by the Company
or by Executive of Executive's employment (other than a termination by the
Company for cause pursuant to Paragraph 5.6 of the Agreement or a termination as
a result of Executive's death) if the effective date of the termination of
employment is within two (2) years after the Change of Control Date.
50
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 8
(ii) The Change of Control Date" shall mean the date on which a Change of
Control Event occurs.
(iii) A "change of Control Event" shall occur if (A) the assets or controlling
stock of TGS are sold to another entity (B) merged with another entity resulting
in TGS not being the surviving company in control, (C) reorganization resulting
in Executive being removed from position of president and chief executive
officer or director, or (D) during any period of two consecutive years,
individuals who, at the beginning of such period, constitute the Company's board
of the directors cease, for any reason, to constitute at Least a majority
thereof unless the election of each new director was nominated or ratified by at
least two-thirds of the directors then still in office who either (x) were
directors at the beginning of such period or (y) were elected by a vote of board
of directors which included the affirmative vote of all of the directors who
were directors at the beginning of the period.
(iv) The "Severance Payment" shall mean an amount equal to Executive's Aggregate
Annual compensation multiplied by the number of years, rounded to the next
highest one-tenth (1/10) of a year, remaining in the Team.
(v) The "Aggregate Annual Compensation" shall mean one (1) year's Salary at the
annual in effect on the date of termination of employment, the Applicable Bonus,
as hereinafter defined, and the cost or value, as the case may be, of the annual
benefits provided to Executive pursuant to Paragraphs 3.4, 3.5, 4.1 and 4.2 of
the Agreement.
(vi) The "Applicable Bonus" shall mean the highest bonus which either (A) was
paid to Executive during the term of this Agreement, (B) was payable pursuant to
the terms of this Agreement, (C) would be payable to Executive pursuant to this
Agreement if the results of the Company's operations through the end of the
month prior to the date of termination of employment were annualized for the
year, or (D) was authorized (but not paid) prior to the Change of Control Date.
(C) (i) Upon the occurrence of a Change in Control Event, the Company shall pay,
and indemnify Executive against, all costs and expenses, including, without
limitation, the reasonable fees and expenses of attorneys, arbitrators, experts
and witnesses, incurred on or on behalf of Executive in connection with any
arbitration or legal claim or proceeding arising from this Agreement or the
interpretation thereof, if Executive is successful, in whole or in part, on the
merits or otherwise, in any such claim or proceeding. If any such claim is
settled either by any payment to Executive or by any reduction in the amount
claimed by the Company against Executive, Executive shall be deemed to have been
successful.
(ii) The company shall advance all such costs and expenses incurred by or on
behalf of Executive in connection with any such claim or proceeding within
twenty (20) days after the receipt by the Company of a statment or statements
51
EXHIBIT 10.1
Employment agreement dated October 15, 1997, between the Company and Joseph G.
Sicinski
Page 9
from Executive requesting such advance or advances from time to time, whether
prior to or after final disposition of such claim or proceeding. Such statement
or statements shall reasonably evidence the costs and expenses incurred by
Executive and shall include or be preceded or accompanied by an undertaking by
or on behalf of Executive to repay any costs and expenses advanced if it shall
ultimately be determined that Executive is not entitled to be indemnified
against such costs and expenses.
4. Except as modified by this Amendment, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the Agreement has been duly executed by the parties on the
day and year first aforesaid.
TRANS GLOBAL SERVICES, INC.
By: Glen R. Charles, Chief Financial Officer
AVIONICS RESEARCH CORPORATION
By: Glen R. Charles, Chief Financial Officer
AVIONICS RESEARCH CORPORATION OF FLORIDA
By: Glen R. Charles, Chief Financial Officer
RESOURCE MANAGEMENT INTERNATIONAL, INC.
By: Glen R. Charles, chief Financial Officer
-------------------------------------
Joseph G. Sicinski
52
EXHIBIT 10.8 RESTATED AGREEMENT
RESTATED AGREEMENT
RESTATED AGREEMENT, dated as of the 21st day of January, 2000, by and between
i-engineering.com, Inc., a Delaware corporation (the "i-engineering"), and Trans
Global Services, Inc., a Delaware corporation (the "Trans Global").
