World Surveillance Group Inc (fka WSGI)

[nerd86]

from 10K 2004 original Page 24
We incurred $404,747 of sales commissions for our Centerline operations during
fiscal 2004, compared to none in the prior year, whereas the Centerline
operations began in 2004.
http://www.sec.gov/Archives/edgar/data/919742/000114420405009318/v015203_10ksb.txt
page 53 The Agreement
NOTE 7 - CENTERLINE COMMUNICATIONS, LLC.

Centerline Communications, LLC.

On June 30, 2004, the Company entered into an operating agreement with Carrier
Services, Inc. ("CSI") a Nevada corporation, also a telecommunications company
to operate Centerline Communications, LLC, a wholly-owned subsidiary of the
Company.

The purposes of Centerline and its subsidiaries are to build telecommunications
revenue and client base, utilizing each party's network and financial resources
and to engage in any other business or activity that is necessary and proper to
accomplish the above purposes.

Pursuant to the agreement, the Company is responsible for all costs associated
with the operation and maintenance of the Prepaid Calling Card Platform, all
expenses related to funding, staffing, technical support, customer service,
equipment, and credit facilities. CSI is responsible for all costs and
responsibilities associated with operation of the termination network, providing
network facilities for the termination of carrier traffic, administer and
operate the termination network, including subscriber accounts and tracking of
minutes, all training and salary expenses of its sales personnel, all marketing
expenses connected with the sale of the calling services and all other
organizations related expense in any foreign base operation in which the LLC is
operating.

The agreement provided for minimum selling requirements of $50 million per year
for the LLC. This revenue must be profitable. If the LLC brought in $50 million
at the end of the first year of operation, CSI will receive $1 million of the
company's publicly traded stock. If CSI repeats the $50 million in profitable
revenue in year two, CSI would receive another $1 million of the company's
publicly traded stock. The initial term of the agreement was for two years and
automatically renewable for another two years.

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The parties subsequently modified the agreement to provide for minimum selling
requirements of $25 million for the LLC. This revenue must be profitable. Upon
the LLC achieving in $25 million in profitable revenues, CSI will receive 5
million shares of the company's publicly traded stock.

Due To / From CSI

The required revenues were achieved in January 2005 and CSI became entitled to
the 5 million shares. As of December 31, 2004, the Company recorded $404,707 due
to CSI, computed by applying a ratio, based on the revenues achieved through
December 2004 (approximately $18.4 million) compared to the required $25
million, to the number of shares to be issued recorded at a price $ .11 per
share, the closing market value of the Company's stock as of December 31, 2004.

CSI owed the Company a total of $401,723 as of December 31, 2004, consisting of
the amounts due for accounts receivable collected by CSI on behalf of the LLC
and for accounts receivable, pre-paid expenses and accounts payable assumed by
CSI, and payments made by the Company on behalf of CSI, net of any payments made
by CSI on behalf of the Company.

The Company offset the $404,707 due to CSI against the $401,723 due from CSI, to
result in a net amount due to CSI of $3,024 as of December 31, 2004, which is
included in accounts payable.

In February 2005 the Company issued approximately 1.32 million shares to CSI,
which the Company sold on CSI's behalf, resulting in net proceeds of
approximately $517,000, of which $100,000 was paid to CSI and the remaining
$417,000 is currently held by the Company to collateralize the amounts due to
the Company from CSI.

The Company and CSI mutually decided to conclude their joint business operations
as of February 6, 2005. Upon completion of the parties reconciling and agreeing
upon the final amount due from CSI , whereas it is anticipated that the $417,000
currently being held by the Company will not exceed the final amount due from
CSI to the Company, the $417,000 will be applied against the amount due from
CSI. The remaining amount due to CSI will be paid by the Company and the
remaining approximately 3.5 million shares due to CSI will be issued.

"Partner Incentive and Financing Agreements"

The Company uses the term "partner" in a sense different than the strict legal
definition. Herein, the term "partner" is equivalent to "business associate."
The Company, Centerline and its subsidiaries entered in "Partner Incentive and
Financing Agreements" with various parties ("Partners") in the business of
providing the transmission of wholesale voice and/or data communications
services to domestic and international destinations utilizing a proprietary call
processing platform, technologies, software and other equipment ("Calling
Services") to produce profitable revenues utilizing the Calling Services of the
partners for an initial term of two (2) years.

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The "Partners" shall be compensated on a semi-annual basis with a grant of
equity and cash commissions. These grant and commissions will be paid out by
Centerline, utilizing cash generated by the operations and stock given by the
Company as part of the original agreement between CSI and the Company.