W I T N E S S E T H:
WHEREAS, i-engineering and Trans Global are parties to an agreement (the "Prior
Agreement") dated as of January 21, 2000, and they desire to amend and restate
the Prior Agreement as of such date; and
WHEREAS,i-engineering has requested Trans Global to make a loan (the "Loan") of
five hundred thousand dollars ($500,000) on the terms and conditions set forth
in this Agreement; and
WHEREAS, in order to induce Trans Global to make the Loan, i-engineering has
agreed to make the representations, warranties and covenants hereinafter set
forth, and to accept the other terms, conditions and provisions hereinafter set
forth; and
WHEREAS, i-engineering desires that Trans Global perform certain services for
i-engineering which i-engineering believes will enhance its business, and Trans
Global is willing to perform such services; and
WHEREAS, Trans Global desires to acquire from i-engineering shares of
i-engineering's common stock, par value $.0001 per share ("i-engineering Common
Stock"); and
WHEREAS, i-engineering desires to acquire from Trans Global shares of Trans
Global's common stock, par value $.01 per share ("Trans Global Common Stock");
and
WHEREAS, i-engineering desires to elect Mr. Joseph G. Sicinski as a director of
i-engineering; and
WHEREAS, Trans Global desires to propose the election of Mr. Naval Kapoor as a
director at its next annual meeting of stockholders;
NOW, THEREFORE, intending to be legally bound, all of the parties hereto agree
as follows:
1. The Loan.
(a) At the Closing, as hereinafter defined, Trans Global shall lend
i-engineering the sum of five hundred thousand dollars ($500,000), which loan is
referred to as the "Loan"; provided, however, that Trans Global may make loans
in advance of the Closing. Each Loan shall be evidenced by i-engineering's 10%
promissory note (the "Note" and collectively, the "Notes") in the form attached
as Exhibit A to this Agreement, appropriately completed on behalf of
i-engineering, dated the date of the advance and in the principal amount of
the Loan.
(b) The Loan shall be made at or prior to a closing (the "Closing") to be held
contemporaneously with the execution of this Agreement at the offices of Trans
Global, 1393 Veterans Memorial Highway, Hauppauge, New York 11788 or at such
other location as may be determined by Trans Global and i-engineering. The date
of the Closing is referred to as the "Closing Date."
53
EXHIBIT 10.8 RESTATED AGREEMENT
2. Issuance of Common Stock.
(a) At the Closing, i-engineering shall issue to Trans Global or its designees
an aggregate of 1,550,000 shares (the "i-engineering Shares") of its
i-engineering Common Stock. Trans Global acknowledges that the Shares constitute
restricted securities, as defined in Rule 144 of the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), and will bear i-engineering's standard investment
legend. The i-engineering Shares are to be issued pursuant to a subscription
agreement between Trans Global and i-engineering dated as of the date of this
Agreement.
(b) As soon as practical after the Closing, but not later than forty five (45)
days after the Closing, Trans Global shall issue to i-engineering an aggregate
of 270,000 shares (the "Trans Global Shares") of Trans Global Common Stock.
i-engineering acknowledges that the Shares constitute restricted securities, as
defined in Rule 144 of the Commission pursuant to the Securities Act, and will
bear Trans Global's standard investment legend.
(c) Trans Global represents and warrants with respect to the i-engineering
Shares, and i-engineering represents with respect to the Trans Global Shares,
that such shares are being acquired for the account of Trans Global or
i-engineering, as the case may be, for investment and not with a view to the
sale of distribution thereof, and that such shares may not be sold or otherwise
transferred except pursuant to an effective registration statement or pursuant
to an exemption to the registration requirements of the Securities Act, and
that, with respect to shares being sold pursuant to an exemption to such
registration requirements other than pursuant to Rule 144 or Rule 144(k) of the
Commission pursuant to the Securities Act, the issuer may require, as a
condition to effecting any such transfer, an opinion of counsel as to the
availability of an exemption. Notwithstanding the foregoing, Trans Global has
advised i-engineering that it has entered it agreements with certain of its
security holders pursuant to which it will transfer to such security holders a
portion of the I-Engineeering Shares issuable to Trans Global.
3. Representations and Warranties of i-engineering. i-engineering represents and
warrants to Trans Global as follows:
(a) i-engineering (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has the power and
authority (corporate and other) to own its properties and to carry on its
business as now being conducted, (ii) is duly qualified to conduct its business
in the State of Connecticut and in each other jurisdiction wherein the conduct
of its business or the ownership of its properties are such as to require such
qualification and the failure to so qualify would have a Material Adverse
Effect, as hereinafter defined, upon its business, prospects or financial
condition, and (iii) has the power to borrow as contemplated by this Agreement
and to execute and perform its obligations under this Agreement and the Note.
i-engineering has no subsidiaries or equity interests in any corporation,
partnership, limited liability company trust or other entity except Vero
Engineering N.V., a Belgian corporation which is more than 99% owned by
i-engineering, and Engineering Software Lab, LLC, a New Jersey limited liability
company which is wholly owned by i-engineering, and Engineering Software Lab PVT
Ltd., an Ahmedabad, India corporation, which is wholly-owned by Engineering
54
EXHIBIT 10.8 RESTATED AGREEMENT
Software Lab, LLC, all of which entities are collectively referred to as the
"Subsidiaries" and each, individually, as a "Subsidiary." A "Material Adverse
Effect," with respect to either party, shall mean a material adverse effect on
the business, operations, assets, operating results, liabilities, property,
employee and customer relations or prospects of such party or any of its
subsidiaries or would impair the rights of the other party under this Agreement
or, in the case of i-engineering, the Notes.
(b) The execution, delivery and performance by i-engineering of this Agreement,
the borrowing made by i-engineering pursuant to this Agreement, the execution
and delivery of the Notes by i-engineering and the issuance of the i-engineering
Shares and the Director Shares, as hereinafter defined, have been duly
authorized by all requisite corporate action. Neither the execution and delivery
of this Agreement and the Notes by i-engineering nor the issuance and delivery
of the i-engineering Shares or the Director Shares will violate (i) any
provision of law or any governmental rule or regulation applicable to
i-engineering or any Subsidiary or the certificates of incorporation or by-laws
and/or other organizational documents of i-engineering or any Subsidiary, or
(ii) any order of any court or other agency of government binding on
i-engineering or any Subsidiary or any indenture, agreement or other instrument
to which i-engineering or any Subsidiary is a party, or by which i-engineering
or any Subsidiary any of their respectively properties are bound, in either case
where the violation would have a Material Adverse Effect, and will not be in
conflict with, result in a breach of or constitute (with due notice and/or lapse
of time) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of i-engineering or any
Subsidiary. Each of this Agreement and the Note are legal, valid and binding
obligations of i-engineering, enforceable in accordance with their terms.
(c) The i-engineering Shares and the Director Shares have been duly authorized
for issuance and, when issued pursuant to this Agreement, will be duly and
validly authorized and issued, fully paid and non-assessable and not subject to
any preemptive rights or rights of first refusal.
(d) i-engineering has an authorized capital stock consisting of 2,000,000 shares
of preferred stock, par value $.0001 per share, none of which have been issued
or authorized for issuance, and 18,000,000 shares of i-engineering Common Stock,
of which not more than 13,983,332 shares issued and outstanding; 2,400,000
shares are reserved for issuance upon the exercise of options, including a stock
option plan under consideration, excluding the i-engineering Shares and the
Director Shares. Upon issuance of the i-engineering Shares and the Director
Shares there shall be not more than 15,000,000 shares of i-engineering Common
Stock either outstanding or reserved for issuance. Trans Global understands that
additional shares of i-engineering Common Stock may be issued or reserved for
issuance in connection with a proposed private placement by i-engineering.
(e) i-engineering and each Subsidiary has good and marketable title to its
properties and assets, and all such properties and assets are free and clear of
mortgages, pledges, liens, charges and other encumbrances. Neither i-engineering
nor any Subsidiary owns any real property.
55
EXHIBIT 10.8 RESTATED AGREEMENT
(f) All Intellectual Property Rights used by i-engineering and each Subsidiary
in its business, including all Intellectual Property Rights incorporated in its
website, have been developed by i-engineering or a Subsidiary and is owned by
i-engineering or a Subsidiary, subject to no liens or encumbrances, or has been
licensed to i-engineering or a Subsidiary by a third party who has the right to
grant i-engineering or such Subsidiary such license. Neither i-engineering nor
any Subsidiary pays any royalty to anyone with respect to any Intellectual
Property Rights of any kind and description. Neither i-engineering nor any
Subsidiary has granted any person any license, right or interest, including any
security interest or option, with respect to any Intellectual Property Rights.
None of i-engineering's or the Subsidiaries' rights in and to any Intellectual
Proprietary Rights are or will be affected by the consummation of the
transaction contemplated by this Agreement. There has been no claim asserted or
litigation challenging or threatening to challenge the right, title or interest
of i-engineering or any Subsidiary with respect to any of its Intellectual
Proprietary Rights; and no activity, service or procedure conducted by
i-engineering or any Subsidiary infringes or violates any Intellectual Property
Rights of any other party. As used in this Agreement, the term "Intellectual
Property Rights" shall mean all trade names, trademarks, service marks and trade
marks, patents, patent applications, proprietary products, trade secrets,
software, programs, hardware, firmware, middleware, designs, license rights and
all other intellectual property rights, whether or not any of the foregoing are
registered with the United States Patent and Trademark Office, which are owned
by i-engineering or any Subsidiary as of the date of this Agreement or in which
i-engineering or any Subsidiary has any right or interest or are used by
i-engineering or any Subsidiary in the conduct of its business.