Six (6) months after the date of the agreement, "Partner" will be granted an
option to purchase shares of publicly traded common stock of the Company
("Shares"). The grant shall be calculated pursuant to the terms of the
"Partner's" stock option agreement, which is based on a predetermined stock
strike price for the first six months of operation, and the formula used for the
remaining three periods shall be 75% of the stock price at the grant date.
Vested shares would be exercisable by "Partner" every six (6) months during the
term of the agreement and for a period of thirty (30) days following the
termination of this agreement.

The amount of the stock grant is calculated as follows:

For each $1,000,000 of revenue generated in a 12-month period, "Partner" shall
be entitled to an option for a grant of 25,000 shares of common stock of GTEL.
For each additional $1,000,000 revenues generated after the first $5,000,000,
"Partner" shall be entitled to an option for a grant of 50,000 shares of common
stock of GTEL. In the event that revenues exceed $10,000,000 in the 12-month
period, "Partner" shall receive additional options for a grant of 20,000 shares
of common stock of GTEL for each additional $1,000,000 of revenue generated in
excess of $10,000,000.

The agreement provides for cash incentive bonuses based on revenues generated
pursuant to the parties' agreements. This grant is in addition to the stock
option grant described above. So long as the "Partner" continues to produce
profitable Calling Services revenues during the term of the agreement, and the
"Partner" is not in breach of the parties' agreements, the cash bonus earned
shall be paid as follows:

For each $1,000,000 of revenue generated in a 12-month period, "Partner" shall
be entitled to receive a cash bonus of $15,000. For each additional $1,000,000
revenues generated above the first $5,000,000 revenue, the "Partner" shall be
entitled to receive a cash bonus of $35,000. In the event that revenues exceed
$10,000,000 in the 12-month period, "Partner" shall receive an additional cash
bonus of $20,000 for each additional $1,000,000 of revenue generated above
$10,000,000.

As further inducement for the "Partners" to generate profitable revenues
utilizing their Calling Services, the Company, through Centerline and its
subsidiaries, shall provide accounts receivable financing for customers and
advance payments for vendors while "Partner" retains 100% of its profit margin.
The "Partner" shall provide credit terms to qualified customers of the "Partner"
and the determination of qualified customers shall remain within the sole
discretion of Centerline. Centerline or its subsidiaries shall provide necessary
prepayments to its vendors where required. Prepayment shall preferably take the
form of a letter of credit, or through an established escrow account and/or cash
prepayment. The determination of the nature and amount of vendor prepayment
shall remain within the sole discretion of Centerline. The "Partner" agrees to
repay Centerline for all funds advanced by it for the benefit of "Partner's"
Calling Services customers and/or vendors within the agreed terms.

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Centerline shall acquire equipment necessary to facilitate Calling Services from
"Partner's" customer or to "Partner's" vendors. Equipment purchase shall be
subject to approval of Centerline's management. Centerline will continue to
expand the network to grow its family of vendors during the term of the
agreement and make all Centerline vendors' excess capacity available to
"Partner." "Partner" will be granted the use of Centerline's TDM and/or VoIP
switching facilities. Network use is included in the .00025 per minute fee.
"Partners" agree to sell network directly to Centerline at their best wholesale
price where vendors are not financed/secured by "Partner" pursuant to the
agreement. In addition, Centerline will retain the right to purchase excess
termination provided by "Partners" at "Partner's" cost and Centerline will share
with "Partner" margin generated by Centerline sales utilizing "Partner's"
vendors on a 50/50 basis.

Profit margin on all traffic terminated through "Partner's" network from
"Partner's" customers, less an operating fee of .00025 per minute, shall be paid
to "Partner" on a monthly basis following receipt of payment from "Partner's"
customers. In the event "Partner" customer purchases network from Centerline,
the parties agree that Centerline will share with "Partner" the margin, on a
50/50 basis.

The wholly-owned subsidiaries of Centerline that are subject to the "Partner"
Incentive and Financing Agreements as of the date of this filing are EQ8, LLC, G
Link Solutions, LLC, Volta Communications, LLC, and Lonestar Communications,
LLC. During 2004, only Volta Communications, LLC and Lonestar Communications,
LLC had operations, which are consolidated in the operations of Centerline
above. In conjunction with each "Partner Incentive and Financing Agreement,
Management Agreements" were executed, wherein the "Partners" will provide
general management for the respective subsidiaries of Centerline in connection
with the development, marketing and implementation of the business operations of
Centerline's respective subsidiaries.

The parties agreed any equity compensation "Partners'" are entitled to, if any,
shall be paid from the Company's shares issueable to CSI as described above,
and, furthermore, the cash bonuses, if any, shall also be the obligation of CSI.
However, whereas the anticipated profit margin was not achieved, and the
management fees not paid, the Company believes that no additional compensation
is payable to the "Partners" by CSI or the Company. Furthermore the revenue
generated by the partners was not profitable, as required by the agreements.
Accordingly, no additional amounts were recorded as owing to the "Partners" by
the Company as of December 31, 2004.