(g) There are no actions, suits or proceedings (whether or not purportedly on
behalf of i-engineering or any Subsidiary) pending or, to the knowledge of
i-engineering, threatened against or affecting i-engineering or any Subsidiary
at law or in equity or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which involve any of the transactions contemplated by this
Agreement or the Note or which, if adversely determined against i-engineering or
the Subsidiary, would have a Material Adverse Effect.
(h) Neither i-engineering nor any Subsidiary is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which in any instance or in the
aggregate would have a Material Adverse Effect.
(i) Neither i-engineering nor any Subsidiary is a party to any agreement or
instrument or subject to any charter or other corporate restriction, or to any
judgment, order, writ, injunction, decree or regulation materially and adversely
affecting its business, properties or assets, operations or condition (financial
or otherwise). Neither i-engineering nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party in
any manner which would have a Material Adverse Effect.
56
EXHIBIT 10.8 RESTATED AGREEMENT
(j) To the best of i-engineering's knowledge, i-engineering and the Subsidiaries
are in complete compliance with all of the provisions of ERISA and
i-engineering, the Subsidiaries and each ERISA Affiliate, as hereinafter
defined, have made all payments due with respect to each plan which is subject
to ERISA not later than the date such payments were due, and neither
i-engineering nor any Subsidiary has any liability for any penalties or other
assessments relating to the plans or otherwise under ERISA. No Reportable Event,
as defined in Section 4043(b) of ERISA or the regulations thereunder for which
the thirty (30) days' notice requirement has not been waived by the Pension
Benefit Guaranty Corporation, has occurred with respect to any plan administered
by i-engineering any Subsidiary or any administrator designated by i-engineering
or any Subsidiary or any ERISA Affiliate. There is, and on the Closing Date
there will be, no unfunded liability under any plan. Neither i-engineering, any
Subsidiary nor any ERISA Affiliate has engaged in any prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Internal
Revenue Code, excluding any transactions which are exempt under Section 408 of
ERISA or Section 4975 of the Internal Revenue Code) with respect to any plan
which i-engineering, any Subsidiary or any ERISA Affiliate maintains, or to
which i-engineering, any Subsidiary or any ERISA Affiliate contributes, which
could subject it or any such other person to any material liability. There are
no material actions, suits or claims pending or, to i-engineering's knowledge,
any material actions, suits or claims which could reasonably be expected to be
asserted, against any plan maintained by i-engineering, any Subsidiary or any
ERISA Affiliate, the assets thereof, or against it in connection with any plan.
i-engineering is not a participant in or contributor to any multi-employer
benefit plan. The term "ERISA Affiliate" shall mean any entity that is a member
of a "controlled group of corporations" with, or is under "common control" with,
or is a member of the same "affiliated service group" with i-engineering as
defined in Section 414(b), 414(c) or 414(m) of the Internal Revenue Code. With
respect to Subsidiaries operating outside of the United States, such
Subsidiaries have made all payments and have otherwise fully complied with all
pension and related obligations under applicable law. As used in this Agreement,
the term "to the best of i-engineering's knowledge" or words of like import
shall mean and include (i) actual knowledge and (ii) that knowledge which a
prudent businessperson would reasonably have obtained in the management of such
person's business affairs after making due inquiry and exercising the due
diligence which a prudent businessperson should have made or exercised, as
applicable, with respect thereto. In connection therewith, the knowledge (both
actual and constructive) of i-engineering shall include knowledge of the chief
executive officer, chief operating offer, chief financial officer, president or
any vice president of i-engineering.
(k) No registration with, or consent or approval of, or other action by, any
federal, state or other governmental authority or regulatory body is required in
connection with the borrowing and guarantee contemplated by this Agreement or
the execution, delivery and performance by i-engineering of this Agreement or
the Note. To the best of i-engineering's knowledge, i-engineering and each
Subsidiary possesses all licenses, permits, certificates, approvals and the like
("Licenses") necessary for the lawful operation of its business. All such
Licenses are in full force and effect and there exists no threat (whether formal
or informal) of a revocation or suspension of any of the Licenses.
57
EXHIBIT 10.8 RESTATED AGREEMENT
(l) To the best of i-engineering's knowledge, i-engineering and each Subsidiary
are in compliance with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority applicable to them,
including, without limitation, laws, rules and regulations, relating to
hazardous waste, hazardous substances and materials, asbestos and other
environmental matters, health and safety, employment and labor relations,
pension and employee benefit (including ERISA) and all other laws, rules and
regulations the breach of which or noncompliance with which would have a
Material Adverse Effect. Neither i-engineering nor any Subsidiary has received
any formal or informal notice or advice to the effect that i-engineering or any
Subsidiary has become or may become primarily responsible for any environmental
clean-up and remediation work or any similar obligations or responsibilities
which may be imposed subsequent to the date of this Agreement.
(m) i-engineering and each Subsidiary maintain insurance policies in such
amounts and against such risks and with such insurers, as is necessary to
protect their assets and properties.
4. Representations and Warranties of Trans Global. Trans Global represents to
i-engineering as follows:
(a) Trans Global is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the power and
authority (corporate and other) to own its properties and to carry on its
business as now being conducted.
(b) The execution, delivery and performance by Trans Global of this Agreement
and the issuance of the Trans Global Shares have been duly authorized by all
requisite corporate action. Neither the execution and delivery of this Agreement
by Trans Global nor the issuance and delivery of the Trans Global Shares will
violate (i) any provision of law or any governmental rule or regulation
applicable to Trans Global or the certificate of incorporation or by-law of
Trans Global, or (ii) any order of any court or other agency of government
binding on Trans Global or any indenture, agreement or other instrument to which
Trans Global is a party, or by which Trans Global or any of its properties are
bound, in either case where the violation would have a Material Adverse Effect,
and will not be in conflict with, result in a breach of or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
other instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of Trans
Global. This Agreement is the legal, valid and binding obligation of Trans
Global and enforceable in accordance with its terms.
(c) The Trans Global Shares have been duly authorized for issuance and, when
issued pursuant to this Agreement, will be duly and validly authorized and
issued, fully paid and non-assessable and not subject to any preemptive rights
or rights of first refusal.
(d) Trans Global has provided i-engineering with a copy of (i) Trans Global's
Form 10-K for the year ended December 31, 1998, (ii) Trans Global's Form 10-Q
for the quarter ended September 30, 1999, and (iii) each of Trans Global's Form
8-K filed with the Commission subsequent to December 31, 1998 (collectively, the
"Trans Global SEC Documents"). Trans Global has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
twelve months prior to the date of this Agreement. The Trans Global SEC
58
EXHIBIT 10.8 RESTATED AGREEMENT
Documents, as of their respective dates, complied in all material respects with
the requirements of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder, and, to the best of Trans
Global's knowledge, none of the Trans Global SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. i-engineering is aware
that Trans Global sustained a loss for the year ended December 31, 1999, and
that losses are continuing.
5. Agreement Concerning Directors.
(a) On the Closing Date, i-engineering shall have elected Joseph G. Sicinski as
a director of i-engineering and shall have issued to him 100,000 shares of
i-engineering Common Stock (the "Director Shares") in connection with his
election as a director. i-engineering agrees to elect Mr. Sicinski as a director
until January 31, 2003; provided, that if i-engineering is subject to the proxy
rules under the Securities Exchange Act of 1934, as amended, i-engineering
shall, during such period, include Mr. Sicinski as one of the board of
directors' nominees for election as a director and use its best efforts to have
him elected as a director.
(b) At its next annual meeting of stockholders, Trans Global will include Naval
Kapoor as one of the board of directors' nominees for election as a director.
6. Conditions of Lending. The obligation of Trans Global to make the Loan is
subject to the following conditions precedent:
(a) The representations and warranties of i-engineering set forth in Paragraph 3
of this Agreement shall be true and correct as of the Closing Date.
(b) i-engineering shall be in compliance with all the terms and provisions set
forth in this Agreement on its part to be observed or performed, and no Event of
Default, as defined in the Note, shall have occurred and be continuing and no
event shall have occurred which, with the giving of notice of the passage of
time, would result in an Event of Default.
(c) i-engineering shall have issued and delivered the i-engineering Shares to
Trans Global.
(d) i-engineering shall have elected Joseph G. Sicinski as a director and shall
have issued and delivered the Director Shares to Mr. Sicinski.
(e) i-engineering shall have delivered to Trans Global on the Closing Date the
following documents in form and substance satisfactory to Trans Global, each
dated (except as otherwise set forth below) as of the Closing Date:
(i) The Notes (to the extent not previously delivered) payable to the order of
Trans Global in the form of Exhibit A to this Agreement duly completed and
executed by i-engineering and dated as of the Closing Date.
(ii) The certificate of the chief executive and financial officers of
i-engineering as to the matter set forth in Paragraphs 5(a) and (b) of this
Agreement.
59
EXHIBIT 10.8 RESTATED AGREEMENT
(iii) Copies of following supporting documents:
(A) Copies of the certificate of incorporation of i-engineering certified by the
Secretary of State of the State of Delaware;
(B) Certificate of good standing for i-engineering from the Secretary of State
of the State of Delaware and Connecticut;
(C) Certificates of resolution, incumbency and corporate documents for
i-engineering in form and substance satisfactory to Trans Global;
(D) Copies of the by-laws of i-engineering, certified by the corporate
secretary.
7. Use of Proceeds. i-engineering shall use the proceeds of the Loan only for
working capital purposes. No portion of the proceeds of the Loan shall be used
to pay any of i-engineering's loans, indebtedness or other obligations to its
officers, directors and 5% stockholders, provided, however, that working capital
shall include compensation at annual rates acceptable to Trans Global which are
payable after the Closing Date.
8. Services by Trans Global. Trans Global shall provide i-engineering with
services to assist i-engineering in developing its business. These services
include the use by i-engineering of Trans Global's resume data base to solicit
membership and exposure by Trans Global of i-engineering's program to its client
base and related services to the extent that Trans Global deems such services
reasonable.
9. Registration Rights. Trans Global and any person to which it transfers any of
the i-engineering Shares and i-engineering shall be entitled to the registration
rights set forth in registration rights agreements between the parties with the
same force and effect as if such rights were set forth in this Agreement.
10. Miscellaneous.
(a) Any notice, request, demand, statement, authorization, approval or consent
made hereunder shall be in writing and signed by the party giving such notice,
and delivered personally or sent by overnight courier, mail or messenger against
receipt thereof or sent by registered or certified mail, return receipt
requested, or by facsimile transmission or similar means of communication if
receipt is confirmed or if transmission of such notice is confirmed by mail or
overnight courier service as provided in this Paragraph 10(a). Notices shall be
deemed to have been received on the date of receipt. Notices shall be sent to
the parties as follows:
If to i-engineering: i-engineering.com, Inc.
Four Armstrong Road; Building 2
Third floor
Shelton, Connecticut 06484
Attention of Mr. Naval Kapoor, President and CEO
Fax: (203) 402-0800
60
EXHIBIT 10.8 RESTATED AGREEMENT
With a copy to: Cramer & Anderson LLP
51 Main Street
New Milford, Connecticut 06776
Attention of Mitchell J. Melnick, Esq.
Fax: (860) 355-9460
If to Trans Global: Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
Attention of Mr. Joseph G. Sicinski, President
and CEO
Fax: (516) 724-0039
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Attention of Asher S. Levitsky P.C.
Fax: (212) 953-6899
Any party may, by like notice, change the address, person or fax number to which
notice shall be sent.
(b) All covenants, agreements, representations and warranties made in this
Agreement and in the certificates delivered pursuant to this Agreement shall
survive the making by Trans Global of the Loan and the execution and delivery to
Trans Global of the Note, and shall continue in full force and effect so long as
the Note is outstanding or any amount due thereunder or under this Agreement
remains unpaid.
(c) This Agreement shall be binding upon the parties hereto and their respective
successors and assigns; provided, however, that i-engineering may not assign any
of its rights under this Agreement.
(d) THIS AGREEMENT AND THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS EXECUTED
AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
(e) Neither any failure nor any delay on the part of Trans Global in exercising
any right, power or privilege under this Agreement or the Note shall operate as
a waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise of any other right, power or privilege.
(f) No modification, amendment or waiver of any provision of this Agreement or
the Note, shall in any event be effective unless the same shall be in writing
and signed by Trans Global and the party against whom enforcement of any such
modification, amendment or waiver is sought, and expressly refers to this
Agreement and states that it is a modification, amendment or waiver, as the case
may be, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on
i-engineering in any case shall entitle i-engineering to any other or further
notice or demand in the same, similar or other circumstances.
61
EXHIBIT 10.8 RESTATED AGREEMENT
(g) In case any one or more of the provisions contained in this Agreement or the
Note should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby.
(h) This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which, when taken together, shall
constitute but one instrument.
(i) Paragraph headings used herein are for convenience of reference only and are
not to affect the construction of or be taken into consideration in interpreting
this Agreement.
(j) TRANS GLOBAL AND I-ENGINEERING HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING
IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT OR THE NOTE,
ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR THE NOTE. EXCEPT AS PROHIBITED
BY LAW, I-ENGINEERING HEREBY WAIVES (i) ANY RIGHT TO ASSERT ANY CLAIM IT MAY
HAVE AGAINST TRANS GLOBAL BY WAY OF A COUNTERCLAIM IN ANY ACTION ON THE NOTE AND
(ii) ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES. I-ENGINEERING (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF TRANS GLOBAL HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT TRANS GLOBAL WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT TRANS GLOBAL HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS SET FORTH IN THIS PARAGRAPH 10(j).
(k) All references to any gender shall be deemed to include the masculine,
feminine or neuter gender, the singular shall include the plural, and the plural
shall include the singular.
(l) The parties hereby irrevocably submit to the jurisdiction of any New York
State or Federal court sitting in New York or Suffolk County in any action or
proceeding arising out of or relating to this Agreement, and each of them hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or Federal court. i-engineering
hereby irrevocably waive the defense of an inconvenient forum to the maintenance
of such action or proceeding. Such service may be made by mailing or delivering
a copy of such process to i-engineering at their respective addresses set forth
in Paragraph 10(a) of this Agreement, including, without limitation, copies of
the summons and complaint and any other process which may be served in any such
action or proceeding. i-engineering agree that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any manner provided by law. Nothing
in this Paragraph 10(l) shall affect the right of Trans Global to serve legal
process in any other manner permitted by law or affect the right of Trans Global
to bring any action or proceeding against i-engineering or their respective
property in the courts of any other jurisdictions. Notwithstanding anything to
the contrary contained herein, in no event shall i-engineering commence any
action relating to this Agreement or the Note except in the Federal or New York
State courts located in New York City or Suffolk County, New York.
62
EXHIBIT 10.8 RESTATED AGREEMENT
IN WITNESS WHEREOF, i-engineering and Trans Global have executed this Agreement
or has caused this Agreement to be duly executed by its duly authorized officer,
all as of the day and year first above written.
I-ENGINEERING.COM, INC.
By:_____________________________
By:_______________________________
Naval Kapoor, President and CEO
TRANS GLOBAL SERVICES, INC.
By:_____________________________
Joseph G. Sicinski, President and CEO
63
EXHIBIT 10.8 RESTATED AGREEMENT
i-engineering.cOM, INC.
IO% Promissory Note due June 5, 2000
N-3 New York, New York
$300,000 February 4, 2000
FOR VALUE RECEIVED, i-engineering.com, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Trans Global Services, Inc.,
a Delaware corporation ("Holder"), the principal amount three hundred thousand
dollars ($300,000), together with interest at the rate of ten percent (10%) per
annum, on June 5, 2000, subject to earlier prepayment as hereinafter provided.
If payment of this Note is due is on a day on not a business day, such payment
shall be made on the next day which is a business day. A business day shall mean
a day other than a day on which banks in the City of New York are permitted or
required to be closed. Payments of principal and interest shall be made in
lawful money of the United States of America. This Note is one of a series of
the Company's 10% promissory notes (collectively, the "Notes") in the maximum
aggregate principal amount of five hundred thousand dollars ($500,000) issued
pursuant to a loan agreement dated January 21, 2000 between the Company and the
Holder.
Article 1. Particular Covenant
(a) Principal and Interest. The Company will duly and punctually pay the
principal amount of this Note and the interest thereon at the time and in the
manner specified in this Note.
(b) Prepayment Under Certain Conditions.
(i) In the event of a Financing Event, as hereinafter defined, the full payment
of principal and interest on this Note shall become immediately due and payable
on the date of the Financing Event.
(ii) A Financing Event shall mean the first to occur of (A) the date the Company
receives gross proceeds (prior to commissions and expenses) of at least
$5,000,000 from a private placement or public offering of its securities, or (B)
the date the Company obtains bank or other debt financings (other than this
Note) or credit lines or other credit facility or facilities of at least
$750,000.
Article 2. Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this Note,
together with interest thereon shall, on written notice from the Holder,
forthwith become and be due and payable if any one or more Events of Default
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the due and punctual payment of the principal of
any of the Notes when and as the same shall become due and payable whether at
maturity or otherwise;
64
EXHIBIT 10.8 RESTATED AGREEMENT
(ii) if failure shall be made in the due and punctual payment of any installment
of interest on any of the Notes when and as the same shall become due and
payable, and such failure shall have continued for five (5) days from the date
such payment is due;
(iii) if the Company shall consent to the appointment of a receiver, trustee or
liquidator of itself or of a substantial part Of its Property, or shall make a
general assignment for the benefit of creditors, or shall file a voluntary
petition in bankruptcy, or an answer seeking reorganization in a proceeding
under any bankruptcy law (as now or hereafter in effect) or an answer admitting
the material allegations of a petition filed against the Company, voluntary
petition, answer or consent, seek relief under the pro in any such proceeding,
or shall by visions of any other now existing or future bankruptcy or other
similar law providing for the reorganization or winding up of corporations, or
an arrangement, composition, extension or adjustment with its or their
creditors, or shall, in a petition in bankruptcy filed against it or them be
adjudicated a bankrupt, or the Company or its directors or the holders of a
majority of its equity interest shall vote to dissolve or liquidate the Company;
(iv) if a court of competent jurisdiction shall enter an order, judgment or
decree appointing, without consent of the Company, a receiver, trustee or
liquidator of the Company or of all or any substantial part of the property of
the Company, or approving a petition filed against the Company seeking a
reorganization or arrangement of the Company under the Federal bankruptcy laws
or any other applicable law or statute of the United States of America Or any
State thereof, or any substantial part of the property of the Company shall be
sequestered; and such order, judgment or decree shall not be vacated or set
aside within ninety (90) days from the date of the entry thereof, or
(v) if, under the provisions of any law for the relief or aid of debtors, any
court of competent jurisdiction shall assume custody or control of the Company
or of all or any substantial part of the property of the Company and such
custody or control shall not be terminated within ninety (90) days from the date
of assumption of such custody or control.
(b)Rights of Note Holder. Nothing in this Note shall be construed to modify,
amend or limit in any way the right of the holder of this Note to bring an
action against the Company in the event the Company shall fail to pay principal
of or interest on this Note when due.
Article 3. Miscellaneous
(a) Transferability. No transfer of this Note shall be effective unless such
transfer is made in compliance with all applicable Federal and state securities
laws and the Holder shall provide to the Company an opinion of counsel, which
counsel and opinion shall be reasonably acceptable to the Company, as to the
exemption from the registration requirements of the Securities Act of 1933, as
amended, and applicable state securities laws. The Company shall be entitled to
treat as the owner of this Note only the person shown as the Holder on its books
and records, regardless of whether the Company has any contrary knowledge.
65
EXHIBIT 10.8 RESTATED AGREEMENT
(b)WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE PAYMENT OF THIS
NOFE-, THE COMPANY AND, BY THE ACCEPTANCE OF THIS NOTE, THE HOLDER, WAIVES TRIAL
BY JURY.
(c)WAIVER OF ANY RIGHT OF COUNTERCLAIM. EXCEPT AS PROHIBITED BY LAW, TH COMPANY
HEREBY WAIVES ANY RIGHT TO ASSERT ANY CLAIM IT MAY HAVE AGAINST THE LENDER WAY
OF A COUNTERCLAIM IN ANY ACTION ON THIS NOTE
(d)Right of Prepayment . The Company may prepay the Notes at whole at any time
or in part from time to time, on not less than three nor more than 20 days'
written notice without payment of any of payment. penalty or premium. Any
prepayment shall be accompanied by payment of accrued interest to the date of
payment.
(e) Usury Saving Provision. All Payment obligations arising under this Note are
subject to the express condition that at no time shall the Company be obligated
or required to pay interest at a rate which could subject the Holder to either
civil or criminal liability as a result of being in excess of the maximum rate
which the Company is permitted by law to contract or agree to pay. If by the
terms of this Note, the Company is at any time required or obligated to pay
interest at a rate in excess of such maximum rate, the applicable rate of
interest shall be deemed to be immediately reduced to such maximum rate, and
interest thus payable shall be computed at such maximum rate, and the port' ion
of all prior interest payments in excess of such maximum rate shall be applied
and shall be deemed to have been payments in reduction of principal.
(f) Notice to Company. Notice to the Company shall be given to the Company at
its principal executive offices, presently located at Four Armstrong Road;
Building 2, Third floor, Shelton, Connecticut 06484, attention of Mr. Naval
Kapoor, president and CEO, or to such other address or person as the Company
may, from time to time, advise the Holder.
(g) Governing Law. This Note shall be governed by the laws of the State of New
York applicable to agreements executed and to be performed wholly within such
State. The Company, and by acceptance of this Note, the Holder, consents to the
exclusive jurisdiction of the United States District Court for the Southern or
Eastern District of New York and Supreme Court of the State of New York in the
County of Suffolk or New York in any action relating to or arising out of this
Note.
(h) Expenses. In the event that the Holder commences a legal proceeding in order
to enforce its rights under this Note, the Company shall pay all reasonable
legal fees and expenses incurred by the holder with respect thereto.
IN WITNESS WHEREOF, the Company has executed this Note on the date and year
first aforesaid.
I-ENGINEERfNG.COM, INC.
By:
Naval Kapoor, President and CEO
66
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
Years ended December 31,
1999 1998 1997
Average shares outstanding 3,047,798 3,819,716 3,819,574
Dilutive effect of stock
options and warrants computed
by use of treasury stock
method -0- 11,500 69,415
Computation of Earnings Per
Share=Net Income/Average
common and common share
equivalent shares ( 1,853,031) 805,261 1,022,881
outstanding 3,047,798 3,831,216 3,888.989
--------- --------- ---------
Earnings Per Share $ (0.61) $ 0.21 $ 0.26